-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QGqCQdFJk/8YC4ZgRxd4HW21DIJpvkjcpuPj/FvBLtN9555908KCm4sbhKKWcyFL aCGYuOYom/F5EvOojyHyqA== 0000950129-03-001602.txt : 20030327 0000950129-03-001602.hdr.sgml : 20030327 20030327144018 ACCESSION NUMBER: 0000950129-03-001602 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030325 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATCO GROUP INC CENTRAL INDEX KEY: 0001057693 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 222906892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15603 FILM NUMBER: 03620610 BUSINESS ADDRESS: STREET 1: BROOKHOLLOW CENTRAL III STREET 2: 2950 NORTH LOOP WEST STE 750 CITY: HOUSTON STATE: TX ZIP: 77092 BUSINESS PHONE: 7136839292 MAIL ADDRESS: STREET 1: BROOKHOLLOW CENTERL III STREET 2: 2950 NORTH LOOP WEST STE 750 CITY: HOUSTON STATE: TX ZIP: 77092 8-K 1 h04334e8vk.txt NATCO GROUP INC. - DATED 3/25/2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- 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): March 25, 2003 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 ITEM 5. OTHER EVENTS On March 25, 2003, NATCO Group Inc. issued a press release announcing the completion of a $15.0 million convertible preferred stock and warrant sale to a private equity firm. This press release is filed as Exhibit 99.1 to this Current Report on Form 8-K. The related Certificate of Designations, Registration Rights Agreement and First Amendment to the Rights Agreement, are filed as exhibits 3.1, 4.1 and 4.2 respectively, to this Current Report on Form 8-K. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits 3.1 Certificate of Designations of Series B Convertible Preferred Stock of NATCO Group Inc. dated March 25, 2003 4.1 Registration Rights Agreement by and between Lime Rock Partners II, L.P. and NATCO Group Inc. dated March 25, 2003 4.2 First Amendment to Rights Agreement between NATCO Group Inc. and Mellon Investor Services L.L.C. (as successor to ChaseMellon Shareholder Services, L.L.C.), as Rights Agent dated March 25, 2003 99.1 Press Release, dated March 25, 2003 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: March 27, 2003 NATCO Group Inc. By: /s/ RYAN S. LILES ----------------------------------- Ryan S. Liles Vice President, Controller and Principal Accounting Officer EXHIBIT INDEX (c) Exhibits 3.1 Certificate of Designations of Series B Convertible Preferred Stock of NATCO Group Inc. dated March 25, 2003 4.1 Registration Rights Agreement by and between Lime Rock Partners II, L.P. and NATCO Group Inc. dated March 25, 2003 4.2 First Amendment to Rights Agreement between NATCO Group Inc. and Mellon Investor Services L.L.C. (as successor to ChaseMellon Shareholder Services, L.L.C.), as Rights Agent dated March 25, 2003 99.1 Press Release, dated March 25, 2003 ` EX-3.1 3 h04334exv3w1.txt CERTIFICATE OF DESIGNATIONS OF SERIES B EXHIBIT 3.1 CERTIFICATE OF DESIGNATIONS OF SERIES B CONVERTIBLE PREFERRED STOCK OF NATCO GROUP INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware NATCO Group Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation adopted at a meeting duly called and held the following resolution as required by Section 151 of the General Corporation Law: RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the Restated Certificate of Incorporation, as amended, of the Corporation, a series of Series B Convertible Preferred Stock, par value $.01 per share, of the Corporation be, and hereby is, created, and that the designation and amount thereof and the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation that are applicable to the Preferred Stock of all series), shall be as follows: 1. Definitions. In this Certificate of Designations, the following terms when capitalized have the following meanings: "Beneficial Owner": as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the lapse of time (even if more than 60 days) or upon the occurrence of a subsequent condition. "Beneficially Own" and "Beneficial Ownership" have corresponding meanings. "Board": the Corporation's Board of Directors. "Change of Control": the occurrence of any of the following: (i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger, consolidation or transfer of Voting Stock), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its subsidiaries, taken as a whole, to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than to the Corporation or a wholly-owned subsidiary of the Corporation; (ii) the consummation of any transaction or series of related transactions (including any merger or consolidation) resulting in any "person" (as defined above) other than (x) the then holders of more than 50% of the Convertible Preferred Shares or (y) Herbert S. Winokur Jr., Capricorn Investors II, L.P., or any group (as that term is used in Section 13(d)(3) of the Exchange Act) which includes either or both of Herbert S. Winokur Jr. or Capricorn Investors II, L.P, becoming the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock (measured by voting power rather than number of shares); (iii) during any period of twelve consecutive months after the date on which this Certificate of Designation was filed with the Secretary of State for the State of Delaware, the individuals who at the beginning of any such 12-month period constituted the Board (the "Incumbent Board") cease to constitute at least a majority of the Board; provided that any director whose election to the Board, or whose nomination for election by the stockholders of the Corporation, was approved by majority vote of the Incumbent Board or a committee of the Incumbent Board, shall, in each such case, be considered as though such individual were a member of the Incumbent Board provided that the occurrence of any event identified in this subparagraph (iii) that would otherwise be treated as a Change of Control shall not constitute a Change of Control if the holders of a majority of the outstanding Convertible Preferred Shares, by written consent, shall so determine; or (iv) a merger, consolidation or reorganization with respect to which all or substantially all of the individuals and entities who were the Beneficial Owners of the Voting Stock immediately prior to such merger, consolidation or reorganization do not, following such merger, consolidation or reorganization, Beneficially Own, directly or indirectly, more than 50% of the Voting Stock resulting from such merger, consolidation or reorganization. "Common Stock": the Corporation's common stock, par value $0.01 per share. "Conversion Price": $7.805, subject to adjustment pursuant to Section 9. "Convertible Preferred Share": a share of Series B Convertible Preferred Stock. "Current Per Share Market Price": as of any date, the average of the closing prices per share of Common Stock for the ten consecutive Trading Days immediately prior to such date. If the Current Per Share Market Price of the Common Stock is determined during a period following the announcement of (x) a dividend or distribution on the Common Stock other than a regular quarterly cash dividend or (y) any subdivision, split, combination or reclassification of Common Stock and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, split, combination or reclassification, shall not have occurred prior to the commencement of such ten Trading Day period, then, and in each such case, the Current Per Share Market Price shall be properly adjusted to take into account ex-dividend trading. If, however, such dividend or distribution is not paid or such subdivision, split, combination or reclassification is not 2 consummated, the Current Per Share Market Price shall be recalculated without taking into account ex-dividend trading. The closing price for each day shall be: (i) the last sales price, regular way (or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way) as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted sales price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, on the NASDAQ National Market or as reported by the self-regulatory organization or registered securities information processor (as these terms are used under the Exchange Act) that then reports information concerning the Common Stock; (iii) if on any such date the Common Stock is not quoted by any such entity, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board; or (iv) if on any such date no such market maker is making a market in the Common Stock, the fair value of the Common Stock on such date as determined in good faith by the Board. "Default Period": (i) any period during which dividends on any Convertible Preferred Shares have not been paid in cash and are therefore in arrears in an amount equal to two semi-annual dividends thereon and ending when all accrued and unpaid dividends for all previous dividend periods on all Convertible Preferred Shares then outstanding shall have been paid in cash; (ii) any period during which the Corporation is in default in setting aside or making payment in cash of any redemption price under Section 10(d)(ii) or Section 10(e). However, no Default Period shall commence until the Corporation has defaulted in the payment of such dividends or any redemption price for 60 days after the date the payment was due. "Distribution Date": has the same meaning as in the Rights Agreement. "Equity-Linked Securities": rights, options, warrants or other securities directly or indirectly convertible into, or exercisable or exchangeable for, shares of Common Stock. "Exchange Act": the Securities Exchange Act of 1934, as amended. 3 "Excluded Securities": (i) shares of Common Stock and Equity-Linked Securities issued to employees, officers and directors of, or consultants and advisors to, the Corporation or any of its subsidiaries pursuant to stock purchase or stock option plans or other compensatory arrangements that are approved by the Corporation's Board, and the shares of Common Stock issued pursuant to such Equity-Linked Securities; (ii) shares of Common Stock issued pursuant to the exercise, exchange or conversion of Equity-Linked Securities outstanding as of the date of the first issuance of Convertible Preferred Shares; (iii) shares of Common Stock or Equity-Linked Securities issued in connection with an acquisition, consolidation, merger or sale by or of the Corporation approved by the Corporation's Board; (iv) shares of Common Stock or Equity-Linked Securities issued in a bona fide registered underwritten public offering; and (v) Convertible Preferred Shares and the Warrant issued pursuant to the Securities Purchase Agreement, and shares of Common Stock issued upon conversion of such Convertible Preferred Shares or exercise of such Warrant. "Face Value": with respect to one Convertible Preferred Share, $1,000 (subject to adjustment pursuant to Section 3(d) and subject to adjustment to reflect any stock split, combination, reclassification or similar event involving the Convertible Preferred Shares). "Junior Stock": each class of Common Stock and each other class or series of capital stock of the Corporation, the terms of which do not expressly provide that such class or series ranks senior to, or on parity with, the Convertible Preferred Shares as to: (i) for the purposes of Section 3(a): dividend rights; (ii) for the purposes of Section 3(d) and Section 5: dividend rights and rights on liquidation, winding-up and dissolution of the Corporation; or (iii) for the purposes of Section 7: rights on liquidation, winding-up and dissolution of the Corporation. "Liquidation Preference": with respect to each Convertible Preferred Share, the greater of: (i) the sum of (x) the Face Value plus (y) the amount of dividends on such Convertible Preferred Share that have accrued since the prior Semi-Annual Dividend Payment Date and which have not been paid in cash, whether or not earned or declared; and 4 (ii) the amount that would have been payable to the holder of such Convertible Preferred Share in respect of shares of Common Stock issuable upon conversion of such Convertible Preferred Share if all outstanding Convertible Preferred Shares were converted into shares of Common Stock immediately prior to the liquidation, dissolution or winding up in accordance with Section 8. "Other Dilutive Securities": defined in Section 9(f). "Other Distribution": defined in Section 9(b). "Parity Stock": each class or series of capital stock of the Corporation, the terms of which expressly provide that such class or series ranks on a parity with the Convertible Preferred Shares as to: (i) for the purposes of Section 3 and Section 5(a)(ii): dividend rights; or (ii) for the purposes of Section 5(a)(iii) and Section 7: rights on liquidation, winding-up and dissolution of the Corporation. "Preferred Stock": has the same meaning as in the Restated Certificate of Incorporation, as amended. "Right": has the same meaning as in the Rights Agreement. "Rights Agreement": the Rights Agreement, dated as of May 15, 1998, between the Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, as amended. "Securities Purchase Agreement": the Securities Purchase Agreement dated as of March 13, 2003 between the Corporation and Lime Rock Partners II, L.P. "Semi-Annual Dividend Payment Date": each of the 15th day of June and December in each year. "Senior Stock": each class or series of capital stock of the Corporation, the terms of which expressly provide that such class or series ranks senior to the Convertible Preferred Shares as to: (i) for the purposes of Section 3: dividend rights; or (ii) for the purposes of Section 7: rights on liquidation, winding-up and dissolution of the Corporation. "Series B Convertible Preferred Stock": defined in Section 2. "Trading Day": (i) a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business; or 5 (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which commercial banks in Houston, Texas are not authorized or required by law to close or are otherwise generally closed. "Voting Stock" the capital stock of the Corporation (or any successor) that is at the time entitled to vote in the election of the Board. "Warrant": the warrant to purchase shares of common stock issued under the Securities Purchase Agreement. "Warrant Gain": with respect to each holder of Convertible Preferred Shares to be redeemed pursuant to Section 11(b)(i), the amount by which: (i) the sum of (x) the aggregate consideration theretofore received or receivable by such holder upon any transfer of any shares of Common Stock issued upon exercise of the Warrant plus (y) the aggregate Current Per Share Market Price as of the date of such redemption of any shares of Common Stock issued upon exercise of the Warrant and held by the holder as of the date of such redemption exceeds (ii) the aggregate consideration such holder paid to exercise the Warrant prior to the date of such redemption (provided that the consideration on a cashless exercise shall be deemed to be zero). 2. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series B Convertible Preferred Stock," and the number of shares constituting such series shall be 15,000. Such number of shares may be increased or decreased by resolution of the Board; provided, however, that no decrease shall reduce the number of Convertible Preferred Shares to less than the number of Convertible Preferred Shares then issued and outstanding plus the number of Convertible Preferred Shares issuable upon exercise, conversion or exchange of outstanding rights, options, warrants or other securities convertible into, or exercisable or exchangeable for, Convertible Preferred Shares. 3. Dividends and Distributions. (a) Dividend Rate. Subject to the prior and superior rights of the holders of any shares of Senior Stock, the holders of Convertible Preferred Shares, in preference to the holders of any Junior Stock, shall be entitled to receive, when declared by the Board out of funds legally available for the purpose, semi-annual dividends payable in cash on each Semi-Annual Dividend Payment Date, at the rate of 10.0% per share per annum of the Face Value (subject to adjustment during a Default Period under Section 3(e)) (except that the semi-annual dividend otherwise payable on June 15, 2003 shall not be payable until July 1, 2003). Except as set forth in this Section 3, the Convertible Preferred Shares shall not be entitled to receive dividends. (b) Periods in Which Dividends Accrue. Dividends shall begin to accrue and be cumulative on outstanding Convertible Preferred Shares, whether or not there are funds of the 6 Corporation legally available for the payment of such dividend, from the issue date of such Convertible Preferred Shares (except that dividends on any dividends added to the Face Value in accordance with Section 3(d) shall accrue from the date such amounts are added to the Face Value) through the date on which the Convertible Preferred Shares are converted into Common Stock or the date of redemption (unless on the date of redemption the Corporation fails to pay or set apart for payment in accordance with Section 10(d)(ii) the redemption price, in which case dividends shall continue to accrue and be cumulative through the date that the Corporation pays or sets apart for payment in accordance with Section 10(d)(ii) the redemption price). (c) Record Date for Dividends. The Board may fix a record date for the determination of holders of Convertible Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. (d) Unpaid Dividends. If the amount of dividends paid in cash on the Convertible Preferred Shares on a Semi-Annual Dividend Payment Date is less than the total amount of such dividends at the time accrued and payable on such shares (or that would be payable if the Corporation had funds legally available for payment), (x) the dividends paid shall be allocated pro rata on a share-by-share basis among all Convertible Preferred Shares at the time outstanding, (y) the accrued and unpaid dividends shall be added to the Face Value on the Semi-Annual Dividend Payment Date and shall thereafter, until such accrued and unpaid dividends have been paid in cash in full, be treated as part of the Face Value and accrue additional dividends in respect thereof at the rate determined in accordance in Section 3(a) and Section 3(e), and (z) until all accrued and unpaid dividends have been paid in cash in full, the Corporation shall not, after that Semi-Annual Dividend Payment Date, declare or pay any dividend on, make any other distribution on, or redeem or purchase or otherwise acquire for consideration (or pay or make available any money for a sinking fund for the redemption of) any Junior Stock. (e) Default Dividend Rate. At the commencement of a Default Period, the dividend rate shall rise to 10.25% per annum. At the end of the Default Period, the dividend rate shall return to 10% per annum. 