NATCO GROUP INC
EXHIBIT 10.1 - SEPARATION AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>natcoex10.txt
<DESCRIPTION>EXHIBIT 10.1 - SEPARATION AGREEMENT
<TEXT>



                                                                  EXHIBIT 10.1


                             SEPARATION AGREEMENT


         This Separation Agreement (this "Separation Agreement") is entered
into as of July 28, 2004 (the "Effective Date"), by and between NATCO Group
Inc., a Delaware corporation (the "Company"), and Nathaniel A. Gregory
("Individual") (each a "Party" and, collectively, the "Parties").


                                   RECITALS
                                   --------

         WHEREAS, Individual currently serves as a member and the Chairman of
the Company's Board of Directors (the "Board") and as the Chief Executive
Officer of the Company;

         WHEREAS, the Company and Individual have agreed that Individual will
resign from the Board and from the offices of Chairman of the Board and Chief
Executive Officer of the Company as and when specified below;

         WHEREAS, the Company and Individual are parties to that certain
Employment Agreement dated December 11, 2002 (the "Employment Agreement");

         WHEREAS, in recognition of Individual's agreement to resign the
offices described above, the Company and Individual wish to terminate their
respective obligations under the Employment Agreement and, in connection
therewith, to memorialize in this Separation Agreement the terms and
conditions upon which the Parties have agreed to do so.

         NOW, THEREFORE, in consideration of the premises set forth above and
the covenants contained in this Separation Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the Parties, the Parties hereby agree as set forth herein.

                                   AGREEMENT
                                   ---------

1.       Effective Date. This Separation Agreement is effective on the
         Effective Date, but is subject to revocation as provided in Section
         17.

2.       Resignation as Member of the Board/Termination of Employment;
         Termination of Employment Agreement; Waiver of Severance Benefits;
         Waiver of Right to Terminate.

         (a)      Resignation as Member of the Board/Termination of
                  Employment. Individual agrees that he will resign the office
                  of Chairman of the Board effective as of the Effective Date
                  and as a member of the Board as of the Separation Date (as
                  defined below). Individual and the Company agree that
                  Individual's employment by the Company as the Chief
                  Executive Officer will terminate as of September 7, 2004
                  (the "Separation Date") and, to the extent not already
                  effected, Individual agrees to resign that and any other
                  office or position with the Company and each of its
                  subsidiaries and controlled affiliated entities
                  ("Subsidiaries") effective as of the Separation Date. As
                  used in this Separation Agreement, the term "affiliate" (and
                  each variation thereof) shall have the same meaning as
                  ascribed to it in the General Rules and Regulations under
                  the Securities Act of 1933, as amended.

         (b)      Termination of Employment Agreement. The Employment
                  Agreement shall terminate as of the Separation Date, and
                  neither Party shall have any rights or obligations under the
                  Employment Agreement after that date, except for those
                  rights and obligations continuing in effect as provided in
                  this Separation Agreement.

         (c)      Waiver of Severance Payments. Individual acknowledges that
                  the benefits set forth in this Separation Agreement satisfy
                  all obligations to him with respect to severance
                  compensation under the Company's current severance plan or,
                  subject to Section 2(b), arising out of or relating to the
                  Employment Agreement, and hereby waives his right to any
                  other severance payments and benefits to which he otherwise
                  might be entitled under the Company's current severance plan
                  or policy or arising, subject to Section 2(b), out of or
                  relating to the Employment Agreement.

         (d)      Waiver of Rights to Terminate. Individual represents to the
                  Company that, as of the Effective Date, no "Cause" (as
                  defined in the Employment Agreement) has occurred, and in
                  reliance on this representation the Company waives any right
                  to terminate Individual's employment pursuant to Section
                  12(c) of the Employment Agreement for events occurring on or
                  before the Effective Date. Without limiting the provisions
                  of this Separation Agreement, each of Individual and the
                  Company agrees not to exercise any right to terminate
                  Individual's employment pursuant to Section 12(d) of the
                  Employment Agreement.

3.       Certification of Financial Reports. Individual acknowledges that, as
         Chief Executive Officer of the Company, he is the person authorized
         and responsible for signing and certifying, as chief executive
         officer, the Company's Form 10-Q for the quarter ended June 30, 2004
         in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and,
         to the extent that the certificate accurately sets forth the matters
         stated therein, Individual hereby agrees to do so in accordance with
         applicable law.

4.       Monetary Severance Payments.

         (a)      Payment of Accrued Wages. On the Separation Date, the
                  Company shall pay to Individual an amount equal to (i) any
                  accrued but unpaid salary, including amounts payable for the
                  stub period September 1-7, 2004; plus (ii) the value of any
                  accrued but unused vacation through the Separation Date; and
                  less (iii) all required payroll, income and other tax
                  withholdings and all other required deductions.

