Document:

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                                                                    EXHIBIT 10.6

                          INCOME TAX SHARING AGREEMENT

                  THIS INCOME TAX SHARING AGREEMENT ("Agreement"), made this
10th day of April 2001, by and among DEG Acquisitions, LLC, a Delaware limited
liability company ("Holdings") and Dresser, Inc., a Delaware corporation
("Dresser").

                  WHEREAS, Dresser is a wholly-owned subsidiary of Holdings;

                  WHEREAS, Holdings and Dresser are members of an affiliated
group of corporations within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), of which Holdings is the common
parent corporation (the "DEG Group"); and

                  WHEREAS, Holdings and Dresser desire to provide for the
sharing and allocation of income taxes in accordance with this Agreement.

                  NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:

                  1. Filing of Returns.

                  Dresser, on behalf of itself and each of its subsidiaries,
consents to the filing by Holdings of consolidated federal income tax returns
for all taxable periods in which it is eligible to be a member of the DEG Group.
Holdings agrees to file such consents, elections, tax returns and other
documents, and to take such other actions as may be necessary or appropriate to
file a consolidated federal income tax return for each taxable period for which
the DEG Group is required or permitted to file a consolidated federal income tax
return. Any taxable period ending after the date of this Agreement for which
Dresser is included in a consolidated federal income tax return filed by the DEG
Group is referred to herein as a "Consolidated Return Year."

                  2. Sharing and Settlement of U.S. Federal Consolidated Income
Taxes.

                  For all relevant taxable periods, Holdings shall calculate the
consolidated federal income tax liability (including, if applicable, alternative
minimum tax liability) of the DEG Group for such period (the "Group Liability").
If (a) the Group Liability exceeds (b) the corresponding consolidated federal
income tax liability for such period that Holdings would have incurred if
Dresser and its subsidiaries had not been members of the DEG Group, Dresser
shall pay the amount of such excess to Holdings.

                  3. State, Local or Foreign Income Taxes. In the event Holdings
files combined, unitary or consolidated state, local or foreign income tax
returns with Dresser and any of its subsidiaries, the provisions of Sections 1
and 2 hereof shall be applicable as if such combined, unitary or consolidated
income tax returns filed were consolidated federal income tax returns.

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                  4. No Other Tax Sharing Obligations. No tax sharing
obligations between the parties to this Agreement shall arise out of any taxes
other than those taxes referred to in Sections 2 and 3 hereof.

                  5. Subsequent Return Adjustments.

                  In applying the "with and without" calculation referenced in
Section 2 above, the appropriate frame of reference shall be all tax years in
which a consolidated tax return was or is filed.

                  In the event a consolidated federal income tax return or any
combined, unitary or consolidated state, local or foreign income tax return is
amended or adjusted (whether by reason of the filing of an amended return, a
claim for refund, or otherwise), the tax liabilities and benefits of Holdings
and Dresser will be redetermined, adjusted and settled on a basis consistent
with the above provisions.

                  In the event the federal consolidated tax liability or any
combined, unitary or consolidated state, local or foreign income tax liability
is redetermined or adjusted pursuant to an audit or challenge by a taxing
authority, or if a voluntary tax payment is made to limit the accrual of
interest on audit issues, the liability of Holdings and Dresser will be
redetermined by Holdings in its sole discretion, exercised in good faith.
Payments reflecting such redeterminations or adjustments shall be made when (a)
a settlement (evidenced in writing or by the payment of taxes) is entered into
with the taxing authority, (b) a decision of a court having jurisdiction in the
matter becomes final and is not subject to appeal, or (c) Holdings makes a
voluntary tax payment with respect to a consolidated federal income tax return
or any combined, unitary or consolidated state, local or foreign income tax
return.

