<PAGE>
BEING FILED PURSUANT TO RULE 901 (D) OF REGULATION S-T
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (D) OF THE SECURITIES AND EXCHANGE ACT OF
1934.
For the quarterly period ended SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the period from to
COMMISSION FILE NUMBER
1-10164
OMI CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2625280
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 PARK AVENUE, NEW YORK, N.Y. 10016
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (212) 986-1960
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), 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 NOVEMBER 12, 1997 :
Common Stock, par value 0.50 per share 43,066,679 shares
<PAGE>
OMI CORP. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the nine months
ended September 30, 1997 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 11
PART II: OTHER INFORMATION 20
SIGNATURES 21
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<PAGE>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Voyage revenues $ 52,112 $ 55,952 $ 163,499 $ 175,446
Other income 2,506 2,647 5,885 6,273
----------- ----------- ----------- -----------
Total revenues 54,618 58,599 169,384 181,719
----------- ----------- ----------- -----------
Operating Expenses:
Vessel and voyage 41,857 40,711 128,445 131,329
Depreciation and amortization 7,149 7,571 21,584 23,818
General and administrative 4,734 4,096 12,301 11,425
----------- ----------- ----------- -----------
Total operating expenses 53,740 52,378 162,330 166,572
----------- ----------- ----------- -----------
Operating income 878 6,221 7,054 15,147
----------- ----------- ----------- -----------
Other income (expense):
Gain on disposal of assets-net 2 9,232 908 12,833
Interest expense-net (1,994) (6,866) (7,600) (20,009)
Minority interest in income
of subsidiary (22) (1,194) (126) (1,287)
----------- ----------- ----------- -----------
Net other (expense) income (2,014) 1,172 (6,818) (8,463)
----------- ----------- ----------- -----------
(Loss) income before income taxes,
equity in operations of joint ventures,
extraordinary loss and cumulative effect
of change in accounting principle (1,136) 7,393 236 6,684
Provision for income taxes 21 2,395 1,127 1,833
----------- ----------- ----------- -----------
(Loss) income before equity in operations
of joint ventures, extraordinary loss
and cumulative effect of change in
accounting principle (1,157) 4,998 (891) 4,851
Equity in operations of joint ventures (3,774) 70 (90) 1,136
----------- ----------- ----------- -----------
(Loss) income before extraordinary loss
and cumulative effect of change in
accounting principle (4,931) 5,068 (981) 5,987
Extraordinary loss, net of income taxes -- (3,022) -- (2,661)
Cumulative effect of change in accounting
principle, net of income taxes of $7,429 -- -- 13,797 --
----------- ----------- ----------- -----------
Net (loss) income $ (4,931) $ 2,046 $ 12,816 $ 3,326
=========== =========== =========== ===========
Earnings Per Common Share:
(Loss) income before extraordinary
loss and cumulative effect of change
in accounting principle $ (0.11) $ 0.16 $ (0.02) $ 0.19
Extraordinary loss, net of income taxes -- (0.10) -- (0.08)
Cumulative effect of change in
accounting principle, net of income
taxes -- -- 0.32 --
----------- ----------- ----------- -----------
Net (loss) income $ (0.11) $ 0.06 $ 0.30 $ 0.11
============ =========== =========== ===========
Weighted average number of shares
of common stock outstanding 42,956 31,558 42,866 31,420
============ =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
OMI CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents: 1997-
$20,202, 1996-$36,132 $ 23,309 $ 47,877
Advances to masters 1,427 1,422
Receivables:
Traffic 11,886 11,715
Other 9,191 12,234
Taxes receivable 2,660 360
Prepaid drydock expense 2,525 --
Other prepaid expenses and current assets 12,341 5,558
Vessels held for sale -- 34,399
------------- -------------
Total current assets 63,339 113,565
------------- -------------
Capital Construction Fund 10,813 10,283
Vessels and other property, at cost 516,919 527,461
Construction in progress 44,197 10,754
Less accumulated depreciation (197,509) (186,152)
------------- -------------
Vessels and other property-net 363,607 352,063
------------- -------------
Investments in, and advances to joint ventures 62,303 59,322
Note receivable 9,000 --
Prepaid drydock expense 7,787 --
Other assets and deferred charges 21,963 17,049
------------- -------------
Total $ 538,812 $ 552,282
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,499 $ 6,278
Accrued liabilities:
Voyage and vessel 10,939 17,555
Interest 1,782 4,150
Other 4,336 3,443
Deferred gain on sale of vessels 5,809 --
Current portion of long-term debt 21,499 34,892
------------- -------------
Total current liabilities 48,864 66,318
------------- -------------
Advance time charter revenues and other
liabilities 3,651 8,685
Deferred gain on sale of vessels 31,751 --
Deferred income taxes payable 72,381 63,808
Long-term debt 158,365 202,256
Minority interest in subsidiary 1,930 3,637
Stockholders' equity 221,870 207,578
------------- -------------
Total $ 538,812 $ 552,282
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
OMI CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
UNEARNED GAIN (LOSS)
RETAINED CUMULATIVE COMPENSATION ON TOTAL
COMMON STOCK CAPITAL EARNINGS TRANSLATION RESTRICTED SECURITIES STOCKHOLDERS'
SHARES AMOUNT SURPLUS (DEFICIT) ADJUSTMENT STOCK -NET EQUITY
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 42,691 $ 21,346 $ 184,251 $ (1,848) $ 4,912 $ (1,039) $ (44) $ 207,578
Net income 12,816 12,816
Exercise of
stock options 283 141 1,565 1,706
Issuance of
restricted
stock awards 50 25 413 (438) --
Retirement of
minority
stockholders'
equity
interest
in subsidiary (549) (549)
Amortization
of unearned
compensation 288 288
Net change in
valuation
account 31 31
------ -------- --------- -------- --------- --------- -------- ---------
Balance at
September
30, 1997 43,024 $ 21,512 $ 185,680 $ 10,968 $ 4,912 $ (1,189) $ (13) $ 221,870
====== ======== ========= ======== ========= ========= ======== =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
OMI CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
-------- -------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 12,816 $ 3,326
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Extraordinary loss, net of income taxes -- 2,661
Cumulative effect of change in accounting
principle, net of income taxes (13,797) --
Increase in deferred income taxes 1,127 1,833
Depreciation and amortization 21,584 23,818
Amortization of unearned compensation 288 294
Gain on disposal of assets-net (908) (12,833)
Amortization of deferred gain on sale of vessel (2,925) --
Equity in operations of joint ventures
under (over) dividends received 90 (768)
Changes in assets and liabilities:
Increase in receivables and other current assets (7,687) (41)
Decrease in accounts payable and accrued
liabilities (4,177) (23,110)
Advances from joint ventures and affiliates - net (3,071) (3,025)
Increase in other assets and deferred charges (2,294) (11,036)
Decrease in advance time charter revenues
and other liabilities (774) (694)
Other assets and liabilities - net 296 375
--------- --------
Net cash provided (used) by operating activities 568 (19,200)
--------- --------
CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES:
Proceeds from disposition of vessels and other property 78,972 57,839
Additions to vessels and other property (44,886) (14,909)
Proceeds from sale of securities -- 1,079
Proceeds and interest received and reinvested in
Capital Construction Fund (552) (476)
Payments for the retirement of minority stockholders'
interests in subsidiary (2,456) --
--------- --------
Net cash provided by investing activities 31,078 43,533
--------- --------
CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,706 541
Proceeds from issuance of long-term debt 114,090 173,923
Payments on long-term debt (171,374) (185,524)
Payments for debt issue costs (636) (1,160)
--------- --------
Net cash used by financing activities (56,214) (12,220)
--------- --------
Net (decrease) increase in cash and cash equivalents (24,568) 12,113
Cash and cash equivalents at beginning of period 47,877 32,569
--------- --------
Cash and cash equivalents at end of period $ 23,309 $ 44,682
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
OMI CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of the
management of OMI Corp. and subsidiaries ("OMI" or the "Company"), all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of operating results have been included in the statements. Certain
accounts have been reclassified in the 1996 financial statements to conform to
their 1997 presentation.
Note 2 - Income Taxes
The provision for income taxes on income excluding the extraordinary loss and
the cumulative effect of change in accounting principle varies from statutory
rates as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(in thousands) 1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Benefit) provision calculated at
statutory rates $ (1,719) $ 2,612 $ 51 $ 2,737
Adjustment for equity in operations
of certain joint ventures 1,740 (217) 1,076 (904)
----------- ---------- ---------- ----------
Provision $ 21 $ 2,395 $ 1,127 $ 1,833
========== ========= ======== =========
</TABLE>
The Company has not provided deferred income taxes on its equity in the
undistributed earnings of foreign corporate joint ventures accounted for under
the equity method other than Amazon Transport, Inc. ("Amazon") and White Sea
Holdings Ltd. ("White Sea"). These earnings are considered by management to be
invested in the business for an indefinite period.
Note 3 - Supplemental Cash Flow Information
Cash payments include interest of approximately $13,077,000 and $21,599,000 for
the nine months ended September 30, 1997 and 1996, respectively. Income taxes of
$4,708,000 were paid during the nine months of 1997. There were no income taxes
paid during the nine months ended September 30, 1996.
In March 1997 the Company delivered a vessel with net book value of $9,800,000
to new owners as part of an exchange transaction. Cash in the amount of
$11,000,000 was received and was held in an escrow account until the delivery of
the vessel in April 1997 to the Company which completed the exchange
transaction.
-7-
<PAGE>
Note 4 - Credit Lines/Loan Agreements
OMI has a revolving credit/term loan agreement providing for a credit facility
of $133,000,000 expiring in March 2002. The Company had an outstanding balance
of $114,090,000 under this agreement at September 30, 1997 which was secured by
mortgages on eleven vessels. On October 3, 1997 a $5,000,000 payment was made on
this facility. The Notes under the credit facility bear interest at LIBOR plus a
margin ranging from 60-95 basis points which is computed based on the Company's
funded debt to equity ratio and interest coverage ratio. The interest rates at
September 30, 1997 were 6.76 percent and 6.39 percent on $109,090,000 and
$5,000,000, respectively. The Credit Facility contains financial covenants with
respect to cash, interest rate coverage, net worth and funded debt to equity.
Dividends paid in any year are limited to 50 percent of net income in that year.
