EXHIBIT 99.2
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
by and among
LIME ROCK PARTNERS II, L.P.
and
NATCO GROUP INC.
Dated as of March 13, 2003
Table of Contents
Page
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ARTICLE I
SECURITIES PURCHASE
1.1 Sale and Purchase of the Convertible Preferred Shares and the Warrant...1
1.2 Closing.................................................................1
1.3 Allocation..............................................................2
ARTICLE II
NATCO'S REPRESENTATIONS AND WARRANTIES
2.1 Organization and Authorization..........................................2
2.2 Capitalization..........................................................3
2.3 Subsidiaries and Ownership Interests....................................5
2.4 No Conflicts; Consents and Approvals....................................6
2.5 Compliance with Law.....................................................7
2.6 Permits.................................................................7
2.7 Offering Valid..........................................................7
2.8 SEC Reports and Financial Statements....................................7
2.9 Assets..................................................................8
2.10 No Undisclosed Liabilities..............................................9
2.11 No Adverse Changes......................................................9
2.12 Material Contracts......................................................9
2.13 Employee Benefit Plans.................................................10
2.14 Labor Matters..........................................................11
2.15 Intellectual Property..................................................12
2.16 Taxes..................................................................13
2.17 Environmental Matters..................................................13
2.18 Litigation.............................................................14
2.19 Insurance..............................................................14
2.20 Affiliate Transactions.................................................14
2.21 Brokers................................................................15
2.22 No Other Representations or Warranties.................................15
ARTICLE III
PURCHASER'S REPRESENTATIONS AND WARRANTIES
3.1 Organization and Authorization.........................................15
3.2 No Conflicts; Consents and Approvals...................................16
3.3 Litigation.............................................................17
3.4 Brokers................................................................17
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3.5 Accredited Investor; Investment Purpose................................17
3.6 Restrictions on Transfer...............................................17
3.7 No Ownership of Stock..................................................17
ARTICLE IV
PURCHASER'S RIGHTS AND OBLIGATIONS AS SECURITYHOLDER
4.1 Transfer of Securities; Legends........................................17
4.2 Directors Appointed by Purchaser.......................................20
4.3 Board Observer and Information.........................................20
4.4 Bylaws.................................................................21
4.5 Remedies for Default in Paying Dividends on Convertible Preferred Share21
ARTICLE V
NATCO'S COVENANTS
5.1 General Conduct of Business............................................21
5.2 Prohibited Actions.....................................................22
5.3 Access and Information.................................................23
5.4 Reservation of Common Stock for Conversion and Exercise................24
5.5 Listing................................................................24
5.6 Constructive Distributions.............................................24
5.7 Number of Convertible Preferred Shares Redeemed........................26
ARTICLE VI
COVENANTS OF NATCO AND PURCHASER
6.1 Public Announcements...................................................27
6.2 Further Actions........................................................27
6.3 Notification of Certain Matters........................................28
6.4 Supplemental Disclosure................................................28
6.5 Confidentiality........................................................28
6.6 Further Assurances.....................................................29
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations.................................30
7.2 Conditions to Purchaser's Obligations..................................31
7.3 Conditions to NATCO's Obligations......................................32
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ARTICLE VIII
TERMINATION
8.1 Termination............................................................33
8.2 Effect of Termination..................................................34
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by NATCO...............................................34
9.2 Indemnification by Purchaser...........................................34
9.3 Third Party Claims.....................................................35
9.4 Tax Treatment of Adjustments...........................................36
9.5 Tax Adjustments........................................................36
9.6 Time in Which to Bring Representation and Warranty Claims..............37
9.7 Limitations on Indemnification.........................................38
9.8 Limits on Consequential Damages........................................38
9.9 Exclusive Remedy.......................................................38
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses......................................................38
10.2 Notices................................................................39
10.3 Amendments; Waivers, etc...............................................40
10.4 Specific Performance...................................................41
10.5 Severability...........................................................41
10.6 Governing Law..........................................................41
10.7 Jurisdiction...........................................................41
10.8 Waiver of Jury Trial...................................................42
10.9 Successors and Assigns.................................................42
10.10No Third Party Beneficiaries...........................................43
10.11Entire Agreement.......................................................43
10.12No Inconsistent Agreements.............................................43
10.13Counterparts...........................................................43
10.14Schedules; Exhibits....................................................43
ARTICLE XI
DEFINITIONS AND INTERPRETATION
11.1 Definitions............................................................44
11.2 Interpretation.........................................................51
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Exhibits
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Exhibit A Certificate of Designations
Exhibit B Form of Warrant
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("Agreement"), dated as of March 13,
2003, entered into by and between Lime Rock Partners II, L.P., a Cayman Islands
exempted limited partnership ("Purchaser") and NATCO Group Inc., a Delaware
corporation ("NATCO").
R E C I T A L S
WHEREAS, Purchaser is an investment fund;
WHEREAS, NATCO is a provider of equipment, systems and services used
in the production of oil and natural gas;
WHEREAS, on the terms and conditions of this Agreement, NATCO wishes
to sell to Purchaser and Purchaser wishes to buy from NATCO (i) shares of
NATCO's Series B Convertible Preferred Stock, par value $0.01 per share
("Convertible Preferred Shares"), having the terms stated in a certificate of
designations substantially in the form of Exhibit A ("Certificate of
Designations"), and (ii) a warrant, substantially in the form of Exhibit B, to
buy shares of NATCO's common stock, par value $0.01 per share ("Common Stock"),
in accordance with the terms of that warrant ("Warrant"); and
WHEREAS, NATCO's board of directors ("Board") has approved, and
considers it advisable and in the best interests of NATCO's shareholders to
consummate, the transactions contemplated by this Agreement and by the
Ancillary Agreements ("Transactions"), on the terms and conditions in this
Agreement;
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I
SECURITIES PURCHASE
1.1 Sale and Purchase of the Convertible Preferred Shares and the
Warrant. Subject to the terms and conditions of this Agreement, at the Closing,
NATCO will sell to Purchaser, and Purchaser will buy from NATCO, 15,000
Convertible Preferred Shares and a Warrant to buy 248,800 shares of Common
Stock, for an aggregate purchase price of $15,000,000.
1.2 Closing.
(a) Time and Place: The closing ("Closing") shall take place at the
offices of Debevoise & Xxxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at
10:00 a.m.,
New York time, on the second Business Day after the satisfaction or
waiver of all the conditions to the Closing (other than those conditions that
by their nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions) or on such other date and/or at
such other place as the Parties agree. The "Closing Date" is the date the
Closing occurs.
(b) Transactions at the Closing: At the Closing, subject to the
terms and conditions of this Agreement:
(i) NATCO shall issue to Purchaser 15,000 Convertible
Preferred Shares registered in Purchaser's name, and
deliver to Purchaser a Warrant in Purchaser's name to buy
248,800 shares of Common Stock; and
(ii) Purchaser shall pay NATCO $15,000,000, by wire transfer
of immediately available funds, to an account or accounts
designated by NATCO at least two Business Days before the
Closing Date.
1.3 Allocation. Of the purchase price payable by Purchaser at the
Closing, an amount equal to $993.42 per Convertible Preferred Share shall be
allocated to the Convertible Preferred Shares and the balance shall be
allocated to the Warrant, and the Parties agree to respect and use this
allocation for all tax and accounting purposes.
ARTICLE II
NATCO'S REPRESENTATIONS AND WARRANTIES
NATCO represents and warrants to Purchaser that:
2.1 Organization and Authorization.
(a) Power to Enter into the Agreement: Each of NATCO and its
Subsidiaries is a corporation or other entity duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization. NATCO has the requisite corporate power and
authority to execute and deliver this Agreement, the Ancillary Agreements, and
each other document to be executed and delivered by it under this Agreement or
any Ancillary Agreement, and to consummate the Transactions to which it is a
party.
(b) Authorization: All corporate action required on the part of
NATCO (including its directors and stockholders) to authorize NATCO's execution
and delivery of this Agreement, the Ancillary Agreements and each other
document to be executed and delivered by it under this Agreement or any
Ancillary Agreement, and NATCO's consummation of the Transactions to which it
is a party, has been taken (including
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actions required under any rules of the New York Stock Exchange). NATCO has
given Purchaser evidence of such authorization.
(c) Takeover Statutes: The Board and NATCO have taken any action
required on the part of NATCO so that no "fair price," "moratorium," "control
share acquisition" or similar statute or regulation under state or federal laws
in the United States (including section 203 of the DGCL) applies to the
execution, delivery and performance of this Agreement, the Ancillary Agreements
or the consummation of the Transactions. For the avoidance of doubt, such
action shall include an approval for purposes of section 203 of the DGCL of
this Agreement and the Ancillary Agreements, the Transactions, the conversion
of the Convertible Preferred Shares into Conversion Shares and the exercise of
the Warrant into Warrant Shares.
(d) Execution of the Agreement: NATCO has duly executed and
delivered this Agreement. NATCO has, or by the time of execution and delivery
by NATCO at or before the Closing will have, duly executed and delivered (or,
in the case of the Certificate of Designations, will have duly executed and
filed with the Secretary of State for the State of Delaware) each Ancillary
Agreement and each other document to be executed and delivered by it under this
Agreement or any Ancillary Agreement.
(e) Agreement Binds NATCO: Assuming due authorization, execution and
delivery by the parties not affiliated with NATCO, this Agreement is (and each
Ancillary Agreement, and each other document purporting to impose an obligation
on NATCO to be executed and delivered by NATCO under this Agreement or any
Ancillary Agreement, when executed and delivered by NATCO, will be) a legally
valid and binding obligation of NATCO enforceable against NATCO in accordance
with its terms (subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors' rights
generally and to general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law).
(f) Power to Do Business: Each of NATCO and its Subsidiaries has the
requisite corporate power and authority to own, lease, use and operate its
assets and to carry on its business as currently conducted. Each of NATCO and
its Subsidiaries is qualified or licensed to do business as a foreign
corporation or other entity, and is in good standing, in each jurisdiction in
which it owns real property or in which the nature of the business it conducts
requires such qualification or licensing, except where the failure to be so
qualified or licensed or to be in good standing does not constitute,
individually or in the aggregate, a NATCO Material Adverse Effect.
2.2 Capitalization.
(a) Authorized and Issued Capital: As of the Closing Date, NATCO's
authorized capital stock will consist of 50,000,000 shares of Common Stock and
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5,000,000 shares of preferred stock, of which 500,000 is designated as Series A
Junior Participating Preferred Stock and 15,000 will be designated as Series B
Convertible Preferred Stock. At the close of business on March 13, 2003:
(i) 15,803,797 shares of Common Stock were issued and
outstanding; and
(ii) no Series A Junior Participating Preferred Stock and no
Convertible Preferred Shares had been issued.
All outstanding shares of capital stock of NATCO and its Subsidiaries are, and
all shares of capital stock of NATCO and its Subsidiaries which are issued
before the Closing will be, when issued and paid for in accordance with their
respective terms, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights.
(b) No Other Securities or Rights: Other than (w) the shares of
Common Stock outstanding on March 13, 2003 as described in Section 2.2(a)(i),
(x) the shares of capital stock of NATCO's Subsidiaries owned by NATCO or one
of its Subsidiaries, (y) the obligations under this Agreement and the Ancillary
Agreements to issue the Convertible Preferred Shares and the Warrant, and to
issue the Conversion Shares and the Warrant Shares on conversion of the
Convertible Preferred Shares or exercise of the Warrant, and (z) as disclosed
in Disclosure Schedule 2.2, there are not issued, reserved for issuance or
outstanding:
(i) any shares of capital stock or voting securities of NATCO
or its Subsidiaries;
(ii) securities of NATCO or its Subsidiaries convertible into,
or exchangeable or exercisable for, shares of capital
stock or voting securities of NATCO or its Subsidiaries;
or
(iii) warrants, options or other rights to buy from NATCO or
its Subsidiaries, or any obligation of NATCO or its
Subsidiaries to issue or cause to be issued, any shares
of capital stock, voting securities, or securities,
warrants, options or other rights convertible into, or
exchangeable or exercisable for, shares of capital stock
or voting securities of NATCO or its Subsidiaries.
(c) No Repurchase Rights: Except as expressly provided in this
Agreement or the Ancillary Agreements, none of NATCO or its Subsidiaries is
obligated to repurchase, redeem or otherwise buy any securities or other rights
described in Section 2.2(b).
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(d) No Phantom Equity Rights: There are no outstanding phantom
equity, equity appreciation or similar rights enabling a Person to participate
in the residual equity value of, or appreciation in the equity value of, NATCO
or its Subsidiaries, or any agreements, commitments, understandings or other
arrangements relating to these.
(e) No Arrangements Affecting Ownership: Except for the
Organizational Documents of NATCO and its Subsidiaries, to NATCO's Knowledge
there are no agreements or other arrangements establishing or affecting
ownership interests in NATCO or its Subsidiaries, or the rights and obligations
of the owners of those interests (including voting trusts or similar
arrangements).
(f) Issuance of Convertible Preferred Shares: As of the Closing,
NATCO will have authorized 15,000 Convertible Preferred Shares. As of the
consummation of the Closing, the Convertible Preferred Shares then sold will be
duly authorized, validly issued and outstanding and, assuming Purchaser pays
for them, fully paid and nonassessable. The issuance of the Convertible
Preferred Shares is not subject to preemptive, subscription or similar rights
of any NATCO shareholder or any other Person. The Convertible Preferred Shares
will have the voting and other rights specified in the Certificate of
Designations, and all such rights shall be enforceable in accordance with their
terms.
(g) Issuance of Conversion Shares: NATCO has authorized and reserved
for issuance solely on conversion of the Convertible Preferred Shares a number
of shares of Common Stock sufficient to permit the conversion in full of the
Convertible Preferred Shares into shares of Common Stock ("Conversion Shares").
On conversion of any Convertible Preferred Shares into Conversion Shares in
accordance with the Certificate of Designations, such Conversion Shares will be
validly issued and outstanding, fully paid and nonassessable, and will have the
voting and other rights of Common Stock.
(h) Issuance of Warrant Shares: NATCO has authorized and reserved
for issuance solely on exercise of the Warrant a number of shares of Common
Stock sufficient to permit the exercise in full of the Warrant for shares of
Common Stock ("Warrant Shares"). Assuming Purchaser pays the exercise price
(whether in cash or by way of a "cashless exercise"), on exercise of the
Warrant for Warrant Shares in accordance with the Warrant's terms, such Warrant
Shares will be validly issued and outstanding, fully paid and nonassessable,
and will have the voting and other rights of Common Stock.
2.3 Subsidiaries and Ownership Interests.
(a) Subsidiaries: Disclosure Schedule 2.3 lists NATCO's Subsidiaries
and their respective jurisdictions of incorporation or organization. NATCO
beneficially
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owns, directly or indirectly, all the outstanding shares of capital stock (or
equivalent equity interests of entities other than corporations) of its
Subsidiaries.
(b) Other Ownership Interests: Neither NATCO nor any of its
Subsidiaries owns any shares of capital stock or other equity securities of, or
equity interest in, any Person (other than the Subsidiaries), or is obligated
to make a capital contribution to or other equity investment in such a Person.
2.4 No Conflicts; Consents and Approvals.
(a) Transactions Will Not Create Conflicts: Assuming that all of the
Consents and Permits listed in Disclosure Schedule 2.4 are obtained at or
before the Closing, neither NATCO's execution and delivery of this Agreement,
the Ancillary Agreements and each other document to be executed and delivered
by it under this Agreement or any Ancillary Agreement, nor its consummation of
the Transactions, will:
(i) conflict with, or result in a breach of, NATCO's or any
of its Subsidiaries' certificate of incorporation, bylaws
or other organizational documents ("Organizational
Documents");
(ii) conflict with, result in a breach of, constitute (with or
without due notice or lapse of time or both) a default
under, give rise to a right of termination, cancellation,
amendment or acceleration under, result in the imposition
of a Lien under, or trigger a payment, vesting or
increase in the amount of compensation or a benefit
payable under, a Material Contract or, to NATCO's
Knowledge, under any other Contract or other obligation
to which NATCO or any of its Subsidiaries is a party or
by which any of them or any of their assets is bound;
(iii) conflict with, or result in a breach of, the Law; or
(iv) result in the termination, modification or nonrenewal of
a Permit.
