______________________________________________________________________________
______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 23, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 1-8544
AMERICAN PRESIDENT COMPANIES, LTD.
(Exact name of registrant as specified in its charter)
Delaware 94-2911022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Broadway
Oakland, California 94607
(Address of principal executive offices)
Registrant's telephone number: (510) 272-8000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 21, 1994
____________________________ _______________________________
Common Stock, $.01 par value 27,302,492
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
AMERICAN PRESIDENT COMPANIES, LTD.
<TABLE>
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page
_____________________
Item 1. Consolidated Financial Statements
<S> <C>
Statement of Income 3
Balance Sheet 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 14-23
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 24-25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
The consolidated financial statements presented herein include the
accounts of American President Companies, Ltd. and its wholly-owned
subsidiaries (the "company") and have been prepared by the company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The company believes that the disclosures are adequate to make
the information presented not misleading, although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the company's results of operations, financial position and
cash flows. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 1-8544).
<PAGE>
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
<CAPTION>
_______________________________________________________________________________________________
(In thousands, except Quarter Ended 38 Weeks Ended
per share amounts) September 23 September 17 September 23 September 17
1994 1993 1994 1993
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
REVENUES $ 672,121 $ 625,409 $ 2,028,777 $ 1,840,241
_______________________________________________________________________________________________
EXPENSES
Operating, Net of Operating-
Differential Subsidy 593,717 537,076 1,806,775 1,618,631
General and Administrative 16,769 13,623 55,804 40,645
Depreciation and Amortization 24,459 25,349 77,294 80,050
_______________________________________________________________________________________________
Total Expenses 634,945 576,048 1,939,873 1,739,326
_______________________________________________________________________________________________
OPERATING INCOME 37,176 49,361 88,904 100,915
OTHER INCOME (EXPENSE)
Interest Income 3,746 648 9,807 2,846
Interest Expense (6,839) (3,537) (20,584) (13,271)
Gain on Sale of Investment 8,934
_______________________________________________________________________________________________
Income Before Taxes 34,083 46,472 78,127 99,424
Federal, State and
Foreign Tax Expense 11,520 20,938 26,407 40,530
_______________________________________________________________________________________________
NET INCOME $ 22,563 $ 25,534 $ 51,720 $ 58,894
_______________________________________________________________________________________________
Less Dividends on
Preferred Stock 1,688 1,688 5,063 5,063
NET INCOME APPLICABLE TO
COMMON STOCK $ 20,875 $ 23,846 $ 46,657 $ 53,831
_______________________________________________________________________________________________
_______________________________________________________________________________________________
EARNINGS PER COMMON SHARE
_______________________________________________________________________________________________
Primary Earnings
Per Common Share $ 0.74 $ 0.85 $ 1.64 $ 1.95
_______________________________________________________________________________________________
Fully Diluted Earnings
Per Common Share $ 0.70 $ 0.80 $ 1.60 $ 1.86
_______________________________________________________________________________________________
DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.075 $ 0.30 $ 0.225
_______________________________________________________________________________________________
_______________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED BALANCE SHEET (Unaudited)
<CAPTION>
________________________________________________________________________________________________
(In thousands, except share amounts) September 23 December 31
1994 1993
________________________________________________________________________________________________
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 44,049 $ 84,053
Short-Term Investments 197,902
Trade and Other Receivables 269,981 271,053
Fuel and Operating Supplies 38,898 35,354
Prepaid Expenses and Other 49,561 48,378
________________________________________________________________________________________________
Total Current Assets 600,391 438,838
________________________________________________________________________________________________
PROPERTY AND EQUIPMENT
Ships 678,105 676,854
Containers, Chassis and Rail Cars 764,904 750,557
Leasehold Improvements and Other 257,831 249,636
Construction in Progress 95,717 74,138
________________________________________________________________________________________________
1,796,557 1,751,185
Accumulated Depreciation and Amortization (874,964) (825,003)
________________________________________________________________________________________________
Property and Equipment, Net 921,593 926,182
________________________________________________________________________________________________
INVESTMENTS AND OTHER ASSETS 121,800 89,357
________________________________________________________________________________________________
Total Assets $ 1,643,784 $ 1,454,377
________________________________________________________________________________________________
________________________________________________________________________________________________
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt
and Capital Leases $ 4,746 $ 4,395
Accounts Payable and Accrued Liabilities 404,417 383,029
________________________________________________________________________________________________
Total Current Liabilities 409,163 387,424
________________________________________________________________________________________________
DEFERRED INCOME TAXES 134,805 130,228
________________________________________________________________________________________________
OTHER LIABILITIES 113,905 118,966
________________________________________________________________________________________________
LONG-TERM DEBT 378,135 250,610
CAPITAL LEASE OBLIGATIONS 13,733 16,696
________________________________________________________________________________________________
Total Long-Term Debt and Capital Lease Obligations 391,868 267,306
________________________________________________________________________________________________
COMMITMENTS AND CONTINGENCIES
________________________________________________________________________________________________
REDEEMABLE PREFERRED STOCK, $.01 Par Value,
Stated at $50.00, Authorized-2,000,000
Shares Series C, Shares Issued and Outstanding-
1,500,000 in 1993 and 1992 75,000 75,000
________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
27,291,000 in 1994 and 26,837,000 in 1993 27,291 26,837
Additional Paid-In Capital 66,569 61,656
Retained Earnings 425,183 386,960
________________________________________________________________________________________________
Total Stockholders' Equity 519,043 475,453
________________________________________________________________________________________________
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $ 1,643,784 $ 1,454,377
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
<PAGE>
See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<CAPTION>
________________________________________________________________________________________________
(In thousands) 38 Weeks Ended
September 23 September 17
1994 1993
________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 51,720 $ 58,894
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 77,294 80,050
Deferred Income Taxes 8,248 13,379
Change in Receivables 8,542 (42,436)
Issuance of Notes Receivable on Sales of Real Estate (7,470) (3,015)
Change in Fuel and Operating Supplies (3,544) (5,396)
Change in Prepaid Expenses and Other Current Assets (4,854) 1,917
Gain on Sale of Assets (2,280) (13,977)
Change in Accounts Payable and Accrued Liabilities 25,292 36,039
Other 1,600 12,950
________________________________________________________________________________________________
Net Cash Provided by Operating Activities 154,548 138,405
________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (78,568) (113,466)
Proceeds from Sales of Property and Equipment 4,227 3,968
Proceeds from Sale of Long-Term Investment 11,310
Purchase of Short-Term Investments (291,951)
Proceeds from Sales of Short-Term Investments 94,049 38,846
Transfers from Capital Construction Fund 8,843
Deposit to Capital Construction Fund (36,860) (6,140)
Other (2,342) 1,313
________________________________________________________________________________________________
Net Cash Used in Investing Activities (311,445) (55,326)
________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Debt 147,348 419,506
Repayments of Debt (19,881) (462,331)
Repayments of Capital Lease Obligations (2,680) (112,678)
Dividends Paid (13,231) (11,026)
Other 5,101 7,676
________________________________________________________________________________________________
Net Cash Provided by (Used in)
Financing Activities 116,657 (158,853)
________________________________________________________________________________________________
Effect of Exchange Rate Changes on Cash 236 (1,895)
________________________________________________________________________________________________
NET DECREASE IN CASH AND CASH EQUIVALENTS (40,004) (77,669)
________________________________________________________________________________________________
Cash and Cash Equivalents at Beginning of Period 84,053 92,835
________________________________________________________________________________________________
Cash and Cash Equivalents at End of Period $ 44,049 $ 15,166
________________________________________________________________________________________________
________________________________________________________________________________________________
SUPPLEMENTAL DATA:
________________________________________________________________________________________________
CASH PAID FOR:
Interest $ 16,638 $ 22,050
Income Taxes, Net of Refunds $ 11,953 $ 13,789
________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Significant Accounting Policies
Capitalized Interest
For the third quarter and the three quarters ending September 23,
1994, the company capitalized interest of $1.5 million and $4.4 million,
respectively, related to cash expenditures for the construction of the C11-
class and K10-class vessels. For the third quarter and the three quarters
ending September 17, 1993, the company capitalized interest of $0.5 million
and $0.6 million, respectively, related to cash expenditures for the
construction of the C11-class vessels.
Income Taxes
The company's estimated effective income tax rate for 1994 is 34%,
compared with 41% in 1993. The 1994 effective tax rate includes the effect of
revisions of prior years' estimated tax liabilities. The 1993 effective tax
rate includes an adjustment of $3.2 million to reflect the effect of an
increase in the maximum corporate federal income tax rate to 35%.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
Note 2. United States Maritime Administration Agreements
Operating-Differential Subsidy Agreement
The company and the United States Maritime Administration ("MarAd")
are parties to an Operating-Differential Subsidy ("ODS") agreement expiring
December 31, 1997, which provides for payment by the U.S. government to
partially compensate the company for the relatively greater expense of vessel
operation under United States registry. For the quarters ending September 23,
1994 and September 17, 1993, subsidy was $13.9 million and $14.7 million,
respectively, and for the three quarters ending September 23, 1994 and
September 17, 1993, subsidy was $43.9 million and $45.3 million, respectively,
and has been included as a reduction of operating expenses. The ODS agreement
also requires the company to replace the capacity of its existing vessels as
they reach the end of their statutory lives if a construction differential
subsidy, provided by the U.S. government, is made available. This subsidy has
not been made available since 1981.
In June 1992, the Bush Administration announced that no new ODS
agreements would be entered into and existing ODS agreements would be allowed
to expire. The Clinton Administration and Congress have been reviewing U.S.
maritime policy. In March 1994, the Clinton Administration's maritime support
proposal was sent to Congress, and introduced in the U.S. House of
Representatives as H.R. 4003 and in the Senate as S. 1945. The House approved
H.R. 4003, which would have provided subsidies for approximately 52 U.S.-flag
vessels over the next ten years, or an annual subsidy of $2.1 million per
vessel for vessels enrolled in the program. However, Congress adjourned
without enacting this legislation. In October 1994, President Clinton issued
a statement that his Administration would work with the Congress to enact
maritime support legislation in 1995. The
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. United States Maritime Administration Agreements (continued)
Operating-Differential Subsidy Agreement (continued)
company is not able to predict whether or when maritime support legislation
will be enacted or what terms such legislation may have, if enacted.
While the company continues to encourage efforts to enact maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, in July 1993, the company filed
applications with MarAd to operate under foreign flag its six C11-class
containerships, presently under construction, and to transfer to foreign flag
seven of the 15 U.S.-flag containerships in its trans-Pacific fleet. On
October 13, 1994, the company requested that MarAd act by November 1, 1994 on
the company's request for authority to operate its C11-class vessels under
foreign flag. MarAd action on both applications is still pending, and while
no assurances can be given as to whether the authority will be granted, the
company expects to receive a response from MarAd within the next few months.
Management of the company believes that, in the absence of ODS or an
equivalent government support program, it will be generally no longer
commercially viable to own or operate containerships in foreign trade under
the U.S. flag after the expiration of its ODS agreement because of the higher
labor costs and the more restrictive design, maintenance and operating
standards applicable to U.S.-flag liner vessels. The company continues to
evaluate its strategic alternatives in light of the pending expiration of its
ODS agreement and the uncertainties as to whether a new U.S. government
maritime support program acceptable to the company will be enacted, whether
sufficient labor efficiencies can be achieved through the collective
bargaining process, and whether the company's applications to flag its vessels
under foreign registry will be approved. While no assurances can be given,
management of the company believes that it will be able to structure its
operations to enable it to continue to operate on a competitive basis without
direct U.S. government support.
Capital Construction Fund
The company also has an agreement with MarAd pursuant to which the
company has established a Capital Construction Fund ("CCF") to which the
company makes contributions to provide funding for certain U.S.-built assets
and for the repayment of certain vessel acquisition debt. In September 1994,
the company made a deposit of $36.9 million to its CCF. Also in September
1994, the company sold an undivided interest in $40 million of its trade
accounts receivable to its CCF for $36.9 million in cash. At September 23,
1994 the CCF's $36.9 million investment in the company's trade accounts
receivable, net of an unamortized discount of $3.1 million, is included in
Investments and Other Assets on the accompanying Consolidated Balance Sheet.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 23, 1994 and
December 31, 1993, were as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
(In thousands) September 23 December 31
1994 1993
________________________________________________________________________________________________
<S> <C> <C>
Accounts Payable $ 59,394 $ 39,101
Accrued Liabilities 256,832 271,477
Current Portion of Accrued Claims 23,100 11,500
Income Taxes Payable 7,757 1,551
Unearned Revenue 57,334 59,400
________________________________________________________________________________________________
Total Accounts Payable and Accrued Liabilities $ 404,417 $ 383,029
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
Note 4. Long-Term Debt
Long-Term Debt at September 23, 1994 and December 31, 1993 consisted
of the following:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
(In thousands) September 23 December 31
1994 1993
________________________________________________________________________________________________
8% Senior Debentures $150 million Face Amount
<S> <C> <C>
Due on January 15, 2024 (1) $ 147,138
7 1/8% Senior Notes $150 million Face Amount
Due on November 15, 2003 (1) 148,024 $ 147,915
Series I 8% Vessel Mortgage Bonds
Due Through 1997(2) 61,941 81,000
8% Refunding Revenue Bonds Due on November 1, 2009 12,000 12,000
Refunding Revenue Bonds, at Various Rates Not to
Exceed 12%, Due on November 1, 2009 6,495 6,495
Note Payable at 9% Due Through 1997 2,841 3,577
Notes Payable at Prime plus 1% 572 616
Note Payable at 10% Due Through 1998 185
________________________________________________________________________________________________
Total Debt 379,196 251,603
Current Portion (1,061) (993)
________________________________________________________________________________________________
Long-Term Debt $ 378,135 $ 250,610
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) In November 1993, the company filed a shelf registration statement
covering the issuance from time to time of up to $400 million of debt
securities of varying terms and amounts. Pursuant to this registration
statement, in November 1993, the company issued 7 1/8% Senior Notes with
a face amount of $150 million. The unamortized discount was $2.0
million and $2.1 million at September 23, 1994 and December 31, 1993,
respectively. The effective interest rate of this debt is 7.325%, and
interest payments are due semiannually. Also pursuant to this
registration statement, in January 1994, the company issued 8% Senior
Debentures with a face amount of $150 million. These senior debentures
had an unamortized discount of $2.9 million at September 23, 1994. The
effective interest rate on this debt is 8.172%, and interest payments
are due semiannually.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
(2) Principal payments are due in equal semiannual installments. The
company has the option to issue Series II Bonds due sequentially in
semiannual payments at the end of the term of the Series I Bonds in lieu
of up to five cash payments, which it has not exercised. Principal
payments are classified as long-term debt on the basis that the company
issues Series II Bonds totaling $23.8 million per year in lieu of the
next five semiannual cash payments.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
As an alternative to borrowing under its credit agreement, the company
has an option under that agreement to sell up to $150 million of certain
accounts receivable to the banks. This alternative is subject to less
restrictive financial covenants than the borrowing option.
Note 5. Stockholders' Equity
Earnings Per Common Share
For the periods presented, primary earnings per share were computed by
dividing net income, reduced by the amount of the preferred stock dividends,
by the weighted average number of common shares and common equivalent shares
outstanding. Fully diluted earnings per share were computed based on the
assumption that the Series C Preferred Stock was converted. The number of
shares used in these computations were as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________________
Weighted Average Number of Common Shares
________________________________________________________________________________________________
(In millions) Quarter Ended 38 Weeks Ended
September 23 September 17 September 23 September 17
1994 1993 1994 1993
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Primary 28.3 27.9 28.4 27.6
Fully Diluted 32.3 31.9 32.3 31.7
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
Cash Dividends
On October 7, 1994, the Board of Directors declared a quarterly cash
dividend of $0.10 per share of common stock, payable on November 30, 1994 to
common stockholders of record on November 15, 1994. The Board of Directors
also declared a cash dividend of $1.125 on the 9% Series C Cumulative
Convertible Preferred Stock, payable on December 15, 1994 to preferred
stockholders of record on December 1, 1994.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. Stockholders' Equity (continued)
Stock Incentive Plans
At the 1994 Annual Meeting of Stockholders on April 28, 1994, the
company received stockholder approval to increase the number of shares of
common stock reserved for issuance under the 1989 Stock Incentive Plan by
2,000,000 shares. Pursuant to the 1989 Stock Incentive Plan, the company
granted options to acquire 1,238,908 shares to 380 key employees of the
company on April 28, 1994. These options have an exercise price of $22.38 and
vest between 1995 and 2002 based upon the achievement of stock price
appreciation targets. The percentage of the options that vest during
specified time periods will depend on the amount of stock price appreciation
in those time periods. After five years, the options will vest as to 60% of
the covered shares if not otherwise vested, and after nine years, the options
will vest as to the remaining 40% if not otherwise vested. These options
expire in July 2003.
In addition, pursuant to the 1992 Directors Stock Option Plan, the
company granted options to acquire 32,000 shares to eight non-employee
directors of the company on April 29, 1994. These options have an exercise
price of $20.625 and become exercisable in three equal installments on the
anniversaries of the date of grant, and expire in April 2004.
