SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 7, 2004
NATCO Group Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 001-15603 22-2906892
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
2950 North Loop West, 7th Floor
Houston, Texas 77092
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 683-9292
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Effective December 7, 2004, we entered into an employment agreement with John
U. Clarke pursuant to which he will serve as our Chief Executive Officer. A
copy of this employment agreement is included as Exhibit 10.1 and is
incorporated by reference into this report. The material terms of the agreement
are summarized in Item 5.02 below.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
(c) Appointment of New Principal Executive Officer. On December 7, 2004, our
Board of Directors elected John U. Clarke, then interim Chief Executive Officer
and Chairman of the Board, as NATCO's Chief Executive Officer. Mr. Clarke will
continue as Chairman of the Board, a position he has held since July 2004. Mr.
Clarke, 52, has been a director of the Company since February 2000, and served
as the Chairman of the Board's Governance, Nominating & Compensation (GNC)
Committee from December 2002 to September 7, 2004, when he was appointed
interim Chief Executive Officer. From May 2001 to December 2004, he was
President of Concept Capital Group, a financial and strategic advisory firm he
founded in 1995. Prior to reestablishing the firm, Mr. Clarke was a Managing
Director of SCF Partners, a private equity investment firm. From 1999 to June
2000, he 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, he 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 and member of the audit and
human resources committees of Harvest Natural Resources, Inc., a publicly
traded international oil and gas company, a director, member of the
compensation committee and chairman of the audit committee of The Houston
Exploration Company, a publicly traded domestic oil and gas exploration and
production company, and chairman and director of FuelQuest.com, a market
service provider to petroleum marketers.
Since the beginning of our last fiscal year, Mr. Clarke has received
compensation from NATCO for his services as a director, GNC Committee Chairman
and interim CEO. In 2003, Mr. Clarke received $45,000 for his service as a
director and as GNC Committee Chairman, and was awarded options to acquire
common stock of the Company and restricted stock of the Company valued at
$25,700 on the dates of grant. In 2004, Mr. Clarke received $60,750 for his
service as a director and as GNC Committee Chairman, and prior to his election
as interim Chief Executive Officer was awarded options to acquire common stock
of the Company and restricted stock of the Company valued at $12,500 on the
dates of grant. Commencing September 7, 2004, on becoming the Company's interim
CEO, Mr. Clarke received a fee of $25,000 per month and was awarded 33,440
shares of restricted stock of the Company(valued at $89,000 on the date of
grant), with restrictions to lapse in equal installments on the first, second
and third anniversaries of the date of grant, so long as Mr. Clarke either is
continuing his service as interim or permanent CEO or has completed his service
as interim CEO or earlier, upon the earliest of (a) Mr. Clarke's death,
disability or retirement from the Board following his completion of his service
as interim CEO, (b) the Board's election of a Chairman other than Mr. Clarke, or
(c) on the occurrence of a Corporate Change as defined in the 2004 Stock
Incentive Plan. While serving as interim CEO, Mr. Clarke continued to receive
fees for service as a director.
Effective December 7, 2004, we entered into an employment agreement with Mr.
Clarke pursuant to which he will serve as our Chief Executive Officer. The
agreement is for a term expiring December 31, 2007 unless sooner terminated in
accordance with its terms. Under the agreement, Mr. Clarke is entitled to
receive an annual salary of at least $396,000, and, commencing in 2005, is
eligible to receive an annual bonus with a target award of 75% of his base
salary, based on our financial performance and other criteria to be determined
annually by our Board. He also will receive an additional bonus payment of
$100,000, payable in January 2005. Under the agreement, Mr. Clarke was awarded
nonqualified stock options to acquire 39,500 shares of our common stock under
the 2004 Stock Incentive Plan having an exercise price equal to the fair market
value of our common stock on the date of grant, vesting in three installments
on the first, second and third anniversaries of the date of grant and having a
term of 10 years. Mr. Clarke must continue to hold at least one-third of the
stock issued following exercise of such options for at least three
years after exercise, unless he sooner leaves the Company, a Corporate Change
occurs or the committee responsible for administration of the plan otherwise
approves. He also was awarded 22,000 performance-based restricted shares under
our 2004 Stock Incentive Plan, with the restrictions to lapse (a) on the date
that we have achieved an earnings per share of at least $1.00 calculated on a
trailing 12-months basis as of the last day of a quarter, for three consecutive
quarters, subject to certain adjustments and conditions, or, (b) if earlier,
pursuant to Section VIII of the Plan or upon occurrence of a Corporate Change,
subject to Mr. Clarke's continued employment on the date of the applicable
event. Mr. Clarke must continue to hold at least one-third of this restricted
stock for a period of three years after the restrictions lapse, unless he
sooner leaves the Company, a Corporate Change occurs or the committee
responsible for administration of the plan otherwise approves. This restricted
stock will be forfeited if the restrictions have not lapsed by December 31,
2007.
In addition, in January 2005, Mr. Clarke will be awarded 57,000 restricted
shares, with the restrictions to lapse after three years of service, subject to
earlier lapse on occurrence of a Corporate Change or in the event of Mr.
