Document:

<PAGE>   1
                                                                    EXHIBIT 10.3

                          PENNZOIL-QUAKER STATE COMPANY

            1999 LONG TERM PERFORMANCE INCENTIVE COMPENSATION PROGRAM

                                 March 15, 1999

OVERVIEW

o    The basic concept of the plan design is to target long-term incentive
     values at market (e.g., 50th percentile pay for 50th percentile
     performance, 55th percentile pay for 55th percentile performance, etc.).
     The weighting of compensation delivered under different long-term devices
     for senior management is as follows:

<TABLE>
<CAPTION>
                                                   % OF EXPECTED VALUE DELIVERED
          PLAN ELEMENT                                       BY DEVICE
          ------------                             -----------------------------
<S>                                                <C>
Stock Options                                                   40%
Conditional Stock                                               20%
Long-Term Performance Plan                                      40%

Total                                                          100%
</TABLE>

o    The employees participating in this plan structure for 1999 are the
     Executive Tier, Tiers E-1 through E-7 and Tier X-1.

o    Pennzoil-Quaker State employees below those listed above will continue to
     have the same mix of stock options and conditional stock used in 1998
     (i.e., 70% stock options and 30% conditional stock).

o    The remainder of this report discusses the following aspects of the
     recommended long-term performance plan design:

--       Plan objectives;

--       Basic plan design concept;

--       Eligibility;

--       Performance measurement;

--       Performance standards;

--       Award opportunities;

--       Plan payouts;

<PAGE>   2

--       Retirement/terminations;

--       Tax treatment;

--       Accounting treatment;

--       Plan administration;

--       Plan costs; and

--       Award calculations.

PLAN OBJECTIVES

o    Motivate participants to achieve outstanding company performance relative
     to peers.

o    Enable Pennzoil-Quaker State to attract and retain key employees by having
     this plan serve as part of a competitive total pay package.

o    Be easy to administer.

o    Be reasonable in terms of company cash requirements and overall cost.

o    Provide a tax-effective means for the Company to help participants
     accumulate capital on a tax-deferred basis.

BASIC PLAN DESIGN CONCEPT

o    Under the plan, participants will be provided an opportunity to receive an
     award payment based on Pennzoil-Quaker State's total shareholder return
     relative to industry peers during overlapping 3-year cycles.

o    New performance cycles begin every year following the year the plan is
     established.

o    In addition to the initial and ongoing awards with 3-year cycles, two
     additional awards will be made in 1999. One of the additional awards will
     have a 1-year cycle and the other additional award will have a 2-year
     cycle. The award opportunity for a 1-year cycle award should be one-third
     of the opportunity of a 3-year cycle award, while the award opportunity for
     a 2-year cycle award should be two-thirds of the opportunity of a 3-year
     cycle award. However, the performance measures and standards would be the
     same. The reason for these additional awards is to keep total award
     opportunities, in aggregate, competitive for the next three year period.

o    The recommended performance/payout cycle relationship is shown in Exhibit
     1.

                                       2
<PAGE>   3

                                                                       Exhibit 1

PENNZOIL-QUAKER STATE COMPANY
PERFORMANCE/PAYOUT CYCLE RELATIONSHIP

<TABLE>
<CAPTION>
                1999              2000              2001            2002              2003             2004
                ----              ----              ----            ----              ----             ----
<S>                               <C>               <C>             <C>               <C>              <C>
                ---- X

                ---------------------- X

                ---------------------------------------- X

                                  -------------------------------------- X

                                                    -------------------------------------- X

                                                                    --------------------------------------- X
</TABLE>

X = Award earned at end of year shown

                                       3
<PAGE>   4

ELIGIBILITY

o    Eligibility for the plan will be reviewed and determined annually by
     Pennzoil-Quaker State's CEO and the Compensation Committee of
     Pennzoil-Quaker State's Board.

o    Plan participation will be extended to key executives that can directly
     impact the long-term success of the Company.

o    Based on the Company's business needs and competitive market practices,
     plan eligibility will be limited to executives in Tiers E-1 through E-7,
     and Tier X-1*.

PERFORMANCE MEASUREMENT

o    The recommended plan performance measure is Pennzoil-Quaker State's total
     shareholder return compared to the industry peers listed in Exhibit 2.

o    Total shareholder return will be defined using the same method required in
     the total shareholder return graph of the proxy statement. Specifically,
     $100 invested in Pennzoil-Quaker State stock on the first day of the
     performance cycle, with dividends reinvested, compared to $100 invested in
     each of the peer companies, with dividend reinvestment during the same
     period.