         (b)      Severance Payments. Subject to Individual's compliance with
                  all the terms of this Separation Agreement and executing and
                  not revoking the release of claims set forth on Exhibit A,
                  sufficient consideration for which Individual acknowledges
                  and agrees is provided in this Separation Agreement, the
                  Company shall pay to Individual:

                  (i)      on the Effective Date, $1,296,655.35, and
                           Individual acknowledges receipt of this payment by
                           the Company's making appropriate payroll, income
                           and other tax withholdings and all other required
                           deductions on account of that payment and
                           Individual's exercise of options as provided in
                           Section 10 and the Company's application of the
                           remaining amount, being $826,745.89 (the "Net
                           Initial Severance Payment"), to his obligation to
                           pay the Company for shares acquired on Individual's
                           exercise of options as provided in Section 10; and

                  (ii)     on or before October 7, 2004, $992,344.65, which
                           payment shall be subject to all required payroll,
                           income and other tax withholdings and all other
                           required deductions, but the Company will use
                           reasonable efforts, consistent with applicable law,
                           to minimize the amount of withholding.

         (c)      Bonus. The Company agrees that Individual shall be entitled
                  to receive the bonus otherwise payable to him under the
                  Company's 2004 Bonus Plan, based on his period of employment
                  during 2004, as follows:

                  (i)      The financial component of Individual's bonus shall
                           be based on the period January 1, 2004, through the
                           Separation Date, shall be determined by the Board
                           on or prior to October 7, 2004, and shall be
                           payable to Individual on that date.

                  (ii)     The discretionary component of Individual's bonus
                           (if any) shall be determined by the Board and be
                           paid in 2005 contemporaneously with bonus payments
                           to employees of the Company.

5.       Advisory Services. In consideration of the monetary severance
         payments in Section 4 of this Separation Agreement (other than those
         provided in Sections 4(a) and (c) heretofore earned by him), for a
         period of one year after the Separation Date, Individual agrees to
         make himself available at such times and places as are reasonably
         agreeable to the Parties to provide up to 20 hours per month of
         advisory services to the Company, if and as requested by the Board,
         at no additional charge other than reimbursements for out-of-pocket
         expenses in accordance with policies then generally in effect for the
         Company's employees.

6.       Welfare Benefits. The Company agrees that Individual and his
         dependents shall be permitted to continue to participate (on the same
         basis as an active employee) in any Company-provided life insurance,
         medical, dental or vision plan (or any replacement plans sponsored or
         maintained by the Company or any Subsidiary), as it may be amended or
         modified from time to time, in which Individual or any of his
         eligible dependents participate as of the Separation Date in
         accordance with the terms of such plans for a period of 36 months
         following the Separation Date. To the extent that Individual or
         Individual's dependents are eligible for continuation coverage under
         the Consolidated Omnibus Reconciliation Act of 1985, as amended
         ("COBRA"), Individual acknowledges and agrees that such coverage
         provided by the Company in the preceding sentence shall satisfy any
         and all of the Company's obligations under COBRA to the extent that
         the coverage continues for a period not less than that which would be
         provided by COBRA.

7.       Stock Options. As of the Separation Date, all of Individual's then
         outstanding and unvested stock options, all of which are listed on
         Schedule II hereto, shall become fully vested. Individual may
         exercise those stock options, as well as any and all other of his
         stock options that are outstanding after implementation of Section 10
         of this Separation Agreement and currently vested, at any time on or
         before the date occurring 18 months after the Separation Date, but
         any such stock options not exercised by that date shall terminate and
         be canceled as of that date, and Individual shall no longer have any
         rights with respect to those stock options.

8.       Reimbursements; Allowances.

         (a)      Living and Commuting Expenses. Individual shall be entitled
                  to reimbursement consistent with past practice of
                  automobile, business, living and commuting expenses incurred
                  on or before the Separation Date, in accordance with
                  Sections 4(d)-(f) and 6 of the Employment Agreement.

         (b)      Attorneys' Fees. Individual shall be entitled to
                  reimbursement of the fees and disbursements of his attorney
                  (if any) for review of this Separation Agreement in an
                  amount not to exceed $3,000.

         (c)      Moving Expenses. Individual shall be entitled to a moving
                  allowance in an amount not to exceed $8,000 for relocation
                  of his personal property from Houston, Texas to Greenwich,
                  Connecticut.

         (d)      Rights to Insurance and Indemnification. From and after the
                  Effective Date and to the extent permitted by law, the
                  Company shall cause (i) all rights to indemnification
                  currently existing under the respective certificates of
                  incorporation and bylaws of the Company and its Subsidiaries
                  in favor of Individual with respect to his activities as a
                  director, officer and employee of the Company and its
                  Subsidiaries prior to the Effective Date to continue in full
                  force and effect for a period of six years and (ii)
                  Individual, with respect to his activities as a director,
                  officer and employee of the Company and its Subsidiaries
                  prior to the Effective Date, to be covered for a period of
                  six years from the Effective Date by policies procured by or
                  on behalf of the Company to insure directors and officers
                  against liability to the same extent as the individuals then
                  serving as directors and senior officers of the Company.

9.       Office Space and Support. The Company agrees that Individual shall
         have access, through December 31, 2004, to the office space, parking
         and related administrative support at the office space currently
         provided to him by the Company in Connecticut in accordance with past
         practice and without cost to Individual.