(b) No Third Party Approvals: Except for the Consents and Approvals
listed in Disclosure Schedule 2.4, no Consent of a Government Authority or
other Person required to be obtained by NATCO or Affiliates of NATCO is needed
in connection with NATCO executing, delivering and performing this Agreement,
any Ancillary Agreement or any other document to be executed and delivered by
it under this Agreement or any Ancillary Agreement, or consummating any of the
Transactions.
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2.5 Compliance with Law.
(a) General: NATCO and its Subsidiaries are in compliance in all
material respects with the Law. None of them has received a written notice, or
to NATCO's Knowledge an unwritten notice, alleging noncompliance with the Law
in a material respect.
(b) Organizational Documents: None of NATCO or its Subsidiaries is
in breach or violation of its Organizational Documents. NATCO has made
available to Purchaser a copy of each of these Organizational Documents.
2.6 Permits. To NATCO's Knowledge, NATCO and its Subsidiaries have
the licenses, permits, consents, approvals, authorizations, waivers, grants,
franchises, concessions, exemptions, orders and registrations of Government
Authorities or other Persons ("Permits") they need to carry on business as
currently conducted. To NATCO's Knowledge, these Permits are in full force and
effect. To NATCO's Knowledge, NATCO and its Subsidiaries are in compliance in
all material respects with the terms of those Permits. To NATCO's Knowledge,
there is no basis on which a Permit will be terminated or modified or cannot be
renewed in the ordinary course of business.
2.7 Offering Valid. The offer, sale and issuance of the Convertible
Preferred Shares, the Warrant, the Conversion Shares and the Warrant Shares to
Purchaser are exempt from the registration requirements of the Securities Act,
and from any registration or filing requirement under state law, assuming the
accuracy of:
(i) Purchaser's representations and warranties in Section
3.5; and
(ii) in the case of the Warrant Shares, Purchaser's
representations and warranties in Section 3.5 at the time
the Warrant Shares are issued.
2.8 SEC Reports and Financial Statements.
(a) General: NATCO has timely filed with the SEC all documents
required to be filed by it under the Securities Act and the Exchange Act since
January 1, 2000. As of their respective dates, these documents did 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 complied 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.
(b) Financial Statements: Disclosure Schedule 2.8(b) contains the
unaudited consolidated balance sheet for NATCO and its Subsidiaries as of
December 31, 2002 ("2002 Balance Sheet") and the unaudited consolidated
statements of income and cash
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flow for the twelve months ended December 31, 2002. These financial statements
were prepared in accordance with GAAP applied on a consistent basis with prior
periods (except as otherwise noted in those statements and except that those
statements may not contain all footnote disclosures required by GAAP). Those
financial statements fairly present, in all material respects, NATCO's
consolidated financial position and consolidated results of operations and cash
flows as of and for the periods covered by those financial statements.
2.9 Assets. The assets of NATCO and its Subsidiaries include all
material assets needed to conduct their business as currently conducted.
Disclosure Schedule 2.9 lists the material real property owned or leased by
NATCO or any of its Subsidiaries, and states whether each such property is
owned or leased. NATCO and its Subsidiaries have good title to, or a valid
leasehold interest in, the assets reflected on the 2002 Balance Sheet (except
assets disposed of since December 31, 2002 in the ordinary course of business)
free and clear of Liens except for Liens that:
(i) were specifically disclosed or reserved against in the
2002 Balance Sheet or in the notes to the 2002 Balance
Sheet (but only to the extent so disclosed or reserved
against);
(ii) are for taxes, assessments or governmental charges or
claims which are not due and payable;
(iii) are statutory liens of landlords and liens of carriers,
warehousemen, mechanics and materialmen and other liens
imposed by Law incurred in the ordinary course of
business for sums not yet due or being contested in good
faith and which do not constitute, individually or in the
aggregate, a NATCO Material Adverse Effect;
(iv) were incurred in the ordinary course of business in
connection with workers' compensation, unemployment
insurance and other types of social security and which do
not constitute, individually or in the aggregate, a NATCO
Material Adverse Effect;
(v) are leases or subleases granted to others that,
individually and in the aggregate, are not material;
(vi) are the interest or title of a lessor or sublessor under
a lease or sublease, restrictions or encumbrances to
which the interest or title of that lessor or sublessor
may be subject, or the subordination of the interest of
the lessee or sublessee under that lease to any such
restriction or encumbrance, all of which, individually
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and in the aggregate, do not materially and adversely
affect the business of NATCO and its Subsidiaries; or
(vii) were incurred after December 31, 2002, in the ordinary
course of business consistent with past practice, and do
not constitute, individually or in the aggregate, a NATCO
Material Adverse Effect.
2.10 No Undisclosed Liabilities. Except for (x) liabilities
specifically disclosed in the 2002 Balance Sheet or in the notes to the 2002
Balance Sheet (but only to the extent so disclosed) and (y) liabilities
incurred in the ordinary course of business since December 31, 2002 that do not
constitute, individually or in the aggregate, a NATCO Material Adverse Effect,
NATCO and its Subsidiaries have not incurred any liabilities (whether known or
unknown, absolute, accrued, contingent or otherwise, and whether due or to
become due) that would have to be reflected or reserved against in a
consolidated balance sheet of NATCO prepared in accordance with GAAP
consistently applied with the 2002 Balance Sheet (and notes to the 2002 Balance
Sheet).
2.11 No Adverse Changes. Since December 31, 2002:
(i) no event, occurrence, fact, condition, change,
development or effect exists or has occurred or, to
NATCO's Knowledge, is threatened that, individually or in
the aggregate, constitutes a NATCO Material Adverse
Effect;
(ii) NATCO and its Subsidiaries have conducted their
operations only in the ordinary course consistent with
past practice; and
(iii) NATCO and its Subsidiaries have not taken, or omitted to
take, any action that, if that action or omission had
occurred after the date of this Agreement and before the
Closing, would breach Section 5.1 or Section 5.2.
2.12 Material Contracts.
(a) Material Contracts: Disclosure Schedule 2.12 lists the Contracts
that NATCO would have to disclose in an exhibit list to its Annual Report on
Form 10-K if that Annual Report were required to be filed on the date of this
Agreement ("Material Contracts"). NATCO has made available to Purchaser a copy
of each Material Contract.
(b) No Breaches under Material Contracts: Each Material Contract is
in full force and effect and is enforceable against NATCO and, to NATCO's
Knowledge, the other parties to it in accordance with its terms (subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally
9
and to general principles of equity, regardless of whether enforcement is
sought in a proceeding in equity or at law). Neither NATCO nor any of its
Subsidiaries, nor, to NATCO's Knowledge, any other Person, is in breach of, or
default under, a Material Contract and no event has occurred that, with notice
or passage of time or both, would constitute a breach of or default under a
Material Contract by NATCO or any of its Subsidiaries or, to NATCO's Knowledge,
any other Person (except for breaches and defaults that do not constitute,
individually or in the aggregate, a NATCO Material Adverse Effect). To NATCO's
Knowledge, no party to a Material Contract intends to terminate, or not renew,
a Material Contract.
(c) Registration Rights Agreements: Disclosure Schedule 2.12 lists
each Contract NATCO has entered into under which a Person has the right to
request or to cause NATCO to effect registrations under the Securities Act of
securities issued by NATCO and the number of demand registration rights
outstanding under that Contract on the date of this Agreement. NATCO has given
Purchaser a copy of each such Contract.
2.13 Employee Benefit Plans.
(a) Plans: Each "employee benefit plan" (as defined in section 3(3)
of ERISA) and each employment, collective bargaining, consulting, severance,
bonus, incentive or deferred compensation, stock option or other equity based,
termination, change in control, retention, vacation, medical, dental, life,
disability or other welfare, profit-sharing, retirement, pension,
post-retirement benefits, or other compensation or benefit plan, agreement,
policy or arrangement in respect of which NATCO or any of its Subsidiaries has
material liability ("Plans") is listed in Disclosure Schedule 2.13(a). Except
as disclosed in Disclosure Schedule 2.13(a):
(i) none of the Plans nor any employee benefit plan
maintained by an ERISA Affiliate is subject to Title IV
of ERISA;
(ii) neither NATCO nor an ERISA Affiliate has, during the past
six years, maintained, contributed to, or had any
liability that, individually or in the aggregate, is
material with respect to, any employee benefit plan that
is or has been subject to Title IV of ERISA;
(iii) no Plan nor any plan maintained by an ERISA Affiliate is
a "multiemployer plan" within the meaning of section
4001(a)(3) of ERISA or a "multiple employer plan" within
the meaning of section 4063 or 4064 of ERISA; and
(iv) with respect to any of the Plans, neither NATCO nor its
Subsidiaries has incurred or reasonably expects to incur
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any liability that, individually or in the aggregate, is
material under the funding, penalty, or excise tax
provisions of the Code relating to employee plans or
similar Laws of a foreign jurisdiction.
(b) Plan Liabilities: Each Plan has been administered in material
compliance with its terms and the Law. Except as disclosed in Disclosure
Schedule 2.13(b) and based on reasonable actuarial assumptions, no Plan has
liabilities that exceed assets by more than $100,000, and Schedule 2.13(b)
discloses the amount of each such liability. To the extent that liabilities
under a Plan exceed the assets of that Plan, full reserves have been
established for that Plan in accordance with Law and the accounting rules of
the applicable jurisdiction, and those reserves are reflected on the 2002
Balance Sheet.
(c) Effect of the Transactions: None of NATCO or its Subsidiaries
will, as a result of the Transactions (either alone or together with other
events), make or become obligated to make an "excess parachute payment" as
defined in section 280G of the Code or a payment that is not deductible under
section 162(m) of the Code. No current or former employee, director, agent,
independent contractor or officer of NATCO or any of its Subsidiaries is or
will become entitled to severance pay or unemployment compensation, additional
or new compensation, benefits or other compensatory payment, or an increase in
the amount of compensation, benefits or other compensatory payment, in
connection with or as a result of consummating the Transactions. Neither the
vesting nor the timing of the payment of any such compensation, benefit or
other compensatory payment in respect of any such employee, director or other
Person has been or will be accelerated in connection with or as a result of
consummating the Transactions.
2.14 Labor Matters.
(a) No Collective Bargaining Agreements: Except as disclosed in
Disclosure Schedule 2.14, neither NATCO nor any of its Subsidiaries is a party
to or bound by, and none of its employees is subject to, a collective
bargaining agreement, memorandum of understanding or other written document or
arrangement relating to the terms and conditions of employment for a group of
employees organized for collective bargaining or other similar purposes. There
are no labor unions or other organizations representing, or, to NATCO's
Knowledge, purporting or attempting to represent, employees employed by NATCO
or its Subsidiaries.
(b) No Strikes, etc.: Since January 1, 2001, there has not occurred
or been threatened a strike, slowdown, picketing, work stoppage, concerted
refusal to work overtime or other similar labor activity with respect to any
employees of NATCO or its Subsidiaries. There are no material labor or
employment disputes currently subject to a grievance procedure, arbitration or
litigation with respect to any employee of NATCO or its Subsidiaries.
11
(c) Employment Laws: NATCO and its Subsidiaries have complied in all
material respects with the Law relating to the employment or termination of
employment of their employees (including those relating to labor relations,
equal employment opportunities, fair employment practices, prohibited
discrimination and other similar employment activities).
2.15 Intellectual Property.
(a) NATCO's Intellectual Property: NATCO and its Subsidiaries own
(beneficially and as of record), or possess valid and legally enforceable
licenses to use, the material Intellectual Property needed to conduct their
business and operations as currently conducted ("NATCO Intellectual Property").
NATCO has, in the ordinary course of business and in a timely manner, taken the
actions needed to fully protect the NATCO Intellectual Property. Without
limiting the generality of the previous sentence, the NATCO Intellectual
Property owned by NATCO has been registered with, filed in or issued by, or is
subject to a pending application for registration with, filing in or issuance
by, the United States Patent and Trademark Office and United States Copyright
Office or other domestic or foreign filing offices to the extent needed to
fully protect it under the Law. These registrations, filings and issuances are
in full force and effect.
(b) No Infringement of NATCO's Rights: To NATCO's Knowledge, no
Person is infringing or allegedly infringing any NATCO Intellectual Property.
(c) No Infringement of Third Party Rights: To NATCO's Knowledge, the
conduct of the business of NATCO and its Subsidiaries as currently conducted
does not infringe or conflict with any Person's Intellectual Property. Neither
NATCO nor any of its Subsidiaries has received written notice, or to NATCO's
Knowledge unwritten notice, or otherwise has Knowledge of, any such
infringement or conflict.
(d) No Claims: To NATCO's Knowledge, no Person has made or
threatened a claim or demand challenging the rights of NATCO or any of its
Subsidiaries in respect of NATCO Intellectual Property or asserting that NATCO
or any of its Subsidiaries is infringing or otherwise in conflict with
Intellectual Property. None of the NATCO Intellectual Property is or has been
the subject of Litigation within the last five years (whether or not resolved
in favor of NATCO or any Subsidiary).
(e) No Loss of Rights: NATCO's execution and delivery of this
Agreement, and consummation of the Transactions, will not result in the loss
of, or the creation of a Lien on, the rights of NATCO or any of its
Subsidiaries with respect to any NATCO Intellectual Property.
12
2.16 Taxes.
(a) Tax Returns: Each of NATCO, its Subsidiaries, and any
Consolidated Group has duly and timely filed all material Tax Returns that it
must file and has duly and timely paid all material Taxes shown on those Tax
Returns. Those Tax Returns are correct and complete in all material respects.
(b) No Audits or Deficiencies: No audits or other administrative
proceedings or court proceedings are pending with regard to any Taxes or a Tax
Return of any of NATCO, its Subsidiaries or a Consolidated Group. To NATCO's
Knowledge, none of NATCO or its Subsidiaries has received a notice of
deficiency or assessment from a taxing authority with respect to liabilities
for income or any other Taxes which has not been fully paid or finally settled,
except as would not reasonably be expected to give rise to a material
liability.
(c) Other Tax Liability: Except as would not reasonably be expected
to give rise to a material liability:
(i) to NATCO's Knowledge, there is no liability for Taxes
(other than Taxes of NATCO and its Subsidiaries) for
which NATCO or any of its Subsidiaries would be held
liable solely by reason of section 1.1502-6 of the
Treasury Regulations or comparable provisions of any
other Tax law or as a successor or transferee; and
(ii) neither NATCO nor any of its Subsidiaries is a party to,
bound by or has any obligation under a Tax sharing,
allocation, indemnity or other similar agreement or
arrangement entered into with any Person (other than
NATCO and its Subsidiaries).
2.17 Environmental Matters.
(a) General: Except as disclosed in Disclosure Schedule 2.17, to
NATCO's Knowledge:
(i) NATCO and its Subsidiaries are and have been in material
compliance with all Laws relating to pollution, the environment or the
protection of human health and safety (including Laws relating to releases or
threatened releases of Hazardous Materials into the environment)
("Environmental Laws"). NATCO and its Subsidiaries are in possession of, and in
material compliance with, all Permits required under the Environmental Laws;
(ii) neither NATCO nor any of its Subsidiaries has caused or
taken any action that will result in, and neither NATCO
13
nor any of its Subsidiaries is subject to, any material
liability or obligation under any Environmental Law or
any liability or obligation for environmental
investigation, compliance, clean-up, removal, remediation
or damage (including with respect to the off-site
disposal or treatment of Hazardous Materials);
(iii) no material work, repair, construction or capital
expenditure is required or planned by NATCO or any of its
Subsidiaries pursuant to or to comply with any
Environmental Law; and
(iv) NATCO has made available to Purchaser all environmental
information (including all site assessments, compliance
audits, notices of violation, allegations of
non-compliance, studies and test results) in NATCO's or
any of its Subsidiaries' possession, custody or control,
or otherwise known to NATCO or any of its Subsidiaries.
(b) Environmental Litigation: There is no Litigation pending nor, to
NATCO's Knowledge, threatened that alleges a material violation by NATCO or its
Subsidiaries of any Environmental Law relating to their properties or other
assets, to the use or ownership of those properties or assets, or to their
businesses and operations.
2.18 Litigation. Except as disclosed in Disclosure Schedule 2.18,
there is no Litigation pending, or to NATCO's Knowledge threatened, against
NATCO or its Subsidiaries, or any of their assets, that is either material or
related to asbestos. Neither NATCO nor any of its Subsidiaries is subject to a
settlement or similar agreement with a Government Authority, or an order,
judgment, decree, injunction or award of a Government Authority.
