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NATCO Group Inc.
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[NATCO GROUP LOGO]
NATCO GROUP INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2004
To the Stockholders of NATCO Group Inc.:
The 2004 Annual Meeting of Stockholders of NATCO Group Inc., a Delaware
corporation, will be held at the Sheraton Houston Brookhollow Hotel, 3000 North
Loop West, Houston, Texas on the 15th day of June 2004 at 9:00 a.m., local time
for the following purposes:
(1) To elect two Class III members to the Board of Directors;
(2) To ratify the appointment of KPMG LLP as independent
accountants for the year ending December 31, 2004;
(3) To approve the NATCO Group Inc. 2004 Stock Incentive Plan; and
(4) To transact such other business as may properly come before
the annual meeting or any adjournment or postponement of the
meeting.
The Board of Directors has fixed the close of business on April 23,
2004 as the record date for determining stockholders entitled to notice of, and
to vote at, the annual meeting and any adjournment or postponement of the
meeting. Stockholders who execute proxies solicited by the Board of Directors of
the company retain the right to revoke them at any time; unless so revoked, the
shares of common stock represented by these proxies will be voted at the annual
meeting in accordance with the directions given therein. IF A STOCKHOLDER DOES
NOT SPECIFY A CHOICE ON SUCH STOCKHOLDER'S PROXY, THE PROXY WILL BE VOTED FOR
THE NOMINEES FOR DIRECTOR NAMED IN THE ATTACHED PROXY STATEMENT, FOR THE
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR THE COMPANY NAMED IN THE PROXY STATEMENT AND FOR THE APPROVAL OF THE 2004
STOCK INCENTIVE PLAN DESCRIBED IN THE PROXY STATEMENT. The list of stockholders
of the company may be examined at the headquarters of the company beginning on
June 4, 2004 or at the annual meeting.
Further information regarding the annual meeting is set forth in the
attached proxy statement.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE,
DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED POSTPAID
ENVELOPE. THE PROXY IS REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AT THE
ANNUAL MEETING AND PREFER TO VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
/s/ Katherine P. Ellis
----------------------------------
Katherine P. Ellis
Senior Vice President, Secretary &
General Counsel
April 24, 2004
[NATCO GROUP LOGO]
NATCO GROUP INC.
2950 N. LOOP WEST, 7TH FLOOR
HOUSTON, TEXAS 77092
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
The following information is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of NATCO Group Inc.
to be voted at the annual meeting of stockholders of the company, which will be
held at the Sheraton Houston Brookhollow Hotel, 3000 North Loop West, Houston,
Texas on the 15th day of June 2004, at 9:00 a.m. local time, for the following
purposes:
1. To elect two Class III members to the Board of Directors;
2. To ratify the appointment of KPMG LLP as independent
accountants for the year ending December 31, 2004;
3. To approve the NATCO Group Inc. 2004 Stock Incentive Plan; and
4. To consider and act upon all other business as may properly
come before the meeting or any adjournment or postponement of
the meeting.
You may revoke your proxy at any time before it is exercised by: (1)
sending a written statement revoking your proxy to the Corporate Secretary of
the company; (2) submitting a properly signed proxy with a later date; or (3)
voting in person at the annual meeting. If you return your signed proxy to us
before the annual meeting, we will vote your shares as you direct. IF YOU DO NOT
SPECIFY ON YOUR PROXY CARD HOW YOU WANT TO VOTE YOUR SHARES, WE WILL VOTE THEM
"FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR AS SET FORTH UNDER "PROPOSAL 1:
ELECTION OF DIRECTORS," "FOR" THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS
INDEPENDENT ACCOUNTANTS AS SET FORTH UNDER "PROPOSAL 2: RATIFICATION OF
APPOINTMENT OF AUDITORS" AND "FOR" THE APPROVAL OF A STOCK INCENTIVE PLAN, AS
SET FORTH UNDER "PROPOSAL 3: APPROVAL OF THE 2004 STOCK INCENTIVE PLAN." If any
other business is brought before the meeting, any unspecified proxies will be
voted in accordance with the judgment of the persons voting those shares.
The company will pay the cost of soliciting proxies pursuant to this
proxy statement. In addition to the use of the mails, proxies may be solicited
by the directors, officers and employees of the company without additional
compensation, by personal interview, telephone, telegram or other means of
electronic communication. Arrangements also may be made with brokerage firms and
other custodians, dealers, banks and trustees, or their nominees who hold the
voting securities of record, for sending proxy materials to beneficial owners.
Upon request, the company will reimburse the brokers, custodians, dealers,
banks, trustees or their nominees for their reasonable out-of-pocket expenses.
NATCO Group Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2003 is being mailed with this proxy statement to all stockholders
entitled to vote at the annual meeting. This report does not constitute a part
of the proxy soliciting material.
This proxy statement and the enclosed form of proxy are being mailed to
stockholders beginning on or about April 29, 2004.
TABLE OF CONTENTS
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS.............................................................................. 3
Required Votes........................................................................................................... 3
Abstentions, Broker Non-votes and Withheld Authority..................................................................... 3
Profit Sharing and Savings Plan Holdings................................................................................. 4
Other Matters............................................................................................................ 4
Stockholder List......................................................................................................... 4
PROPOSALS.................................................................................................................... 4
Proposal 1: Election of Directors........................................................................................ 4
Proposal 2: Ratification of Appointment of Auditors..................................................................... 5
Proposal 3: Approval of the 2004 Stock Incentive Plan................................................................... 5
INFORMATION CONCERNING THE BOARD OF DIRECTORS................................................................................ 7
Nominees for Class III Directors for Three-Year Terms to Expire in 2007.................................................. 7
Continuing Directors..................................................................................................... 7
Determinations of Director Independence.................................................................................. 8
Committees and Board Meetings; Meeting Attendance........................................................................ 8
Compensation Committee Interlocks and Insider Participation.............................................................. 9
Selection of Nominees for the Board of Directors......................................................................... 9
Code of Business Conduct and Ethics...................................................................................... 11
Executive Sessions of the Board of Directors and the Presiding Director.................................................. 11
Stockholder Communications; Reporting Concerns Regarding Accounting Matters.............................................. 11
Obtaining Copies of Governance Documents................................................................................. 11
Audit Committee Report................................................................................................... 11
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS.................................................................. 13
DIRECTOR AND EXECUTIVE COMPENSATION.......................................................................................... 14
Governance, Nominating and Compensation Committee Report Regarding Executive Compensation................................ 14
Director Compensation.................................................................................................... 16
Executive Officer Compensation........................................................................................... 16
Option Grants During 2003............................................................................................. 18
Fiscal Year-End 2003 Option Values.................................................................................... 18
Equity Compensation Plan Information At Fiscal Year-End............................................................... 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................................... 19
Loans to Executive Officers.............................................................................................. 19
Certain Business Relationships........................................................................................... 20
Employment, Termination and Change of Control Arrangements............................................................... 20
PERFORMANCE GRAPH............................................................................................................ 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................................................................... 22
ANNUAL REPORT ON FORM 10-K................................................................................................... 22
STOCKHOLDER PROPOSALS........................................................................................................ 22
Appendix A - NATCO Group Inc. Audit Committee Charter........................................................................ A-1
Appendix B - NATCO Group Inc. 2004 Stock Incentive Plan...................................................................... B-1
2
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has established April 23, 2004 as the record
date for stockholders who are entitled to notice of and to vote at the annual
meeting and any adjournments or postponements thereof. On April 23, 2004, there
were 16,730,853 shares of common stock, par value $.01 per share, and 15,000
shares of Series B Convertible Preferred Stock, par value $.01 per share, issued
and outstanding, which constituted the only outstanding voting securities of
NATCO. Each share of common stock is entitled to one vote. Each share of Series
B Convertible Preferred Stock is entitled to a number of votes equal to the
number of shares of common stock into which the Series B Convertible Preferred
Stock would convert if converted on the record date, April 23, 2003. If
converted on the record date, Series B Convertible Preferred Stock would convert
to an aggregate of 1,921,845 shares of common stock, which equates to 128.123
votes per preferred share. Except as noted below, the holders of shares of
Series B Convertible Preferred Stock and holders of common stock shall vote
together as one class ("Voting Stock") on all matters submitted to a vote of
NATCO's stockholders.
Pursuant to the company's restated certificate of incorporation, as
amended, so long as more than 50% of the Series B Convertible Preferred Stock
remains outstanding, the holders of the Series B Convertible Preferred Stock
have the right, voting separately as a class with one vote per share, to elect
or appoint one director at any annual or special meeting of stockholders or
pursuant to written consent. If we were to default on dividend payments related
to the Series B Convertible Preferred Stock, the holders of the Series B
Convertible Preferred Stock would be entitled to elect a second director, voting
separately as a class with one vote per share. The holders of the Series B
Convertible Preferred Stock have elected Mr. Thomas R. Bates, Jr. to serve as a
director of the company pursuant to this right.
QUORUM
The presence, in person or by proxy, of the holders of a majority of
all the outstanding shares of Voting Stock entitled to vote at the meeting is
necessary to constitute a quorum at the annual meeting or any adjournment or
postponement thereof. However, the absence of a quorum of the holders of common
stock shall not affect the exercise by the holders of Series B Convertible
Preferred Stock of any voting rights they may have as a separate class.
Abstentions and broker non-votes will be counted in determining whether or not
there is a quorum at the annual meeting.
REQUIRED VOTES
A plurality of the shares of Voting Stock present in person or
represented by proxy and entitled to vote at the annual meeting is required for
the election of directors (Proposal 1). Accordingly, the two nominees for
election as directors at the annual meeting who receive the greatest number of
votes cast for election by the holders of record of Voting Stock on April 23,
2004 shall be duly elected directors upon completion of the vote tabulation at
the annual meeting. The affirmative vote of the holders of a majority of the
shares of Voting Stock present in person or represented by proxy and entitled to
vote at the annual meeting is required for ratification of the appointment of
KPMG LLP as the company's independent auditor for the year ending December 31,
2004 (Proposal 2) and for approval of the company's 2004 Stock Incentive Plan
(Proposal 3).
ABSTENTIONS, BROKER NON-VOTES AND WITHHELD AUTHORITY
Abstentions will be included in determining the number of shares of
Voting Stock present at the 2004 stockholders' meeting for the purpose of
determining the presence of a quorum and thus, the number of shares entitled to
vote at the meeting. Therefore, abstentions will have the same effect as a vote
against a proposal, other than the election of directors.
Also, proxies given by brokers will be included in determining the
number of shares of the Voting Stock present at the 2004 stockholders' meeting
for purposes of determining the presence of a quorum, regardless of whether a
proxy given by a broker includes a broker non-vote on a matter. (A broker
non-vote occurs under stock exchange rules when a broker is not permitted to
vote on a matter without instructions from the beneficial owner of the shares
and no instructions are given.) Under the rules of the New York Stock Exchange,
if you hold your shares through a bank or broker, your broker is permitted to
vote your shares on Proposals 1 and 2 being submitted for stockholder approval
at the 2004 stockholders' meeting if the broker does not receive instructions
from you.
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Your broker is not permitted to vote on the NATCO Group Inc. 2004 Stock
Incentive Plan (Proposal 3) unless you provide your broker with voting
instructions. Therefore, if you do not instruct your broker on Proposal 3, this
will have the same effect as a vote against the proposal.
Where a stockholder withholds authority from his or her proxy to vote
on a particular matter, the proxy may not vote such shares on such matter at the
2004 stockholders' meeting. The withholding of a proxy's authority will have no
effect on the outcome of the vote on the election of directors (Proposal 1),
since directors are elected by a plurality of the votes cast at the meeting.
However, because the ratification of the selection of KPMG LLP as the company's
independent accountants (Proposal 2) and approval of the NATCO Group Inc. 2004
Stock Incentive Plan (Proposal 3) require the affirmative vote of a majority of
the shares of the Voting Stock represented at the meeting, the withholding of a
proxy's authority to vote on Proposal 2 or Proposal 3 will have the same effect
as a vote against such proposal.
PROFIT SHARING AND SAVINGS PLAN HOLDINGS
Shares of the company's common stock held through the National Tank
Company Profit Sharing and Savings Plan (the "NATCO 401(k) Plan") will be voted
by the plan trustee, JPMorgan Chase, as directed by the participants in the
plan. If a participant does not provide specific voting instructions, the shares
held by the participant will not be voted by the plan trustee and will not be
considered present for purposes of establishing a quorum.
OTHER MATTERS
If any other matters are properly presented for consideration at the
2004 stockholders' meeting, including, among other things, consideration of a
motion to adjourn the meeting to another time or place in order to solicit
additional proxies in favor of the recommendations of the Board of Directors,
the persons named as proxies and acting thereunder will have discretion to vote
on those matters according to their best judgment to the same extent as the
person delivering the proxy would be entitled to vote. As of the date of this
proxy statement, the company does not anticipate that any other matters would be
raised at the 2004 stockholders' meeting.
STOCKHOLDER LIST
A copy of the list of stockholders entitled to vote at the annual
meeting will be available for inspection by qualified stockholders for proper
purposes at our principal executive offices (2950 N. Loop West, Suite 700,
Houston, Texas 77092) during normal business hours beginning on June 4, 2004 and
at the annual meeting.
PROPOSALS
PROPOSAL 1: ELECTION OF DIRECTORS
Our bylaws provide that the Board of Directors will be composed of
eight members. The board has seven members serving in three classes who are
elected by holders of our Voting Stock, with two members in Class I, three
members in Class II and two members in Class III. Class I, Class II and Class
III directors are elected for terms of three years, currently expiring in 2005,
2006 and 2004, respectively. In addition, the holders of the Series B
Convertible Preferred Stock, voting as a separate class, currently are entitled
to elect one director at an annual or special meeting of stockholders or by
written consent. This director shall continue in office until a successor has
been elected by the holders of the Series B Convertible Preferred Stock or until
less than 50% of such series remains outstanding.
Nathaniel A. Gregory and Herbert S. Winokur, Jr. are nominated for
re-election at the annual meeting to fill the two expiring Class III positions
on the Board of Directors. If elected, they will hold office for three-year
terms expiring at the annual meeting of stockholders in 2007, and until their
respective successors have been duly elected and qualified, or until their
earlier resignation or removal.
In accordance with the company's restated certificate of incorporation,
as amended, and bylaws, the affirmative vote of a plurality of the votes cast by
holders of Voting Stock entitled to vote in the election of directors at the
annual meeting is required for the election of a nominee as director.
Accordingly, although
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abstentions and broker non-votes are considered shares present at the meeting
for the purpose of determining a quorum, they will have no effect on the
election of directors.