4. Voting Rights. The holders of Convertible Preferred Shares shall have the following voting rights: (a) Numbers of Votes. On all matters submitted to a vote or consent of the stockholders of the Corporation, or to a group of stockholders consisting of or including the holders of Convertible Preferred Shares, unless provided otherwise in this Certificate of Designations, each Convertible Preferred Share shall entitle the holder thereof to a number of votes equal to the number of shares of Common Stock into which such Convertible Preferred Share would convert pursuant to Section 8(a) if converted on the record date for such vote or, if no such record date is established, on the date such vote is taken or such consent is obtained. Except as otherwise provided herein or by law, the holders of Convertible Preferred Shares and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 7 (b) Approval Rights. While any Convertible Preferred Shares are outstanding, the Corporation will not, without the vote of the holders of a majority or more of the outstanding Convertible Preferred Shares voting separately as a class with one vote per share: (i) amend, repeal or waive the application of (including in connection with a merger, consolidation, combination or otherwise) any provision of the Certificate of Incorporation or the By-Laws of the Corporation or any of its subsidiaries, or of this Certificate of Designations, in any manner, or enter into any agreement or take any corporate action (or permit any of its subsidiaries to enter into any agreement or take any corporate action) which would materially alter or change the powers, preferences or special rights of the Convertible Preferred Shares so as to affect them adversely; or (ii) authorize or issue any class or series of stock of the Corporation ranking senior to, or on a parity with, the Convertible Preferred Shares in respect of dividends or in respect of rights on liquidation, winding-up and dissolution of the Corporation, or any additional Convertible Preferred Shares. (c) Right to Elect a Director. For so long as more than 50% of the Convertible Preferred Shares issued under the Securities Purchase Agreement remain outstanding, the holders of Convertible Preferred Shares shall 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 in a written consent pursuant to Section 228 of the General Corporation Law, in accordance with the procedures in Section 4(e). (d) Additional Right to Elect a Director During a Default Period. During each Default Period, the holders of Convertible Preferred Shares, shall have the right, voting separately as a class with one vote per share, to elect or appoint a director (not including the director elected or appointed under Section 4(c)) at any annual or special meeting of stockholders or in a written consent pursuant to Section 228 of the General Corporation Law in accordance with the procedures in Section 4(e). (e) Procedures for Appointing Directors. The following procedures shall apply to the election or appointment of directors by the holders of Convertible Preferred Shares pursuant to Section 4(c) or Section 4(d): (i) Such voting rights under Section 4(c) or Section 4(d) may be exercised initially at a special meeting of holders of Convertible Preferred Shares called pursuant to Section 4(e)(iv), at any annual meeting of stockholders or in any written consent pursuant to Section 228 of the General Corporation Law, and thereafter at annual meetings of stockholders or in such written consents, provided that neither such voting rights under Section 4(c) or Section 4(d) nor the right to increase under Section 4(e)(iii), in certain cases, the authorized number of directors shall be 8 exercised at a meeting unless the holders of one-third in number of the Convertible Preferred Shares shall be present in person or by proxy. (ii) The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Convertible Preferred Shares of such voting rights at a meeting. (iii) In any case in which the holders of Convertible Preferred Shares shall exercise such voting rights, they shall have the right, voting as a class with one vote per share, to elect or appoint directors to fill such vacancies, if any, in the Board as may then exist, up to one director pursuant to Section 4(c) and one director pursuant to Section 4(d) or, if such right is exercised at an annual meeting, to elect that number of directors. The holders of the Convertible Preferred Shares shall also have the right to require such increase in the number of directors as shall be necessary to permit them to elect or appoint one or two directors, as the case may be. (iv) Unless the holders of the Convertible Preferred Shares have previously exercised their right to elect or appoint one or two directors, as the case may be, the Board may order, or any stockholder or stockholders owning in the aggregate not less than ten percent of the total number of Convertible Preferred Shares may request, the calling of a special meeting of the holders of Convertible Preferred Shares, which meeting shall thereupon be called by the Chairman of the Board, the President, a Vice President or the Secretary of the Corporation. (v) A meeting called pursuant to Section 4(e)(iv) shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or, in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent of the total number of Convertible Preferred Shares (except that no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders). (vi) Notice of a meeting called pursuant to Section 4(e)(iv), and of any annual meeting at which holders of Convertible Preferred Shares are entitled to vote pursuant to Section 4(c) and/or Section 4(d), shall be given to each holder of record of Convertible Preferred Shares by mailing a copy of such notice by first class prepaid mail to such holder at his or her last address as it appears on the books of the Corporation. (f) Rights of Common Stock to Appoint. The holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Convertible Preferred Shares shall have exercised their 9 right to elect or appoint one director pursuant to Section 4(c) and, if applicable, one director pursuant to Section 4(d). (g) Term of Office of Directors Appointed by Holders of Convertible Preferred Stock. Subject to Section 4(h) and Section 4(i), the directors elected or appointed by the holders of Convertible Preferred Shares pursuant to Section 4(c) and Section 4(d) shall continue in office until their successors shall have been elected by such holders. Subject to Section 4(e), any vacancy in the Board may be filled by a vote of a majority of the remaining directors theretofore elected or appointed by the holders of the class of stock which elected or appointed the director whose office shall have become vacant. References in this Section 4 to directors elected or appointed by the holders of a particular class of stock shall include directors elected or appointed by such directors to fill vacancies as provided in this Section 4(g). (h) Right to Appoint Director Terminates. Immediately upon the first date on which 50% or less of the Convertible Preferred Shares issued under the Securities Purchase Agreement remain outstanding: (i) the right of the holders of the Convertible Preferred Shares to elect or appoint a director under Section 4(c) shall cease; (ii) the term of any director elected or appointed by the holders of Convertible Preferred Shares under Section 4(c) shall terminate; (iii) the number of directors shall be the number provided for in the Certificate of Incorporation or By-Laws irrespective of any increase made pursuant to Section 4(e)(iii) in respect of the director elected or appointed under Section 4(c) (such number being subject, however, to change thereafter in any manner provided by law or in the Certificate of Incorporation or By-Laws); and (iv) any vacancy in the Board effected by Section 4(h)(ii) and Section 4(h)(iii) may be filled by a majority of the remaining directors. (i) Expiration of Default Period. Immediately upon the expiration of a Default Period: (i) the right of the holders of the Convertible Preferred Shares to elect or appoint a director under Section 4(d) shall cease (subject to revesting on the commencement of a later Default Period); (ii) the term of any director elected or appointed by the holders of Convertible Preferred Shares under Section 4(d) shall terminate; (iii) the number of directors shall be the number provided for in the Certificate of Incorporation or By-Laws irrespective of any increase made pursuant to Section 4(e)(iii) in respect of the director elected or appointed under Section 4(d) (such number being subject, however, to change thereafter in 10 any manner provided by law or in the Certificate of Incorporation or By-Laws); and (iv) any vacancy in the Board effected by Section 4(i)(ii) and Section 4(i)(iii) may be filled by a majority of the remaining directors. (j) No Other Voting Rights. Except as set forth herein or required by law, holders of Convertible Preferred Shares shall have no voting rights and their consent shall not be required for taking any corporate action. (k) No Like Voting Rights. None of the voting rights in this Section 4 shall be "like voting rights" for the purposes of Section 3(C)(i) of the Certificate of Designations for the Series A Junior Participating Preferred Stock. 5. Certain Restrictions. (a) Restrictions on the Corporation. During a Default Period, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration (or pay or make available any money for a sinking fund for the redemption of) any Junior Stock, provided that the Corporation may at any time declare and pay dividends and make other distributions payable in shares of Common Stock; (ii) declare or pay dividends on or make any other distributions on any Parity Stock, except dividends and distributions paid ratably on the Convertible Preferred Shares and all such Parity Stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) redeem or purchase or otherwise acquire for consideration (or pay or make available any money for a sinking fund for the redemption of) any Parity Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any Parity Stock in exchange for shares of Common Stock. (b) Restrictions on Subsidiaries. The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Section 5(a), purchase or otherwise acquire such shares at such time and in such manner. 6. Reacquired Shares. Any Convertible Preferred Shares converted, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever, including pursuant to Section 8, Section 10 or Section 11, shall be retired and canceled promptly after the conversion, redemption, purchase or other acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as 11 part of a new series of Preferred Stock to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein. 7. Liquidation, Dissolution or Winding Up. Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to holders of shares of Junior Stock unless, prior thereto, the holders of Convertible Preferred Shares shall have received the Liquidation Preference for each of their Convertible Preferred Shares. (b) If, however, there are not sufficient assets available to permit payment in full of the aggregate Liquidation Preference for all outstanding Convertible Preferred Shares pursuant to Section 7(a) and the liquidation preferences of all other shares of Parity Stock, then such remaining assets shall be distributed ratably to the holders of such Convertible Preferred Shares and such shares of Parity Stock in proportion to their respective liquidation preferences. (c) The Corporation shall not declare as a dividend any payments pursuant to this Section 7. 8. Conversion. (a) Conversion at Holders' Option. Each Convertible Preferred Share shall be convertible at the option of the holder under this Section 8, at any time and from time to time, in whole or in part, into (x) a number of fully paid and non-assessable shares of Common Stock, free of liens and not subject to preemptive rights, equal to the then Face Value of such Convertible Preferred Share divided by the Conversion Price and (y) an amount, payable in cash, equal to the amount of the dividends on such Convertible Preferred Share that have accrued since the prior Semi-Annual Dividend Payment Date and have not been paid in cash, whether or not earned or declared. The Board shall not declare as a dividend any payments pursuant to this Section 8. (b) Procedure for Conversion at Holders' Option. Each holder of Convertible Preferred Shares who wishes to convert some or all of such shares into shares of Common Stock shall surrender the certificate or certificates for such shares, duly endorsed, at the office of the Corporation and give written notice to the Corporation at such office that such holder elects to convert a specified number of Convertible Preferred Shares. A holder of Convertible Preferred Shares may give an effective conversion notice even if the Corporation has given notice of redemption under Section 10(c). The Corporation shall then promptly issue and deliver to such holder (x) a certificate or certificates for the number of shares of Common Stock to which such holder is entitled as a result of the conversion, (y) if fewer than all the Convertible Preferred Shares represented by any such surrendered certificate are converted, a new certificate representing the Convertible Preferred Shares which were not converted, and (z) any cash payment due to such holder pursuant to Section 8(a) or Section 8(c). (c) No Fractional Shares. No fractional shares or scrip representing fractions of Common Stock shall be issued upon conversion of Convertible Preferred Shares. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the conversion of Convertible Preferred Shares, the Corporation shall pay an amount in cash equal to 12 such fractional interest multiplied by the Current Per Share Market Price of the Common Stock on the day such Convertible Preferred Shares are deemed to have been converted. (d) No Charge for Certain Conversion Costs. The issuance of certificates for shares of Common Stock upon conversion of Convertible Preferred Shares shall be made without charge to the holders of such shares for any issuance tax or other cost incurred by the Corporation in connection with such conversion and/or the issuance of shares of Common Stock, except for any tax payable in respect of any transfer into a name other than that of the holder of record of the converted Convertible Preferred Shares. (e) Date of Conversion. Any conversion pursuant to this Section 8 shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate or certificates representing the Convertible Preferred Shares to be converted, and the Person in whose name any certificate or certificates for shares of Common Stock is issuable upon such conversion shall be treated for all purposes as the holder of record of such shares of Common Stock on such date. (f) Reservation of Shares of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Convertible Preferred Shares, such number of shares of Common Stock as may be issued upon conversion of all outstanding Convertible Preferred Shares not previously converted. 9. Anti-Dilution Adjustments. (a) Dividends, Splits, Reorganizations etc. If the Corporation at any time after the date of the first issuance of Convertible Preferred Shares: (i) fixes a record date for a dividend or distribution on shares of Common Stock payable in Common Stock; (ii) subdivides or splits the outstanding shares of Common Stock; (iii) combines the outstanding shares of Common Stock into a smaller number of shares; (iv) changes the number of shares of outstanding Common Stock by reclassifying its Common Stock; or (v) consolidates with, or merges with or into any other person, or engages in any reorganization, reclassification or recapitalization, in which the holders of Common Stock are entitled to receive stock, securities, cash or other assets with respect to or in exchange for Common Stock, then the Convertible Preferred Shares outstanding on such record date for a dividend or distribution, or on the effective date of such subdivision split, combination, consolidation, merger, reorganization, reclassification or recapitalization, shall remain outstanding (or, in a consolidation, merger or other transaction in which the Corporation is not the surviving entity, 13 shall be exchanged for preferred stock, or other equivalent ownership interests, in the surviving entity with equivalent rights to those of the Convertible Preferred Shares), and the Conversion Price and the kind and amount of stock, securities, cash or other assets issuable upon conversion of such Convertible Preferred Shares (or other preferred stock or ownership interests, as the case may be) shall be adjusted so that the conversion after such time shall entitle the holder to receive the aggregate number of shares of Common Stock, or stock, securities, cash and other assets, which, if the Convertible Preferred Shares had been converted immediately prior to such time, such holder would have been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination, consolidation, merger, reorganization, reclassification or recapitalization. Such adjustment shall become effective immediately after the effective date, retroactive to the record date in the case of a dividend or distribution. Such adjustments shall be made successively whenever any such event occurs. This Section 9(a) shall not apply to any transaction to which Section 11 applies. (b) Extraordinary Dividends and Distributions. If the Corporation at any time after the date of the first issuance of Convertible Preferred Shares fixes a record date for a dividend or distribution to all holders of its outstanding Common Stock of evidences of indebtedness of the Corporation, cash, assets or securities (except Common Stock and Excluded Securities), and whether by way of dividend, spin-off, reclassification, recapitalization, similar corporate reorganization or otherwise (other than cash dividends which, in any fiscal year, do not in the aggregate exceed 20% of the Corporation's net income in the prior fiscal year) ("Other Distribution"), then the Corporation shall make adequate provision so that each holder of Convertible Preferred Shares will receive, in addition to shares of Common Stock upon conversion of its Convertible Preferred Shares, at the election of the holders of a majority of the Convertible Preferred Shares, either: (i) the Other Distribution to which such holder would have been entitled as a holder of shares of Common Stock if such holder had converted its Convertible Preferred Shares immediately prior to the record date for the Other Distribution; or (ii) the cash equivalent of the Other Distribution. Such adjustments shall be made successively whenever any such dividend is paid or distribution occurs, and shall become effective on the date of the dividend or distribution and be retroactive to the record date for the dividend or distribution. (c) Sales Below the Current Per Share Market Price. Except to the extent that an adjustment has already been made under Section 9(a), if the Corporation at any time after the date of the first issuance of Convertible Preferred Shares issues or sells any shares of Common Stock (except Excluded Securities) without consideration or for a consideration per share less than the Current Per Share Market Price on the date of such issuance or sale, the Conversion Price shall be adjusted, as of the close of business on the date of such issuance or sale, to an amount equal to the Conversion Price in effect immediately prior to such issuance or sale multiplied by the following adjustment factor: Adjustment = (Current Common Shares x Current Price) + Consideration Factor ------------------------------------------------------- Resulting Common Shares x Current Price 14 where: "Consideration" means the aggregate consideration paid or payable for the shares of Common Stock being issued or sold. "Current Common Shares" means the number of shares of Common Stock issued and outstanding immediately before the issuance or sale giving rise to the adjustment. "Current Price" means the Current Per Share Market Price on the day of the issuance or sale giving rise to the adjustment. "Resulting Common Shares" means the sum of the Current Common Shares and the number of shares of Common Stock included in the issuance or sale giving rise to the adjustment. Such adjustments shall be made successively whenever any such issuance or sale occurs. (d) Equity-Linked Securities. Except to the extent that an adjustment has already been made under Section 9(a) or Section 9(b), if the Corporation at any time after the date of the first issuance of Convertible Preferred Shares issues, sells or grants any Equity-Linked Securities (except Excluded Securities) and the sum of the aggregate consideration paid or payable for the issuance, sale or grant of such Equity-Linked Securities plus the minimum consideration payable to exercise, convert or exchange all such Equity-Linked Securities for shares of Common Stock, all divided by the maximum number of shares of Common Stock issuable upon exercise, conversion or exchange of all such Equity-Linked Securities, is less than the Current Per Share Market Price on the date of such issuance, sale or grant: (i) subject to Section 9(d)(ii), the maximum number of shares of Common Stock issuable upon exercise, conversion or exchange of all such Equity-Linked Securities shall be deemed to have been issued as of the date of the issuance, sale or grant of such Equity-Linked Securities and the Conversion Price shall be adjusted pursuant to Section 9(c) as though the Corporation had issued such maximum number of shares of Common Stock and received as consideration for the issuance of such shares of Common Stock an amount equal to the sum of the aggregate consideration paid or payable for the issuance, sale or grant of such Equity-Linked Securities plus the minimum consideration payable to exercise, convert or exchange all such Equity-Linked Securities for shares of Common Stock; (ii) if, over time or on the occurrence or non-occurrence of specified events (except by reason of anti-dilution adjustments similar to those in this Certificate of Designations), the minimum consideration payable to exercise, convert or exchange such Equity-Linked Securities for shares of Common Stock is reduced, or the maximum number of shares of Common Stock to which holders of such Equity-Linked Securities are entitled upon exercise, conversion or exchange is increased, the amount of consideration 15 deemed to be received by the Corporation, or the number of shares of Common Stock issuable upon exercise, conversion or exchange of such Equity-Linked Securities, shall be recalculated upon the occurrence or non-occurrence of such events using such reduced minimum consideration amount or such increased maximum share number (although, if the minimum consideration payable to exercise, convert or exchange all such Equity-Linked Securities for shares of Common Stock is subsequently increased, or the maximum number of shares of Common Stock to which holders are entitled upon exercise, conversion or exchanged of all such Equity-Linked Securities is subsequently decreased, the amount of consideration deemed to be received, or number of shares of Common Stock deemed to have been issued, by the Corporation shall again be recalculated using the increased minimum consideration amount or such decreased maximum share number); and (iii) if any such Equity-Linked Securities expire unexercised, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise, conversion or exchange of such Equity-Linked Securities, and such shares of Common Stock, if any, were issued or sold for the aggregate consideration received upon such exercise, conversion or exchange plus the aggregate consideration, if any, received for the issuance or sale of all such Equity-Linked Securities, whether or not exercised, converted or exchanged. Adjustments under this Section 9(d) shall be made successively whenever the Corporation issues, sells or grants Equity-Linked Securities. Except as provided in Section 9(d)(iii), no further adjustment of the Conversion Price shall be made as a result of the actual issuance of shares of Common Stock on the exercise, conversion or exchange of such Equity-Linked Securities. (e) Rights Distributed Under the Rights Agreement. While the Rights Agreement remains in effect: (i) holders who convert Convertible Preferred Shares before the Distribution Date will receive, in addition to the shares of Common Stock issued on the conversion, one Right for each such share of Common Stock; (ii) if the Distribution Date occurs, the Rights that become exercisable will be treated as having been issued for no consideration as of the Distribution Date, and Rights issued after the Distribution Date will be treated as having been issued for no consideration as of their issue date and, except as provided in Section 9(e)(iv), an adjustment will be made accordingly under Section 9(d) or, if applicable, Section 9(f) and Section 9(g); 16 (iii) no adjustment to the Conversion Price will be made under this Section 9 for the issuance of Rights except as provided in Section 9(e)(ii); and (iv) no adjustment will be made under this Section 9 for the benefit of a holder of Convertible Preferred Shares (or any of its "Affiliates" or "Associates" as defined in the Rights Agreement) where that holder became an "Acquiring Person" under the Rights Agreement and, as a result, caused the Rights to become exercisable. (f) Other Dilutive Securities. The Corporation shall not (i) issue, sell or grant equity securities (except Common Stock and Equity-Linked Securities) that participate with shares of Common Stock in dividends, distributions or other rights ("Other Dilutive Securities"), or (ii) declare or pay dividends or distributions (whether of evidences of indebtedness of the Corporation, cash, assets or securities) in respect of Other Dilutive Securities or Equity-Linked Securities unless, in each case, this Section 9 is first amended to preserve without dilution, on a basis consistent with the essential intent and principles established in Section 9, the conversion rights of the Convertible Preferred Shares. (g) Other Dilutive Events. If any event occurs to which Section 9 does not strictly apply but as to which the failure to make an adjustment would not fairly protect the conversion rights in respect of the Convertible Preferred Shares in accordance with the essential intent and principles of Section 9, then the Corporation shall appoint a firm of independent certified public accountants of recognized national standing to give their opinion on the adjustment needed to preserve without dilution, on a basis consistent with the essential intent and principles established in Section 9, the conversion rights of the Convertible Preferred Shares. On receiving this opinion, the Corporation will promptly mail a copy of it to each holder of Convertible Preferred Shares and shall make the adjustments described in it. (h) Valuation of Consideration and Non-Cash Distributions. If any of the consideration received or to be received by the Corporation in respect of shares of Common Stock or Equity-Linked Securities is in a form other than cash, or the Corporation or any other person distributes assets (other than cash) or securities to securityholders, the fair market value of such consideration, assets or securities will be used in determining adjustments under this Section 9. The fair market value shall be determined in good faith by the Board unless holders of a majority of the outstanding Convertible Preferred Shares object to the Board's determination, in which case the Board shall retain an independent appraiser reasonably satisfactory to such holders to determine the fair market value. If the fair market value so determined by the independent appraiser is more than 90% (in the case of non-cash consideration received or to be received by the Corporation) or is less than 110% (in the case of distributions of non-cash assets or securities) of the fair market value determined by the Board, the objecting holders shall pay the independent appraiser's fees and expenses. When the Corporation issues, sells or grants shares of Common Stock or Equity-Linked Securities, the amount of consideration paid or payable to the Corporation in respect of such shares or securities and taken into account under this Section 9 shall not include any amounts paid for accrued dividends or accrued interest. (i) Allocating Consideration. If shares of Common Stock or Equity-Linked Securities are issued, sold or granted together with other stock or securities or other assets of the 17 Corporation for an aggregate consideration that covers both, the consideration paid or payable to the Corporation for the shares of Common Stock or Equity-Linked Securities shall be the portion of the aggregate consideration paid or payable to the Corporation that may be reasonably determined in good faith by the Board to be allocable to such shares of Common Stock or Equity-Linked Securities unless holders of a majority of the outstanding Convertible Preferred Shares object to the Board's determination, in which case the Board shall retain an independent appraiser reasonably satisfactory to such holders to determine the allocation. If the amounts allocated to the shares of Common Stock or Equity-Linked Securities as determined by the independent appraiser do not differ by 10% or more from the allocation determined by the Board, the objecting holders shall pay the independent appraiser's fees and expenses. (j) Notice of Adjustments. Calculations under this Section 9 shall be made to the nearest four decimal points. The Corporation shall notify holders of Convertible Preferred Shares promptly after making any adjustment under this Section 9, and include reasonable detail on the event requiring such adjustment and the calculation of such adjustment. On a holder's request at any time, the Corporation shall promptly deliver to such holder a notice stating the then Conversion Price (and showing how it was calculated) and the number of shares of Common Stock and the amount of any other stock, securities, cash or other assets which would at that time be received on converting the holder's Convertible Preferred Shares. (k) New York Stock Exchange Rules. No adjustment shall be made pursuant to this Section 9 if such adjustment would constitute a material violation of the rules of the New York Stock Exchange or any other securities exchange on which any of the Corporation's securities are listed or admitted to trading. (l) Adjustments to Other Shares. If, as a result of this Section 9, holders of Convertible Preferred Shares upon subsequent conversion shall become entitled to receive any shares of capital stock of the Corporation other than Common Stock, the number of such other shares so receivable upon conversion shall be subject to adjustment on terms as nearly equivalent as practicable to those in this Section 9. 10. Redemption. (a) Redemption at Corporation's Election. On or at any time after the fifth anniversary of the first issue of Convertible Preferred Shares, the Corporation may elect to redeem for cash the outstanding Convertible Preferred Shares in whole or in part from time to time, at a redemption price per share equal to the Face Value, plus the amount of dividends on such Convertible Preferred Share that have accrued since the prior Semi-Annual Dividend Payment Date and which have not been paid in cash (whether or not earned or declared), as of the last Trading Day before the redemption date. (b) Redemption of Less than All Convertible Preferred Shares. Subject to the Securities Purchase Agreement, if fewer than all the outstanding Convertible Preferred Shares are to be redeemed, the number of shares to be redeemed shall be determined by the Board and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board or by any other method that may be determined by the Board in its sole discretion to be equitable. 18 (c) Notice of Redemption. Notice of any such redemption shall be given by mailing to the holders of the Convertible Preferred Shares to be redeemed a notice of such redemption, by first class prepaid mail, not later than the twentieth day and not earlier than the sixtieth day before the date fixed for redemption, at their last address as shall appear upon the books of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that, on the close of business on such redemption date, dividends on the shares to be redeemed will cease to accrue and such shares will be deemed to be no longer outstanding (unless the Corporation does not on the redemption date either pay the redemption price or set aside the redemption price for payment in accordance with Section 10(d)(ii)). Failure to duly give such notice by first class prepaid mail, or any defect in such notice, to any holder of Convertible Preferred Shares shall not affect the validity of the proceedings for the redemption of Convertible Preferred Shares held by any other holder. (d) Consequences of Redemption Date. From the redemption date, dividends will cease to accrue on the Convertible Preferred Shares being redeemed, and such Convertible Preferred Shares shall be deemed to be no longer outstanding, and all rights of the holders of such Convertible Preferred Shares (except the right to receive from the Corporation the redemption price and any interest under Section 10(e)) shall cease provided that: (i) the holders of such Convertible Preferred Shares have received the notice mailed in accordance with Section 10(c); and (ii) on or before the redemption date, the Corporation has set aside the funds necessary for such redemption, separate and apart from its other funds in trust for the pro rata benefit of the holders of such Convertible Preferred Shares, so as to be, and to continue to be, available for that purpose. (e) Surrender of Certificate. On surrender of the certificates for any Convertible Preferred Shares so redeemed (properly endorsed or assigned for transfer), such shares shall be redeemed by the Corporation at the redemption price. If the Corporation does not pay the redemption price within five Business Days of a holder of such Convertible Preferred Shares duly surrendering its certificate, the Corporation shall pay such holder interest on the unpaid redemption price from the end of such period at a rate of 10.25% per annum. If fewer than all 19 the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (f) Effect of Conversion or Other Redemption. If a notice of conversion is given pursuant to Section 8 or Section 11, or notice to redeem is given pursuant to Section 11, before the redemption date fixed by the Corporation pursuant to this Section 10, the right of the Corporation to redeem such Convertible Preferred Shares under this Section 10 shall terminate (subject to being revived upon the Corporation giving a further notice under Section 10(c) if the conversion or redemption pursuant to Section 8 or Section 11 does not occur due to the actions of the holder who gave the notice), notwithstanding that the Corporation has mailed a notice of redemption. If the Corporation defaults in setting aside or making payment in cash of the redemption price under Section 10(d)(ii) or Section 10(e) in respect of Convertible Preferred Shares, the holders of such Convertible Preferred Shares may give a notice pursuant to Section 8 or Section 11 if otherwise eligible to do so, in which case such shares shall be treated as not having been redeemed under this Section 10 and the right of the Corporation to redeem such shares under this Section 10 shall terminate. (g) No Dividend. The Board shall not declare as a dividend any payments pursuant to this Section 10. 11. Change of Control. (a) Notice to Holders of Change of Control. The Corporation shall, not fewer than 30 days prior to the consummation of a transaction to which it is or will be a party that will result in a Change of Control or within 15 days of becoming aware of the occurrence of any other Change of Control, mail to each holder of Convertible Preferred Shares a notice notifying the holder of: (i) the Change of Control; (ii) the circumstances and facts regarding the Change of Control; (iii) the holder's right to elect, within 15 days of receiving the notice, to require the Corporation to redeem for cash some or all of the holder's Convertible Preferred Shares or, at the holder's election, to convert some or all of the holder's Convertible Preferred Shares (and state that the procedures for making such an election are in Section 11(d) of this Certificate of Designations); (iv) the redemption price payable if the holder so elects to have the Corporation redeem the holder's Convertible Preferred Shares; (v) the number of shares of Common Stock, and the amount of all cash payments, that the holder will receive if it so elects to have the Corporation convert the holder's Convertible Preferred Shares; and (vi) the Corporation's right, within 30 days after the end of the 15 day period during which the holder can exercise its election, to require the holder to convert some or all of its remaining Convertible Preferred Shares. 20 (b) Holders' Right to Sell to the Corporation or to Convert. Each holder of Convertible Preferred Shares may, within 15 days of receiving the Corporation's notice pursuant to Section 11(a), but subject to the occurrence of the Change of Control, require the Corporation to: (i) redeem for cash some or all of such holder's Convertible Preferred Shares, at an aggregate redemption price equal to the greater of: (A) the sum of: (1) the product of $1,000 (as adjusted for any stock splits, combination, reclassification or similar event involving the Convertible Preferred Shares) multiplied by the aggregate number of Convertible Preferred Shares to be redeemed under this Section 11(b)(i), plus (2) an amount (which may not be less than zero) equal to (a) the product of $500 (as adjusted for any stock splits, combination, reclassification or similar event involving the Convertible Preferred Shares) multiplied by the aggregate number of Convertible Preferred Shares to be redeemed under this Section 11(b)(i) minus (b) the sum of the aggregate amount of dividends paid in cash on such Convertible Preferred Shares since the date of issuance and such holder's Warrant Gain; and (B) the aggregate Face Value of such Convertible Preferred Shares plus the aggregate amount of dividends on such Convertible Preferred Shares that have accrued since the prior Semi-Annual Dividend Payment Date, and which have not been paid in cash, whether or not earned or declared; or (ii) convert some or all of such holder's Convertible Preferred Shares into the number of shares of Common Stock, and the cash payment, determined as if Section 8(a) applied (or if, in connection with a merger, consolidation or similar transaction constituting a Change of Control, holders of shares of Common Stock were entitled to receive other stock, securities, cash or assets in respect of their shares of Common Stock, the holder shall receive such other stock, securities, cash or assets which, if such Convertible Preferred Shares had been converted immediately prior to such Change of Control, the holder would have been entitled to receive plus an amount, payable in cash, equal to the amount of dividends on such Convertible Preferred Shares that have accrued since the prior Semi-Annual Payment Date through the date of the Change of Control and have not been paid in cash, whether or not earned or declared). 21 (c) Payment on Conversion on or before Third Anniversary. If any Convertible Preferred Share is converted pursuant to Section 11(b)(ii) or Section 11(e) on or before the third anniversary of the first issuance of Convertible Preferred Shares, the Corporation shall pay in cash to the holder an amount equal to the dividends that would have accrued on such Convertible Preferred Share through the third anniversary of the first issuance of Convertible Preferred Shares, minus the sum of (x) the aggregate amount of dividends paid in cash through the date of conversion, (y) the aggregate amount of dividends added to the Face Value under Section 3(d) and not thereafter paid in cash and (z) the cash payment pursuant to Section 11(b)(ii) or Section 11(e). Such payment is in addition to the shares of Common Stock or the other stock, securities, cash or assets issued upon the conversion. (d) Procedure for Exercising Holders' Rights. A holder who wishes to have the Corporation redeem Convertible Preferred Shares, or to convert Convertible Preferred Shares under Section 11(b), shall give written notice within the time period specified in Section 11(b) to the Corporation at such office that such holder elects to have the Corporation redeem such shares or to convert such shares and shall state in such notice the number of Convertible Preferred Shares to be redeemed or converted. Such notice shall be accompanied by the certificate or certificates for such shares, duly endorsed. The Corporation shall immediately prior to or simultaneously with the consummation of the Change of Control (or else promptly, if the Corporation gave its notice under Section 11(b) after the Change of Control) issue and deliver to such holder (w) the cash payment to which such holder is entitled on any such redemption, (x) a certificate or certificates for the number of shares of Common Stock or the other stock, securities, cash or assets to which such holder is entitled as a result of any such conversion, (y) if fewer than all the shares represented by any such surrendered certificate are redeemed or converted, a new certificate representing the Convertible Preferred Shares which were not redeemed or converted and (z) any cash payments to which such holder is entitled pursuant to Section 11(b)(ii) and Section 11(c). (e) Conversion at the Corporation's Request. At any time after the end of the period during which holders of Convertible Preferred Shares are entitled to exercise their rights under Section 11(b), the Corporation shall have the right to give notice to the holders of Convertible Preferred Shares requiring them to convert some or all of their Convertible Preferred Shares in respect of which they did not exercise their rights under Section 11(b) in the manner and with the results set forth in Section 11(b)(ii) and Section 11(c). Promptly upon receiving such a notice (and in any event prior to the consummation of the Change of Control if the Corporation gave its notice under Section 11(a) no fewer than 30 days before the Change of Control), each such holder shall surrender the certificate or certificates for such shares, duly endorsed, at the office of the Corporation. The Corporation shall immediately prior to or simultaneously with the consummation of the Change of Control (or else promptly, if the Corporation gave its notice under Section 11(b) after the Change of Control) issue and deliver to such holder (x) a certificate or certificates for the number of shares of Common Stock or the other stock, securities, cash or assets to which such holder is entitled as a result of the conversion, (y) if fewer than all the Convertible Preferred Shares represented by any such surrendered certificate are converted, a new certificate representing the Convertible Preferred Shares which were not converted, and (z) any cash payments which to such holder is entitled pursuant to Section 11(b)(ii) and Section 11(c). 