2.19 Insurance. NATCO and its Subsidiaries maintain policies of
insurance that are adequate to protect the business of NATCO and its
Subsidiaries and in amounts customarily carried by Persons conducting similar
business to NATCO and its Subsidiaries. These policies are in full force and
effect, and all premiums due on them have been paid. NATCO and its Subsidiaries
have complied in all material respects with those policies. To NATCO's
Knowledge, there is no reason to believe that an insurer would not renew any of
these policies on substantially the same terms and conditions, (except for
generally applicable market-based increases in premiums) or would not do so if
it knew of an event within NATCO's Knowledge but not known to the insurer.
2.20 Affiliate Transactions. Disclosure Schedule 2.20 lists the
material Contracts between NATCO or any Subsidiary of NATCO, on the one hand,
and an Affiliate of NATCO or of a Subsidiary of NATCO, on the other hand.
14
2.21 Brokers. No broker, finder, investment banker or other
intermediary is entitled to a brokerage, finder's or other fee or commission in
connection with the Transactions, based on arrangements made by or on behalf of
NATCO or its Subsidiaries, that is or will be payable by NATCO or its
Subsidiaries.
2.22 No Other Representations or Warranties. Except for the
representations and warranties in this Agreement, in the Ancillary Agreements
(not including the Rights Agreement Amendment) and in the documents referred to
in ARTICLE VII, NATCO makes no express or implied representation or warranty,
and hereby disclaims any such express or implied representation or warranty,
whether by NATCO or any of its Affiliates (or any of their respective
Representatives) or any other Person, in connection with the delivery or
disclosure to Purchaser (or any of its Representatives) or any other Person of
any documentation or other information regarding NATCO and its Subsidiaries.
Without limiting the generality of the foregoing, NATCO has not made, and shall
not be deemed to have made, any representations or warranties (x) in any
financial projection or forecast relating to NATCO and its Subsidiaries or (y)
in documents or information other than this Agreement, the Ancillary Agreements
and the documents referred to in ARTICLE VII, whether written or oral, with
respect to NATCO and its Subsidiaries.
ARTICLE III
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to NATCO as follows:
3.1 Organization and Authorization.
(a) Power to Enter into the Agreement: Purchaser is an exempted
limited partnership duly organized, validly existing and in good standing under
the laws of the Cayman Islands. It has the requisite partnership power and
authority to execute and deliver this Agreement, the Ancillary Agreements and
each other document to be executed and delivered by it under this Agreement or
any Ancillary Agreement, and to consummate the Transactions to which it is a
party.
(b) Authorization: All action required on the part of Purchaser and
its general and limited partners to authorize Purchaser's execution and
delivery of this Agreement, the Ancillary Agreements and each other document to
be executed and delivered by it under this Agreement or any Ancillary
Agreement, and its consummation of the Transactions to which it is a party, has
been taken.
(c) Execution of the Agreement: Purchaser has duly executed and
delivered this Agreement. Purchaser has, or by the time of execution and
15
delivery by Purchaser at or before the Closing will have, duly executed and
delivered each Ancillary Agreement and each other document to be executed and
delivered by it under this Agreement or any Ancillary Agreement.
(d) Agreement Binds Purchaser: Assuming due authorization, execution
and delivery by the parties not affiliated with Purchaser, this Agreement is
(and each Ancillary Agreement, and each other document purporting to impose an
obligation on Purchaser to be executed and delivered by Purchaser under this
Agreement or any Ancillary Agreement, when executed and delivered by Purchaser,
will be) a legally valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms (subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting creditors' rights generally and to general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at
law).
3.2 No Conflicts; Consents and Approvals.
(a) Transactions Will Not Create Conflicts: Neither Purchaser's
execution and delivery of this Agreement, the Ancillary Agreements and each
other document to be executed and delivered by it under this Agreement or any
Ancillary Agreement, nor its consummation of the Transactions, will:
(i) conflict with, or result in a breach of, Purchaser's
Organizational Documents;
(ii) conflict with, result in a breach of, constitute (with or
without due notice or lapse of time or both) a default
under, give rise to a right of termination, cancellation,
amendment or acceleration under, result in the imposition
of a Lien under, or trigger a payment, vesting or
increase in the amount of compensation or a benefit
payable under, a material Contract or other material
obligation to which Purchaser is a party or by which it
or any of its assets is bound;
(iii) conflict with, or result in a breach of, the Law; or
(iv) result in the termination, modification or nonrenewal of
a Permit.
(b) No Third Party Approvals: No Consent of a Government Authority
or other Person is needed in connection with Purchaser executing, delivering
and performing this Agreement, any Ancillary Agreement, or any other document
to be executed and delivered by it under this Agreement or any Ancillary
Agreement, or consummating the Transactions.
16
3.3 Litigation. There is no Litigation pending, or to Purchaser's
Knowledge threatened, against Purchaser which, individually or in the
aggregate, if determined adversely to Purchaser, would constitute a LR Material
Adverse Effect. Purchaser is not subject to a settlement or similar agreement
with a Government Authority, or an order, judgment, decree, injunction or award
of a Government Authority, that, individually or in the aggregate, constitutes
a LR Material Adverse Effect.
3.4 Brokers. No broker, finder, investment banker or other
intermediary is entitled to a brokerage, finder's or other fee or commission in
connection with the Transactions, based on arrangements made by or on behalf of
Purchaser, that is or will be payable by NATCO or its Subsidiaries.
3.5 Accredited Investor; Investment Purpose. Purchaser is an
"accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. Purchaser is buying the Convertible Preferred Shares, the
Warrant, the Conversion Shares and the Warrant Shares for its own account and
solely for investment, with no intention to resell or distribute those
securities in breach of the Securities Act.
3.6 Restrictions on Transfer. Purchaser understands that the
Convertible Preferred Shares, the Conversion Shares, the Warrant and the
Warrant Shares have not been registered under the Securities Act (or the
securities laws of any state) and that they may only be sold or otherwise
disposed of in one or more transactions registered under the Securities Act
(and, where applicable, such state laws) or as to which an exemption from the
registration requirements is available.
3.7 No Ownership of Stock. Lime Rock Partners II, L.P. does not
beneficially own (as determined under Rule 13d-3 under the Exchange Act or
section 1(a) of the Rights Agreement) any capital stock of NATCO, nor is it
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any capital stock of NATCO or any
security convertible into, or exercisable or exchangeable for, capital stock of
NATCO (except this Agreement and the Ancillary Agreements).
ARTICLE IV
PURCHASER'S RIGHTS AND OBLIGATIONS AS SECURITYHOLDER
4.1 Transfer of Securities; Legends.
(a) Transfers Before the First Anniversary: Before the first
anniversary of the Closing, Purchaser shall not directly or indirectly offer,
sell, assign, transfer, grant a participation interest in, pledge, encumber or
otherwise dispose of (including any disposition of voting or investment control
over), or place in trust (voting or otherwise)
17
("Transfer") any Convertible Preferred Shares or the Warrant (or any interest
in the Warrant) without NATCO's prior written consent.
(b) Transfers On or After the First Anniversary: On and after the
first anniversary of the Closing, Purchaser shall not directly or indirectly
Transfer any Convertible Preferred Shares or the Warrant (or any interest in
the Warrant) without NATCO's prior written consent. NATCO shall not
unreasonably withhold its consent if Purchaser proposes to Transfer Convertible
Preferred Shares or the Warrant (or an interest in the Warrant) to an
Institutional Investor.
(c) Transfer of Right to Elect a Director: Notwithstanding anything
to the contrary in this Agreement, Purchaser shall not directly or indirectly
Transfer the right to vote in the election or appointment of a director under
section 4(c) of the Certificate of Designations without NATCO's prior written
consent. NATCO shall not unreasonably withhold its consent if Purchaser
proposes to Transfer Convertible Preferred Shares to an Institutional Investor.
Before Transferring Convertible Preferred Shares to any Person in respect of
whom NATCO has not granted such consent, Purchaser shall agree to such changes
in the Certificate of Designations or to such grant or retention of proxies as
shall be reasonably requested by NATCO to ensure that the Transferee does not
have the right to vote in electing or appointing a director under section 4(c)
of the Certificate of Designations.
(d) Exceptions: Section 4.1(a), Section 4.1(b) and Section 4.1(c)
shall not apply to any Transfer:
(i) consisting of a conversion under section 8 or section 11
of the Certificate of Designations;
(ii) to NATCO on a redemption under section 10 of the
Certificate of Designations;
(iii) to NATCO on Purchaser's exercise of any of its rights
under section 11 of the Certificate of Designations; or
(iv) to Purchaser's general and limited partners on
Purchaser's liquidation, dissolution or winding up, or
otherwise in a distribution to those partners, if in each
case those partners agree in writing to be bound by
Purchaser's obligations under this Agreement and the
Ancillary Agreements.
(e) Warrant Transferred with Convertible Preferred Shares: Purchaser
may only Transfer Convertible Preferred Shares or the Warrant (or an interest
in the Warrant) if, at the same time, it Transfers to the Transferee an
interest in the Warrant or Convertible Preferred Shares, as the case may be,
such that, after the Transfer, the ratio of
18
the number of Purchaser's Convertible Preferred Shares to the number of Warrant
Shares for which the interest in the Warrant held by Purchaser is exercisable
is the same as such ratio immediately before the Transfer.
(f) Attempted Transfers. Attempts to Transfer Convertible Preferred
Shares or the Warrant (or any interest in the Warrant) in breach of this
Section 4.1 shall be void ab initio, and neither NATCO nor any transfer agent
shall give effect in NATCO's stock records to such attempted Transfers.
(g) Legends:
(i) Each certificate representing Convertible Preferred
Shares, Conversion Shares or Warrant Shares and each
Warrant (except those which have been transferred in a
transaction registered under the Securities Act or exempt
from the registration requirements of the Securities Act)
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS
[CERTIFICATE] [WARRANT] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THAT ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF THAT ACT AND
THOSE LAWS."
(ii) In addition, each certificate representing Convertible
Preferred Shares and each Warrant shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS
[CERTIFICATE][WARRANT] ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND CAN BE
TRANSFERRED ONLY PURSUANT TO THE TERMS OF A
SECURITIES PURCHASE AGREEMENT DATED AS OF
MARCH 13, 2003 AMONG THE COMPANY AND LIME
ROCK PARTNERS II, L.P."
(h) Unlegended Securities: At Purchaser's request, NATCO will
exchange certificates or the Warrant with the legend in Section 4.1(g)(i) for
certificates or a Warrant without this legend at any time after:
19
(i) the securities represented by those certificates or
Warrant 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 securities has given NATCO an
opinion of counsel to this effect and that holder
requests such a certificate or Warrant from NATCO; or
(iii) those securities represented by that certificate or the
Warrant have been beneficially owned by a Person 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), and as of the date of determination
of that two year period, that Person has not been an
affiliate of NATCO for at least three months, all as
determined under Rule 144.
4.2 Directors Appointed by Purchaser.
(a) Xxxxxxx Act: Purchaser shall not elect or appoint any person to
the Board under the Certificate of Designations if that person's inclusion on
the Board would violate section 8 of the Xxxxxxx Act, 15 U.S.C.ss.19.
(b) Directors' Rights and Benefits: NATCO shall ensure that, once
elected or appointed to the Board, directors elected or appointed by Purchaser
under the Certificate of Designations receive the rights and benefits granted
to the other non-management NATCO directors, on terms at least as favorable as
those applying to such other NATCO directors (including rights to fees,
reimbursement of expenses, indemnification and grants of stock and options).
4.3 Board Observer and Information.
(a) Right to Appoint Board Observer and to Consult Management: If
the holders of Convertible Preferred Shares are no longer entitled to elect or
appoint a director under section 4(c) of the Certificate of Designations then,
for so long as Purchaser owns Convertible Preferred Shares and shares of Common
Stock that together represent 50% or more of the number of shares of Common
Stock into which the Convertible Preferred Shares issued on the Closing Date
were convertible (as adjusted to reflect any stock split, combination,
reclassification or similar event) and no merger, consolidation or
recapitalization constituting a Change of Control has occurred, then Purchaser
is entitled to:
(i) appoint an observer to the Board (and to remove this
person, and to appoint another person in his or her place
from time to time); and
20
(ii) discuss NATCO's and its Subsidiaries' significant affairs
with, and to make proposals and give advice with respect
to these matters to, NATCO's principal officers to the
same extent that NATCO's non-management directors may do
so.
Each observer appointed by Purchaser shall enter into a confidentiality
agreement with NATCO on customary terms.
(b) Board Observer: NATCO will ensure that the observer that
Purchaser appoints to the Board under Section 4.3(a):
(i) receives notice of, and has the right to attend, Board
meetings;
(ii) receives materials distributed to members of the Board in
connection with Board meetings;
(iii) does not count in determining whether there is a quorum
present at a Board meeting; and
(iv) is not entitled to vote on matters voted on by the Board.
(c) Rights Personal to Purchaser: Notwithstanding anything to the
contrary in this Agreement, Purchaser may not assign any of its rights under
this Section 4.3, and any such assignment shall be void ab initio.
4.4 Bylaws. NATCO shall take, or cause to be taken, all lawful
action needed to ensure that its bylaws do not conflict with this Agreement and
the Transactions.
4.5 Remedies for Default in Paying Dividends on Convertible
Preferred Shares. While the Domestic Loan Agreement remains in effect, the sole
remedies of the holders of Convertible Preferred Shares by reason of the
commencement of the Default Period (as defined in the Certificate of
Designations) are the increase of the dividend rate under section 3(a) and
section 3(e) of the Certificate of Designations, the right to elect or appoint
a direction under section 4(d) of the Certificate of Designations and the
restrictions in section 3(d) and section 5 of the Certificate of Designations.
ARTICLE V
NATCO'S COVENANTS
5.1 General Conduct of Business. Except as expressly permitted or
required by this Agreement or with Purchaser's written consent (not to be
unreasonably
21
withheld), from the date of this Agreement through the Closing Date, NATCO
shall (and shall cause each of its Subsidiaries to):
(i) carry on its business in the ordinary course of business
consistent with past practice; and
(ii) use commercially reasonable efforts to preserve its
relationships with customers, suppliers and others having
business dealings with it, and keep available the present
services of its employees.
5.2 Prohibited Actions. Except as expressly permitted or required by
this Agreement, disclosed in Disclosure Schedule 5.2 or with Purchaser's
written consent (not to be unreasonably withheld), from the date of this
Agreement through the Closing Date, NATCO shall not (and shall cause each of
its Subsidiaries not to):
(i) Organizational Documents: amend its Organizational
Documents;
(ii) Dividends: declare or pay a dividend or make a
distribution;
(iii) Capital Stock: issue capital stock or voting securities
(other than capital stock issuable (x) on exercise of
options, warrants and rights outstanding as of the date
of this Agreement (y) on exercise of any options issued
after the date of this Agreement under employee stock
option plans and similar plans existing as of the date of
this Agreement and (z) under the Rights Agreement), or
securities convertible into or exchangeable or
exercisable for, or options, warrants or rights relating
to, capital stock or voting securities (other than
options issuable under employee stock option plans and
similar plans existing as of the date of this Agreement
and capital stock issuable under the Rights Agreement),
redeem or otherwise acquire shares of its capital stock,
or split, combine or reclassify shares of its capital
stock;
(iv) Incur Liabilities: incur or guarantee liabilities,
obligations or indebtedness, other than:
(A) those incurred or guaranteed in the ordinary
course of business consistent with past
practice and in an aggregate amount that would
not be material to NATCO and its Subsidiaries,
taken as a whole; and
(B) guarantees and borrowings under the Domestic
Loan Agreement, or under the International
22
Revolving Loan Agreement, at times and in
amounts consistent with past practice;
(v) Cancel Indebtedness: cancel indebtedness that is material
(individually or in the aggregate) or waive claims or
rights of substantial value;
(vi) Material Contracts: enter into, amend, breach, terminate
or take action impairing its rights under a Contract that
would be required to be listed in Disclosure Schedule
2.12 if in effect on the date of this Agreement except
for:
(A) amendments that do not adversely affect NATCO;
and
(B) entering into new customer Contracts;
(vii) Dispose of Assets: sell or otherwise dispose of any
material assets, other than (x) in the ordinary course of
business consistent with past practice and (y) sales or
other dispositions of obsolete equipment;
(viii) Mergers and Acquisitions: merge or consolidate with,
purchase substantially all the assets of, or otherwise
acquire, a business or corporation, partnership,
association or other business organization or division;
(ix) Representations and Warranties: take any action, or omit
to take any action, which action or omission would result
in a breach of a representation or warranty in ARTICLE
II; or
(x) Other: agree or commit to do any of the foregoing.