Clarke's death or disability, and 43,000 performance-based restricted shares,
with restrictions to lapse if our common stock trades at a price of $12.00 per
share or more for 30 consecutive trading days. The performance-based restricted
stock will be forfeited if the restrictions have not lapsed by the
fifth anniversary of the date of grant. Under the agreement, Mr.
Clarke also is entitled to participate in our fringe benefit and insurance
plans and to reimbursement of business expenses.
Upon any involuntary termination of the employment relationship by us or Mr.
Clarke prior to expiration of the term, Mr. Clarke shall be entitled to receive
his pro rata base salary and benefits (including payment for accrued, but
unused, vacation) through the date of termination. Depending upon the type of
involuntary termination, Mr. Clarke or his estate may be entitled to additional
compensation and/or benefits, as described below.
o Upon an involuntary termination by our independent directors for any
reason or by Mr. Clarke by reason of a material breach by us of the terms
of the agreement or for certain other reasons specified in the agreement,
after execution of a release and in consideration of his continuing
obligations under the agreement after termination (including his
non-competition obligations), Mr. Clarke shall be entitled to (1) an
amount equal to one year's annual base salary; (2) a pro rata share of the
amount of the target bonus compensation earned by him under any applicable
bonus plan then in effect through the date of termination; (3)
continuation of health insurance, dental insurance and life insurance
benefits for Mr. Clarke and eligible dependents for up to one year
following the termination date; and (4) any deferred compensation
previously earned under any of our plans.
If a Change in Control (as defined below) occurs within 6 months following
such an involuntary termination, Mr. Clarke shall be entitled to (1) an
amount equal to 1.5 times one year's annual base salary, with the amount
of such payment to be offset by any payment he has previously received
under the foregoing provision; (2) an amount equal to 1.5 times the target
bonus compensation at the greater of (A) the target bonus compensation in
effect at the time notice of termination is given or (B) the target bonus
compensation in effect immediately preceding the Change of Control Date
(as defined below), offset by any payment he has previously received under
the foregoing provision; (3) continuation of health insurance, dental
insurance and life insurance benefits for Mr. Clarke and eligible
dependents for 18 months following the termination date; and (4) any
deferred compensation previously earned under any of our plans to the
extent not previously paid. In addition, Mr. Clarke shall receive a cash
payment (a) with respect to any stock option that was forfeited as of the
date of his termination of employment, equal to the difference between the
closing price of our common stock as of the Change of Control Date and
such option's exercise price (or, if the term of such option would have
expired before the Change of Control Date, the difference between the
closing price of our common stock as of the date of such option's
expiration date and such option's exercise price) and (b) with respect to
any restricted stock that is forfeited as of the date of his termination
of employment, equal to the closing price of such stock as of the Change
of Control Date, with such payment to be made within 30 days of the Change
of Control Date.
o Upon an involuntary termination by reason of Mr. Clarke's death or
disability, Mr. Clarke or his beneficiaries shall be entitled to (1) a pro
rata share of the amount of the target bonus compensation earned by him
under any applicable bonus plan then in effect through the date of
termination; and (2) any deferred compensation previously earned under any
of our plans.
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o Upon an involuntary termination by our independent directors for any
reason or by Mr. Clarke by reason of a material breach by us of the terms
of the agreement or for certain other reasons specified in the agreement
within 12 months following a Change of Control, after execution of a
release and in consideration of his continuing obligations under the
agreement after such termination, Mr. Clarke shall be entitled to (1) an
amount equal to 1.5 times one year's annual base salary; (2) an amount
equal to the product of 1.5 times the target bonus compensation at the
greater of (A) the target bonus compensation in effect at the time notice
of termination is given or (B) the target bonus compensation in effect
immediately preceding the Change of Control Date; (3) continuation of
health insurance, dental insurance and life insurance benefits for Mr.
Clarke and his eligible dependents for 18 months following the date of
termination; and (4) any deferred compensation previously earned under any
of our plans. In addition, notwithstanding the terms of the any related
incentive plan or agreement, or any award agreement evidencing awards of
stock options or restricted stock to purchase our common stock, in the
event of a Change of Control while Mr. Clarke is employed by us, (a) all
outstanding stock options held by him shall fully vest as of the Change of
Control Date and become immediately exercisable in accordance with their
terms, (b) all restrictions on any of our restricted stock held by him
shall lapse as of the Change of Control Date and (c) any such stock
options shall be exercisable for 12 months after the date of termination,
unless the term of the stock options expires before the end of such
period, in which case the stock option shall be exercisable until the
expiration of its term.