                  6. Penalties and Interest.

                  If penalties or interest are imposed by the taxing
authorities, or if a voluntary interest payment is made, such payment will be
allocated to and made by each responsible corporation. If any interest from the
taxing authorities is received by any corporation included in the consolidated
returns of DEG Group, such interest shall be allocated by Holdings in its sole
discretion, exercised in good faith, and refunded to the attributable
corporation.

                  7. Billing.

                  All cash settlements of cash liabilities shall take place
between Holdings and Dresser at least ten (10) days prior to the date the
related taxes are payable, whether for estimated taxes or otherwise, and upon
execution of this Agreement for taxes due prior to the date of this Agreement
("Execution Payment"). Late payments (if any) shall bear an annual rate of
interest equal to the statutory rate of interest for the underpayment of taxes
then in effect from the date such payments are due.

                  8. Procedural Matters.

                  So long as any party to this Agreement remains part of the DEG
Group for federal income tax purposes, Holdings will prepare and file the
consolidated returns, along with any

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other documents or statements that are required to be filed with the taxing
authorities for U.S. federal income tax purposes related to consolidated
returns. The parties hereto acknowledge that, with respect to consolidated tax
returns which they have filed or will file, Holdings has the right, in its sole
discretion, to:

                  (a) determine:

                           (i) the manner in which such returns, documents or
                  statements are prepared and filed including, without
                  limitation, the manner in which any item of income gain, loss,
                  deduction or credit shall be reported;

                           (ii) the manner in which the consolidated tax
                  liability will be allocated for the purpose of determining the
                  taxable earnings and profits of each corporation;

                           (iii) whether any extensions may be requested; and

                           (iv) the elections that are made by any corporation
                  included in DEG Group's consolidated returns;

                  (b) contest, compromise or settle any adjustment or deficiency
         proposed, asserted or assessed as a result of any audit of such returns
         by the taxing authorities;

                  (c) file, prosecute, compromise or settle any claim for
         refund; and

                  (d) determine whether any refunds to which Holdings or its
         subsidiaries may be entitled are paid by way of refund or credited
         against the tax liability of DEG Group.

                  Without limiting its rights and obligations, Dresser hereby
irrevocably appoints Holdings as its agent and attorney-in-fact to take such
action (including the execution of documents) as Holdings may deem appropriate
to effect the foregoing.

                  9. Miscellaneous Provisions.

                  (a) Notices. Notices and other communications with respect to
this Agreement shall be in writing and shall be delivered by hand or overnight
courier service, or sent by telecopy. Unless other addresses or telecopy numbers
are specified in writing pursuant to this Section 9(a) to each party to this
Agreement, such notices or other communications shall be sent to the following
addresses or telecopy numbers, as the case may be:

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                  (i)      if to Holdings, to it at:

                           DEG Acquisitions, LLC
                           c/o First Reserve Corporation
                           411 West Putnam Ave., Suite 109
                           Greenwich, CT  06830
                           Attn.: Thomas R. Denison
                           Telephone: (303) 382-1271
                           Telecopy: (303) 382-1275

                  (ii)     if to Dresser, to it at:

                           Dresser, Inc.
                           2601 Beltline Road
                           Carollton, Texas 75006
                           Attn.: Dale Mikus
                           Telephone: (972) 478-5090
                           Telecopy: (972) 478-5088

                  (b) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Each of Holdings and Intermediate Holdings shall cause their
respective affiliates to carry out any obligation of such affiliate specified
herein.

                  (c) Governing Law. The parties hereto hereby agree that this
Agreement shall be construed in accordance with and governed by the laws of the
State of New York, without regard to any other applicable conflict of law
provision.

                  (d) Waivers; Amendment; Modification. Neither this Agreement
nor any provision hereof may be waived, amended or modified, except pursuant to
an agreement or agreements in writing entered into by all the parties hereto.

                  (e) Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof.

                  (f) 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.

                  (g) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which,
when taken together, shall constitute but one contract.