22 (f) Effective Date of Conversion. Any conversion pursuant to this Section 11 shall be deemed to have been made immediately prior to the Change of Control, and the Person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of Common Stock on such date. (g) Other Conversion Provisions Apply. Section 8(c), Section 8(d) and Section 8(f) shall apply to conversions pursuant to this Section 11. (h) No Dividend. The Board shall not declare as a dividend any payments pursuant to this Section 11. 12. Obligations Regarding Mergers and Other Transactions. The Corporation will not consummate a transaction described in Section 9(a)(v), or a merger, consolidation or similar transaction constituting a Change of Control, unless each person (except the Corporation) required to deliver stock, securities, cash or other assets in connection with that transaction assumes, by written instrument delivered to, and reasonably satisfactory to, each record holder of Convertible Preferred Shares: (i) equivalent obligations to those in this Certificate of Designations (and, if the Corporation survives the consummation of the transaction and the Convertible Preferred Shares or other preferred equity securities issued in exchange for the Convertible Preferred Shares are outstanding, this assumption is in addition to, and does not release the Corporation from, the Corporation's continuing obligations under this Certificate of Designations); and (ii) the obligation to deliver to the holder the stock, securities, cash or other assets to which the holder is entitled on the conversion of the Convertible Preferred Shares or the securities for which they were exchanged. If the holders of a majority of the outstanding Convertible Preferred Shares request, this instrument shall be accompanied by a written opinion of counsel to each such person, which opinion shall be reasonably satisfactory to such holders, stating that such person is obligated to deliver to the holders of Convertible Preferred Shares, at the time required by this Certificate of Designations, the stock, securities, cash or other assets to which the holder is entitled under Section 9(a)(v) or Section 11(b)(ii) as a result of or following the transaction, and that terms equivalent to those in the Certificate of Designations will apply to such stock, securities, cash or other assets. 13. Good Faith Actions. The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such actions as may be reasonably necessary or appropriate to protect the rights of the holders of Convertible Preferred Shares hereunder against impairment (including the rights to convert Convertible Preferred Shares and rights upon a Change of Control). 14. Severability of Provisions. If any provision of this Certificate of Designations is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public 23 policy, all other provisions of this Certificate of Designations which can be given effect without the invalid, unlawful or unenforceable provision shall remain in effect. 15. Notice. All notices referred to herein shall be in writing, and shall be deemed to have been given upon the earlier of receipt of such notice or (x) four Trading Days after the mailing of such notice if sent by registered mail with postage prepaid or (y) on the day signed for if sent by overnight courier, in either case addressed: (i) if to the Corporation, to its offices at 2950 North Loop West, Suite 700, Houston, TX 77092, Attention: General Counsel; (ii) if to any holder of the Convertible Preferred Shares, to such holder at the address of such holder of the Convertible Preferred Shares as listed in the stock record books of the Corporation; or (iii) to such other address as the Corporation or holder, as the case may be, shall have designated by notice given in the manner prescribed by this Section 15. * * * 24 IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chief Executive Officer this 25th day of March, 2003. NATCO GROUP INC. By: /s/ Nathaniel A. Gregory ---------------------------- Nathaniel A. Gregory Chief Executive Officer EX-4.1 4 h04334exv4w1.txt REGISTRATION RIGHTS AGREEMENT EXECUTION COPY EXHIBIT 4.1 ================================================================================ REGISTRATION RIGHTS AGREEMENT by and among LIME ROCK PARTNERS II, LP and NATCO GROUP INC. Dated as of March 25, 2003 ================================================================================ Table of Contents
Page ---- 1. Registration on Request.............................................................................. 1 1.1. Requests....................................................................................... 1 1.2. Obligation to Effect Registration.............................................................. 1 1.3. Exceptions to Registration Requirements........................................................ 2 1.4. Suspending Registration........................................................................ 2 1.5. Registration Statement Form.................................................................... 3 1.6. Expenses....................................................................................... 3 1.7. Effective Registration Statement............................................................... 4 1.8. Pro Rata Allocation............................................................................ 4 1.9. Selecting Underwriters......................................................................... 4 1.10. Securities in Registration Must be Distributed by Underwriters................................. 5 1.11. Underwriting Agreement......................................................................... 5 1.12. Failure of Condition under Underwriting Agreement.............................................. 6 1.13. Underwriting Agreement......................................................................... 6 2. Piggyback Registration............................................................................... 6 2.1. NATCO's Notice of Registration................................................................. 6 2.2. Holder's Piggyback Registration Request........................................................ 6 2.3. NATCO Decides Not to Effect Registration....................................................... 6 2.4. Registration Priority in a Registration Initiated by NATCO..................................... 7 2.5. Registration Priority in a Registration Requested by Holders of Existing Registrable Securities....................................................................... 8 2.6. Registration Priority in a Registration Requested by Other Holders............................. 9 2.7. Registration Expenses.......................................................................... 10 2.8. Underwriting Agreement......................................................................... 10 3. Registration Procedures.............................................................................. 10 3.1. Best Efforts................................................................................... 10 3.2. Holders to Give NATCO Information.............................................................. 15 3.3. Documents Identifying the Seller............................................................... 15 3.4. Misleading Registration Statement or Prospectus................................................ 15 4. Hold Back Agreements................................................................................. 16 4.1. When Restrictions Apply........................................................................ 16 4.2. Restrictions................................................................................... 16 4.3. Others to Enter into Similar Agreements........................................................ 17 5. Preparation; Reasonable Investigation................................................................ 17 6. Other Registrations.................................................................................. 17 7. Indemnification...................................................................................... 17 7.1. Indemnification by NATCO....................................................................... 17
i Table of Contents (continued) 7.2. Exceptions to NATCO's Liability................................................................ 18 7.3. Indemnification by the Sellers................................................................. 19 7.4. Exceptions to Holder's Liability............................................................... 20 7.5. Limitations on Holder's Liability.............................................................. 20 7.6. Notices of Claims, etc......................................................................... 20 7.7. Other Indemnification.......................................................................... 21 7.8. Contribution................................................................................... 21 7.9. Survival of Indemnities........................................................................ 23 7.10. Officers and Directors......................................................................... 23 8. Other Provisions Relating to Registrable Securities.................................................. 23 8.1. Registration Requests for Convertible Preferred Shares or Warrant.............................. 23 8.2. Best Registration Rights....................................................................... 23 8.3. Rule 144; Legended Securities; etc............................................................. 23 8.4. Nominees for Beneficial Owners................................................................. 24 9. Miscellaneous........................................................................................ 24 9.1. Notices........................................................................................ 24 9.2. Amendments and Waivers......................................................................... 26 9.3. Specific Performance........................................................................... 26 9.4. Severability................................................................................... 27 9.5. Governing Law.................................................................................. 27 9.6. Jurisdiction................................................................................... 27 9.7. Waiver of Jury Trial........................................................................... 27 9.8. Successors, Assigns and Transferees............................................................ 28 9.9. No Third Party Beneficiaries................................................................... 28 9.10. Term........................................................................................... 28 9.11. Further Assurances............................................................................. 28 9.12. No Inconsistent Agreements..................................................................... 28 9.13. Counterparts................................................................................... 28 10. Definitions and Interpretation....................................................................... 29 10.1. Definitions.................................................................................... 29 10.2. Interpretation................................................................................. 34
ii REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of March 25, 2003, entered into by and between Lime Rock Partners II, LP, a Cayman Islands exempted limited partnership ("Purchaser"), and NATCO Group Inc., a Delaware corporation ("NATCO"). R E C I T A L S WHEREAS, under a Securities Purchase Agreement, dated as of March 13, 2003, by and between NATCO and Purchaser ("Securities Purchase Agreement"), Purchaser agreed to buy from NATCO, and NATCO agreed to sell to Purchaser, at the Closing (as defined in the Securities Purchase Agreement): (i) shares of NATCO's Series B convertible preferred stock, par value $0.01 ("Convertible Preferred Shares"), which are convertible into shares of NATCO's common stock, par value $0.01 ("Common Stock"), under the Certificate of Designations with respect to the Convertible Preferred Shares filed with the Secretary of State of the State of Delaware ("Certificate of Designations"); and (ii) a warrant to buy shares of Common Stock ("Warrant"). WHEREAS, Purchaser, or entities wholly owned by Purchaser, may in the future buy or otherwise obtain other shares of Common Stock ("Additional Shares") from NATCO or from other shareholders of NATCO. NOW, THEREFORE, the Parties agree as follows: 1. Registration on Request. 1.1. Requests. The Holder or Holders of Registrable Securities constituting at least 50% of the Registrable Securities outstanding at any date (exclusive of Additional Securities) have the right to make requests to NATCO to effect registrations under the Securities Act relating to a Public Offering of some or all of the Registrable Securities of the Holder or Holders making the request. Requests shall specify the jurisdictions in which the registration is to be effected. However, NATCO is not obligated to effect registrations under Section 1.2 in respect of more than three registration requests under this Section 1.1. 1.2. Obligation to Effect Registration. Subject to Section 1.3 and Section 1.4, on receiving a registration request under Section 1.1, NATCO will promptly give notice of the requested registration to all Holders of Registrable Securities, and use its best efforts to effect the registration under the Securities Act in a Public Offering of: (i) the Registrable Securities which NATCO has been requested to register under Section 1.1; and (ii) the other Registrable Securities which Holders of Registrable Securities request NATCO to register, by request given to NATCO within 15 Business Days after NATCO gives its notice under Section 1.2. 1.3. Exceptions to Registration Requirements. NATCO does not have to effect a registration under Section 1.2 if the number of Registrable Securities to be included in the registration is less than 750,000 shares (subject to appropriate adjustments for stock dividends, stock subdivisions, stock splits, stock combinations, stock reclassifications changing the number of stock, and similar events). If NATCO decides not to effect a registration on this ground, it shall promptly give the Holders of Registrable Securities notice of this fact. The Holders of Registrable Securities who requested registration will then be deemed to have withdrawn their request and not to have made their request when determining whether NATCO is obligated to effect a registration under Section 1.2. 1.4. Suspending Registration. (a) NATCO may suspend its obligation to effect the registration of Registrable Securities under Section 1.2: (i) Other Registration Statement: if, promptly after receipt of the request referred to in Section 1.1, it gives the Holders who made the request notice that it has filed or was at the time of receipt of that request preparing to file a registration statement ("Other Registration Statement") with respect to shares of Common Stock, until 90 days after the effective date of the Other Registration Statement under the Securities Act (or until 45 days after NATCO gives that notice, if NATCO has not filed the Other Registration Statement within that 45 day period) provided that NATCO uses its best efforts to cause the Other Registration Statement to be declared effective as promptly as practicable and, during the suspension period, does not file, or take any steps to prepare to file, any registration statement except the Other Registration Statement or a Special Registration; (ii) Material Nonpublic Information: if, after receiving a registration request, NATCO gives the Holders who made the request notice that NATCO has material nonpublic information as to which it reasonably believes it has a valid business purpose in not disclosing publicly for the time being, for a period from the date NATCO receives the registration request and ending on the earliest of: 2 (A) 60 days after NATCO receives the registration request; (B) the public announcement of the material nonpublic information; and (C) the date on which NATCO reasonably believes that it no longer needs to suspend its obligation on this basis. NATCO shall not, under this Section 1.4(a)(ii), suspend its obligation to effect the registration of Registrable Securities under Section 1.2 based on the same or substantially related material nonpublic information for which it has already suspended such obligation under this Section 1.4(a)(ii). (b) In giving a Holder of Registrable Securities who made a registration request notice of a suspension under Section 1.4(a), NATCO shall not disclose material nonpublic information to that Holder unless, before disclosing this information, NATCO gives the Holder notice that the information is material and nonpublic and gives the Holder the opportunity to accept or refuse to accept the material nonpublic information for review. As a condition to disclosing material nonpublic information, NATCO may require a Holder to whom it proposes to disclose the information to enter into a confidentiality agreement on customary terms. (c) Within two Business Days of the end of a suspension period, NATCO will notify the Holder or Holders of Registrable Securities who made the registration request that the suspension period has ended. Within 10 days after receiving this notice, those Holders shall advise NATCO whether or not they wish to proceed with or to withdraw the registration request. Holders who do not timely notify NATCO will be treated as having withdrawn their registration request. If the registration does not proceed because Holders withdraw registration requests, no registration request in respect of that registration will be treated as having been made when determining whether NATCO is obligated to effect a registration under Section 1.2. 1.5. Registration Statement Form. Each registration requested under Section 1 shall be effected by filing a registration statement on Form S-1, Form S-2 or Form S-3 (or any other form which includes substantially the same information required to be included in a registration statement on these forms as presently constituted). 1.6. Expenses. Each Holder will pay the underwriting discounts and commissions attributable to the sale of its Registrable Securities. NATCO will pay all other Registration Expenses in connection with registrations effected under a request under Section 1. 3 1.7. Effective Registration Statement. A registration requested under Section 1 will not be treated as having been effected unless it has become effective for the period specified in Section 3.1(ii). However, a registration requested under Section 1 that does not become effective after NATCO files a registration statement with respect to it solely because the Holders of Registrable Securities requesting the registration fail to proceed will be treated as having been effected by NATCO at the request of those Holders (unless the Holders' failure to proceed resulted from material adverse information concerning NATCO of which they were unaware when they made their registration request or from a reasonable objection to a registration statement or prospectus (or amendment or supplement to it) which NATCO does not address to the Holders' reasonable satisfaction). 1.8. Pro Rata Allocation. If the managing underwriter for a Public Offering of Registrable Securities under a registration requested under Section 1.1 advises NATCO that, in its view, the number of securities requested or proposed to be included in the registration exceeds the largest number that can be included in the registration without materially adversely affecting the distribution of Registrable Securities on behalf of the Holders requesting the registration, NATCO shall include in the registration: (i) first, Registrable Securities that the Holders of Registrable Securities requested to be included in the registration (or, if not all of these Registrable Securities can be included, those Holders shall share pro rata in the number of shares of Registrable Securities included in the Public Offering based on the number of Registrable Securities they requested to be included); and (ii) second, to the extent that the number of securities to be registered under Section 1.8(i) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of Registrable Securities on behalf of the Holders requesting the registration, such number of the securities that NATCO and other securityholders propose to register as would not cause the total number of securities to be registered to exceed such largest number. NATCO will ensure that any registration rights agreement it enters into after the date of this Agreement is consistent with this Section 1.8. 