A "Change of Control" shall occur if: (1) we merge or consolidate with any
other entity (other than one of our majority owned subsidiaries) and our
shareholders own less than 50% of the surviving entity; (2) we sell all or
substantially all of our assets to any other person or entity (other than (a) a
sale of our equity interests or (b) a sale of assets to one of our majority
owned subsidiaries and in connection therewith Mr. Clarke becomes employed by
such subsidiary, us or a partnership in which we are the general partner); (3)
we are dissolved or liquidated; (4) any third person or entity together with
its affiliates (including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) shall become, directly or
indirectly, the beneficial owner of greater than 50% of our voting stock, based
upon voting power (except as the result of a distribution of our voting
securities to our shareholders); or (5) during such time as we have a class of
voting securities registered under the Securities Exchange Act, the members of
our Board of Directors ("Incumbent Board") on the effective date of such
registration cease to constitute at least a majority of the Board, provided
that any person becoming a director whose election or nomination for election
was approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board, for purposes of this clause, shall be considered to be a
member of the Incumbent Board. "Change of Control Date" shall mean the day on
which a Change of Control becomes effective.
In all cases, the payments payable to Mr. Clarke under the employment agreement
on termination of the employment relationship shall be offset against any
amounts to which he may otherwise be entitled under any and all of our
severance plans and policies. If it is determined that any benefit, payment or
distribution by us to or for the benefit of Mr. Clarke (whether payable or
distributable pursuant to the terms of the agreement or otherwise) would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code, then the payment shall be reduced to the extent necessary to
avoid the imposition of the excise tax.
Upon his termination of employment, Mr. Clarke will be subject to a one-year
non-competition and non-solicitation provision under the employment agreement.
(d) Appointment of New Director. On December 7, 2004, the Board of Directors
elected Julie H. Edwards, executive vice president-finance and administration
and chief financial officer for Frontier Oil Corp., as a member of the Board of
Directors and a member of the Audit Committee. Ms. Edwards has been appointed
as a Class III director, filling the vacancy created by the departure of our
former CEO. The Board also determined, in its business judgment, that Ms.
Edwards is both financially literate and has the accounting and financial
management expertise required for service on NYSE listed company audit
committees.
Ms. Edwards, 45, joined Frontier in March 1991 as vice president, secretary and
treasurer. She was named senior vice president and chief financial officer in
August 1994 and, in April 2000, was named to her current position. From
mid-1985 until 1991, she worked at Smith Barney, Harris Upham & Co., Inc., in
New York and Houston, as an associate in corporate finance, then as vice
president-corporate finance. Prior to that, she was an exploration geologist at
Amerada Hess Corp. in Tulsa, Okla. She earned a master's degree in business
administration with
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concentration in finance in 1985 from the Wharton Graduate School and a
bachelor's of science degree in geology and geophysics in 1980 from Yale
College, Yale University.
Ms. Edwards is a member of the board of directors of ONEOK, Inc., a diversified
energy company involved primarily in oil and gas production, natural gas
processing, gathering, storage and transmission in the US mid-continent area.
Ms. Edwards was not elected pursuant to any arrangement or understanding
between her and any other person. There are no transactions between Ms. Edwards
and us since the beginning of our last fiscal year or that are currently
proposed in which the amount involved exceeds $60,000 and in which Ms. Edwards
has an interest. Ms. Edwards will receive compensation for her service as a
director comparable to that received by our other non-employee directors,
including an award of 2,500 restricted shares of our common stock, with the
restrictions to lapse following one year of service as a director, and options
to acquire 2,500 shares of our common stock at an exercise price equal to the
fair market value of the stock on the date of grant, which options will vest
December 7, 2005, subject to continued service as a director on that date.
SECTION 8 - OTHER EVENTS
ITEM 8.01 OTHER EVENTS.
As previously reported, on September 7, 2004, NATCO Group Inc. advised the New
York Stock Exchange (NYSE) that, due to the departure of NATCO's former Chief
Executive Officer and the interim assumption of his duties by the Chairman of
the Board, John U. Clarke, our Audit Committee had only two members, was
without an "audit committee financial expert" and thus was out of compliance
with NYSE listing standards 303.01, 303A.06 and 303A.07 and SEC requirements.
On December 7, 2004, the Board elected Mr. Clarke as Chief Executive Officer
and named Julie H. Edwards, executive vice president-finance and administration
and chief financial officer for Frontier Oil Corp., to the Board of Directors
and its Audit Committee. The Board determined that Ms. Edwards is independent
pursuant to the requirements of the NYSE listing standards, and has the
requisite background and experience to meet the requirements of such standards
with regard to accounting and financial management expertise. We have advised
the NYSE that we are now in compliance with the listing standards.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
10.1 Executive Employment Agreement between NATCO Group Inc.
and John U. Clarke dated as of December 7, 2004
99.1 Press release dated December 8, 2004, announcing
election of John U. Clarke as NATCO Group Inc. Chief
Executive Officer
99.2 Press release dated December 9, 2004, announcing
election of new director
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 10, 2004
NATCO Group Inc.
By: /s/ JOHN U. CLARKE
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John U. Clarke
Chairman and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Executive Employment Agreement between NATCO
Group Inc. and John U. Clarke dated as of
December 7, 2004
99.1 Press release dated December 8, 2004, announcing
election of John U. Clarke as NATCO Group Inc. Chief
Executive Officer
99.2 Press release dated December 9, 2004, announcing
election of new director
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