                  (h) Further Actions. The parties will execute and deliver such
further instruments and do such further acts and things (including, without
limitation, by causing their subsidiaries, if any, to do such acts and things)
as may be required to carry out the intent and purposes of this Agreement.

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         IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be executed as of the date first above written.

                                  DEG ACQUISITIONS, LLC

                                  FIRST RESERVE FUND VIII, L.P.,
                                    a Delaware limited partnership, its manager
                                      By: First Reserve GP VIII, L.P.
                                           a Delaware limited partnership, its
                                           general partner
                                          By: First Reserve Corporation,
                                               a Delaware corporation, its
                                               general partner

                                                 By: /s/ THOMAS R. DENISON
                                                    ----------------------------
                                                    Name: Thomas R. Denison
                                                    Title: Managing Director

                                  DRESSER, INC.

                                  By: /s/ FRANK P. PITTMAN
                                     -------------------------------------------
                                     Name:  Frank P. Pittman
                                     Title: Vice President<PAGE>   1
                                                                    EXHIBIT 10.7

                                  DRESSER, INC.
                            2001 STOCK INCENTIVE PLAN

         SECTION 1.        PURPOSE OF PLAN.

         The purpose of this 2001 Stock Incentive Plan (this "Plan") of Dresser,
Inc., a Delaware corporation (the "Company"), is to enable the Company to
attract, retain and motivate its employees, including employee-directors (each
an "Employee"), non-employee directors (each a "Non-employee Director"), and
independent contractors and consultants (each a "Consultant") by providing for
or increasing the proprietary interests of such employees, directors, and
independent contractors and consultants in the Company.

         SECTION 2.        PERSONS ELIGIBLE UNDER PLAN.

         Any employee, director, independent contractor or consultant of the
Company or any of its subsidiaries (including an entity that becomes a
subsidiary after the adoption of this Plan) (each, a "Participant") shall be
eligible to be considered for the grant of Awards (as defined in this Plan)
under this Plan; provided, however, that Incentive Stock Options (as defined
herein) may only be granted to employees of the Company or any "parent
corporation" or "subsidiary corporation" as such terms are defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
respectively.

         SECTION 3.        AWARDS.

         (a) On behalf of the Company, the Committee (as defined in this Plan)
is hereby authorized to enter into any type of arrangement with a Participant
that is not inconsistent with the provisions of this Plan and that, by its
terms, involves or might involve the issuance of shares of the Company's Class A
Common Stock, par value $0.001 per share, or shares of the Company's Class B
Common Stock, no par value (collectively, the "Common Stock"), or is otherwise
based on the performance of such Common Stock. The entering into of any such
arrangement is referred to herein as the "grant" of an "Award" and the date of
entering into such arrangement is referred to as the "Date of Grant."

         (b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, and an Award may consist
of one such security or benefit, or two or more of them in tandem or in the
alternative.

         (c) Awards may be issued, and Common Stock may be issued pursuant to an
Award, for any lawful consideration as determined by the Committee, including,
without limitation, services rendered by the recipient of such Award.

         (d) Any Award shall be granted subject to the terms, conditions and
restrictions contained in an agreement between the Participant and the Company.
Subject to the provisions of this Plan, the Committee, in its sole and absolute
discretion, shall determine all of the terms and conditions of each Award
granted under this Plan, which terms and conditions may include, among other
things:

                  (i) a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company, to pay the
purchase price of the Common Stock or other property

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issuable pursuant to such Award, and such recipient's tax withholding
obligation, if any, with respect to such issuance, in whole or in part, by any
one or more of the following:

                           (A) the delivery of cash;

                           (B) the delivery of other property deemed acceptable
by the Committee;

                           (C) the delivery of shares of capital stock of the
Company;

                           (D) a reduction in the amount of Common Stock or
other property otherwise issuable pursuant to such Award;

                           (E) cancellation of indebtedness of the Company to
the Participant; or

                           (F) the delivery of a promissory note of the
Participant.