10.      Exercise of Stock Options; Repayment of Loan

         (a)      Option Exercise. Individual, as of the Effective Date, does
                  hereby exercise his stock options granted on July 31, 1997
                  (the "July Options") to purchase 164,363 shares of common
                  stock of the Company in accordance with their terms.

         (b)      Share Sale. Individual does hereby sell to the Company, and
                  the Company does hereby purchase from Individual, as of the
                  Effective Date, 468,452 shares of Company common stock for a
                  price equal to $7.859 per share (or an aggregate of
                  $3,681,564.27, being the "Stock Sale Proceeds"). These
                  shares of common stock do not include any shares acquired by
                  Individual through exercise of the July Options under
                  Section 10(a).

         (c)      Transfer of Funds and Share Certificates. To effect the
                  transactions described in Sections 10(a) and (b):

                  (i)      Individual hereby directs the Company to apply the
                           Net Initial Severance Payment payable to him under
                           Section 4(b)(i) to pay the purchase price for the
                           shares acquired by him pursuant to the exercise of
                           the July Options under Section 10(a). Individual
                           acknowledges receipt of the Net Initial Severance
                           Payment under Section 4(b)(i) through this
                           application, and the Company acknowledges the
                           receipt of an amount equal to the Net Initial
                           Severance Payment in payment for the shares
                           acquired under Section 10(a).

                  (ii)     Individual hereby directs the Company to apply the
                           Stock Sale Proceeds otherwise payable to him
                           pursuant to Section 10(b) to pay the balance of the
                           outstanding loans that the Company has made to him
                           (the "Loans"), first to accrued but unpaid interest
                           and then to principal. Individual acknowledges
                           receipt of the Stock Sale Proceeds pursuant to
                           Section 10(b) through this application, and the
                           Company acknowledges receipt of an amount equal to
                           the Stock Sale Proceeds plus additional cash in the
                           amount of $5,658.10 as payment of the entire
                           balance of principal and interest on the Loans and
                           other amounts outstanding as of the Effective Date,
                           which Loans are hereby acknowledged to be paid in
                           full.

                  (iii)    The Company has delivered to Individual
                           certificates representing the shares issued to him
                           as provided in Section 10(a), and Individual
                           acknowledges receipt of those certificates.
                           Individual has delivered to the Company
                           certificates representing the shares purchased and
                           sold as provided in Section 10(b), duly endorsed to
                           the Company, and the Company acknowledges receipt
                           of those certificates.

11.      Company Property.

         (a)      Return of Company Property. Individual agrees that, as of
                  the Separation Date, Individual will have returned to the
                  Company any physical or personal property that is the
                  property of the Company or any Subsidiary that Individual
                  has in his possession, custody or control, including without
                  limitation (i) all Company files, memoranda, records and
                  other documents in whatever form, and all copies thereof,
                  and all Company badges, keys and credit cards and (ii) the
                  Company's automobile that he has been using.

         (b)      Access to Company Property. For such period of time after
                  the Separation Date as shall be reasonable under the
                  circumstances, the Company shall provide Individual with
                  reasonable access to such files, expense reports, rolodexes
                  and other similar items as Individual may request in
                  connection with his tax and other personal matters.

12.      No Other Payments or Benefits. Individual acknowledges and agrees
         that the amount of money and/or benefits that Individual will receive
         under this Separation Agreement is limited to what is set forth in
         this Separation Agreement. Individual further acknowledges and agrees
         that, unless otherwise expressly set forth in this Separation
         Agreement or required by law and except for such other benefits that
         Individual has accrued as of the Separation Date as a result of his
         participation in any benefit plans of the Company or any of its
         affiliates, as of the Separation Date Individual is no longer
         eligible to participate in and shall not receive any further payments
         or benefits under any stock option, bonus, incentive compensation,
         employment contract, or medical, dental, life insurance, retirement,
         and other compensation or benefit agreements, plans or arrangements
         of the Company.

13.      Complete Release.

         (a)      In General. Individual irrevocably and unconditionally
                  releases, waives and discharges all Claims (as defined in
                  Section 13(b)) that Individual has or may have from the
                  beginning of time through the Effective Date against the
                  Released Parties (as defined herein), except that Individual
                  is not releasing (i) any Claim that relates to Individual's
                  right to enforce this Separation Agreement, (ii) any Claim
                  against any Released Party for the failure of the Company or
                  any of its Subsidiaries to provide to Individual any vested
                  benefits or right under its employee benefit plans (if any)
                  in which Individual is vested or entitled, (iii) any Claim
                  that may arise based on acts or omission after the Effective
                  Date, (iv) any Claim for defense and/or indemnification
                  under the charter or bylaws of the Company or any
                  Subsidiary, any applicable agreement, any other corporate
                  document or any statute, or (v) any defense that may be
                  available to Individual with respect to any claim or cause
                  of action that the Company, any Subsidiary or any other
                  Released Party may hereafter assert against Individual. For
                  purposes of this Separation Agreement, the "Released
                  Parties" are the Company and all Subsidiaries (including
                  corporations, limited liability companies, partnerships, and
                  joint ventures) and, with respect to each of the Company and
                  its Subsidiaries, each of their respective predecessors and
                  successors and (to the extent relating to their positions or
                  activities as such) past and present employees, officers,
                  directors, shareholders, owners, partners, members,
                  representatives, assigns, attorneys, as well as their
                  employee benefit programs (and, in their capacities as such,
                  the trustees, administrators, fiduciaries, and insurers of
                  such programs), and any other persons acting by, through,
                  under or in concert with any of the foregoing identified
                  Released Parties. Individual further agrees that in
                  consideration for the promises and payments received herein,
                  and to effect a full and complete release of all Claims
                  through and including the Separation Date, he will execute
                  without modification or amendment on the Separation Date the
                  Release of Claims attached hereto as Exhibit A.