The Board of Directors has no reason to believe that the nominees for
election as directors will not be candidates or will be unable to serve, but if
for any reason either nominee is unavailable as a candidate or unable to serve
when the election occurs, the persons designated as proxies in the enclosed
proxy card, in the absence of contrary instructions, will in their discretion
vote the proxies for the election of a substitute nominee selected by the Board
of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES LISTED BELOW UNDER "INFORMATION CONCERNING THE BOARD OF DIRECTORS -
NOMINEES FOR CLASS III DIRECTORS FOR THREE-YEAR TERMS TO EXPIRE IN 2007".
PROPERLY DATED AND SIGNED PROXIES WILL BE SO VOTED UNLESS AUTHORITY TO VOTE IN
THE ELECTION OF DIRECTORS IS WITHHELD.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Audit Committee has appointed KPMG LLP, independent public
accountants, to audit our consolidated financial statements for the year ending
December 31, 2004. KPMG LLP has audited our consolidated financial statements
since 1989. We are advised that no member of KPMG LLP has any direct or material
indirect financial interest in NATCO or, during the past three years, has had
any connection with us in the capacity of promoter, underwriter, voting trustee,
director, officer or employee. Ratification of this appointment shall be
effective upon receiving the affirmative vote of the holders of a majority of
the Voting Stock present or represented by proxy and entitled to vote at the
annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS
APPOINTMENT. IF A STOCKHOLDER DOES NOT SPECIFY A CHOICE ON SUCH STOCKHOLDER'S
PROXY, PROPERLY DATED AND SIGNED PROXIES WILL BE SO VOTED.
In the event the appointment is not ratified, the Audit Committee will
reconsider the appointment of KPMG LLP and may retain that firm or other
independent auditors without re-submitting the matter to our stockholders. Even
if the appointment is ratified, the Audit Committee, in its discretion, may
direct the appointment of a different independent auditor at any time during the
year if it determines that such a change would be in the best interest of the
company and its stockholders. Representatives of KPMG LLP are expected to be
present at the annual meeting and will be offered the opportunity to make a
statement if they desire to do so. The representatives of KPMG LLP also will be
available to answer questions and discuss matters pertaining to the Independent
Auditors' Report contained in the audited financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2003.
PROPOSAL 3: APPROVAL OF THE 2004 STOCK INCENTIVE PLAN
The Board of Directors has adopted the 2004 Stock Incentive Plan (the
"2004 Plan"), subject to stockholder approval. If approved by stockholders, the
2004 Plan will be effective as of April 6, 2004, and options under the new plan
will be granted thereafter while the plan is in effect. As of April 6, 2004, the
company had approximately 1,600 employees, directors and consultants who would
be eligible to participate in the 2004 Plan.
The 2004 Plan will provide a means for us to attract able persons as
directors, employees or consultants of the company and to retain individuals who
provide a present or potential contribution to us. We believe that stock
ownership through the 2004 Plan should strengthen the concern of these
individuals for the welfare of the company and provide additional incentive and
reward opportunities to these individuals to enhance the profitable growth of
the company.
The 2004 Plan shall be administered by the Governance, Nominating and
Compensation, or GNC, Committee of the Board of Directors. The GNC Committee
shall have the authority, in its discretion and subject to the express
provisions of the 2004 Plan, to determine which employees, consultants or
directors shall receive an award, the time or times when such awards shall be
made, the type of award that shall be made, the number of shares to be subject
to each option or restricted stock award, the number of shares subject to or the
value of each performance award and the value of each phantom stock award. In
making these determinations, the committee shall take into account the
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nature of services rendered by the employee, consultant or director, their
present and potential contribution to the company's success and such other
factors as the committee in its discretion shall deem relevant, including
competitive market data on compensation. In addition, the GNC Committee shall
have powers as delegated to it by the 2004 Plan, including to: (a) construe the
2004 Plan and the related agreements; (b) prescribe rules and regulations
related to the 2004 Plan; (c) determine the terms, restrictions and provisions
of the agreement related to each award; and (d) make all other determinations
necessary or advisable for administering the plan. The GNC Committee may correct
any defect or supply any omission or reconcile any inconsistency in the 2004
Plan or in any agreement relating to an award in the manner and to the extent it
shall deem expedient to carry it into effect.
The 2004 Plan provides for the issuance of up to an aggregate of
600,000 shares of common stock through stock option grants, incentive stock
option grants, restricted stock awards, performance awards and phantom stock
awards. Awards to employees, consultants or directors may be in the form of: (a)
options to purchase a specified number of shares of common stock at a specified
price, which may be either incentive stock options intended to comply with
section 424 of the Internal Revenue Code, or nonqualified stock options that do
not comply with section 424; (b) restricted stock awards, whereby common stock
is reserved for an individual for a specified vesting period until certain
forfeiture requirements are met, which may include one or more of the following:
(1) attainment of one or more performance measures; (2) continued employment
with the company for a specified period of time; or (3) occurrence of any event
or satisfaction of any other condition specified by the GNC Committee; (c)
performance awards, whereby an award of a specified number of shares of common
stock may be granted based upon the attainment of certain performance criteria,
which may relate to one or more of the following: (1) the price of the company's
common stock; (2) the company's earnings per share; (3) the company's market
share; (4) the market share of a business unit of the company as designated by
the GNC Committee; (5) the company's sales; (6) a business unit's sales; (7) net
income (before or after taxes) of the company; (8) cash flow return on
investment of the company or a specified business unit; (9) earnings before or
after interest, taxes, depreciation and/or amortization of the company or a
business unit as designated; (10) the economic value added; (11) return on
stockholders' equity achieved by the company; or (12) total stockholders' return
achieved by the company; and (d) phantom stock awards, which are rights to
receive shares of common stock or an amount equal to any appreciation or
increase in the fair market value of common stock over a specified period, which
vest over a period of time as established by the GNC Committee, without
satisfaction of any performance criteria or objectives. Any awards made pursuant
to these arrangements will be governed by an agreement between the individual
and the company, and shall incorporate terms and provisions deemed appropriate
by the GNC Committee. The terms and provisions of these agreements need not be
identical.
The maximum number of shares of common stock that may be subject to
options, restricted stock awards and performance awards denominated in shares of
common stock granted to any one individual during any calendar year may not
exceed 100,000, and the maximum amount of compensation that may be paid under
all performance awards denominated in cash (including the fair market value of
any shares of common stock paid in satisfaction of such performance awards)
granted to one individual during any calendar year may not exceed $1,000,000.
Any payment due with respect to a performance award shall be paid no later than
10 years after the date of grant of such performance award. Compensation
generated under the plan will constitute "performance-based" compensation for
purposes of section 162(m) of the Internal Revenue Code, including, without
limitation, counting against such maximum number of shares, to the extent
required under section 162(m) and applicable interpretive authority, and shares
subject to options that are canceled or repriced.
The 2004 Plan provides that, if any of several specified corporate
changes should occur, the GNC Committee may, in its discretion: (1) accelerate
the vesting of outstanding options; (2) require the surrender of outstanding
options in exchange for a cash payment based on a formula specified in the plan;
or (3) make adjustments to outstanding options to reflect the corporate change.
In addition, the committee may provide that any forfeiture restrictions with
respect to restricted stock awards shall lapse upon the occurrence of a
corporate change. For these purposes, the specified corporate changes are: (a) a
merger or consolidation in which the company shall not be the surviving entity
(or survives only as a subsidiary of an entity); (b) a sale, lease or exchange
of all or substantially all of the company's assets; (c) the adoption by the
company's stockholders of a plan of liquidation and dissolution; (d) the
acquisition by a person or group of beneficial ownership of more than 50% of the
company's outstanding capital stock (measured by voting power); or (e) an
election contest in which individuals who were, prior to the election, directors
of the company cease to constitute a majority of the company's Board.
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Although this discussion summarizes the principal terms of the 2004
Plan, it does not purport to be complete and is qualified in its entirety by
reference to the 2004 Plan attached as Appendix B to this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2004 STOCK
INCENTIVE PLAN. IF A STOCKHOLDER DOES NOT SPECIFY A CHOICE ON SUCH STOCKHOLDER'S
PROXY, PROPERLY DATED AND SIGNED PROXIES WILL BE SO VOTED.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
NOMINEES FOR CLASS III DIRECTORS FOR THREE-YEAR TERMS TO EXPIRE IN 2007
The following sets forth information concerning the nominees for
election as directors at the annual meeting, including each nominee's age as of
March 31, 2004, position with the company, and business experience during the
past five years.
Nathaniel A. Gregory, 55. Chairman of the Board and Chief Executive
Officer since April 1993. Prior to joining NATCO, Mr. Gregory held a number of
positions in the engineering and construction industry and in investment
banking. Mr. Gregory's current term as a director of the company expires at the
2004 annual meeting.
Herbert S. Winokur, Jr., 60. Director since 1989. Mr. Winokur is
Chairman and Chief Executive Officer of Capricorn Holdings, Inc. (a private
investment company), and Managing General Partner of Capricorn Investors II,
L.P. and Capricorn Investors III, L.P., private investment partnerships
concentrating on investments in restructure situations, organized by Mr. Winokur
in 1994 and 1999, respectively. He is also a Managing Member of Capricorn
Holdings, LLC and Capricorn Holdings III, LLC (which are General Partners of
Capricorn Investors II, L.P. and Capricorn Investors III, L.P., respectively).
Prior to his current appointment, Mr. Winokur was Senior Executive Vice
President and director of Penn Central Corporation. Mr. Winokur is also a
director of Mrs. Fields' Companies, Inc., CCC Information Services Group, Inc.
and Holland Series Fund, Inc. Mr. Winokur's current term as a director of the
company expires at the 2004 annual meeting.
CONTINUING DIRECTORS
The following sets forth information concerning the Class I and Class
II directors of the company whose present terms of office will expire at the
2005 and 2006 annual meetings of stockholders, respectively, and the director
elected by the holder of the Series B Convertible Preferred Stock.
Class I Directors
John U. Clarke, 51. Director since February 2000, Chairman of the GNC
Committee since December 2002. Since May 2001, Mr. Clarke has been President of
Concept Capital Group, a financial and strategic advisory firm originally
founded by Mr. Clarke in 1995. Immediately prior to reestablishing the firm, Mr.
Clarke was a Managing Director of SCF Partners, a private equity investment
firm. From 1999 to June 2000, Mr. Clarke was Executive Vice President of Dynegy,
Inc. where he was also an Advisory Director and member of the Office of the
Chairman. Mr. Clarke joined Dynegy in April 1997 as Senior Vice President and
Chief Financial Officer. Prior to joining Dynegy, Mr. Clarke was a managing
director of Simmons & Company International. From 1995 to 1997, he served as
president of Concept Capital Group. Mr. Clarke was Executive Vice President and
Chief Financial and Administrative Officer with Cabot Oil and Gas from 1993 to
1995. He was with Transco Energy from 1981 to 1993, last serving as Senior Vice
President and Chief Financial Officer. Mr. Clarke is a director, member of the
audit committee and chairman of the human resources committee of Harvest Natural
Resources, a publicly traded international oil and gas company, and a director
and chairman of the audit committee of The Houston Exploration Company, a
publicly traded domestic oil and gas exploration and production company. He also
is chairman and director of FuelQuest.com, a market service provider to
petroleum marketers.
Patrick M. McCarthy, 59. Director since February 1998 and President
since December 1997. Mr. McCarthy served as Executive Vice President of NATCO,
with marketing and operations responsibilities, from November 1996 to December
1997 and as Senior Vice President--Marketing from June 1994 to November 1996.
Prior to
7
joining us in June 1994, Mr. McCarthy was Vice President--Worldwide Oil and Gas
at ABB Lummus Crest, an engineering and construction company.
Class II Directors
Keith K. Allan, 64. Chairman of the Audit Committee and Director since
February 1998. Mr. Allan was a director of NATCO (U.K.) Ltd. from October 1996
to January 1998. From February 1993 to August 1996, he was Technical Director in
the North Sea for Shell U.K. Exploration and Production. From 1965 to February
1993, he served in a number of positions for Royal Dutch/Shell Group.
George K. Hickox, Jr., 45. Director since November 1998. Mr. Hickox has
served as Chairman and Chief Executive Officer of The Wiser Oil Company, a
publicly traded, independent oil and gas exploration and production company,
since May 2000, and as a general partner of Heller Hickox & Co., a partnership
specializing in energy investments, since September 1991. Mr. Hickox also served
as a director of The Cynara Company prior to its acquisition by NATCO in
November 1998. He presently serves as an officer and director of several
privately held companies.
Director Elected by Holders of Series B Convertible Preferred Stock
Thomas R. Bates, Jr., 54. Director since March 2003. Managing Director
of Lime Rock Partners, Houston, Texas, a partnership that invests in growth
capital equity for oilfield service companies, since October 2001. Mr. Bates
previously served as Senior Vice President, then President, of the Discovery
Group of Baker Hughes, Inc. (June 1998 to January 2000), as CEO and President of
Weatherford Enterra, Inc. (June 1997 to May 1998) and as President of the
Anadrill Division of Schlumberger Ltd. (March 1992 to May 1997). Mr. Bates
currently serves as the chairman and a member of the executive committee of
Rotary Steerable Tools (BVI), Inc. (a manufacturer of drilling tools) and a
director and member of the compensation committee of NQL Drilling Tools, Inc. (a
manufacturer of drilling tools and provider of oilfield fishing services).
DETERMINATIONS OF DIRECTOR INDEPENDENCE
Under rules adopted by the New York Stock Exchange, or NYSE, no Board
member qualifies as independent unless the Board of Directors affirmatively
determines that the director has no material relationship with the company. The
Board considers all relevant facts and circumstances in making a determination
of independence. In particular, when assessing the materiality of a director's
relationship with the company, the Board considers the issue not merely from the
standpoint of the director, but also from the standpoint of persons or
organizations with which the director has an affiliation. In its determination
of independence, the Board of Directors reviewed and considered all
relationships and transactions between each director, his family members or any
business, charity or other entity in which the director has an interest on the
one hand, and the company, its affiliates or the company's senior management has
an interest on the other. As a result of this review, the Board of Directors
affirmatively determined that Mr. Allan, Mr. Bates, Mr. Clarke and Mr. Hickox
are independent from the company and its management. Mr. Gregory and Mr.
McCarthy are members of the company's senior management, and are not
independent. The Board of Directors considered that Mr. Winokur could be
determined to be independent, but based on an understanding that the NYSE
typically treats people holding more than 25% of the common stock as not
independent for purposes of serving on the audit or compensation committee and
for purposes of determining a majority of independent directors and other
considerations, the Board determined to treat him as if he is not independent.
Accordingly, Mr. Winokur will step down from the GNC Committee immediately prior
to the annual meeting of stockholders.