Note 6. Commitments and Contingencies
Commitments
In May 1993, the company entered into contracts for the construction
and purchase of six new C11-class containerships from Howaldtswerke-Deutsche
Werft AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $535 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and aggregate
progress payments of $14 million were made to HDW during the first three
quarters of 1994. The remaining progress payments are due in installments of
$17 million and $20 million in 1994 and 1995, respectively, and the final 80%
is due upon delivery of the vessels in 1995. In March 1994, the company
entered into a loan agreement with European banks to finance approximately
$400 million of the purchase price of the six C11-class vessels. Principal
payments on any draw-downs would be due in semiannual installments over a 12-
year period commencing six months after the delivery of each vessel. Interest
rates would be based upon various margins over LIBOR or the banks' cost of
funds as elected by the company. The remaining costs of these vessels are
expected to be financed with a portion of the net proceeds from the company's
November 1993 and January 1994 public debt offerings and with cash from
operations.
In connection with the construction and purchase of the ships from
HDW, the company entered into foreign currency contracts to buy Deutsche marks
in the future to lock in the U.S. dollar cost of the Deutsche-mark denominated
price of the vessels. Any gains or losses on these contracts will be deferred
and recognized as an adjustment to the cost basis of the ships when the
related payments are made. At September 23, 1994, the company had contracts
to purchase $227.7 million in Deutsche marks.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
In December 1993, the company entered into contracts with Daewoo for
the construction and purchase of three diesel-powered K10-class containerships
to be delivered in 1996. The total estimated project cost for construction of
these vessels is $194 million. A progress payment of $18 million was made to
Daewoo in 1993. The remaining progress payments are due in two $18 million
installments in 1995 and 70% upon delivery of the vessels in 1996. The
remaining costs of these vessels are expected to be financed with a portion of
the net proceeds from the company's November 1993 and January 1994 public debt
offerings and cash from operations. The alliance agreements with MOL, NLL and
OOCL described below may impact the deployment and/or the ultimate ownership
of the K10-class vessels.
At September 23, 1994, the company had outstanding purchase
commitments to acquire facilities, equipment and services totaling $63
million. In addition, the company has commitments to purchase terminal
services for its major Asian operations. These commitments range from one to
ten years, and the amounts of the commitments under these contracts are based
upon the actual services performed. At September 23, 1994, the company had
outstanding letters of credit totaling $10.5 million, which guarantee the
company's performance under certain of its commitments.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
In June 1994, the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6.3
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12.4 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $37.7 million in the 29th and
30th years, also depending upon the final scope of development and consumer
price index increases.
The company and Orient Overseas Container Line, a Hong Kong shipping
company ("OOCL"), are parties to agreements enabling them to exchange vessel
space and coordinate vessel sailings through 2005. Currently, each party is
guaranteed vessel space and buys extra space as needed. Since December 1993,
the company has been required to purchase additional vessel space from OOCL
and to compensate OOCL for this space at a rate currently calculated at $6.6
million per year, accrued ratably over each year. This commitment reduces as
the company increases the capacity it can exchange with OOCL, which is
expected to begin with the delivery of the company's C11-class vessels in
1995.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
On April 26, 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. Each party is committed to
purchase a minimum amount of vessel space at contract rates and may buy
available extra space as needed. The company's minimum space purchase
commitment exceeds that of TMM by approximately $5.3 million per year.
On September 5, 1994, the company, Mitsui OSK Lines, Ltd. ("MOL"), and
OOCL signed an agreement to exchange vessel space, coordinate vessel sailings
and cooperate in the use of port terminals and equipment for ocean
transportation services in the Asia-U.S. West Coast trade. The carriers
currently expect to commence service under this agreement in late 1995 or
early 1996. The three carriers and Nedlloyd Lines B.V. ("NLL") signed a
separate agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment in the Asia-U.S. East
Coast trade via Panama. The four carriers currently expect to initiate a
weekly, all-water service under this agreement in April 1995. Both agreements
are subject to government approvals in the U.S. and Japan.
Additionally, on September 22, 1994, the four carriers and CGM Orient,
S.A. ("CGM") and Malaysian International Shipping Corporation BHD ("MISC")
signed an agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment for ocean transportation
services in the Northern Europe-Far East trade. On October 27, 1994, CGM
announced its withdrawal from this trade, and MISC and NLL have agreed to
assume its rights and obligations under the agreement. The carriers currently
expect to commence service under the agreement in January 1996. Prior to the
commencement of this alliance, the company will enter the Northern Europe-Far
East trade by chartering vessel space from MOL.
The company's net commitment under the alliance agreements depends
upon pending U.S. government approvals and final vessel space allocation.
The company has entered into employment agreements with certain of its
executive officers. The agreements provide for certain payments to each
officer upon termination of employment, other than as a result of death,
disability in most cases, or justified cause, as defined. The aggregate
estimated commitment under these agreements was $15.9 million at September 23,
1994.
Contingencies
The company is a party to various legal proceedings, claims and
assessments arising in the course of its business activities. Based upon
information presently available, and in light of legal and other defenses and
insurance coverage and other potential sources of payment available to the
company, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse
impact on the company's consolidated financial position or operations.
<PAGE>
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
Note 7. Business Segment Information
<CAPTION>
________________________________________________________________________________________________
(In millions) Quarter Ended 38 Weeks Ended
September 23 September 23 September 23 September 23
1994 1993 1994 1993
________________________________________________________________________________________________
Revenues
<S> <C> <C> <C> <C>
Transportation $ 672.1 $ 623.3 $ 2,012.6 $ 1,831.8
Real Estate 2.1 16.2 8.5
________________________________________________________________________________________________
Total Revenues $ 672.1 $ 625.4 $ 2,028.8 $ 1,840.3
________________________________________________________________________________________________
Operating Income
Transportation $ 37.2 $ 48.3 $ 79.9 $ 96.3
Real Estate 1.0 9.0 4.6
________________________________________________________________________________________________
Total Operating Income $ 37.2 $ 49.3 $ 88.9 $ 100.9
________________________________________________________________________________________________
</TABLE>
<PAGE>
American President Companies, Ltd. and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Third Quarter Year to Date
(In millions) 1994 1993 Change 1994 1993 Change
_______________________________________________________________________________________________
REVENUES
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
International Transportation $ 498 $ 475 5% $ 1,468 $ 1,379 6%
North America Transportation 174 148 18% 545 452 20%
Real Estate 2 (100%) 16 9 90%
_______________________________________________________________________________________________
OPERATING INCOME
Transportation $ 37 $ 48 (23%) $ 80 $ 96 (17%)
Real Estate 1 (100%) 9 5 94%
_______________________________________________________________________________________________
_______________________________________________________________________________________________
</TABLE>
Transportation operating income declined in the third quarter and
first three quarters of 1994 from the third quarter and first three quarters
of 1993, primarily due to increases in certain operating costs, and increased
expenditures of $5 million in the third quarter of 1994 and $19 million in the
first three quarters of 1994 on corporate initiatives to improve the company's
financial and order cycle processes. These cost increases were partially
offset by increased stacktrain volumes and revenue per forty-foot equivalent
unit ("FEU") in the company's North America business and volume improvements
in the company's U.S. import business. Additionally, in the third quarter of
1994, U.S. export volumes declined due to the company's loss of its position
as primary carrier of military cargo, which it held from June 1993 through May
1994, partially offset by higher export revenue per FEU in the third quarter.
The company completed the sales of its remaining real estate holdings
in the second quarter of 1994. In the first three quarters of 1994 real
estate sales contributed $9 million to operating income compared with $5
million in the first three quarters of 1993, $1 million of which was in the
third quarter of 1993.
<TABLE>
INTERNATIONAL TRANSPORTATION (1)
(Volumes in thousands of FEUs)
<CAPTION>
Third Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Import
<S> <C> <C> <C> <C> <C> <C>
Volumes 56.3 53.1 6% 158.5 152.3 4%
Average Revenue per FEU $ 4,178 $ 4,187 0% $ 4,121 $ 4,125 0%
________________________________________________________________________________________________
Export
Volumes 35.5 37.2 (5%) 114.6 109.6 5%
Average Revenue per FEU $ 3,324 $ 3,204 4% $ 3,174 $ 3,285 (3%)
________________________________________________________________________________________________
Intra-Asia
Volumes 40.6 40.2 1% 134.0 122.2 10%
Average Revenue per FEU $ 1,849 $ 1,857 0% $ 1,883 $ 1,871 1%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) Volumes and revenue per FEU data are based upon shipments originating
during the period, which differs from the percentage-of-completion
method which is used for financial reporting purposes.
The company's U.S. import volumes increased in the third quarter and
first three quarters of 1994 compared with the same periods in 1993 primarily
due to service enhancements in the People's Republic of China in 1994, and
increased demand in this market resulting from improved U.S. economic
conditions in the third quarter of 1994. Volumes of U.S. export cargo
<PAGE>
declined in the third quarter of 1994 compared with the third quarter of 1993
due to the loss of the company's position as preferred carrier of military dry
cargo in June 1994. The company's position as preferred carrier for U.S.
military cargo from June 1993 to May 1994 contributed to increased export
volumes for the first three quarters of 1994 compared with the same period in
1993. The company's intra-Asia volumes increased marginally in the third
quarter of 1994 compared with last year's third quarter due to increased
shipments of refrigerated cargo, partially offset by lower volumes of
commercial dry cargo. Intra-Asia volumes for the first three quarters of 1994
increased compared with the first three quarters of 1993 as a result of the
company's expanded service to and from China and the growing economies in
Southeast and West Asia and the Middle East in 1994. Additionally,
refrigerated cargo volumes in this market have grown substantially since last
year.
Average revenue per FEU for the company's U.S. import shipments was
relatively unchanged in the third quarter and first three quarters of 1994,
compared with the same periods in 1993, as competitive pressures in this
market have continued to hold import rates down. Average revenue per FEU in
the company's U.S. export market increased in the third quarter of 1994,
compared with last year's third quarter due to a greater proportion of higher-
rated refrigerated cargo in this market and less lower-rated military dry
cargo. For the first three quarters of 1994, average revenue per FEU in the
company's U.S. export market were lower than for the 1993 period due to
reduced rates in the first half of the year resulting from weak market
conditions and increased competition. Average revenue per FEU in the
company's intra-Asia market was relatively unchanged in the third quarter of
1994 compared with last year's third quarter as volumes of lower-rated
commercial dry cargo from the Middle East were offset by increased volumes of
refrigerated cargo. Average revenue per FEU in the company's intra-Asia
market increased slightly in the first three quarters of 1994 compared with
the first three quarters of 1993, primarily attributable to an increase in
higher-rated commercial refrigerated cargo, partially offset by competitive
rate pressures.
Utilization of the company's containership capacity in the first three
quarters of 1994 was 89% and 95% for import and export shipments,
respectively, compared with 89% and 91%, respectively, in the first three
quarters of 1993. Import capacity in the first three quarters of 1994 was
increased by additional vessel space purchased from Orient Overseas Container
Line ("OOCL") since December 1993. The increase in vessel utilization in the
company's U.S. export market in the first three quarters of 1994 resulted
primarily from higher volumes of export cargo carried by the company.
Accounts receivable from shippers in the People's Republic of China
increased 80% between year end 1993 and the end of the third quarter of 1994,
and represented approximately 18% of the company's outstanding receivables at
September 23, 1994, compared with approximately 12% at December 31, 1993.
This increase is related in part to a significant increase in revenues from
the People's Republic of China. In addition, the company and other ocean
carriers engage agents in the People's Republic of China to book cargo and
collect from shippers and, due to local practices, collections of accounts
receivable by the agents and remittances to carriers have not been made on a
timely basis. The company believes that as of September 23, 1994 it has
adequately accrued for expected uncollectible accounts receivable, but no
assurances can be given to that effect. Additionally, the company is working
with other carriers in this trade to change the local practices to accelerate
agents' collections from the customers and remittances to the carriers.
<PAGE>
The company expects continuing competitive pressures on the company's
U.S. import and intra-Asia rates at least for the balance of the year. The
fact that the company is no longer the primary trans-Pacific carrier for
military dry cargo as it had been from June 1993 through May 1994, will
continue to impact U.S. export volumes. Operating costs are expected to be
adversely affected by the continued weakness of the U.S. dollar against the
Japanese yen, and relatively higher fuel costs.
The company and OOCL, a Hong Kong shipping company, are parties to
agreements enabling them to exchange vessel space and coordinate vessel
sailings through 2005. The agreements permit both companies to offer faster
transit times, more frequent sailings between key markets in Asia and the U.S.
West Coast, and to share terminals and several feeder operations within Asia.
Under the slot-sharing agreement, the company and OOCL have designated a
combined total of approximately 7,000 FEUs per week in the eastbound direction
and 5,400 FEUs per week in the westbound direction to be allocated to each
company based upon proportions specified in the agreement. Since December
1993, the company has been required to purchase additional vessel space from
OOCL for approximately $7 million annually, accrued ratably over each year.
This commitment reduces as the company increases the capacity it can exchange
with OOCL, which is expected to begin with the delivery of the company's C11-
class vessels in 1995.
In April 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. The company will charter
from TMM between 200 and 240 FEUs per week in the eastbound direction, and 115
FEUs per week in the westbound direction. Each party is committed to purchase
a minimum amount of vessel space at contract rates and may buy available extra
space as needed. The company's minimum space purchase commitment exceeds that
of TMM by approximately $5 million per year.
On September 5, 1994, the company, Mitsui OSK Lines, Ltd. ("MOL"), and
OOCL signed an agreement to exchange vessel space, coordinate vessel sailings
and cooperate in the use of port terminals and equipment for ocean
transportation services in the Asia-U.S. West Coast trade. The carriers
currently expect to commence service under this agreement in late 1995 or
early 1996. The three carriers and Nedlloyd Lines B.V. ("NLL") signed a
separate agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment in the Asia-U.S. East
Coast trade via Panama. The four carriers currently expect to initiate a
weekly, all-water service under this agreement in April 1995. Both agreements
are subject to government approvals in the U.S. and Japan.
Additionally, on September 22, 1994, the four carriers and CGM Orient,
S.A. ("CGM") and Malaysian International Shipping Corporation BHD ("MISC")
signed an agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment for ocean transportation
services in the Northern Europe-Far East trade. On October 27, 1994, CGM
announced its withdrawal from this trade, and MISC and NLL have agreed to
assume its rights and obligations under the agreement. The carriers currently
expect to commence service under the agreement in January 1996. Prior to the
commencement of this alliance, the company will enter the Northern Europe-Far
East trade by chartering vessel space from MOL.
The company's net commitment under the alliance agreements depends
upon pending U.S. government approvals and final vessel space allocation.
<PAGE>
The company is party to an Operating-Differential Subsidy ("ODS")
agreement with the U.S. government, expiring on December 31, 1997, which
provides for payment by the U.S. government to partially compensate the
company for the relatively greater expense of vessel operation under U.S.
registry. ODS payments to the company were approximately $44 million and $45
million in the first three quarters of 1994 and 1993, respectively, and
totaled $65 million in 1993.
In June 1992, the Bush Administration announced that no new ODS
agreements would be entered into and existing ODS agreements would be allowed
to expire. The Clinton Administration and Congress have been reviewing U.S.
maritime policy. In March 1994, the Clinton Administration's maritime support
proposal was sent to Congress, and introduced in the U.S. House of
Representatives as H.R. 4003 and in the Senate as S. 1945. The House approved
H.R. 4003, which would have provided subsidies for approximately 52 U.S.-flag
vessels over the next ten years, or an annual subsidy of $2.1 million per
vessel for vessels enrolled in the program. However, Congress adjourned
without enacting this legislation. In October 1994, President Clinton issued
a statement that his Administration would work with the Congress to enact
maritime support legislation in 1995. The company is not able to predict
whether or when maritime support legislation will be enacted or what terms
such legislation may have, if enacted.
While the company continues to encourage efforts to enact maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, in July 1993, the company filed
applications with the United States Maritime Administration ("MarAd") to
operate under foreign flag its six C11-class containerships, presently under
construction, and to transfer to foreign flag seven of the 15 U.S.-flag
containerships in its trans-Pacific fleet. On October 13, 1994, the company
requested that MarAd act by November 1, 1994 on the company's request for
authority to operate its C11-class vessels under foreign flag. MarAd action
on both applications is still pending, and while no assurances can be given as
to whether the authority will be granted, the company expects to receive a
response from MarAd within the next few months.
Management of the company believes that, in the absence of ODS or an
equivalent government support program, it will be generally no longer
commercially viable to own or operate containerships in foreign trade under
the U.S. flag after the expiration of its ODS agreement because of the higher
labor costs and the more restrictive design, maintenance and operating
standards applicable to U.S.-flag liner vessels. The company continues to
evaluate its strategic alternatives in light of the pending expiration of its
ODS agreement and the uncertainties as to whether a new U.S. government
maritime support program acceptable to the company will be enacted, whether
sufficient labor efficiencies can be achieved through the collective
bargaining process, and whether the company's applications to flag its vessels
under foreign registry will be approved. While no assurances can be given,
management of the company believes that it will be able to structure its
operations to enable it to continue to operate on a competitive basis without
direct U.S. government support.
<PAGE>
<TABLE>
NORTH AMERICA TRANSPORTATION (1)
(Volumes in thousands of FEUs)
<CAPTION>
Third Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Revenues (2) (In millions)
<S> <C> <c. <C> <C> <C> <C>
Stacktrain $ 125 $ 103 21% $ 385 $ 311 24%
Non-Stacktrain 49 45 11% 160 141 14%
________________________________________________________________________________________________
Stacktrain Volumes
North America 93.1 79.8 17% 286.8 237.4 21%
International 48.6 46.4 5% 143.2 138.0 4%
________________________________________________________________________________________________
Stacktrain Average
Revenue per FEU (2) $ 1,338 $ 1,291 4% $ 1,342 $ 1,312 2%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) Volumes and revenue per FEU data are based upon shipments originating
during the period, which differs from the percentage-of-completion
method which is used for financial reporting purposes.