During October 1997, the Company entered into a commitment with existing lenders
for two new revolving credit facilities in the amounts of $50,000,000 and
$75,000,000. These credit facilities are to be used to finance on an interim
basis the acquisition of vessels and will be secured by such vessels. Amounts
drawn on the new revolving credit facilities are to be repaid no later than six
months after drawdown. The credit facilities will bear interest at LIBOR plus a
margin ranging from 55-80 basis points which is computed based on the Company's
funded debt to total capitalization ratio and interest coverage ratio. The new
credit facilities contain the same financial covenants as the facility described
above.
Note 5 - Guaranteed Debt
OMI and affiliates of its joint venture partners act as co-guarantors for a
portion of the debt incurred by joint ventures. Such debt was approximately
$17,542,000 at September 30, 1997, with OMI's share of such guarantees being
approximately $8,744,000.
The Company and its joint venture partners have committed to fund any working
capital deficiencies which may be incurred by their joint venture investments.
No such deficiencies have been funded in the nine months ended September 30,
1997.
Note 6 - Accounting Change for Special Survey and Drydock Expenses
Effective January 1, 1997, the Company changed its method of accounting for
special survey and drydock expenses from the accrual method to the prepaid
method. Special survey and drydock expenses had been accrued and charged to
operating expenses over the vessel's survey cycle, which is generally a two to
three year period. Under the prepaid method, survey and drydock expenses are
capitalized and amortized over the period until the next survey cycle.
Management believes the prepaid method better matches costs with revenues, and
minimizes any significant changes in estimates associated with the accrual
method. The cumulative effect of this accounting change is shown separately in
the consolidated statement of operations and resulted in income of $13,797,000
(net of income taxes of $7,429,000), or $0.32 per share.
-8-
<PAGE>
The cumulative effect of this change in accounting principle as of January 1,
1997 on the Company's balance sheet was to increase total assets by $11,318,000,
decrease total liabilities by $2,479,000 and increase total stockholders' equity
by $13,797,000.
The three and six month periods ended March 31 and June 30, 1997, respectively,
were previously presented using the accrual method of accounting. The impact of
the restatement on the Company's statements of operations is summarized as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, 1997 ENDED JUNE 30, 1997
AS AS
ORIGINALLY ORIGINALLY
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before cumulative effect
of change in accounting principle $ 2,820 $ 1,540 $ 4,098 $ 3,950
Cumulative effect of change in accounting
principle, net of income taxes of $7,429 -- 13,797 -- 13,797
--------- --------- --------- ---------
Net income $ 2,820 $ 15,337 $ 4,098 $ 17,747
========= ========= ========= =========
Earnings per common share:
Income before cumulative effect of
change in accounting principle $ 0.07 $ 0.04 $ 0.10 $ 0.09
Cumulative effect of change in accounting
principle, net of income taxes -- 0.32 -- 0.32
--------- --------- --------- ---------
Net income $ 0.07 $ 0.36 $ 0.10 $ 0.41
========= ========== ========= ==========
</TABLE>
The three and nine month periods ended September 30, 1997 are presented using
the accrual method of accounting. Pro forma amounts for these periods assuming
the prepaid method had been retroactively applied are summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 ENDED SEPTEMBER 30, 1996
<S> <C> <C>
Income before extraordinary loss $ 2,123 $ 1,977
========= =========
Net loss $ (899) $ (684)
========= =========
Earnings per common share:
Income before extraordinary loss $ 0.07 $ 0.06
======== =========
Net loss $ (0.03) $ (0.02)
========= =========
</TABLE>
Note 7 - Commitments
OMI has agreed to acquire Marine Transport Lines, Inc. ("MTL"), a privately
owned company specializing in U.S. marine and transportation services,
principally to the energy and chemical industries for approximately $5,000,000
payable in common stock of the Company as constituted prior to the transaction
defined in the following paragraph plus a number of additional shares sufficient
to give the owners of MTL 30 percent of the shares of the Company as constituted
following that transaction.
In connection with the acquisition of MTL, OMI plans to spin off, as a tax free
distribution to shareholders, a subsidiary owning and operating its foreign
-9-
<PAGE>
assets ("Foreign OMI"). Foreign OMI will retain the OMI name and will be managed
by OMI's current management. The combined OMI-MTL entity ("Domestic") will use
the MTL name and will be managed by MTL's current management. Upon completion of
the acquisition and spinoff (the "transaction"), holders of OMI shares prior to
the transaction will own approximately two-thirds of the outstanding shares of
Domestic, as well as substantially all outstanding shares of Foreign OMI. Former
MTL shareholders will hold approximately one-third of the outstanding shares of
Domestic.
The transaction is subject to a number of conditions, including the receipt by
OMI of a favorable private letter ruling from the Internal Revenue Service and
OMI shareholder approval. OMI filed a request for a private letter ruling in
September 1997, and the closing of the transaction is expected to occur in the
first part of 1998 after the ruling is received.
The Company has entered into contracts for the construction of four Suezmax
tankers at a cost of approximately $54 million per vessel (three will be
delivered in 1998 and one will be delivered in the first quarter of 1999).
Note 8 - Joint Venture Information
In September 1997, the Company's 49.9 percent owned joint venture Mosaic
Alliance Corporation ("Mosaic")sold a vessel to one of its joint venture
partners at a loss, of which OMI's proportionate share was $5,105,000. Mosaic is
in the process of acquiring its majority shareholder's interest in this venture,
at which time, it will become a wholly owned subsidiary of OMI.
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Overview
OMI Corp. ("OMI" or the "Company") is one of the largest, measured by deadweight
tons ("dwt"), publicly traded bulk shipping companies headquartered in the
United States. OMI provides sea borne transportation services for crude oil,
petroleum products and, to a much lesser extent, through joint ventures, dry
bulk cargoes (primarily iron ore, coal and grain). The charter rates that the
Company is able to obtain for its vessels are determined in highly competitive
markets. The industry is cyclical, experiencing significant swings in
profitability and asset values resulting from changes in the supply and demand
for vessels.
The Company currently has a wholly-owned foreign flag fleet consisting of
thirteen product carriers and six crude oil tankers (five Suezmaxes and one
Aframax). Additionally, the foreign fleet consists of three vessels owned
approximately 50 percent with joint venture partners and three chartered-in
tankers (only two vessels were chartered-in at September 30, 1997). The Company
has entered into contracts for the construction of four Suezmax tankers at a
cost of approximately $54 million per vessel (three will be delivered in 1998
and one will be delivered in the first quarter of 1999). The current domestic
fleet consists of three product carriers, one chartered-in crude carrier and
four foreign flag tankers chartered-in by OMI Petrolink, a subsidiary in the
offshore lightering business.
Net income for the nine months ended September 30, 1997 was $12.8 million or
$0.30 per share compared to $3.3 million or $0.11 per share for the nine months
ended September 30, 1996. Included in net income of $12.8 million for the nine
months ended September 30, 1997 is income of $13.8 million, net of tax, from the
cumulative effect of a change in accounting principle, $4.2 million in losses
from sale of joint venture vessels, and gain on sale of assets-net of $.1
million. Included in net income of $3.3 million for the nine months ended
September 30, 1996 is an extraordinary loss of $2.7 million, loss from the sale
of a joint venture vessel of $.7 million and gain on sale of assets-net of $12.8
million.
Effective January 1, 1997, OMI changed its method of accounting for special
survey and drydock expenses from the accrual method to the prepaid method.
Special survey and drydock expenses had been accrued and charged to operating
expenses over the vessel's survey cycle, which was generally a two to three year
period. Under the prepaid method, the Company capitalizes its drydocking costs
and amortizes them over the period through the next drydocking. Management
believes the prepaid method better matches costs with revenues, and minimizes
any significant changes in estimates associated with the accrual method. The
cumulative effect of this accounting change is shown separately in the
consolidated statement of operations and resulted in income of $13.8 million
(net of income taxes of $7.4 million) or $0.32 per share.
The Company has implemented several strategies since early 1996 in order to
return the Company to profitability:
(i) developed large and concentrated fleets of handysize product carriers
and Suezmax tankers.
The Company purchased two crude oil tankers, three product carriers,
is building four new Suezmax tankers and disposed of a Liquified
Petroleum
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<PAGE>
Gas carrier ("LPG") which was not strategic to the Company's plan.
(ii) managed the spot versus time charter mix of its vessels.
OMI has maintained a mix of approximately half its product carriers on
time charters and had 73 percent of its crude oil tankers in the spot
market during the nine months ended September 30, 1997. Currently,
more Suezmax tankers have been operating in the spot market to take
advantage of the expected rise in rates.
(iii)reduced vessel operating and certain corporate overhead costs by
reducing the U.S. fleet.
The Company has reduced U.S. flag vessel operating expenses (see (v)),
and reduced corporate overhead costs, such as professional fees and
salaries and employee benefit costs resulting from a reduction in the
number of employees.
(iv) reduced its reliance on joint ventures which own vessels.
After its partner requested to withdraw from a joint venture, OMI
acquired its partners' interests in a 49 percent owned joint venture,
Wilomi, Inc., in December 1996. Similarly, after another partner
requested to withdraw from a joint venture, a 49.9 percent owned joint
venture, Mosaic Alliance Corporation ("Mosaic"), is in the process of
concluding certain transactions by December 1997 in preparation to
acquire its partners' majority interest in the joint venture. OMI will
then only have three vessels owned in joint ventures.
(v) refocused its operations from the U.S. flag domestic market to the
international tanker market.
In 1996 and 1997, OMI disposed of seven U.S. Flag vessels. In January
1997, the Company completed the sale and leaseback of the OMI
Columbia, ned joint venture Mosaic Alliance Corporation sold largest
U.S. flag vessel for $49 million. Under the terms of the lease, OMI
continues as the operator and time charterer of the vessel.
On September 16, 1997, OMI announced, as a final step to becoming a
purely international fleet that OMI and Marine Transport Lines,
Inc.("MTL"), a privately owned company specializing in U.S. marine and
transportation services, had reached a definitive agreement for OMI to
acquire MTL for approximately $5 million payable in common stock of
the Company as constituted prior to the transaction defined as
follows, plus a number of additional shares sufficient to give the
owners of MTL 30 percent of the shares of the Company as constituted
following that transaction. In connection with ned joint venture
Mosaic Alliance Corporation sold acquisition of MTL, OMI plans to spin
off, as a tax free distribution to shareholders, a subsidiary owning
and operating ned joint venture Mosaic Alliance Corporation sold
foreign assets ("Foreign OMI"). Foreign OMI will retain the OMI name
and will be managed by OMI's current management. The combined OMI-MTL
entity ("Domestic") will use the MTL name and will be managed by MTL's
current management. Upon completion of the acquisition and spin off
(the "transaction"), holders of OMI shares prior to the transaction
will own approximately two-thirds of the outstanding shares of
Domestic, as well as substantially all outstanding shares of Foreign
OMI. Former MTL shareholders will hold
-12-
<PAGE>
approximately one-third of the outstanding shares of Domestic. The
transaction is subject to a number of conditions, including the
receipt by OMI of a favorable private letter ruling from the Internal
Revenue Service and OMI shareholder approval. OMI filed the private
letter ruling in September 1997 and closing of the transaction is
expected to occur in early 1998 after the ruling is received.