1.9. Selecting Underwriters. Whenever a registration is requested under Section 1, the Holders of a majority of the Registrable Securities requested to be included in the registration may select one or more underwriters to administer the offering subject to NATCO's prior approval, not to be unreasonably withheld. 4 1.10. Securities in Registration Must be Distributed by Underwriters. Only securities to be distributed by the underwriters may be included in the registration requested under Section 1. 1.11. Underwriting Agreement. NATCO shall enter into an underwriting agreement with the underwriters for a Public Offering by Holders of Registrable Securities under a registration requested under Section 1. The underwriting agreement shall: (i) Parties: include as parties the underwriters, NATCO and the Holders of Registrable Securities to be distributed by the underwriters; (ii) Satisfactory to Holders: in substance and form, be reasonably satisfactory to the Holders of a majority of the Registrable Securities to be included in the registration and to the underwriters; (iii) NATCO's Obligations: contain representations and warranties by NATCO and other terms and provisions as are customarily contained in agreements of this type (including indemnities to the effect and to the extent provided in Section 7 (except that the indemnities in the indemnity agreement will also be for the benefit of persons who participate as underwriters, brokers or dealers in the Public Offering and persons who control any of those participating Persons), provisions for the delivery of officers' certificates, opinions of counsel and accountants' "comfort" letters and hold-back arrangements); (iv) Benefit Holders: to the extent the Holders of the Registrable Securities to be included in the registration so request, provide that some or all of NATCO's representations, warranties and covenants to and for the benefit of the underwriters also be made to and for the benefit of those Holders; (v) Conditions Precedent: to the extent the Holders of Registrable Securities to be included in the registration so request, provide that some or all of the conditions precedent to the obligations of the underwriters also be conditions precedent to those Holders' obligations; and (vi) Holders' Obligations: not require a Holder of Registrable Securities to be included in the registration to make representations or warranties to, or agreements with, NATCO or the underwriters, 5 except those specified in Section 4 and representations, warranties or agreements about the Holder, the Holder's ownership of the Registrable Securities to be included in the registration and the Holder's intended method of distribution. 1.12. Failure of Condition under Underwriting Agreement. If a condition to the obligations under the underwriting agreement is not met or waived, and this is not due solely to the fault of the Holders of Registrable Securities requesting registration under Section 1.1, no registration request in respect of that registration will be treated as having been made when determining whether NATCO is obligated to effect a registration under Section 1.2. 1.13. Underwriting Agreement. Any obligation of NATCO to include Registrable Securities of a Holder in a registration statement prepared and filed under this Section 1 is conditioned on the Holder agreeing to enter into an underwriting agreement between NATCO and the underwriters, which shall comply with Section 1.11 and otherwise be on no less favorable terms to the Holders of Registrable Securities than those applying to NATCO, or to any securityholders of NATCO, whose securities are included in the registration. 2. Piggyback Registration. 2.1. NATCO's Notice of Registration. If NATCO proposes to file a registration statement under the Securities Act with respect to a Primary Distribution or a Secondary Distribution under which Registrable Securities could be distributed in accordance with the method of distribution contemplated by that registration statement, NATCO shall give prompt notice to the Holders of Registrable Securities that it intends to do so, together with details of the intended method of distribution and the jurisdictions in which NATCO proposes to register the securities to be distributed. 2.2. Holder's Piggyback Registration Request. Within 20 days of NATCO giving notice under Section 2.1, any Holder of Registrable Securities may give NATCO a registration request, specifying the Registrable Securities it wishes to dispose of and the jurisdictions in which registration is to be effected. Subject to Section 2.3, Section 2.4, Section 2.5 and Section 2.6, NATCO will use its best efforts to include in the applicable registration statement the Registrable Securities that those Holders request NATCO to register, to the extent required to permit the disposition of those Registrable Securities, and to effect the registration of those Registrable Securities. 2.3. NATCO Decides Not to Effect Registration. If, after giving notice under Section 2.1 that it intends to register securities and before the effective date of the corresponding registration statement, the Board decides for any reason not to proceed with the registration, NATCO shall give notice of this decision to the Holders of 6 Registrable Securities that gave NATCO a registration request under Section 2.2, and NATCO shall have no obligation to proceed with the registration of those Registrable Securities. NATCO shall pay the Registration Expenses in connection with those Registrable Securities. 2.4. Registration Priority in a Registration Initiated by NATCO. If, in a registration within Section 2.1 initiated by NATCO (rather than by a securityholder) to offer securities for its own account, NATCO is advised in writing by the managing underwriter that in its opinion the aggregate number of securities requested to be included in the registration (whether by NATCO, under this Section 2 or under any other rights granted by NATCO to holders of its securities to include securities in the registration) exceeds the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, NATCO shall include in the registration: (i) first, securities to be sold for NATCO's account; (ii) second, to the extent that the number of securities to be registered under Section 2.4(i) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, the Existing Registrable Securities requested to be included and the Registrable Securities requested to be included (or, if the managing underwriter of the proposed Primary Distribution advises NATCO in writing that, in the managing underwriter's reasonable opinion, the inclusion in the registration statement of the aggregate number of Existing Registrable Securities requested to be included and Registrable Securities requested to be included would materially adversely affect that distribution of securities, then NATCO shall so advise the Holders who requested registration under Section 2.2 and the number of Registrable Securities included in the registration statement shall be reduced (ratably with Existing Registrable Securities) to the number acceptable to the managing underwriter and this reduced number of Registrable Securities shall be allocated pro rata among the Holders requesting registration under Section 2.2 based on the number of Registrable Securities in respect of which each such Holder requested registration); and (iii) third, to the extent that the number of securities to be registered under Section 2.4(i) and Section 2.4(ii) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, other 7 securities to be registered under other rights granted by NATCO to holders of its securities to include securities in the registration. NATCO will ensure that any registration agreement it enters into after the date of this Agreement is consistent with this Section 2.4. 2.5. Registration Priority in a Registration Requested by Holders of Existing Registrable Securities. If, in a registration within Section 2.1 resulting from a holder of Existing Registrable Securities exercising a demand right in respect of those Existing Registrable Securities (but not a "special registration right" under the agreement referred to in paragraph (i) of the definition of "Existing Registration Rights Agreements"), NATCO is advised in writing by the managing underwriter that in its opinion the aggregate number of securities requested to be included in the registration (whether by the holders of Existing Registrable Securities demanding registration, by NATCO, under this Section 2 or under any other rights granted by NATCO to holders of its securities to include securities in the registration) exceeds the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, NATCO shall include in the registration: (i) first, Existing Registrable Securities in respect of which the demand right was exercised and other Existing Registrable Securities to be registered in the same registration under the applicable Existing Registration Rights Agreement; (ii) second, to the extent that the number of securities to be registered under Section 2.5(i) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, securities to be sold for NATCO's account; (iii) third, to the extent that the number of securities to be registered under Section 2.5(i) and Section 2.5(ii) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, the Registrable Securities and Existing Registrable Securities (other than those described in Section 2.5(i)) that holders of those securities requested to be included (or, if the managing underwriter of the proposed Secondary Distribution advises NATCO in writing that, in the managing underwriter's reasonable opinion, the inclusion in the registration statement of the aggregate number of Existing Registrable Securities requested to be included (other than those described in Section 2.5(i)) and Registrable Securities requested to be included would materially adversely affect that 8 distribution of securities, then NATCO shall so advise the Holders who requested registration under Section 2.2 and the number of Registrable Securities included in the registration statement shall be reduced (ratably with Existing Registrable Securities (other than those described in Section 2.5(i))) to the number acceptable to the managing underwriter and this reduced number of Registrable Securities shall be allocated pro rata among the Holders requesting registration under Section 2.2 based on the number of Registrable Securities in respect of which each such Holder requested registration); and (iv) fourth, to the extent that the number of securities to be registered under Section 2.5(i), Section 2.5(ii) and Section 2.5(iii), is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, other securities to be registered under other rights granted by NATCO to holders of its securities to include securities in the registration. NATCO will ensure that any registration agreement it enters into after the date of this Agreement is consistent with this Section 2.5. 2.6. Registration Priority in a Registration Requested by Other Holders. If, in a registration within Section 2.1 resulting from a holder of securities (other than Registrable Securities or Existing Registrable Securities) exercising a demand right in respect of those securities, NATCO is advised in writing by the managing underwriter that in its opinion the number of securities requested to be included in the registration (whether by the holder demanding registration, by NATCO, under this Section 2 or under any other rights granted by NATCO to holders of its securities to include securities in the registration) exceeds the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, NATCO shall include in the registration: (i) first, the securities to be sold for the account of the holder requesting registration, securities to be sold for NATCO's account, Existing Registrable Securities requested to be included and Registrable Securities requested to be included (or, if the managing underwriter of the proposed Secondary Distribution advises NATCO in writing that, in the managing underwriter's reasonable opinion, the inclusion in the registration statement of the aggregate number of Existing Registrable Securities requested to be included and Registrable Securities requested to be included would materially adversely affect that distribution of securities, then 9 NATCO shall so advise the Holders who requested registration under Section 2.2 and the number of Registrable Securities included in that registration statement shall be reduced (ratably with Existing Registrable Securities) to the number acceptable to the managing underwriter and this reduced number of Registrable Securities shall be allocated pro rata among the Holders requesting registration under Section 2.2 based on the number of Registrable Securities in respect of which each such Holder requested registration); and (ii) second, to the extent that the number of securities to be registered under Section 2.6(i) is less than the largest number that can be included in the registration without materially adversely affecting the distribution of those securities, other securities to be registered under other rights granted by NATCO to holders of its securities to include securities in the registration. NATCO will ensure that any registration agreement it enters into after the date of this Agreement is consistent with this Section 2.6. 2.7. Registration Expenses. The Holders requesting registration will pay the underwriting discounts and commissions attributable to the sale of their Registrable Securities. NATCO will pay the Registration Expenses in connection with each registration of Registrable Securities requested under this Section 2. No registration effected under this Section 2 relieves NATCO from its obligation to effect registrations on request under Section 1. 2.8. Underwriting Agreement. Any obligation of NATCO to include Registrable Securities of a Holder in a registration statement prepared and filed under this Section 2 is conditioned on the Holder agreeing to enter into an underwriting agreement between NATCO and the underwriters, which shall comply with Section 1.11 and otherwise be on no less favorable terms to the Holders of Registrable Securities than those applying to NATCO, or to any securityholders of NATCO, whose securities are included in the registration. 3. Registration Procedures. 3.1. Best Efforts. When NATCO is required to use its best efforts to effect the registration of Registrable Securities under the Securities Act under Section 1 or Section 2, NATCO will promptly: (i) File Registration Statement: prepare and file with the SEC as soon as practicable (and in any event within 120 days) after receiving a 10 request under Section 1 or Section 2 a registration statement with respect to those securities, make any required filings with the NASD and use best efforts to cause the registration statement to become effective on the earliest practicable date; (ii) Keep Registration Statement Effective: prepare and file with the SEC the amendments and supplements to the registration statement and the corresponding prospectus, and the other documents, needed to keep the registration statement effective and to comply with the Securities Act with respect to the disposition of the securities covered by the registration statement until the earlier of the sellers having disposed of these securities in accordance with their intended methods of disposition stated in the registration statement and the date that is six months after the registration statement becomes effective; (iii) Documents to Holders' Counsel: give counsel (if any) selected by the Holders of a majority of the Registrable Securities covered by the registration statement copies of the documents NATCO proposes to file with the SEC (including documents to be filed on a confidential basis) in connection with the registration, at least five Business Days before NATCO files these with the SEC. These documents are subject to such counsel's review. NATCO shall not file a registration statement or prospectus (or amendments or supplements to them) under a registration under Section 1.1 if the Holders of a majority of the Registrable Securities covered by the registration statement, their counsel, or any underwriters reasonably object in writing; (iv) Provide Copies of Documents to Holders: give each Holder of Registrable Securities covered by the registration statement, without charge, the number of conformed copies of the registration statement (and each amendment and supplement to it), the prospectus included in the registration statement (including preliminary prospectuses and summary prospectuses) and other documents as the Holder reasonably requests to help it or the underwriter dispose of the securities covered by the registration statement, and give the Holder copies of each other document filed with, and correspondence sent to or received from (and memorandums summarizing oral communications with), the SEC relating to or affecting the registration; 11 (v) Blue Sky Registration: use its best efforts to register or qualify the securities covered by the registration statement under the securities or blue sky laws of the jurisdictions that the managing underwriter reasonably requests, and do the other things necessary or advisable to enable each Holder of Registrable Securities covered by the registration statement to dispose of those Registrable Securities in those jurisdictions (except that NATCO is not required to qualify generally to do business as a foreign corporation in a jurisdiction in which it is not already qualified, subject itself to tax in a jurisdiction in which it is not otherwise subject to tax, or take any action which would subject it to general service of process in a jurisdiction in which it is not otherwise subject to process); (vi) Other Governmental Approvals: use its best efforts to cause the Registrable Securities covered by the registration statement to be registered with or approved by such other governmental agencies or authorities in the United States (including the registration of the securities under the Exchange Act) as may be needed to enable the Holders of Registrable Securities covered by the registration statement or the underwriters to dispose of those securities; (vii) Opinions and Comfort Letters: give each Holder of Registrable Securities covered by the registration statement a signed counterpart, addressed to the Holder, of: (A) an opinion of counsel for NATCO experienced in securities law matters, dated the effective date of the registration statement; and (B) a "comfort" letter signed by the independent public accountants who have issued an audit report on NATCO's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus used in connection with it), and, in the case of the accountants' letter, with respect to events after the date of the financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities. NATCO's obligation to deliver an accountant's letter addressed to the Holders shall be subject to such Holders' furnishing of such opinions, representations and other information 12 as may be required by applicable accounting and auditing standards; (viii) Remedy Misleading Registration Statement: notify each Holder of Registrable Securities covered by the registration statement if the registration statement, at the time it or any amendment to it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated in it or necessary to make the statements in it not misleading and, as promptly as practicable, prepare and file with the SEC a post-effective amendment to the registration statement and use best efforts to cause the post-effective amendment to become effective so that the registration statement, as amended, does not contain an untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it not misleading; (ix) Remedy Misleading Prospectus: notify each Holder of Registrable Securities covered by the registration statement, at any time when a prospectus relating to it is required to be delivered under the Securities Act, if the prospectus included in the registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading. As promptly as practicable, NATCO shall prepare and furnish to each such Holder the number of copies of an amendment of or supplement to the prospectus as is needed so that, as delivered to the purchasers of those securities after that time, the prospectus does not include an untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading; (x) Comply with SEC Rules: otherwise use its best efforts to comply with the SEC's rules and regulations, and make available to its securityholders, as soon as reasonably practicable, an earnings statement of NATCO complying with section 11(a) of the Securities Act and Rule 158 under the Securities Act; (xi) Notice of Certain Events: notify each Holder of Registrable Securities covered by the registration statement: 13 (A) when the registration statement, or any post-effective amendment to the registration statement, becomes effective, or any amendment of or supplement to the prospectus used in connection with it is filed; (B) if the SEC requests NATCO to amend the registration statement or to amend or supplement the prospectus, or requests additional information; (C) if the SEC makes a stop order suspending the effectiveness of the registration statement or makes an order preventing or suspending the use of a preliminary prospectus; (D) if the qualification of the Registrable Securities for offering or sale in a jurisdiction is suspended; and (E) if a Person threatens or institutes proceedings for any of these purposes; (xii) Lift Stop Orders: use its best effort to prevent, or to obtain the lifting of, as the case may be, any stop order issued suspending the effectiveness of the registration statement or any order preventing or suspending the use of a preliminary prospectus; (xiii) Share Certificates: cooperate with the Holders of Registrable Securities included in the registration statement, and the managing underwriter to facilitate the timely preparation and delivery of certificates (without restrictive legends) representing the Registrable Securities to be sold under the registration statement, and to enable those securities to be in the denominations and registered in the names that those Holders or managing underwriter request; and (xiv) CUSIP Number: use its best efforts to obtain a CUSIP number for the Registrable Securities covered by the registration statement if none exists. If NATCO does not fulfill its obligations under this Section 3.1 in respect of a registration request made under Section 1 or if, notwithstanding NATCO's use of its best efforts when required under this Section 3.1, it is not successful in causing any action described in this Section 3.1 to be taken, and in whole or in its part as a result of this breach or failure the registration statement does not become effective or the Holders of Registrable Securities who requested registration are otherwise prevented from disposing of Registrable Securities on the terms contemplated by this Agreement, no registration 14 request in respect of that registration will be treated as having been made when determining whether NATCO is obligated to effect a registration under Section 1.2. 