(2) In addition to domestic third party business, the transportation of
containers for the company's international customers is a significant
component of the company's stacktrain operations. The effect of these
shipments on domestic operations is eliminated in consolidation and
therefore excluded above in Revenues and Stacktrain Average Revenue per
FEU.
Revenues from the company's North America transportation operations
increased in the third quarter and first three quarters of 1994 compared with
the same periods in 1993, primarily as a result of higher North America
stacktrain volumes. The increase in stacktrain volumes in the 1994 periods
was due to the improvement in the U.S. economy, increases in Mexican and
Canadian shipments, particularly automotive shipments between the U.S. and
Mexico, and competitor equipment shortages. The company added 1,000
containers to its fleet during the first quarter of 1994, which enabled it to
meet increasing demand. Stacktrain average revenue per FEU increased in the
third quarter and first three quarters of 1994 compared with the same periods
in 1993 due to an improvement in cargo mix and increased rates in certain
stacktrain markets in the 1994 periods. The company's North America non-
stacktrain revenues also improved in the third quarter and first three
quarters of 1994 compared with the same periods in 1993, primarily due to
increased volumes resulting from an improved U.S. economy.
During the remainder of 1994, the company intends to continue to add
to its fleet of containers, chassis and rail cars via short- and long-term
operating leases and purchases in anticipation of growth in demand in the
North America stacktrain market. There can be no assurances, however, that
such demand will materialize.
<PAGE>
<TABLE>
TRANSPORTATION OPERATING EXPENSES
<CAPTION>
(In millions, except Third Quarter Year to Date
Operating Cost per FEU) 1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Land Transportation $ 237 $ 217 9% $ 733 $ 649 13%
Cargo Handling 136 123 10% 401 368 9%
Vessel, Net 84 72 17% 246 214 15%
Transportation Equipment 48 43 12% 146 131 12%
Information Systems 11 11 0% 36 34 6%
Other 78 70 12% 238 219 9%
________________________________________________________________________________________________
Total $ 594 $ 536 11% $ 1,800 $ 1,615 11%
________________________________________________________________________________________________
Operating Cost per FEU (1) $ 2,633 $ 2,550 3% $ 2,594 $ 2,599 0%
Percentage of Transportation
Revenues 88% 86% 89% 88%
________________________________________________________________________________________________
________________________________________________________________________________________________
</TABLE>
(1) Operating expenses used in this calculation include costs associated
with certain International and North America revenues that are not
volume related.
Land transportation expenses increased in the third quarter and first
three quarters of 1994 from the 1993 periods, due to the increases in North
America stacktrain volumes in the 1994 periods. The increases in cargo
handling expenses in the 1994 periods compared with the 1993 periods are
attributable to increased stevedoring costs, which were impacted by higher
labor rates in Asia and handling of increased cargo to and from China, West
Asia and Southeast Asia. Additionally, for the first three quarters of 1994,
cargo handling expenses were impacted by labor contract rate increases in the
U.S. These increases were partially offset by a favorable land rent
settlement in Taiwan in the third quarter of 1994. Vessel expenses increased
in the third quarter of 1994 compared with last year's third quarter due to an
increase in fuel cost from an average of $13.06 per barrel in the third
quarter of 1993 to $16.55 per barrel in this year's third quarter. Vessel
expenses were also impacted in the third quarter and first three quarters of
1994 by increased charter hire activity resulting from expanded service to
China, an increase in Latin American activity and additional vessel space
purchased from OOCL and TMM. Transportation equipment costs increased in the
1994 periods compared with the 1993 periods due to the addition of 1,000
leased containers during the first quarter of 1994 for use in North America
stacktrain operations, and increased repair and maintenance costs.
Information services costs were unchanged for the third quarter of 1994
compared to the same quarter last year, but increased for the year-to-date
period due to software purchases in the first quarter of 1994. Other
operating expenses increased in the 1994 periods compared with the 1993
periods primarily due to higher employee costs, particularly in Asia, and the
fact that 1993 expense amounts are net of a $3 million gain on the sale of a
vessel.
Certain of the company's collective bargaining agreements covering
shipboard and shoreside employees in the U.S. expired in June 1994.
Negotiations with all but one of the respective unions have resulted in new
agreements expiring in June 1995 or December 1997. Negotiations with the
remaining union have resulted in a framework agreement, which, if concluded,
would expire in June 1998. It is currently anticipated that negotiation of
the remaining provisions of this agreement will be concluded within the next
few months, although no assurances can be given to that effect.
General and administrative expenses increased 23% and 37% in the third
quarter and first three quarters of 1994 compared with the 1993 periods,
primarily due to increased expenditures of $5 million and $19 million in the
third quarter and first three quarters of 1994, respectively, on corporate
initiatives to improve the company's financial and order cycle processes.
Total spending on corporate initiatives is expected to be approximately $30
<PAGE>
million in 1994. Expenditures on corporate initiatives are expected to
continue in 1995 and 1996. The company currently anticipates that, during
1995 and 1996, between 550 and 900 positions will be eliminated as a result of
order cycle process changes, and approximately 50 positions will be eliminated
as a result of financial process changes. The actual number of position
reductions, however, will not be finally determined until design and
implementation of the new processes in 1995 and 1996. The company also
expects to eliminate its administrative offices in Hong Kong by the second
quarter of 1995, and to combine certain functions with those performed in
Oakland. An evaluation of this consolidation is currently underway to
determine which positions will be eliminated or relocated. Costs associated
with eliminating or relocating these positions cannot yet be estimated.
Depreciation and amortization expense decreased 4% and 3% in the third
quarter and first three quarters of 1994 compared with the third quarter and
first three quarters of 1993, respectively, primarily due to certain equipment
reaching the end of its depreciable life during 1993. Net interest expense
increased from $2.9 million in the third quarter of 1993 to $3.1 million in
the third quarter of 1994. Interest expense from the Senior Notes and
Debentures issued in the fourth quarter of 1993 and the first quarter of 1994,
respectively, was partially offset by increased interest income in 1994 due to
higher cash balances and higher interest rates. Net interest expense was
$10.8 million for the first three quarters of 1994 compared with $10.4 million
in the first three quarters of 1993, as the increase in interest income in
1994 nearly offset the increase in interest expense.
The company's estimated effective income tax rate for 1994 is 34%,
compared with 41% in 1993. The 1994 effective tax rate includes the effect of
revisions of prior years' estimated tax liabilities. The 1993 effective tax
rate includes an adjustment of $3.2 million to reflect the effect of an
increase in the maximum corporate federal income tax rate to 35%.
<PAGE>
<TABLE>
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
<CAPTION>
____________________________________________________________________________________________
September 23 December 31
As of: 1994 1993
____________________________________________________________________________________________
Cash, Cash Equivalents and
<S> <C> <C>
Short-Term Investments $ 242 $ 84
Working Capital 191 51
Total Assets 1,644 1,454
Long-Term Debt and Capital
Lease Obligations (1) 397 272
____________________________________________________________________________________________
September 23 September 17
For the quarter ending: 1994 1993
____________________________________________________________________________________________
Cash Provided by Operations $ 155 $ 138
____________________________________________________________________________________________
NET CAPITAL EXPENDITURES
Ships $ 19 $ 75
Containers, Chassis and Rail Cars 34 25
Leasehold Improvements and Other 26 13
____________________________________________________________________________________________
Total $ 79 $ 113
____________________________________________________________________________________________
INVESTING ACTIVITIES
Deposits to Capital Construction Fund $ (37) $ (6)
Proceeds from Sale of Long-term
Investment 11
____________________________________________________________________________________________
FINANCING ACTIVITIES
Borrowings $ 147 $ 420
Repayment of Debt and Capital Leases (23) (575)
Dividend Payments (13) (11)
____________________________________________________________________________________________
____________________________________________________________________________________________
</TABLE>
(1) Includes current and long-term portions.
In January 1994, the company issued $150 million 30-year Senior
Debentures at an effective interest rate of 8.2%, the net proceeds from which
were $147 million. The net proceeds from the issuance of this debt, combined
with a portion of the net proceeds from the 10-year Senior Note offering of
$150 million in November 1993, will be used to finance vessel purchases, other
capital expenditures and for general corporate purposes.
In September 1994, the company made a deposit of $37 million to its
Capital Construction Fund ("CCF"). Also in September 1994, the company sold
an undivided interest in $40 million of its trade accounts receivable to its
CCF for $37 million in cash.
In the first quarter of 1993, the company used $131 million cash and
borrowings under its previous revolving credit agreement to purchase leased
ships, repay the related capital lease obligations and to retire $95 million
of 11% public notes. Also in the first half of 1993, the company sold its
investment in Amtech Corporation, the proceeds from which were $11 million,
resulting in a pretax contribution of $9 million.
In 1993, the company began a fleet modernization program pursuant to
which it has placed orders for the construction of six new C11-class
containerships ("C11s") and three new Kl0-class containerships ("K10s") for an
aggregate cost of approximately $729 million. OOCL has placed orders to
purchase six vessels similar in size and speed to the company's C11s. The
company's C11s and OOCL's similar vessels will be delivered in 1995 and 1996.
The company and OOCL have agreed to initially operate these vessels under
their existing trans-Pacific coordinated sailing and slot-sharing agreements,
and after January 1, 1996, under their Asia-U.S. West Coast alliance agreement
with MOL. The company's deployments will require U.S. government approval,
and no assurances can be given as to whether approval will be granted. The
<PAGE>
deployment of the 12 new C11-type vessels by the company and OOCL, replacing
16 older vessels, will increase the combined trans-Pacific capacity of the
company and OOCL by approximately 15%. The company expects growth in demand
in the trans-Pacific market and believes that the increase in combined
capacity will be sufficient to permit the company and OOCL to maintain their
combined relative market share in that market. However, other competing ocean
carriers have also placed orders for the construction of new vessels, and no
assurances can be given with respect to anticipated growth in demand,
utilization of the increased capacity or the potential negative impact of the
increased capacity on rates.
The company's K10s, in combination with capacity from its six C11s,
were ordered to replace four L9-class vessels chartered by the company for use
in its West Asia/Middle East service. Delivery of the K10s is scheduled for
1996, which is when the charters of the L9s will expire. The alliance
agreements with MOL, NLL and OOCL may impact the deployment and/or the
ultimate ownership of the K10s. Deployment of the company's K10s may also be
subject to U.S. government approval.
The C11-class vessels are being constructed by Howaldtswerke-Deutsche
Werft AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $535 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and aggregate
progress payments of $14 million were made to HDW in the first three quarters
of 1994. The remaining progress payments are due in installments of $17
million and $20 million in 1994 and 1995, respectively, and the final 80% is
due upon delivery of the vessels in 1995. In March 1994, the company entered
into a loan agreement with European banks to finance approximately $400
million of the purchase price of the six C11-class vessels. Principal
payments on any draw-downs would be due in semiannual installments over a 12
year period commencing six months after the delivery of each vessel. Interest
rates would be based upon various margins over LIBOR or the banks' cost of
funds as elected by the company. The remaining costs of these vessels are
expected to be financed with a portion of the net proceeds from the company's
November 1993 and January 1994 public debt offerings and with cash from
operations.
The K10s are being constructed by Daewoo. The total estimated project
cost for construction of these vessels is $194 million. A progress payment of
$18 million was made to Daewoo in 1993. The remaining progress payments are
due in two $18 million installments in 1995 and 70% upon delivery of the
vessels in 1996. The costs of these vessels are expected to be financed with
a portion of the net proceeds from the company's November 1993 and January
1994 public debt offerings and with cash from operations.
Other than vessel progress payments, the company's capital
expenditures in the third quarter and first three quarters of 1994 were
primarily for purchases of containers, chassis, leasehold improvements and an
office in Mexico. In the third quarter and first three quarters of 1993,
capital expenditures were for the buy-out of certain vessel capital leases,
purchases of refrigerated containers, replacement of transportation equipment
and the expansion of facilities in key markets.
<PAGE>
Capital expenditures in 1994 are expected to total approximately $160
million, including $31 million for vessel progress payments. The remaining
planned 1994 capital expenditures are for purchases of refrigerated
containers, chassis, terminal improvements in North America and Asia, and
computer systems, and will be financed with cash from operations, financing
arrangements and the net proceeds from the company's November 1993 and January
1994 public debt offerings. At September 23, 1994, the company had
outstanding purchase commitments to acquire facilities, equipment and services
totaling $63 million, including a commitment of approximately $29 million for
railcars that are in the process of being leased.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
In June 1994 the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $38 million in the 29th and 30th
years, also depending upon the final scope of development and consumer price
index increases.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The company is a party to various pending legal proceedings, claims
and assessments arising in the course of its business activities, including
actions relating to trade practices, personal injury or property damage,
alleged breaches of contracts, torts, labor matters, employment practices, tax
matters and miscellaneous other matters. Some of these proceedings involve
claims for punitive damages, in addition to other specific relief.
Among these actions are approximately 1,300 cases pending against the
company, together with numerous other ship owners and equipment manufacturers,
involving injuries or illnesses allegedly caused by exposure to asbestos or
other toxic substances on ships. In one case, Miller, Administrator of Estate
of Moline vs. American Mail Line, et. al., U.S. District Court, Northern
District of Ohio, C86-821, a judgment was entered in May 1991 awarding
punitive damages of $50,000 per named defendant, along with compensatory
damages aggregating $166,000. In March 1993, the U.S. Court of Appeals for
the Sixth Circuit vacated the punitive damages award, holding that punitive
damages are not available in a general maritime law unseaworthiness action for
wrongful death of a seaman, remanded the case for consideration of defendants'
claims for indemnity and contribution, and otherwise affirmed the judgment of
the District Court. The plaintiff filed a petition for certiorari with the
U.S. Supreme Court in August 1993. The Court refused review of the case
without comment on October 12, 1993.
The company insures its potential liability for bodily injury to
seamen through mutual insurance associations. Industry-wide resolution of
asbestos-related claims at significantly higher than expected amounts could
result in additional contributions to those associations.
In December 1989, the government of Guam filed a complaint with the
Federal Maritime Commission ("FMC") alleging that American President Lines,
Ltd. and an unrelated company charged excessive rates for carrying cargo
between the U.S. and Guam, in violation of the Shipping Act, 1916 and the
Intercoastal Shipping Act of 1933, and seeking an undetermined amount of
reparations. Three private shippers are also complainants in this proceeding.
Evidentiary hearings are continuing and a decision by the FMC is not expected
until 1995.
In March 1992, in connection with the same matter, the government of
Guam and four private shippers filed a class action complaint in the United
States District Court, District of Columbia, based on the same allegations,
seeking an undetermined amount of damages on behalf of all shippers of cargo
to and from Guam on the company's vessels and the vessels of the other named
defendant. In January 1993, the class action complaint was dismissed. In
July 1994, the decision of dismissal was affirmed by the U.S. Court of Appeals
for the Circuit of the District of Columbia. That dismissal has become final.
<PAGE>
On April 28, 1994, a lawsuit, Hockert Pressman & Flohr Money Purchase
Plan, et. al. vs. American President Companies, Ltd., et. al., was filed
against the company and certain of its officers in United States District
Court for the Northern District of California. The suit alleges that the
company and certain officers made false and misleading statements about the
company's operating and financial performance in violation of federal
securities laws, and seeks unspecified damages on behalf of a purported class
of stockholders who purchased shares of the company's common stock during the
period October 7, 1993 through March 30, 1994. The company believes that it
has meritorious defenses and intends to defend itself vigorously against this
lawsuit.
Based upon information presently available, and in light of legal and
other defenses and insurance coverage and other potential sources of payment
available to the company, management does not expect the legal proceedings
described, individually or in the aggregate, to have a material adverse impact
on the company's consolidated financial position or operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following document is an exhibit to this Form 10-Q:
Exhibit
No. Description of Document
_______ _______________________
10.1 Employment Agreement between the company and Timothy J. Rhein dated
July 28, 1992.
10.2 Employment Agreement between the company and Joji Hayashi dated July
28, 1992.
10.3 Employment Agreement between the company and James S. Marston dated
July 28, 1992.
10.4 Employment Agreement between the company and John G. Burgess dated
July 28, 1992.
10.5 Employment Agreement between the company and Michael Diaz dated July
28, 1992.
27 Financial Data Schedules filed under Article 5 of Regulation S-X for
the third quarter of 1994 Form 10-Q.
(b) Reports on Form 8-K
No current report on Form 8-K was filed during the quarter for which
this report on Form 10-Q is filed.
<PAGE>
American President Companies, Ltd. and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN PRESIDENT COMPANIES, LTD.
Dated: November 4, 1994 By /s/ William J. Stuebgen
________________________ _________________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer
--
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 28th day of July, 1992, by
and between TIMOTHY J. RHEIN (the "Employee") and AMERICAN PRESIDENT
COMPANIES, LTD., a Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company is the parent corporation in a group of
affiliated corporations (the "Affiliated Group") which consists of the
Company and all of its direct or indirect subsidiaries;
Whereas the parties entered into employment agreements as of
August 24, 1983, March 15, 1988, and July 30, 1991, securing the
services of the Employee for the benefit of the Affiliated Group;
Whereas the parties wish to continue the services of the Employee
for the benefit of the Affiliated Group upon the terms and conditions
set forth below; and
Whereas the parties wish to have this Agreement supersede all
prior employment agreements between the Employee and any member of the
Affiliated Group;
N o w, T h e r e f o r e, in consideration of the mutual
covenants herein contained, the parties agree as follows:
1. Term of Employment.
(a) Basic Rule. The Company agrees to cause the Employee's
employment with the Affiliated Group to continue, and the Employee
agrees to remain in employment with the Affiliated Group, from the date
hereof until the earlier of (i) the first day of the month coinciding
with or next following the Employee's 65th birthday (the "Normal
Retirement Date") or (ii) the date when the Employee's employment
terminates pursuant to Subsections (b), (c) or (d) below. In no event
shall a transfer (whether voluntary or involuntary) of the Employee from
one member of the Affiliated Group to another member be treated as a
termination of employment for any purpose under this Agreement.