         (b)      Claims Released. Subject only to the exceptions noted in
                  Section 13(a), INDIVIDUAL IS VOLUNTARILY RELEASING ALL KNOWN
                  AND UNKNOWN, SUSPECTED AND UNSUSPECTED CLAIMS, PROMISES,
                  CAUSES OF ACTION, OR SIMILAR RIGHTS OF ANY TYPE THAT
                  INDIVIDUAL HAS OR MAY HAVE AS OF THE EFFECTIVE DATE WITH
                  RESPECT TO ANY RELEASED PARTY (IN SUCH RELEASED PARTY'S
                  CAPACITY AS SUCH) THAT RELATE TO INDIVIDUAL'S EMPLOYMENT
                  WITH THE COMPANY AND ITS SUBSIDIARIES AND/OR THE TERMINATION
                  THEREOF ("CLAIMS"). Individual understands that the Claims
                  Individual is releasing might arise under general employment
                  policies or agreements between the Company and Individual or
                  under any constitution, law, regulation, or ordinance that
                  may apply, including the United States Constitution, the
                  Texas or other state constitution, federal, state and local
                  statutes, regulations, other administrative guidance, or
                  common law doctrines, such as, but not limited to, the
                  following:

                  Anti-discrimination statutes, such as the Age Discrimination
                  in Employment Act and Executive Order 11,141, which prohibit
                  age discrimination in employment; Title VII of the Civil
                  Rights Act of 1964, as amended by the Civil Rights Act of
                  1991, Section 1981 of the Civil Rights Act of 1866, and
                  Executive Order 11,246, which prohibit discrimination based
                  on race, color, national origin, religion, or sex; the Equal
                  Pay Act of 1963, which prohibits paying men and women
                  unequal pay for the same work; the Americans With
                  Disabilities Act of 1990 and Sections 503 and 504 of the
                  Rehabilitation Act of 1973, which prohibit discrimination
                  based on disability; the Equal Employment Opportunity Act of
                  1972; and any other federal, state, or local laws
                  prohibiting employment discrimination, all as amended.

                  Federal employment statutes, such as the Workers Adjustment
                  and Retraining Notification Act of 1988, which requires that
                  advance notice be given of certain work force reductions;
                  the Employee Retirement Income Security Act of 1974, which,
                  among other things, protects employee benefits; the Fair
                  Labor Standards Act of 1938, as amended, which regulates
                  wage and hour matters; the Family and Medical Leave Act of
                  1993, which requires employers to provide leaves of absence
                  under certain circumstances; the National Labor Relations
                  Act, as amended; and any other federal laws relating to
                  employment, such as veterans' reemployment rights laws, all
                  as amended.

                  Other laws, such as any federal, state, or local human
                  rights, fair employment, and other laws and regulations
                  and/or executive orders prohibiting discrimination on
                  account of age, race, sex, sexual orientation, national
                  origin, religion, handicap, disability, marital status,
                  citizenship, veterans status, or other protected category;
                  any federal, state, or local laws restricting an employer's
                  right to terminate employees, or otherwise regulating
                  employment; any federal, state, or local law enforcing
                  express or implied employment contracts or requiring an
                  employer to deal with employees fairly or in good faith; any
                  other federal, state, or local laws providing recourse for
                  alleged wrongful discharge, breach of contract, tort,
                  physical or personal injury, emotional distress, fraud,
                  negligent misrepresentation, defamation, and similar or
                  related claims.

         (c)      Pursuit of Released Claims. Individual represents that
                  neither Individual nor his heirs, agents, representatives or
                  attorneys have filed or caused to be filed any lawsuit,
                  complaint, or charge with respect to any Claim that
                  Individual is releasing in this Separation Agreement.
                  Individual represents that he has not brought or filed, and
                  to the extent permitted by law will not bring or file, any
                  claim, charge, or action with respect to any Claim against
                  the Released Parties, or any of them, and, except as
                  prohibited by law, agrees not to seek any recovery arising
                  out of, based upon, or relating to matters released
                  hereunder.

         (d)      Non-Admission of Liability. Nothing in this Separation
                  Agreement shall be construed as an admission of liability by
                  the Released Parties; rather, Individual and the Released
                  Parties are resolving all matters arising out of the
                  employer-employee relationship between the Company and its
                  Subsidiaries and Individual, as to each of which the
                  Released Parties each deny any liability.