3.2. Holders to Give NATCO Information. NATCO may require each Holder of Registrable Securities to be covered by a registration statement to give NATCO such information about the Holder and the distribution of those securities as NATCO reasonably requests or as is required by law in connection with the registration. Each Holder shall promptly give NATCO the information that NATCO must disclose in order to make the information that the Holder previously gave NATCO not materially misleading. 3.3. Documents Identifying the Seller. NATCO shall not file or amend a registration statement for Registrable Securities, or an amendment of or supplement to the prospectus used in connection with it, which refers to a seller of Registrable Securities covered by it by name, or otherwise identifies the seller as the holder of NATCO securities, without that seller's consent (not to be unreasonably withheld). However, the seller's consent is not required for disclosures required by and in conformity with law. 3.4. Misleading Registration Statement or Prospectus. On receiving a notice from NATCO under Section 3.1(viii) or Section 3.1(ix): (i) each Holder of Registrable Securities covered by the registration statement will promptly stop disposing of those Registrable Securities under the registration statement until it receives notice from NATCO that the registration statement has been amended, as contemplated by Section 3.1(viii) or, in the case of Section 3.1(ix), it receives copies of the amended or supplemented prospectus contemplated by Section 3.1(ix); (ii) if so directed by NATCO, each Holder of Registrable Securities will, promptly after it receives the notice, deliver to NATCO (at NATCO's expense) all copies, other than permanent file copies, in the Holder's possession of the prospectus covering the Registrable Securities; and (iii) the period mentioned in Section 3.1(ii) will be extended by the greater of (x) five Business Days and (y) the number of days during the period from and including the date NATCO gave the notice through and including the date when each Holder of Registrable Securities covered by the registration statement receives notice from NATCO that the registration statement has been amended, in the case of Section 3.1(viii), or receives the 15 copies of the amended or supplemented prospectus, in the case of Section 3.1(ix). 4. Hold Back Agreements. 4.1. When Restrictions Apply. The restrictions in Section 4.2 apply whenever: (i) NATCO proposes to register any of its equity securities under the Securities Act, whether or not for sale for its own account (other than under a Special Registration), or is required to use its best efforts to effect the registration of Registrable Securities under the Securities Act under Section 1 or Section 2; (ii) if that registration relates to an underwritten offering, the managing underwriter requests that the Holders of Registrable Securities be subject to the restriction in Section 4.2; (iii) before the periods specified in Section 4.2, NATCO notifies the Holders of Registrable Securities that the restrictions in Section 4.2 apply; and (iv) before the proposed registration, NATCO in good faith uses all reasonable efforts to cause the proposed registration to become effective. 4.2. Restrictions. Whenever the restrictions in this Section 4.2 apply, no Holder of Registrable Securities who was offered the right to register Registrable Securities in the proposed registration shall: (i) effect (other than under that registration) a public sale, transfer or distribution (including a sale under Rule 144 or Rule 144A) of Registrable Securities, any other equity security of NATCO or any security convertible into or exchangeable or exercisable for any equity security of NATCO during the 20 day period before or the 90 day period following the effective date of that registration (or any shorter period agreed with the managing underwriter, if any, and any other securityholder of NATCO with a similar agreement); or (ii) effect such a public sale, transfer or distribution during the 180 day period following the effective date of the registration, or during such lesser period (x) applying to securities held by NATCO's officers and directors or to Existing Registrable Securities, or 16 (y) agreed with the managing underwriter, if any, and any other securityholder of NATCO with a similar agreement. 4.3. Others to Enter into Similar Agreements. NATCO shall cause each holder of any equity security, or of any security convertible into or exchangeable or exercisable for any equity security, of NATCO acquired from NATCO after the date of this Agreement (other than in a Public Offering or under a stock incentive or other equity compensation plan) to enter into a similar agreement with NATCO. 5. Preparation; Reasonable Investigation. In connection with preparing and filing each registration statement registering Registrable Securities under the Securities Act, NATCO will give the Holders of those Registrable Securities to be registered, their underwriters (if any), and their respective counsel and accountants the opportunity to participate in preparing the registration statement, each prospectus included in it or filed with the SEC, and each amendment of or supplement to them. NATCO will also give these Persons such access to NATCO's books and records and such opportunities to discuss NATCO's business with its officers and the independent public accountants who have issued audit reports on NATCO's financial statements as is reasonably necessary to conduct a reasonable investigation within the meaning of the Securities Act. However, NATCO shall not disclose material nonpublic information to any such Person unless, before disclosing this information, NATCO gives that Person, and the Holders on whose behalf it is acting, notice that the information is material nonpublic information and gives that Person, and those Holders, the opportunity to accept or refuse to accept the material nonpublic information for review. As a condition to disclosing material nonpublic information, NATCO may require the Person to whom it proposes to disclose the information to enter into a confidentiality agreement on customary terms. 6. Other Registrations. Whenever NATCO is required to use its best efforts to effect the registration of Registrable Securities under the Securities Act under Section 1 or Section 2, and if that registration has not been withdrawn or abandoned, NATCO shall not file a registration statement with respect to any of its securities (including Registrable Securities) under the Securities Act (other than a Special Registration), whether of its own accord or at the request or demand of a holder or holders of its securities, for 90 days after the effective date of the previous registration, unless the holder or holders of at least 50% of the Registrable Securities then outstanding consent. 7. Indemnification. 7.1. Indemnification by NATCO. Subject to Section 7.2, if NATCO registers Registrable Securities under the Securities Act under Section 1 or Section 2, NATCO will indemnify and hold harmless the Holder of those Registrable Securities, the Holder's 17 directors, officers, and employees and Persons who control the Holder (within the meaning of either section 15 of the Securities Act or section 20 of the Exchange Act) against the losses, claims, damages or liabilities, joint or several, to which they become subject under the Securities Act or otherwise, to the extent that those losses, claims, damages or liabilities (or actions or proceedings in respect of them) arise out of or are based on: (i) an untrue statement or alleged untrue statement of a material fact in a registration statement under which those Registrable Securities were registered under the Securities Act, or a preliminary prospectus, final prospectus or summary prospectus contained in it or related to it (or any amendment or supplement to any of these documents); (ii) an omission or alleged omission to state a material fact required to be stated in the registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement or necessary to make the statements in it not misleading; or (iii) any violation by NATCO of a federal, state or common law rule or regulation relating to an action or omission required by NATCO in connection with the registration. NATCO will reimburse the Holder and its directors, officers, employees and controlling Persons for legal or other expenses they reasonably incur in connection with investigating or defending such losses, claims, damages, liabilities, actions or proceedings. 7.2. Exceptions to NATCO's Liability. NATCO shall not be liable under Section 7.1 to the extent that the loss, claim, damage, liability or expense arises out of, or is based on an untrue statement, alleged untrue statement, omission or alleged omission: (i) made in the registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance on and in conformity with written information that the Holder gave NATCO expressly to use in preparing that document; or (ii) in any prospectus if and to the extent: (A) the untrue statement, alleged untrue statement, omission or alleged omission is completely corrected in an amendment or supplement to the prospectus and, after NATCO has given the Holder or managing underwriter a sufficient number of copies of the amendment or supplement, the 18 Holder or managing underwriter does not deliver the prospectus as amended or supplemented before or concurrently with the sale of Registrable Securities to the Person asserting the loss, claim, damage, liability or expense; or (B) NATCO gave the Holder or managing underwriter notice of the existence of the untrue statement, alleged untrue statement, omission or alleged omission and the Holder or managing underwriter continued to dispose of Registrable Securities before it received either (A) an amended or supplemented prospectus which, as advised by NATCO, completely corrected the untrue statement or omission or (B) a notice from NATCO, that it could use the existing prospectus. 7.3. Indemnification by the Sellers. Subject to Section 7.4 and Section 7.5, if NATCO registers Registrable Securities under the Securities Act under Section 1 or Section 2, each Holder of those Registrable Securities will indemnify and hold harmless NATCO, NATCO's directors, NATCO's officers who sign the registration statement and Persons who control NATCO (within the meaning of either section 15 of the Securities Act or section 20 of the Exchange Act), against the losses, claims, damages or liabilities, joint or several, to which they become subject under the Securities Act or otherwise, to the extent that those losses, claims, damages or liabilities (or actions or proceedings in respect of them) arise out of or are based on: (i) an untrue statement or alleged untrue statement of a material fact in a registration statement under which those Registrable Securities were registered under the Securities Act, or a preliminary prospectus, summary prospectus or final prospectus contained in it or related to it (or any amendment or supplement to any of these documents) if the statement was made in reliance on and in conformity with written information that the Holder gave to NATCO expressly to use in preparing that document; or (ii) an omission or alleged omission to state a material fact with respect to the Holder required to be stated in the registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement or necessary to make the statements in it not misleading if the omission was made in reliance on and in conformity with written information that the Holder gave to NATCO expressly to use in preparing that document. 19 The Holder will reimburse NATCO and those directors, officers and controlling Persons for legal or other expenses they reasonably incur in connection with investigating or defending such losses, claims, damages, liabilities, actions or proceedings. 7.4. Exceptions to Holder's Liability. No Holder will be liable if the untrue statement, alleged untrue statement, omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and NATCO did not deliver a copy of the final or amended prospectus at or before the confirmation of the sale to the Person asserting the loss, claim, damage or liability in any case in which delivery is required by the Securities Act. 7.5. Limitations on Holder's Liability. The liability of each Holder under Section 7.3 is limited to the net amount that the Holder receives from selling Registrable Securities under the registration statement (after deducting the cost of the Registrable Securities, the underwriting discount, commissions and other expenses of the sale paid or payable by that Holder and the amount of damages that that Holder has otherwise had to pay as a result of its breach). 7.6. Notices of Claims, etc. If an indemnified party under this Section 7 receives notice of the commencement of an action or proceeding involving a claim subject to this Section 7: (i) Notice of Claim: The indemnified party will promptly give notice to the indemnifying party of the action or proceeding. If the indemnified party does not do so, the indemnifying party must still fulfill its obligations except to the extent that this failure actually and materially prejudices the indemnifying party's rights. (ii) Participate or Assume Defense: If the action or proceeding is brought against an indemnified party, the indemnifying party may participate in defending the action or proceeding and may assume the defense of the claim or proceeding, jointly with any other indemnifying party similarly notified to the extent that the other indemnifying party wishes to do so, with counsel reasonably satisfactory to the indemnified party. Once the indemnifying party gives notice to the indemnified party that it has assumed the defense, the indemnified party may participate in the defense at its own expense and the indemnifying party will not be liable to the indemnified party for any legal or other expenses that the indemnified party subsequently incurs in connection with the defense. 20 (iii) Conflict of Interest: If the indemnified party reasonably determines, based on advice of its independent counsel, that a conflict of interest may exist between the indemnified party and the indemnifying party with respect to the action or proceeding and that it is advisable for the indemnified party to be represented by separate counsel, the indemnified party may retain other counsel, reasonably satisfactory to the indemnifying party, to represent the indemnified party, and the indemnifying party shall pay the reasonable fees and expenses of that counsel. (iv) Settlements: The indemnifying party shall not consent to entry of a judgment, or enter into a settlement, without the indemnified party's prior written consent, unless: (A) the judgment or settlement is only for monetary damages, which the indemnifying party pays in full; (B) the indemnifying party does not admit responsibility on the indemnified party's behalf; and (C) each claimant or plaintiff unconditionally releases the indemnified party from all liability to it arising from the matter which is the subject of the claim. The indemnifying party shall not be liable for any settlement of any proceeding effected without its prior written consent (not to be unreasonably withheld). (v) No Multiple Counsel: The indemnifying party shall not, in any proceeding or related proceedings, be liable for the fees and expenses of more than one separate counsel for all indemnified parties. 7.7. Other Indemnification. The indemnification in this Section 7 (with appropriate modifications) also applies with respect to any required registration or other qualification of Registrable Securities under any federal or state law or regulation of a governmental authority other than the Securities Act. 7.8. Contribution. (a) If an indemnity under Section 7.1 or Section 7.3 is unavailable, or is insufficient to hold harmless an indemnified party (other than by reason of the exceptions to those indemnities), then the indemnifying party shall in lieu of the indemnification 21 contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses: (i) in the proportion appropriate to reflect the relative benefits that the indemnifying party and the indemnified party received from the other from the offering of Registrable Securities (taking into account the portion of the offering proceeds realized by each of them); or (ii) if the allocation in Section 7.8(a)(i) is not permitted by law, or provides a lesser sum to the indemnified party than the amount calculated in this Section 7.8(a)(ii), in the proportion appropriate to reflect not only the relative benefits received by the indemnifying party and the indemnified party but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether any action, statement or omission in question has been taken or made by, or relates to information supplied by, the indemnified party and the indemnifying party, and their relative intent, knowledge, access to information and opportunity to correct or prevent the action, statement or omission. The Parties acknowledge that it would not be equitable if contribution under this Section 7.8(a)(ii) were determined by pro rata allocation or another method of allocation that does not take into account the equitable considerations specified in this Section 7.8(a)(ii). (b) No Person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) is entitled to contribution under this Section 7.8 from a Person who was not guilty of such fraudulent misrepresentation. (c) The amounts payable under this Section 7.8 include amounts payable for legal and other expenses reasonably incurred by the indemnified party in connection with investigating or defending the loss, claim, damage, liability, action or proceeding (except as provided in Section 7.6 if the indemnifying party has assumed the defense of any such action or proceeding in accordance with those provisions). (d) Each Party is liable for contribution under this Section 7.8 only to the extent to which and under the circumstances in which that Party would have been liable to indemnify under this Section 7 if that indemnification were enforceable under law. 22 7.9. Survival of Indemnities. The indemnities in this Section 7 are not affected by any investigation made by or on behalf of an indemnified Person and survive the transfer of the securities by the seller. 