(vi) reduced interest expense on long-term debt.
During 1996 and early 1997, the Company improved its balance sheet by
reducing debt, consequently reducing its interest expense which
historically has been a significant factor in the Company's financial
performance. In July 1996, the Company purchased $130 million of its
Senior Notes in a tender offer and the debt was refinanced with
commercial banks at more favorable rates. Such debt was reduced
further by approximately $60 million of the net proceeds of a $75.7
million public offering of 11,500,000 shares of the Company's common
stock in the fourth quarter of 1996, and by proceeds from the sale of
the OMI Columbia of $40 million in the first half of 1997. In April
1997, the Company again refinanced its remaining debt under more
favorable terms. In May 1997, debt of $16.9 million was paid upon the
sale of the vessel Alta and that facility was renegotiated. (See
Balance Sheets and Liquidity and Capital Resources-Financing
Facilities).
Market Overview
The product carrier market is the market segment which transports refined
petroleum products such as gasoline, jet fuel, kerosene, naphtha and gas oil.
Average freight rates in this market have increased in the first nine months of
1997 compared to the same period last year as a result of increasing world fuel
consumption resulting from an improved economy. Additionally, refinery capacity
is expanding in oil exporting regions such as the Middle East and Latin America
but not in historically large consuming nations. Historically, earnings from the
product carrier fleet have been less volatile than earnings from the Suezmax
fleet. Approximately half of this fleet operates on time charter and the other
half operates in the spot market. This mix of time charter and voyage charters
further stabilizes earnings from OMI's product carrier fleet. Product tanker
rates have softened recently due to higher world oil stocks compared to the
level a year ago and the relatively mild weather for this time of year. However,
it should be noted that the tanker markets typically strengthen during the
winter months as a result of seasonal oil demand.
Freight rates in the tanker markets continued to improve in 1997 as a result of
increased demand for oil due to continuing world economic growth, coupled with a
marginal change in the supply of tankers since 1993. During July 1997, however,
rates softened in the crude oil market as a result of the closing of the Dortyol
pipeline which resulted in the instability in tanker rates due to competition
from vessels which transport oil from the pipeline. The pipeline reopened at the
end of the third quarter, which is reflected in the increase in rates in
September and the fourth quarter. At the same time the Very Large Crude Carrier
("VLCC") market is also improving. The strengthening of the VLCC market in the
Pacific region benefits the Suezmax market as every VLCC removed from the
competition in the Atlantic region results in cargoes for two Suezmax vessels.
The Company's Suezmax fleet is one of the largest independent fleets in the
world. OMI has targeted this market segment due to the flexibility of the
Suezmax tankers to engage in long-haul and short-haul trades, as well as the
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growth potential in the crude oil market. OMI currently operates six of its
Suezmax tankers, including chartered-in vessels, in the spot market in order to
take advantage of the expected increase in the market. Charters for the other
Suezmax tankers expire by the spring of 1998.
Results of Operations
For the Nine and Three Months Ended September 30, 1997 versus September 30, 1996
Results of operations of OMI include operating activities of the Company's
domestic and foreign vessels. The discussion that follows explains the Company's
operating results in terms of net voyage revenue, which equals voyage revenues
minus vessel and voyage expenses, because fluctuations in voyage revenues and
expenses occur based on the nature of a charter. The Company's vessels currently
operate, or have operated in prior years, on time, bareboat or voyage ("spot")
charters. Each type of charter denotes a method by which revenues are recorded
and expenses are allocated. Under a time charter, revenue is measured based on a
daily or monthly rate and the charterer assumes certain operating expenses, such
as fuel and port charges. Under a bareboat charter, the charterer assumes all
operating expenses; as a result, the revenue rate is likely to be lower than a
time charter. Under a voyage charter, revenue is calculated based on the amount
of cargo carried, nearly all expenses are for the ship owner's account and the
length of the charter is one voyage. Revenues therefore may be higher in the
spot market. Other factors affecting net voyage revenue for voyage charters are
waiting time between cargoes, port costs and bunker prices.
Voyage revenue less voyage expenses (expenses incurred to complete a voyage,
such as fuel, port charges, canal tolls etc.) can be otherwise referred to as
time charter equivalent ("TCE") revenue. TCE's are used to compare vessels on
time charters with vessels on spot charters from one period to another.
Vessel expenses included in net voyage revenue discussed above include operating
expenses for items such as crew payroll/benefits/travel, stores, maintenance and
repair, drydock, insurance and other miscellaneous vessel expenses. These
expenses are a function of the fleet size, utilization levels for certain
expenses and requirements under laws, by charterers and Company standards.
Insurance expense varies with the overall insurance market conditions as well as
the insured's loss record, level of insurance and desired coverage.
Voyage Revenues less Vessel and Voyage Expenses
Net voyage revenues of $35.1 million for the nine months ended September 30,
1997 decreased by $9.8 million from $44.9 million for the same period in 1996.
Net voyage revenues of $10.3 million for the three months ended September 30,
1997 decreased by $5.0 million from $15.3 million for the same period in 1996.
Changes in net voyage revenues for the nine and three months ended 1997 compared
to 1996 are discussed as follows by the market segments in which OMI primarily
operates.
Domestic
Domestic net voyage revenue decreased by $18.4 million to $(0.2) million for the
nine months ended September 30, 1997, as compared to $18.2 million for the same
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period in 1996. Excluding two foreign flagged product carriers acquired in swap
transactions involving two domestic owned vessels, net voyage revenues for
domestic operations for the first nine months of 1997 decreased $22.0 million.
The two foreign vessels will be contributed to Foreign OMI in conjunction with
the spin off of the Company's subsidiary owning foreign assets.
Decreases of approximately $9.1 million were attributable to the seven vessels
disposed of during 1996. Included in the $9.1 million decrease is $4.4 million
in credits to drydock expense relating to the reversal of drydock accruals (the
accrual method of accounting for drydock was used in 1996) for the vessels
disposed of in 1996. Approximately $4.5 million of the decrease in net voyage
revenues was a result of two product carriers which were on time charters in
1996 but were laid up for an aggregate 345 days in the nine months ending
September 30, 1997. The third product carrier's net voyage revenue decreased by
approximately $1.9 million because of 26 more offhire days in 1997 than in 1996.
The net voyage revenue earned by the OMI Columbia declined $4.5 million as a
result of the sale/leaseback of the vessel in January 1997 as well as additional
offhire incurred for repairs in 1997.
On January 31, 1997, the OMI Columbia, a crude oil tanker which transports
Alaskan North Slope oil for a major oil company, was sold and leased back under
a charter agreement terminating December 31, 2002. The vessel began operating on
a long-term time charter in the spring of 1996 and the length of this charter
corresponds to the length of the lease. OMI received $40 million in cash, which
was used for the payment of corporate debt, (reducing interest), and a $9
million note for the vessel. A gain of approximately $25 million was deferred
and is currently being amortized to the end of the lease term. (see Balance
Sheet and Liquidity and Capital Resources-Cash Flows).
The three remaining vessels in the domestic fleet were on time charters in the
first half of 1996. Two of these vessels were redelivered in January and April
1997 having been on long-term time charters with the Military Sealift Command.
The third vessel was on a time charter in 1996 which ended in February 1997. Two
of these vessels are currently laid up; however, the Company continues to
actively seek and evaluate all employment opportunities for these vessels.
Domestic net voyage revenue decreased by $10 million ($11 million excluding the
two foreign flagged product carriers included in domestic operating results) to
$(2.0) million for the three months ended September 30, 1997, as compared to
$8.0 million for the same period in 1996. Decreases were primarily attributable
to the three vessels disposed of during August 1996 decreasing net voyage
revenue by $2.0 million ($1.4 million of this decrease is attributed to drydock
accrual reversals). A drydock accrual of $1.8 million was reversed for a vessel
which was in lay-up in anticipation of its sale in December 1996. Additionally,
decreases in net voyage revenue were due to an aggregate of 184 idle days for
the two product carriers which were laid up for the entire 1997 third quarter.
Decreases in net voyage revenues attributable to the OMI Columbia were $3.3
million.
Foreign
Net voyage revenue earned by the foreign fleet increased $8.7 million ($12.2
increase including two foreign flag vessels acquired by domestic companies) to
$35.3 million for the nine months ended September 30, 1997, as compared to $26.6
million for the same period in 1996. A decrease of $1.4 million relates to the
sale of an LPG which was disposed of in March 1997.
Net voyage revenues increased $5.0 million ($6.0 increase including the two
vessels acquired by domestic companies) to $12.3 million for the three months
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ended September 30, 1997, as compared to $7.3 million for the same period in
1996. A decrease of $0.5 million relates to the sale of the LPG in the first
quarter of 1997.
Product Carrier Fleet
The product carrier fleet consists of thirteen vessels in 1997 ( including two
vessels acquired by domestic companies) as compared to ten vessels in 1996. The
three additional vessels purchased in 1996 and 1997 accounted for $4.9 million
of the increase in net voyage revenue. With respect to the remaining ten product
carriers, TCE's, in the aggregate, remained relatively unchanged during the nine
months ended September 30, 1997 as compared to the same period in 1996.
Net voyage revenues for the product carrier fleet for the three months ended
September 30, 1997 increased $1.8 million due to earnings from three product
carriers purchased in 1997, as well as lower vessel operating expenses incurred
in the third quarter of 1997 compared to the same period in 1996.
Crude Tanker Fleet
In the period ending September 30,1997 the crude fleet consisted of six
wholly-owned vessels and two chartered-in vessels of which five operated in the
spot market. In 1996, OMI owned six vessels and chartered-in one vessel, with
five of these vessels operating in the spot market. Net voyage revenues
generated by the crude tanker fleet increased primarily for three reasons,
first, by $6.5 million due to the acquisition of the Alta and the Tanana (two
Suezmax tankers in which the Company acquired ned joint venture Mosaic Alliance
Corporation sold partner's interest on December 30, 1996), second, by $1.6
million as a result of the sale of a vessel operating at a loss in 1996, and
third, from improved TCE's resulting from better market conditions in 1997.