                  (ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Award, either automatically or in the discretion of
the Committee, upon the occurrence of specified events, including, without
limitation, the achievement of performance goals, the exercise or settlement of
a previous Award, the satisfaction of an event or condition within the control
of the recipient of the Award or within the control of others, a change in
control of the Company (as defined by the Committee or as set forth in this Plan
or in the agreement evidencing the Award), an acquisition of a specified
percentage of the voting power of the Company, the dissolution or liquidation of
the Company, a sale of substantially all of the property and assets of the
Company or an event of the type described in Section 7 hereof;

                  (iii) provisions specifying the exercise or settlement price
for any Award, or specifying the method by which such price is determined and
any provisions required in order for such Award to qualify (a) as an incentive
stock option (an "Incentive Stock Option") under Section 422 of the Code or (b)
for an exemption from Section 16 of the Securities Exchange Act of 1934, as
amended; and provided further, that the exercise or settlement price for an
Award to any person who owns capital stock of the Company representing more than
10% of the total voting power of all classes of capital stock of the Company
shall not be less than 110% of the Fair Market Value of the Common Stock on the
date the Award is granted;

                  (iv) provisions relating to the exercisability and/or vesting
of Awards, lapse and non-lapse restriction upon shares of Common Stock obtained
or obtainable under Awards and the termination, expiration, and/or forfeiture of
Awards, including without limitation provisions permitting exercise of Awards
before vesting, subject to a repurchase right by the Company (as contemplated by
paragraph (v) below), or other terms and conditions as the Committee may
determine;

                  (v) a right to repurchase the shares of Common Stock acquired
upon exercise of an Award if the Participant's employment or association with
the Company or any of its subsidiaries is terminated for any reason, or in other
circumstances, at any the price as may be prescribed by the Committee, provided
such price is not lower than that contained in the Award. Each certificate
representing Common Stock subject to such provisions shall bear a legend to the
effect that such shares are subject to certain repurchase rights of the Company;
provided, however, that the failure to include such a legend shall not affect
the exercisability of such repurchase right; or

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                  (vi) a provision that upon a termination of employment or
other relationship, the Participant will not be entitled to, or will only have
limited rights to, exercise any Awards or rights therein, whether vested or
unvested, at any time after such termination.

         (e) The agreement for any Award shall provide that, upon acquisition of
any shares of Common Stock pursuant to any Award (whether upon exercise or
conversion of options, warrants or other securities convertible into Common
Stock or otherwise), any Participant who is an employee of the Company or any of
its subsidiaries shall become a party to the stockholder agreement, if any,
between the Company and its stockholders as in effect at the time of such
acquisition of Common Stock and may provide that any other Participant shall
become a party to such stockholder agreement.

         SECTION 4.        STOCK SUBJECT TO PLAN.

         (a) At any time, the aggregate number of shares of Common Stock issued
and issuable pursuant to all Awards (including all Incentive Stock Options)
granted under this Plan shall not exceed seven hundred twenty-two thousand, six
hundred and one (722,601) shares, subject to adjustment as provided in Section 7
hereof.

         (b) Notwithstanding Section 4(a) hereof, the aggregate number of
shares of Common Stock that may be issued pursuant to the exercise of Incentive
Stock Options granted under this Plan shall not exceed six hundred seventy-two
thousand, six hundred and one (672,601) shares, subject to adjustment as
provided in Section 7 hereof; provided, however, that adjustments pursuant to
Section 7 hereof with respect to Incentive Stock Options issued or issuable
under this Plan, shall be limited to those that will not adversely affect the
status of options as Incentive Stock Options, unless the Participant and the
Company otherwise consent to such adjustment.