5.3 Access and Information. From the date of this Agreement through
the Closing Date, NATCO shall (and shall cause each of its Subsidiaries and its
and its Subsidiaries' Representatives to):
(i) during normal business hours, on reasonable notice and in
such manner as will not unreasonably interfere with the
conduct of NATCO's business, make available to Purchaser
and its Representatives the documents and information
relating to the properties, assets and business of NATCO
and its Subsidiaries that Purchaser from time to time
reasonably requests (and copies of any of these documents
or this information that Purchaser requests);
23
(ii) give Purchaser copies of the press releases and public
filings made by NATCO and its Subsidiaries after the date
of this Agreement; and
(iii) use commercially reasonable efforts to keep Purchaser
generally informed about the business of NATCO and its
Subsidiaries.
5.4 Reservation of Common Stock for Conversion and Exercise.
(a) NATCO shall reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of issuance on the
conversion of the Convertible Preferred Shares and exercise of the Warrant, the
number of Conversion Shares issuable on conversion of the outstanding
Convertible Preferred Shares not previously converted and the number of Warrant
Shares for which the Warrant may still be exercised.
(b) On any increase in the number of shares of Common Stock into
which the Convertible Preferred Shares are convertible, NATCO shall take such
steps as may be necessary to authorize, and shall reserve, a sufficient number
of additional shares of Common Stock solely to permit the conversion in full of
the Convertible Preferred Shares into Conversion Shares. On conversion of any
Convertible Preferred Shares into Conversion Shares in accordance with the
Certificate of Designations, such Conversion Shares will be validly issued and
outstanding, fully paid and nonassessable, and will have the voting and other
rights of Common Stock.
(c) On any increase in the number of shares of Common Stock for
which the Warrant is exercisable, NATCO shall take such steps as may be
necessary to authorize, and shall reserve, a sufficient number of additional
shares of Common Stock solely to permit the exercise in full of the Warrant
into Warrant Shares. Assuming Purchaser pays the exercise price (whether in
cash or by way of a "cashless exercise"), on exercise of the Warrant for
Warrant Shares in accordance with the Warrant's terms, such Warrant Shares will
be validly issued and outstanding, fully paid and nonassessable, and will have
the voting and other rights of Common Stock.
5.5 Listing. Promptly after the date of this Agreement, NATCO shall
file a supplemental listing application for the issuance of the Conversion
Shares and the Warrant Shares, and use all commercially reasonable efforts to
obtain the New York Stock Exchange's written confirmation that it has approved
the Conversion Shares and the Warrant Shares for listing (subject to official
notice of issuance).
5.6 Constructive Distributions.
(a) Subject to later determinations under the Law, the Parties
acknowledge and agree that it is their present intent to treat the Convertible
Preferred Shares as not
24
giving rise to constructive distributions under section 305(c) of the Code by
reason of Treasury Regulation section 1.305-5(b) as a result of any difference
between the issue price and redemption price of the Convertible Preferred
Shares for U.S. federal income tax purposes. However, if any such constructive
distributions are found to exist by any taxing authority, Purchaser shall
defend, indemnify and hold harmless NATCO from and against, and pay or
reimburse NATCO for, any withholding taxes imposed as a result of NATCO's
failure to withhold with respect to such constructive distribution (including
any interest and penalties on such withholding tax). NATCO will give Purchaser
the opportunity to contest any such finding by any taxing authority and will
reasonably cooperate with Purchaser in that connection. So long as the
Convertible Preferred Shares are outstanding, any indemnity for such
withholding taxes shall be funded in the manner contemplated by the last
sentence in Section 5.6(d) (or, to the extent necessary, as provided in Section
5.6(e)).
(b) If either Party subsequently determines in good faith that it is
required under the Law (x) to treat the Convertible Preferred Shares as giving
rise to constructive distributions under section 305(c) of the Code or (y) to
treat any amounts paid to Purchaser in respect of the Convertible Preferred
Shares as dividends for U.S. federal income tax purposes (or withhold any
amounts from the amounts paid to Purchaser in respect of the Convertible
Preferred Shares) other than cash dividends that are declared by the Board and
paid as provided in section 3(a) of the Certificate of Designations, then such
Party shall notify the other Party of that determination promptly after making
that determination.
(c) NATCO will withhold from each payment to Purchaser any amount
required by Law unless NATCO is not required to withhold as a result of
Purchaser providing the appropriate IRS Form (e.g., W-8, W-8IMY or W-9) duly
executed and accompanied by any required supporting documentation. However,
NATCO will not withhold with respect to any action or event that could result
in a constructive distribution under section 305(c) of the Code by reason of
Treasury Regulation section 1.305-5(b) to the extent that Purchaser provides
NATCO with an opinion reasonably satisfactory to NATCO from nationally
recognized tax counsel that withholding is not required with respect to such
action or event or that there is no constructive distribution.
(d) If NATCO withholds with respect to any constructive distribution
under section 305(c) of the Code, NATCO shall fund the amount of such required
withholding in cash and timely pay such amount to the appropriate taxing
authority. With respect to withholding required with respect to any
constructive distribution under section 305(c) of the Code that is reflected in
or increases the Face Value (as defined in the Certificate of Designations) of
or accrued dividends on the Convertible Preferred Shares, at the election of
NATCO, (x) either the Face Value or the amount of any accrued dividends with
respect to the Convertible Preferred Shares (to the extent so reflected or
increased), or (y) future cash distributions to Purchaser, shall be reduced by
the amount of such
25
withholding, and the Parties shall treat the amount withheld as if it had
actually been distributed with respect to the Convertible Preferred Shares.
However, in lieu of reducing the Face Value or accrued dividends, Purchaser may
elect by providing notice to NATCO to pay the amount of such withholding in
cash within 90 days from the date that such withholding was required to be paid
to the relevant taxing authority (together with interest at 10% per annum from
such date to the date of payment by Purchaser). With respect to withholding
required with respect to any other constructive distribution, NATCO shall be
permitted to reduce future cash distributions to Purchaser by the amount of
such withholding.
(e) If the Convertible Preferred Shares are converted into Common
Stock before NATCO has recovered the full amount owed to NATCO as a result of
its payment to the taxing authority under this Section 5.6, then the number of
shares of Common Stock deliverable to Purchaser on conversion shall be reduced
by a number of shares of Common Stock having a value (valued at the Current Per
Share Market Price as defined in the Certificate of Designations) equal to the
unpaid balance.
5.7 Number of Convertible Preferred Shares Redeemed.
(a) If NATCO requests a redemption of any Convertible Preferred
Shares under section 10 of the Certificate of Designations, at the written
request of Purchaser, NATCO will, in connection with each such redemption,
redeem no fewer than the number of shares certified to by Purchaser as being
the minimum amount necessary to cause the redemption to qualify as
"substantially disproportionate" within the meaning of section 302(b)(2) of the
Code (and Purchaser shall provide such documentation as is reasonably
satisfactory to NATCO to support Purchaser's determination of such minimum
amount).
(b) If, in the case of any such redemption, Purchaser determines
that a redemption of all the Convertible Preferred Shares would not so qualify
(and Purchaser provides such documentation as is reasonably satisfactory to
NATCO to support Purchaser's determination), NATCO will repurchase from
Purchaser (at a price equal to the excess of the value of the underlying shares
of Common Stock (valued at the Current Per Share Market Price as defined in the
Certificate of Designations) over the exercise price) that part of the Warrant
representing the right to buy that number of shares certified to by Purchaser
as being the minimum amount necessary to cause the redemption to qualify as
"substantially disproportionate" within the meaning of section 302(b)(2) of the
Code.
(c) Notwithstanding Section 5.7(a) and Section 5.7(b), NATCO may
redeem a number of Convertible Preferred Shares or repurchase part of the
Warrant representing the right to buy a number of Warrant Shares, as the case
may be, less than the amount certified to by Purchaser if NATCO provides an
opinion from nationally recognized tax
26
counsel reasonably satisfactory to Purchaser that a redemption of the lesser
amount will result in exchange treatment for Purchaser under section 302(b) of
the Code.
(d) If any proposed redemption of Convertible Preferred Shares by
NATCO cannot be made to qualify as "substantially disproportionate" within the
meaning of section 302(b) of the Code as described in this Section 5.7, or
NATCO does not deliver the opinion of counsel described in Section 5.7(c) with
respect to such proposed redemption, such redemption shall not be made without
Purchaser's consent.
ARTICLE VI
COVENANTS OF NATCO AND PURCHASER
6.1 Public Announcements.
(a) Promptly following the execution of this Agreement, NATCO shall
distribute to the press a press release, reasonably satisfactory in form and
substance to Purchaser, announcing the general terms of the Transactions.
(b) Except as required by Section 6.1(a), before the Closing, except
as required by the Law, neither Party shall (and shall ensure that its
Affiliates, stockholders, partners and Representatives do not) make a public
announcement or public disclosure in respect of this Agreement or the
Transactions without the other Party's prior consent (not to be unreasonably
withheld). If a Party is required by Law to make such a public announcement or
public disclosure, it shall use commercially reasonable efforts to consult with
the other Party on the announcement or disclosure before it is made.
6.2 Further Actions. Subject to the terms and conditions of this
Agreement, each Party shall use all commercially reasonable efforts to do the
things needed or appropriate to consummate the Transactions as promptly as
possible, including:
(i) filing or supplying the applications, notifications and
information that it must file or supply under the Law,
and give reasonable undertakings in connection with
these;
(ii) obtaining the Consents needed or appropriate to
consummate the Transactions; and
(iii) coordinating and cooperating with the other Party in
exchanging the information and supplying the reasonable
assistance reasonably requested by the other Party.
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6.3 Notification of Certain Matters. Through the Closing:
(i) each Party ("Notifying Party") shall give prompt notice
to the other Party of:
(A) the occurrence or non-occurrence of an event
which would cause a representation or warranty
of the Notifying Party in this Agreement to be
inaccurate in a material respect at a Closing
Date, or a condition in ARTICLE VII not to be
satisfied;
(B) a material failure of the Notifying Party to
perform an obligation that it must perform
under this Agreement; and
(ii) NATCO shall give prompt notice to Purchaser of matters
that, individually or in the aggregate, constitute a
NATCO Material Adverse Effect or breaches of Section 5.1
or Section 5.2; and
(iii) Purchaser shall give prompt notice to NATCO of matters
that, individually or in the aggregate, constitute a LR
Material Adverse Effect.
6.4 Supplemental Disclosure. NATCO has the right, from time to time,
at any time at least two Business Days before the Closing, to give Purchaser
supplements to the Disclosure Schedules with respect to any matter that arises
after the date of this Agreement and that would have been required or permitted
to be disclosed in the Disclosure Schedules had the matter existed as of the
date of this Agreement. This supplemental disclosure will be disregarded in
determining whether the conditions to the Closing have been satisfied as of the
Closing Date, but will be given effect for the purposes of determining whether
NATCO has breached its representations and warranties for the purposes of
ARTICLE IX.
6.5 Confidentiality.
(a) General Confidentiality Obligation: If the Closing occurs, and
subject to Section 6.5(b), Section 6.5(c) and Section 6.5(d), each of Purchaser
and NATCO agrees that it will, and will cause its respective Affiliates and
Representatives to:
(i) keep confidential the information, documents and
instruments delivered to it by the other Party and the
other Party's Affiliates and Representatives, whether
before, on or after the date of this Agreement, in
connection with negotiating, preparing, executing and
delivering this Agreement and the Ancillary Agreements
and performing the Parties' obligations under this
Agreement and the Ancillary Agreements; and
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(ii) only disclose such information, documents and instruments
to those of its Affiliates and Representatives that have
a need to know such information, documents and
instruments and have been informed of their confidential
nature.
(b) General Exceptions: Section 6.5(a) does not apply to any
information, document or instrument that:
(i) is already in the receiving Party's possession when it
receives it from the disclosing Party, or becomes
available to the receiving Party from a source other than
the disclosing Party (provided that it was lawfully
obtained and is not known by the receiving Party to be
subject to another confidentiality agreement with, or
other obligation of secrecy to, the disclosing Party or
another Person); or
(ii) becomes generally available to the public other than
directly or indirectly as a result of a disclosure by the
receiving Party or any of the receiving Party's
Affiliates or Representatives.
(c) Disclosure Required by Law: If a Party is requested or is
required by Law (including by way of interrogatories, requests for information
or documents, subpoena, civil investigative demand or similar process) to
disclose information, documents and instruments required to be kept
confidential under Section 6.5(a), it shall to the extent permitted by Law give
the other Party prompt notice of this request or requirement so that the other
Party may consider seeking a protective order. If, in the absence of a
protective order, the Party requested or required to disclose is, in the
opinion of its independent counsel, compelled to disclose such information,
documents or instruments to a tribunal or to any other Person or else be in
breach of the Law, stand liable for contempt or suffer other material censure
or penalty, that Party may disclose such information, documents or instruments
to the tribunal or other Person.
(d) Disclosure under Treasury Regulations: Each Party authorizes the
other to disclose the information, documents and instruments regarding the
structure and tax aspects of the Transactions to the extent required by section
6011 of the Code and the Treasury Regulations under the Code in order to avoid
the Transactions being treated as a "Confidential Transaction" as defined by
the Treasury Regulations.
6.6 Further Assurances. Following the Closing, 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 the Ancillary Agreements, and to
make the consummation of the Transactions effective.
29
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations. Each Party's obligation
to consummate the Transactions to be consummated at the Closing is subject to
the fulfillment, on or before the Closing Date, of the following conditions
(any or all of which may be waived, in whole or in part, in writing to the
extent permitted by Law):
(i) No Injunction, etc.: Consummation of the Transactions has
not been restrained, enjoined or otherwise prohibited or
made illegal by the Law. No Government Authority has
enacted a Law making the consummation of the Transactions
illegal, and no proceeding with respect to the
application of such a Law is pending.
(ii) Consents: All Consents of Government Authorities and
other third parties needed to consummate the Transactions
(including all Consents listed in Disclosure Schedule
2.4) have been obtained and are in full force and effect.
(iii) Listing Approval: The New York Stock Exchange has given
NATCO written confirmation that it has approved the
Conversion Shares and the Warrant Shares for listing,
subject to official notice of issuance.
(iv) Registration Rights Agreement: The Parties have entered
into a registration rights agreement in form and
substance reasonably satisfactory to the Parties which
remains in full force and effect ("Registration Rights
Agreement").
(v) Rights Agreement Amendment: NATCO and ChaseMellon
Shareholder Services, L.L.C., as rights agent, have
entered into an amendment to the Rights Agreement, dated
as of May 15, 1998, ("Rights Agreement Amendment") in
form and substance reasonably satisfactory to the Parties
which, among other things, permits Purchaser to be the
beneficial owner (as defined in the Rights Agreement) of
20% of the shares of Common Stock without being an
"Acquiring Person" (as defined in the Rights Agreement)
and which remains in full force and effect, and NATCO has
given Purchaser a copy of the executed Rights Agreement
Amendment.
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7.2 Conditions to Purchaser's Obligations. Purchaser's obligation to
consummate the Transactions to be consummated at the Closing is subject to the
fulfillment (or waiver by Purchaser), on or before the Closing Date, of the
following additional conditions, which NATCO agrees to use all commercially
reasonable efforts to cause to be fulfilled:
(i) NATCO's Representations and Warranties: NATCO's
representations and warranties in this Agreement and in
the Ancillary Agreements to which it is a party are true
and correct in all respects (in the case of
representations and warranties with a materiality
qualification) or in all material respects (in the case
of other representation and warranties) as of the date of
this Agreement and as of the Closing Date with the same
effect in each case as though made on and as of the
Closing Date (except in each case for representations and
warranties expressly relating only to an earlier date,
which are instead so measured on and as of such earlier
date).
(ii) NATCO's Obligations: NATCO has performed in all material
respects the obligations under this Agreement that it
must perform before the Closing.
(iii) Form 10-K: NATCO has filed its Annual Report on Form 10-K
for the 2002 fiscal year which contains an audited
balance sheet for NATCO and its Subsidiaries as of
December 31, 2002 and audited consolidated statements of
income and cash flow for the twelve months ended December
31, 2002, and notes to those statements, that are, in all
material respects, the same as those given to Purchaser
under Section 2.8(b). That Annual Report on Form 10-K
contains all certifications of officers required under
the Law which have been made by each person occupying the
office of chief executive officer or chief financial
officer during the 2002 fiscal year.