COMMITTEES AND BOARD MEETINGS; MEETING ATTENDANCE
The Board of Directors has established three standing committees: the
Executive Committee, the Audit Committee and the Governance, Nominating and
Compensation, or GNC, Committee. During 2003, the full Board of Directors held
four meetings, the Audit Committee held eight meetings and the GNC Committee
held eight meetings. The Executive Committee did not hold any meetings during
2003. Each director attended all of the meetings of the Board and of the
Committees of the Board on which he served. The Board does not have a policy
8
on Board member attendance at the annual meeting of stockholders. Three of our
directors attended the 2003 annual meeting of stockholders.
The members of our Executive Committee are Mr. Gregory (Chairman), Mr.
Allan and Mr. Clarke. The Executive Committee, which is chaired by Mr. Gregory,
is authorized to exercise the powers of the Board during the intervals between
the Board meetings.
The members of our Audit Committee are Mr. Allan (Chairman), Mr. Clarke
and Mr. Hickox. All three members are "independent" and qualified to serve on
the Audit Committee under the standards of the NYSE and applicable securities
laws and regulations. In addition, the Board of Directors has determined that
Mr. Clarke is an "audit committee financial expert" as defined in applicable
federal securities laws and regulations. The revised charter of the Audit
Committee, which was adopted by the Board in May 2003, contains a detailed
description of the Audit Committee's duties and responsibilities. Under the
revised charter, the Audit Committee has been appointed by the Board to assist
in overseeing (1) the integrity of the company's financial statements, (2) the
company's compliance with legal and regulatory requirements, (3) the independent
auditor's independence, qualifications and performance, and (4) the performance
of the company's internal audit function. The Audit Committee also has direct
responsibility for the appointment, compensation and retention of the company's
independent auditors.
The GNC Committee serves as the company's standing nominating committee
and standing compensation committee. Its members are Mr. Clarke (Chairman), Mr.
Winokur and Mr. Bates, each a non-employee director. Mr. Clarke and Mr. Bates
have been determined by the Board to be "independent" and qualified to serve on
the GNC Committee under NYSE standards and applicable securities laws and
regulations. Although Mr. Winokur could have been determined to be independent,
due to the Board's understanding of NYSE guidelines regarding significant stock
ownership and other considerations, Mr. Winokur will step down as a member of
the GNC Committee immediately prior to the annual meeting of stockholders. The
GNC Committee adopted a written charter on May 30, 2003, which was amended to
conform to changes in NYSE standards on December 2, 2003.
The GNC Committee assists the Board of Directors in fulfilling its
oversight responsibilities with respect to governance, nomination of directors
and executive compensation. In fulfilling its governance and nominating role,
the committee assists the Board in identifying individuals qualified to become
Board members, in determining the composition of the Board of Directors and its
committees, in monitoring a process to assess Board effectiveness and in
developing and implementing the company's corporate governance guidelines. In
fulfilling its compensation role, the committee assists the Board in assuring
that the senior executives of the company and its subsidiaries are compensated
effectively, in a manner consistent with the stated compensation strategy of the
company, internal equity considerations, competitive practice and the
requirements of applicable law, regulations and rules of applicable regulatory
bodies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to May 2003, the GNC Committee consisted of Howard I. Bull, Mr.
Clarke and Mr. Winokur, each a non-management director. Mr. Bull died in May
2003, and Mr. Bates was appointed to the GNC Committee following the 2003 annual
meeting of stockholders. Mr. Bates also is a non-management director. There were
no GNC Committee interlock relationships or insider participation in
compensation arrangements for the year ended December 31, 2003. See "Certain
Relationships and Related Transactions", for information regarding certain
transactions between the company and Mr. Winokur or his affiliates.
SELECTION OF NOMINEES FOR THE BOARD OF DIRECTORS
The GNC Committee assists the Board in identifying individuals
qualified to become Board members and selecting, or recommending that the Board
select, such individuals as the director nominees for election at the annual
meetings of stockholders or for appointments to fill vacancies. In evaluating
the suitability of potential directors, the GNC Committee takes into account
many factors, including general understanding of marketing, finance or other
elements relevant to the success of a publicly traded company in today's
business environment, understanding of the company's business on an operational
level, education and professional background and availability and willingness to
devote time to Board duties. The GNC Committee also evaluates each individual in
the context of the Board as a
9
whole, with the objective of having a group that can best perpetuate the success
of the business and represent stockholder interests through the exercise of
sound business judgment using its diversity of experience in these various
areas.
In the event that the GNC Committee or the Board identifies the need to
fill a vacancy or to add a new member to fill a newly created position on the
Board with specific criteria, the GNC Committee will initiate a search process
and keep the Board apprised of progress. The GNC Committee may seek input from
members of the Board, the Chief Executive Officer and other management and, if
necessary, retain a search firm. In addition, as a matter of policy, the GNC
Committee will consider candidates for Board membership properly recommended by
stockholders. The initial candidate or candidates, including anyone recommended
by a stockholder, who satisfy the specific criteria for Board membership and
otherwise qualify for membership on the Board will then be reviewed and
evaluated by the GNC Committee; the evaluation process for candidates
recommended by stockholders is not different from candidates recommended by any
other source.
To be considered by the GNC Committee a stockholder recommendation for
a nominee must be made by written notice to the Chairman of the committee and
the Corporate Secretary of the company, containing, at a minimum, the name,
appropriate biographical information and qualification of the nominee. In
considering stockholder recommendations for nominees, the GNC Committee may
request additional information concerning the nominee or the applicable
stockholder or stockholders. The bylaws of the company permit stockholders to
nominate directors for election at an annual stockholders meeting whether or not
such nominee is submitted to and evaluated by the Board. To nominate a director
using this process, and the stockholder must follow certain procedures required
by the bylaws that are described under "Stockholder Proposals" below.
Candidates nominated for election or re-election to the Board of
Directors should possess the following qualifications:
- personal characteristics:
- highest personal and professional ethics, integrity
and values;
- an inquiring and independent mind; and
- practical wisdom and mature judgment;
- broad training and experience at the policy-making level in
business, government, education or technology;
- expertise that is useful to the company and complementary to
the background and experience of other Board members, so that
an optimum balance of members on the Board can be achieved and
maintained;
- willingness to devote the required amount of time to carrying
out the duties and responsibilities of Board membership;
- commitment to serve on the Board over a period of several
years to develop knowledge about the company's principal
operations;
- willingness to represent the best interests of all
stockholders and objectively appraise management performance;
and
- involvement only in activities or interests that do not create
a conflict with the director's responsibilities to the company
and its stockholders.
The GNC Committee is responsible for assessing the appropriate mix of
skills and characteristics required of Board members in the context of the
perceived needs of the Board at a given point in time and shall periodically
review and update the criteria as deemed necessary. Diversity in personal
background for the Board as a whole may be taken into account in considering
individual candidates.
In 2003, the company did not pay any third party to identify or to
assist in the evaluation of any candidate for election to the Board. The company
did not receive any stockholder recommendations or nominations for the Board for
election at the annual meeting, except the nominations made by the Board that
includes members who are stockholders. All of the nominees for election at the
annual meeting are current members of the Board.
10
CODE OF BUSINESS CONDUCT AND ETHICS
The Board of Directors has adopted the NATCO Group Inc. Business Ethics
Policies, which meet the requirements of a code of ethics under applicable
federal securities laws and regulations and NYSE listing standards. Changes in
and waivers to the Business Ethics Policies for the company's directors,
executive officers and certain senior financial officers will be posted promptly
on the company's website and maintained for at least twelve months.
EXECUTIVE SESSIONS OF THE BOARD OF DIRECTORS AND THE PRESIDING DIRECTOR
At each regularly scheduled Board meeting, the company's non-management
directors hold executive sessions at which the company's management is not in
attendance. The presiding director at these sessions is the GNC Committee
chairman.
STOCKHOLDER COMMUNICATIONS; REPORTING CONCERNS REGARDING ACCOUNTING MATTERS
Stockholders and other interested parties may communicate directly with
the company's Board, non-management directors or presiding director by sending a
written communication appropriately addressed in care of the company's Corporate
Secretary at the address indicated on the first page of this proxy statement.
The Audit Committee has adopted the following policy so that anyone who
has a concern about the company's conduct, accounting, internal accounting
controls or auditing matters may communicate that concern directly to the
company's management, the Board of Directors, the non-employee directors or to
the Audit Committee.
Anyone who has a concern about the company's conduct, accounting,
internal accounting controls or auditing matters, may communicate that concern
directly to the company's management, Board of Directors, non-employee directors
or Audit Committee. Such communications may be confidential or anonymous, and
may be e-mailed, submitted in writing or reported by phone to special addresses
or a toll-free phone number that will be published on NATCO's website,
www.natcogroup.com/investorrelations/corporategovernance.
All such concerns will be forwarded to the appropriate directors for
their review, and all concerns related to audit or accounting matters will be
forwarded to the Audit Committee. All reported concerns will be simultaneously
reviewed and addressed by the company's General Counsel, or her designee. The
status of all outstanding concerns addressed to the company's management, Board,
non-employee directors or Audit Committee will be reported to the Board on a
quarterly basis. The Board may direct special treatment, including the retention
of the outside advisors or counsel, for any concern addressed to them. The
company's Business Ethics Policies prohibit any retaliatory action against any
employee for raising legitimate concerns or questions regarding these matters,
or any suspected violation of law, regulations or the Business Ethics Policies.
OBTAINING COPIES OF GOVERNANCE DOCUMENTS
The current Audit Committee charter is attached to this proxy statement
as Appendix A. The charters of the Audit and GNC Committees, and the company's
corporate governance guidelines, business ethics policies and other governance
materials are available on the Investor Relations/Corporate Governance section
of the company's website at www.natcogroup.com. Additionally, any stockholder
who so requests may obtain printed copies of such documents from the company's
Corporate Secretary at the address indicated on the first page of this proxy
statement.
AUDIT COMMITTEE REPORT
The Audit Committee operates under a revised charter that was adopted
by the Board of Directors on May 30, 2003, superceding the charter adopted in
May 2000. The Audit Committee met eight times during 2003 with the company's
financial management and our independent certified public accountants, KPMG LLP,
as part of its role in providing oversight to the financial reporting process
and internal control structure. From time to time at the
11
Audit Committee's request, KPMG LLP met with the Audit Committee, without NATCO
management representatives present, to discuss the results of their examinations
and quality of reporting.
In performing its oversight function, the Audit Committee has reviewed
and discussed with the company's management and independent public accountants
the audited financial statements for the year ended December 31, 2003 and
unaudited quarterly operating results prior to their issuance. In addition, the
Audit Committee discussed with KPMG LLP matters required by Statement on
Auditing Standards No. 61. The Audit Committee also received and reviewed the
written disclosures and the letter from KPMG LLP required by Independence
Standards Board Standard No. 1 and discussed with KPMG LLP their independence.
The Audit Committee also reviewed and discussed with our management and with
KPMG LLP such other matters and received such assurances from these parties that
they deemed appropriate. Based on the foregoing review and discussions, the
Audit Committee recommended to our Board of Directors the inclusion of our
audited financial statements in the Annual Report on Form 10-K for the year
ended December 31, 2003 filed with the Securities and Exchange Commission.
The Audit Committee has adopted a policy to pre-approve all audit and
non-audit services of the company's independent auditor. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year, is detailed as to the
particular service or category of services and is generally subject to a
specific budget. The Audit Committee has delegated to its Chairman authority to
pre-approve engagements of our independent auditor or other accountants to
perform audit or non-audit services in amounts of up to $100,000 per engagement,
subject to his subsequently reporting to the committee as to any engagement he
approves. The independent public accountants and auditors and management are
required to periodically report to the full Audit Committee regarding the extent
of services provided by the independent public accountants and auditors in
accordance with this pre-approval, and the fees for the services performed to
date. None of the services provided by the independent public accountants and
auditors under the categories Audit-Related, Tax Services and All Other Fees,
below, were approved by the Audit Committee pursuant to the waiver of
pre-approval provisions set forth in Rule 2-01(c) of Regulation S-X.
The Audit Committee also considered whether the provision of the
non-audit services listed below is compatible with maintaining the independence
of KPMG LLP. The Audit Committee determined that such services were compatible
with KPMG LLP's independence.
Audit Fees. We paid audit fees paid to KPMG LLP totaling $543,547 and
$433,945 for the years ended December 31, 2003 and 2002, respectively, for
professional services rendered for the audit of our annual financial statements.
Audit-Related Fees. We paid audit-related fees to KPMG, LLP totaling
$47,521 and $23,000 for the years ended December 31, 2003 and 2002,
respectively, related primarily to the audit of financial statements of an
employee benefit plan.
Tax Services Fees. We paid tax services fees to KPMG, LLP totaling
$72,587 and $30,523 for the years ended December 31, 2003 and 2002. The fees
paid related primarily to tax compliance and consultation related to tax issues
in the U.S., Canada and the U.K.
All Other Fees. We paid other fees to KPMG LLP totaling $2,750 and
$2,750 for the years ended December 31, 2003 and 2002, respectively, related to
the preparation of an information return associated with an employee benefit
plan.
The Audit Committee:
Keith K. Allan (Chairman)
John U. Clarke
George K. Hickox, Jr.
12
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock by (i) each person known by us to be
the beneficial owner of more than 5% of our common stock, (ii) each director,
(iii) each of the Named Executive Officers (as defined in "Director and
Executive Officer Compensation - Executive Compensation" below) and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each
person has sole voting and dispositive power over the shares indicated as owned
by such person. The information is as of April 15, 2004 with respect to
directors, officers and Capricorn Investors II, LP, and as of the date of the
most recent 13G filing of the applicable person, with respect to other persons
named.
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER (1) ADDRESS BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------- ------- ------------------ ------------------
Bricoleur Capital Management, LLC (2) 12230 El Camino Real, Suite 1,016,557 6%
1000 San Diego, California 92130
Capricorn Investors II, LP (3) 30 East Elm Street 3,101,355 19%
Greenwich, Connecticut 06830
Lime Rock Partners II, LP (2)(4) 518 Riverside Avenue 2,170,645 12%
Westport, Connecticut 06880
Royce & Associates (2) 1414 Avenue of the Americas 1,195,900 8%
New York, NY 10019
Heartland Advisors, Inc. and William J. 789 North Water Street 1,621,000 10%
Nasgovitz (2)(5) Milwaukee, WI 53202
Nathaniel A. Gregory (6) 2950 N. Loop West, Suite 700 4,446,837 27%
Houston, Texas 77092
Patrick M. McCarthy 2950 N. Loop West, Suite 700 249,026 2%
Houston, Texas 77092
Robert A. Curcio 2950 N. Loop West, Suite 700 86,593 *
Houston, Texas 77092
Richard W. FitzGerald 2950 N. Loop West, Suite 700 16,667 *
Houston, Texas 77092
Peter G. Michaluk 2950 N. Loop West, Suite 700 60,676 *
Houston, Texas 77092
C. Frank Smith 2950 N. Loop West, Suite 700 89,128 *
Houston, Texas 77092
Keith K. Allan (8) 2950 N. Loop West, Suite 700 18,334 *
Houston, Texas 77092
Thomas R. Bates, Jr. (7) 10375 Richmond Ave., Suite 225 2,500 *
Houston, Texas 77042
John U. Clarke (8) 2950 N. Loop West, Suite 700 23,802 *
Houston, Texas 77092
George K. Hickox, Jr. (8) 2950 N. Loop West, Suite 700 221,622 1%
Houston, Texas 77092
Herbert S. Winokur, Jr. (3) 30 East Elm Street, 4,963,734 31%
Greenwich, Connecticut 06830
All Directors and Executive Officers as a 7,361,948 39%
Group (17 persons)
----------------------
* Indicates beneficial ownership of less than one percent of outstanding
common stock.