(b) Early Termination. Subject to Sections 6 and 7, the Company
may terminate the Employee's employment with the Affiliated Group by
giving the Employee 30 days' advance notice in writing. The Employee
may terminate his employment with the Affiliated Group by giving the
Company 30 days' advance notice in writing. The Employee's employment
shall terminate automatically in the event of his death. Any waiver of
notice shall be valid only if it is made in writing and expressly refers
to the applicable notice requirement of this Section 1.
(c) Cause. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate at any time
for Cause by giving the Employee written notice. For all purposes under
this Agreement, "Cause" shall mean (i) a willful failure by the Employee
to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to
physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially
injurious to a member of the Affiliated Group. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in such member's best interest.
(d) Disability. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate for
Disability by giving the Employee 30 days' advance notice in writing.
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to carry out any
of his duties under this Agreement for a period of not less than six
consecutive months as the result of his incapacity due to physical or
mental illness. In the event that the Employee resumes the performance
of his duties hereunder on a full-time basis before the termination of
his employment under this Subsection (d) becomes effective, the notice
of termination shall automatically be deemed to have been revoked.
(e) Termination of Agreement. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Employee shall hold the position of President
and Chief Executive Officer of APL Land Transport Services, Inc. or such
other position or positions with any member of the Affiliated Group as
the Company may from time to time assign to him.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time
to the Affiliated Group and shall not render services to any other
person or entity without the prior written consent of the Company's
Chief Executive Officer. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities
under this Agreement.
3. Base Compensation.
During the term of his employment under this Agreement, the
Employee shall receive as compensation for his services a base salary at
the annual rate of $365,040, or at such higher rate as the Company may
determine from time to time. Such salary shall be payable in
approximately equal biweekly installments. Once the Company has
increased such salary, it thereafter shall not be reduced. (The annual
compensation specified in this Section 3, together with any increases in
such compensation which the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
4. Employee Benefits.
During the term of his employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Company, including
(without limitation) pension plans, thrift or profit-sharing plans,
excess-benefit plans, stock purchase, stock option, restricted stock or
phantom stock plans, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid vacations and
similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and
to the determinations of any committee administering such plan or
program; provided, however, that the Employee's rights with respect to
severance pay upon termination of employment shall be governed
exclusively by this Agreement, and the Employee shall not be eligible to
participate in any severance plan maintained by the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Employee shall be reimbursed for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Change in Control.
(a) Definition. For all purposes under this Agreement, "Change
in Control" shall mean the occurrence of any of the following events:
(i) A change in control required to be reported pursuant
to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934 (the "Exchange Act");
(ii) A change in the composition of the Company's Board
of Directors, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of the Company 24 months prior to such change or (B)
were elected, or nominated for election, to the Company's Board
of Directors with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(iii) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative
beneficial ownership of securities of any person resulting solely
from a reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
(b) Severance Payment. If, (i) during the term of this
Agreement and at any time after the occurrence of a Change in Control, a
member of the Affiliated Group terminates the Employee's employment for
any reason or no reason, or (ii) during the term of this Agreement and
within one year after a Change in Control, the Employee resigns as a
result of a material change in his responsibilities or the relocation of
his place of employment by more than 20 miles from Oakland, California,
or (iii) during the term of this Agreement and within the 30-day period
commencing one year after the occurrence of a Change in Control, the
Employee resigns his employment for any reason, then the Employee shall
be entitled to receive a severance payment from the Company (the
"Severance Payment"). The Severance Payment shall be made in a lump sum
not less than 31 days nor more than 60 days following the date of the
employment termination and shall be in an amount determined under
Subsection (c) below. The Severance Payment shall be in lieu of any
further payments to the Employee and any further accrual of benefits
under Sections 3 and 4 with respect to periods subsequent to the date of
the employment termination and any termination benefits under Section 7.
The foregoing notwithstanding, the Employee may elect to receive, in
lieu of the Severance Payment, all of the termination benefits described
in Section 7, as if his resignation or termination as provided in this
Subsection (b) were a termination without Cause; provided, however, that
in the event of the Employee's resignation as provided in Clause (iii)
of this Subsection (b), the Continuation Period to be counted as
employment shall be determined by substituting "24 months after the date
of such employment termination" for Clause (i) of Subsection 7(a). The
Employee shall advise the Company of his election in writing within 30
days after his resignation or after receiving the Company's notice of
termination.
(c) Amount. The amount of the Severance Payment shall be equal
to the product of the following:
(i) 147.5 percent of the Employee's monthly rate of Base
Compensation, as in effect on the date of the employment
termination; times
(ii) The lesser of (A) 36 months or (B) the number of
months between the date of the employment termination and the
Employee's Normal Retirement Date; provided, however, that in the
event of the Employee's resignation as provided in Clause (iii)
of Subsection (b) above, the amount of the Severance Payment
shall be determined by substituting "24 months" for Clause (A).
For this purpose, a partial month shall be counted as the
appropriate fraction of a full month.
(d) Incentive Programs. If, during the term of this Agreement,
a Change in Control occurs with respect to the Company, the Employee
shall become fully vested in all awards heretofore or hereafter granted
to him under all stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Company, any
contrary provisions of such plans notwithstanding.
(e) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Section 6
(whether by seeking new employment or in any other manner), nor shall
any such payment be reduced by any earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause.
(a) Continuation Period. In the event that, during the term of
this Agreement, a member of the Affiliated Group terminates the
Employee's employment for any reason other than Cause or Disability or
for no reason, the Employee shall be entitled to receive all of the
payments and benefit coverage described in the succeeding subsections of
this Section 7. Such payments and benefit coverage shall continue for
the period commencing on the date when the employment termination is
effective and ending on the earliest of (i) 36 months after the date of
such employment termination, (ii) the Employee's Normal Retirement Date
or (iii) the date of the Employee's death (the "Continuation Period").
Any other provision of this Agreement notwithstanding, if the Employee
is entitled and elects to receive a severance payment pursuant to
Section 6, then no payments or benefit coverage shall be provided to the
Employee under this Section 7.
(b) Base Compensation. During the Continuation Period, the
Employee shall receive biweekly payments of 147.5 percent of his
biweekly rate of Base Compensation, as in effect on the date of the
employment termination.
(c) Insurance Coverage. During the Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to
continue participation in all insurance or similar plans maintained by
the Company, including (without limitation) life, disability, health and
accident insurance programs, as if he were still an employee of the
Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the
extent that the Company finds it impossible to cover the Employee under
its group insurance policies during the Continuation Period, the Company
(at its own expense) shall provide the Employee with the same level of
coverage under individual policies.
(d) Incentive Programs. The Continuation Period shall be
counted as employment with the Affiliated Group for purposes of
determining the expiration date of all options on the Company's stock
and for purposes of vesting under all executive compensation programs in
which the Employee participated (any contrary provisions of option
agreements or such programs notwithstanding), including (without
limitation) stock purchase, stock option, restricted stock or phantom
stock plans, incentive or other bonus plans and similar programs, but
not including any pension, thrift or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The preceding sentence shall not be construed to
require the grant of any new awards to the Employee under such executive
compensation programs during the Continuation Period.
(e) Supplemental Benefit. In lieu of accruing additional
pension benefits under the Retirement Plan for Non-Bargaining Unit
Employees of American President Companies, Ltd. (the "Retirement Plan"),
the Excess-Benefit Plan of American President Companies, Ltd. and any
other qualified or nonqualified defined-benefit pension plan maintained
by the Company, and any successor to any of such plans (collectively,
the "Retirement Program"), during the Continuation Period, the Employee
and his surviving spouse (if any) shall be entitled to receive an
unfunded supplemental retirement benefit (the "Supplemental Benefit").
The amount of the Supplemental Benefit shall be determined under
Subsection (f) below. Supplemental Benefit payments shall be made in
monthly installments, commencing with the month for which the first
pension payment is made to the Employee or his surviving spouse under
the Retirement Plan and ending with the month for which the last pension
payment is made to the Employee or his surviving spouse under the
Retirement Plan.
(f) Amount of Supplemental Benefit. The amount of the
Supplemental Benefit shall be equal to the difference between:
(i) The amount of the pension benefits actually paid to
the Employee or to his surviving spouse, as the case may be,
under the Retirement Program; and
(ii) The amount of the hypothetical pension benefits
that would be payable to the Employee or to his surviving spouse,
as the case may be, under the Retirement Program if the following
assumptions are made:
(A) The projected Continuation Period, determined
without regard to the possibility of the Employee's
death, is counted as employment with the Affiliated Group
for all purposes (including, without limitation, benefit
accrual) under the Retirement Program; and
(B) 147.5 percent of the projected Base
Compensation to be received by the Employee during the
Continuation Period is counted as compensation for
purposes of determining benefits under the Retirement
Program.
The Supplemental Benefit shall be payable in the same form as the
pension benefit under the Retirement Plan, unless such pension benefit
is paid in the form of a single lump sum. In that event, the
Supplemental Benefit shall be payable in the normal form of benefit
provided under the Retirement Plan and shall be computed and paid as if
the pension benefits actually paid under the Retirement Plan were also
payable in the normal form. The amount of the Supplemental Benefit
shall be recalculated each year in accordance with any provisions of the
Retirement Plan which are applicable to the Employee and which provide
for the adjustment of pension benefits to reflect changes in the cost of
living.
(g) Equivalency. Subsections (e) and (f) above shall be
construed, to the greatest extent possible, so as to place the Employee
in the position in which he would have been if his active participation
in the Retirement Program had continued during the Continuation Period.
However, any incremental tax costs or benefits associated with the
Supplemental Benefit shall be disregarded for this purpose.
(h) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit contemplated by this
Section 7, nor shall any such payment or benefit be reduced by any
earnings or benefits that the Employee may receive from any other
source.
8. Limitation on Payments.
(a) Application. This Section 8 shall apply to the Employee
only if, after the application of this Section 8, the present value of
his aggregate payments or property transfers from the Affiliated Group
will be greater than the present value of his payments or property
transfers from the Affiliated Group would have been if (i) this Section
8 did not apply and (ii) such present value had been reduced by the
amount of the excise tax described in section 4999 of the Code. In all
other cases, this Section 8 shall not apply to the Employee. All
determinations under this Subsection (a) shall be made by Arthur
Andersen & Co. (the "Auditors").
(b) Basic Rule. Any provision of this Agreement other than
Subsection (a) above notwithstanding, in the event that the Auditors
determine that any payment, transfer or acceleration of vesting by the
Affiliated Group to or for the benefit of the Employee, whether pursuant
to the terms of this Agreement or any other plan or agreement (a
"Payment"), would be nondeductible by the Affiliated Group for federal
income tax purposes because of section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below
zero) to the Reduced Amount. For purposes of this Section 8, the
"Reduced Amount" shall be the amount, expressed as a present value,
which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Affiliated Group because
of section 280G of the Code.
(c) Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Affiliated Group because of
section 280G of the Code, then the Company, within five business days
after being notified by the Auditors, shall give the Employee notice to
that effect and a copy of the detailed calculation thereof and of the
Reduced Amount. The Employee may then elect, in his sole discretion,
which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Company in writing of
his election within 30 days of his receipt of notice. If no such
election is made by the Employee within such 30-day period, then the
Company may elect which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value
of the Payments equals the Reduced Amount) and shall notify the Employee
promptly of such election. For all purposes under this Section 8,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
8 shall be binding upon the Affiliated Group and the Employee and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. Within five business days following the completion of
such determinations and the elections hereunder, the Affiliated Group
shall pay or transfer to or for the benefit of the Employee such amounts
as are then due to him under this Agreement. It shall, as promptly as
possible, pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under this Agreement.
(d) Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Affiliated Group which should not have been
made (an "Overpayment") or that additional Payments which will not have
been made by the Affiliated Group could have been made (an
"Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against
the Affiliated Group or the Employee which the Auditors believe has a
high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to
the Employee which he shall repay to the Affiliated Group, together with
interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by the Employee to the Affiliated Group if and to the extent
that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall
promptly be paid or transferred by the Affiliated Group to or for the
benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. Compensating Payments.
(a) Basic Rule. If the Auditors determine that any Payment
would be nondeductible by the Affiliated Group for federal income tax
purposes because of section 280G of the Code, and if any Payment is
subject to reduction as a result of a provision in any plan or agreement
limiting nondeductible Payments (other than Section 8 of this Agreement)
then the Affiliated Group shall pay the amount of such reduction (the
"Compensating Amount") to the Employee under this Agreement. The
Compensating Amount shall be paid in a lump sum in cash within five
business days after the date when a Payment otherwise would have been
made. All determinations made by the Auditors for purposes of this
Section 9 shall be binding upon the Affiliated Group and the Employee.
(b) Waiver. To the extent that a Compensating Amount is paid
under this Agreement with respect to the value of any Payment, such
Payment shall be forfeited permanently and shall under no circumstances
be paid to the Employee or to any person deriving rights from the
Employee at any future time (whether or not any part of such Payment
would be nondeductible at such future time). The Employee hereby waives
any right to, or interest in, any Payment with respect to which he has
received a Compensating Amount.
(c) Equivalency. Subsection (a) above shall be construed, to
the greatest extent possible, so as to place the Employee in the
economic position in which he would have been if none of the plans and
agreements to which the Employee and the Affiliated Group are a party
provided for the reduction of Payments because of the effects of section
280G of the Code. However, any incremental tax costs or tax benefits
associated with Payments or Compensating Amounts shall be disregarded
for this purpose.
10. Protection of Trade Secrets.
(a) Trade Secrets. The parties acknowledge and agree that
during the term of this Agreement and in the course of his employment
hereunder, the Employee will have access to and become acquainted with
information concerning the operations of members of the Affiliated
Group, including without limitation financial, personnel, customer,
sales, systems and other information that is owned by members of the
Affiliated Group and regularly used in the operation of their business,
and that such information constitutes the trade secrets of the members
of the Affiliated Group. The Employee specifically agrees that he shall
not misuse, misappropriate or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as required
in the course of his employment hereunder.
(b) Unfair Competition. The Employee acknowledges and agrees
that the unauthorized use or disclosure of any of the trade secrets
obtained by the Employee during the course of his employment under this
Agreement, including information concerning the Affiliated Group's
current, future or proposed work, services or products, the facts that
any such work, services or products are planned, under consideration or
in production, as well as any descriptions thereof, constitute unfair
competition. The Employee promises and agrees not to engage in any
unfair competition with any member of the Affiliated Group, either
during the term of this Agreement or at any time thereafter.
(c) Return of Documents. The Employee further agrees that
all files, records, documents, computer disks, drawings, specifications,
equipment and similar items relating to the business of members of the
Affiliated Group, whether prepared by the Employee or others, are and
shall remain exclusively the property of the members of the Affiliated
Group and shall be returned to the Affiliated Group upon the termination
of his employment hereunder.
11. Successors.
(a) Company's Successors. The Company shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Company would be required to
perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall
be a breach of this Agreement and shall entitle the Employee to all of
the compensation and benefits to which he would have been entitled
hereunder if the Company had involuntarily terminated his employment
without Cause on the date when such succession becomes effective. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Subsection (a) or
which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
12. Notice.
Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered mail,
return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
13. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by the Company's
Chief Executive Officer. No waiver by either party of any breach of, or
of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
Effective as of the date hereof, this Agreement supersedes all prior
employment agreements between the Employee and any member of the
Affiliated Group.
(c) Presumption. The Company shall make a payment or transfer
described in this Agreement at the time specified herein upon receiving
written notice from the Employee describing such payment or transfer,
referring to the provision of this Agreement under which such payment or
transfer is claimed and certifying that all conditions for such payment
or transfer, as set forth in this Agreement, have been satisfied. The
information so furnished to the Company by the Employee shall be
presumed to be correct, subject to rebuttal by the Company after making
the payment or transfer claimed by the Employee. The Company may seek a
refund of such payment or transfer in accordance with Subsection (g)
below.
(d) No Setoff. There shall be no right of setoff or
counterclaim, with respect to any claim, debt or obligation, against
payments to the Employee under this Agreement.
(e) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
(f) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
(g) Arbitration. Except as otherwise provided in Sections 8 and
9, any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
Oakland, California, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment on the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. All fees and expenses of the arbitrator and such
Association shall be paid by the Company.
(h) No Assignment. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (h) shall be void.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.
/s/ Timothy J. Rhein
_______________________
Timothy J. Rhein
AMERICAN PRESIDENT COMPANIES, LTD.