Net voyage revenues from the crude tanker fleet increased $1.8 million as a
result of earnings from the acquisition of Alta and Tanana. Alta's earnings have
declined in the third quarter compared to the second quarter of 1997 as the
Company now incurs charter hire expense related to the May 1997 sale and
leaseback of the vessel. Suezmax rates began to increase in the late third
quarter as a result of the reopening of the Dortyol pipeline which was closed
for the majority of the quarter, in addition to improvement in rates resulting
from the strengthening of the VLCC market.
Other Operating Expenses
The Company's operating expenses, other than vessel and voyage expenses consists
of depreciation and amortization and general and administrative expenses. For
the nine months ended September 30, 1997, these expenses decreased $1.3 million
to $33.9 million, from $35.2 million for the same period in 1996. The primary
reason for the reduction was a net decrease in depreciation expense of $2.2
million due to the sale of eight vessels offset in part by the purchase of five
vessels between 1996 and 1997. General and administrative expenses increased by
$.9 million for the nine months ended September 30, 1997 compared to the same
period in 1996.
For the three months ended September 30, 1997, these expenses increased $0.2
million to $11.9 million, from $11.7 million for the same period in 1996.
Other Income (Expense)
Other income (expense) consists of gain on disposal of assets-net, interest
expense-net, and minority interest in income of subsidiary. Net other expense
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decreased by $1.6 million for the nine months ended September 30, 1997 compared
to the same period in 1996. Interest expense - net decreased by $11.6 million
during the nine months ended September 30, 1997, compared to the same period in
1996 due to decreases of $88 million in the average debt outstanding of $191
million for the nine months ended September 30, 1997, compared to $279 million
for the nine months ended September 30, 1996. The average interest rate of
7.3927 percent for the nine months ended September 30, 1997 was less than the
average rate of 8.867 percent for the nine months ended September 30, 1996.
Decreases of $1.8 million in interest expense-net during the nine months ended
September 30, 1997, relate to capitalized interest on four vessels currently
under construction. Decreases in Net other (expense) income were offset in part
by decreases in the gain on disposal of assets-net of $11.9 million in the nine
months ended September 30, 1997. This decrease resulted primarily from the gain
on sale of Petrolink workboats of $9.7 million in September 1996 offset in part
by the gain on sale of the General of $1.0 in the first quarter of 1997.
Net other (expense) income increased by $3.2 million for the three months ended
September 30, 1997 compared to the same period in 1996. Decreases in gain on
disposal of assets-net of $9.2 million resulted from the sale of the Petrolink
workboats in the third quarter in 1996. Increases in Net other expense were
offset by decreases in interest expense of $4.7 million resulting from the
refinancing of the Senior Notes in 1996, lower principal balance on mortgaged
debt in 1997, payment of debt from vessel sales, and capitalized interest.
Provision (Benefit) for Income Taxes
The income tax provision of $1.1 million and $21,000 for the nine and three
months ended September 30, 1997, respectively, varied from statutory rates
primarily because deferred taxes are not recorded for equity in operations of
joint ventures, net of dividends declared, other than Amazon Transport, Inc.
("Amazon") and White Sea Holdings, Ltd. ("White Sea") as management considers
such earnings to be invested for an indefinite period.
Equity in Operations of Joint Ventures
Equity in operations of joint ventures decreased by $1.2 million to $(.1)
million in the first nine months of 1997 compared to $1.1 million for the same
period of 1996. The decrease in equity was primarily attributable to the loss on
sale of a vessel in September 1997, owned by Mosaic, of approximately $10.2
million (OMI's portion of the loss was approximately $5.1 million) offset in
part by the gain on the sale of a vessel of $1.9 million (OMI's portion of the
gain was approximately $0.9 million) in the second quarter of 1997. In addition
Mosaic had no interest expense in 1997 as all debt was repaid in 1996. Mosaic is
in the process of wrapping up its business and will be acquire its majority
shareholder's interest by year end. Other increases in equity in operations of
joint ventures related to Amazon, a 49 percent owned joint venture which
operates one crude oil tanker, the Settebello. The equity in earnings for Amazon
increased by $3.2 million in the first nine months of 1997 as compared the same
period in 1996. The Settebello was in drydock for 92 days in 1996 which resulted
in both a lack of earnings and additional drydock expense. Also, equity
increased by $1.3 million from White Sea Holdings, Inc. ("White Sea") as a
result of 66 offhire days in 1996 related to drydocking of the vessel. These
increases were offset by decreases in equity in operations of Wilomi, Inc.
("Wilomi") which was not a joint venture of the Company in 1997.
In accordance with the Company's plan to decrease its participation in joint
ventures, on December 30, 1996, the interest in Wilomi owned by a partner was
acquired by the venture, and Wilomi became a 100 percent owned subsidiary of OMI
with its earnings consolidated in OMI's results. The decrease in equity in
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<PAGE>
operations of joint ventures attributable to Wilomi was $1.5 million for the
nine months ended September 30, 1997.
Equity in operations of joint ventures decreased $3.9 million to $(3.8) million
in the third quarter of 1997 compared to $.1 million for the same period of
1996. The decrease in equity was primarily attributable to the Company's $5.3
million equity in the loss on the sale of a vessel by Mosaic, offset in part by
increases in equity of $1.0 million in Amazon due to reduced drydock expenses in
1997.
Balance Sheet
In 1997 the Company sold and leased back the OMI Columbia and the Alta for
approximately $49 and $40 million, respectively. The gain on sale of these
vessels, aggregating approximately $40.4 million has been deferred and will be
credited to income as an adjustment to lease expense over the term of the
leases. At September 30, 1997, the balance of the deferred gain was $37.6
million.
The cumulative effect of the change in accounting principle as of January 1,
1997 on the Company's balance sheet increased total assets by $11.3 million,
decreased total liabilities by $2.5 million and increased total stockholders'
equity by $13.8.
Liquidity and Capital Resources
Cash Flows
Cash and cash equivalents of $23.3 million at September 30, 1997 decreased $24.6
million from cash and cash equivalents of $47.9 million at December 31, 1996.
The Company's working capital of $14.5 million decreased $32.7 million from
working capital of $47.2 million at December 31, 1996. Current assets decreased
$50.1 million primarily due to the decrease in cash and cash equivalents
(explained below) and a decrease of $34.4 million pertaining to two vessels held
for sale at December 31, 1996. Current liabilities decreased $17.5 million
primarily due to the decrease of $13.4 million of current maturities of
long-term debt which was refinanced (See Financing Facilities). Total debt to
capitalization was 44.8 percent at September 30, 1997,a decrease of 21.1 percent
as compared to the ratio of 63.9 percent at December 31, 1996.
Net cash provided by operating activities increased $19.8 million to $0.6
million for the nine months ended September 30, 1997 compared to net cash used
by operating activities of $19.2 million for the nine months ended September 30,
1996. The increase was primarily attributable to the payment of OMI Hudson lease
termination cost, which was a one time charge of $25 million ($22 million cash
paid) in February 1996.
Cash used by financing activities was $56.2 million in 1997 compared to $12.2
million in the first nine months of 1996. Payments on long-term debt of $171.4
million were made in the first half of 1997. Of this amount, $148 million was
used to prepay debt ($56.9 million related to prepayments from the sale of
vessels and $91.1 related to refinancing) and $23.4 million was used for
scheduled debt repayments. Proceeds received from refinanced debt and new debt,
including debt for the purchase of a vessel in April 1997, was $109.1 million.
OMI drew down an additional $5.0 million in September 1997 under its revolving
line of credit and repaid it in October 1997.
The Company operates in a capital-intensive industry and augments cash generated
by operating activities with debt and sales of vessels that no longer fit the
Company's strategy. Cash provided by investing activities was $31.1 million in
1997 compared to $43.5 million in the nine months ended September 30, 1996. Net
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<PAGE>
proceeds of $79 million were received in the first half of 1997 from the sale of
two vessels. Of these proceeds, $40 million in cash and a $9 million interest
bearing note receivable was received from the sale of the OMI Columbia and $39.1
million was received for the Alta. Proceeds of $11 million were received from
the sale of the General in March 1997 and were used to pay a portion of the
purchase price of the Severn for $18.7 million in April. OMI also paid $32.1
million in scheduled construction in progress payments for the four vessels
under construction and approximately $3.6 million in capital expenditures for
improvements on various vessels.
Financing Facilities
During the first quarter of 1997, the Company negotiated a new bank credit
facility (the "Credit Facility") with its existing lenders. The Credit Facility
provides for a line of credit in the amount of $133 million. The agreement,
which expires in March 2002, provides for nine semiannual payments; the first
five are $5.5 million each, the next four are $8.9 million each and the balance
is due at maturity. The Credit Facility contains financial covenants with
respect to cash, interest rate coverage, net worth and funded debt to equity.
Dividends paid in any year are limited to 50 percent of net income in that year.
During October 1997, the Company entered into a commitment with existing lenders
for two new revolving credit facilities in the amounts of $50.0 million and
$75.0 million. These credit facilities are to be used to finance, on an interim
basis, the acquisition of vessels and will be secured by such vessels. Amounts
drawn on the new revolving credit facilities are to be repaid no later than six
months after drawdown. The credit facilities will bear interest at LIBOR plus a
margin ranging from 55-80 basis points which is computed based on the Company's
funded debt to total capitalization ratio and interest coverage ratio. The new
credit facilities contain the same financial covenants as the facility described
above.
The Company believes that the actions it has taken in the last year to improve
its liquidity and financial position will give the Company greater flexibility
to fund its vessel acquisition program and finance its other cash needs. The
Company anticipates Mosaic to have in excess of $30.0 million in cash after it
acquires the shares from its majority shareholder in December 1997. The cash
will be used to complete the construction payments for one of the new vessels
under contract which will be acquired by Mosaic.
Commitments
OMI and affiliates of its joint venture partners act as co-guarantors for a
portion of the debt incurred by joint ventures. The portion of debt guaranteed
by the partners was approximately $17.5 million at September 30, 1997, with
OMI's share of such guarantees being approximately $8.7 million.
The Company and its joint venture partners have committed to fund any working
capital deficiencies that may be incurred by their joint venture investments. No
such deficiencies have been funded in the nine months ended September 30, 1997.