(1) Shares are considered "beneficially owned," for purposes of this table,
if the person directly or indirectly has sole or shared voting and/or
investment power with respect to such shares, and/or if a person has
the right to acquire shares within 60 days of April 15, 2004. Shares
that are indicated as beneficially owned in the table above which meet
this 60-day criteria include: (1) Mr. Allan, 15,834; (2) Capricorn
Investors II,
13
L.P., 11,834; (3) Mr. Clarke, 11,302; (4) Mr. Curcio, 84,593; (5) Mr.
Gregory, 329,573; (6) Mr. Hickox, 9,167; (7) Lime Rock Partners II, LP,
2,170,645; (8) Mr. McCarthy, 104,817; (9) Mr. Michaluk, 60,676; (10)
Mr. Smith, 79,984; (11) Mr. FitzGerald, 16,667; and (12) all directors
and executive officers as a group, 951,381.
(2) As reported in the most recent Schedule 13G of such person filed with
the Securities and Exchange Commission.
(3) Of the shares indicated as being beneficially owned by Mr. Winokur,
3,098,855 of the shares are owned directly by Capricorn Investors II,
LP. Mr. Winokur is the Manager of Capricorn Holdings LLC, which in turn
serves as the general partner of Capricorn Investors II. As such Mr.
Winokur may be deemed to have dispositive and voting power over the
shares owned by Capricorn Investors II. In addition, 2,500 are
unvested, restricted shares granted to Mr. Winokur, the beneficial
interest in which is held by Capricorn Investors II. The shares may not
be transferred prior to their restrictions lapsing, but Mr. Winokur has
the right to vote such restricted shares prior to that time. Mr.
Winokur has sole voting and sole dispositive power with respect to the
remaining 1,862,379 shares.
(4) Lime Rock Partners II, LP holds 15,000 shares of our Series B
Convertible Preferred Stock, representing 100% of the issued and
outstanding shares of such series, which would be convertible to
1,921,845 shares of our common stock if converted at April 15, 2004. In
addition, Lime Rock Partners II, LP holds immediately exercisable
warrants to purchase 248,800 shares of our common stock.
(5) Heartland Advisors, Inc. and William J. Nasgovitz in its capacity as
investment adviser to its clients holding shares of NATCO common stock,
has shared voting power with respect to 1,422,500 of the 1,621,000
shares it beneficially owns and shares investment power with respect to
all of such shares.
(6) Of the shares indicated as being beneficially owned by Mr. Gregory,
3,098,855 are owned directly by Capricorn Investors II, L.P. Mr.
Gregory is a member of Capricorn Holdings LLC, which serves as general
partner in Capricorn Investors II. Mr. Gregory disclaims beneficial
ownership of such shares exceeding his pecuniary interest.
(7) Includes 2,500 unvested, restricted shares granted to Mr. Bates, the
beneficial interest in which is held by Lime Rock Management, LP. Mr.
Bates is a managing director of Lime Rock Management. The shares may
not be transferred prior to their restrictions lapsing, but Mr. Bates
has the right to vote such restricted shares prior to that time.
Excludes 2,500 shares beneficially owned directly by Lime Rock
Management, LP as to which Mr. Bates does not have voting or investment
power. Also excludes 2,170,645 shares beneficially owned directly by
Lime Rock Partners II, LP. Mr. Bates has an economic interest in such
shares through the general partner of Lime Rock Partners II, LP, and is
a member of a six-member investment committee that advises the persons
who have voting and investment power with respect to the shares owned
by Lime Rock. Mr. Bates disclaims beneficial ownership of the shares
owned by Lime Rock Management, LP and Lime Rock Partners II, LP.
(8) Includes 2,500 unvested, restricted shares granted to the named
non-employee director over which such director has the right to
exercise voting power.
DIRECTOR AND EXECUTIVE COMPENSATION
GOVERNANCE, NOMINATING AND COMPENSATION COMMITTEE REPORT REGARDING EXECUTIVE
COMPENSATION
The GNC Committee of the Board of Directors is responsible for
developing executive compensation policies that support NATCO's strategic
business objectives and values. The GNC Committee has oversight responsibility
in establishing compensation levels for executive officers, setting guidelines
for company-wide compensation and employee benefit policies and administering
our bonus plans and stock incentive plans. NATCO's objectives in compensation
for executive officers and key employees are to attract and retain talented and
experienced people who will contribute to the long-term success of NATCO, to
inspire executive officers to work as a team to pursue our goals and to align
executive officers' interests to those of NATCO, by providing for bonuses tied
to company performance, and to stockholders, by providing stock options and
restricted stock awards as a portion of compensation. The GNC Committee monitors
general industry conditions, changes in regulations and tax laws and other
developments that may, from time to time, require modification of the executive
compensation program to ensure the program is properly structured to achieve its
objectives.
14
In making compensation determinations, the GNC Committee evaluates a
number of factors at the end of each year, including NATCO's performance
relative to our annual objectives, our performance relative to changes in the
industry and each executive officer's contribution to our performance during the
year. The GNC Committee does not apply any particular formula or assign any
particular weight to any factors it considers in determining an executive's
compensation. Instead, the committee considers all of these factors together and
makes a subjective determination with respect to executive compensation. The
annual base salary, bonus and stock option awards paid or awarded to our chief
executive officer and our other four most highly compensated executive officers
(the "Named Executive Officers") are set forth in summary form in the Summary
Compensation Table included elsewhere in this proxy statement.
Salaries. Executive officer salaries are based on a subjective
evaluation considering peer company data, the executive's responsibilities,
performance and length of time in the position, internal equities among
positions and general economic conditions. Overall compensation is intended to
be at or modestly above the median level of compensation for peer companies with
which we compete for employees. To determine salary levels paid within the
industry, the GNC Committee reviews various industry surveys and proxy
information of our competitors and consults with independent compensation
consulting firms from time to time. The GNC Committee reviews executive salaries
at least annually, and makes appropriate adjustments.
Benefits. Our benefit plans are intended to be at or modestly above the
median level of benefits for peer companies with which we compete for employees.
NATCO maintains a defined contribution pension plan (the 401(k) Savings Plan)
covering substantially all US non-union hourly and salaried employees who have
completed three months of service. Employee contributions of up to 3% of each
covered employee's compensation are matched 100% by the company, with an
additional 2% of covered employee's compensation matched at 50%. In addition, we
may make discretionary contributions from time to time as profit sharing
contributions. The GNC Committee reviews and approves all discretionary matches.
No discretionary match was provided for the year ended December 31, 2003.
Bonus Awards. Bonus awards are linked to the achievement of
company-wide and individual performance goals and are designed to put a
significant portion of total compensation at risk. Under the bonus plan, a bonus
target is established for each executive officer and key employee based on a
subjective evaluation considering peer company data and the executive officer or
key employee's level of responsibility and ability to impact our success. In
2003, the individual bonus targets for executive officers ranged from 25% to 75%
of salary. After a year-end review, the GNC Committee determines the amount of
the annual incentive payment, if any, that will be awarded to an executive
officer based on the GNC Committee's subjective evaluation of the extent to
which company-wide and individual performance goals are achieved and general
economic and industry conditions. The GNC Committee did not award bonuses to any
executive officer in 2003.
Stock Options. We make stock option awards under the company's stock
incentive plans to align the interests of executive officers and key employees
with those of stockholders. Options vest over multiple years, with an exercise
price equal to the fair market value of the common stock on the date of grant.
Therefore, these options will have no value unless the company's stock
appreciates in value. The GNC Committee makes awards based on a subjective
evaluation considering peer company data and the executive officer's or key
employee's ability to impact our success. Consideration is also given to
amounts, timing and vesting status of previous awards to each executive officer
or key employee, total options outstanding and available under the plan, and the
level and volatility of our share price and the amount of appreciation realized
by the stockholders over comparable periods. During 2003, the GNC Committee made
limited awards of stock options to a small number of employees for exceptional
service or as part of the initial compensation package for new executive
officers.
Compensation of the Chief Executive Officer. The Chief Executive
Officer's compensation primarily consists of base salary, annual incentive and
long-term incentives. The GNC Committee establishes the Chief Executive
Officer's pay levels and incentives in the same manner as for other executive
officers described above. The company entered into a new, three-year employment
agreement with Mr. Gregory in December 2002, replacing his prior employment
agreement. Mr. Gregory's annual base salary for the year ended December 31, 2002
was $400,000. The GNC Committee awarded Mr. Gregory a 9% raise, to $436,000 per
year, in March 2003. Mr. Gregory's target bonus was 75% in 2003. As previously
noted, the GNC Committee did not award bonuses to any executive officer
15
in 2003. No stock options were granted to Mr. Gregory in 2003 or 2002. Mr.
Gregory was granted options to purchase up to 81,750 shares of common stock in
2001.
Severance; Change of Control Agreements. At the end of 2002, the GNC
Committee undertook a review of our various severance policies and employment
arrangements with our executive officers, with the assistance of an independent
compensation consulting firm. Based on this analysis, the GNC Committee
authorized NATCO to enter into employment agreements with the Chief Executive
Officer and President containing the recommended severance provisions, and
authorized NATCO to enter into change in control agreements with its other
executive officers. In 2003 the GNC Committee authorized NATCO to enter into
change in control agreements with two newly hired executive officers.
The Governance, Nominating and Compensation Committee:
John U. Clarke (Chairman)
Thomas R. Bates, Jr.
Herbert S. Winokur, Jr.
DIRECTOR COMPENSATION
Directors who are our employees do not receive a retainer or fees for
service on the Board or any of its committees. Prior to the 2003 annual meeting
of stockholders, we paid our non-employee directors a quarterly fee of $6,500
and a $500 fee for attendance at Board meetings. No fees were paid for
telephonic meetings or Committee meetings. During 2002, Mr. Clarke, as
chairperson of the GNC Committee, undertook an extensive review of the corporate
governance of NATCO at the direction of the Board of Directors and provided the
Board a report on governance and the implications to NATCO of the implementation
of the Sarbanes-Oxley Act of 2002. After reviewing the matter with outside
counsel, the Board of Directors established the chairperson's fee for the GNC
Committee at $18,000 through the 2003 annual meeting of stockholders in
recognition of the substantial time requirements necessary for us to conform our
corporate governance practice to these requirements. In addition, prior to 2003,
non-employee directors received option grants from time to time pursuant to the
company's 1998 Directors Compensation Plan.
The GNC Committee, with the assistance of an outside compensation
consultant, reviewed non-employee director compensation in 2003 and recommended
a revised director compensation program comparable to that of other peer
companies, which included cash, restricted stock and options. The Board approved
the GNC Committee recommendation in May 2003, and the company currently pays
non-employee directors or their designees a quarterly fee of $8,500 and a fee of
$1,000 for attendance at each meeting of the Board and its Committees (including
telephonic meetings). The Chairmen of the Audit and GNC Committees each also
receive an annual chairman's fee of $5,000. Pursuant to the company's stock
incentive plans, in June 2003 NATCO granted 2,500 restricted shares to each of
its five non-employee directors during June 2003. These restricted shares vest
100% on June 3, 2006, but are forfeitable if service discontinues prior to this
date (other than for death, disability or retirement on reaching age 68). The
restrictions shall lapse automatically in the event of a change in control.
NATCO will recognize expense of $85,000 related to these grants ratably over the
vesting period. In addition, in June 2003 the company granted each of these
non-employee directors or their designees options to purchase 2,500 shares of
common stock at the fair market value on the date of grant. These options vest
100% following one year of service, on the anniversary date of their issuance.
Directors also are reimbursed for reasonable out-of-pocket expenses related to
the performance of their duties as directors.
EXECUTIVE OFFICER COMPENSATION
The following table presents information concerning compensation paid
to the Chief Executive Officer and the four other most highly compensated
executive officers of NATCO during the years ended December 31, 2003, 2002 and
2001 (the "Named Executive Officers"):
16
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- -----------------------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(1) OTHER ($) OPTIONS (#) COMPENSATION
------------------ ----------- ------ -------- -------- ---------- ------------
Nathaniel A. Gregory ................ 2003 $426,308 $316,104 $ 78,798 (2) $ -- $ 15,806 (3)
Chairman and Chief Executive 2002 400,000 216,523 78,875 (2) -- 8,966 (4)
Officer 2001 394,231 191,842 71,299 (2) 81,750 11,778 (5)
Patrick M. McCarthy.................. 2003 293,087 166,133 1,473 -- 15,161 (3)
Director and President 2002 275,000 -- -- -- 10,511 (4)
2001 277,177 137,030 -- 56,300 9,432 (5)
C. Frank Smith....................... 2003 228,039 107,299 3,297 10,000 14,469 (3)
Executive Vice President 2002 220,000 84,229 2,783 -- 6,207 (4)
2001 200,000 83,532 -- 48,300 11,220 (5)
Robert A. Curcio..................... 2003 206,790 68,291 271 -- 14,270 (3)
Senior Vice President -- 2002 197,430 54,875 3,702 -- 11,270 (4)
Technology and Product 2001 189,999 56,689 -- 28,350 9,243 (5)
Development
Peter G. Michaluk (6)................ 2003 175,109 69,941 21,779 (7) 22,681 (8)
Senior Vice President -- Europe, 2002 156,260 70,655 19,910 (7) -- 17,548 (8)
Africa and Middle East 2001 112,239 41,531 12,398 (7) 86,350 10,983 (8)
Richard W. FitzGerald................ 2003 121,154 -- -- 66,667 1,888 (3)
Senior Vice President and Chief
Financial Officer (9)
----------------------
(1) Bonuses reported and paid in a fiscal year relate to the executive's
performance in the prior fiscal year and, in 2003, also included
payment of previously deferred bonus awards.