/s/ J. M. Lillie
By ________________________
J. M. Lillie
Chairman of the Board, President
and Chief Executive Officer
TW940321Cemp-1650tw
--
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 28th day of July, 1992, by
and between JOJI HAYASHI (the "Employee") and AMERICAN PRESIDENT
COMPANIES, LTD., a Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company is the parent corporation in a group of
affiliated corporations (the "Affiliated Group") which consists of the
Company and all of its direct or indirect subsidiaries;
Whereas the parties entered into employment agreements as of
August 24, 1983, March 15, 1988, and July 30, 1991, securing the
services of the Employee for the benefit of the Affiliated Group;
Whereas the parties wish to continue the services of the Employee
for the benefit of the Affiliated Group upon the terms and conditions
set forth below; and
Whereas the parties wish to have this Agreement supersede all
prior employment agreements between the Employee and any member of the
Affiliated Group;
N o w, T h e r e f o r e, in consideration of the mutual
covenants herein contained, the parties agree as follows:
1. Term of Employment.
(a) Basic Rule. The Company agrees to cause the Employee's
employment with the Affiliated Group to continue, and the Employee
agrees to remain in employment with the Affiliated Group, from the date
hereof until the earlier of (i) the first day of the month coinciding
with or next following the Employee's 65th birthday (the "Normal
Retirement Date") or (ii) the date when the Employee's employment
terminates pursuant to Subsections (b), (c) or (d) below. In no event
shall a transfer (whether voluntary or involuntary) of the Employee from
one member of the Affiliated Group to another member be treated as a
termination of employment for any purpose under this Agreement.
(b) Early Termination. Subject to Sections 6 and 7, the Company
may terminate the Employee's employment with the Affiliated Group by
giving the Employee 30 days' advance notice in writing. The Employee
may terminate his employment with the Affiliated Group by giving the
Company 30 days' advance notice in writing. The Employee's employment
shall terminate automatically in the event of his death. Any waiver of
notice shall be valid only if it is made in writing and expressly refers
to the applicable notice requirement of this Section 1.
(c) Cause. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate at any time
for Cause by giving the Employee written notice. For all purposes under
this Agreement, "Cause" shall mean (i) a willful failure by the Employee
to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to
physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially
injurious to a member of the Affiliated Group. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in such member's best interest.
(d) Disability. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate for
Disability by giving the Employee 30 days' advance notice in writing.
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to carry out any
of his duties under this Agreement for a period of not less than six
consecutive months as the result of his incapacity due to physical or
mental illness. In the event that the Employee resumes the performance
of his duties hereunder on a full-time basis before the termination of
his employment under this Subsection (d) becomes effective, the notice
of termination shall automatically be deemed to have been revoked.
(e) Termination of Agreement. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Employee shall hold the position of President
and Chief Executive Officer of American President Lines, Ltd. or such
other position or positions with any member of the Affiliated Group as
the Company may from time to time assign to him.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time
to the Affiliated Group and shall not render services to any other
person or entity without the prior written consent of the Company's
Chief Executive Officer. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities
under this Agreement.
3. Base Compensation.
During the term of his employment under this Agreement, the
Employee shall receive as compensation for his services a base salary at
the annual rate of $365,040, or at such higher rate as the Company may
determine from time to time. Such salary shall be payable in
approximately equal biweekly installments. Once the Company has
increased such salary, it thereafter shall not be reduced. (The annual
compensation specified in this Section 3, together with any increases in
such compensation which the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
4. Employee Benefits.
During the term of his employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Company, including
(without limitation) pension plans, thrift or profit-sharing plans,
excess-benefit plans, stock purchase, stock option, restricted stock or
phantom stock plans, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid vacations and
similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and
to the determinations of any committee administering such plan or
program; provided, however, that the Employee's rights with respect to
severance pay upon termination of employment shall be governed
exclusively by this Agreement, and the Employee shall not be eligible to
participate in any severance plan maintained by the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Employee shall be reimbursed for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Change in Control.
(a) Definition. For all purposes under this Agreement, "Change
in Control" shall mean the occurrence of any of the following events:
(i) A change in control required to be reported pursuant
to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934 (the "Exchange Act");
(ii) A change in the composition of the Company's Board
of Directors, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of the Company 24 months prior to such change or (B)
were elected, or nominated for election, to the Company's Board
of Directors with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(iii) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative
beneficial ownership of securities of any person resulting solely
from a reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
(b) Severance Payment. If, (i) during the term of this
Agreement and at any time after the occurrence of a Change in Control, a
member of the Affiliated Group terminates the Employee's employment for
any reason or no reason, or (ii) during the term of this Agreement and
within one year after a Change in Control, the Employee resigns as a
result of a material change in his responsibilities or the relocation of
his place of employment by more than 20 miles from Oakland, California,
or (iii) during the term of this Agreement and within the 30-day period
commencing one year after the occurrence of a Change in Control, the
Employee resigns his employment for any reason, then the Employee shall
be entitled to receive a severance payment from the Company (the
"Severance Payment"). The Severance Payment shall be made in a lump sum
not less than 31 days nor more than 60 days following the date of the
employment termination and shall be in an amount determined under
Subsection (c) below. The Severance Payment shall be in lieu of any
further payments to the Employee and any further accrual of benefits
under Sections 3 and 4 with respect to periods subsequent to the date of
the employment termination and any termination benefits under Section 7.
The foregoing notwithstanding, the Employee may elect to receive, in
lieu of the Severance Payment, all of the termination benefits described
in Section 7, as if his resignation or termination as provided in this
Subsection (b) were a termination without Cause; provided, however, that
in the event of the Employee's resignation as provided in Clause (iii)
of this Subsection (b), the Continuation Period to be counted as
employment shall be determined by substituting "24 months after the date
of such employment termination" for Clause (i) of Subsection 7(a). The
Employee shall advise the Company of his election in writing within 30
days after his resignation or after receiving the Company's notice of
termination.
(c) Amount. The amount of the Severance Payment shall be equal
to the product of the following:
(i) 147.5 percent of the Employee's monthly rate of Base
Compensation, as in effect on the date of the employment
termination; times
(ii) The lesser of (A) 36 months or (B) the number of
months between the date of the employment termination and the
Employee's Normal Retirement Date; provided, however, that in the
event of the Employee's resignation as provided in Clause (iii)
of Subsection (b) above, the amount of the Severance Payment
shall be determined by substituting "24 months" for Clause (A).
For this purpose, a partial month shall be counted as the
appropriate fraction of a full month.
(d) Incentive Programs. If, during the term of this Agreement,
a Change in Control occurs with respect to the Company, the Employee
shall become fully vested in all awards heretofore or hereafter granted
to him under all stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Company, any
contrary provisions of such plans notwithstanding.
(e) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Section 6
(whether by seeking new employment or in any other manner), nor shall
any such payment be reduced by any earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause.
(a) Continuation Period. In the event that, during the term of
this Agreement, a member of the Affiliated Group terminates the
Employee's employment for any reason other than Cause or Disability or
for no reason, the Employee shall be entitled to receive all of the
payments and benefit coverage described in the succeeding subsections of
this Section 7. Such payments and benefit coverage shall continue for
the period commencing on the date when the employment termination is
effective and ending on the earliest of (i) 36 months after the date of
such employment termination, (ii) the Employee's Normal Retirement Date
or (iii) the date of the Employee's death (the "Continuation Period").
Any other provision of this Agreement notwithstanding, if the Employee
is entitled and elects to receive a severance payment pursuant to
Section 6, then no payments or benefit coverage shall be provided to the
Employee under this Section 7.
(b) Base Compensation. During the Continuation Period, the
Employee shall receive biweekly payments of 147.5 percent of his
biweekly rate of Base Compensation, as in effect on the date of the
employment termination.
(c) Insurance Coverage. During the Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to
continue participation in all insurance or similar plans maintained by
the Company, including (without limitation) life, disability, health and
accident insurance programs, as if he were still an employee of the
Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the
extent that the Company finds it impossible to cover the Employee under
its group insurance policies during the Continuation Period, the Company
(at its own expense) shall provide the Employee with the same level of
coverage under individual policies.
(d) Incentive Programs. The Continuation Period shall be
counted as employment with the Affiliated Group for purposes of
determining the expiration date of all options on the Company's stock
and for purposes of vesting under all executive compensation programs in
which the Employee participated (any contrary provisions of option
agreements or such programs notwithstanding), including (without
limitation) stock purchase, stock option, restricted stock or phantom
stock plans, incentive or other bonus plans and similar programs, but
not including any pension, thrift or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The preceding sentence shall not be construed to
require the grant of any new awards to the Employee under such executive
compensation programs during the Continuation Period.
(e) Supplemental Benefit. In lieu of accruing additional
pension benefits under the Retirement Plan for Non-Bargaining Unit
Employees of American President Companies, Ltd. (the "Retirement Plan"),
the Excess-Benefit Plan of American President Companies, Ltd. and any
other qualified or nonqualified defined-benefit pension plan maintained
by the Company, and any successor to any of such plans (collectively,
the "Retirement Program"), during the Continuation Period, the Employee
and his surviving spouse (if any) shall be entitled to receive an
unfunded supplemental retirement benefit (the "Supplemental Benefit").
The amount of the Supplemental Benefit shall be determined under
Subsection (f) below. Supplemental Benefit payments shall be made in
monthly installments, commencing with the month for which the first
pension payment is made to the Employee or his surviving spouse under
the Retirement Plan and ending with the month for which the last pension
payment is made to the Employee or his surviving spouse under the
Retirement Plan.
(f) Amount of Supplemental Benefit. The amount of the
Supplemental Benefit shall be equal to the difference between:
(i) The amount of the pension benefits actually paid to
the Employee or to his surviving spouse, as the case may be,
under the Retirement Program; and
(ii) The amount of the hypothetical pension benefits
that would be payable to the Employee or to his surviving spouse,
as the case may be, under the Retirement Program if the following
assumptions are made:
(A) The period of January 23, 1964, to August 18,
1969, and the projected Continuation Period, determined
without regard to the possibility of the Employee's
death, are counted as employment with the Affiliated
Group for all purposes (including, without limitation,
benefit accrual) under the Retirement Program; and
(B) 147.5 percent of the projected Base
Compensation to be received by the Employee during the
Continuation Period is counted as compensation for
purposes of determining benefits under the Retirement
Program.
The Supplemental Benefit shall be payable in the same form as the
pension benefit under the Retirement Plan, unless such pension benefit
is paid in the form of a single lump sum. In that event, the
Supplemental Benefit shall be payable in the normal form of benefit
provided under the Retirement Plan and shall be computed and paid as if
the pension benefits actually paid under the Retirement Plan were also
payable in the normal form. The amount of the Supplemental Benefit
shall be recalculated each year in accordance with any provisions of the
Retirement Plan which are applicable to the Employee and which provide
for the adjustment of pension benefits to reflect changes in the cost of
living.
(g) Equivalency. Subsections (e) and (f) above shall be
construed, to the greatest extent possible, so as to place the Employee
in the position in which he would have been if his active participation
in the Retirement Program had continued during the Continuation Period.
However, any incremental tax costs or benefits associated with the
Supplemental Benefit shall be disregarded for this purpose.
(h) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit contemplated by this
Section 7, nor shall any such payment or benefit be reduced by any
earnings or benefits that the Employee may receive from any other
source.
8. Limitation on Payments.
(a) Application. This Section 8 shall apply to the Employee
only if, after the application of this Section 8, the present value of
his aggregate payments or property transfers from the Affiliated Group
will be greater than the present value of his payments or property
transfers from the Affiliated Group would have been if (i) this Section
8 did not apply and (ii) such present value had been reduced by the
amount of the excise tax described in section 4999 of the Code. In all
other cases, this Section 8 shall not apply to the Employee. All
determinations under this Subsection (a) shall be made by Arthur
Andersen & Co. (the "Auditors").
(b) Basic Rule. Any provision of this Agreement other than
Subsection (a) above notwithstanding, in the event that the Auditors
determine that any payment, transfer or acceleration of vesting by the
Affiliated Group to or for the benefit of the Employee, whether pursuant
to the terms of this Agreement or any other plan or agreement (a
"Payment"), would be nondeductible by the Affiliated Group for federal
income tax purposes because of section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below
zero) to the Reduced Amount. For purposes of this Section 8, the
"Reduced Amount" shall be the amount, expressed as a present value,
which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Affiliated Group because
of section 280G of the Code.
(c) Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Affiliated Group because of
section 280G of the Code, then the Company, within five business days
after being notified by the Auditors, shall give the Employee notice to
that effect and a copy of the detailed calculation thereof and of the
Reduced Amount. The Employee may then elect, in his sole discretion,
which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Company in writing of
his election within 30 days of his receipt of notice. If no such
election is made by the Employee within such 30-day period, then the
Company may elect which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value
of the Payments equals the Reduced Amount) and shall notify the Employee
promptly of such election. For all purposes under this Section 8,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
8 shall be binding upon the Affiliated Group and the Employee and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. Within five business days following the completion of
such determinations and the elections hereunder, the Affiliated Group
shall pay or transfer to or for the benefit of the Employee such amounts
as are then due to him under this Agreement. It shall, as promptly as
possible, pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under this Agreement.
(d) Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Affiliated Group which should not have been
made (an "Overpayment") or that additional Payments which will not have
been made by the Affiliated Group could have been made (an
"Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against
the Affiliated Group or the Employee which the Auditors believe has a
high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to
the Employee which he shall repay to the Affiliated Group, together with
interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by the Employee to the Affiliated Group if and to the extent
that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall
promptly be paid or transferred by the Affiliated Group to or for the
benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. Compensating Payments.
(a) Basic Rule. If the Auditors determine that any Payment
would be nondeductible by the Affiliated Group for federal income tax
purposes because of section 280G of the Code, and if any Payment is
subject to reduction as a result of a provision in any plan or agreement
limiting nondeductible Payments (other than Section 8 of this Agreement)
then the Affiliated Group shall pay the amount of such reduction (the
"Compensating Amount") to the Employee under this Agreement. The
Compensating Amount shall be paid in a lump sum in cash within five
business days after the date when a Payment otherwise would have been
made. All determinations made by the Auditors for purposes of this
Section 9 shall be binding upon the Affiliated Group and the Employee.
(b) Waiver. To the extent that a Compensating Amount is paid
under this Agreement with respect to the value of any Payment, such
Payment shall be forfeited permanently and shall under no circumstances
be paid to the Employee or to any person deriving rights from the
Employee at any future time (whether or not any part of such Payment
would be nondeductible at such future time). The Employee hereby waives
any right to, or interest in, any Payment with respect to which he has
received a Compensating Amount.
(c) Equivalency. Subsection (a) above shall be construed, to
the greatest extent possible, so as to place the Employee in the
economic position in which he would have been if none of the plans and
agreements to which the Employee and the Affiliated Group are a party
provided for the reduction of Payments because of the effects of section
280G of the Code. However, any incremental tax costs or tax benefits
associated with Payments or Compensating Amounts shall be disregarded
for this purpose.
10. Protection of Trade Secrets.
(a) Trade Secrets. The parties acknowledge and agree that
during the term of this Agreement and in the course of his employment
hereunder, the Employee will have access to and become acquainted with
information concerning the operations of members of the Affiliated
Group, including without limitation financial, personnel, customer,
sales, systems and other information that is owned by members of the
Affiliated Group and regularly used in the operation of their business,
and that such information constitutes the trade secrets of the members
of the Affiliated Group. The Employee specifically agrees that he shall
not misuse, misappropriate or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as required
in the course of his employment hereunder.
(b) Unfair Competition. The Employee acknowledges and agrees
that the unauthorized use or disclosure of any of the trade secrets
obtained by the Employee during the course of his employment under this
Agreement, including information concerning the Affiliated Group's
current, future or proposed work, services or products, the facts that
any such work, services or products are planned, under consideration or
in production, as well as any descriptions thereof, constitute unfair
competition. The Employee promises and agrees not to engage in any
unfair competition with any member of the Affiliated Group, either
during the term of this Agreement or at any time thereafter.
(c) Return of Documents. The Employee further agrees that
all files, records, documents, computer disks, drawings, specifications,
equipment and similar items relating to the business of members of the
Affiliated Group, whether prepared by the Employee or others, are and
shall remain exclusively the property of the members of the Affiliated
Group and shall be returned to the Affiliated Group upon the termination
of his employment hereunder.
11. Successors.
(a) Company's Successors. The Company shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Company would be required to
perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall
be a breach of this Agreement and shall entitle the Employee to all of
the compensation and benefits to which he would have been entitled
hereunder if the Company had involuntarily terminated his employment
without Cause on the date when such succession becomes effective. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Subsection (a) or
which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
12. Notice.
Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered mail,
return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
13. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by the Company's
Chief Executive Officer. No waiver by either party of any breach of, or
of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
Effective as of the date hereof, this Agreement supersedes all prior
employment agreements between the Employee and any member of the
Affiliated Group.
(c) Presumption. The Company shall make a payment or transfer
described in this Agreement at the time specified herein upon receiving
written notice from the Employee describing such payment or transfer,
referring to the provision of this Agreement under which such payment or
transfer is claimed and certifying that all conditions for such payment
or transfer, as set forth in this Agreement, have been satisfied. The
information so furnished to the Company by the Employee shall be
presumed to be correct, subject to rebuttal by the Company after making
the payment or transfer claimed by the Employee. The Company may seek a
refund of such payment or transfer in accordance with Subsection (g)
below.
(d) No Setoff. There shall be no right of setoff or
counterclaim, with respect to any claim, debt or obligation, against
payments to the Employee under this Agreement.
(e) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
(f) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
(g) Arbitration. Except as otherwise provided in Sections 8 and
9, any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
Oakland, California, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment on the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. All fees and expenses of the arbitrator and such
Association shall be paid by the Company.
(h) No Assignment. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (h) shall be void.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.