         (e)      Representations and Agreements of the Company. Individual's
                  agreement to assent to and execute the releases contemplated
                  under this Section 13 and Exhibit A hereto is expressly
                  contingent upon the representation of the Company that,
                  assuming Individual's compliance with the provisions of this
                  Separation Agreement and the accuracy of his representations
                  in this Separation Agreement, as of the Effective Date
                  neither it nor any of its Subsidiaries intends to make any
                  claim or file suit or other action against Individual. The
                  Company agrees, on its own behalf and on behalf of its
                  Subsidiaries, not to make any claim or bring or join any
                  lawsuit against Individual in any court (except as necessary
                  to protect the rights of the Company and the other Released
                  Parties under this Separation Agreement) to the extent that
                  such claim or lawsuit is predicated on matters known at the
                  Effective Date by the Audit Committee or the Nominating,
                  Governance and Compensation Committee of the Board and
                  relating to Individual's employment, membership on the
                  Board, events occurring during Individual's employment or
                  membership on the Board, or the termination of Individual's
                  employment or membership on the Board. The Company
                  represents that, as of the Effective Date, neither it nor
                  any of its Subsidiaries has brought or joined any lawsuit or
                  filed any charge or claim against Individual in any court or
                  before any government agency and has made no assignment of
                  any rights that the Company or any of its Subsidiaries has
                  asserted or may have against Individual to any person or
                  entity. The Company agrees that it will reaffirm the
                  foregoing representations and agreements in this subsection
                  as of the Separation Date.

14.      Non-competition; Confidentiality; Non-solicitation.

         (a)      Non-competition. The Company is engaged in the business of
                  providing equipment, systems and services used in the
                  production of crude oil and natural gas to separate oil, gas
                  and water and to remove contaminants (the "Business") in
                  numerous countries throughout the world. Individual agrees
                  that for the limited and reasonable period of one year after
                  the Separation Date, Individual shall not, directly or
                  indirectly, engage in the Business for his own account, or
                  own or invest in (except through ownership of securities of
                  the Company or less than 5% of the securities of another
                  publicly traded company), manage, join, operate or control,
                  or participate in the ownership, management, operation or
                  control of, or serve as a director, member, officer,
                  employee, partner, consultant or otherwise with, or permit
                  his name to be used by or in connection with, any profit or
                  non-profit business or organization other than the Company
                  engaged in the Business in any country in which the Company
                  or its Subsidiaries have engaged in the Business during the
                  period of Individual's employment with the Company.

         (b)      Intangible and Other Property Rights; Confidentiality.
                  Individual shall continue to remain bound by the provisions
                  of Sections 9 and 10 of the Employment Agreement both before
                  and after the Separation Date.

         (c)      Non-solicitation. For a period of one year after the
                  Separation Date, Individual agrees that Individual will not,
                  directly or indirectly, solicit for employment any person
                  who is, or within the six months preceding the Effective
                  Date was, an officer, manager, employee or consultant of the
                  Company or any of its Subsidiaries, unless such individual's
                  employment or other relationship was terminated by the
                  Company or any of its Subsidiaries, as applicable, before
                  Individual's solicitation.

         (d)      No Disparagement. Each Party agrees that it shall not make
                  any oral or written, public or private, statements that are
                  disparaging of the other Party or (in the case of statements
                  by Individual) of the other Released Parties.

         (e)      Acknowledgments; Injunctive Relief. Each Party hereto
                  acknowledges that (i) the preceding subsections of this
                  Sections 14 are reasonable and necessary to protect the
                  legitimate interests of the Company (in the case of each
                  such subsection) and Individual (in the case of subsection
                  (d)), and (ii) any violation of such subsections of this
                  Section 14 will result in irreparable injury to such Party,
                  the exact amount of which will be difficult to ascertain,
                  and that the remedies at law for any such violation would
                  not be reasonable or adequate compensation to such Party for
                  such a violation. Accordingly, each Party agrees that, if
                  such Party violates the provisions of any such subsection,
                  the other Party shall be entitled, in addition to any other
                  remedy which may be available at law or in equity, to
                  specific performance and injunctive relief without the
                  necessity of proving actual damages or posting a bond.

15.      Additional Promises.

         (a)      Taxes. Individual is responsible for paying any taxes on
                  amounts of compensation or other benefits received by
                  Individual under this Separation Agreement other than any
                  taxes payable by an employer, such as employer's share of
                  FICA and FUTA taxes. Individual agrees that the Company is
                  to withhold all taxes it determines it is legally required
                  to withhold. Individual further agrees not to make any claim
                  against the Company, any Released Party or any other person
                  based on how the Company reports amounts paid under this
                  Separation Agreement to tax authorities (provided that such
                  reporting is consistent with applicable authority) or if an
                  adverse determination by a tax authority is made as to the
                  tax treatment of any amounts payable under this Separation
                  Agreement. In addition, Individual understands and agrees
                  that the Company has no duty to try to prevent such an
                  adverse determination.