         (c) For purposes of Section 4(a) of this Plan, the aggregate number of
shares of Common Stock issued and issuable pursuant to Awards granted under this
Plan shall at any time be deemed to be equal to the sum of the following:

                  (i) the number of shares of Common Stock that were issued
prior to such time pursuant to Awards granted under this Plan, other than shares
of Common Stock that were subsequently reacquired by the Company pursuant to the
terms and conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus

                  (ii) the maximum number of shares of Common Stock that are or
may be issuable at or after such time pursuant to outstanding Awards granted
under this Plan prior to such time.

         SECTION 5.        DURATION OF PLAN.

         Any Awards granted under this Plan shall be granted within ten years
from the Effective Date of this Plan (as provided in Section 9 hereof) (the
"Expiration Date"). Although shares of Common Stock may be issued after the
Expiration Date pursuant to Awards made prior to such date, no shares of Common
Stock shall be issued under this Plan after the tenth (10th) anniversary of the
Expiration Date (the "Termination Date").

         SECTION 6.        ADMINISTRATION OF PLAN.

         (a) This Plan shall be administered by either the Board of Directors of
the Company (the "Board") or a committee consisting of two or more directors.
The body administering this Plan, whether the Board or a committee of the Board,
is referred to herein as the "Committee." If the Company

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becomes subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), then the Committee shall consist of two or more directors
each of whom is a "non-employee director" within the meaning of Rule 16b-3
promulgated under the Exchange Act. The Board shall have the discretion to
appoint, add, remove or replace members of the Committee, and shall have the
sole authority to fill vacancies on the Committee. The full Board may take any
action that, pursuant to the terms of this Plan, is reserved for the Committee,
and any such action taken by the full Board shall have the same force and effect
as if the Committee had taken such action.

         (b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following (in each case subject to the specific terms of any Award):

                  (i) adopt, amend and rescind rules and regulations relating to
this Plan;

                  (ii) determine which persons qualify as Participants and to
which of such Participants, if any, and when, Awards shall be granted hereunder;

                  (iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of shares of Common Stock issuable
pursuant thereto and the circumstances under which Awards become exercisable or
vested or are forfeited or expire, which terms may but need not be conditioned
upon the passage of time, continued employment, the satisfaction of performance
criteria, the occurrence of certain events (including events which the Committee
determines constitute a change in control), or other factors;

                  (iv) accelerate the exercisability of an Award or extend the
period during which an owner of an Award may exercise his or her rights under
such Award (but not beyond the Termination Date);

                  (v) determine whether, and the extent to which, adjustments
are required pursuant to Section 7 hereof;

                  (vi) interpret and construe this Plan and the terms and
conditions of any Award granted this Plan; and

                  (vii) determine the terms and conditions of options issued to
a Non-Employee Director.

         (c) All decisions, determinations, and interpretations of the Committee
shall be final and conclusive upon any Participant to whom the Award has been
granted and to any other person holding an Award.

         (d) The Committee may, in the terms of the Award or otherwise,
temporarily suspend the exercisability of an Award and/or the issuance of share
of Common Stock under an Award, and/or the sale or other disposition of shares
of Common Stock acquired pursuant to an Award, if the Committee determines that
securities law or other considerations so warrant.

         SECTION 7.        ADJUSTMENTS.

         If the outstanding shares of Common Stock are increased, decreased or
exchanged for or converted into cash, property or a different number or kind of
securities, or if cash, property or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,

<PAGE>   5

merger, consolidation, recapitalization, restructuring, reclassification,
dividend (other than a regular, quarterly cash dividend) or other distribution,
stock split, reverse stock split or the like, then, unless the terms of such
transaction or this Plan shall provide otherwise, the Committee shall make
appropriate and proportionate adjustments in (a) the number, exercise or
settlement price and type of shares or other securities or cash or other
property, as applicable, that may be acquired pursuant to Incentive Stock
Options and other Awards theretofore granted under this Plan; and (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
this Plan; provided, however, that no adjustment shall be made to the number of
shares of Common Stock that may be acquired pursuant to outstanding Incentive
Stock Options or the maximum number of shares of Common Stock with respect to
which Incentive Stock Options may be granted under this Plan to the extent such
adjustment would result in such options being treated as other than Incentive
Stock Options unless the Company and the Participant both consent to such
adjustment; and provided further, that absent the affirmative consent of the
Committee, no such adjustment shall be made to the extent the Committee
determines that such adjustment would result in the disallowance of a federal
income tax deduction for compensation attributable to such Option by causing
such compensation to be other than performance-based compensation for purposes
of Section 162(m) of the Code.