/s/ Joji Hayashi
____________________
Joji Hayashi
AMERICAN PRESIDENT COMPANIES, LTD.
/s/ J. M. Lillie
By ________________________
J. M. Lillie
Chairman of the Board, President
and Chief Executive Officer
TW940323Cemp-1615tw
--
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 28th day of July, 1992, by
and between JAMES S. MARSTON (the "Employee") and AMERICAN PRESIDENT
COMPANIES, LTD., a Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company is the parent corporation in a group of
affiliated corporations (the "Affiliated Group") which consists of the
Company and all of its direct or indirect subsidiaries;
Whereas the parties entered into an employment agreement as of
July 30, 1991, securing the services of the Employee for the benefit of
the Affiliated Group;
Whereas the parties wish to continue the services of the Employee
for the benefit of the Affiliated Group upon the terms and conditions
set forth below; and
Whereas the parties wish to have this Agreement supersede all
prior employment agreements between the Employee and any member of the
Affiliated Group;
N o w, T h e r e f o r e, in consideration of the mutual
covenants herein contained, the parties agree as follows:
1. Term of Employment.
(a) Basic Rule. The Company agrees to cause the Employee's
employment with the Affiliated Group to continue, and the Employee
agrees to remain in employment with the Affiliated Group, from the date
hereof until the earlier of (i) the first day of the month coinciding
with or next following the Employee's 65th birthday (the "Normal
Retirement Date") or (ii) the date when the Employee's employment
terminates pursuant to Subsections (b), (c) or (d) below. In no event
shall a transfer (whether voluntary or involuntary) of the Employee from
one member of the Affiliated Group to another member be treated as a
termination of employment for any purpose under this Agreement.
(b) Early Termination. Subject to Sections 6 and 7, the Company
may terminate the Employee's employment with the Affiliated Group by
giving the Employee 30 days' advance notice in writing. The Employee
may terminate his employment with the Affiliated Group by giving the
Company 30 days' advance notice in writing. The Employee's employment
shall terminate automatically in the event of his death. Any waiver of
notice shall be valid only if it is made in writing and expressly refers
to the applicable notice requirement of this Section 1.
(c) Cause. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate at any time
for Cause by giving the Employee written notice. For all purposes under
this Agreement, "Cause" shall mean (i) a willful failure by the Employee
to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to
physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially
injurious to a member of the Affiliated Group. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in such member's best interest.
(d) Disability. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate for
Disability by giving the Employee 30 days' advance notice in writing.
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to carry out any
of his duties under this Agreement for a period of not less than six
consecutive months as the result of his incapacity due to physical or
mental illness. In the event that the Employee resumes the performance
of his duties hereunder on a full-time basis before the termination of
his employment under this Subsection (d) becomes effective, the notice
of termination shall automatically be deemed to have been revoked.
(e) Termination of Agreement. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Employee shall hold the position of Senior
Vice President and Chief Information Officer of the Company or such
other position or positions with any member of the Affiliated Group as
the Company may from time to time assign to him.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time
to the Affiliated Group and shall not render services to any other
person or entity without the prior written consent of the Company's
Chief Executive Officer. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities
under this Agreement.
3. Base Compensation.
During the term of his employment under this Agreement, the
Employee shall receive as compensation for his services a base salary at
the annual rate of $291,200, or at such higher rate as the Company may
determine from time to time. Such salary shall be payable in
approximately equal biweekly installments. Once the Company has
increased such salary, it thereafter shall not be reduced. (The annual
compensation specified in this Section 3, together with any increases in
such compensation which the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
4. Employee Benefits.
During the term of his employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Company, including
(without limitation) pension plans, thrift or profit-sharing plans,
excess-benefit plans, stock purchase, stock option, restricted stock or
phantom stock plans, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid vacations and
similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and
to the determinations of any committee administering such plan or
program; provided, however, that the Employee's rights with respect to
severance pay upon termination of employment shall be governed
exclusively by this Agreement, and the Employee shall not be eligible to
participate in any severance plan maintained by the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Employee shall be reimbursed for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Change in Control.
(a) Definition. For all purposes under this Agreement, "Change
in Control" shall mean the occurrence of any of the following events:
(i) A change in control required to be reported pursuant
to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934 (the "Exchange Act");
(ii) A change in the composition of the Company's Board
of Directors, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of the Company 24 months prior to such change or (B)
were elected, or nominated for election, to the Company's Board
of Directors with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(iii) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative
beneficial ownership of securities of any person resulting solely
from a reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
(b) Severance Payment. If, (i) during the term of this
Agreement and at any time after the occurrence of a Change in Control, a
member of the Affiliated Group terminates the Employee's employment for
any reason or no reason, or (ii) during the term of this Agreement and
within one year after a Change in Control, the Employee resigns as a
result of a material change in his responsibilities or the relocation of
his place of employment by more than 20 miles from Oakland, California,
or (iii) during the term of this Agreement and within the 30-day period
commencing one year after the occurrence of a Change in Control, the
Employee resigns his employment for any reason, then the Employee shall
be entitled to receive a severance payment from the Company (the
"Severance Payment"). The Severance Payment shall be made in a lump sum
not less than 31 days nor more than 60 days following the date of the
employment termination and shall be in an amount determined under
Subsection (c) below. The Severance Payment shall be in lieu of any
further payments to the Employee and any further accrual of benefits
under Sections 3 and 4 with respect to periods subsequent to the date of
the employment termination and any termination benefits under Section 7.
The foregoing notwithstanding, the Employee may elect to receive, in
lieu of the Severance Payment, all of the termination benefits described
in Section 7, as if his resignation or termination as provided in this
Subsection (b) were a termination without Cause; provided, however, that
in the event of the Employee's resignation as provided in Clause (iii)
of this Subsection (b), the Continuation Period to be counted as
employment shall be determined by substituting "24 months after the date
of such employment termination" for Clause (i) of Subsection 7(a). The
Employee shall advise the Company of his election in writing within 30
days after his resignation or after receiving the Company's notice of
termination.
(c) Amount. The amount of the Severance Payment shall be equal
to the product of the following:
(i) 145 percent of the Employee's monthly rate of Base
Compensation, as in effect on the date of the employment
termination; times
(ii) The lesser of (A) 36 months or (B) the number of
months between the date of the employment termination and the
Employee's Normal Retirement Date; provided, however, that in the
event of the Employee's resignation as provided in Clause (iii)
of Subsection (b) above, the amount of the Severance Payment
shall be determined by substituting "24 months" for Clause (A).
For this purpose, a partial month shall be counted as the
appropriate fraction of a full month.
(d) Incentive Programs. If, during the term of this Agreement,
a Change in Control occurs with respect to the Company, the Employee
shall become fully vested in all awards heretofore or hereafter granted
to him under all stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Company, any
contrary provisions of such plans notwithstanding.
(e) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Section 6
(whether by seeking new employment or in any other manner), nor shall
any such payment be reduced by any earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause.
(a) Continuation Period. In the event that, during the term of
this Agreement, a member of the Affiliated Group terminates the
Employee's employment for any reason other than Cause or Disability or
for no reason, the Employee shall be entitled to receive all of the
payments and benefit coverage described in the succeeding subsections of
this Section 7. Such payments and benefit coverage shall continue for
the period commencing on the date when the employment termination is
effective and ending on the earliest of (i) 36 months after the date of
such employment termination, (ii) the Employee's Normal Retirement Date
or (iii) the date of the Employee's death (the "Continuation Period").
Any other provision of this Agreement notwithstanding, if the Employee
is entitled and elects to receive a severance payment pursuant to
Section 6, then no payments or benefit coverage shall be provided to the
Employee under this Section 7.
(b) Base Compensation. During the Continuation Period, the
Employee shall receive biweekly payments of 145 percent of his biweekly
rate of Base Compensation, as in effect on the date of the employment
termination.
(c) Insurance Coverage. During the Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to
continue participation in all insurance or similar plans maintained by
the Company, including (without limitation) life, disability, health and
accident insurance programs, as if he were still an employee of the
Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the
extent that the Company finds it impossible to cover the Employee under
its group insurance policies during the Continuation Period, the Company
(at its own expense) shall provide the Employee with the same level of
coverage under individual policies.
(d) Incentive Programs. The Continuation Period shall be
counted as employment with the Affiliated Group for purposes of
determining the expiration date of all options on the Company's stock
and for purposes of vesting under all executive compensation programs in
which the Employee participated (any contrary provisions of option
agreements or such programs notwithstanding), including (without
limitation) stock purchase, stock option, restricted stock or phantom
stock plans, incentive or other bonus plans and similar programs, but
not including any pension, thrift or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The preceding sentence shall not be construed to
require the grant of any new awards to the Employee under such executive
compensation programs during the Continuation Period.
(e) Supplemental Benefit. In lieu of accruing additional
pension benefits under the Retirement Plan for Non-Bargaining Unit
Employees of American President Companies, Ltd. (the "Retirement Plan"),
the Excess-Benefit Plan of American President Companies, Ltd. and any
other qualified or nonqualified defined-benefit pension plan maintained
by the Company, and any successor to any of such plans (collectively,
the "Retirement Program"), during the Continuation Period, the Employee
and his surviving spouse (if any) shall be entitled to receive an
unfunded supplemental retirement benefit (the "Supplemental Benefit").
The amount of the Supplemental Benefit shall be determined under
Subsection (f) below. Supplemental Benefit payments shall be made in
monthly installments, commencing with the month for which the first
pension payment is made to the Employee or his surviving spouse under
the Retirement Plan and ending with the month for which the last pension
payment is made to the Employee or his surviving spouse under the
Retirement Plan.
(f) Amount of Supplemental Benefit. The amount of the
Supplemental Benefit shall be equal to the difference between:
(i) The amount of the pension benefits actually paid to
the Employee or to his surviving spouse, as the case may be,
under the Retirement Program; and
(ii) The amount of the hypothetical pension benefits
that would be payable to the Employee or to his surviving spouse,
as the case may be, under the Retirement Program if the following
assumptions are made:
(A) The projected Continuation Period, determined
without regard to the possibility of the Employee's
death, is counted as employment with the Affiliated Group
for all purposes (including, without limitation, benefit
accrual) under the Retirement Program; and
(B) 145 percent of the projected Base
Compensation to be received by the Employee during the
Continuation Period is counted as compensation for
purposes of determining benefits under the Retirement
Program.
The Supplemental Benefit shall be payable in the same form as the
pension benefit under the Retirement Plan, unless such pension benefit
is paid in the form of a single lump sum. In that event, the
Supplemental Benefit shall be payable in the normal form of benefit
provided under the Retirement Plan and shall be computed and paid as if
the pension benefits actually paid under the Retirement Plan were also
payable in the normal form. The amount of the Supplemental Benefit
shall be recalculated each year in accordance with any provisions of the
Retirement Plan which are applicable to the Employee and which provide
for the adjustment of pension benefits to reflect changes in the cost of
living.
(g) Equivalency. Subsections (e) and (f) above shall be
construed, to the greatest extent possible, so as to place the Employee
in the position in which he would have been if his active participation
in the Retirement Program had continued during the Continuation Period.
However, any incremental tax costs or benefits associated with the
Supplemental Benefit shall be disregarded for this purpose.
(h) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit contemplated by this
Section 7, nor shall any such payment or benefit be reduced by any
earnings or benefits that the Employee may receive from any other
source.
8. Limitation on Payments.
(a) Application. This Section 8 shall apply to the Employee
only if, after the application of this Section 8, the present value of
his aggregate payments or property transfers from the Affiliated Group
will be greater than the present value of his payments or property
transfers from the Affiliated Group would have been if (i) this Section
8 did not apply and (ii) such present value had been reduced by the
amount of the excise tax described in section 4999 of the Code. In all
other cases, this Section 8 shall not apply to the Employee. All
determinations under this Subsection (a) shall be made by Arthur
Andersen & Co. (the "Auditors").
(b) Basic Rule. Any provision of this Agreement other than
Subsection (a) above notwithstanding, in the event that the Auditors
determine that any payment, transfer or acceleration of vesting by the
Affiliated Group to or for the benefit of the Employee, whether pursuant
to the terms of this Agreement or any other plan or agreement (a
"Payment"), would be nondeductible by the Affiliated Group for federal
income tax purposes because of section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below
zero) to the Reduced Amount. For purposes of this Section 8, the
"Reduced Amount" shall be the amount, expressed as a present value,
which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Affiliated Group because
of section 280G of the Code.
(c) Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Affiliated Group because of
section 280G of the Code, then the Company, within five business days
after being notified by the Auditors, shall give the Employee notice to
that effect and a copy of the detailed calculation thereof and of the
Reduced Amount. The Employee may then elect, in his sole discretion,
which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Company in writing of
his election within 30 days of his receipt of notice. If no such
election is made by the Employee within such 30-day period, then the
Company may elect which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value
of the Payments equals the Reduced Amount) and shall notify the Employee
promptly of such election. For all purposes under this Section 8,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
8 shall be binding upon the Affiliated Group and the Employee and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. Within five business days following the completion of
such determinations and the elections hereunder, the Affiliated Group
shall pay or transfer to or for the benefit of the Employee such amounts
as are then due to him under this Agreement. It shall, as promptly as
possible, pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under this Agreement.
(d) Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Affiliated Group which should not have been
made (an "Overpayment") or that additional Payments which will not have
been made by the Affiliated Group could have been made (an
"Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against
the Affiliated Group or the Employee which the Auditors believe has a
high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to
the Employee which he shall repay to the Affiliated Group, together with
interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by the Employee to the Affiliated Group if and to the extent
that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall
promptly be paid or transferred by the Affiliated Group to or for the
benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. Compensating Payments.
(a) Basic Rule. If the Auditors determine that any Payment
would be nondeductible by the Affiliated Group for federal income tax
purposes because of section 280G of the Code, and if any Payment is
subject to reduction as a result of a provision in any plan or agreement
limiting nondeductible Payments (other than Section 8 of this Agreement)
then the Affiliated Group shall pay the amount of such reduction (the
"Compensating Amount") to the Employee under this Agreement. The
Compensating Amount shall be paid in a lump sum in cash within five
business days after the date when a Payment otherwise would have been
made. All determinations made by the Auditors for purposes of this
Section 9 shall be binding upon the Affiliated Group and the Employee.
(b) Waiver. To the extent that a Compensating Amount is paid
under this Agreement with respect to the value of any Payment, such
Payment shall be forfeited permanently and shall under no circumstances
be paid to the Employee or to any person deriving rights from the
Employee at any future time (whether or not any part of such Payment
would be nondeductible at such future time). The Employee hereby waives
any right to, or interest in, any Payment with respect to which he has
received a Compensating Amount.
(c) Equivalency. Subsection (a) above shall be construed, to
the greatest extent possible, so as to place the Employee in the
economic position in which he would have been if none of the plans and
agreements to which the Employee and the Affiliated Group are a party
provided for the reduction of Payments because of the effects of section
280G of the Code. However, any incremental tax costs or tax benefits
associated with Payments or Compensating Amounts shall be disregarded
for this purpose.
10. Protection of Trade Secrets.
(a) Trade Secrets. The parties acknowledge and agree that
during the term of this Agreement and in the course of his employment
hereunder, the Employee will have access to and become acquainted with
information concerning the operations of members of the Affiliated
Group, including without limitation financial, personnel, customer,
sales, systems and other information that is owned by members of the
Affiliated Group and regularly used in the operation of their business,
and that such information constitutes the trade secrets of the members
of the Affiliated Group. The Employee specifically agrees that he shall
not misuse, misappropriate or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as required
in the course of his employment hereunder.
(b) Unfair Competition. The Employee acknowledges and agrees
that the unauthorized use or disclosure of any of the trade secrets
obtained by the Employee during the course of his employment under this
Agreement, including information concerning the Affiliated Group's
current, future or proposed work, services or products, the facts that
any such work, services or products are planned, under consideration or
in production, as well as any descriptions thereof, constitute unfair
competition. The Employee promises and agrees not to engage in any
unfair competition with any member of the Affiliated Group, either
during the term of this Agreement or at any time thereafter.
(c) Return of Documents. The Employee further agrees that
all files, records, documents, computer disks, drawings, specifications,
equipment and similar items relating to the business of members of the
Affiliated Group, whether prepared by the Employee or others, are and
shall remain exclusively the property of the members of the Affiliated
Group and shall be returned to the Affiliated Group upon the termination
of his employment hereunder.
11. Successors.
(a) Company's Successors. The Company shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Company would be required to
perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall
be a breach of this Agreement and shall entitle the Employee to all of
the compensation and benefits to which he would have been entitled
hereunder if the Company had involuntarily terminated his employment
without Cause on the date when such succession becomes effective. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Subsection (a) or
which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
12. Notice.
Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered mail,
return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
13. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by the Company's
Chief Executive Officer. No waiver by either party of any breach of, or
of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
Effective as of the date hereof, this Agreement supersedes all prior
employment agreements between the Employee and any member of the
Affiliated Group.
(c) Presumption. The Company shall make a payment or transfer
described in this Agreement at the time specified herein upon receiving
written notice from the Employee describing such payment or transfer,
referring to the provision of this Agreement under which such payment or
transfer is claimed and certifying that all conditions for such payment
or transfer, as set forth in this Agreement, have been satisfied. The
information so furnished to the Company by the Employee shall be
presumed to be correct, subject to rebuttal by the Company after making
the payment or transfer claimed by the Employee. The Company may seek a
refund of such payment or transfer in accordance with Subsection (g)
below.