         (b)      References. The Company agrees to direct all requests for
                  references concerning Individual to the Company's senior
                  executive responsible for Human Resources, and the Company
                  agrees to use all reasonable efforts to respond to any
                  request for references concerning Individual by stating, in
                  sum and substance, that the Company's policy for former
                  employees is to provide only the hire and termination dates
                  of employment and the final job title, which information
                  shall be provided.

         (c)      Cooperation. Individual agrees that he shall sign any
                  documents reasonably requested by the Company in
                  implementing this Separation Agreement and transitioning his
                  responsibilities to others (provided that no such document
                  would expose Individual to liability or require Individual
                  to surrender any rights) and shall cooperate with the
                  Company in implementing this Separation Agreement and
                  transitioning his responsibilities to others.

16.      Consequences of Violating Separation Agreement.

         (a)      General Consequences. If either Individual or the Company
                  brings a lawsuit or other action against the other for the
                  enforcement of the terms of this Separation Agreement, then
                  the prevailing Party shall be entitled to an award of
                  counsel fees and costs of suit, in addition to any other
                  remedies. If Individual brings an action or lawsuit against
                  the Company (other than with respect to the exceptions noted
                  in Section 13 (a)), then, to the extent permitted by
                  applicable law and ordered by a court or arbitration panel
                  of competent jurisdiction, any award of damages to
                  Individual shall be reduced or offset by any payments or
                  benefits made, granted, or provided by the Company under
                  subsection 4(b) of this Separation Agreement.

         (b)      Challenges to Validity. Individual agrees that, before he
                  may attempt to rescind this Separation Agreement, revoke it
                  as provided in Section 17, or have it declared rescinded or
                  invalid as a whole, he must first to offer to cancel this
                  Separation Agreement by notifying the Company of that offer,
                  which must be accompanied by a certified check, issued by a
                  bank in the United States insured by the Federal Deposit
                  Insurance Corporation, to the Company in an amount equal to
                  all amounts Individual has received in connection with this
                  Separation Agreement, including amounts Individual has
                  directed be applied by the Company to obligations Individual
                  has or has had to the Company. If the Company accepts
                  Individual's offer, the Company may deposit the check in its
                  name and this Separation Agreement will be canceled. If it
                  rejects Individual's offer, the Company will notify
                  Individual and deposit the check in an interest-bearing
                  account pending a determination of the validity or continued
                  enforceability of this Separation Agreement. If it is
                  determined that this Separation Agreement is not invalid or
                  should not be rescinded, the Company will pay Individual the
                  amount in the account, less any amounts Individual owes the
                  Company. If Individual revokes this Separation Agreement as
                  provided in Section 17, or it is determined that this
                  Separation Agreement is invalid or should be rescinded, the
                  Company or its designee is to retain that amount.

17.      Review Period of Separation Agreement. Individual acknowledges that,
         before signing this Separation Agreement, Individual was informed
         that Individual was entitled to a period of at least 21 days in which
         to consider this Separation Agreement. Individual represents that he
         has taken as much of the 21 days as he deemed appropriate to consider
         this Separation Agreement prior to signing this Separation Agreement.
         Individual further acknowledges that: (i) Individual carefully read
         this Separation Agreement; (ii) Individual fully understands it; and
         (iii) Individual is entering into it voluntarily. Individual further
         acknowledges that the Company encouraged him to discuss this
         Separation Agreement with an attorney and financial advisor (for tax
         and accounting advice) before signing it and that Individual did so
         to the extent Individual deemed appropriate. Individual also
         understands that Individual may revoke this Separation Agreement
         within seven days after Individual signs it. Any such revocation must
         be in writing directed to the Chairman of the Board, must
         specifically revoke this Separation Agreement, and must be received
         at the Company's premises no later than 5:00 p.m. on the seventh day
         following the Effective Date. If Individual revokes this Separation
         Agreement, Individual acknowledges and agrees that he will not
         receive the payments and/or benefits that are set forth herein and
         conditioned upon Individual's execution of this Separation Agreement
         and immediately to refund all amounts he has received through that
         time under this Agreement, including all amounts he has directed the
         Company to apply to obligations he has or has had to the Company.

18.      Miscellaneous.

         (a)      Entire Agreement. This Separation Agreement, including the
                  provisions of the Employment Agreement continuing in effect
                  as provided in this Separation Agreement, is the entire
                  agreement between Individual and the Company regarding the
                  matters herein and supersedes all prior or contemporaneous
                  written or oral agreements or understandings.
                  Notwithstanding the foregoing, that certain Registration
                  Rights Agreement dated as of November 18, 1998 among the
                  Company and Capricorn Investors, L.P. and Capricorn
                  Investors II, L.P. and, subject to the express provisions of
                  this Separation Agreement, each outstanding stock option
                  held by Individual shall continue in full force and effect.
                  This Separation Agreement may not be modified or canceled in
                  any manner except by a writing signed by both Individual and
                  the Company. Each Party acknowledges that the other Party
                  has made no representations or promises to such Party, other
                  than those in this Separation Agreement, and that such Party
                  has not relied on any representations or promises in signing
                  this Separation Agreement, other than the representations
                  and promises contained herein.