         SECTION 8.        AMENDMENT AND TERMINATION OF PLAN.

         The Committee may amend or terminate this Plan or any agreement
evidencing an Award under this Plan at any time and in any manner, subject to
the following limitations:

         (a) No such amendment or termination shall deprive the recipient of any
Award theretofore granted under this Plan, without the consent of such
recipient, of any of his or her material rights thereunder or with respect
thereto, provided that no such consent shall be required if the Committee
determines in its sole discretion and prior to the date of a Change in Control
(as defined in Section 12 hereof) that such amendment or alteration is not
reasonably likely to significantly diminish the benefits provided under such
Award, or that any such diminution has been adequately compensated; and

         (b) If an amendment to this Plan would (i) increase the maximum number
of shares of Common Stock that may be issued pursuant to (A) all Awards granted
under this Plan or (B) all Incentive Stock Options granted under this Plan, (ii)
change the class of persons eligible to receive Awards under this Plan, or (iii)
affect this Plan's compliance with applicable provisions of the Code, as amended
from time to time, the amendment shall be subject to approval by the Company's
stockholders to the extent required to comply with Section 422 of the Code and
other applicable provisions of or rules under the Code, as amended from time to
time.

         SECTION 9.        EFFECTIVE DATE OF PLAN.

         This Plan shall be effective as of April 10, 2001, the date upon which
it was approved by the Board; provided, however, that no Common Stock may be
issued under this Plan until it has been approved by the affirmative vote of the
holders of a majority of the outstanding shares of voting capital stock of the
Company, which approval shall be obtained within twelve (12) months after the
date hereof.

         SECTION 10.       DEFINITION OF FAIR MARKET VALUE.

         For purposes of this Plan, "Fair Market Value" shall mean the fair
market value of the applicable class of Common Stock; provided, that for any
Award containing a similar definition, the definition contained in the Award
shall control. If the applicable class of Common Stock is not publicly traded,
fair market value shall be determined by the Committee and may be computed by
any method that the Committee in good faith believes will reflect the fair
market value of the Common Stock on the date of

<PAGE>   6

such determination. If the applicable class of Common Stock is publicly traded,
fair market value shall be the closing sale price per share of the applicable
class of Common Stock, if the applicable class of Common Stock is listed on a
national securities exchange, or if the applicable class of Common Stock is not
then so listed, the closing bid price per share of the applicable class of
Common Stock, on the day in question (or, if such day is not a trading day or if
no sales of the applicable class of Common Stock were made on such day, on the
nearest preceding trading day on which sales of the applicable class of Common
Stock were made), as reported in The Wall Street Journal, or, if trading in the
applicable class of Common Stock is not then reported in The Wall Street
Journal, at such closing sale or bid price as may then appear in what the
Committee in its judgment then deems to be the most nearly comparable listing or
reporting service.

         SECTION 11.       NON-EMPLOYEE DIRECTOR OPTIONS.

         (a) The Committee is authorized under this Plan to grant Non-Employee
Directors options (each a "Non-Employee Director Option") to purchase up to an
aggregate of fifty thousand (50,000) shares, subject to adjustment as provided
in Section 7 hereof.

         (b) Subject to the terms of any Award, each Non-Employee Director
Option granted under this Plan shall expire upon the first to occur of the
following:

                  (i) Twenty-four (24) months after the date upon which the
optionee shall cease to be a director of the Company; or

                  (ii) The tenth (10th) anniversary of the Date of Grant of such
Non-Employee Director Option.