(iv) Board of Directors: The Board includes a director
nominated or designated by Purchaser.
(v) Certificate of Designations: The Certificate of
Designations is in full force and effect and has been
filed with the Secretary of State for the State of
Delaware, and NATCO has given Purchaser a copy of the
Certificate of Designations certified by the Secretary of
State.
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(vi) Warrant: NATCO has executed and delivered to Purchaser
the Warrant;
(vii) Counsel's Opinion: Purchaser has received the opinion of
counsel to NATCO, dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser.
(viii) Other Parties: Since the date of this Agreement, no
Person or "group" (as defined in the Exchange Act) has
disclosed in a Schedule 13D or similar document filed
with the SEC that it has acquired beneficial ownership of
more than 15% of NATCO's outstanding voting securities
nor, to NATCO's Knowledge, has any such Person or "group"
acquired beneficial ownership of more than 15% of NATCO's
outstanding voting securities. Since the date of this
Agreement, no Person has entered into an agreement or
arrangement with NATCO (whether or not legally binding)
with respect to a tender or exchange offer for any shares
of Common Stock or a merger, consolidation or other
business combination involving NATCO or any of its
Subsidiaries or has commenced or announced an intention
to commence a tender or exchange offer for any shares of
Common Stock.
(ix) Officer's Certificate: An officer or officers of NATCO
have executed and delivered to Purchaser a certificate or
certificates certifying the matters in Section 7.2(i),
Section 7.2(ii), Section 7.2(iv) and Section 7.2(viii).
(x) No NATCO Material Adverse Effect: Since the date of this
Agreement, no event, occurrence, fact, condition, change,
development or effect has occurred that constitutes a
NATCO Material Adverse Effect (but, solely for the
purpose of this Section 7.2(x), disregarding the
exceptions in the definition of NATCO Material Adverse
Effect that refer to a state of facts, event, change or
effect generally applying to the United States economy or
securities, financial or capital markets).
7.3 Conditions to NATCO's Obligations. NATCO's obligation to
consummate the Transactions to be consummated at the Closing is subject to the
fulfillment (or waiver by NATCO), on or before the Closing Date, of the
following additional conditions, which Purchaser agrees to use all commercially
reasonable efforts to cause to be fulfilled:
32
(i) Purchaser's Representations and Warranties: Purchaser's
representations and warranties in this Agreement and in
the Ancillary Agreements to which it is a party are true
and correct in all respects (in the case of
representations and warranties with a materiality
qualification) or in all material respects (in the case
of other representations and warranties) as of the date
of this Agreement and as of the Closing Date with the
same effect in each case as though made on and as of the
Closing Date (except in each case for representations and
warranties expressly relating only to an earlier date,
which are instead so measured on and as of such earlier
date).
(ii) Purchaser's Obligations: Purchaser has performed in all
material respects the obligations under this Agreement
that it must perform before the Closing.
(iii) Officer's Certificate: An officer or officers of
Purchaser have executed and delivered to NATCO a
certificate or certificates certifying the matters in
Section 7.3(i) and Section 7.3(ii).
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated before the Closing
Date:
(i) Mutual Agreement: by the written agreement of the
Parties;
(ii) Lapse of Time: by either Party giving notice to the other
Party after May 13, 2003 if the Closing has not occurred
by then (unless due to a material breach of this
Agreement by the Party giving notice); or
(iii) Material Breach: by either Party giving notice to the
other Party if the other Party has materially breached
any of its representations, warranties or obligations
under this Agreement and (if not a willful breach) has
not cured this breach within 15 Business Days of
receiving notice of the breach from the Party seeking to
terminate, and the Party giving notice to terminate is
not itself in material breach of its representations,
warranties or obligations under this Agreement.
33
8.2 Effect of Termination. If this Agreement terminates under
Section 8.1, this Agreement will be void and have no effect, without any
liability to any Person in respect of this Agreement or of the Transactions on
the part of a Party, or its Affiliates, stockholders, partners or
Representatives, except for ARTICLE X and except for any liability resulting
from the Party's breach of this Agreement before this Agreement terminated.
However, except in the case of fraud or a willful breach of covenant, a Party's
liability if this Agreement terminates under Section 8.1 is limited to the
amount of the other Party's reasonable out-of-pocket expenses incurred in
connection with this Agreement before the termination or incurred in connection
with the termination of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by NATCO. From and after the Closing Date, NATCO
shall defend, indemnify and hold harmless Purchaser, its Affiliates and
partners, and all such Persons' Representatives ("LR Indemnitees") from and
against, and pay or reimburse the LR Indemnitees for, any liabilities,
obligations, losses, commitments, costs, deficiencies or damages (whether
absolute, accrued, conditional or otherwise and whether or not resulting from
third party claims), including out-of-pocket expenses and reasonable fees and
expenses of attorneys, accountants, consultants and expert witnesses incurred
in investigating or defending these or in asserting any of their rights under
this Agreement or an Ancillary Agreement, ("Losses") resulting from or arising
out of:
(i) a breach of a representation or warranty when made or
deemed made by NATCO under this Agreement or an Ancillary
Agreement; or
(ii) a breach of an obligation of NATCO under this Agreement
or an Ancillary Agreement.
9.2 Indemnification by Purchaser. From and after the Closing Date,
Purchaser shall defend, indemnify and hold harmless NATCO, its Affiliates and
stockholders, and all such Persons' Representatives ("NATCO Indemnitees") from
and against, and pay or reimburse the NATCO Indemnitees for, any Losses
resulting from or arising out of:
(i) a breach of a representation or warranty when made or
deemed made by Purchaser under this Agreement or an
Ancillary Agreement; or
34
(ii) a breach of an obligation of Purchaser under this
Agreement or an Ancillary Agreement.
9.3 Third Party Claims. If a third party asserts a claim against a
Person entitled to indemnification under this Agreement ("Indemnified Party"):
(i) Notice of Claim: The Indemnified Party shall give notice
to the Party required to provide indemnification
("Indemnifying Party") promptly after gaining actual
knowledge of the claim as to which indemnity may be
sought. If the Indemnified Party does not give this
notice, the Indemnifying Party must still fulfill its
indemnification obligations except to the extent that
this failure actually and materially prejudices the
Indemnifying Party.
(ii) Indemnifying Party Defends Claim: Subject to Section
9.3(v), the Indemnifying Party (at its own expense) may
assume the defense of the claim or Litigation resulting
from the claim, with counsel reasonably satisfactory to
the Indemnified Party. The Indemnified Party may
participate in that defense at its own expense.
(iii) Settlements: Subject to Section 9.3(v), 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.
(iv) Indemnifying Party Does Not Defend: If the Indemnifying
Party does not accept the defense of any matter as
provided above, the Indemnified Party may defend against
the claim and may settle the claim with the Indemnifying
Party's prior written consent (not to be unreasonably
withheld).
(v) Indemnified Party Assumes Control of Defense: The
Indemnified Party may take over and assume control of the
defense of the claim or Litigation resulting from the
claim, or seek a settlement, if, in its reasonable
judgment and in the written opinion of its counsel:
35
(A) there is a conflict of interest between the
Indemnifying Party and the Indemnified Party
in conducting the defense or seeking the
settlement through use of a single counsel; or
(B) the Indemnified Party has defenses and
counterclaims different from, or additional
to, the Indemnifying Party's defenses and
counterclaims and which could be materially
adverse to the Indemnifying Party,
and the Indemnifying Party must pay the reasonable fees
and expenses of one (but no more than one) such counsel
to all Indemnified Parties in respect of that claim or
litigation.
(vi) Cooperation: Each Party shall cooperate in defending any
claim or Litigation subject to this Section 9.3 and make
its records relating to the defense available to the
others (except communications subject to attorney-client
privilege or otherwise subject to a pre-existing
confidentiality obligation).
9.4 Tax Treatment of Adjustments. For all Tax purposes, Purchaser
and NATCO shall treat any indemnity payment made under Section 9.1 or Section
9.2 as an adjustment to the purchase price paid under Section 1.1. However, to
the extent that the receipt of an indemnity payment under this Agreement is not
treated as a purchase price adjustment, the Indemnified Party shall be
indemnified and held harmless for any Tax consequences arising from the receipt
or accrual of an indemnity payment under this Agreement (including any payment
under this Section 9.4).
9.5 Tax Adjustments.
(a) Any Losses for which indemnification is provided under this
Agreement shall be reduced (at the time and in the manner discussed in Section
9.5(b)) by any actual Tax Benefit arising from the payment of the claim that
gave rise to the Party making an indemnity payment. If an Indemnified Party
realizes any such Tax Benefit, then the Indemnified Party shall pay an amount
to the Indemnifying Party equal to the Tax Benefit realized, provided that if
an amount payable by the Indemnified Party is reduced by the amount of such Tax
Benefit and there is a disallowance of such Tax Benefit by a taxing authority
(based on a reasonable and good faith determination by the Indemnified Party)
such that the Indemnified Party is not entitled to all or any portion of such
Tax Benefit, then the Indemnifying Party shall pay to the Indemnified Party the
amount of the Tax Benefit that was disallowed.
(b) A Tax Benefit will be considered to be realized for purposes of
this Section 9.5 on (x) the date on which the Tax Benefit is received as a
refund of Taxes, or
36
(y) to the extent that the Tax Benefit is not received as a refund of Taxes but
rather is claimed as an item that reduces liability for Taxes (on a with and
without basis), the due date (including extensions) of the Tax Return that
reflects such change in liability for Taxes. Notwithstanding anything in this
Agreement to the contrary, the Indemnified Party shall determine whether, for
purposes of this Section 9.5, a Tax Benefit is available to the Indemnified
Party in respect of the relevant indemnifiable claim, provided that such
determination shall be reasonable and shall be made in good faith. The
Indemnifying Party shall have opportunity to reasonably review the Indemnified
Party's calculation of the Tax Benefit realized (including a calculation
pursuant to which it is determined that there is no Tax Benefit available to
the Indemnified Party), provided that such review shall in no event relate to
the Indemnified Party's determination of how to report any items on its Tax
Return. If requested by the Indemnifying Party, the Indemnified Party will
provide a letter from the Indemnified Party's accountants stating that the
Indemnified Party's calculation is consistent with the reporting of the
relevant items on the Indemnified Party's Tax Return.
9.6 Time in Which to Bring Representation and Warranty Claims.
(a) Expiration Dates: The representations and warranties in this
Agreement shall survive the execution and delivery of this Agreement, any
examination by or on behalf of the Parties and the completion of the
Transactions, and expire as follows:
(i) the representations and warranties in Section 2.1
(Organization and Authorization), Section 2.2
(Capitalization), Section 2.3 (Subsidiaries and Ownership
Interests), Section 2.7 (Offering Valid), Section 3.1
(Organization and Authorization) and Section 3.5
(Accredited Investor; Investment Purpose) will survive
indefinitely;
(ii) the representations and warranties in Section 2.16
(Taxes) will expire 30 days after the statute of
limitations period;
(iii) the representations and warranties in Section 2.17
(Environmental Matters) will expire five years after the
date of this Agreement; and
(iv) the other representations and warranties in this
Agreement (except those in Section 5.4) will expire 14
months after the Closing Date.
(b) Effect of Expiration Dates: No LR Indemnitee nor NATCO
Indemnitee can bring a claim under Section 9.1(i) or Section 9.2(i) in respect
of a breach of a representation or warranty after that representation or
warranty has expired under Section 9.6(a). After that expiration date, a LR
Indemnitee or NATCO Indemnitee can
37
continue to pursue a claim brought or noticed before the expiration date. The
expiration dates in Section 9.6(a) supersede any statutes of limitation that
otherwise apply.
9.7 Limitations on Indemnification. Neither Party is obligated to
indemnify LR Indemnities or NATCO Indemnitees, as the case may be, under this
ARTICLE IX unless the aggregate amount of Losses sustained by the LR
Indemnitees or the NATCO Indemnitees, as the case may be, exceeds $250,000 and,
in such event, the indemnifying Party shall indemnify only for Losses in excess
of $250,000. In no event shall the total indemnification to be paid by a Party
under this ARTICLE IX exceed $15,000,000.
9.8 Limits on Consequential Damages. Neither Party is liable to LR
Indemnitees or NATCO Indemnitees, as the case may be, for consequential,
special or punitive damages (except where an LR Indemnitee or NATCO Indemnitee
is liable for such damages to a third party and except for fraud and except
that the remedies in section 5.6 apply to the matters in Section 5.6).
9.9 Exclusive Remedy. The remedies provided for in this ARTICLE IX
are the sole and exclusive remedies for claims made after the Closing for
breach of this Agreement (except for claims for equitable remedies and claims
for fraud and except that the remedies in Section 5.6 apply to the matters in
Section 5.6).
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses.
(a) NATCO's Expenses: NATCO shall pay the costs and expenses it
incurs in connection with this Agreement and consummating the Transactions.
(b) Purchaser's Expenses: Subject to the Closing occurring, NATCO
shall pay the reasonable out-of-pocket expenses that Purchaser, or Persons
acting on Purchaser's behalf, incur on or before the Closing Date in connection
with this Agreement and consummating the Transactions (including legal fees).
NATCO must pay each of these expenses to Purchaser within five Business Days of
the later of (x) the Closing Date and (y) NATCO receiving from Purchaser a
written request for payment with reasonable evidence of the expenses.
Purchasers may give more than one written request for payment.
(c) Transfer and Similar Taxes: NATCO shall pay all stamp, transfer,
issuance and similar Taxes arising out of the issuance, delivery, enforcement,
conversion or exercise of the Convertible Preferred Shares and the Warrant, as
the case may be (other than any such Taxes payable as a result of a request
that Conversion Shares or
38
Warrant Shares be issued in the name of a Person or Persons other than the
record holder of Convertible Preferred Shares or the Warrant, as the case may
be).
10.2 Notices.
(a) Addresses for Notice: Notices, consents, requests, instructions,
approvals and other communications provided for in this Agreement, and legal
process relating to this Agreement, will be validly given, made or 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) sent by
first-class registered or certified mail, return receipt requested, postage
prepaid or (z) sent by fax (except for legal process), as follows:
(i) if to NATCO:
NATCO Group Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
with a copy to:
O'Melveny & Xxxxx LLP
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
(ii) if to Purchaser:
Lime Rock Partners II, L.P.
c/o Lime Rock Management LP
000 Xxxxxxxxx Xxxxxx
Xxxxxxxx XX 00000
Attention: Xxxx X. XxXxxx
Fax (000) 000-0000
with a copy to:
Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
39
or to such other address or fax number as a Party specifies in a written notice
given in accordance with this Section 10.2(a). For the avoidance of doubt,
notices given under the Certificate of Designations (including notices of
conversion, redemption and like matters) shall be given in accordance with the
Certificate of Designations.
(b) When Notices Are Deemed To Have Been Received: Such notices,
consents, requests, instructions, approvals and other communications shall be
deemed to have been received:
(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.
10.3 Amendments; Waivers, etc.
(a) Writing: Subject to Section 8.1, no amendment or termination of
this Agreement, and no waiver under it, shall be binding unless made in writing
and duly signed by the Party against whom enforcement is sought.
(b) Effect of Written Waiver: 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.
(c) Failure to Enforce is Not a Waiver: 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.
(d) Effect of Other Representations: A Party's rights and remedies
based on, arising out of or otherwise in respect of a breach of a
representation, warranty or obligation, or failure to fulfill a condition, is
not limited by the fact that the act, omission,
40
occurrence or other state of facts on which the claim is based is also the
subject matter of another representation, warranty or obligation which is not
breached, or of a condition which is fulfilled.
(e) Effect of Investigations: NATCO's representations and warranties
are not affected by investigations made by or on behalf of Purchaser (including
by its Representatives) or, subject to Section 6.4, because Purchaser (or its
Representatives) knew or should have known that the representation or warranty
is or might be inaccurate.
10.4 Specific Performance. Purchaser and NATCO acknowledge that
irreparable damage would occur if any of the provisions of this Agreement and
the Ancillary Documents are not performed in accordance with their terms or are
otherwise breached. Therefore, the Parties are entitled to an injunction or
injunctions to prevent breaches of this Agreement or the Ancillary Documents
and to specifically enforce their provisions in any court of the United States,
or any state of the United States, having jurisdiction (in addition to any
other remedy to which they may be entitled at law or equity).