(d) No Setoff. There shall be no right of setoff or
counterclaim, with respect to any claim, debt or obligation, against
payments to the Employee under this Agreement.
(e) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
(f) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
(g) Arbitration. Except as otherwise provided in Sections 8 and
9, any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
Oakland, California, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment on the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. All fees and expenses of the arbitrator and such
Association shall be paid by the Company.
(h) No Assignment. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (h) shall be void.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.
/s/ James S. Marston
_______________________
James S. Marston
AMERICAN PRESIDENT COMPANIES, LTD.
/s/ J. M. Lillie
By ________________________
J. M. Lillie
Chairman of the Board, President
and Chief Executive Officer
TW940321Cemp-1650tw
--
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 28th day of July, 1992, by
and between JOHN G. BURGESS (the "Employee") and AMERICAN PRESIDENT
COMPANIES, LTD., a Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company is the parent corporation in a group of
affiliated corporations (the "Affiliated Group") which consists of the
Company and all of its direct or indirect subsidiaries;
Whereas the parties entered into employment agreements as of
August 17, 1990, and July 30, 1991, securing the services of the
Employee for the benefit of the Affiliated Group;
Whereas the parties wish to continue the services of the Employee
for the benefit of the Affiliated Group upon the terms and conditions
set forth below; and
Whereas the parties wish to have this Agreement supersede all
prior employment agreements between the Employee and any member of the
Affiliated Group;
N o w, T h e r e f o r e, in consideration of the mutual
covenants herein contained, the parties agree as follows:
1. Term of Employment.
(a) Basic Rule. The Company agrees to cause the Employee's
employment with the Affiliated Group to continue, and the Employee
agrees to remain in employment with the Affiliated Group, from the date
hereof until the earlier of (i) the first day of the month coinciding
with or next following the Employee's 65th birthday (the "Normal
Retirement Date") or (ii) the date when the Employee's employment
terminates pursuant to Subsections (b), (c) or (d) below. In no event
shall a transfer (whether voluntary or involuntary) of the Employee from
one member of the Affiliated Group to another member be treated as a
termination of employment for any purpose under this Agreement.
(b) Early Termination. Subject to Sections 6 and 7, the Company
may terminate the Employee's employment with the Affiliated Group by
giving the Employee 30 days' advance notice in writing. The Employee
may terminate his employment with the Affiliated Group by giving the
Company 30 days' advance notice in writing. The Employee's employment
shall terminate automatically in the event of his death. Any waiver of
notice shall be valid only if it is made in writing and expressly refers
to the applicable notice requirement of this Section 1.
(c) Cause. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate at any time
for Cause by giving the Employee written notice. For all purposes under
this Agreement, "Cause" shall mean (i) a willful failure by the Employee
to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to
physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially
injurious to a member of the Affiliated Group. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in such member's best interest.
(d) Disability. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate for
Disability by giving the Employee 30 days' advance notice in writing.
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to carry out any
of his duties under this Agreement for a period of not less than six
consecutive months as the result of his incapacity due to physical or
mental illness. In the event that the Employee resumes the performance
of his duties hereunder on a full-time basis before the termination of
his employment under this Subsection (d) becomes effective, the notice
of termination shall automatically be deemed to have been revoked.
(e) Termination of Agreement. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Employee shall hold the position of Executive
Vice President of American President Lines, Ltd. or such other position
or positions with any member of the Affiliated Group as the Company may
from time to time assign to him.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time
to the Affiliated Group and shall not render services to any other
person or entity without the prior written consent of the Company's
Chief Executive Officer. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities
under this Agreement.
3. Base Compensation.
During the term of his employment under this Agreement, the
Employee shall receive as compensation for his services a base salary at
the annual rate of $275,810, or at such higher rate as the Company may
determine from time to time. Such salary shall be payable in
approximately equal biweekly installments. Once the Company has
increased such salary, it thereafter shall not be reduced. (The annual
compensation specified in this Section 3, together with any increases in
such compensation which the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
4. Employee Benefits.
During the term of his employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Company, including
(without limitation) pension plans, thrift or profit-sharing plans,
excess-benefit plans, stock purchase, stock option, restricted stock or
phantom stock plans, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid vacations and
similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and
to the determinations of any committee administering such plan or
program; provided, however, that the Employee's rights with respect to
severance pay upon termination of employment shall be governed
exclusively by this Agreement, and the Employee shall not be eligible to
participate in any severance plan maintained by the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Employee shall be reimbursed for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Change in Control.
(a) Definition. For all purposes under this Agreement, "Change
in Control" shall mean the occurrence of any of the following events:
(i) A change in control required to be reported pursuant
to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934 (the "Exchange Act");
(ii) A change in the composition of the Company's Board
of Directors, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of the Company 24 months prior to such change or (B)
were elected, or nominated for election, to the Company's Board
of Directors with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(iii) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative
beneficial ownership of securities of any person resulting solely
from a reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
(b) Severance Payment. If, (i) during the term of this
Agreement and at any time after the occurrence of a Change in Control, a
member of the Affiliated Group terminates the Employee's employment for
any reason or no reason, or (ii) during the term of this Agreement and
within one year after a Change in Control, the Employee resigns as a
result of a material change in his responsibilities or the relocation of
his place of employment by more than 20 miles from Oakland, California,
or (iii) during the term of this Agreement and within the 30-day period
commencing one year after the occurrence of a Change in Control, the
Employee resigns his employment for any reason, then the Employee shall
be entitled to receive a severance payment from the Company (the
"Severance Payment"). The Severance Payment shall be made in a lump sum
not less than 31 days nor more than 60 days following the date of the
employment termination and shall be in an amount determined under
Subsection (c) below. The Severance Payment shall be in lieu of any
further payments to the Employee and any further accrual of benefits
under Sections 3 and 4 with respect to periods subsequent to the date of
the employment termination and any termination benefits under Section 7.
The foregoing notwithstanding, in the event of the Employee's
termination or resignation as provided in Clauses (i) or (ii) of this
Subsection (b), the Employee may elect to receive, in lieu of the
Severance Payment, all of the termination benefits described in Section
7, as if his termination or resignation were a termination without
Cause. In the event of the Employee's resignation as provided in Clause
(iii) of this Subsection (b), the Employee may elect to receive, in lieu
of the Severance Payment, the termination benefits described in
Subsections 7(b) and (c), as if his resignation were a termination
without Cause; provided, however, that the Continuation Period to be
counted as employment shall be determined by substituting "18 months
after the date of such employment termination" for Clause (i) of
Subsection 7(a), and the insurance coverage provided during the
Continuation Period pursuant to Subsection 7(c) shall be limited to
medical, dental and life insurance plans. The Employee shall advise the
Company of his election in writing within 30 days after his resignation
or after receiving the Company's notice of termination.
(c) Amount. The amount of the Severance Payment shall be equal
to the product of the following:
(i) 142.5 percent of the Employee's monthly rate of Base
Compensation, as in effect on the date of the employment
termination; times
(ii) The lesser of (A) 36 months or (B) the number of
months between the date of the employment termination and the
Employee's Normal Retirement Date; provided, however, that in the
event of the Employee's resignation as provided in Clause (iii)
of Subsection (b) above, the amount of the Severance Payment
shall be determined by substituting "18 months" for Clause (A).
For this purpose, a partial month shall be counted as the
appropriate fraction of a full month.
(d) Incentive Programs. If, during the term of this Agreement,
a Change in Control occurs with respect to the Company, the Employee
shall become fully vested in all awards heretofore or hereafter granted
to him under all stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Company, any
contrary provisions of such plans notwithstanding.
(e) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Section 6
(whether by seeking new employment or in any other manner), nor shall
any such payment be reduced by any earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause.
(a) Continuation Period. In the event that, during the term of
this Agreement, a member of the Affiliated Group terminates the
Employee's employment for any reason other than Cause or Disability or
for no reason, the Employee shall be entitled to receive all of the
payments and benefit coverage described in the succeeding subsections of
this Section 7. Such payments and benefit coverage shall continue for
the period commencing on the date when the employment termination is
effective and ending on the earliest of (i) 36 months after the date of
such employment termination, (ii) the Employee's Normal Retirement Date
or (iii) the date of the Employee's death (the "Continuation Period").
Any other provision of this Agreement notwithstanding, if the Employee
is entitled and elects to receive a severance payment pursuant to
Section 6, then no payments or benefit coverage shall be provided to the
Employee under this Section 7.
(b) Base Compensation. During the Continuation Period, the
Employee shall receive biweekly payments of 142.5 percent of his
biweekly rate of Base Compensation, as in effect on the date of the
employment termination.
(c) Insurance Coverage. During the Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to
continue participation in all insurance or similar plans maintained by
the Company, including (without limitation) life, disability, health and
accident insurance programs, as if he were still an employee of the
Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the
extent that the Company finds it impossible to cover the Employee under
its group insurance policies during the Continuation Period, the Company
(at its own expense) shall provide the Employee with the same level of
coverage under individual policies.
(d) Incentive Programs. The Continuation Period shall be
counted as employment with the Affiliated Group for purposes of
determining the expiration date of all options on the Company's stock
and for purposes of vesting under all executive compensation programs in
which the Employee participated (any contrary provisions of option
agreements or such programs notwithstanding), including (without
limitation) stock purchase, stock option, restricted stock or phantom
stock plans, incentive or other bonus plans and similar programs, but
not including any pension, thrift or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The preceding sentence shall not be construed to
require the grant of any new awards to the Employee under such executive
compensation programs during the Continuation Period.
(e) Supplemental Benefit. In lieu of accruing additional
pension benefits under the Retirement Plan for Non-Bargaining Unit
Employees of American President Companies, Ltd. (the "Retirement Plan"),
the Excess-Benefit Plan of American President Companies, Ltd. and any
other qualified or nonqualified defined-benefit pension plan maintained
by the Company, and any successor to any of such plans (collectively,
the "Retirement Program"), during the Continuation Period, the Employee
and his surviving spouse (if any) shall be entitled to receive an
unfunded supplemental retirement benefit (the "Supplemental Benefit").
The amount of the Supplemental Benefit shall be determined under
Subsection (f) below. Supplemental Benefit payments shall be made in
monthly installments, commencing with the month for which the first
pension payment is made to the Employee or his surviving spouse under
the Retirement Plan and ending with the month for which the last pension
payment is made to the Employee or his surviving spouse under the
Retirement Plan.
(f) Amount of Supplemental Benefit. The amount of the
Supplemental Benefit shall be equal to the difference between:
(i) The amount of the pension benefits actually paid to
the Employee or to his surviving spouse, as the case may be,
under the Retirement Program; and
(ii) The amount of the hypothetical pension benefits
that would be payable to the Employee or to his surviving spouse,
as the case may be, under the Retirement Program if the following
assumptions are made:
(A) The projected Continuation Period, determined
without regard to the possibility of the Employee's
death, is counted as employment with the Affiliated Group
for all purposes (including, without limitation, benefit
accrual) under the Retirement Program; and
(B) 142.5 percent of the projected Base
Compensation to be received by the Employee during the
Continuation Period is counted as compensation for
purposes of determining benefits under the Retirement
Program.
The Supplemental Benefit shall be payable in the same form as the
pension benefit under the Retirement Plan, unless such pension benefit
is paid in the form of a single lump sum. In that event, the
Supplemental Benefit shall be payable in the normal form of benefit
provided under the Retirement Plan and shall be computed and paid as if
the pension benefits actually paid under the Retirement Plan were also
payable in the normal form. The amount of the Supplemental Benefit
shall be recalculated each year in accordance with any provisions of the
Retirement Plan which are applicable to the Employee and which provide
for the adjustment of pension benefits to reflect changes in the cost of
living.
(g) Equivalency. Subsections (e) and (f) above shall be
construed, to the greatest extent possible, so as to place the Employee
in the position in which he would have been if his active participation
in the Retirement Program had continued during the Continuation Period.
However, any incremental tax costs or benefits associated with the
Supplemental Benefit shall be disregarded for this purpose.
(h) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit contemplated by this
Section 7, nor shall any such payment or benefit be reduced by any
earnings or benefits that the Employee may receive from any other
source.
8. Limitation on Payments.
(a) Basic Rule. Any provision of this Agreement to the contrary
notwithstanding, in the event that the independent auditors most
recently selected by the Board of Directors of the Company (the
"Auditors") determine that any payment, transfer or acceleration of
vesting by the Affiliated Group to or for the benefit of the Employee,
whether pursuant to the terms of this Agreement or any other plan or
agreement (a "Payment"), would be nondeductible by the Affiliated Group
for federal income tax purposes because of section 280G of the Code,
then the aggregate present value of all Payments shall be reduced (but
not below zero) to the Reduced Amount. For purposes of this Section 8,
the "Reduced Amount" shall be the amount, expressed as a present value,
which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Affiliated Group because
of section 280G of the Code.
(b) Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Affiliated Group because of
section 280G of the Code, then the Company, within five business days
after being notified by the Auditors, shall give the Employee notice to
that effect and a copy of the detailed calculation thereof and of the
Reduced Amount. The Employee may then elect, in his sole discretion,
which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Company in writing of
his election within 30 days of his receipt of notice. If no such
election is made by the Employee within such 30-day period, then the
Company may elect which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value
of the Payments equals the Reduced Amount) and shall notify the Employee
promptly of such election. For all purposes under this Section 8,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
8 shall be binding upon the Affiliated Group and the Employee and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. Within five business days following the completion of
such determinations and the elections hereunder, the Affiliated Group
shall pay or transfer to or for the benefit of the Employee such amounts
as are then due to him under this Agreement. It shall, as promptly as
possible, pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under this Agreement.
(c) Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Affiliated Group which should not have been
made (an "Overpayment") or that additional Payments which will not have
been made by the Affiliated Group could have been made (an
"Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against
the Affiliated Group or the Employee which the Auditors believe has a
high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to
the Employee which he shall repay to the Affiliated Group, together with
interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by the Employee to the Affiliated Group if and to the extent
that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall
promptly be paid or transferred by the Affiliated Group to or for the
benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. Protection of Trade Secrets.
(a) Trade Secrets. The parties acknowledge and agree that
during the term of this Agreement and in the course of his employment
hereunder, the Employee will have access to and become acquainted with
information concerning the operations of members of the Affiliated
Group, including without limitation financial, personnel, customer,
sales, systems and other information that is owned by members of the
Affiliated Group and regularly used in the operation of their business,
and that such information constitutes the trade secrets of the members
of the Affiliated Group. The Employee specifically agrees that he shall
not misuse, misappropriate or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as required
in the course of his employment hereunder.
(b) Unfair Competition. The Employee acknowledges and agrees
that the unauthorized use or disclosure of any of the trade secrets
obtained by the Employee during the course of his employment under this
Agreement, including information concerning the Affiliated Group's
current, future or proposed work, services or products, the facts that
any such work, services or products are planned, under consideration or
in production, as well as any descriptions thereof, constitute unfair
competition. The Employee promises and agrees not to engage in any
unfair competition with any member of the Affiliated Group, either
during the term of this Agreement or at any time thereafter.
(c) Return of Documents. The Employee further agrees that
all files, records, documents, computer disks, drawings, specifications,
equipment and similar items relating to the business of members of the
Affiliated Group, whether prepared by the Employee or others, are and
shall remain exclusively the property of the members of the Affiliated
Group and shall be returned to the Affiliated Group upon the termination
of his employment hereunder.
10. Successors.
(a) Company's Successors. The Company shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Company would be required to
perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall
be a breach of this Agreement and shall entitle the Employee to all of
the compensation and benefits to which he would have been entitled
hereunder if the Company had involuntarily terminated his employment
without Cause on the date when such succession becomes effective. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Subsection (a) or
which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
11. Notice.
Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered mail,
return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
12. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by the Company's
Chief Executive Officer. No waiver by either party of any breach of, or
of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
Effective as of the date hereof, this Agreement supersedes all prior
employment agreements between the Employee and any member of the
Affiliated Group.
(c) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
(d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
(e) Arbitration. Except as otherwise provided in Section 8, any
controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in Oakland,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
(f) No Assignment. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (f) shall be void.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.
/s/ John G. Burgess
______________________
John G. Burgess
AMERICAN PRESIDENT COMPANIES, LTD.
/s/ J. M. Lillie
By ________________________
J. M. Lillie
Chairman of the Board, President
and Chief Executive Officer
TW940324Cemp-1800tw
--
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 28th day of July, 1992, by
and between MICHAEL DIAZ (the "Employee") and AMERICAN PRESIDENT
COMPANIES, LTD., a Delaware corporation (the "Company"),
W I T N E S S E T H:
Whereas the Company is the parent corporation in a group of
affiliated corporations (the "Affiliated Group") which consists of the
Company and all of its direct or indirect subsidiaries;
Whereas the parties entered into employment agreements as of
March 25, 1987, and March 15, 1988, securing the services of the
Employee for the benefit of the Affiliated Group;
Whereas the parties wish to continue the services of the Employee
for the benefit of the Affiliated Group upon the terms and conditions
set forth below; and
Whereas the parties wish to have this Agreement supersede all
prior employment agreements between the Employee and any member of the
Affiliated Group;
N o w, T h e r e f o r e, in consideration of the mutual
covenants herein contained, the parties agree as follows:
1. Term of Employment.
(a) Basic Rule. The Company agrees to cause the Employee's
employment with the Affiliated Group to continue, and the Employee
agrees to remain in employment with the Affiliated Group, from the date
hereof until the earlier of (i) the first day of the month coinciding
with or next following the Employee's 65th birthday (the "Normal
Retirement Date") or (ii) the date when the Employee's employment
terminates pursuant to Subsections (b), (c) or (d) below. In no event
shall a transfer (whether voluntary or involuntary) of the Employee from
one member of the Affiliated Group to another member be treated as a
termination of employment for any purpose under this Agreement.