         (c) Each Non-Employee Director Option shall have an exercise price
equal to the greater of (i) the aggregate fair market value on the date of grant
of such option of the applicable class of Common Stock subject thereto or (ii)
the aggregate par value of the applicable class of such Common Stock on such
date.

         (d) Subject to the terms of any Award, all outstanding Non-Employee
Director Options theretofore granted under this Plan shall become fully
exercisable upon the first to occur of the following:

                  (i) the date of stockholder approval of a reorganization,
merger or consolidation of the Company as a result of which the outstanding
securities of the class or classes then subject to this Plan are exchanged for
or converted into cash, property and/or securities not issued by the Company or
by a company whose common equity holders immediately after such transaction
consist only of persons who are holders of the common equity of the Company
immediately before such transaction;

                  (ii) the first date upon which the directors of the Company
who were nominated by the Board for election as directors shall cease to
constitute a majority of the authorized number of directors of the Company;

                  (iii) the dissolution or liquidation of the Company; or

                  (iv) the sale of all or substantially all of the property and
assets of the Company.

         (e) In lieu of any Non-Employee Director Option, the Committee may
grant to Non-Employee Directors offers to purchase shares of Common Stock
immediately, or may make grants of

<PAGE>   7

shares of Common Stock, to such non-employee directors in exchange for their
service on the Board of Directors of the Company.

         SECTION 12.       CHANGE IN CONTROL.

         (a) The Committee shall establish the terms and conditions applicable
to each option or other Award in the event of a Change in Control (as defined in
Section 12(i) hereof). Such terms and conditions may differ among Participants
and among different types of Awards, all as the Committee determines in its sole
and absolute discretion.

         (b) In the case of any unvested shares of Common Stock acquired upon
the exercise of an unvested option, the terms and conditions applicable to any
such unvested shares in the event of a Change in Control shall correspond, in
the manner determined by the Committee in its sole discretion, to the terms and
conditions that apply to the underlying option in the event of a Change in
Control.

         (c) Immediately following the consummation of the Change in Control,
all outstanding options and other Awards shall terminate and cease to be
outstanding, except to the extent assumed by the successor entity (or parent
thereof), or, in the case of a transaction in which the Company is not merged
into another entity and does not become a subsidiary of another entity, the
option remains outstanding following the Change in Control pursuant to
affirmative language to this effect in the Award (in which case the option will
be so converted or remain outstanding, as applicable).

         (d) The Committee may make such modifications to the provisions in this
Sections 12 as it deems appropriate in any agreement evidencing an Award.

         (e) In addition to and not by way of limitation of the Committee's
discretion, the Committee shall have the discretion, exercisable either at the
time an Award is granted or at any time while the Award remains outstanding, to
structure or change one or more Awards so that those Awards shall automatically
accelerate and vest in full or in part (and any repurchase rights of the Company
with respect to shares of Common Stock shall immediately terminate in full or in
part) upon the occurrence of a Change in Control, whether or not those Awards
are to be assumed in the Change in Control.

         (f) In addition to and not by way of limitation of the Committee's
discretion, the Committee shall also have the discretion, exercisable either at
the time the Award is granted or any time while the Award remains outstanding,
to structure or change such Award so that the shares subject to that Award will
automatically vest on an accelerated basis (and any repurchase rights of the
Company with respect to shares of Common Stock shall automatically lapse on an
accelerated basis) by reason of a termination, other than for Cause within a
designated period following the effective date of any Change in Control in which
the Award is assumed. Any Award so accelerated shall remain exercisable for the
fully-vested Common Stock shares until the expiration or sooner termination of
the Award's term.