7.10. Officers and Directors. In this Section 7, "officers" and "directors" include the partners of the Holders of Registrable Securities which are partnerships and the trustees and beneficiaries of the Holders of Registrable Securities which are trusts. 8. Other Provisions Relating to Registrable Securities. 8.1. Registration Requests for Convertible Preferred Shares or Warrant. A holder of Convertible Preferred Shares, the Warrant (or an interest in the Warrant) or other securities in respect of which Registrable Securities are issuable shall be treated as holding the Conversion Shares into which those Convertible Preferred Shares convert, the Warrant Shares for which the Warrant (or its interest in the Warrant) is exercisable, or the Registrable Securities issuable in respect of those securities respectively, and hence as a holder of Registrable Securities, for all purposes under this Agreement. Except where stated otherwise, references in this Agreement to numbers, percentages or proportions of Registrable Securities mean the numbers, percentages or proportions of shares of Common Stock (or securities equivalent to Common Stock) treating Convertible Preferred Shares as if they had been converted, the Warrant as if it had been exercised and Registrable Securities issuable in respect of other securities as if they had been issued. 8.2. Best Registration Rights. If NATCO grants any other Person, with respect to any security issued by NATCO or any of its Affiliates, registration rights with terms that are in any manner more favorable (other than in respect of the number of demand rights) to the holder of those rights than the terms granted to the holders of Registrable Securities under this Agreement (or if NATCO amends or waives a term of an agreement or arrangement providing registration rights to any other Person or takes other action to provide for terms that are more favorable (other than in respect of the number of demand rights) to other holders than those in this Agreement), then this Agreement is deemed to be amended to provide the holders of Registrable Securities with any of these more favorable terms as the holders of a majority of the Registrable Securities elect to include in this Agreement. NATCO shall promptly give notice to the holders of Registrable Securities on granting registration rights to other Persons (or amending or waiving terms of an agreement or arrangement providing registration rights to any other Person or taking any other action to provide for more favorable terms). 8.3. Rule 144; Legended Securities; etc. (a) NATCO shall continue to file reports under section 15 of the Securities Act and section 13 of the Exchange Act to the extent necessary to enable the Holders to 23 sell Registrable Securities in reliance on Rule 144 or Rule 145 without registration under the Securities Act. As of their respective dates, those reports shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated in them or necessary in order to make the statements in them, in light of the circumstances under which they were made, not misleading and must comply as to form in all material respects with the Exchange Act and the Securities Act and the SEC's rules and regulations under those statutes. If a Holder of Registrable Securities requests, NATCO shall give that Holder a written statement as to whether it has complied with these requirements. (b) On the request of a Holder of Registrable Securities, NATCO shall issue new certificates for those Registrable Securities without a legend restricting further transfer if: (i) those Registrable Securities have been sold to the public under an effective registration statement under the Securities Act or Rule 144; (ii) the issuance is otherwise permitted under the Securities Act, the Holder of those Registrable Securities has given NATCO an opinion of counsel to this effect and that Holder requests such a certificate from NATCO; or (iii) those Registrable Securities have been beneficially owned, by a Person who has not been an affiliate of NATCO for at least three months, for a period of at least two years (or such shorter period applying under Rule 144(k) under the Securities Act or any successor to it), all as determined under Rule 144. 8.4. Nominees for Beneficial Owners. A beneficial owner whose Registrable Securities are held by a nominee may, on notice to NATCO, and unless the record owner gives NATCO notice to the contrary, be treated as the Holder of those Registrable Securities for purposes of any request or other action by Holders of Registrable Securities under this Agreement or any determination of a number or percentage of shares of Registrable Securities held by a Holder of Registrable Securities under this Agreement. If the beneficial owner gives NATCO such a notice, NATCO may require reasonable evidence of the owner's beneficial ownership of the Registrable Securities. 9. Miscellaneous. 9.1. Notices. (a) Notices, requests, consents and other communications provided for in this Agreement, and legal process relating to this Agreement, will be validly given, made or 24 served, if in writing and (w) delivered personally, (x) sent by next day or overnight mail using a reputable national courier (such as Federal Express), (y) send by first-class registered or certified mail, return receipt requested, postage prepaid or (z) sent by fax, as follow: (i) if to NATCO: NATCO Group Inc. 2950 North Loop West Suite 700 Houston, TX 77092 Attention: General Counsel Fax: (713) 683-7841 with a copy to: O'Melveney & Myers LLP 30 Rockefeller Plaza, 27th Floor New York, NY 10112 Attention: Mark E. Thierfelder, Esq. Fax: (212) 408-2420 (ii) if to Purchaser: Lime Rock Partners II, L.P. c/o Lime Rock Management LP 518 Riverside Avenue Westport CT 06880 Attention: Mark A. McCall Fax (203) 293-2760 with a copy to: Debevoise & Plimpton 919 Third Avenue New York, New York 10022 Attention: Jeffrey J. Rosen Fax: (212) 909-6836 or to such other address or fax number as a Party specifies in a written notice given in accordance with this Section 9.1. (b) Such notices, requests, consents and other communications shall be deemed to have been received: 25 (i) if delivered personally: on the next Business Day after delivery; (ii) if sent by next day or overnight mail using a reputable national courier (such as Federal Express): on the next Business Day after sending; (iii) if sent by first-class registered or certified mail, return receipt requested, postage prepaid: on the fifth Business Day after mailing; or (iv) if sent by fax and the transmitting Party receives a transmission receipt dated the day of transmission in the recipient's jurisdiction: on the next Business Day after transmission. 9.2. Amendments and Waivers. (a) This Agreement may be amended, and NATCO may take action prohibited under it, or omit to perform an act that it is required to perform under it, only if NATCO obtains the written consent to the amendment, action or omission to act of the Holder or Holders of more than 50% of the shares then constituting Registrable Securities. Each holder of Registrable Securities at the time or outstanding at a later time is bound by consents authorized by this Section 9.2, whether or not the Registrable Securities are marked to indicate the consent. (b) No amendment or termination of this Agreement, and no waiver under it, shall be binding unless made in writing. (c) A waiver waives only the specific matter described in the writing and does not impair the rights of the Party granting the waiver in other respects or at other times. A Party's waiver of a breach of or a default under this Agreement does not constitute a waiver of a similar breach or default. (d) A Party's failure, on one or more occasions, to enforce a provision of this Agreement, or to exercise a right or privilege under this Agreement, does not constitute a waiver of that provision, right or privilege. 9.3. Specific Performance. Each Party, in addition to being entitled to exercise its rights in this Agreement or granted by law (including recovery of damages) is entitled to an injunction to prevent breaches of this Agreement and to specifically enforce its provisions. Each Party agrees that monetary damages would not be adequate compensation for loss incurred as a result of another Party breaching any provision of this Agreement and waives the defense in an action for specific performance that a remedy at law would be adequate. 26 9.4. Severability. If any provision of this Agreement is inoperative or unenforceable for any reason, this shall not make the provision inoperative or unenforceable in any other case, circumstance or jurisdiction, or make any other provision invalid, inoperative, or unenforceable. The Parties intend that they would have entered into the remaining provisions. 9.5. Governing Law. This Agreement is governed in all respects (including as to validity, interpretation and effect) by the internal laws of the state of New York without giving effect to its conflict of laws rules to the extent those rules do not mandatorily apply by statute and would require or permit the application of another jurisdiction's law. 9.6. Jurisdiction. Each Party: (i) irrevocably submits to the exclusive jurisdiction of the courts of the state of New York and the United States District Court for the Southern District of New York in respect of proceedings directly or indirectly arising out of or relating to this Agreement (including as to validity, interpretation and effect); (ii) waives and agrees not to assert, as a defense in any such proceedings, that the proceedings may not be brought or are not maintainable in those courts, that the venue is not appropriate or that those courts cannot enforce this Agreement; and (iii) consents to and grants any such court jurisdiction over that Party and over the subject matter of any such dispute and agrees, to the maximum extent permitted by law, that the mailing of process or other papers in connection with the proceeding in the manner provided in Section 9.1, or in such other manner as may be permitted by law, shall be valid and sufficient service of that process or paper. 9.7. WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES THAT ANY DISPUTE WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES. THEREFORE EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT HAS TO A TRIAL BY JURY IN RESPECT OF PROCEEDINGS DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT (INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT). EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER; 27 (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (iii) IT MAKES THIS WAIVER VOLUNTARILY; AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.7. 9.8. Successors, Assigns and Transferees. This Agreement binds and inures to the benefit of the Parties and their respective successors and permitted assigns. If Purchaser transfers and assigns any Convertible Preferred Shares, the Warrant (or any interest in the Warrant), Conversion Shares or Warrant Shares to any Person (except in a Public Offering), Purchaser (or any Person who is a transferee or assignee under this Section 9.8) may assign a portion of its rights and benefits under this Agreement needed to enable that Person to act as a Holder under this Agreement, if that Person agrees in writing to be bound by the duties and obligations of a Holder under this Agreement. 9.9. No Third Party Beneficiaries. Except as provided in Section 7, nothing in this Agreement confers on any Person, other than the Parties and their respective successors and permitted assigns, any benefit, right or remedy under or by reason of this Agreement. 9.10. Term. This Agreement is effective as of the date first written above and continues in effect until the earliest of (w) its termination by the consent of the Parties or their respective successors in interest, (x) the date on which no Registrable Securities remain outstanding, (y) NATCO's dissolution, liquidation or winding up and (z) the tenth anniversary of the date of this Agreement. Section 7 and (insofar as they relate to rights and obligations under Section 7) Section 9 and Section 10 survive the termination of this Agreement. 9.11. Further Assurances. Each Party shall sign and deliver the additional documents, and take the other actions needed, or otherwise reasonably requested by the other Party, to confirm and assure the rights and obligations in this Agreement, and to make the transactions contemplated by this Agreement effective. 9.12. No Inconsistent Agreements. NATCO will not enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders of Registrable Securities under this Agreement. 9.13. Counterparts. The Parties may sign this Agreement in one or more counterparts, all of which will be the same agreement, and become effective when each Party has signed and delivered a counterpart to the other Party. 28 10. Definitions and Interpretation. 10.1. Definitions. In this Agreement, the following terms when capitalized have the following meanings: ADDITIONAL SHARES defined in the recitals to this Agreement. AGREEMENT defined in the introductory paragraph to this Agreement. BOARD NATCO's board of directors. BUSINESS DAY a day, other than: (i) a Saturday or Sunday; or (ii) a day on which commercial banks in Houston Texas are authorized or required by Law to close or are otherwise generally closed. CERTIFICATE OF DESIGNATIONS defined in the recitals to this Agreement. COMMON STOCK defined in the recitals to this Agreement. CONVERSION SHARES the shares of Common Stock issuable on the conversion of the Convertible Preferred Shares. CONVERTIBLE PREFERRED SHARES defined in the recitals to this Agreement. EXCHANGE ACT the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations under it, in effect at the time. A reference to a particular section of it includes the corresponding section, if any, of its successor federal statute, and the rules and regulations under it. EXISTING REGISTRABLE SECURITIES shares of Common Stock subject to a contractual registration obligation arising under an Existing Registration Rights Agreement. EXISTING REGISTRATION (i) Registration Rights Agreement dated as of November 18, 1998 RIGHTS AGREEMENTS by and between NATCO, Capricorn Investors, L.P. and Capricorn Investors II, L.P. (but disregarding amendments to those
29 agreements after the date of this Agreement to the extent that they adversely affect the Holders). (ii) Registration Rights Agreement dated as of November 18, 1998 by and between NATCO, William R. Dimeling, Robert J. Hamaker, Douglas P. Heller, George K. Hickox, Jr., Ralph M. Kelly, Steven G. Park, Richard R. Schreiber, John C. Tuten, Jr., The 1998 Trust for Jody Smith Hamaker and Banc One Capital Partners II, Ltd. (but disregarding amendments to those agreements after the date of this Agreement to the extent that they adversely affect the Holders). HOLDER Purchaser and any Person to whom Purchaser assigns Convertible Preferred Shares, the Warrant (or an interest in the Warrant) or Registrable Securities and who has agreed in writing to be bound by the provisions of this Agreement in accordance with Section 9.8. NASD National Association of Securities Dealers, Inc. NASDAQ the NASD Automated Quotation System. NATCO defined in the introductory paragraph to this Agreement. OTHER REGISTRATION STATEMENT defined in Section 1.4(a)(i). PARTY a party to this Agreement. PERSON an individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization, governmental entity or other entity. PRIMARY DISTRIBUTION a Public Offering of shares of Common Stock in which first priority is to be given to shares offered, sold and delivered by NATCO. PUBLIC OFFERING a firm commitment underwritten public offering for cash of shares of Common Stock led by at least one underwriter of nationally recognized standing pursuant to a registration statement filed and declared effective under
30 the Securities Act. PURCHASER defined in the introductory paragraph to this Agreement. REGISTRABLE SECURITIES (i) the Conversion Shares; (ii) the Warrant Shares; (iii) the Additional Shares; and (iv) any securities issued or issuable with respect to any securities that are Registrable Securities, or in respect of Convertible Preferred Shares or the Warrant, including securities issued or issuable: (A) on conversion or exercise of any such securities; (B) in exchange or as a replacement for any such securities; (C) by way of distribution or stock dividend on any such securities; or (D) in connection with a stock split, combination of shares, recapitalization, merger, consolidation or other reorganization relating to any such securities. but not including any preferred shares or other convertible securities issued or issuable with respect to the Convertible Preferred Shares, or any warrant issued or issuable with respect to the Warrant, in a manner described in (B) or (D) (except that those preferred shares, convertible securities or warrants will be treated as "Registrable Securities" solely for the purposes of determining whether any securities issued or issuable with respect to those preferred shares, convertible securities or warrants are themselves "Registrable Securities"). A Registrable Security ceases to be a Registrable Security when issued pursuant to a registration statement in exchange for a Registrable Security or, once otherwise
31 issued, when: (a) a registration statement with respect to the sale of that security has become effective under the Securities Act and that security has been disposed of in accordance with that registration statement; (b) the security has been distributed to the public in reliance on Rule 144; (c) the security has been otherwise transferred, NATCO has delivered a new certificate covering the security without a legend restricting further transfer, and further disposition of the security does not require registration or qualification of the security under the Securities Act or any similar state law then in force; or (d) the security ceases to be outstanding. REGISTRATION EXPENSES the expenses incident to NATCO performing its obligations to effect registration of Registrable Securities under this Agreement including registration and filing fees, fees and expenses of complying with securities or blue sky laws, fees and expenses associated with listing securities on exchanges or NASDAQ, fees and other expenses associated with filings with the NASD (including, if required, fees and expenses of any "qualified independent underwriter" and its counsel), printing expenses, fees and disbursements of counsel for NATCO and of its independent public accountants, fees and disbursements of one counsel retained by the Holders of Registrable Securities and the expenses of any special audits made by accountants required by or incidental to the registration (but not including underwriting discounts or commissions or transfer taxes payable in respect of the sale of Registrable Securities by the Holders). For purposes of this Agreement, NATCO is obligated to pay the fees and disbursements of only one counsel representing the Holders. If more than one counsel represents the Holders in connection with a registration under this Agreement, those Holders shall notify NATCO
32 as to which counsel represents the Holders for the purposes of this Agreement. RULE 144 Rule 144 (or any successor provision) under the Securities Act. RULE 144(k) Rule 144(k) (or any successor provision) under the Securities Act. RULE 144A Rule 144A (or any successor provision) under the Securities Act. RULE 145 Rule 145 (or any successor provision) under the Securities Act. SEC the Securities Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act. SECONDARY DISTRIBUTION a Public Offering of shares of Common Stock in which first priority is to be given to shares offered, sold and delivered by shareholders of NATCO other than the Holders (including the holders of shares of Common Stock subject to the Existing Registration Rights Agreements). SECURITIES ACT the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations under it, in effect at the time. A reference to a particular section of it includes the corresponding section, if any, of its successor federal statute, and the rules and regulations under it. SECURITIES PURCHASE AGREEMENT defined in the recitals to this Agreement. SPECIAL REGISTRATION (i) the registration of shares of equity securities, or options or other rights in respect of equity securities, to be offered to directors, members of management, employees or consultants of NATCO or its subsidiaries under stock incentive or other equity compensation plans; or (ii) the registration of equity securities, or options or
33 other rights in respect of equity securities, solely on Form S-4 or S-8 (or any successor form). WARRANT defined in the recitals to this Agreement. WARRANT SHARES the shares of Common Stock issuable on the exercise of the Warrants.