                                       4
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                                                                       Exhibit 2

PENNZOIL-QUAKER STATE COMPANY
LISTING OF PEER COMPANIES CONSIDERED FOR TSR
CALCULATIONS FOR LONG-TERM PERFORMANCE PLAN

    Church & Dwight Inc.                           Newell

    Clorox                                         Oneida LTD

    Colgate Palmolive                              Procter & Gamble

    Dial                                           Ralston Purina Co.

    General Housewares                             Revlon Inc.

    Kimberly-Clark Corp.                           Samsonite Corp.

    Lancaster Colony                               Scotts Company

    Libbey Inc.                                    Sunbeam

                                       5
<PAGE>   6
PERFORMANCE STANDARDS

o    At the start of each new performance cycle, Pennzoil-Quaker State will
     define threshold, target, and maximum performance on the total shareholder
     return objective.

o    The standards shown in the table below will be used for the 1999-2001
     performance cycle and for the 1-year and 2-year cycle awards to be made in
     1999.

<TABLE>
<CAPTION>
                                                                                         PENNZOIL-QUAKER STATE TSR
            PERFORMANCE LEVEL                          DEFINITION                        RANKING RELATIVE TO PEERS*
            -----------------                          ----------                        --------------------------
<S>                                  <C>                                                 <C>
       Maximum                       Outstanding performance                                3rd of 17 (88th %ile)

       Target                        Expected or budgeted performance                       8th of 17 (56th %ile)

       Threshold**                   Minimal acceptable performance for incentive          13th of 17 (25th %ile)
                                     payout
</TABLE>

          *    If mergers/acquisitions result in a reduction in the number of
               peer companies during the cycle, these rankings will be converted
               to equivalent percentiles to calculate awards.

          **   Pennzoil-Quaker State must also achieve a minimum actual total
               shareholder return of 6% per year (averaged over the performance
               cycle) before any payouts may be made under the plan.

                                       6
<PAGE>   7

AWARD OPPORTUNITIES

o    The long-term performance plan award opportunities for the plan eligible
     positions (by performance level) are shown below.

<TABLE>
<CAPTION>
                                                           AWARDS AS % OF BASE SALARY, BY EXECUTIVE TIER*
      CORPORATE                     ----------------------------------------------------------------------------------------------
     PERFORMANCE                    E-7          E-6          E-5           E-4          E-3          E-2          E-1          X1
     -----------                    ---          ---          ---           ---          ---          ---          ---          --
<S>                                 <C>          <C>          <C>           <C>          <C>          <C>           <C>         <C>
     Maximum                        282%         240%         192%          162%         150%         129%          90%         75%

     Target                          94%          80%          64%           54%          50%          43%          30%         25%

     Threshold                       24%          20%          16%           14%          13%          11%           8%          6%

     Below Threshold                  0%           0            0             0            0            0            0           0
</TABLE>

o    These award ranges are for each 3-year performance cycle and assume that a
     new cycle is established each year.

o    Awards for performance between stated levels would be calculated using the
     awards matrix described later in this report.

     *    The long-term performance awards will be calculated using the
          percentages shown in the table and the participant's base salary on
          the last day of the applicable performance cycle. These award levels,
          at target, represent market 55th percentile rates when combined with
          recommended stock option and conditional stock awards.

PLAN PAYOUTS

o    Payouts under the plan will be made as soon as possible after the
     completion of each performance cycle.

o    As a rule, the payouts will be made within three months after the
     completion of the cycle.

o    All awards typically will be paid as one-time lump-sum cash payments with
     taxes withheld at a flat rate of 28%.

o    Payouts under the plan are both savings and investment plan and retirement
     plan eligible.

                                       7
<PAGE>   8
RETIREMENT AND TERMINATIONS

o    To receive an award under the plan, the participant must generally be
     employed on the last day of the performance cycle.

o    Exceptions to this policy will be made for retirement, long-term
     disability, death, or involuntary termination during the cycle for reasons
     other than cause, in which case the award will be prorated to reflect the
     actual months of service during the cycle. Award payouts under these
     exceptions would still be made at the end of the performance cycle.

TAX TREATMENT

o    The employee will have to pay ordinary income tax on all awards when they
     are paid to the participant (not when they are earned).

o    The company will receive a tax deduction in the amount of income realized
     by the participant in the year the award is paid.

ACCOUNTING TREATMENT

o    The Company's projected obligation under the long-term performance cash
     plan will be an expense that will be estimated and accrued periodically on
     its financial statements.