Effects of Inflation
The Company does not consider inflation to be a significant risk to the cost of
doing business in the current or foreseeable future. Inflation has moderate
impact on operating expenses, drydocking expenses and corporate overhead.
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PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibit and Reports on Form 8-K
a. Exhibits
10.13 Acquisition Agreement dated as of September 15, 1997 by and among
OMI Corp., Universal Bulk Carriers, Inc., Marine Transport
Lines, Inc.and the persons set forth on Exhibit A attached
hereto.
10.14 OMI Corp. Amended and Restated, Annual Executive Incentive
Compensation Plan.
18 Deloitte & Touche LLP preferablility letter regarding change in
accounting principle.
27 OMI Corp. - Financial Data Schedule, dated September 30, 1997.
b. Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMI CORP.
- --------------------------------------------------------------------------------
(REGISTRANT)
Date: NOVEMBER 14, 1997 By: /s/ CRAIG H. STEVENSON, JR.
--------------------- -----------------------------
Craig H. Stevenson, Jr.
President, Chief Executive Officer
and Director
Date: NOVEMBER 14, 1997 By: /s/ KATHLEEN C. HAINES
--------------------- -----------------------
Kathleen C. Haines
Vice President and
Controller
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================================================================================
ACQUISITION AGREEMENT
Dated as of September 15, 1997
By and Among
OMI CORP.,
UNIVERSAL BULK CARRIERS, INC.,
MARINE TRANSPORT LINES, INC.
and
THE PERSONS SET FORTH ON EXHIBIT A ATTACHED HERETO
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS...................................................... 2
ss.1.1 Definitions............................................... 2
ss.1.2 Principles of Construction................................ 14
ARTICLE II ACQUISITION OF STOCK............................................ 14
ss.2 Acquisition of Stock...................................... 14
ss.2.2 Consideration and Adjustments............................. 15
ss.2.3 Closing................................................... 26
ARTICLE III REPRESENTATIONS OF THE COMPANY................................. 27
ss.3 Representations of the Company............................ 27
ss.3.1 Existence and Good Standing............................... 27
ss.3.2 Capital Stock............................................. 27
ss.3.3 Authorization and Validity of this Agreement.............. 27
ss.3.4 Subsidiaries and Investments.............................. 28
ss.3.5 Financial Statements; No Material Changes................. 30
ss.3.6 Books and Records......................................... 31
ss.3.7 Title to Properties; Encumbrances......................... 31
ss.3.8 Real Property............................................. 32
ss.3.9 Intellectual Property..................................... 32
ss.3.10 Leases.................................................... 33
ss.3.11 Material Contracts........................................ 34
ss.3.12 Consents and Approvals; No Violations..................... 36
ss.3.13 Litigation................................................ 36
ss.3.14 Taxes..................................................... 37
ss.3.15 Insurance................................................. 40
ss.3.16 Compliance with Laws...................................... 40
ss.3.17 Employment Relations...................................... 41
ss.3.18 Company Employee Benefit Plans............................ 42
ss.3.19 Interests in Customers, Suppliers, etc.................... 54
ss.3.20 Environmental Matters and Claims.......................... 55
ss.3.21 Compensation of Employees................................. 57
ss.3.22 Conduct of Business....................................... 57
ss.3.23 Restrictive Documents..................................... 57
(i)
<PAGE>
Page
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ss.3.24 No Changes Since Company Balance Sheet Date............... 58
ss.3.25 Condition of Assets....................................... 59
ss.3.26 Limitation of Warranties.................................. 59
ss.3.27 Broker's or Finder's Fees................................. 60
ss.3.28 Disclosure................................................ 60
ss.3.29 Copies of Documents....................................... 61
ARTICLE IV REPRESENTATIONS OF THE SHAREHOLDERS............................. 61
ss.4 Representations of the Shareholders....................... 61
ss.4.1 Ownership of Stock........................................ 61
ss.4.2 Authorization and Validity of Agreement................... 62
ss.4.3 Restrictive Documents..................................... 62
ss.4.4 Acquisition for Investment................................ 63
ss.4.5 Limitation of Warranties.................................. 64
ss.4.6 Broker's or Finder's Fees................................. 65
ARTICLE V REPRESENTATIONS OF THE ACQUIROR.................................. 65
ss.5 Representations of the Acquiror........................... 65
ss.5.1 Capital Stock............................................. 65
ss.5.2 Existence and Good Standing; Power and Authority.......... 66
ss.5.3 Subsidiaries and Investments.............................. 67
ss.5.4 Consents and Approvals; No Violations..................... 69
ss.5.5 Restrictive Documents..................................... 69
ss.5.6 Books and Records......................................... 70
ss.5.7 Financial Statements; No Material Changes................. 70
ss.5.8 Title to Properties; Encumbrances......................... 72
ss.5.9 Real Property............................................. 72
ss.5.10 Intellectual Property..................................... 73
ss.5.11 Leases and Ship Charters.................................. 73
ss.5.12 Material Contracts........................................ 74
ss.5.13 Litigation................................................ 76
ss.5.14 Taxes..................................................... 76
ss.5.15 Insurance................................................. 79
ss.5.16 Acquisition for Investment................................ 80
ss.5.17 Compliance with Laws...................................... 80
ss.5.18 Employment Relations...................................... 81
ss.5.19 Acquiror Employee Benefit Plans........................... 81
ss.5.20 Interests in Customers, Suppliers, etc.................... 94
ss.5.21 Environmental Matters and Claims.......................... 94
ss.5.22 Compensation of Employees................................. 95
ss.5.23 Conduct of Business....................................... 96
ss.5.24 No Changes Since Domestic Businesses Balance Sheet Date... 96
(ii)
<PAGE>
Page
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ss.5.25 No Defaults............................................... 98
ss.5.26 Condition of Assets....................................... 98
ss.5.27 Limitation of Warranties.................................. 98
ss.5.28 SEC Filings............................................... 98
ss.5.29 Copies of Documents.......................................100
ss.5.30 Disclosure................................................100
ss.5.31 Broker's or Finder's Fees.................................100
ARTICLE VI COVENANTS OF THE PARTIES........................................100
ss.6.1 Conduct of Business of the Company........................100
ss.6.2 Conduct of Business of Acquiror...........................103
ss.6.3 Access to Information; Confidentiality....................105
ss.6.4 Directors' and Officers' Indemnification and Insurance....106
ss.6.5 Notification of Certain Matters...........................113
ss.6.6 Tax Matters...............................................114
ss.6.7 Proxy Statement...........................................115
ss.6.8 Stockholders' Special Meeting.............................118
ss.6.9 Further Action............................................119
ss.6.10 Removal of Guarantees/Cancellation of Debt................120
ss.6.11 Corporate Restructuring Transactions; Spin-Off............121
ss.6.12 [Intentionally Left Blank]................................121
ss.6.13 Antitrust Matters.........................................122
ss.6.14 Antitakeover Statutes.....................................122
ss.6.15 Covenants Relating to Company Employee Benefit Plans......123
ss.6.16 Participation of Acquiror and Domestic Business
Employees in Company Employee
Benefit Plans.............................................123
ss.6.17 Acquiror Stock Options....................................125
ss.6.18 New Credit Facility Commitment............................125
ss.6.19 Redemption of Common Stock................................126
ss.6.20 Audited Consolidated Financial Statements.................126
ss.6.21 Monthly Financial Statements..............................126
ss.6.22 Stock Exchanges...........................................127
ss.6.23 Permitted Dispositions....................................127
ss.6.24 Certain Modifications to this Agreement...................127
ss.6.25 Standstill................................................128
ss.6.26 Schedules.................................................129
ss.6.27 Restriction on Transfer...................................129
ss.6.28 Purchase of Acquiror Shares...............................131
ss.6.29 Expenses..................................................131
ss.6.30 Private Letter Ruling.....................................132
ss.6.31 Reverse Stock Split.......................................132
ss.6.32 Non-Recourse..............................................132
(iii)
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Page
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ARTICLE VII CONDITIONS PRECEDENT...........................................133
ss.7.1 Conditions to Obligations of Each Party to Effect the
Acquisition..............................................133
ss.7.2 Additional Conditions to Obligations of the Acquiror......138
ss.7.3 Additional Conditions to Obligations of the Shareholders..141
ARTICLE VIII TERMINATION...................................................145
ss.8.1 Grounds for Termination...................................145
ss.8.2 Effect of Termination.....................................147
ss.8.3 Waiver....................................................147
ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION....................148
ss.9.1 Survival of Representations...............................148
ss.9.2 Indemnification...........................................148
ss.9.3 Limitations on Indemnification Obligations................150
ss.9.4 Indemnification Procedure.................................152
ss.9.5 Indemnification Payments..................................156
ss.9.6 Other Adjustments.........................................157
ss.9.7 Obligations Absolute......................................157
ss.9.8 Remedies Cumulative.......................................158
ARTICLE X MISCELLANEOUS....................................................158
ss.10.1 ROVER.....................................................158
ss.10.2 Governing Law.............................................158
ss.10.3 Captions..................................................159
ss.10.4 Publicity.................................................159
ss.10.5 Notices...................................................159
ss.10.6 Parties in Interest.......................................160
ss.10.7 Counterparts..............................................160
ss.10.8 Entire Agreement..........................................160
ss.10.9 Amendments................................................160
ss.10.10 Severability.............................................161
ss.10.11 Third Party Beneficiaries................................161
ss.10.12 Jurisdiction.............................................161
(iv)
<PAGE>
SCHEDULES
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Schedule 3.2 Options
Schedule 3.3(b) Governmental Consents
Schedule 3.4(a) Subsidiaries
Schedule 3.4(b) List of Jurisdictions
Schedule 3.4(c) Subsidiary Capitalization
Schedule 3.5(a) Changes Since Company's
Balance Sheet Date
Schedule 3.6 Books and Records
Schedule 3.7 Title to Properties; Encumbrances
Schedule 3.9 Intellectual Property
Schedule 3.10 Leases and Ship Charters
Schedule 3.11 Material Contracts
Schedule 3.11A Audits of MARAD Contracts
Schedule 3.12 Required Filings and Consents
Schedule 3.13 Litigation
Schedule 3.14 Taxes
Schedule 3.14(c)(v) Tax Sharing Agreements
Schedule 3.15 Insurance
Schedule 3.17 Employment Relations
Schedule 3.18 Company Employee Benefit Plans
Schedule 3.19 Interests in Customers, Suppliers, etc.