(b) Early Termination. Subject to Sections 6 and 7, the Company
may terminate the Employee's employment with the Affiliated Group by
giving the Employee 30 days' advance notice in writing. The Employee
may terminate his employment with the Affiliated Group by giving the
Company 30 days' advance notice in writing. The Employee's employment
shall terminate automatically in the event of his death. Any waiver of
notice shall be valid only if it is made in writing and expressly refers
to the applicable notice requirement of this Section 1.
(c) Cause. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate at any time
for Cause by giving the Employee written notice. For all purposes under
this Agreement, "Cause" shall mean (i) a willful failure by the Employee
to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to
physical or mental illness or impairment, or (ii) a willful act by the
Employee which constitutes gross misconduct and which is materially
injurious to a member of the Affiliated Group. No act, or failure to
act, by the Employee shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or
omission was in such member's best interest.
(d) Disability. Subject to Section 6, the Company may cause the
Employee's employment with the Affiliated Group to terminate for
Disability by giving the Employee 30 days' advance notice in writing.
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to carry out any
of his duties under this Agreement for a period of not less than six
consecutive months as the result of his incapacity due to physical or
mental illness. In the event that the Employee resumes the performance
of his duties hereunder on a full-time basis before the termination of
his employment under this Subsection (d) becomes effective, the notice
of termination shall automatically be deemed to have been revoked.
(e) Termination of Agreement. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
(a) Position. The Employee shall hold the position of Executive
Vice President of American President Lines, Ltd. or such other position
or positions with any member of the Affiliated Group as the Company may
from time to time assign to him.
(b) Obligations. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time
to the Affiliated Group and shall not render services to any other
person or entity without the prior written consent of the Company's
Chief Executive Officer. The foregoing, however, shall not preclude the
Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities
under this Agreement.
3. Base Compensation.
During the term of his employment under this Agreement, the
Employee shall receive as compensation for his services a base salary at
the annual rate of $275,810, or at such higher rate as the Company may
determine from time to time. Such salary shall be payable in
approximately equal biweekly installments. Once the Company has
increased such salary, it thereafter shall not be reduced. (The annual
compensation specified in this Section 3, together with any increases in
such compensation which the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
4. Employee Benefits.
During the term of his employment under this Agreement, the
Employee shall be eligible to participate in the employee benefit plans
and executive compensation programs maintained by the Company, including
(without limitation) pension plans, thrift or profit-sharing plans,
excess-benefit plans, stock purchase, stock option, restricted stock or
phantom stock plans, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid vacations and
similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and
to the determinations of any committee administering such plan or
program; provided, however, that the Employee's rights with respect to
severance pay upon termination of employment shall be governed
exclusively by this Agreement, and the Employee shall not be eligible to
participate in any severance plan maintained by the Company.
5. Business Expenses.
During the term of his employment under this Agreement, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Employee shall be reimbursed for such expenses upon
presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Change in Control.
(a) Definition. For all purposes under this Agreement, "Change
in Control" shall mean the occurrence of any of the following events:
(i) A change in control required to be reported pursuant
to Item 6(e) of Schedule 14A of Regulation 14A under the
Securities Exchange Act of 1934 (the "Exchange Act");
(ii) A change in the composition of the Company's Board
of Directors, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of the Company 24 months prior to such change or (B)
were elected, or nominated for election, to the Company's Board
of Directors with the affirmative votes of at least a majority of
the directors who had been directors of the Company 24 months
prior to such change and who were still in office at the time of
the election or nomination; or
(iii) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart
from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative
beneficial ownership of securities of any person resulting solely
from a reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
(b) Severance Payment. If, (i) during the term of this
Agreement and at any time after the occurrence of a Change in Control, a
member of the Affiliated Group terminates the Employee's employment for
any reason or no reason, or (ii) during the term of this Agreement and
within one year after a Change in Control, the Employee resigns as a
result of a material change in his responsibilities or the relocation of
his place of employment by more than 20 miles from Oakland, California,
or (iii) during the term of this Agreement and within the 30-day period
commencing one year after the occurrence of a Change in Control, the
Employee resigns his employment for any reason, then the Employee shall
be entitled to receive a severance payment from the Company (the
"Severance Payment"). The Severance Payment shall be made in a lump sum
not less than 31 days nor more than 60 days following the date of the
employment termination and shall be in an amount determined under
Subsection (c) below. The Severance Payment shall be in lieu of any
further payments to the Employee and any further accrual of benefits
under Sections 3 and 4 with respect to periods subsequent to the date of
the employment termination and any termination benefits under Section 7.
The foregoing notwithstanding, in the event of the Employee's
termination or resignation as provided in Clauses (i) or (ii) of this
Subsection (b), the Employee may elect to receive, in lieu of the
Severance Payment, all of the termination benefits described in Section
7, as if his termination or resignation were a termination without
Cause. In the event of the Employee's resignation as provided in Clause
(iii) of this Subsection (b), the Employee may elect to receive, in lieu
of the Severance Payment, the termination benefits described in
Subsections 7(b) and (c), as if his resignation were a termination
without Cause; provided, however, that the Continuation Period to be
counted as employment shall be determined by substituting "18 months
after the date of such employment termination" for Clause (i) of
Subsection 7(a), and the insurance coverage provided during the
Continuation Period pursuant to Subsection 7(c) shall be limited to
medical, dental and life insurance plans. The Employee shall advise the
Company of his election in writing within 30 days after his resignation
or after receiving the Company's notice of termination.
(c) Amount. The amount of the Severance Payment shall be equal
to the product of the following:
(i) 142.5 percent of the Employee's monthly rate of Base
Compensation, as in effect on the date of the employment
termination; times
(ii) The lesser of (A) 36 months or (B) the number of
months between the date of the employment termination and the
Employee's Normal Retirement Date; provided, however, that in the
event of the Employee's resignation as provided in Clause (iii)
of Subsection (b) above, the amount of the Severance Payment
shall be determined by substituting "18 months" for Clause (A).
For this purpose, a partial month shall be counted as the
appropriate fraction of a full month.
(d) Incentive Programs. If, during the term of this Agreement,
a Change in Control occurs with respect to the Company, the Employee
shall become fully vested in all awards heretofore or hereafter granted
to him under all stock option, stock appreciation rights, restricted
stock, phantom stock or similar plans maintained by the Company, any
contrary provisions of such plans notwithstanding.
(e) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Section 6
(whether by seeking new employment or in any other manner), nor shall
any such payment be reduced by any earnings that the Employee may
receive from any other source.
7. Involuntary Termination Without Cause.
(a) Continuation Period. In the event that, during the term of
this Agreement, a member of the Affiliated Group terminates the
Employee's employment for any reason other than Cause or Disability or
for no reason, the Employee shall be entitled to receive all of the
payments and benefit coverage described in the succeeding subsections of
this Section 7. Such payments and benefit coverage shall continue for
the period commencing on the date when the employment termination is
effective and ending on the earliest of (i) 36 months after the date of
such employment termination, (ii) the Employee's Normal Retirement Date
or (iii) the date of the Employee's death (the "Continuation Period").
Any other provision of this Agreement notwithstanding, if the Employee
is entitled and elects to receive a severance payment pursuant to
Section 6, then no payments or benefit coverage shall be provided to the
Employee under this Section 7.
(b) Base Compensation. During the Continuation Period, the
Employee shall receive biweekly payments of 142.5 percent of his
biweekly rate of Base Compensation, as in effect on the date of the
employment termination.
(c) Insurance Coverage. During the Continuation Period, the
Employee (and, where applicable, his dependents) shall be entitled to
continue participation in all insurance or similar plans maintained by
the Company, including (without limitation) life, disability, health and
accident insurance programs, as if he were still an employee of the
Company. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation. To the
extent that the Company finds it impossible to cover the Employee under
its group insurance policies during the Continuation Period, the Company
(at its own expense) shall provide the Employee with the same level of
coverage under individual policies.
(d) Incentive Programs. The Continuation Period shall be
counted as employment with the Affiliated Group for purposes of
determining the expiration date of all options on the Company's stock
and for purposes of vesting under all executive compensation programs in
which the Employee participated (any contrary provisions of option
agreements or such programs notwithstanding), including (without
limitation) stock purchase, stock option, restricted stock or phantom
stock plans, incentive or other bonus plans and similar programs, but
not including any pension, thrift or profit-sharing plan intended to
qualify under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The preceding sentence shall not be construed to
require the grant of any new awards to the Employee under such executive
compensation programs during the Continuation Period.
(e) Supplemental Benefit. In lieu of accruing additional
pension benefits under the Retirement Plan for Non-Bargaining Unit
Employees of American President Companies, Ltd. (the "Retirement Plan"),
the Excess-Benefit Plan of American President Companies, Ltd. and any
other qualified or nonqualified defined-benefit pension plan maintained
by the Company, and any successor to any of such plans (collectively,
the "Retirement Program"), during the Continuation Period, the Employee
and his surviving spouse (if any) shall be entitled to receive an
unfunded supplemental retirement benefit (the "Supplemental Benefit").
The amount of the Supplemental Benefit shall be determined under
Subsection (f) below. Supplemental Benefit payments shall be made in
monthly installments, commencing with the month for which the first
pension payment is made to the Employee or his surviving spouse under
the Retirement Plan and ending with the month for which the last pension
payment is made to the Employee or his surviving spouse under the
Retirement Plan.
(f) Amount of Supplemental Benefit. The amount of the
Supplemental Benefit shall be equal to the difference between:
(i) The amount of the pension benefits actually paid to
the Employee or to his surviving spouse, as the case may be,
under the Retirement Program; and
(ii) The amount of the hypothetical pension benefits
that would be payable to the Employee or to his surviving spouse,
as the case may be, under the Retirement Program if the following
assumptions are made:
(A) The projected Continuation Period, determined
without regard to the possibility of the Employee's
death, is counted as employment with the Affiliated Group
for all purposes (including, without limitation, benefit
accrual) under the Retirement Program; and
(B) 142.5 percent of the projected Base
Compensation to be received by the Employee during the
Continuation Period is counted as compensation for
purposes of determining benefits under the Retirement
Program.
The Supplemental Benefit shall be payable in the same form as the
pension benefit under the Retirement Plan, unless such pension benefit
is paid in the form of a single lump sum. In that event, the
Supplemental Benefit shall be payable in the normal form of benefit
provided under the Retirement Plan and shall be computed and paid as if
the pension benefits actually paid under the Retirement Plan were also
payable in the normal form. The amount of the Supplemental Benefit
shall be recalculated each year in accordance with any provisions of the
Retirement Plan which are applicable to the Employee and which provide
for the adjustment of pension benefits to reflect changes in the cost of
living.
(g) Equivalency. Subsections (e) and (f) above shall be
construed, to the greatest extent possible, so as to place the Employee
in the position in which he would have been if his active participation
in the Retirement Program had continued during the Continuation Period.
However, any incremental tax costs or benefits associated with the
Supplemental Benefit shall be disregarded for this purpose.
(h) No Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit contemplated by this
Section 7, nor shall any such payment or benefit be reduced by any
earnings or benefits that the Employee may receive from any other
source.
8. Limitation on Payments.
(a) Basic Rule. Any provision of this Agreement to the contrary
notwithstanding, in the event that the independent auditors most
recently selected by the Board of Directors of the Company (the
"Auditors") determine that any payment, transfer or acceleration of
vesting by the Affiliated Group to or for the benefit of the Employee,
whether pursuant to the terms of this Agreement or any other plan or
agreement (a "Payment"), would be nondeductible by the Affiliated Group
for federal income tax purposes because of section 280G of the Code,
then the aggregate present value of all Payments shall be reduced (but
not below zero) to the Reduced Amount. For purposes of this Section 8,
the "Reduced Amount" shall be the amount, expressed as a present value,
which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Affiliated Group because
of section 280G of the Code.
(b) Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible by the Affiliated Group because of
section 280G of the Code, then the Company, within five business days
after being notified by the Auditors, shall give the Employee notice to
that effect and a copy of the detailed calculation thereof and of the
Reduced Amount. The Employee may then elect, in his sole discretion,
which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Company in writing of
his election within 30 days of his receipt of notice. If no such
election is made by the Employee within such 30-day period, then the
Company may elect which and how much of the Payments shall be eliminated
or reduced (as long as after such election the aggregate present value
of the Payments equals the Reduced Amount) and shall notify the Employee
promptly of such election. For all purposes under this Section 8,
present value shall be determined in accordance with section 280G(d)(4)
of the Code. All determinations made by the Auditors under this Section
8 shall be binding upon the Affiliated Group and the Employee and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. Within five business days following the completion of
such determinations and the elections hereunder, the Affiliated Group
shall pay or transfer to or for the benefit of the Employee such amounts
as are then due to him under this Agreement. It shall, as promptly as
possible, pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under this Agreement.
(c) Overpayments and Underpayments. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments
will have been made by the Affiliated Group which should not have been
made (an "Overpayment") or that additional Payments which will not have
been made by the Affiliated Group could have been made (an
"Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon
the assertion of a deficiency by the Internal Revenue Service against
the Affiliated Group or the Employee which the Auditors believe has a
high probability of success, determine that an Overpayment has been
made, such Overpayment shall be treated for all purposes as a loan to
the Employee which he shall repay to the Affiliated Group, together with
interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be
payable by the Employee to the Affiliated Group if and to the extent
that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall
promptly be paid or transferred by the Affiliated Group to or for the
benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. Protection of Trade Secrets.
(a) Trade Secrets. The parties acknowledge and agree that
during the term of this Agreement and in the course of his employment
hereunder, the Employee will have access to and become acquainted with
information concerning the operations of members of the Affiliated
Group, including without limitation financial, personnel, customer,
sales, systems and other information that is owned by members of the
Affiliated Group and regularly used in the operation of their business,
and that such information constitutes the trade secrets of the members
of the Affiliated Group. The Employee specifically agrees that he shall
not misuse, misappropriate or disclose any such trade secrets, directly
or indirectly, to any other person or use them in any way, either during
the term of this Agreement or at any time thereafter, except as required
in the course of his employment hereunder.
(b) Unfair Competition. The Employee acknowledges and agrees
that the unauthorized use or disclosure of any of the trade secrets
obtained by the Employee during the course of his employment under this
Agreement, including information concerning the Affiliated Group's
current, future or proposed work, services or products, the facts that
any such work, services or products are planned, under consideration or
in production, as well as any descriptions thereof, constitute unfair
competition. The Employee promises and agrees not to engage in any
unfair competition with any member of the Affiliated Group, either
during the term of this Agreement or at any time thereafter.
(c) Return of Documents. The Employee further agrees that
all files, records, documents, computer disks, drawings, specifications,
equipment and similar items relating to the business of members of the
Affiliated Group, whether prepared by the Employee or others, are and
shall remain exclusively the property of the members of the Affiliated
Group and shall be returned to the Affiliated Group upon the termination
of his employment hereunder.
10. Successors.
(a) Company's Successors. The Company shall require any
successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this
Agreement and to agree expressly to perform this Agreement in the same
manner and to the same extent as the Company would be required to
perform it in the absence of a succession. The Company's failure to
obtain such agreement prior to the effectiveness of a succession shall
be a breach of this Agreement and shall entitle the Employee to all of
the compensation and benefits to which he would have been entitled
hereunder if the Company had involuntarily terminated his employment
without Cause on the date when such succession becomes effective. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Subsection (a) or
which becomes bound by this Agreement by operation of law.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
11. Notice.
Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered mail,
return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
12. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by the Company's
Chief Executive Officer. No waiver by either party of any breach of, or
of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied)
which are not expressly set forth in this Agreement have been made or
entered into by either party with respect to the subject matter hereof.
Effective as of the date hereof, this Agreement supersedes all prior
employment agreements between the Employee and any member of the
Affiliated Group.
(c) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
(d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity
or enforceability of any other provision hereof, which shall remain in
full force and effect.
(e) Arbitration. Except as otherwise provided in Section 8, any
controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in Oakland,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
(f) No Assignment. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any action in
violation of this Subsection (f) shall be void.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as
of the day and year first above written.
/s/ Michael Diaz
_____________________
Michael Diaz
AMERICAN PRESIDENT COMPANIES, LTD.
/s/ J. M. Lillie
By ________________________
J. M. Lillie
Chairman of the Board, President
and Chief Executive Officer
TW940329Cemp-1130tw
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary information extracted from the 10-Q of American
President Companies, Ltd. for the quarter ended September 23, 1994 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> SEP-23-1994
<CASH> 44,049
<SECURITIES> 197,902
<RECEIVABLES> 269,981
<ALLOWANCES> 0
<INVENTORY> 38,898
<CURRENT-ASSETS> 600,391
<PP&E> 1,796,557
<DEPRECIATION> 874,964
<TOTAL-ASSETS> 1,643,784
<CURRENT-LIABILITIES> 409,163
<BONDS> 391,868
<COMMON> 27,291
75,000
0
<OTHER-SE> 491,752
<TOTAL-LIABILITY-AND-EQUITY> 1,643,784
<SALES> 0
<TOTAL-REVENUES> 2,028,777
<CGS> 0
<TOTAL-COSTS> 1,939,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,584
<INCOME-PRETAX> 78,127
<INCOME-TAX> 26,407
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,720
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.60
</TABLE>