10.2. Interpretation. References to "include", "includes" or "including" are deemed to be followed by "without limitation." The plural includes the singular, and vice versa. References to one gender include the other genders. Unless stated otherwise, a reference to a Section means a Section of this Agreement. Headings in this Agreement are for convenience only and do not affect its interpretation. 34 THE PARTIES have executed this Agreement as of the date first written above. LIME ROCK PARTNERS II, L.P. By: Lime Rock Partners GP II, L.P., its General Partner By: LRP GP II, Inc., its General Partner By: /s/ John T. Reynolds -------------------------------- John T. Reynolds Director NATCO GROUP INC. By: /s/ Nathaniel A. Gregory ----------------------------------------- Name: Nathaniel A. Gregory Title: Chief Executive Officer 35 EX-4.2 5 h04334exv4w2.txt FIRST AMENDMENT TO RIGHTS AGREEMENT EXHIBIT 4.2 This FIRST AMENDMENT TO RIGHTS AGREEMENT (the "Amendment"), dated as of March 25, 2003 is between NATCO Group Inc., a Delaware corporation (the "Company"), and Mellon Investor Services LLC (as successor to ChaseMellon Shareholder Services, L.L.C.), a New Jersey limited liability company, as Rights Agent (the "Rights Agent"). RECITALS: The Company and the Rights Agent are parties to a Rights Agreement dated as of May 15, 1998 (the "Rights Agreement"), pursuant to which the Company has distributed to holders of the Company's Common Stock preferred share purchase rights, each of which initially represents the right of the registered holder thereof to purchase one one-hundredth (1/100) of a share of the Company's Series A Junior Participating Preferred Stock, par value $0.01 per share, upon the terms and subject to the conditions set forth in the Rights Agreement. The Company and Lime Rock Partners II, L.P., a Cayman Islands exempted limited partnership ("Purchaser"), have entered into a Securities Purchase Agreement dated as of March 13, 2003 pursuant to which, inter alia, in connection with Purchaser's purchase of the Company's Series B Convertible Preferred Stock and a warrant to purchase the Company's Common Stock, the Company has agreed to amend the Rights Agreement to increase to 20% the percentage beneficial ownership interest in the Company's voting securities that would cause Purchaser (but only Purchaser) to become an "Acquiring Person," as defined in the Rights Agreement. The Rights Agreement permits the Company and the Rights Agent to amend the Rights Agreement in any respect without the approval of holders of the Rights Certificates at any time prior to occurrence of the Distribution Date, and the Company and the Rights Agent deem the amendments set forth herein to be necessary and desirable. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: 1. AMENDMENT OF DEFINITION OF "ACQUIRING PERSON". The definition of "Acquiring Person" set forth in Section 1(a) of the Rights Agreement is hereby amended to read as follows: "Acquiring Person" shall mean (i) any Person, other than Lime Rock, who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Voting Shares of the Company then outstanding, and (ii) Lime Rock, if Lime Rock, together with all Affiliates and Associates of Lime Rock, shall be the Beneficial Owner of 20% or more of the Voting Shares of the Company then outstanding. Notwithstanding the foregoing: (i) Acquiring Person shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company or any entity holding Voting Shares for or pursuant to any such plan; (ii) No Person shall become an "Acquiring Person" as the result of an acquisition of Voting Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more (or, in the case of Lime Rock, 20% or more) of the Voting Shares of the Company then outstanding; provided, however, that, if a Person shall become the Beneficial Owner of 15% or more (or, in the case of Lime Rock, 20% or more) of the Voting Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company and at a time when such Person is the Beneficial Owner of 15% or more (or, in the case of Lime Rock, 20% or more ) of the Voting Shares of the Company then outstanding, become the Beneficial Owner of any additional Voting Shares of the Company (other than by an antidilution adjustment described in paragraph (iii) below), then such Person shall be deemed to be an "Acquiring Person"; (iii) No Person shall become an "Acquiring Person" as the result of an antidilution adjustment under the Certificate of Designations for Series B Convertible Preferred Stock of the Company, or under any warrant granted by the Company pursuant to the Securities Purchase Agreement by and between Lime Rock Partners II, L.P. and the Company dated as of March 13, 2003, which adjustment increases the percentage of Voting Shares of the Company beneficially owned by such Person; provided, however, that, if a Person shall become the Beneficial Owner of 15% or more (or, in the case of Lime Rock, 20% or more) of the Voting Shares of the Company then outstanding by reason of such an antidilution adjustment and shall, after such antidilution adjustment and at a time when such Person is the Beneficial Owner of 15% or more (or, in the case of Lime Rock, 20% or more) of the Voting Shares of the Company then outstanding, become the Beneficial Owner of any additional Voting Shares of the Company (other than by one or more additional antidilution adjustments described in this paragraph (iii)), then such Person shall be deemed to be an "Acquiring Person"; (iv) Any Person who has reported or is required to report such ownership (but who is the Beneficial Owner of less than 20% of the outstanding Common Shares of the Company) on Schedule 13G under the Exchange Act (or any comparable or successor reporting form) or on Schedule 13D under the Exchange Act (or any comparable or successor reporting form) which Schedule 13D does not state any intention or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the Common Shares) and, within ten Business Days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired Common Shares in excess of 14.9% of the outstanding Common Shares of the Company inadvertently or without knowledge of the terms of the Rights and who, together with all such Person's Affiliates and Associates, thereafter does not acquire additional Common Shares while being the Beneficial Owner of 15% or more of the outstanding Common Shares of the Company shall not be deemed to be an "Acquiring Person"; provided, however, that, if the Person requested so to certify fails to do so within ten Business Days, then such Person shall become an Acquiring Person immediately after such ten Business Day period; and (v) none of Lime Rock's Affiliates or Associates will be considered to be an Acquiring Person if (a) the aggregate amount of Voting Shares Beneficially Owned by Lime Rock and such Affiliates and Associates is less than 20% of the then outstanding Voting Shares and (b) the aggregate amount of Voting Shares that would be Beneficially Owned by such Affiliates or Associates if Lime Rock were not an Affiliate or Associate of any Person is less than 15% of the then outstanding Voting Shares. For the avoidance of doubt, this paragraph (v) shall be read in conjunction with the provisions of paragraphs (ii) and (iii) above. 2. AMENDMENT OF DEFINITION OF "ASSOCIATE". The definitions of "Affiliate" and "Associate" set forth in Section 1(a) of the Rights Agreement are hereby amended by inserting the following proviso at the end of those definitions: "; provided, however, that Lime Rock shall be deemed not to be an Associate of any of its limited partners." 3. AMENDMENT OF DEFINITION OF "DISTRIBUTION DATE". The definition of "Distribution Date" set forth in Section 1(a) of the Rights Agreement is hereby amended by deleting the words "the Beneficial Owner of 15% or more of the then outstanding Voting Shares of the Company" and substituting in their place the words "an Acquiring Person." 4. DEFINITION OF "LIME ROCK". The following definition is hereby added to Section 1(a) of the Rights Agreement by inserting it in its correct alphabetical position: "Lime Rock" shall mean Lime Rock Partners II, L.P., a Cayman Islands exempted limited partnership. Anything in this Agreement to the contrary notwithstanding, "Lime Rock" shall not include (i) any Person into or with which Lime Rock shall be merged or consolidated, (ii) any Person to which Lime Rock shall sell, transfer, assign or otherwise dispose of either (A) any Voting Shares of the Company or (B) all or substantially all of the assets or properties of Lime Rock, or (iii) any successor or assign of Lime Rock. 5. MISCELLANEOUS. (a) Section 29 of the Rights Agreement. This Amendment is an amendment pursuant to Section 29 of 2 the Rights Agreement. Upon execution and delivery of this Amendment, the terms and conditions of this Amendment shall be part of the terms and conditions of the Rights Agreement for any and all purposes, and all the terms and conditions of both shall be read together as though they constitute one and the same instrument, except that in case of conflict, the provisions of this Amendment will control. (b) Full Force and Effect. Except as they have been modified in this Amendment, each and every term and provision of the Rights Agreement shall continue in full force and effect, and all references to the Rights Agreement in the Rights Agreement shall be deemed to mean the Rights Agreement as supplemented and amended pursuant hereto. (c) Counterparts. This Amendment may be executed in any number of counterparts and in separate counterparts, and each of such counterparts shall, for all purposes be deemed to be an original, and all of such counterparts shall together constitute but one and the same instrument. (d) Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. (e) Descriptive Headings. Descriptive headings of the several Sections of this Amendment are inserted for convenience only, and shall not control or affect the meaning of any of the provisions hereof. [The remainder of this page has been intentionally left blank.] 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. NATCO GROUP INC. By: /s/ Nathaniel Gregory ------------------------------------------- Name: Nathaniel Gregory Title: Chief Executive Officer Attest: /s/Jenica A. Basalyga - ----------------------------- Name: Jenica A. Basalyga MELLON INVESTOR SERVICES LLC, as Rights Agent By: /s/ Deodatt Lakerman ------------------------------------------- Name: Deodatt Lakerman Title: Assistant Vice President & Client Service Manager Attest: /s/ Patricia T. Knight - ------------------------------ Name: Patricia T. Knight Title: Client Service Manager S-1 EX-99.1 6 h04334exv99w1.txt PRESS RELEASE DATED 3/25/2003 EXHIBIT 99.1 [NATCOGROUP LOGO] [PRESS RELEASE] 2950 North Loop West, Suite 700 Houston, TX 77092 Phone: (713) 685-8062 Fax: (713) 683-7841 - -------------------------------------------------------------------------------- NATCO Group announces completion of convertible preferred sale March 25, 2003 - -------------------------------------------------------------------------------- NATCO Group Inc. (NYSE: NTG) today completed the previously announced sale of $15 million of convertible preferred stock and warrants to Lime Rock Partners. In conjunction with the completion of the sale of the securities, Thomas R. Bates, Jr., Managing Director of Lime Rock's Houston office, has been appointed to the Company's board of directors. Lime Rock Partners, based in Westport, Connecticut, is a private equity firm with over $420 million under management dedicated to investing in small energy companies with high growth potential. With offices in the major energy centers of North America and Western Europe, Lime Rock targets growth equity investments in companies involved in oilfield services, oilfield technology, midstream services, and exploration and production. NATCO Group Inc. is a leading provider of wellhead process equipment, systems and services used in the production of oil and gas. NATCO has designed, manufactured and marketed production equipment and services for more than 70 years. NATCO production equipment is used onshore and offshore in most major oil and gas producing regions of the world. Statements made in this press release that are forward-looking in nature are intended to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and may involve risks and uncertainties. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the oilfield service industry and other factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2002 filed by NATCO Group Inc. on March 21, 2003. -----END PRIVACY-ENHANCED MESSAGE-----