         (b)      Successors. This Separation Agreement binds the Company and
                  its successors and assigns and Individual and his heirs,
                  administrators, representatives, executors, successors, and
                  assigns, and will inure to the benefit of both Parties and
                  their respective heirs, administrators, representatives,
                  executors, successors and assigns.

         (c)      Interpretation. This Separation Agreement shall be construed
                  as a whole according to its fair meaning. It shall not be
                  construed strictly for or against either Party to this
                  Separation Agreement. Unless the context indicates
                  otherwise, the term "or" shall be deemed to include the term
                  "and" and the singular or plural number shall be deemed to
                  include the other, and references to "Sections" are to
                  Sections of this Separation Agreement. Captions are intended
                  solely for convenience of reference and shall not be used in
                  the interpretation of this Separation Agreement. This
                  Separation Agreement shall be governed by the statutes and
                  common law of the State of Texas, excluding its
                  conflict-of-laws principles and provisions. The Company and
                  Individual agree that they will submit to the personal
                  jurisdiction of any court of competent jurisdiction in the
                  County of Harris, State of Texas, regarding any claim or
                  lawsuit arising out of Individual's employment with the
                  Company, the Claims released in this Separation Agreement,
                  or the interpretation or enforcement of this Separation
                  Agreement, and the Company and Individual further agree that
                  they waive all rights to assert claims of forum non
                  conveniens or other similar claims regarding such
                  jurisdiction.

PLEASE READ THIS AGREEMENT CAREFULLY. THIS SEPARATION AGREEMENT AND GENERAL
RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
                   ---------------------------------------

I HAVE READ THE FOREGOING AGREEMENT AND I ACCEPT AND AGREE TO ITS PROVISIONS
VOLUNTARILY AND WITH FULL UNDERSTANDING OF ITS CONSEQUENCES. FURTHER, I HAVE
BEEN ADVISED TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS AGREEMENT AND
HAVE DONE SO.



<PAGE>


IN WITNESS WHEREOF, the Parties have executed this Separation Agreement as set
forth below as of the date first set forth above.

"Individual"


                                    /s/  Nathaniel A. Gregory
                                    ------------------------------------------
                                    Nathaniel A. Gregory


"Company"                           NATCO Group Inc.


                                    By:  /s/  John U. Clarke
                                       ---------------------------------------
                                                                John U. Clarke
                                            Chairman, Governance, Nominating &
                                                        Compensation Committee



<PAGE>



                                                                     EXHIBIT A
                                                                     ---------

                               RELEASE OF CLAIMS

         This Release of Claims (this "Release") is entered into and effective
as of September 7, 2004, by and between NATCO Group Inc., a Delaware
corporation (the "Company"), and Nathaniel A. Gregory ("Individual").

1.       In General. In consideration for the promises and payments received
in the Separation Agreement, entered into as of July 28, 2004, by and between
the Company and Individual (the "Separation Agreement") , Individual
irrevocably and unconditionally releases, waives and discharges all Claims (as
defined in Section 2 below) that Individual has or may have through September
7, 2004 (the "Separation Date") against the Released Parties (as defined
herein), except that Individual is not releasing (i) any Claim that relates to
Individual's right to enforce this Separation Agreement, (ii) any Claim
against any Released Party for the failure of the Company or any of its
subsidiaries and controlled affiliated entities ("Subsidiaries") to provide to
Individual any vested benefits or right under its employee benefit plans (if
any) in which Individual is vested or entitled, (iii) any Claim that may arise
based on acts or omission after the Separation Date, (iv) any Claim for
defense and/or indemnification under the charter or bylaws of the Company or
any Subsidiary, any applicable agreement, any other corporate document or any
statute, or (v) any defense that may be available to Individual with respect
to any claim or cause of action that the Company, any Subsidiary or any other
Released Party may hereafter assert against Individual. For purposes of this
Release, the "Released Parties" are the Company and all Subsidiaries
(including corporations, limited liability companies, partnerships, and joint
ventures) and, with respect to each of the Company and its Subsidiaries, each
of their respective predecessors and successors and (to the extent relating to
their positions or activities as such) past and present employees, officers,
directors, shareholders, owners, partners, members, representatives, assigns,
attorneys, as well as their employee benefit programs (and, in their
capacities as such, the trustees, administrators, fiduciaries, and insurers of
such programs), and any other persons acting by, through, under or in concert
with any of the foregoing identified Released Parties.