10.5 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.
10.6 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.
10.7 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 Litigation directly or indirectly arising out
of or relating to this Agreement or documents
contemplated by this Agreement (including as to validity,
interpretation and effect), and in respect of the
Transactions;
(ii) waives and agrees not to assert, as a defense in any such
Litigation, that the Litigation may not be brought or is
not maintainable in those courts, that the venue is not
appropriate or that those courts cannot enforce this
Agreement or that document; and
41
(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 Litigation in the manner provided in
Section 10.2, or in such other manner as may be permitted
by Law, shall be valid and sufficient service of that
process or paper.
10.8 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 LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR DOCUMENTS
CONTEMPLATED BY THIS AGREEMENT (INCLUDING AS TO VALIDITY, INTERPRETATION AND
EFFECT), OR IN RESPECT OF THE TRANSACTIONS. 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;
(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 10.8.
10.9 Successors and Assigns.
(a) General: This Agreement binds and inures to the benefit of the
Parties and their respective successors and permitted assigns.
(b) Before Closing: Before the Closing, Purchaser may assign some or
all of its rights and obligations under this Agreement only to (x) an entity
controlled by Purchaser or in which Purchaser holds a majority of the
beneficial ownership or (y) a fund or similar investment vehicle exclusively
managed by Lime Rock Management LP, or by principals of Lime Rock Management
LP, provided that, in each case, the entity, fund or vehicle agrees in writing
to be bound by Purchaser's obligations under this Agreement and to make
representations and warranties equivalent to those in ARTICLE III (except
Section 3.7).
42
(c) After Closing: After the Closing, Purchaser may assign some or
all of its rights and obligations under this Agreement only to a Person to whom
it transfers Convertible Preferred Shares or the Warrant (or an interest in the
Warrant) in any such case in accordance with this Agreement or Common Stock and
who agrees in writing to be bound by Purchaser's obligations under the
Agreement.
(d) Other: Except for assignments to the surviving entity in a
transaction contemplated by section 9(a)(v) or section 11 of the Certificate of
Designations, NATCO shall not assign any of its rights and obligations under
this Agreement without Purchaser's prior consent. Purported assignments in
breach of this Section 10.9 shall be void ab initio.
10.10 No Third Party Beneficiaries. Except as provided in ARTICLE IX
with respect to NATCO Indemnitees and LR Indemnitees, 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.
10.11 Entire Agreement. This Agreement (including its Exhibits and
Schedules (including the Disclosure Schedules)), together with the Ancillary
Agreements, contains the Parties' entire understanding with respect to the
Transactions except for the Confidentiality Agreement between NATCO and Lime
Rock Management LP dated January 14, 2003.
10.12 No Inconsistent Agreements. NATCO shall not enter into any
agreement, arrangement or other transaction which is inconsistent with the
rights granted to Purchaser by this Agreement or the Ancillary Agreements.
10.13 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.
10.14 Schedules; Exhibits. The Disclosure Schedules delivered under
this Agreement shall be in writing and shall qualify NATCO's representations
and warranties in ARTICLE II, obligations in Section 5.2 and the definitions in
Section 11.1 as if they were fully incorporated into and made a part of this
Agreement although they need not be attached to each copy of this Agreement.
The mere inclusion of an item in one Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by NATCO that the
item represents an exception or material fact, event or circumstance or that
the item constitutes a NATCO Material Adverse Effect.
43
ARTICLE XI
DEFINITIONS AND INTERPRETATION
11.1 Definitions. In this Agreement, the following terms when
capitalized have the following meanings:
2002 BALANCE SHEET defined in Section 2.8(b).
AFFILIATE the meaning in Rule 12b-2 under the
Exchange Act (as in effect on the date
of this Agreement).
AGREEMENT defined in the introductory paragraph to this
Agreement.
ANCILLARY AGREEMENTS the Certificate of Designations, the Warrant,
the Registration Rights Agreement and the
Rights Agreement Amendment.
BOARD defined in the recitals to this Agreement.
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.
CHANGE OF CONTROL as defined in the Certificate of Designations.
CLOSING defined in Section 1.2(a).
CLOSING DATE defined in Section 1.2(a).
CODE the Internal Revenue Code of 1986, as amended.
COMMON STOCK defined in the recitals to this Agreement.
CONSENT a consent, approval, authorization, waiver,
exemption, agreement or order of, Permit
granted by, report, notice or declaration to, or
registration of filing with, a Person.
44
CONSOLIDATED GROUP a consolidated, combined, unitary
or aggregate group for Tax purposes of
which NATCO or any of its Subsidiaries
is a member.
CONTRACT a note, bond, mortgage, indenture,
contract, agreement, obligation,
instrument, offer, commitment,
understanding or other arrangement.
CONVERSION SHARES defined in Section 2.2(g).
CONVERTIBLE PREFERRED SHARES defined in the recitals to this Agreement.
DGCL the Delaware General Corporation Law, as
amended.
DISCLOSURE SCHEDULES the disclosure schedules delivered by NATCO to
Purchaser on the date of this Agreement.
DOMESTIC LOAN AGREEMENT the Loan Agreement dated March 16, 2001 among
NATCO, NATCO Canada, Limited, Axsia Group
Limited, the lenders party to it from time to
time, JPMorgan Chase Bank, as U.S.
Agent, Royal Bank of Canada, as
Canadian Agent, and X.X. Xxxxxx Europe
Limited, as U.K. Agent, as amended.
ENVIRONMENTAL LAW defined in Section 2.17(a)(i).
ERISA the Employee Retirement Income Security Act,
as amended.
ERISA AFFILIATE a trade or business (whether or not
incorporated) which is under common control
with NATCO or which is treated as a single
employer with NATCO under section 414(b) or
414(c) of the Code or section 4001(b) of ERISA.
EXCHANGE ACT the Securities Exchange Act of 1934, as amended.
GAAP United States generally accepted accounting
principles.
GOVERNMENT AUTHORITY (i) a nation or government;
(ii) a state or other political subdivision
of a nation or government;
45
(iii) an entity exercising executive,
legislative, judicial,
regulatory or administrative
functions of or relating to
government (including a
government authority, agency,
department, board, commission
or instrumentality of the
United States or state of the
United States, or a tribunal);
(iv) an arbitrator of competent
jurisdiction; or
(v) a self-regulatory organization
(including a stock exchange).
HAZARDOUS MATERIALS a substance or material that
is classified or regulated as
"hazardous" or "toxic" under an
Environmental Law (including asbestos,
polychlorinated biphenyls and
petroleum) which requires
investigation or remediation under an
Environmental Law.
INDEMNIFIED PARTY defined in Section 9.3.
INDEMNIFYING PARTY defined in Section 9.3(i).
INSTITUTIONAL INVESTOR a Person that is
(i) a qualified institutional buyer (as
defined in Rule 144A under the
Securities Act); and
(ii) not an owner or principal in
any business, entity or
venture that competes in any
material respect with any of
the businesses conducted by
NATCO and its Subsidiaries
(except for interests of 5% or
less in an entity whose
securities are publicly
traded).
INTELLECTUAL PROPERTY (i) registered and unregistered United
States and foreign trademarks, service
marks, trade names, trade dress,
copyrights, Internet domain names, web
sites, email addresses, telephone
numbers and similar rights (including
registrations and applications to
register, or renew the registration of,
any of these);
(ii) United States and foreign letters
patent and patent applications;
46
(iii) inventions, processes, designs,
formulae, trade secrets, know-how and
confidential information;
(iv) computer software, data and
documentation;
(v) similar intellectual property rights;
(vi) all rights to xxx for and
remedies against past, present
and future infringements of any
of the above, and rights of
priority and protection of
interests in any of the above
under the Law;
(vii) tangible embodiments of any of the
above (in any medium including
electronic media); and
(viii) licenses of any of the above.
INTERNATIONAL REVOLVING the International Revolving Loan Agreement
LOAN AGREEMENT dated as of June 30, 1997 among
National Tank Company, Total
Engineering Services Team, Inc. and
Chase Bank of Texas, National
Association, as amended.
KNOWLEDGE (i) in NATCO's case: the actual knowledge
of any of the persons listed in
Disclosure Schedule 11.1;
(ii) in Lime Rock's case: the actual
knowledge of either of Xxx Xxxxx or
Xxxx Xxxxxxxx.
LAW (i) constitutions, treaties,
statutes, laws (including the
common law), codes, rules,
regulations, ordinances or
orders of a Government
Authority;
(ii) Consents of a Government Authority; and
(iii) decisions, injunctions,
judgments, awards and decrees
of or settlement or similar
agreements with a Government
Authority.
LIEN a mortgage, pledge, hypothecation,
right of others, claim, security
interest, encumbrance, title defect,
title retention agreement, voting
trust agreement, interest, equity,
option, lien, charge, restriction on
transfer or assignment, or other
restriction or limitation.
47
LITIGATION an action, cause of action, claim,
demand, suit, proceeding, citation,
summons, subpoena, inquiry or
investigation (civil, criminal,
regulatory or otherwise) in law or in
equity, by or before a Government
Authority.
LOSSES defined in Section 9.1.
LR INDEMNITEES defined in Section 9.1.
LR MATERIAL ADVERSE EFFECT a state of facts, event, change or effect that
has had or could reasonably be expected to
have a material adverse effect on Purchaser's
ability to consummate the Transactions or to
timely perform its obligations under this
Agreement or the Ancillary Agreements except
for a state of facts, event, change or effect
generally applying to the United States
economy, or securities, financial or capital
markets.
MATERIAL CONTRACT defined in Section 2.12(a).
NATCO defined in the introductory paragraph to this
Agreement.
NATCO INDEMNITEES defined in Section 9.2.
NATCO INTELLECTUAL PROPERTY defined in Section 2.15(a).
NATCO MATERIAL ADVERSE EFFECT a state of facts, event, change or effect that
has had or could reasonably be expected to
have a material adverse effect on:
(i) the business, assets,
liabilities (contingent or
otherwise), operations, results
or condition (financial or
otherwise) of NATCO and its
Subsidiaries, taken as a whole
except for a state of facts,
event, change or effect:
(A) generally applying to the United
States economy or securities,
financial or capital markets; or
(B) resulting from the execution of
this Agreement, the announcement
of the Transactions or Purchaser's
identity; or
48
(ii) NATCO's ability to consummate
the Transactions or to timely
perform its obligations under
this Agreement or the Ancillary
Agreements except for a state
of facts, event, change or
effect generally applying to
the United States economy or
securities, financial or
capital markets.
NOTIFYING PARTY defined in Section 6.3.
ORGANIZATIONAL DOCUMENTS defined in Section 2.4(a)(i).
PARTY a party to this Agreement.
PERMITS defined in Section 2.6.
PERSON an individual, partnership, joint
venture, corporation, limited liability
company, trust, unincorporated
organization, Government Authority or
other entity.
PLANS defined in Section 2.13(a).
PURCHASER defined in the introductory paragraph to this
Agreement.
REGISTRATION RIGHTS AGREEMENT defined in Section 7.1(iv).
REPRESENTATIVE a director, officer, employee, consultant,
agent, counsel, accountant, adviser or other
representative.
RIGHTS AGREEMENT the Rights Agreement dated May 15, 1998 between
NATCO and Xxxxx Xxxxxx Shareholder Service,
L.L.C., as rights agent, as amended by
the Rights Agreement Amendment and otherwise.
RIGHTS AGREEMENT AMENDMENT defined in Section 7.1(iv).
SCHEDULES the Schedules delivered by the Parties
in connection with this Agreement.
SEC the Securities and Exchange Commission.
49
SECURITIES ACT the Securities Act of 1933, as amended.
SUBSIDIARY a corporation or other Person in which
the relevant Person owns or controls,
directly or indirectly, capital stock
or other equity interests representing
more than 50% of the outstanding voting
stock or other equity interests.
TAX a federal, state, provincial, local, foreign
or other income, alternative minimum,
accumulated earnings, personal holding
company, franchise, capital stock, net worth,
capital, profits, windfall profits, gross
receipts, value added, sales (including bulk
sales), use, goods and services, excise,
customs duties, transfer, conveyance,
mortgage, registration, stamp, documentary,
recording, premium, severance, environmental
(including taxes under section 59A of the
Code), real property, personal property, ad
valorem, intangibles, rent, occupancy,
license, occupational, employment,
unemployment insurance, social security,
disability, workers' compensation, payroll,
health care, withholding, estimated or other
similar tax, levy, impost, fee, duty or other
governmental charge or assessment or
deficiencies (including all interest and
penalties thereon and additions to them,
whether disputed or not) imposed by any
Government Authority or other taxing
authority.
TAX BENEFIT the amount of the reduction in
the liability for Taxes (including
through recoveries of Taxes through the
carryover of net operating losses or
reductions in Taxes attributable, in
whole or in part, to basis adjustments)
as a result of the payment or accrual
by any Person of any loss, expense,
other amount or Tax.
TAX RETURNS the federal, state, local and
foreign tax returns, declarations,
statements, reports, schedules, forms
and information returns, and any
amendments to any of these, relating to
Taxes.
TRANSACTIONS defined in the recitals to this Agreement.
TRANSFER defined in Section 4.1(a). "TRANSFEREE" and
"TRANSFERRING" have corresponding meanings.
50
WARRANT defined in the recitals to this Agreement.
WARRANT SHARES defined in Section 2.2(h).
11.2 Interpretation. References to "include", "includes" or
"including" are deemed to be followed by "without limitation." "Commercially
reasonable efforts" will not be deemed to require a Person to undertake
extraordinary or unreasonable measures (including paying amounts with respect
to any Contract that are substantial in the context of that Contract). The
plural includes the singular, and vice versa. References to one gender include
the other genders. Unless stated otherwise, a reference to a Section, Schedule
or Exhibit means a Section, Schedule or Exhibit respectively of or to this
Agreement. Headings in this Agreement are for convenience only and do not
affect its interpretation.
51
THE PARTIES have executed this Agreement as of the date first written above.
LIME ROCK PARTNERS II, L.P.
By: Lime Rock Partners XX XX, L.P., its General Partner
By: LRP XX XX, Inc., its General Partner
By: /s/ XXXXXX X. XXXXX, XX.
-------------------------
Xxxxxx X. Xxxxx, Xx.
Authorized Signatory
[NATCO] GROUP INC.
By: /s/ XXXXXXXXX X. XXXXXXX
-------------------------
Xxxxxxxxx X. Xxxxxxx
Chief Executive Officer
52
EXHIBIT A
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) Xxxxxxx X. Xxxxxxx Xx., 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 Xxxxxxx X. Xxxxxxx Xx. 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.
2
"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 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
3
(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.
"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;
4
(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
(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).
5
"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
(ii) if the Common Stock is not listed or admitted to trading on
any national securities exchange, a Monday, Tuesday,
6
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
7
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 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:
8
(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.
(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
9
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 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
10
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 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:
11
(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 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.
12
(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 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. (a) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made
13
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 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
14
deliverable upon the conversion of Convertible Preferred Shares, the
Corporation shall pay an amount in cash equal to 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
15
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, 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.
16
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
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:
17
(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 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
18
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);
(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
19
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 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
20
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
21
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.
(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.
22
(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 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;
23
(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.
(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
24
(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).
(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
25
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).
(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.
26
(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 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.
27
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 0000 Xxxxx Xxxx
Xxxx, Xxxxx 000, Xxxxxxx, XX 00000, 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.
28
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chief Executive Officer this day of , 2003.
NATCO GROUP INC.
By:
------------------------------------
29
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER
THAT ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF THAT ACT AND THOSE LAWS.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND CAN BE TRANSFERRED ONLY PURSUANT TO THE TERMS OF A SECURITIES
PURCHASE AGREEMENT DATED AS OF MARCH 13, 2003 AMONG NATCO GROUP INC.AND LIME
ROCK PARTNERS II, L.P.
NATCO Group Inc.
Common Stock Purchase Warrant
Expiring on [ ], 2006
New York, N.Y.
[Closing Date]
No. W-001
NATCO Group Inc., a Delaware corporation ("NATCO"), for value
received, hereby certifies that Lime Rock Partners II, L.P., a Cayman Islands
exempted limited partnership ("Purchaser"), or its permitted assigns, is
entitled to buy from NATCO 248,800 duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock, par value $0.01, of NATCO, at the
purchase price per share determined under Section 1.1 and Section 2, before
5:00 p.m., New York City time, on [ ], 2006, subject to the terms, conditions
and adjustments in this Warrant.