(2) Includes costs paid for lodging in Houston and the tax gross-up of
related costs of $50,076 and $28,722 for 2003, respectively, $41,347
and $37,529 for 2002, respectively, and $37,040 and $34,259 for 2001,
respectively.
(3) Represents (a) matching contributions made in 2003 under our 401(k)
Savings Plan of $14,000 for Mr. Gregory, $14,000 for Mr. McCarthy,
$14,000 for Mr. Smith, $14,000 for Mr. Curcio and $1,696 for Mr.
FitzGerald and (b) life insurance premiums of $1,806, $1,161, $469,
$270 and $192 for Messrs. Gregory, McCarthy, Smith, Curcio and
FitzGerald, respectively.
(4) Represents (a) matching contributions made in 2002 under our 401(k)
Savings Plan of $8,000 for Mr. Gregory, $9,350 for Mr. McCarthy, $5,738
for Mr. Smith and $11,000 for Mr. Curcio and (b) life insurance
premiums of $966, $1,161, $469 and $270 for Messrs. Gregory, McCarthy,
Smith, and Curcio, respectively.
(5) Represents (a) matching contributions made in 2001 under our 401(k)
Savings Plan of $10,950 for Mr. Gregory, $8,400 for Mr. McCarthy,
$10,950 for Mr. Smith and $9,075 for Mr. Curcio and (b) life insurance
premiums of $828, $1,032, $270 and $168 for Messrs. Gregory, McCarthy,
Smith and Curcio, respectively.
(6) Mr. Michaluk, Senior Vice President -- Europe, Africa and Middle East,
began employment with us in March 2001, when the company acquired Axsia
Holdings Limited.
(7) Includes a car allowance of $19,646, $18,057 and $11,064, for the years
ended December 31, 2003, 2002 and 2001.
(8) Represents (a) employer contributions to the U.K. Occupational Pension
Scheme on behalf of the employee of $22,681, $17,548 and $10,983, and
(b) amounts related to private health insurance in the U.K. for this
employee of $2,133, $1,853 and $1,334, for the years ended December 31,
2003, 2002 and 2001, respectively.
(9) Mr. FitzGerald, Senior Vice President and Chief Financial Officer,
began employment with the company on May 28, 2003.
17
OPTION GRANTS DURING 2003
The following table presents information concerning the grant of
options during fiscal year 2003 to the Named Executive Officers to acquire our
common stock under our long-term incentive plan. No stock appreciation rights
were granted during 2003.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE OPTION TERM
OPTIONS GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION ----------------------
NAME (#) YEAR ($/SHARE) DATE 5% 10%
-------------------------------------------- ------------------- ----------- ---------- ------- --------
C. Frank Smith 10,000 7% $6.23 3/4/13 $ 39,180 $ 99,290
Richard W. FitzGerald 66,667 46% $6.60 5/28/13 276,715 701,250
----------------------
(1) The grant-date market value of the securities used for purposes of this
calculation was equivalent to the exercise price of the options.
Appreciation was calculated based on assumed rates of return and was
not intended to represent expected appreciation of the company's common
stock.
FISCAL YEAR-END 2003 OPTION VALUES
The following table presents information concerning unexercised stock
options held by the Named Executive Officers as of December 31, 2003.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END YEAR-END ($) (1)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Nathaniel A. Gregory ........................ 292,739 53,374 $441,726 $20,954
Patrick M. McCarthy ......................... 94,817 28,150 12,408 12,408
C. Frank Smith .............................. 68,734 37,900 104,013 32,278
Robert A Curcio ............................. 74,177 20,840 8,812 8,810
Peter G. Michaluk ........................... 43,176 43,174 10,792 10,790
Richard W. FitzGerald ....................... -- 66,667 -- 66,000
--------------
(1) Represents the value of option grants that were in-the-money at
December 31, 2003, calculated as the market value of the underlying
shares of our common stock at December 31, 2003 ($7.59 per share) minus
the exercise price for the option grant.
18
EQUITY COMPENSATION PLAN INFORMATION AT FISCAL YEAR-END
Equity compensation plan information at December 31, 2003 was as
follows:
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES TO BE FOR FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, WARRANTS PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY AND RIGHTS (a) WARRANTS AND RIGHTS (b) REFLECTED IN COLUMN (a))
------------------------------------------ ----------------------------- ----------------------------- ---------------------------
Equity compensation plans approved by
securityholders(1) .................. 1,997,839 $8.20 283,195
Equity compensation plans not approved by
securityholders ..................... -- -- --
--------- ----- -------
Total(1) ............................ 1,997,839 $8.20 283,195
------------------
(1)Includes 12,500 shares of restricted stock awarded to non-management
directors on June 3, 2003. These restricted shares vest 100% on June 3, 2006,
but are forfeitable if service discontinues prior to this date (other than for
death, disability or retirement on reaching age 68). The restrictions shall
lapse automatically in the event of a change in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS
Under the terms of an employment agreement in effect prior to 1999, we
loaned our Chief Executive Officer $1.2 million in July 1999 to purchase 136,832
shares of common stock. During February 2000, after we completed the initial
public offering of our Class A common stock, also pursuant to the terms of that
employment agreement, we paid this executive officer a bonus equal to the
principal and interest accrued under this note arrangement and recorded
compensation expense of $1.3 million. The officer used the proceeds of this
settlement, net of tax, to repay the company approximately $665,000. In
addition, on October 27, 2000, our Board of Directors agreed to provide a full
recourse loan to this executive officer to facilitate the exercise of certain
outstanding stock options. The amount of the loan was equal to the cost to
exercise the options plus any personal tax burdens that resulted from the
exercise. The maturity of these loans was July 31, 2003, and interest accrued at
rates ranging from 6% to 7.8% per annum. As of June 30, 2002, the outstanding
principal and interest on these notes receivable totaled $3.4 million. Effective
July 1, 2002, the notes were reviewed by our board and amended to extend the
maturity dates to July 31, 2004, and to require interest to be calculated at an
annual rate based on the London Inter-Bank Offered Rate ("LIBOR") plus 300 basis
points, adjusted quarterly, applied to the notes balances as of June 30, 2002,
including previously accrued interest. As of March 31, 2004, the outstanding
principal and interest due from this officer under these notes was approximately
$3.6 million. These loans, which were made on a full recourse basis in prior
periods to facilitate direct ownership in our common stock, are currently
subject to and in compliance with provisions of the Sarbanes-Oxley Act of 2002.
As previously agreed in 2001, we loaned our President $216,000 on April
15, 2002, under a full-recourse note arrangement which accrues interest at 6%
per annum and matured on July 31, 2003. The funds were used to pay the exercise
cost and personal tax burdens associated with the stock options exercised during
2001. Effective July 1, 2002, the note was amended to extend the maturity date
to July 31, 2004, and to require interest to be calculated at an annual rate
based on LIBOR plus 300 basis points, adjusted quarterly, applied to the note
balance as of June 30, 2002, including previously accrued interest. As of March
31, 2004, the outstanding principal and interest on the note was approximately
$236,000. This loan, which was made on a full recourse basis to facilitate
direct ownership in our common stock, is currently subject to and in compliance
with provisions of the Sarbanes-Oxley Act of 2002.
19
CERTAIN BUSINESS RELATIONSHIPS
We pay Capricorn Management G.P., an affiliate company of Capricorn
Holdings, Inc., for administrative services, which include office space and
parking in Connecticut for our Chief Executive Officer, reception, telephone,
computer services and other normal office support relating to that space. Mr.
Herbert S. Winokur, Jr., one of our directors, is the Chairman and Chief
Executive Officer of Capricorn Holdings, Inc., and the Managing Partner of
Capricorn Holdings LLC, which is the general partner of Capricorn Investors II,
L.P., a private investment partnership, and directly or indirectly controls
approximately 31% of our outstanding common stock. In addition, our Chief
Executive Officer, Mr. Gregory, is a non-salaried member of Capricorn Holdings
LLC. Capricorn Investors II, LP controls approximately 19% of our common stock.
Fees paid to Capricorn Management for these administrative services totaled
$115,000, $115,000 and $85,000 for the years ended December 31, 2003, 2002 and
2001, respectively. Commencing October 1, 2001, the fee increased to $28,750
quarterly due primarily to an upward adjustment in Capricorn Management's
underlying lease for the office; this increase was reviewed and approved by the
Audit Committee of our Board of Directors. The arrangement is terminable by
either party on 90 days' notice.
We recorded revenues of $91,000 for the year ended December 31, 2003,
related to equipment sold to the Wiser Oil Company. One of our Directors, Mr.
Hickox, is the Chief Executive Officer of Wiser Oil Company. These sales
constituted less than one percent of NATCO's consolidated gross revenues. NATCO
did not purchase any equipment from Wiser Oil Company during 2003.
We recorded revenues of $859,000 for the year ended December 31, 2003,
related to equipment sold to The Houston Exploration Company, a publicly traded
oil and gas exploration and production company. One of our Directors, Mr.
Clarke, is a director of The Houston Exploration Company.
EMPLOYMENT, TERMINATION AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Gregory serves as our Chairman and Chief Executive Officer under an
employment agreement entered into in December 2002, which replaced his prior
employment agreement. The current agreement is for a term of three years unless
sooner terminated by Mr. Gregory or by us in accordance with its terms. The
agreement automatically extends for additional one-year periods unless we notify
Mr. Gregory 90 days prior to the termination date of the agreement that we do
not wish to renew the agreement. Under his agreement, Mr. Gregory is entitled to
receive an annual salary (currently $436,000), and is eligible for an annual
bonus with a target award of 75% of Mr. Gregory's base salary based on our
financial performance and certain other criteria as are determined annually by
our Board of Directors, and such additional bonus payments as the Board may
determine in its sole discretion. He is also entitled to participate in our
fringe benefit and insurance plans and to reimbursement of certain living and
other expenses.
If, prior to a change in control, we terminate Mr. Gregory's employment
for any reason other than cause, or Mr. Gregory terminates his employment for
good reason (as defined in the agreement), Mr. Gregory will be entitled to
severance pay in accordance with any severance plan or policy that we may then
have in effect and any bonus compensation earned under the bonus plan that has
previously been deferred under the bonus plan. If, during the 36-month period
following a change in control, Mr. Gregory terminates his employment agreement
for good reason or we terminate Mr. Gregory, other than for cause, Mr. Gregory
will be entitled to salary and accrued vacation through the date of termination,
annual bonus earned through the date of termination, three times his base salary
and target bonus in effect at the time of notice of termination or of a change
in control, whichever is greater; continuation of health, dental and life
insurance benefit for a period of three years following the date of termination;
and all deferred bonus compensation under the bonus plan. In addition, Mr.
Gregory's stock options shall immediately vest on the date of a change in
control and the period for exercising certain of these options may be extended.
Mr. McCarthy serves as our President under an employment agreement
entered into in December 2002. The terms of Mr. McCarthy's employment agreement
are substantially similar to those of Mr. Gregory under his employment
agreement, except that, under Mr. McCarthy's agreement, he is entitled to
receive an annual salary (currently $300,000), and is eligible for an annual
bonus with a target award of 60% of Mr. McCarthy's base salary, based on our
financial performance and certain other criteria which are determined annually
by our Board of Directors, and such additional bonus payments as the Board may
determine in its sole discretion. If, during the 36-month period following a
change in control, Mr. McCarthy terminates his employment agreement for a good
reason (as defined in the agreement) or we terminate Mr. McCarthy other than for
cause, Mr. McCarthy will be entitled to
20
the same payment, benefits and treatment of his stock options as described above
for Mr. Gregory, except that the payment for his base salary shall be two times
his base salary in effect at the time of notice of termination or change in
control, whichever is greater. Mr. McCarthy also will be entitled to receive a
payment equal to one year of his base salary in exchange for an agreement not to
compete with the company.
In December 2002, we entered into Senior Management Change in Control
Agreements with our executive officers, including the other named executive
officers. Substantially similar agreements were entered into with Mr. FitzGerald
and Katherine Ellis, our general counsel, in August 2003. These agreements are
for an initial term of three years, but renew for successive one-year periods
unless terminated earlier as provided in the agreement. If, during the 24-month
period following a change in control, the executive's employment is terminated
by us other than for cause, or by the executive for good reason (as defined in
the respective agreements), we are obligated to pay the executive's salary and
accrued vacation through the date of termination, annual bonus earned through
the date of termination, an amount equal to the product of two times the
executive's base salary at the time of termination or of notice of a change in
control, whichever is greater, and continuation of health, dental and life
insurance benefits for a period of two years following the date of termination.
These payments are in lieu of any other severance to which the executive may be
entitled under other severance arrangements of the company, and are in addition
to any stock options of the executive. These stock options shall vest
immediately upon the occurrence of a change in control, and certain of these
options may have extended exercise periods.
For purposes of the above-referenced employment and change in control
agreements, the extent that any benefit, payment or distribution by the company
under the agreement would be subject to the excise tax imposed by Section 4999
of the U.S. Internal Revenue Code, then such amount will be reduced to the
extent necessary to avoid the imposition of the excise tax.
Compensation policies in the event of a change in control are reviewed
regularly to ensure that the policies reflect terms and conditions consistent
with those adopted by comparable companies and that are in our best interests.
The Board of Directors or the GNC Committee may change such policies as the
facts and circumstances dictate.
PERFORMANCE GRAPH
The following performance graph compares the total stockholder return
on our common stock, assuming a $100 investment on the date of inception, to the
total return on the Standard & Poor's 500 Stock Index and Philadelphia OSX
Index, an index of oil and gas related companies which represents an industry
composite of the company's peer group, for the period beginning January 28, 2000
through March 31, 2004.
[LINE GRAPH]
21
Amount Projected Market Values
Invested --------------------------------------------------------------------------------------
1/28/00 12/29/00 12/31/01 12/31/02 12/31/03 3/31/04
----------------------------------------------------------------------------------------------------------------------
NATCO $100 $ 83 $ 70 $ 63 $ 76 $ 73
S&P 500 100 94 82 63 80 81
OSX 100 149 104 103 112 123
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires our executive officers and
directors, among others, to file certain beneficial ownership reports with the
Securities and Exchange Commission. During 2003, Mr. Bates submitted one late
filing related to his election as a director of the company, which occurred on
March 25, 2003 and was reported on May 2, 2003; and Lime Rock Partners II, LP
submitted one late filing related to the issuance of the company's Series B
Convertible Preferred Stock, which occurred on March 25, 2003 and was reported
on April 25, 2003.