Schedule 3.20 Environmental Matters
Schedule 3.23 Restrictive Documents
Schedule 3.24 Changes Since Balance Sheet Date
Schedule 5.1 Options
Schedule 5.2(b) Governmental Consents
Schedule 5.3(a) Subsidiaries
Schedule 5.3(b) Qualification as a Foreign Corporation
Schedule 5.3(c) Subsidiary Capitalization
Schedule 5.4 Filings and Consents
Schedule 5.5 Restrictive Documents
Schedule 5.8 Title to Properties; Encumbrances
Schedule 5.9 Real Property
Schedule 5.10 Intellectual Property
Schedule 5.11 Leases and Ship Charters
Schedule 5.12 Material Contracts
Schedule 5.12A Audits of MARAD Contract
Schedule 5.13 Litigation
Schedule 5.14 Other Tax Matters
Schedule 5.14(c)(v) Tax Sharing Agreements
<PAGE>
Schedule 5.15 Insurance
Schedule 5.19 Acquiror Employee Benefit Plans
Schedule 5.20 Interests in Customers, Suppliers, etc.
Schedule 5.21 Environmental Matters
Schedule 5.24 Changes Since Domestic Businesses Balance
Sheet Date
Schedule 6.1(c) Company Executives
Schedule 6.6 Approved Actions
Schedule 6.16 Certain Acquiror Employees
EXHIBITS
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Exhibit A
Shareholders
Exhibit B
Escrow Agreement
Exhibit C
Company Pro Forma Closing Balance Sheet
Exhibit D
Distribution Agreement
Exhibit E
"comfort letter" [To Come]
Exhibit F
Company Financial Statements
Exhibit G
Domestic Businesses Individual Financial Statements
Exhibit H
Domestic Businesses Unaudited Consolidated Financial
Statements
Exhibit I
Acquiror's Pro Forma Closing Balance Sheet
Exhibit J
Proposed Form of Amendment to Company's Certificate
of Incorporation [To Come]
Exhibit K
Confidentiality Agreements
Exhibit L
Ruling Request Representations
Exhibit M
Management Agreements
Exhibit N
Tax Cooperation Agreement
Exhibit O-1
Opinion of Cadwalader, Wickersham & Taft [To Come]
<PAGE>
Exhibit O-2
Opinion of Cadwalader, Wickersham & Taft (First
Closing Date) [To come]
Exhibit P
Opinion of Cadwalader, Wickersham & Taft--10b5
[To Come]
Exhibit Q
Opinion of Skadden, Arps, Meagher & Flom LLP
[To Come]
Exhibit R
Company and Acquiror Vessels
Exhibit S-1A
Opinion of White & Case [To Come]
Exhibit S-1B
Opinion of White & Case (First Closing Date)
[To Come]
Exhibit S-2A
Opinion of Fredric S. London, Esq. [To Come]
Exhibit S-2B Opinion of Fredric S. London, Esq.
(First Closing Date) [To Come]
Exhibit T
Resigning Members of Acquiror's Board
Exhibit U
Employment Agreements to be Terminated
Exhibit V
New Nominees for Acquiror Board
<PAGE>
ACQUISITION AGREEMENT
---------------------
ACQUISITION AGREEMENT dated as of September 15, 1997 by and among OMI
CORP., a Delaware corporation (the "ACQUIROR"), UNIVERSAL BULK CARRIERS INC., a
Liberian corporation ("UBC"), MARINE TRANSPORT LINES, INC., a Delaware
corporation (the "COMPANY"), and each of the Persons set forth on EXHIBIT A
---------
attached hereto (each a "SHAREHOLDER" and collectively, the "SHAREHOLDERS").
W I T N E S S E T H :
---------------------
WHEREAS, the Acquiror contemplates a plan of distribution which will be
consummated prior to the Second Closing Date and pursuant to which prior to the
Second Closing Date, (a) Acquiror and its Subsidiaries will through various
intercompany transfers and distributions restructure, divide and separate their
existing foreign and domestic shipping businesses so that all of the assets,
liabilities and operations of the foreign shipping business will be owned
directly and indirectly by UBC and (b) all of the shares of capital stock of UBC
will be distributed on a pro rata basis to the stockholders of Acquiror (the
"SPIN-OFF");
WHEREAS, each Shareholder owns the number of shares of Common Stock set
forth opposite such Shareholder's name on EXHIBIT A attached hereto, such shares
of the Shareholders being all of the outstanding shares of the capital stock of
the Company and which may be converted into Class A Common Stock as contemplated
by Section 6.1;
WHEREAS, the Shareholders desire to transfer, and the Acquiror desires to
acquire, the Stock pursuant to this Agreement (the "ACQUISITION");
<PAGE>
WHEREAS, for federal income tax purposes it is intended that (a) the
Spin-Off will qualify as a tax-free distribution within the meaning of Section
355 and/or Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE") and (b) the Acquisition will qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Code; and
WHEREAS, it is the intention of the parties hereto that, upon consummation
of the acquisition and transfer of the Stock pursuant to this Agreement, the
Acquiror shall own all of the outstanding shares of capital stock of the
Company.
NOW, THEREFORE, in consideration of the Premises and of the mutual and
dependent promises, representations, warranties and covenants herein contained,
the parties agree as follows:
ARTICLE I.
DEFINITIONS
-----------
ss.1.1. DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the respective meanings specified
therefor below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined).
"ACCOUNTING PRINCIPLES" means the following: (i) GAAP, PROVIDED that if any
term used herein or in any of the financial statements or balance sheets
contemplated hereby has a different meaning than the meaning of such term in
accordance with GAAP, then such different meaning shall apply; (ii) with respect
to the calculation of levels of accounts, unless otherwise provided herein, no
change in accounting principles shall be made from those used in preparing the
Company Financial Statements or Acquiror's Pro Forma Closing Balance Sheet other
than those
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<PAGE>
changes expressly permitted by this Agreement, as applicable, including, without
limitation, with respect to the nature or classification of accounts, closing
proceedings, levels of reserves, or levels of accruals other than as a result of
objective changes in underlying facts, circumstances or events; and (iii) for
purposes of the preceding clauses, "CHANGES IN ACCOUNTING PRINCIPLES" includes
all changes in accounting principles, policies, practices, procedures, or
methodologies with respect to financial statements, their classifications, or
their display, as well as changes in practices, methods, conventions, or
assumptions utilized in making accounting estimates.
"ACQUISITION" has the meaning specified in the third Whereas clause of this
Agreement.
"ACQUIROR" has the meaning specified in the preamble to this Agreement.
"ACQUIROR CLAIM" has the meaning specified in Section 6.4.
"ACQUIROR EMPLOYEE BENEFIT PLANS" has the meaning specified in Section 5.19
"ACQUIROR INDEMNIFIED PARTIES" has the meaning specified in Section 6.4.
"ACQUIROR MULTIEMPLOYER PLANS" has the meaning specified in Section 5.19.
"ACQUIROR SHARES" means shares of common stock, par value $.50 per share,
of the Acquiror.
"ACQUIROR'S CLOSING BALANCE SHEET" has the meaning specified in Section
2.2(d).
"ACQUIROR'S PRO FORMA CLOSING BALANCE SHEET" has the meaning specified in
Section 5.7(b).
"ACQUIROR SECURITIES FILINGS" has the meaning specified in Section 5.28.
"ADDITIONAL SHORT-FALL AMOUNT" has the meaning specified in Section 2.2(h).
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such Person. A
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<PAGE>
Person shall be deemed to control a second Person if such first Person
possesses, directly or indirectly, the power (i) to vote 20% or more of the
securities having ordinary voting power for the election of directors or
managers of such second Person or (ii) to direct or cause the direction of the
management and policies of such second Person, whether through the ownership of
voting securities, by contract or otherwise.
"AGREEMENT" means this Agreement, as amended, modified or supplemented from
time to time.
"APPROVED ACTIONS" means the actions set forth on Schedule 6.6 hereto.
"BOARD NOMINEES" has the meaning specified in Section 6.7.
"BONUS PAYMENTS" means bonus payments that may be made to those executives
of the Company listed on Schedule 6.1(c) who are eligible to receive such bonus
payments, which payments may be up to 50% of the annual salary of such
executives (including that portion of annual salary for the period in 1998 prior
to the Second Closing Date) as determined by the Company's compensation
committee composed of non-employees but which shall not in the aggregate exceed
$500,000 for all executives listed on Schedule 6.1(c) hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or a day on
which banking institutions in New York City remain closed.
"CLAIM" has the meaning specified in Section 9.4.
"CLOSING PRICE" has the meaning specified in Section 2.2(a).
"COBRA" has the meaning specified in Section 3.18.
"CODE" has the meaning specified in the fourth Whereas clause of this
Agreement.
"COMMON STOCK" means the common stock of the Company, no par value per
share.
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<PAGE>
"COMPANY" has the meaning specified in the preamble to this Agreement.
"COMPANY BALANCE SHEET DATE" has the meaning specified in Section 3.5.
"COMPANY EMPLOYEE BENEFIT PLANS" has the meaning specified in Section 3.18.
"COMPANY FINANCIAL STATEMENTS" has the meaning specified in Section 3.5.
"COMPANY PERMITTED ENCUMBRANCES" has the meaning specified in Section 3.7.
"COMPANY PRO FORMA CLOSING BALANCE SHEET" has the meaning specified in
Section 3.5.
"COMPANY'S CLOSING BALANCE SHEET" has the meaning specified in Section
2.2(d).
"COMPANY SINGLE-EMPLOYER PLANS" has the meaning specified in Section 3.18.
"COMPANY'S PRELIMINARY CLOSING BALANCE SHEET" has the meaning specified in
Section 2.2(c).
"CONDITION" has the meaning specified in Section 3.5.
"CONSIDERATION" has the meaning specified in Section 2.2.
"CORPORATE RESTRUCTURING TRANSACTIONS" has the meaning specified in the
Distribution Agreement.
"DGCL" means the Delaware General Corporation Law.
"DISTRIBUTION AGREEMENT" means the Distribution Agreement by and among UBC
and the Acquiror in the form attached hereto as EXHIBIT D but with only such
changes or supplements as may be necessary for the Acquiror to receive
reasonably acceptable rulings from the IRS (as set forth in Section 7.1(v)), and
in regard to any other matters, such changes as the Shareholders' Representative
has consented to in writing in advance, such consent not to be unreasonably
withheld; PROVIDED, HOWEVER, that if any of the proposed changes or supplements
to the Distribution Agreement would have the effect of (i) changing the
definition or division of Domestic Assets,
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<PAGE>
Domestic Liabilities (or any of the other definitions referenced therein) or
Domestic Business, (ii) changing the definition or division of International
Assets, International Liabilities (or any of the other definitions referenced
therein) or International Business, (iii) changing the scope or extent of the
indemnities provided in Article VII of the Distribution Agreement, or (iv)
changing Sections 5.05, 5.10, 8.05, 8.11 and/or 8.16 of the Distribution
Agreement, no such change shall be made without the prior written consent of the
Shareholders' Representative, such consent not to be unreasonably withheld. No
change or supplement shall be made to the Distribution Agreement if such change
or supplement would give rise to any obligation or liability on the part of any
of the Shareholders.