This Warrant is the Common Stock Purchase Warrant, originally
issued on [Closing Date] in connection with the issuance and sale by NATCO of
15,000 shares of its Series B Convertible Preferred Stock, par value $0.01
("Convertible Preferred Shares"), under a Securities Purchase Agreement, dated
as of March 13, 2003, by and between NATCO and Purchaser. This Warrant
evidences rights to purchase 248,800 duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock, par value $0.01, subject to
adjustment as provided in this Warrant. Certain capitalized terms used in this
Warrant are defined in Section 15.
1. Exercise of Warrant.
1.1 Manner of Exercise by the Holder.
(a) Exercise for Cash: The holder of the Warrant or any part of it
("Holder"), may exercise it, in whole or in part, during normal business hours
on any Business Day by:
(i) surrendering the Warrant, with a subscription in the form of
Exhibit A (or a reasonable facsimile) ("Subscription Notice")
duly executed by the Holder, to NATCO at its principal office
(or, if the exercise is in connection with an underwritten
Public Offering of shares of Common Stock subject to the
Warrant, at the location at which NATCO agrees to deliver the
shares of Common Stock subject to the offering); and
(ii) paying, in cash, by certified or official bank check payable
to the order of NATCO or by wire transfer in same-day funds,
the amount ("Aggregate Exercise Price") equal to the Exercise
Price multiplied by the number of shares of Common Stock that
the Holder is entitled to receive following that exercise.
The "Exercise Date" is the date on which such delivery and payment has
occurred. The Holder is then entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock determined
under Section 2.
(b) Cashless Exercise: Instead of tendering the Aggregate Exercise
Price to NATCO, the Holder may exercise the Warrant by performing a "Cashless
Exercise" of the Warrant, in whole or in part, by surrendering the Warrant to
NATCO, with a duly executed Subscription Notice marked "Cashless Exercise" and
specifying the number of shares of Common Stock the Holder wishes to obtain out
of the total for which the Warrant is exercisable. The Holder will then:
(i) be deemed to have exercised this Warrant for the number of
shares of Common Stock so specified in the Subscription
Notice; and
(ii) be entitled to receive that lesser number of duly authorized,
validly issued, fully paid and nonassessable shares of Common
Stock having a value (at the Current Per Share Market Price
on the Business Day preceding the Exercise Date) of:
(A) the Current Per Share Market Price per share of
Common Stock on the Business Day preceding the
Exercise Date multiplied by the number of the shares
of Common Stock into which the Warrant, or the part
2
of it specified by the Holder, would have been
exercisable under Section 1.1(a) on the Holder
paying the Aggregate Exercise Price
minus
(B) the Aggregate Exercise Price the Holder would have
been required to pay under Section 1.1(a) in respect
of the exercise.
1.2 When Exercise Deemed Effected. Each exercise of the Warrant shall
be deemed to have been effected immediately before the close of business on the
Exercise Date. The person or persons in whose name or names the certificate or
certificates for shares of Common Stock issuable on the exercise under Section
1.1 shall be deemed to have become the holder or holders of record at this
time.
1.3 Delivering Stock Certificates, etc. As soon as practicable after
the Holder exercises the Warrant, in whole or in part, and in any event within
five Business Days after the Exercise Date (unless the exercise is in
connection with an underwritten Public Offering of shares of Common Stock
subject to the Warrant, in which case, concurrently with the exercise), NATCO
at its expense (including paying taxes payable on issuing the shares, but
excluding transfer taxes) shall cause to be issued in the name of and delivered
to the Holder or, as the Holder (on paying any transfer taxes) may direct:
(i) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable
shares of Common Stock to which the Holder is entitled on the
exercise (in such denominations as the Holder reasonably
requests in the Subscription Notice) plus, in lieu of any
fractional share to which the Holder would otherwise be
entitled, cash in an amount equal to the same fraction of the
Current Per Share Market Price per share of Common Stock on
the Business Day preceding the Exercise Date; and
(ii) in case the exercise is in part only, a new Warrant or
Warrants (in such denominations as the Holder reasonably
requests) equivalent to this Warrant, calling in the
aggregate on the face or faces for the number of shares of
Common Stock equal to the number of such shares for which
this Warrant was exercisable immediately before the partial
exercise minus the number of such shares specified by the
Holder in the Subscription Notice on exercise under Section
1.1.
3
2. Number of Shares of Common Stock Issuable on Exercise.
2.1 Exercise Price; Number of Shares. The "Exercise Price", which
initially is $10.00, shall be adjusted and readjusted from time to time under
this Section 2. The number of shares of Common Stock which the Holder is
entitled to receive on each exercise of the Warrant is determined by
multiplying the number of shares of Common Stock which would otherwise (but for
this Section 2) be issuable on the exercise by a fraction of which (x) the
numerator is $10.00 and (y) the denominator is the Exercise Price in effect on
the Exercise Date.
2.2 Stock Dividends, Subdivisions, Combinations, Mergers, etc. If
NATCO after the date of this Warrant:
(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 a 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 Exercise Price and the kind and amount of stock, securities, cash or
other assets issuable on exercise of the Warrant on or after the record date
for the dividend or distribution, or the effective date of the subdivision,
split, combination, consolidation, merger, reorganization, reclassification or
recapitalization, shall be adjusted so that the exercise of the Warrant after
that time entitles the Holder to receive the aggregate number of shares of
Common Stock, or stock, securities, cash and other assets, which, if the
Warrant had been exercised immediately before that time, the Holder would have
been entitled to receive by virtue of the dividend, distribution, subdivision,
split, combination, consolidation, merger, reorganization, reclassification or
recapitalization. This 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 2.2 shall not apply to transactions to which Section
3 applies.
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2.3 Extraordinary Dividends and Distributions. If, at any time after
the date of this Warrant, NATCO fixes a record date for a dividend or
distribution to all holders of its outstanding Common Stock of evidences of
indebtedness of NATCO, 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 NATCO's net income in the prior fiscal year) ("Other
Distribution"), then NATCO shall make adequate provision so that the Holder
will receive, in addition to shares of Common Stock on exercise of the Warrant,
at the election of the holders of a majority of the interests under the Warrant
(measured with respect to the number of shares of Common Stock for which each
holder can exercise its interests), either:
(i) the Other Distribution to which the Holder would have been
entitled as a holder of shares of Common Stock if the Holder
had exercised the Warrant immediately before 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.
2.4 Sales Below the Current Per Share Market Price. Except to the
extent that an adjustment has already been made under Section 2.2, if NATCO
after the date of this Warrant 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 Exercise Price shall be adjusted, as of the close of business on
the date of that issuance or sale, to an amount equal to the Exercise Price in
effect immediately before that issuance or sale multiplied by the following
adjustment factor:
Adjustment = (Current Common Shares x Current Price) + Consideration
Factor -----------------------------------------------------------
Resulting Common Shares x Current Price
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 Shares
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.
5
"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.
2.5 Equity-Linked Securities. Except to the extent that an adjustment
has already been made under Section 2.2 or Section 2.3, if, after the date of
this Warrant, NATCO 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 on 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 2.5(ii), the maximum number of shares of
Common Stock issuable on 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 Exercise Price shall be
adjusted under Section 2.4 as though NATCO 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 Warrant), 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
on exercise, conversion or exchange is increased, the amount
of consideration deemed to be received by NATCO, or the
number of shares of Common Stock issuable on exercise,
conversion or exchange of such Equity-Linked Securities,
shall be recalculated on the occurrence or non-occurrence of
6
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 on
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 NATCO shall again
be recalculated using the increased minimum consideration
amount or the decreased maximum share number); and
(iii) if any such Equity-Linked Securities expire unexercised, the
Exercise Price shall again be adjusted to be the Exercise
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 on 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 on 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.
Any reduction in the number of shares of Common Stock for which the Warrant is
exercisable as a result of this Section 2.5 shall be applied in its entirety to
the number of shares of Common Stock for which the Warrant is exercisable as of
the date the new adjustment is made. Adjustments under this Section 2.5 shall
be made successively whenever NATCO issues, sells or grants Equity-Linked
Securities. Except as provided in this Section 2.5, no further adjustment of
the Exercise Price shall be made as a result of the actual issuance of shares
of Common Stock on the exercise, conversion or exchange of Equity-Linked
Securities.
2.6 Rights Distributed Under the Rights Agreement. While the Rights
Agreement remains in effect:
(i) if the Holder exercises the Warrant before the Distribution
Date it will receive, in addition to the shares of Common
Stock issued on the exercise, 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
7
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 2.6(iv), an adjustment will be
made accordingly under Section 2.5 or, if applicable, Section
2.7 and Section 2.8;
(iii) no adjustment to the Exercise Price will be made under this
Section 2 for the issuance of Rights except as provided in
Section 2.6(ii); and
(iv) no adjustment will be made under this Section 2 for the
benefit of a Holder 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.
2.7 Other Dilutive Securities. NATCO shall not (x) 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 (y) declare or pay dividends or
distributions (whether of evidences of indebtedness of NATCO, cash, assets or
securities) in respect of Other Dilutive Securities or Equity-Linked Securities
unless, in each case, this Section 2 is first amended to preserve without
dilution, on a basis consistent with the essential intent and principles
established in Section 2, the exercise rights of the Warrant.
2.8 Other Dilutive Events. If any event occurs to which Section 2 does
not strictly apply but as to which the failure to make an adjustment would not
fairly protect the exercise rights with respect to the Warrant in accordance
with the essential intent and principles of Section 2, then NATCO 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 of
Section 2, the exercise rights of the Warrant. On receiving this opinion, NATCO
will promptly mail a copy of it to the Holder and shall make the adjustments
described in it.
2.9 Valuation of Consideration and Non-Cash Distributions. If any of
the consideration received or to be received by NATCO in respect of shares of
Common Stock or Equity-Linked Securities is in a form other than cash, or NATCO
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 2. The
fair market value shall be determined by the Board unless holders of a majority
of the interests under the Warrant (measured with respect to the number of
shares of Common Stock for which each holder can exercise its interest)
8
object to the Board's determination, in which case the Board shall retain an
independent appraiser reasonably satisfactory to those 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 NATCO) 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 NATCO issues, sells or grants shares of Common Stock or
Equity-Linked Securities, the amount of consideration paid or payable to NATCO
in respect of such shares or securities and taken into account under this
Section 2 shall not include any amounts paid for accrued dividends or accrued
interest.
2.10 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 NATCO for an aggregate consideration that
covers both, the consideration paid or payable to NATCO for the shares of
Common Stock or Equity-Linked Securities shall be the portion of the aggregate
consideration paid or payable to NATCO 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 the holders of a majority of the interests
under the Warrant (measured with respect to the number of shares of Common
Stock for which each holder can exercise its interest) object to the Board's
determination, in which case the Board shall retain an independent appraiser
reasonably satisfactory to those 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.
2.11 Notice of Adjustments. Calculations under this Section 2 shall be
made to the nearest four decimal points. NATCO shall notify the Holder promptly
after making any adjustment under this Section 2, and include reasonable detail
on the event requiring the adjustment and the calculation of the adjustment. On
a Holder's request at any time, NATCO shall promptly deliver to the Holder a
notice stating the then Exercise 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
exercising the Warrant.
2.12 New York Stock Exchange Rules. No adjustment shall be made under
this Section 2 if the adjustment would constitute a material violation of the
rules of the New York Stock Exchange or any other securities exchange on which
any of NATCO's securities are listed or admitted to trading.
2.13 Adjustments to Other Shares. If, as a result of this Section 2,
the Holder on subsequent exercise becomes entitled to receive any shares of
capital stock of NATCO other than Common Stock, the number of shares so
receivable on exercise shall
9
be subject to adjustment on terms as nearly equivalent as practicable to those
in this Section 2 and, to the extent appropriate, references to Common Stock in
other provisions of this Warrant shall be read as including those other shares
of capital stock.
3. Stock Mergers; Change of Control.
3.1 Changes to Warrant on a Stock Merger. If NATCO is party to a stock
merger or consolidation in which shares of Common Stock as constituted
immediately before the merger or consolidation are changed into or exchanged in
whole or in part for shares of common stock or similar ownership interests of
the surviving entity ("Stock Merger"), the terms of the Stock Merger shall
provide that, except to the extent that the Holder exercises its rights under
Section 3.3, the Holder shall thereafter have the right to receive, on
exercising this Warrant and paying the Exercise Price, the shares of common
stock or similar ownership interests and other assets or consideration as may
be issued with respect to or in exchange for the number of shares of Common
Stock that would have been issued if the Holder had exercised the Warrant in
whole immediately before the Stock Merger.
3.2 Notice of Stock Merger. At least 15 days before the Stock Merger,
NATCO shall give the Holder notice of:
(i) the Stock Merger;
(ii) the terms of the Stock Merger (in reasonable detail); and
(iii) the Holder's rights under this Section 3 (which may be
satisfied by stating, in prominent type, that the Holder
should refer to Section 3 of the Warrant for a statement of
its rights in connection with the Stock Merger).
3.3 Holder's Option to Exercise. NATCO shall, not fewer than 30 days
before 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 the Holder a notice
notifying the Holder of the Change of Control, the circumstances and facts
surrounding the Change of Control, and the Holder's right to elect, within 15
days of receiving the notice, to exercise its rights to have NATCO repurchase
the Warrant under Section 3.3 if the Holder does not give notice to NATCO to
redeem any Convertible Preferred Shares it holds under section 11(b)(i) of the
Certificate of Designations. Within 15 days of receiving NATCO's notice, the
Holder may elect, instead of having the right thereafter to receive shares of
Common Stock, or of common stock or similar ownership interests and other
assets or consideration, to have NATCO repurchase the Warrant in whole or in
part, subject to the Holder not giving notice to NATCO to redeem any
Convertible Preferred Shares it holds
10
under section 11(b)(i) of the Certificate of Designations. To exercise this
election, the Holder shall give notice of its election to NATCO and surrender
the Warrant to NATCO at its principal office. The Holder is then entitled to
receive a repurchase price equal to (x) the Current Per Share Market Price on
the date of the Change of Control minus the Exercise Price that would have
applied if the Holder had exercised the Warrant under Section 1.1(a) on that
date multiplied by (y) the number of shares of Common Stock the Holder would
have acquired under Section 2.1 if it had exercised the Warrant on that date.
NATCO shall pay the repurchase price to the Holder, by wire transfer in
same-day funds to an account specified by the Holder, within two Business Days
after the end of the period during which holders of Convertible Preferred
Shares can give notice to NATCO under the Certificate of Designations to redeem
any of their Convertible Preferred Shares.
4. NATCO's Right to Require the Holder to Exercise the Warrant.
4.1 Notice Requiring the Holder to Exercise the Warrant. NATCO may
give the Holder notice to exercise the Warrant in whole but not in part if, on
the 30 consecutive Trading Days ending on the day that NATCO gives the notice,
shares of Common Stock have a closing price (determined in accordance with the
definition of "closing price" within the definition of "Current Per Share
Market Price" in Section 15.1) of more than $13.50. This notice shall state the
Holder's rights and obligations under Section 4.2 (which may be satisfied by
stating, in prominent type, that the Holder has ten Trading Days in which to
exercise the Warrant and that the Holder should refer to Section 4.2 of the
Warrant for a statement of its rights in connection with the notice). The
amount of $13.50 shall be adjusted in the same manner as adjustments are made
to the Exercise Price under Section 2.
4.2 Holder's Exercise. The Holder has ten Trading Days after the day
on which it actually receives NATCO's notice under Section 4.1 to elect to
exercise the Warrant in accordance with its terms. If the Holder has not
exercised the Warrant in whole by the end of this period, the Warrant shall
terminate. However, NATCO's notice under Section 4.1 shall have no effect if
shares of Common Stock have a closing price (determined in accordance with the
definition of "closing price" within the definition of "Current Per Share
Market Price" in Section 15.1) equal to or less than the Exercise Price at any
time from when the Holder actually receives the notice through 5.00 p.m. (New
York City time) on the second Trading Day after the day on which the Holder
actually receives the notice (unless the Holder has already exercised the
Warrant). For the purposes of determining when the Holder has actually received
a notice under this Section 4.2, the times of deemed receipt in Section 14.1(b)
do not apply.
5. Liquidation, Dissolution, Winding Up. On NATCO's liquidation,
dissolution or winding up, the Holder shall receive such cash or other assets
(minus the Exercise Price) which the Holder would have been entitled to receive
on the liquidation,
11
dissolution or winding up had the Warrant been exercised in whole and the
shares of Common Stock in respect of the exercise issued immediately before the
liquidation, dissolution or winding-up.