         (g) The portion of any Incentive Stock Option accelerated in connection
with a Change in Control shall remain exercisable as an Incentive Stock Option
only to the extent the applicable $100,000 limitation in Section 422(d) of the
Code is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a nonqualified
option.

         (h) The grant of Awards under this Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

<PAGE>   8

         (i) For purposes of this Plan, (subject to any definition contained in
Awards granted under this Plan), the term "Change in Control" shall mean (i) any
merger of the Company with or into another person or entity as a result of which
the holders of the Company's then outstanding voting stock immediately prior to
such transaction own, immediately after such transaction, voting stock of the
survivor of such merger (whether the Company or such other entity) or the parent
entity of such survivor constituting less than fifty percent (50%) of the voting
power of such survivor, (ii) the sale of all or substantially all of the
Company's assets to any other person or entity (other than a subsidiary of the
Company), (iii) any other transaction or series of related transactions (other
than as the result of the issuance of newly issued shares of capital stock or
other securities by the Company in circumstances to which clause (i) of this
sentence does not apply) in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, voting stock of the Company constituting less than fifty percent
(50%) of the voting power of the Company, (iv) the dissolution or liquidation of
the Company, (v) a contested election of directors, as a result of which or in
connection with which the persons who were directors of the Company before such
election or their nominees cease to constitute a majority of the Board, or (vi)
any other event specified by the Committee, regardless of whether at the time an
Award is granted or thereafter. Notwithstanding the foregoing, "Change of
Control" shall not include any transaction if as a result of such transaction
either (A) First Reserve Corporation (including the investment limited
partnerships it manages) or Odyssey Investment Partners, LLC, or both, either
(y) together hold a greater percentage of the outstanding voting securities of
the Company than any other stockholder, and retain direct or indirect control of
more than 35% of the outstanding voting securities of the Company, or (z) has
the ability to appoint more than 50% of the members of the Board of Directors of
the Company.

         SECTION 13.       COMPLIANCE WITH OTHER LAWS AND REGULATIONS.

         This Plan, the grant and exercise of Awards thereunder, and the
obligation of the Company to sell and deliver shares under such Awards, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any governmental or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares of
Common Stock prior to the completion of any registration or qualification of the
Shares under any federal or state law or issuance of any ruling or regulation of
any government body which the Company shall, in its sole discretion, determine
to be necessary or advisable.

         SECTION 14.       NO RIGHT TO COMPANY EMPLOYMENT.

         Nothing in this Plan or as a result of any Award granted pursuant to
this Plan shall confer on any individual any right to continue in the employ of
the Company or interfere in any way with the right of the Company to terminate
an individual's employment at any time. The agreement evidencing an Award may
contain such provisions as the Committee may approve with respect to the effect
of approved leaves of absence.

         SECTION 15.       LIABILITY OF COMPANY.

         The Company and any affiliate that is in existence or hereafter comes
into existence shall not be liable to a Participant or other persons as to:

         (a) The non-issuance or sale of shares of Common Stock as to which the
Company has been unable to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of Common Stock hereunder; and

<PAGE>   9

         (b) Any tax consequence to a Participant due to the issuance, exercise,
settlement, cancellation or other transaction involving any Award granted
hereunder.

         SECTION 16.       NON-TRANSFERABILITY OF AWARD.

         Awards granted under this Plan may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be
exercised during the lifetime of a Participant only by him or her. The terms of
Awards granted pursuant to any Participant shall be binding upon the executors,
administrators, heirs, successors and assigns of such Participant.

         SECTION 17.       GOVERNING LAW.

         This Plan and any Awards and agreements hereunder shall be interpreted
and construed in accordance with the laws of the State of Delaware and
applicable federal law.

         IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board, Dresser, Inc. has caused this plan to be duly executed
in its name and behalf by its proper officers thereunto duly authorized as of
this 10th day of April, 2001.

                                       By:
                                          ----------------------------
                                       Name:
                                            --------------------------
                                       Title:
                                             -------------------------

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