ANNUAL REPORT ON FORM 10-K
WE ARE MAILING YOU A COPY OF NATCO GROUP INC.'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 2003, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WITH THIS PROXY STATEMENT. ADDITIONAL COPIES ARE AVAILABLE
AND WILL BE FURNISHED PROMPTLY, WITHOUT CHARGE, ON WRITTEN OR ORAL REQUEST BY
STOCKHOLDERS, VIA FIRST-CLASS MAIL WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH
REQUEST. MAIL REQUESTS TO INVESTOR RELATIONS DEPARTMENT, NATCO GROUP INC., 2950
N. LOOP WEST, SUITE 700, HOUSTON, TEXAS 77092, OR TELEPHONE AT 713-683-9292. OUR
SEC FILINGS, INCLUDING OUR 2003 ANNUAL REPORT ON FORM 10-K, ARE AVAILABLE ON OUR
WEBSITE, WWW.NATCOGROUP.COM UNDER INVESTOR RELATIONS/SEC FILINGS, OR ON THE
SECURITIES AND EXCHANGE COMMISSION WEBSITE, WWW.SEC.GOV.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2005 annual
meeting of stockholders must be received by us at our principal executive office
by December 20, 2004, in order for such proposals to be included in our proxy
statement and form of proxy. Stockholders submitting such proposals are
requested to address them to the Secretary, NATCO Group Inc., 2950 North Loop
West, Suite 700, Houston, Texas 77092.
In addition, our bylaws provide that only such business as is properly
brought before the 2005 annual meeting of stockholders will be conducted. For
business to be properly brought before the meeting or nominations of persons for
election to the Board of Directors to be properly made at the annual meeting by
a stockholder, notice must be received by the Corporate Secretary at the
company's offices not later than the close of business on the 40th day prior to
the annual meeting. The notice to the company must also provide (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the company's books, of the stockholder proposing
such business, (c) the class and number of shares of the company that are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business. The stockholder also must comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, with
respect to stockholder proposals. A copy of the bylaws may be obtained upon
written request to the Corporate Secretary at the address on the first page of
this proxy statement.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By order of the Board of Directors,
/s/ Katherine P. Ellis
------------------------------------
Katherine P. Ellis
Senior Vice President, Secretary &
General Counsel
April 24, 2004
22
APPENDIX A
NATCO GROUP INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities for monitoring:
the integrity of the Company's financial statements and financial
reporting process, the Company's compliance with legal and regulatory
requirements, the independence and continuing qualifications of the
external auditor (the Independent Auditor), and the performance of the
Company's internal audit function and Independent Auditors. In
addition, the Audit Committee shall prepare the Audit Committee Report
to be included in the Company's annual proxy statement. Consistent with
this purpose, the Audit Committee shall encourage continuous
improvement of, and foster adherence to, the Company's policies,
procedures and practices at all levels. The Audit Committee shall have
sole, direct authority to:
- Appoint and/or terminate the Independent Auditor,
subject to shareholder ratification, which shall
report directly to the Audit Committee.
- Determine all compensations/fees to be paid to the
Independent Auditor.
- Oversee the execution of the Independent Auditor's
duties and responsibilities. The Audit Committee
shall resolve any disagreements between management
and the Independent Auditor regarding financial
reporting.
- Evaluate the performance of the Independent Auditor.
- Pre-approve all auditing services all non-audit
services (and related fees) to be provided by the
Independent Auditor, subject to the de minimus
exceptions of the Exchange Act. Pre-approval
authority may be delegated to one or more members of
the Committee.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be composed of three or more directors who
meet the independence and experience requirements of the New York Stock
Exchange, the Exchange Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission"). The Board, upon
recommendation of the Governance, Nominating and Compensation
Committee, shall establish the number of members and conformity with
such independence and experience requirements. All members shall have
sufficient financial experience and ability to enable them to discharge
their responsibilities and it is highly desirable that at least one
member be an "audit committee financial expert" (as defined in the
rules and regulations of the Commission. Other than in his or her
capacity as a member of the Committee, the Board of Directors, or any
other Board committee, a Committee member is expressly prohibited from
receiving any consulting, advisory or other compensatory fee from the
Company or any of its subsidiaries, except as otherwise may be
permitted by NYSE listed company requirements. Audit Committee members
shall not serve simultaneously on the Audit Committees of more than two
other public companies.
The members of the Committee shall be elected by the Board, upon the
recommendation of the Governance, Nominating and Compensation
Committee, at the Annual Meeting of the Board or until their successors
shall be duly elected and qualified. The Board shall designate a Chair.
The Board shall fill vacancies occurring in the Audit Committee
membership as promptly as practicable in accordance with the bylaws of
the Company. The Board may change the membership of the Audit Committee
at any time.
Subject to the restrictions imposed by Section I above, the Audit
Committee may form and delegate authority to subcommittees of the Audit
Committee, consisting of one or more members of the Audit Committee,
when appropriate, provided that the decisions of such subcommittee
shall be reported to the full Audit Committee at its next scheduled
meeting.
A-1
III. MEETINGS
The Committee shall meet no less than quarterly, or more frequently as
circumstances dictate. The Committee shall meet no less than quarterly
with management, the internal auditors and the Independent Auditor in
separate executive sessions. A quorum shall constitute a majority of
the members of the Committee.
- Effective agendas, with input from management and other Board
members, shall be circulated to Committee members and relevant
management personnel with background information on a timely
basis.
- Minutes of each meeting shall be prepared by the Secretary of
the Company (on behalf of the Committee), reviewed by the
Chair, the Committee and made available to the Board.
Financial, accounting and operating personnel and such others,
including outside counsel, the Independent Auditor and the internal
auditors (or any outside auditor performing the function of an internal
audit department) (in either case, the "Internal Auditor"), as may be
appropriate to provide information to the Committee, shall attend
meetings upon the invitation of the Committee Chair.
IV. RESPONSIBILITIES AND DUTIES
The oversight duties and responsibilities of the Audit Committee shall
include, without limitation:
Financial Statements and Disclosure Matters
1. Review and discuss with management and the Independent
Auditor, as necessary, the Company's annual audited financial
statements prior to the filing of its Form 10-K, including
disclosures made in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" therein, and
recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the Independent Auditor
the Company's quarterly financial statements prior to the
filing of its Form 10-Q, including disclosures made in
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" therein and the results of the
Independent Auditor's review of the quarterly financial
statements.
3. Discuss with management and the Independent Auditor, as
necessary, significant financial reporting issues and
judgments made in connection with the preparation of the
Company's financial statements, including any significant
changes in the Company's selection or application of
accounting principles, any major issues as to the adequacy of
the Company's internal controls and any special steps adopted
in light of material control deficiencies.
4. Review and discuss reports from the Independent Auditor in
accordance with the instructions of the Audit Committee on:
a. All critical accounting policies and
practices to be used.
b. All alternative treatments of financial
information within generally accepted
accounting principles that have been
discussed with management, the ramifications
of the use of such alternative disclosures
and treatments, and the treatment preferred
by the Independent Auditor.
c. Other material written communications
between the Independent Auditor and
management, such as any management letter or
schedule of unadjusted differences.
d. Any material disagreements on accounting
treatment or judgments within the
Independent Auditors.
5. Discuss with management the Company's earnings press releases
prior to public release, including the use of "pro forma" or
"adjusted" non-GAAP information, as well as financial
information and earnings guidance provided to analysts and
ratings agencies. Such discussion may be done generally
(consisting of discussing the types of information to be
disclosed and the types of presentations to be made) and need
not precede each earnings release or each instance in which
the Company provides such guidance.
6. Discuss with management and the Independent Auditor the
effects of legal, regulatory and accounting initiatives as
well as off-balance sheet structures on the Company's
financial statements.
7. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk
assessment and risk management policies.
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8. Discuss with the Independent Auditor the matters required to
be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit, including any
difficulties encountered in the course of the audit work and
management's response, any restrictions on the scope of
activities or access to requested information, and any
significant disagreements with management.
9. Review disclosures made to the Audit Committee by the
Company's CEO and CFO during their certification process of
the Form 10-K and Form 10-Q about any significant deficiencies
in the design or operation of internal controls or material
weaknesses therein and any fraud involving management or other
employees who have a significant role in the Company's
internal controls.
Oversight of the Company's Relationship with the Independent Auditor
10. Review and evaluate the lead partner of the Independent
Auditor team.
11. Obtain and review a report from the Independent Auditor at
least annually regarding (a) the Independent Auditor's
internal quality-control procedures, (b) any material issues
raised by the most recent internal quality-control review, or
peer review, of the firm, or by any inquiry or investigation
by governmental or professional authorities within the
preceding five years respecting one or more independent audits
carried out by the firm, (c) any steps taken to deal with any
such issues, and (d) all relationships between the Independent
Auditor and the Company. Evaluate the qualifications,
performance and independence of the Independent Auditor,
including considering whether the Auditor's quality controls
are adequate and the provision of permitted non-audit services
is compatible with maintaining the Auditor's independence, and
taking into account the opinions of management and the
Internal Auditor. The Audit Committee shall present its
conclusions with respect to the Independent Auditor to the
Board.
12. Ensure the rotation of the lead (or coordinating) audit
partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required
by law. Consider whether, in order to assure continuing
auditor independence, it is appropriate to adopt a policy of
rotating the Independent auditing firm on a regular basis.
13. Set the Company's hiring policies for employees or former
employees of the Independent Auditor.
14. Discuss with the national office of the Independent Auditor,
as necessary, issues on which the Company's audit team
consulted them and matters of audit quality and consistency.
15. Meet with the Independent Auditor to discuss the planning and
staffing of the audit program.
Oversight of the Company's Internal Audit Function
16. To review the appointment and replacement of the senior
executive of the internal audit department or, at the
discretion of the Board, select and contract with an outside
auditor (other than the Independent Auditor) to perform the
function of the Internal Auditor and to review, with the CFO,
or such others as the committee deems appropriate, the
company's internal system of audit and financial controls and
the results of internal audits. The senior executive of the
internal audit department (or any outside auditor performing
the function of an internal auditing department) shall report
directly to the Audit Committee, and the Audit Committee shall
direct the scope and duties of the internal audit function.
17. To review the regular reports to management prepared by the
Internal Auditor and management's responses.
18. To discuss with the Independent Auditor and management the
responsibilities, budget and staffing of the Internal Auditor,
and any recommended changes in the planned scope of the
internal audit.
Compliance Oversight Responsibilities
19. Obtain from the Independent Auditor assurance that no facts or
circumstances have come to their attention, during the course
of the audit or otherwise, that would require the responses to
audit discoveries contained in Section 10A(b) of the Exchange
Act.
20. Obtain reports from management, the Company's Internal Auditor
and the Independent Auditor that the Company and its
subsidiary/foreign-affiliated entities are in conformity with
applicable legal requirements and the Company's Business
Ethics Policies and related policies. Review reports and
disclosures of insider and affiliated party transactions.
Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations and the Company's Business Conduct Policies and
related policies.
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21. Establish procedures for the receipt, retention and treatment
of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
22. Discuss with management and the Independent Auditor any
correspondence with regulators or governmental agencies and
any published reports that raise material issues regarding the
Company's financial statements or accounting policies.
23. Discuss with the Company's General Counsel legal matters that
may have a material impact on the financial statements or the
Company's compliance policies.
24. Obtain from the Company's General Counsel assurance that no
facts or circumstances have come to the attention of the
General Counsel or members of his or her staff of a material
violation of an applicable US federal or state securities law,
a material breach of fiduciary duty arising under a US federal
or state securities law or a similar material violation of any
US federal or state law by the Company or any director,
officer, employee or agent of the Company.
General
25. To report regularly to the Board of Directors on matters that
come before the Committee, including without limitation on any
issues that arise with respect to the quality or integrity of
the Company's financial statements, the Company's compliance
with legal or regulatory requirements, the performance and
independence of the Independent Auditors or the performance of
the internal audit function.
26. To perform any other activities consistent with this Charter,
the Company's Restated Certificate of Incorporation, and
Bylaws (each as may be amended), the rules of the New York
Stock Exchange applicable to domestic listed companies, and
governing law as the Audit Committee or the Board deems
necessary or appropriate.
V. ACCESS TO EXPERTS; FUNDING
The Committee shall have the authority to hire independent legal,
accounting or other outside advisors, independent of management, as the
Committee deems necessary to carry out its duties. The Committee shall
have sole authority to approve fees and retention terms. The Company
shall provide for appropriate funding, as determined by the Committee,
for payment of compensation to the Independent Auditor and to any
advisors employed by the Committee and for ordinary administrative
expenses of the Committee that are necessary or appropriate in carrying
out its duties.
VI. REPORTING/AUTHORITY
The Committee shall have the authority to investigate matters of
interest to the Committee. All employees shall cooperate as requested
by the Committee. The Committee shall have full access to all Company
records.
Management is responsible for the financial reporting process, the
preparation of consolidated financial statements in accordance with
generally accepted accounting principles, the system of internal
controls, and procedures designed to insure compliance with accounting
standards and applicable laws and regulations. The Company's
independent auditors are responsible for auditing the financial
statements. The Audit Committee's responsibility is to monitor and
review these processes and procedures. The members of the Audit
Committee are not professionally engaged in the practice of accounting
or auditing and are not experts in the fields of accounting or
auditing. The Audit Committee relies, without independent verification,
on the information provided to it and on the representations made by
management that the financial statements have been prepared with
integrity and objectivity and on the representations of management and
the opinion of the independent auditors that such financial statements
have been prepared in conformity with generally accepted accounting
principles.
The Audit Committee, with the assistance of the Governance, Nominating
and Compensation Committee, will annually evaluate the effectiveness of the
Committee and make recommendations for changes, if any, to the Board, to improve
performance of the Committee. In addition, the Audit Committee will annually
submit itself to the review and evaluation of the Board. This Charter shall be
reviewed and reassessed annually by the Audit Committee and may be modified from
time-to-time at the sole discretion of the Board of Directors.
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APPENDIX B
NATCO GROUP INC.
2004 STOCK INCENTIVE PLAN
1. BACKGROUND; PURPOSE OF THE PLAN
1.1 BACKGROUND AND EFFECT OF THE PLAN. The NATCO Group Inc. 2004
Stock Incentive Plan (the "Plan") was adopted by the Board of Directors of NATCO
Group Inc., a Delaware corporation (the "Company"), on April 6, 2004, subject to
its approval by the stockholders at the Company's 2004 Annual Meeting of
Stockholders. No Awards may be granted under the Plan prior to its approval by
the stockholders of the Company. If this Plan is not so approved by the
stockholders, then no Awards shall be granted under the Plan.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to provide a
means through which the Company and its Affiliates may attract able persons to
serve as Directors or Consultants or to enter the employ of the Company and its
Affiliates and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company
and its Affiliates rest, and whose present and potential contributions to the
Company and its Affiliates are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and its Affiliates. A further purpose of the Plan is to provide such individuals
with additional incentive and reward opportunities designed to enhance the
profitable growth of the Company and its Affiliates. Accordingly, the Plan
provides for granting Incentive Stock Options, options that do not constitute
Incentive Stock Options, Restricted Stock Awards, Performance Awards and Phantom
Stock Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular employee, Consultant or Director as provided in
this Plan.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
"AFFILATE" means any corporation, partnership, limited liability company,
partnership, association, trust or other organization which, directly or
indirectly, controls, is controlled by, or is under common control with, the
Company. For purposes of the preceding sentence, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any entity or organization, shall mean the
possession, directly or indirectly, of the power (i) to vote more than 50% of
the securities having ordinary voting power for the election of directors of the
controlled entity or organization or (ii) to direct or cause the direction of
the management and policies of the controlled entity or organization, whether
through the ownership of voting securities or by contract or otherwise.