PLAN ADMINISTRATION

o    The plan will be administered by Pennzoil-Quaker State's CEO for all
     positions except his own, in which case the Compensation Committee will
     administer the plan.

o    The Compensation Committee will be responsible for approving award
     opportunities, performance measures, performance standards, and actual
     award payments.

o    Also, any modifications or amendments to the plan will be made at the sole
     discretion of the Compensation Committee.

o    In addition, the company will retain the right to terminate or modify the
     plan at any time. (However, cycles that have already begun are a
     contractual obligation of the company.)

                                       8<PAGE>   1
                                                                   EXHIBIT 10.4

                         NATCO STOCK OPTION ARRANGEMENT

                 THIS STOCK OPTION ARRANGEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                 THIS STOCK OPTION ARRANGEMENT, dated as of this ____ day of
__________, ____, by and between NATCO Group Inc.,a corporation existing under
the laws of the State of Delaware (hereinafter referred to as "NATCO" or,
together with any and all subsidiaries of NATCO, the "Company") and
___________________ (hereinafter referred to as "the Executive").

                              W I T N E S S E T H

                 WHEREAS, the Executive received certain Rights under the 1994
Stock Appreciation Rights Plan (the "Plan") of National Tank Company, Inc., and
under Section 10(B) of the Plan, such Rights have been cancelled and, as
contemplated in this Stock Option Agreement, replaced by Options with terms and
conditions which, as closely as possible, produce the same overall economic
result to the Executive as the cancelled Rights;

                 and WHEREAS, in order to provide the Executive with an
incentive to devote his best skills and efforts to the success of NATCO, the
Company deems it to be in its best interests to provide the Executive with
Options to purchase shares of NATCO;

                 NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:

                 1.       OPTIONS.

                 (a)      Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase __________
shares of common stock of NATCO at a purchase price of $____ per share (the
"Options").

                 (b)      If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization.  Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.

                                      1

<PAGE>   2
                 (c)      If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend.  Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.

                 2.       OPTION PERIOD.

                 Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").

                 3.       METHOD OF EXERCISE.

                 (a)      The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.

                 (b)      The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.

                 (c)      The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.

                 4.       STOCKHOLDERS AGREEMENT.

                 In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.

                                       2
<PAGE>   3
                 5.       TERMINATION OF OPTIONS.

                 (a)      The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:

                          (1)     the termination of the Executive's employment
         with the Company for Cause;

                          (2)     thirty (30) days after the termination of the
         Executive's employment with the Company for any reason other than
         Cause;

                          (3)     thirty (30) days after an Alteration in the
         employment of the Executive by the Company;

                          (4)     expiration of the Option Period as provided
         in Section 2 of this Stock Option Agreement.

                 (b)      The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that  would  result  in  the  termination  of   the Executive's
Options pursuant to this Section 5(b).

                 6.       VESTING.

                 (a)      Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over _____ years, with _________ (______%) vesting at the
end of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year.  The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.

                 (b)      Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:

                          (1)     Upon notice by the Company of termination of
         the Options pursuant to Section 5(b).  Notwithstanding anything herein
         to the contrary, however, termination of the Options pursuant to
         Section 5(b) shall not result in the vesting of otherwise unvested
         Options if the Company in the case of a Change of Control, or the
         surviving corporation in the case of a merger, or any purchasing
         corporation in the case of a sale of all or substantially all of the
         assets of the Company, agrees to provide the Executive with a
         combination of options, deferred compensation, bonuses or other
         incentive programs, with terms and conditions which, as closely as
         possible, produce the same overall economic result to the Executive as
         the terminated but unvested Options;

                          (2)     The Company does not terminate the Options
         pursuant to Section 5(b), but a Change of Control has occurred and
         there is an Alteration in the employment of

                                       3
<PAGE>   4
         the Executive.  Notwithstanding anything herein to the contrary,
         however, an Alteration shall not be deemed to have occurred in
         connection with a Change of Control for purposes of this Paragraph
         6(b) if (i) the Company, in the case of a Change of Control, or the
         surviving corporation in the case of a merger, or the purchasing
         corporation in the case of a sale of all or substantially all the
         assets of the Company, agrees to employ the Executive on terms
         substantially similar to the terms of Executive's employment with the
         Company prior to such Change of Control (or as otherwise agreed by
         such entity and the Executive), or (ii) the Alteration was for Cause.

                 (c)      The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.