2.       Claims Released. Subject only to the exceptions noted in Section 1,
INDIVIDUAL IS VOLUNTARILY RELEASING ALL KNOWN AND UNKNOWN, SUSPECTED AND
UNSUSPECTED CLAIMS, PROMISES, CAUSES OF ACTION, OR SIMILAR RIGHTS OF ANY TYPE
THAT INDIVIDUAL HAS OR MAY HAVE AS OF THE SEPARATION DATE WITH RESPECT TO ANY
RELEASED PARTY (IN SUCH RELEASED PARTY'S CAPACITY AS SUCH) THAT RELATE TO
INDIVIDUAL'S EMPLOYMENT WITH THE COMPANY AND ITS SUBSIDIARIES AND/OR THE
TERMINATION THEREOF ("CLAIMS"). Individual understands that the Claims
Individual is releasing might arise under general employment policies or
agreements between the Company and Individual or under any constitution, law,
regulation, or ordinance that may apply, including the United States
Constitution, the Texas or other state constitution, federal, state and local
statutes, regulations, other administrative guidance, or common law doctrines,
such as, but not limited to, the following:

         Anti-discrimination statutes, such as the Age Discrimination in
         Employment Act and Executive Order 11,141, which prohibit age
         discrimination in employment; Title VII of the Civil Rights Act of
         1964, as amended by the Civil Rights Act of 1991, Section 1981 of the
         Civil Rights Act of 1866, and Executive Order 11,246, which prohibit
         discrimination based on race, color, national origin, religion, or
         sex; the Equal Pay Act of 1963, which prohibits paying men and women
         unequal pay for the same work; the Americans With Disabilities Act of
         1990 and Sections 503 and 504 of the Rehabilitation Act of 1973,
         which prohibit discrimination based on disability; the Equal
         Employment Opportunity Act of 1972; and any other federal, state, or
         local laws prohibiting employment discrimination, all as amended.

         Federal employment statutes, such as the Workers Adjustment and
         Retraining Notification Act of 1988, which requires that advance
         notice be given of certain work force reductions; the Employee
         Retirement Income Security Act of 1974, which, among other things,
         protects employee benefits; the Fair Labor Standards Act of 1938, as
         amended, which regulates wage and hour matters; the Family and
         Medical Leave Act of 1993, which requires employers to provide leaves
         of absence under certain circumstances; the National Labor Relations
         Act, as amended; and any other federal laws relating to employment,
         such as veterans' reemployment rights laws, all as amended.

         Other laws, such as any federal, state, or local human rights, fair
         employment, and other laws and regulations and/or executive orders
         prohibiting discrimination on account of age, race, sex, sexual
         orientation, national origin, religion, handicap, disability, marital
         status, citizenship, veterans status, or other protected category;
         any federal, state, or local laws restricting an employer's right to
         terminate employees, or otherwise regulating employment; any federal,
         state, or local law enforcing express or implied employment contracts
         or requiring an employer to deal with employees fairly or in good
         faith; any other federal, state, or local laws providing recourse for
         alleged wrongful discharge, breach of contract, tort, physical or
         personal injury, emotional distress, fraud, negligent
         misrepresentation, defamation, and similar or related claims.

3.       Pursuit of Released Claims. Individual represents that neither
Individual nor his heirs, agents, representatives or attorneys have filed or
caused to be filed any lawsuit, complaint, or charge with respect to any Claim
that Individual is releasing in this Release of Claims. Individual represents
that he has not brought or filed, and to the extent permitted by law will not
bring or file, any claim, charge, or action with respect to any Claim against
the Released Parties, or any of them, and, except as prohibited by law, agrees
not to seek any recovery arising out of, based upon, or relating to matters
released hereunder.

4.       Non-Admission of Liability. Nothing in this Agreement shall be
construed as an admission of liability by the Released Parties; rather,
Individual and the Released Parties are resolving all matters arising out of
the employer-employee relationship between the Company and its Subsidiaries
and Individual, as to each of which the Released Parties each deny any
liability.

5.       Representations and Agreements of the Company. Individual's agreement
to assent to and execute this Release is expressly contingent upon the
representation of the Company that, assuming Individual's compliance with the
provisions of the Separation Agreement and this Release and the accuracy of
his representations in the Separation Agreement and this Release, as of the
Separation Date, neither it nor any of its Subsidiaries intends to make any
claim or file suit or other action against Individual. The Company agrees, on
its own behalf and on behalf of its Subsidiaries, not to make any claim or
bring or join any lawsuit against Individual in any court (except as necessary
to protect the rights of the Company and the other Released Parties under this
Release) to the extent that such claim or lawsuit is predicated on matters
known at the Separation Date by the Audit Committee or the Nominating,
Governance and Compensation Committee of the Board and relating to
Individual's employment, membership on the Board, events occurring during
Individual's employment or membership on the Board, or the termination of
Individual's employment or membership on the Board. The Company represents
that, as of the Separation Date, neither it nor any of its Subsidiaries has
brought or joined any lawsuit or filed any charge or claim against Individual
in any court or before any government agency and has made no assignment of any
rights that the Company or any of its Subsidiaries has asserted or may have
against Individual to any person or entity.

IN WITNESS WHEREOF, Individual and the Company have executed this Release as
set forth below as of the date first set forth above.

"Individual"


                                        By:
                                          ------------------------------------
                                          Nathaniel A. Gregory


"Company"                               NATCO Group Inc.


                                        By:
                                           -----------------------------------
                                                                John U. Clarke
                                          Chairman, Governance, Nominating and
                                                        Compensation Committee



</TEXT>
</DOCUMENT>