"DNB" means Den Norske Bank ASA.
"DOMESTIC BUSINESSES" means OMI Corp., as constituted following the
Corporate Restructuring Transactions and the Spin-Off, which entity shall
include:
(i) 100% of OMI Petrolink Corp.,
(ii) OMI Ship Management, Inc.,
(iii)the charter, option and management contracts in respect of the OMI
COLUMBIA,
(iv) the COURIER,
(v) the PATRIOT,
(vi) the ROVER,
(vii) a capital construction fund containing the following assets:
(a) a promissory Note from Argosy Ventures Ltd. to OMI Challenger
Transport, Inc. having a face amount of $7,200,000;
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<PAGE>
(b) approximately $300,000;
(c) 51,000 convertible preferred shares of Santander Overseas Bank
Series D (having a market value on August 29, 1997 of $25.250 per
share);
(d) 31,128 convertible preferred shares of U.S. West Financing
(having a market value on August 29, 1997 of $25.370 per share);
and
(e) 37,000 shares of convertible preferred stock of Royal Bank of
Scotland Series C (having a fair market value on August 29, 1997
of $26.250 per share).
(viii) the assets (including cash of at least $2,000,000 as well as
cash in an amount equal to the fair market value of certain of the
furniture and fixtures owned by Acquiror and currently located at 90 Park
Avenue, as appraised by an independent third-party appraiser), liabilities,
revenue, expenses, contract obligations related to or in connection with
the foregoing, as set forth on the Domestic Businesses Unaudited
Consolidated Financial Statements, including the notes and exceptions
thereto.
"DOMESTIC BUSINESSES AUDITED CONSOLIDATED FINANCIAL STATEMENTS" means the
consolidated balance sheet of the Domestic Businesses as of December 31, 1996
and the related consolidated statements of income and retained earnings and cash
flows prepared in accordance with GAAP, audited by Deloitte & Touche in
accordance with statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
"DOMESTIC BUSINESSES BALANCE SHEET DATE" has the meaning specified in
Section 5.7.
"DOMESTIC BUSINESSES' PERMITTED ENCUMBRANCES" has the meaning specified in
Section 5.8.
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<PAGE>
"DOMESTIC BUSINESSES UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS" has the
meaning specified in Section 5.7.
"ENCUMBRANCES" has the meaning specified in Section 3.7. "Enterprise Value"
means $49,000,000.
"ENVIRONMENTAL APPROVALS" has the meaning specified in Section 3.20.
"ENVIRONMENTAL CLAIM" has the meaning specified in Section 3.20.
"ENVIRONMENTAL LAWS" has the meaning specified in Section 3.20.
"ERISA" has the meaning specified in Section 3.18.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCESS AMOUNT" has the meaning specified in Section 2.2(h).
"FIRST CLOSING DATE" has the meaning specified in Section 2.3.
"FOREIGN BUSINESSES" means all businesses of the Acquiror which are not
Domestic Businesses.
"GAAP" means United States generally accepted accounting principles
consistently applied throughout the periods indicated.
"GOVERNMENTAL AUTHORITY" means any government, governmental department,
commission, board, bureau, agency, regulatory authority, instrumentality,
judicial or administrative body, domestic or foreign, federal, state or local
having jurisdiction over the matter or matters in question.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
-8-
<PAGE>
"INDEMNIFIABLE LOSSES" means, with respect to any Person, any and all
losses, liabilities, penalties, claims, fines, damages, amounts paid in
settlement, demands, judgments, assessments, costs and expenses (including,
without limitation, reasonable attorneys' fees, investigation expenses and any
and all other out-of-pocket expenses, but excluding any punitive or
consequential damages to the extent prohibited by law) or other Liabilities
whatsoever that are assessed, imposed, awarded against, incurred or accrued by
such Person.
"INDEMNITEE" has the meaning specified in Section 9.3.
"INDEMNIFYING PARTY" has the meaning specified in Section 9.3.
"INTELLECTUAL PROPERTY" has the meaning specified in Section 3.9.
"IRS" has the meaning specified in Section 3.18.
"IRS RULING LETTER" has the meaning specified in Section 7.1(a)(v).
"KNOWLEDGE" of any party shall be deemed to mean actual knowledge of an
officer of such party with the title of Vice President or higher or other
officer who in the ordinary course of his duties is required to deal with the
matter at issue, or in the reasonable exercise of the duties of such officer
reason to know.
"MARAD" has the meaning specified in Section 3.11.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on the
Condition of a Person and its Subsidiaries taken as a whole or (b) a material
impairment of the ability of such person to perform any of its obligations
hereunder.
"MATERIALS OF ENVIRONMENTAL CONCERN" has the meaning specified in Section
3.20.
"NEW CREDIT FACILITY" means the credit facility provided by Den Norske
Bank, or other bank reasonably acceptable to the Acquiror, consisting of a
long-term loan of at least
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<PAGE>
$21,000,000 and a line of credit of at least $3,000,000 to the Acquiror which
will be available to draw upon on the Second Closing Date.
"NEW CREDIT FACILITY COMMITMENT" means a firm commitment in the form of a
commitment letter reasonably satisfactory to the Acquiror obtained by the
Company from Den Norske Bank or other bank reasonably acceptable to the Acquiror
to provide a credit facility to the Acquiror consisting of a long-term loan of
at least $21,000,000 and a line of credit of at least $3,000,000 which will be
available to draw upon on the Second Closing Date.
"NON-MANAGEMENT STOCK" means Stock held by persons other than Richard T. du
Moulin, Paul B. Gridley, Mark L. Filanowski, Peter N. Popov, Esq., Thomas E.
Murphy, Thomas McIntyre, Jeffrey Miller and Nicholas Orfanidis.
"NYSE" has the meaning specified in Section 6.22.
"PBGC" has the meaning specified in Section 3.18.
"PER SHARE VALUE" means the quotient obtained by dividing the Enterprise
Value by a number of Acquiror Shares derived as follows: Number of Acquiror
Shares=A+B+((3/7)(A+B)), where A is the number of Acquiror Shares issued and
outstanding as of the close of business on the Business Day next preceding the
First Closing Date and B is the number of Acquiror Shares issued to the
Shareholders on the First Closing Date).
"PERMITTED ACTIONS" means (a) any action described in Section 6(a) (ii) or
(iii) of the Tax Cooperation Agreement; (b) the reflagging of one or more of the
following ships; the COURIER, the PATRIOT and ROVER; (c) the issuance and any
redemption, exchange, transfer or other disposition of the Company Class B stock
(if such stock is issued); (d) any redemption or other purchase by MTL or MTL
Common Stock for cash to the extent permitted by the Acquisition
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<PAGE>
Agreement; and (e) any action required by law, PROVIDED that no alternative
action could reasonably avoid such required action.
"PERSON" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or entity or any government or political subdivision or any agency, department
or instrumentality thereof.
"PRO RATA INTEREST" means, with respect to any Shareholder, the percentage
set forth opposite such Shareholders name on Exhibit A.
"PROXY STATEMENT" has the meaning specified in Section 6.7.
"RESPECTIVE REPRESENTATIVES" has the meaning specified in Section 6.3.
"RETURNS" has the meaning specified in Section 3.14.
"RULING REQUEST" means the letter filed by the Acquiror with the IRS
requesting rulings from the IRS regarding certain Federal income tax
consequences of the Spin-Off (including all attachments, exhibits, and other
materials submitted with such letter) and any amendments or supplements to such
letter.
"SEC" means the Securities and Exchange Commission or any governmental
agencies substituted therefor.
"SECOND CLOSING DATE" means the Business Day after the Spin-Off occurs.
"Securities Act" has the meaning specified in Section 4.4.
"SHAREHOLDER" has the meaning specified in the preamble to this Agreement.
"SHAREHOLDERS' REPRESENTATIVE" means a committee comprising Messrs. Shelby,
du Moulin and Sutin.
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<PAGE>
"SHORT-FALL AMOUNT" has the meaning specified in Section 2.2(b).
"SPIN-OFF" has the meaning specified in the first Whereas clause of this
Agreement.
"SPREAD" has the meaning specified in Section 2.2(c).
"STOCK" means (i) the shares of Common Stock set forth on Exhibit A hereto
or (ii) all of the issued and outstanding MTL Class A Common Stock held by the
Shareholders, if the Company redesignates, changes and converts the Common Stock
into MTL Class A Common Stock and issues Class B Common Stock.
"STOCK ISSUANCE" has the meaning specified in Section 6.8.
"STOCKHOLDERS' SPECIAL MEETING" has the meaning specified in Section 6.8.
"SUBSIDIARY" means, (a) with respect to any Person:
(i) any corporation of which at least a majority in interest of the
outstanding voting stock (having by the terms thereof voting power under
ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power
by reason of the happening of a contingency) is at the time, directly or
indirectly, owned or controlled by such Person or by such Person and one or
more of its Subsidiaries; or
(ii) any non-corporate entity in which such Person or such Person and
one or more Subsidiaries of such Person either (a) directly or indirectly,
at the date of determination thereof, has at least majority ownership
interest, or (b) at the date of determination is a general partner or an
entity performing similar functions (E.G., manager of a Limited Liability
Company or a trustee of a trust);
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<PAGE>
and (b) with respect to the Company, Marine Car Carriers, Inc. (M.I.).
"TAXES" means all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock, transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Return), all estimated taxes, additions to tax,
penalties and interest and shall include any liability for such amounts as a
result either of being a member of a combined, consolidated, unitary or
affiliated group or of a contractual obligation to indemnify any person or other
entity.
"THIRD PARTY CLAIM" has the meaning specified in Section 9.4(b).
"UBC" has the meaning specified in the preamble to this Agreement.
"U.S. SUBSIDIARIES" shall mean the Subsidiaries of the Acquiror together
with each of UBC and any of its Subsidiaries that have at any time engaged in
whole or in part in the Domestic Business.