6. Registration Rights. If the Holder has signed, or has agreed in
writing to be bound by Purchaser's duties and obligations under, the
Registration Rights Agreement dated [Closing Date] between NATCO and Purchaser
(as amended from time to time, the "Registration Rights Agreement") all shares
of Common Stock issuable or issued on the exercise of the Warrant are subject
to and entitled to the benefits of the registration rights and other provisions
in the Registration Rights Agreement.
7. Reservation of Stock, etc. NATCO shall reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance on the exercise of this Warrant, the number of shares of
Common Stock issuable on exercise of this Warrant. On any increase in the
number of shares of Common Stock for which this Warrant could be exercisable,
NATCO shall take such steps as may be necessary to authorize, and shall
reserve, a sufficient number of additional shares of Common Stock to permit the
exercise in whole of this Warrant. Assuming the Holder pays the exercise price,
on exercise of any Warrant for shares of Common Stock issuable on exercising
the Warrant, those shares of Common Stock will be validly issued and
outstanding, fully paid and nonassessable, free of Liens, not issued in breach
of any preemptive rights and will have the voting and other rights of Common
Stock.
8. Listing on Securities Exchanges. NATCO shall list on each national
securities exchange (or the Nasdaq National Market) on which Common Stock is at
any time listed, and shall maintain the listing of, all shares of Common Stock
from time to time issuable on exercising the Warrant, subject to official
notice of issuance on the exercise of the Warrant. NATCO shall also so list on
each national securities exchange or the Nasdaq National Market, and shall
maintain the listing of, any other securities which the Holder is entitled to
receive on exercising the Warrant, if at the time any securities of the same
class as those other securities are listed on that national securities exchange
or the Nasdaq National Market, as the case may be.
9. Notices of Corporate Actions. In the event of:
(i) NATCO taking a record of the holders of Common Stock or
Convertible Preferred Shares to determine the holders
entitled to a dividend or distribution, or any right to
acquire shares of Common Stock or Equity-Linked Securities,
or to receive any other right;
(ii) a subdivision, split or combination of outstanding shares of
Common Stock;
12
(iii) a consolidation, merger, reorganization, reclassification or
recapitalization involving NATCO, or a transfer of all or
substantially all of NATCO's assets;
(iv) NATCO's dissolution, liquidation or winding up; or
(v) any event not covered by paragraphs (i), (ii), (iii) or (iv)
that would require an adjustment under Section 2,
NATCO shall give each Holder a notice, at least 15 days before the date of that
event, stating the date or expected date of that event and reasonable details
about that event (including reasonable details, insofar as they are known at
the time of giving the notice, about matters that will or may affect the
Exercise Price following that event and the securities or other assets
deliverable or purchasable in connection with that event or on exercise of the
Warrant following the event).
10. Ownership, Transfer and Substitution of the Warrant.
10.1 Ownership of Warrant. NATCO may treat the Person in whose name
the Warrant, or any warrant or warrants issued in substitution for it, is
registered on the register kept at NATCO's principal office as the owner and
the Holder for all purposes, notwithstanding any notice to the contrary.
However, if a Warrant is properly assigned in blank, NATCO may (but is not
obligated to) treat the bearer as the owner of the Warrant for all purposes,
notwithstanding any notice to the contrary. A Warrant, if properly assigned,
may be exercised by a new Holder without first having a substitute warrant
issued.
10.2 Transfer and Exchange of the Warrant. On the Holder surrendering
the Warrant, properly endorsed, for registration of transfer or for exchange at
NATCO's principal office, together with in the case of transfer a form of
assignment in the form of Exhibit B duly executed by the Holder, NATCO at its
expense shall execute and deliver to or on the Holder's order a new and
equivalent warrant or warrants, in the Holder's name or as the Holder (on the
Holder paying any transfer taxes) directs, calling in the aggregate on the face
or faces for the number of shares of Common Stock called for on the face of the
surrendered Warrant.
10.3 Replacing the Warrant. NATCO at its expense shall execute and
deliver a replacement Warrant promptly after receiving evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of the Warrant
and, in the case of any such loss, theft or destruction of the Warrant while
held by a Person other than the Purchaser, on receiving an indemnity reasonably
satisfactory to NATCO in form and amount (or, in the case of mutilation, on
receiving the Warrant for cancellation at NATCO's principal office).
13
11. No Rights or Liabilities as Shareholder. Nothing in the Warrant
confers on the Holder rights as a shareholder of NATCO or imposes liabilities
on the Holder to buy any securities of NATCO or as a shareholder of NATCO
(whether asserted by NATCO, by NATCO's creditors or shareholders or otherwise).
12. Good Faith Actions.
12.1 No Avoidance or Inconsistent Agreements. NATCO shall not avoid or
seek to avoid (including by amending its charter documents, or through a
consolidation, merger, reorganization, reclassification, recapitalization,
transfer of assets, liquidation, dissolution, winding up or issue or sale or
securities) the performance of its obligations under this Warrant. NATCO shall
not enter into any agreement, arrangement or other transaction which is
inconsistent with the rights granted to the Holder in this Warrant.
12.2 Required Actions. NATCO shall at all times in good faith assist
in carrying out all such action as may be reasonably necessary or appropriate
to protect the rights of the Holders against impairment (including the rights
to adjustments under Section 2), including obtaining the authorizations,
exemptions or consents of or from any governmental authority needed for NATCO
to perform its obligations or for the Holder to exercise its rights under this
Warrant.
12.3 Stock Mergers and Other Transactions. NATCO will not consummate a
transaction described in Section 2.2(v) or a Stock Merger unless each Person
(except NATCO) required to deliver stock, securities, other ownership
interests, cash or other assets in connection with that transaction or Stock
Merger, assumes, by written instrument delivered to, and reasonably
satisfactory to, the Holder:
(i) NATCO's obligations under this Warrant (and, if NATCO
survives the consummation of the transaction or Stock Merger,
this assumption is in addition to, and does not release NATCO
from, NATCO's continuing obligations under this Warrant); and
(ii) the obligation to deliver to the Holder the shares of stock,
securities, other ownership interests, cash or other assets
the Holder is entitled to receive.
If the holders of a majority of the interests under the Warrant (measured with
respect to the number of shares of Common Stock for which each holder can
exercise its interest) requests, 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 each Holder the shares of stock, securities, other ownership
interests, cash or other assets that the Holders are entitled to receive on the
14
exercise of the Warrant or otherwise in connection with the Stock Merger and
that the terms of this Warrant (including Section 2) will apply to such stock,
securities, other ownership interests, cash or other assets.
13. Termination. This Warrant terminates automatically on the earliest
of:
(i) 5:00 p.m. (New York City time) on [ ], 2006;
(ii) the date on which the Warrant has been exercised in whole;
(iii) the date on which this Warrant terminates under Section 4.2;
and
(iv) the date on which the Holder gives notice to NATCO to redeem
its Convertible Preferred Shares under section 11(d) of the
Certificate of Designations in connection with a Change of
Control.
Section 14 shall survive termination. Termination shall not affect rights and
liabilities accrued before the termination date.
14. Miscellaneous.
14.1 Notices.
(a) Addresses for Notice: Notices and other communications provided
for in this Warrant, and legal process relating to this Warrant, will be
validly given, made or 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) sent by first-class registered or certified mail, return
receipt requested, postage prepaid or (z) sent by fax (except for legal
process), as follows:
(i) if to NATCO, at its principal place of business, which is at:
NATCO Group Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
with a copy to:
15
O'Melveney & Xxxxx LLP
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
(ii) if to Purchaser:
Lime Rock Partners II, L.P.
c/o Lime Rock Management LP
000 Xxxxxxxxx Xxxxxx
Xxxxxxxx XX 00000
Attention: Xxxx X. XxXxxx
Fax (000) 000-0000
with a copy to:
Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
(iii) if to any other Holder or any holder of Common Stock: at the
Holder's registered address stated in the register kept at
NATCO's principal office,
or to such other address or fax number as NATCO, the Holder or holder, as the
case may be, specifies in a written notice given in accordance with this
Section 14.1.
(b) When Notices Are Deemed To Have Been Received: Such notices and
other communications shall be deemed to have been received:
(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
16
(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.
14.2 Amendments; Waivers, etc. No amendment of this Warrant, and no
waiver under it, shall be binding unless made in writing and duly signed by the
party against whom enforcement is sought. 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 Warrant does not constitute a waiver of a
similar breach or default. A party's failure, on one or more occasions, to
enforce a provision of this Warrant, or to exercise a right or privilege under
this Warrant, does not constitute a waiver of that provision, right or
privilege.
14.3 Specific Performance. NATCO acknowledges that irreparable damage
would occur if any of the provisions of this Warrant are not performed in
accordance with their terms or are otherwise breached. Therefore, the Holder is
entitled to an injunction or injunctions to prevent breaches of this Warrant
and to specifically enforce its provisions in any court of the United States,
or any state of the United States, having jurisdiction (in addition to any
other remedy to which it may be entitled at law or equity).
14.4 Severability. If any provision of this Warrant 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.
14.5 Governing Law. This Warrant 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.
14.6 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 Litigation directly or indirectly arising out of
or relating to this Warrant (including as to validity,
interpretation and effect);
(ii) waives and agrees not to assert, as a defense in any such
Litigation, that the Litigation may not be brought or is not
17
maintainable in those courts, that the venue is not
appropriate or that those courts cannot enforce this Warrant;
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
Litigation in the manner provided in Section 14.1, or in such
other manner as may be permitted by law, shall be valid and
sufficient service of that process or paper.
14.7 WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES THAT ANY DISPUTE
WHICH MAY ARISE UNDER THIS WARRANT 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 LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS WARRANT (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;
(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 14.7.
14.8 Successors and Assigns. NATCO's agreements in this Warrant other
than those applying solely to the Warrant and the Holder inure to the benefit
of and are enforceable by any holder or holders at the time of any shares of
Common Stock issued on exercising the Warrant, whether so expressed or not. The
Holder may assign some or all of its rights under this Warrant only in
accordance with section 4.1 of the Securities Purchase Agreement dated March
13, 2003 between NATCO and Purchaser. NATCO shall not assign any of its rights
and obligations under this Warrant without the Holder's prior consent.
Purported assignments in breach of this Section 14.8 shall be void.
18
15. Definitions and Interpretation.
15.1 Definitions. In this Warrant, the following terms when
capitalized have the following meanings:
AGGREGATE EXERCISE PRICE defined in Section 1.1(a)(ii).
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 Certificate of Designations of
Series B Convertible Preferred Stock of NATCO
Group Inc.
CHANGE OF CONTROL has the same meaning as in the Certificate of
Designations.
COMMON STOCK NATCO's common stock, par value $0.01 per share.
CONVERTIBLE PREFERRED SHARES defined in the second paragraph of this Warrant.
CURRENT PER SHARE MARKET PRICE as of any date, the average of the closing
prices per share of Common Stock Price for the
ten consecutive Trading Days immediately before
the date in question. 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, has not occurred before the
commencement of this 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, that dividend or distribution is not
paid or that subdivision, split, combination or
reclassification is not consummated, the Current
Per Share Market Price shall be recalculated
19
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.
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, or any successor federal statute, and
the rules and regulations under it, in effect at
20
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.
EXCLUDED SECURITIES (i) shares of Common Stock and Equity-Linked
Securities issued to employees, officers
and directors of, or consultants and
advisors to, NATCO or any of its
subsidiaries pursuant to stock purchase or
stock option plans or other compensatory
arrangements that are approved by the
Board, and the shares of Common Stock
issued pursuant to those 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 Warrant;
(iii) shares of Common Stock or Equity-Linked
Securities issued in connection with an
acquisition, consolidation, merger or
sale by or of NATCO approved by the
Board;
(iv) shares of Common Stock or Equity-Linked
Securities issued in a bona fide
registered underwritten public offering;
and
(v) Convertible Preferred Shares issued under
the Securities Purchase Agreement dated
March 13, 2003 between NATCO and
Purchaser, this Warrant and shares of
Common Stock issued on conversion of
those Convertible Preferred Shares or
exercise of the Warrant.
EXERCISE DATE defined in Section 1.1(a).
EXERCISE PRICE defined in Section 2.1.
HOLDER defined in Section 1.1(a).
LIEN a mortgage, pledge, hypothecation, right of
others, claim, security interest, encumbrance,
title defect, title retention agreement, voting
trust agreement, interest, equity, option, lien,
charge, restriction on transfer or assignment,
or other restriction or limitation.
21
LITIGATION an action, cause of action, claim, demand, suit,
proceeding, citation, summons, subpoena, inquiry
or investigation (civil, criminal, regulatory or
otherwise) in law or in equity, pending or
threatened, by or before a government authority.
NASD the National Association of Securities Dealers,
Inc.
NATCO defined in the first paragraph of this Warrant.
OTHER DILUTIVE SECURITIES defined in Section 2.7.
OTHER DISTRIBUTION defined in Section 2.3.
PERSON an individual, partnership, joint venture,
corporation, limited liability company, trust,
unincorporated organization, governmental entity
or other entity.
PUBLIC OFFERING an offering of Common Stock to the
public under an effective registration statement
under the Securities Act.
PURCHASER defined in the first paragraph of this Warrant.
REGISTRATION RIGHTS AGREEMENT defined in Section 6.
RIGHT has the same meaning as in the Rights Agreement.
RIGHTS AGREEMENT the Rights Agreement, dated as of May 15, 1998,
between NATCO and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, as amended.
SEC the Securities Exchange Commission or any other
federal agency at the time administering the
Securities Act or the Exchange Act.
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.
STOCK MERGER defined in Section 3.1.
SUBSCRIPTION NOTICE defined in Section 1.1(a)(i).
22
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
(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.
WARRANT this Common Stock Purchase Warrant and warrants
issued substantially in the form of this warrant
and in substitution for it.
15.2 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 or Exhibit
means a Section or Exhibit respectively of or to this Warrant. Headings in this
Warrant are for convenience only and do not affect its interpretation.
NATCO GROUP INC.
By: _______________________________
Name:
Title:
23
EXHIBIT A
FORM OF SUBSCRIPTION
(To be executed only on exercise of Warrant)
To: NATCO Group Inc.
The undersigned registered holder of the enclosed Warrant
hereby irrevocably exercises the Warrant for, and purchases under it, _______(1)
shares of Common Stock of NATCO Group Inc., and makes payment [of $ ](2) [by
application, under Section 1.1(b) of the Warrant, of [a part of] the Warrant
representing a right to buy ________ shares of Common Stock],(3) and requests
that NATCO Group Inc. issue the certificates for those shares in the name of,
and deliver those shares to, ______________ whose address is __________.
The undersigned represents and warrants to NATCO Group Inc.
that the undersigned is:
(i) an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act of
1933; and
(ii) acquiring the shares of Common Stock for its own
account and solely for investment, with no intention
to resell or distribute those shares in breach of
the Securities Act.
The undersigned understands and acknowledges that those
shares of Common Stock have not been registered under the Securities Act of
1933 (or the securities laws of any state) and that they may only be sold or
otherwise disposed of in one or more transactions registered under the
Securities Act of 1933 (and, where applicable, state laws) or as to which an
exemption from the registration requirements is available.
Dated:
[HOLDER](4)
[Address]
By ________________________________
Name:
Title:
24
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(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the number as to which the
Warrant is being exercised), taking into account any adjustment under
the adjustment provisions of the Warrant. In the case of a partial
exercise, NATCO Group Inc. will issue and deliver a new Warrant or
Warrants, representing the unexercised part of the Warrant, to the
holder surrendering the Warrant.
(2) Delete inapplicable language in brackets.
(3) Delete inapplicable language in brackets.
(4) The signature must conform in all respects to the Holder's name as
specified on the face of the Warrant.
25
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed only on transfer of Warrant)
For value received, the undersigned registered holder of the
enclosed Warrant hereby sells, assigns and transfers to ________________ the
right represented by the Warrant to buy ______ shares of Common Stock of NATCO
Group Inc. to which the Warrant relates, and appoints ___________ Attorney to
make the transfer on the books of NATCO Group Inc. maintained for this purpose,
with full power of substitution in the premises.
Dated:
[HOLDER](1)
[Address]
By _______________________________
Name:
Title:
Signed in the presence of:
--------------------------------------------
(1) The signature must conform in all respects to the Holder's name as
specified on the face of the Warrant.