"AWARD" means, individually or collectively, any Option, Restricted Stock Award,
Performance Award or Phantom Stock Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended. Reference in the
Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under such section.
"COMMITTEE" means a committee of the Board that is selected as provided in
Paragraph 4.1.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company, or any security into which such Common Stock may be changed by reason
of any transaction or event of the type described in Paragraph 11.
"COMPANY" means NATCO Group Inc., a Delaware corporation.
"CONSULTANT" means any person who is not an employee or a Director and who is
providing advisory or consulting services to the Company or any Affiliate.
"CORPORATE CHANGE" shall have the meaning assigned to such term in Paragraph
11.3.
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"DIRECTOR" means an individual elected to the Board by the stockholders of the
Company or by the Board under applicable corporate law who is serving on the
Board on the date the Plan is adopted by the Board or is elected to the Board
after such date.
An "EMPLOYEE" means any person (including a Director) in an employment
relationship with the Company or any Affiliate.
"FAIR MARKET VALUE" means, as of any specified date, the mean of the high and
low sales prices of the Common Stock reported by (i) the National Market System
or NASDAQ on that date or (ii) if the Common Stock is listed on a national stock
exchange, reported on the stock exchange composite tape on that date (or such
other reporting service approved by the Committee); or, in either case, if no
prices are reported on that date, on the last preceding date on which such
prices of the Common Stock are so reported. If the Common Stock is traded over
the counter at the time a determination of its fair market value is required to
be made under the Plan, its fair market value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked prices of
Common Stock on the most recent date on which Common Stock was publicly traded.
In the event Common Stock is not publicly traded at the time a determination of
its value is required to be made under the Plan, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.
"INCENTIVE STOCK OPTION" means an incentive stock option within the meaning of
Section 422 of the Code.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPTION" means an Award granted under Paragraph 7 and includes both Incentive
Stock Options to purchase Common Stock and Options that do not constitute
Incentive Stock Options to purchase Common Stock.
"OPTION AGREEMENT" means a written agreement between the Company and a
Participant with respect to an Option.
"PARTICIPANT" means an employee, Consultant or Director who has been granted an
Award.
"PERFORMANCE AWARD" means an Award granted under Paragraph 9.
"PERFORMANCE AWARD AGREEMENT" means a written agreement between the Company and
a Participant with respect to Performance Awards.
"PHANTOM STOCK AWARD" means an Award granted under Paragraph 10.
"PHANTOM STOCK AWARD AGREEMENT" means a written agreement between the Company
and a Participant with respect to a Phantom Stock Award.
"PLAN" means the NATCO Group Inc. 2004 Stock Incentive Plan, as amended from
time to time.
"RESTRICTED STOCK AGREEMENT" means a written agreement between the Company and a
Participant with respect to a Restricted Stock Award.
"RESTRICTED STOCK AWARD" means an Award granted under Paragraph 8.
"RULE 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as such may be
amended from time to time, and any successor rule, regulation or statute
fulfilling the same or a similar function.
"STOCK APPRECIATION RIGHT" shall have the meaning assigned to such term in
Paragraph 7.4.
3. DURATION OF THE PLAN
No Awards may be granted under the Plan after 10 years from the date this Plan
is adopted by the Board of Directors. The Plan shall remain in effect until all
Options granted under the Plan have been exercised or expired,
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all Restricted Stock Awards granted under the Plan have vested or been
forfeited, and all Performance Awards and Phantom Stock Awards have been
satisfied or expired.
4. ADMINISTRATION
4.1 COMPOSITION OF COMMITTEE. The Plan shall be administered by a
committee of, and appointed by, the Board that shall be comprised solely of two
or more outside Directors (within the meaning of the term "outside directors" as
used in Section 162(m) of the Code and applicable interpretive authority
thereunder and within the meaning of the term "Non-Employee Director" as defined
in Rule 16b-3).
4.2 POWERS. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine which employees,
Consultants or Directors shall receive an Award, the time or times when such
Award shall be made, the type of Award that shall be made, the number of shares
to be subject to each Option or Restricted Stock Award, the number of shares
subject to or the value of each Performance Award, and the value of each Phantom
Stock Award. In making such determinations, the Committee shall take into
account the nature of the services rendered by the respective employees,
Consultants or Directors, their present and potential contribution to the
Company's success and such other factors as the Committee in its sole discretion
shall deem relevant.
4.3 ADDITIONAL POWERS. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, this shall include the power to construe the
Plan and the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an Award
in the manner and to the extent it shall deem expedient to carry it into effect.
The determinations of the Committee on these matters shall be conclusive.
5. SHARES SUBJECT TO THE PLAN; AWARD LIMITS; GRANT OF AWARDS
5.1 SHARES SUBJECT TO THE PLAN AND AWARD LIMITS. Subject to
adjustment in the same manner as provided in Paragraph 11 with respect to shares
of Common Stock subject to Options then outstanding, the aggregate number of
shares of Common Stock that may be issued under the Plan shall not exceed
600,000 shares. Shares shall be deemed to have been issued under the Plan only
(i) to the extent actually issued and delivered pursuant to an Award or (ii) to
the extent an Award denominated in shares of Common Stock is settled in cash. To
the extent that an Award lapses or the rights of its holder terminate, any
shares of Common Stock subject to such Award shall again be available for the
grant of an Award under the Plan. Notwithstanding any provision in the Plan to
the contrary, the maximum number of shares of Common Stock that may be subject
to Options, Restricted Stock Awards and Performance Awards denominated in shares
of Common Stock granted to any one individual during any calendar year may not
exceed 100,000 shares of Common Stock (subject to adjustment in the same manner
as provided in Paragraph 11 with respect to shares of Common Stock subject to
Options then outstanding), and the maximum amount of compensation that may be
paid under all Performance Awards denominated in cash (including the Fair Market
Value of any shares of Common Stock paid in satisfaction of such Performance
Awards) granted to any one individual during any calendar year may not exceed
$1,000,000, and any payment due with respect to a Performance Award shall be
paid no later than 10 years after the date of grant of such Performance Award.
The limitations set forth in the preceding sentence shall be applied in a manner
that will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of Section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.
5.2 GRANT OF AWARDS. The Committee may from time to time grant
Awards to one or more employees, Consultants or Directors determined by it to be
eligible for participation in the Plan in accordance with the terms of the Plan.
5.3 STOCK OFFERED. Subject to the limitations set forth in
Paragraph 5.1, the stock to be offered pursuant to the grant of an Award may be
authorized but unissued Common Stock or Common Stock previously
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issued and outstanding and reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Awards at the
termination of the Plan shall cease to be subject to the Plan but, until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan.
6. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are employees,
Consultants or Directors. An Award may be granted on more than one occasion to
the same person, and, subject to the limitations set forth in the Plan, such
Award may include an Incentive Stock Option, an Option that is not an Incentive
Stock Option, a Restricted Stock Award, a Performance Award, a Phantom Stock
Award or any combination thereof.
7. STOCK OPTIONS
7.1 OPTION PERIOD. The term of each Option shall be as specified
by the Committee at the date of grant.
7.2 LIMITATIONS ON EXERCISE OF OPTION. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
7.3 SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. An Incentive
Stock Option may be granted only to an individual who is employed by the Company
or any parent or subsidiary corporation (as defined in Section 424 of the Code)
at the time the Option is granted. To the extent that the aggregate Fair Market
Value (determined at the time the respective Incentive Stock Option is granted)
of Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by an individual during any calendar year under all incentive
stock option plans of the Company and its parent and subsidiary corporations
exceeds $100,000, such Incentive Stock Options shall be treated as Options which
do not constitute Incentive Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of a Participant's Incentive Stock
Options will not constitute Incentive Stock Options because of such limitation
and shall notify the Participant of such determination as soon as practicable
after such determination. No Incentive Stock Option shall be granted to an
individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of Section 422(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the Fair Market Value of the Common
Stock subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws of descent
and distribution, and shall be exercisable during the Participant's lifetime
only by such Participant or the Participant's guardian or legal representative.
7.4 OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under Section 422 of the Code. Each Option Agreement shall specify the effect of
termination of (i) employment, (ii) the consulting or advisory relationship or
(iii) membership on the Board, as applicable, on the exercisability of the
Option. An Option Agreement may provide for the payment of the option price, in
whole or in part, by the delivery of a number of shares of Common Stock (plus
cash if necessary) having a Fair Market Value equal to such option price.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures satisfactory to the Committee with respect
thereto. Further, an Option Agreement may provide for the surrender of the right
to purchase shares under the Option in return for a payment in cash or shares of
Common Stock or a combination of cash and shares of Common Stock equal in value
to the excess of the Fair Market Value of the shares with respect to which the
right to purchase is surrendered over the option price therefore ("Stock
Appreciation Rights"), on such terms and conditions as the Committee in its sole
discretion may prescribe. In the case of any such Stock Appreciation Right that
is granted in connection with an Incentive Stock Option, such right shall be
exercisable only when the Fair Market Value of the Common Stock exceeds the
price specified therefore in the Option or the portion thereof to be
surrendered. The terms and conditions of the respective Option Agreements need
not be identical. Subject to the consent of the Participant, the Committee may,
in its sole discretion, amend an outstanding Option Agreement from time to time
in any manner that is not inconsistent with the provisions of the Plan
(including,
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without limitation, an amendment that accelerates the time at which the Option,
or a portion thereof, may be exercisable); provided, however, that, except as
provided in Paragraph 11, the Committee may not, without approval of the
stockholders of the Company, amend any outstanding Option Agreement to lower the
option price (or cancel and replace any outstanding Option Agreement with Option
Agreements having a lower option price).
7.5 OPTION PRICE AND PAYMENT. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Paragraph 11, such purchase
price shall not be less than the Fair Market Value of a share of Common Stock on
the date such Option is granted. The Option or portion thereof may be exercised
by delivery of an irrevocable notice of exercise to the Company, as specified by
the Committee. The purchase price of the Option or portion thereof shall be paid
in full in the manner prescribed by the Committee. Separate stock certificates
shall be issued by the Company for those shares acquired pursuant to the
exercise of an Incentive Stock Option and for those shares acquired pursuant to
the exercise of any Option that does not constitute an Incentive Stock Option.
7.6 SHAREHOLDER RIGHTS AND PRIVILEGES. The Participant shall be
entitled to all the privileges and rights of a stockholder only with respect to
such shares of Common Stock as have been purchased under the Option and for
which certificates of stock have been registered in the Participant's name.
7.7 OPTIONS AND RIGHTS IN SUBSTITUTION FOR OPTIONS GRANTED BY
OTHER EMPLOYERS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for options held by individuals providing
services to corporations or other entities who become employees, Consultants or
Directors as a result of a merger or consolidation or other business transaction
with the Company or any Affiliate.
8. RESTRICTED STOCK AWARDS
8.1 FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE.
Shares of Common Stock that are the subject of a Restricted Stock Award shall be
subject to restrictions on disposition by the Participant and an obligation of
the Participant to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions shall
be determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of
one or more performance measures established by the Committee that are based on
(1) the price of a share of Common Stock, (2) the Company's earnings per share,
(3) the Company's market share, (4) the market share of a business unit of the
Company designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9) the
earnings before or after interest, taxes, depreciation and/or amortization of
the Company or any business unit of the Company designated by the Committee,
(10) the economic value added, (11) the return on stockholders' equity achieved
by the Company or (12) the total stockholders' return achieved by the Company;
(ii) the Participant's continued employment with the Company or continued
service as a Consultant or Director for a specified period of time; (iii) the
occurrence of any event or the satisfaction of any other condition specified by
the Committee in its sole discretion; or (iv) a combination of any of the
foregoing. The performance measures described in clause (i) of the preceding
sentence may be subject to adjustment for specified significant extraordinary
items or events, and may be absolute, relative to one or more other companies,
or relative to one or more indexes, and may be contingent upon future
performance of the Company or any Affiliate, division, or department thereof.
Each Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee, and may, if approved by the Committee, provide for
Forfeiture Restrictions to lapse upon the occurrence of a Corporate Change.
8.2 OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Participant. Unless provided otherwise in a Restricted Stock
Agreement, the Participant shall have the right to receive dividends with
respect to Common Stock subject to a Restricted Stock Award, to vote Common
Stock subject thereto and to enjoy all other stockholder rights, except that (i)
the Participant shall not be entitled to delivery of the stock certificate until
the Forfeiture Restrictions have expired, (ii) the Company shall retain custody
of the stock until the Forfeiture Restrictions have expired, (iii) the
Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the stock until the Forfeiture Restrictions have expired, and (iv) a
breach of the terms and conditions established by the Committee pursuant to the
Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock
Award. At the time of
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such Award, the Committee may, in its sole discretion, prescribe additional
terms, conditions or restrictions relating to Restricted Stock Awards,
including, but not limited to, rules pertaining to the termination of employment
or service as a Consultant or Director (by retirement, disability, death or
otherwise) of a Participant prior to expiration of the Forfeitures Restrictions.
Such additional terms, conditions or restrictions shall be set forth in a
Restricted Stock Agreement made in conjunction with the Award.
8.3 PAYMENT FOR RESTRICTED STOCK. The Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Participant shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required by
law.
8.4 COMMITTEE'S DISCRETION TO ACCELERATE VESTING OF RESTRICTED
STOCK AWARDS. The Committee may, in its discretion and as of a date determined
by the Committee, fully vest any or all Common Stock awarded to a Participant
pursuant to a Restricted Stock Award and, upon such vesting, all restrictions
applicable to such Restricted Stock Award shall terminate as of such date. Any
action by the Committee pursuant to this Paragraph 8.4 may vary among individual
Participants and may vary among the Restricted Stock Awards held by any
individual Participant. Notwithstanding the preceding provisions of this
Paragraph 8.4, the Committee may not take any action described in this Paragraph
8.4 with respect to a Restricted Stock Award that has been granted to a "covered
employee" (within the meaning of Treasury Regulation Section 1.162-27(c)(2)) if
such Award has been designed to meet the exception for performance-based
compensation under Section 162(m) of the Code.