                 7.       PURCHASE OF VESTED OPTIONS BY THE COMPANY.

                 (a)      The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):

                          (1)     for a period of thirty (30) days after the
         termination of the Executive's employment with the Company for any
         reason other than Cause;

                          (2)     for a period of thirty (30) days after an
         Alteration in the employment of the Executive;

                          (3)     for a period of thirty (30) days after notice
         provided by the Company that the Options will be terminated pursuant
         to Section 5(b) herein; and

                           (4)    for a period of six (6) months prior to the
         Expiration Date.

                 (b)       The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092.  The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.

                 (c)      NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash.  The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).

                                       4
<PAGE>   5
                 (d)      At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.

                 (e)      For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:

                          (1)     if the stock is listed or admitted to trade
         on a national securities exchange, the average price of the stock over
         the last ten trading days on the composite tape of the principal
         national securities exchange on which the stock is so listed or
         admitted to trade;

                          (2)     if the stock is not listed or admitted to
         trade on a national securities exchange, the mean between the last
         reported bid and asked price for the stock over the last ten trading
         days as furnished by (a) the National Association of Securities
         Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
         longer reporting such information, or (b) a service such as the
         national Quotation Bureau if such bid and asked price is regularly
         quoted therein; or

                          (3)     if conditions (1) and (2) do not apply, the
         Fair Market Value of the Company's Common Stock shall mean the value
         established by the Committee.  To the extent possible, in determining
         such value, the Committee shall analyze present value of projected
         cash flow, multiples in relation to comparable companies (reflecting
         such liquidity discounts as are appropriate), and other such
         methodologies as are typical in valuing private companies.

                 (f)      The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.

                 (g)      Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues.  Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.

                 (h)      Anything herein to the contrary notwithstanding, at
such time as the shares of Class A common stock of the Company are listed on a
national securities exchange, all the provisions of this Article 7 shall become
null and void and shall cease to have any force or effect.

                 8.       NON-TRANSFERABILITY OF OPTIONS.

                 The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate.  If the Executive's estate exercises the

                                       5
<PAGE>   6
Options, the estate shall be bound by all conditions, restrictions, and
limitations that otherwise would have applied to the Executive had the
Executive exercised the Options.

                 9.       NO RIGHTS AS STOCKHOLDER.

                 The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such shares of common stock have been purchased by the
Executive in accordance with the terms and conditions of this Stock Option
Agreement.

                 10.      RIGHT TO TERMINATE EMPLOYMENT.

                 Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.

                 11.      NO RIGHTS AS SECURED CREDITOR.

                 Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.

                 12.      REPRESENTATION AS TO INVESTMENT.

                 The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution.  The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect.  The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.

                                       6
<PAGE>   7
                 13.      NOTICE.

                 All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

                 If to the Executive, to him at:
                 _______________________________
                 _______________________________

                 If to NATCO, to it at:
                 NATCO Group Inc.
                 Brookhollow Central III
                 2950 North Loop West, Suite 750
                 Houston, Texas 77092
                 Attention:  President

                 With a copy to:
                 Vinson & Elkins
                 1001 Fannin, Suite 3619
                 Houston, Texas 77002-6760
                 Attention:  Mr. William E. Joor

or to such other address as either party shall have furnished to the other in
writing in accordance herewith.  Notices and communications hereunder shall be
effective when actually received by the addressee.

                 14.      AMENDMENT.

                 This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.

                 15.      HEADINGS.

                 The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.

                 16.      GOVERNING LAW.

                 This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.

                                       7
<PAGE>   8
                 17.      INTERPRETATION OF THE AGREEMENT.

                 (a)      Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company.  The determinations of the Committee shall be conclusive.

                 (b)      No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement.  The Company hereby agrees to indemnify each
member of the Committee to the extent permitted by applicable law and the
By-laws of the Company for all costs, charges, expenses, liabilities and losses
incurred or arising in connection with the member's actions in interpreting
this Option Agreement.

                 (c)      The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.

                 18.      DEFINITIONS.

                 "Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.

                 "Alteration" in the employment of the Executive means,
following a Change of Control,  (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.

                 "Award Date" means ___________________.

                 "Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.

                 "Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.

                 "Expiration Date" means ___________________.

                 "Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.

                                       8
<PAGE>   9
                 "Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.

                 "Vested Options" means Options which are vested as provided in
Section 6(a), 6 (b) or 6(c).

                 In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.

NATCO GROUP INC.

By /s/                                 /s/
  ------------------------------        --------------------------------
Name: Nathaniel A. Gregory
     ---------------------------        --------------------------------
Title: Chairman of the Board and
       Chief Executive Officer
      --------------------------

                                       9

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