8.5 RESTRICTED STOCK AGREEMENTS. At the time any Award is made
under this Paragraph 8, the Company and the Participant shall enter into a
Restricted Stock Agreement setting forth each of the matters contemplated hereby
and such other matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical. Subject to the consent of the Participant and the restriction set
forth in the last sentence of Paragraph 8.4, the Committee may, in its sole
discretion, amend an outstanding Restricted Stock Agreement from time to time in
any manner that is not consistent with the provisions of this Plan.
9. PERFORMANCE AWARDS
9.1 PERFORMANCE PERIOD. The Committee shall establish, with
respect to and at the time of each Performance Award, the number of share of
Common Stock subject to, or the maximum value of, the Performance Award and the
performance period over which the performance applicable to the Performance
Award shall be measured.
9.2 PERFORMANCE MEASURES. A Performance Award shall be awarded to
a Participant contingent upon future performance of the Company of any
Affiliate, division, or department thereof during the performance period. The
Committee shall establish the performance measures applicable to such
performance either (i) prior to the beginning of the performance period or (ii)
within 90 days after the beginning of the performance period if the outcome of
the performance targets is substantially uncertain at the time such targets are
established, but not later than the date that 25% of the performance period has
elapsed; provided such measures may be made subject to adjustment for specified
significant extraordinary items or events. The performance measures may be
absolute, relative to one or more other companies, or relative to one or more
indexes. The performance measures established by the Committee may be based upon
(1) the price of a share of Common Stock, (2) the Company's earnings per share,
(3) the Company's market share, (4) the market share of a business unit of the
Company designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9) the
earnings before or after interest, taxes, depreciation, and/or amortization of
the Company or any business unit of the Company designated by the Committee,
(10) the economic value added, (11) the return on stockholders' equity achieved
by the Company, (12) the total stockholders' return achieved by the Company or
(13) a combination of any of the foregoing. The Committee, in its sole
discretion, may provide for an adjustable Performance Award value based upon the
level of achievement of performance measures.
9.3 AWARDS CRITERIA. In determining the value of Performance
Awards, the Committee shall take into account a Participant's responsibility
level, performance, potential, other Awards and such other considerations
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as it deems appropriate. The Committee, in its sole discretion, may provide for
a reduction in the value of a Participant's Performance Award during the
performance period.
9.4 PAYMENT. Following the end of the performance period, the
holder of a Performance Award shall be entitled to receive payment of an amount
not exceeding the number of shares of Common Stock subject to, or the maximum
value of, the Performance Award, based on the achievement of the performance
measures for such performance period, as determined and certified in writing by
the Committee. Payment of a Performance Award may be made in cash, Common Stock
or a combination thereof, as determined by the Committee. Payment shall be made
in a lump sum or in installments as prescribed by the Committee. If a
Performance Award covering shares of Common Stock is to be paid in cash, such
payment shall be based on the Fair Market Value of the Common Stock on the
payment date.
9.5 TERMINATION OF AWARD. A Performance Award shall terminate if
the Participant does not remain continuously in the employ of the Company and
its Affiliates or does not continue to perform services as a Consultant or a
Director for the Company and its Affiliates at all times during the applicable
performance period, except as may be determined by the Committee.
9.6 PERFORMANCE AWARD AGREEMENTS. At the time any Award is made
under this Paragraph 9, the Company and the Participant shall enter into a
Performance Award Agreement setting forth each of the matters contemplated
hereby, and such additional matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Performance Award
Agreements need not be identical.
10. PHANTOM STOCK AWARDS
10.1 PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to
receive shares of Common Stock (or the Fair Market Value thereof), or rights to
receive an amount equal to any appreciation or increase in the Fair Market Value
of Common Stock over a specified period of time, which vest over a period of
time as established by the Committee, without satisfaction of any performance
criteria or objectives. The Committee may, in its discretion, require payment or
other conditions of the Participant respecting any Phantom Stock Award.
10.2 AWARD PERIOD. The Committee shall establish, with respect to
and at the time of each Phantom Stock Award, a period over which the Award shall
vest with respect to the Participant.
10.3 AWARDS CRITERIA. In determining the value of Phantom Stock
Awards, the Committee shall take into account a Participant's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
10.4 PAYMENT. Following the end of the vesting period for a Phantom
Stock Award (or at such other time as the applicable Phantom Stock Award
Agreement may provide), the holder of a Phantom Stock Award shall be entitled to
receive payment of an amount, not exceeding the maximum value of the Phantom
Stock Award, based on the then vested value of the Award. Payment of a Phantom
Stock Award may be made in cash, Common Stock, or a combination thereof as
determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. Any payment to be made in cash
shall be based on the Fair Market Value of the Common Stock on the payment date.
Cash dividend equivalents may be paid during or after the vesting period with
respect to a Phantom Stock Award, as determined by the Committee.
10.5 TERMINATION OF AWARD. A Phantom Stock Award shall terminate if
the Participant does not remain continuously in the employ of the Company and
its Affiliates or does not continue to perform services as a Consultant or a
Director of the Company and its Affiliates at all times during the applicable
vesting period, except as may be otherwise determined by the Committee.
10.6 PHANTOM STOCK AWARD AGREEMENTS. At the time any Award is made
under this Paragraph 10, the Company and the Participant shall enter into a
Phantom Stock Award Agreement setting forth each of the matters contemplated
hereby, and such additional matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Phantom Stock Award
Agreements need not be identical.
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11. RECAPITALIZATION OR REORGANIZATION
11.1 NO EFFECT ON RIGHT OR POWER. The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
Affiliate's capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity securities ahead of or
affecting Common Stock or the rights thereof, the dissolution or liquidation of
the Company or any Affiliate or any sale, lease, exchange or other disposition
of all or any part of its assets or business or any other corporate act or
proceeding.
11.2 SUBDIVISION OR CONSOLIDATION OF SHARES; STOCK DIVIDENDS. The
shares with respect to which Awards may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an Award
theretofore granted, the Company shall effect a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend on Common Stock
without receipt of consideration by the Company, the number of shares of Common
Stock with respect to which such Award may thereafter be exercised or satisfied,
as applicable (i) in the event of an increase in the number of outstanding
shares shall be proportionately increased, and the purchase price per share
shall be proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased. Any fractional share
resulting from such adjustment shall be rounded up to the next whole share.
11.3 RECAPITALIZATIONS AND CORPORATE CHANGES. If the Company
recapitalizes, reclassifies its capital stock, or otherwise changes its capital
structure (a "recapitalization"), the number and class of shares of Common Stock
covered by an Award theretofore granted shall be adjusted so that such Award
shall thereafter cover the number and class of shares of stock and securities to
which the Participant would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the Participant
had been the holder of record of the number of shares of Common Stock then
covered by such Award. If (i) the Company shall not be the surviving entity in
any merger or consolidation (or survives only as a subsidiary of an entity),
(ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange
all or substantially all of its assets to any other person or entity, (iii) the
Company is to be dissolved and liquidated, (iv) any person or entity, including
a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains
ownership or control (including, without limitation, power to vote) of more than
50% of the outstanding shares of the Company's voting stock (based upon voting
power), or (v) as a result of or in connection with a contested election of
Directors, the persons who were Directors of the Company before such election
shall cease to constitute a majority of the Board (each such event is referred
to in this Plan as a "Corporate Change"), no later than (x) 10 days after the
approval by the stockholders of the Company of such merger, consolidation,
reorganization, sale, lease or exchange of assets or dissolution of such
election of Directors or (y) 30 days after a Corporate Change of the type
described in clause (iv), the Committee, acting in its sole discretion without
the consent or approval of any Participant, shall effect one or more of the
following alternatives, which alternatives may vary among individual
Participants and which may vary among Options held by any individual
Participant: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change) fixed
by the Committee, after which specified date all unexercised Options and all
rights of Participants thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Participants of some or all of the
outstanding Options held by such Participants (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a date,
before or after such Corporate Change, specified by the Committee, in which
event the Committee shall thereupon cancel such Options and the Company shall
pay (or cause to be paid) to each Participant an amount of cash per share equal
to the excess, if any, of the amount calculated in Paragraph 11.4 (the "Change
of Control Value") of the shares subject to such Option over the exercise
price(s) under such Options for such shares, or (3) make such adjustments to
Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding),
including, without limitation, adjusting an Option to provide that the number
and class of shares of Common Stock covered by such Option shall be adjusted so
that such Option shall thereafter cover securities of the surviving or acquiring
corporation or other property (including, without limitation, cash) as
determined by the Committee in its sole discretion.
B-8
11.4 CHANGE OF CONTROL VALUE. For the purposes of clause (2) in
Paragraph 11.3, the "Change in Control Value" shall equal the amount determined
in clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of the Company in any such merger,
consolidation, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place or (iii) if such Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. In the
event that the consideration offered to stockholders of the Company in any
transaction described in this Paragraph 11.4 or Paragraph 11.3 consists of
anything other than cash, the Committee shall determine the fair cash equivalent
of the portion of the consideration offered which is other than cash.
11.5 OTHER CHANGES IN COMMON STOCK. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph 11, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual may be
appropriately adjusted by the Committee, whose determination shall be
conclusive. Notwithstanding the foregoing, except as otherwise provided by the
Committee, upon the occurrence of a Corporate Change, the Committee, acting in
its sole discretion without the consent or approval of any Participant, may
require the mandatory surrender to the Company by selected Participants of some
or all of the outstanding Performance Awards and Phantom Stock Awards as of a
date, before or after such Corporate Change, specified by the Committee, in
which event the Committee shall thereupon cancel such Performance Awards and
Phantom Stock Awards and the Company shall pay (or cause to be paid) to each
Participant an amount of cash equal to the maximum value of such Performance
Award or Phantom Stock Award which, in the event the applicable performance or
vesting period set forth in such Performance Award or Phantom Stock Award has
not been completed, shall be multiplied by a fraction, the numerator of which is
the number of days during the period beginning on the first day of the
applicable performance or vesting period and ending on the date of the
surrender, and the denominator of which is the aggregate number of days in the
applicable performance or vesting period.
11.6 STOCKHOLDER ACTION. Any adjustment provided for in the above
subparagraphs shall be subject to any required stockholder action.
11.7 NO ADJUSTMENTS UNLESS OTHERWISE PROVIDED. Except as expressly
provided elsewhere in this Plan, the issuance by the Company of shares of stock
of any class or securities convertible into shares of stock of any class, for
cash, property, labor or services, upon direct sale, upon the exercise of rights
or warrants to subscribe therefore, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect to
any shares of Common Stock for which Awards have not theretofore been granted.
The Board shall have the right to alter or amend the Plan or any part thereof
from time to time; provided that no change in the Plan may be made that would
impair the rights of a Participant with respect to an Award theretofore granted
without the consent of the Participant, and provided, further, that the Board
may not, without approval of the stockholders of the Company, (i) amend the Plan
to increase the maximum aggregate number of shares that may be issued under the
Plan or change the class of individuals eligible to receive Awards under the
Plan, or (ii) amend or delete the final sentence of Paragraph 7.4.
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13 MISCELLANEOUS
13.1 NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor any
action of the Board or of the Committee shall be deemed to give any individual
any right to be granted an Option, a right to a Restricted Stock Award, a right
to a Performance Award or a right to a Phantom Stock Award, or any other rights
hereunder except as may be evidenced by an Award agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the performance of its
obligations under any Award.
13.2 NO EMPLOYMENT/MEMBERSHIP RIGHTS CONFERRED. Nothing contained
in the Plan shall (i) confer upon any employee or Consultant any right with
respect to continuation of employment or of a consulting or advisory
relationship with the Company or any Affiliate or (ii) interfere in any way with
the right of the Company or any Affiliate to terminate his or her employment or
consulting or advisory relationship at any time. Nothing contained in the Plan
shall confer upon any Director any right with respect to continuation of
membership on the Board.
13.3 OTHER LAWS; WITHHOLDING. The Company shall not be obligated to
issue any Common Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933, as amended, and such other state and federal laws, rules
and regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
13.4 NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the
Plan shall be construed to prevent the Company or any Affiliate from taking any
action that is deemed by the Company or such Affiliate to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No Participant, beneficiary or other
person shall have any claim against the Company or any Affiliate as a result of
any such action.
13.5 RESTRICTIONS ON TRANSFER. An Award (other than an Incentive
Stock Option, which shall be subject to the transfer restrictions set forth in
Paragraph 7.3) shall not be transferable otherwise than (i) by will or the laws
of descent and distribution, (ii) pursuant to an qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder or (iii) with the
consent of the Committee.
13.6 GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflicts
of laws principles thereof.
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PROXY
NATCO GROUP INC.
2950 NORTH LOOP WEST, SUITE 700
HOUSTON, TX 77092
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Katherine P. Ellis and Richard W. FitzGerald,
and each of them, with full power of substitution to vote the shares of NATCO
Group Inc. Common Stock which the undersigned may be entitled to vote, and with
all power the undersigned would possess, if personally present at the annual
meeting of stockholders of NATCO Group Inc. to be held at the Sheraton Houston
Brookhollow Hotel, 3000 North Loop West, Houston, Texas on the 15th day of June
2004, at 9:00 a.m. local time, and any adjournment thereof.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM. IF
YOU DO NOT SPECIFY A CHOICE ON THIS PROXY, THE PROXY WILL BE VOTED FOR THE
NOMINEES FOR DIRECTOR NAMED IN THE PROXY STATEMENT, FOR THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY
NAMED IN THE PROXY STATEMENT AND FOR THE APPROVAL OF THE 2004 STOCK INCENTIVE
PLAN DESCRIBED IN THE PROXY STATEMENT. IF YOU WISH TO VOTE IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS, PLEASE SIGN THE REVERSE SIDE - NO BOXES
NEED TO BE CHECKED.
(TO BE DATED AND SIGNED ON REVERSE SIDE.)
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
------------------------------------------------------------------------
------------------------------------------------------------------------
Please mark here
for address change [ ]
or comments
SEE REVERSE SIDE
1. Proposal to elect two Class III members of the Board of Directors to
hold office for three-year terms expiring at the annual meeting of the
stockholders in 2007, and until their respective successors have been
duly elected and qualified.
For all nominees listed to the Withhold authority to vote Nominees:
right (except as marked to the for all nominees listed to Nathaniel A. Gregory,
contrary) [ ] the right [ ] Herbert S. Winokur, Jr
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
2. To ratify the appointment of KPMG LLP, as independent accountants for
the year ending December 31, 2004.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve the 2004 Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion the proxies are authorized to vote upon such other
business as may properly come before this meeting.
Dated:____________________________, 2004
__________________________________
Signature
__________________________________
Signature
(Please sign exactly and as fully as
your name appears on your stock
certificate. If shares are held jointly,
each stockholder should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.)
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