"WORKING CAPITAL" means current assets minus current liabilities as set
forth on a consolidated balance sheet prepared in accordance with the Accounting
Principles; PROVIDED, HOWEVER, that for purposes of Sections 2.2 and 7.2(h)
Working Capital (i) shall not include any proceeds from any amounts borrowed
long-term by the Company to refinance existing debt or otherwise, (ii) shall
include the proceeds from the sale of the MARINE RELIANCE, net of Taxes, as if
transferred to the Company from its subsidiary, Marine Car Carriers, Inc., (iii)
subject to the limitation in Section 2.2(c)(iii), shall not be reduced by (x)
any legal or accounting fees paid or
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<PAGE>
accrued by the Company in connection with the transactions contemplated hereby,
up to a maximum of $850,000, (y) use of current assets to reduce Long-term debt
in excess of the amount reflected on the Company's Pro Forma Closing Balance
Sheet and (z) any amount payable under Section 6.29(c) to First Stanford or DNB
and (iv) shall be reduced in each case to the extent not already reflected in
the respective balance sheet by (x) any amount payable as a Bonus Payment or
bonus payment, permitted by Section 6.2, after the Second Closing Date, (y) any
legal or accounting fees paid or accrued by the Company in connection with the
transactions contemplated hereby in excess of $850,000 and (z) the amount paid
pursuant to any redemption permitted by Section 6.1(h) and cash fees paid by the
Company to First Stanford and DNB pursuant to the Consulting Agreement.
ss. 1.2 PRINCIPLES OF CONSTRUCTION. References to Domestic Businesses in
Article V shall mean the Domestic Businesses with those assets and liabilities
presented on the Acquiror's Pro Forma Closing Balance Sheet.
ARTICLE II
ACQUISITION OF STOCK
--------------------
ss. 2.1 ACQUISITION OF STOCK. (a) Subject to the terms and conditions set
forth in this Agreement, the Acquiror shall acquire from each Shareholder on the
First Closing Date and Second Closing Date, and each Shareholder, severally and
not jointly, shall assign, transfer and deliver to the Acquiror on each such
Closing Date, the number of shares of Stock set forth opposite the name of such
Shareholder on EXHIBIT A attached hereto on the respective Closing Date. The
foregoing obligation of each Shareholder shall be binding upon such
Shareholder's estate, personal representatives, heirs, successors and assigns.
The certificates representing the Stock
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<PAGE>
shall be duly endorsed in blank, or accompanied by stock powers duly executed in
blank, by the Shareholders transferring the same to the Acquiror, with signature
guaranteed by a domestic commercial bank or trust company, with all necessary
transfer tax and other revenue stamps, acquired at the Shareholders' expense,
affixed and cancelled. Each Shareholder, severally and not jointly, agrees to
cure any deficiencies with respect to the endorsement of the certificates
representing the Stock owned by such Shareholder or with respect to the stock
power accompanying any such certificates.
(b) ESCROW. No later than 15 days following the date hereof, each of the
Shareholders (other than the Harrowston Corporation and the Wolfson Descendants'
1983 Trust) shall deliver certificates representing the Stock owned by such
Shareholders to The Chase Manhattan Bank as Escrow Agent in accordance with the
provisions of the Escrow Agreement dated as of the date hereof and attached
hereto as EXHIBIT B.
ss. 2.2 CONSIDERATION AND ADJUSTMENTS. In consideration for the transfer by
the Shareholders of the Stock to the Acquiror, the Acquiror shall deliver to
each Shareholder on the respective Closing Dates such Shareholder's Pro Rata
Interest of the following (collectively, the "CONSIDERATION"):
(a) FIRST CLOSING DATE. On the First Closing Date, the number of Acquiror
Shares (before giving effect to the Spin-Off) with a value of $5.0 million; such
number of shares to be determined by dividing $5.0 million by the average of the
daily closing prices for Acquiror Shares for the previous ten consecutive
Trading Days commencing on the fifth Trading Day before the First Closing Date
(such average price, the "CLOSING PRICE"). The closing price for each day shall
be the last sales price regular way or, in
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the case no sale takes place on such day, the average of the closing bid and
asked prices regular way, in either case as officially quoted in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange. For purposes of this clause,
the term "TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than a day on which securities are not traded on the New York
Stock Exchange. No fractional shares shall be issued and no payments in lieu of
fractions shall be made.
(b) SECOND CLOSING DATE. (i) On the Second Closing Date, the number of
Acquiror Shares which, after giving effect to the issuance thereof, is equal to
30% of the then issued and outstanding shares of the Acquiror's common stock
(giving full effect to all options issued and outstanding as of the Second
Closing Date) less (x) a hold-back of the number of Acquiror Shares having a
total value based on the Per Share Value equal to $1,000,000 (which shares shall
be deposited with the Escrow Agent by Acquiror on the Second Closing Date and
shall be held by the Escrow Agent pursuant to the Escrow Agreement pending
resolution of the post-closing balance sheet adjustment contemplated by
subparagraph (h)(ii) below) and (y) the number of Acquiror Shares calculated as
provided in subparagraph (b)(ii) and (z) the number of Acquiror Shares having a
total value, based on the Per Share Value, equal to $250,000, which shares shall
be delivered by the Acquiror to First Stanford Corp. ("FIRST STANFORD") to pay
fees for services rendered to the Company in connection with the Acquisition
under that certain letter agreement dated February 28, 1996 among the Company,
First Stanford and DNB (for purposes of this Section, the "CONSULTING
AGREEMENT"); PROVIDED,
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HOWEVER, that the Acquiror shall deliver such fewer Acquiror Shares as First
Stanford may be entitled under the Consulting Agreement in which case the
Acquiror shall deliver any such shares that are not used to settle fees payable
under the Consulting Agreement promptly to the Shareholders according to their
Pro Rata Interests; but PROVIDED FURTHER, that the Acquiror shall have no
liability to either First Stanford or DNB for payment of fees for services
rendered to the Company under the Consulting Agreement, other than delivery of
Acquiror Shares as provided above. No fractional shares shall be issued and no
payments in lieu of fractions shall be made unless Acquiror effectuates a
reverse stock split.
(ii) If the Working Capital shown on the Company's Preliminary Closing
Balance Sheet is less than $359,000 (such difference, if any, the
"SHORT-FALL AMOUNT") and the Short-fall Amount is not greater than $1
million, then the number of Acquiror Shares delivered on the Second Closing
Date shall be reduced by the number of Acquiror Shares having a total value
based on the Per Share Value equal to the Short-fall Amount.
(c) COMPANY'S PRELIMINARY CLOSING BALANCE SHEET. (i) Within seven (7)
Business Days after receipt of the notice of the First Closing Date from the
Acquiror delivered pursuant to Section 2.3 hereof, the Company shall deliver to
the Acquiror and the Escrow Agent a balance sheet of the Company dated as of the
date of the Company's prior fiscal month close, unless such balance sheet would
be delivered before the seventh Business Day of the month, in which case within
five (5) Business Days after receipt of the notice of the First Closing Date
from the Acquiror contemplated in Section 2.3 hereof, the Company shall deliver
to the Acquiror and the
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Escrow Agent a balance sheet of the Company dated as of the date of the
Company's second preceding fiscal month close (in either case, the "COMPANY'S
PRELIMINARY CLOSING BALANCE SHEET") and a computation of Working Capital using
amounts derived therefrom accompanied by a certificate from the chief financial
officer of the Company certifying that the Company's Preliminary Closing Balance
Sheet fairly presents the Consolidated financial condition of the Company and
its Subsidiaries as of the date thereof and that it has been prepared in
accordance with the Accounting Principles, except for the calculation of Working
Capital which the chief financial officer shall certify has been calculated in
accordance with the definition of Working Capital herein. The Company's
Preliminary Closing Balance Sheet shall also be accompanied by a "COMFORT
LETTER" from Ernst & Young substantially in the form attached hereto as Exhibit
E. The Company's Preliminary Closing Balance Sheet shall be the basis on which
the parties will close the transactions contemplated by this Agreement, and will
be subject to adjustment as provided below.
(ii) If the Short-fall Amount shown on the Company's Preliminary Closing
Balance Sheet is greater than $1,000,000 and the Company increases its Working
Capital prior to the First Closing Date, in a manner reasonably satisfactory to
the Acquiror and consistent with the terms of this Agreement, to reduce the
Short-fall Amount (determined on a pro forma basis after giving effect to such
increase) to less than $1,000,000, the Company shall have the right to adjust
the Company's Preliminary Closing Balance Sheet to reflect such increase, which
balance sheet shall be deemed to be the Company's Preliminary Closing Balance
Sheet for purposes of determining the Short-fall Amount and the reduction in the
number of Acquiror Shares to be delivered hereunder.
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(iii) If the total number of Acquiror Shares to be delivered pursuant to
Section 2.2(a), (b) and (h) (assuming for the purposes hereof that the Company's
Preliminary Closing Balance Sheet and Final Closing Balance Sheet are the same)
after giving effect to their issuance, would exceed 40% of the issued and
outstanding shares of the Acquiror's common stock (such excess, the "SPREAD"),
the Acquiror shall permit the Company, before delivery of the Stock to the
Acquiror on the First Closing Date, to make a pro rata distribution of cash to
the Shareholders (in redemption of a portion of their Stock) in an amount equal
to the total value, based on the Per Share Value, of the aggregate number of
Acquiror Shares constituting the Spread less the legal or accounting fees not in
excess of $850,000 paid or accrued by the Company in connection with the
transactions contemplated hereby. If the Company makes such a distribution,
EXHIBIT A shall be deemed amended to give effect to the redemption, and the
Company shall reduce Working Capital on the Company's Closing Balance Sheet by
an amount equal to any cash so distributed to the extent not already reduced.
(d) REVIEW OF CLOSING BALANCE SHEETS. (i) No later than thirty days
following the Second Closing Date, the Company shall prepare and deliver to UBC
and the Escrow Agent a balance sheet of the Company dated as of the Second
Closing Date (the "COMPANY'S CLOSING BALANCE SHEET") and a computation of
Working Capital using amounts derived therefrom. The Company's Closing Balance
Sheet shall be accompanied by a certificate from the chief financial office of
the Company certifying that the Company's Closing Balance Sheet fairly presents
the Condition of the Company and its Subsidiaries as of the Second Closing Date
and that it has been prepared in accordance with the Accounting Principles,
except for the calculation of Working Capital which the chief financial officer
shall certify has been calculated in accordance with the
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definition of Working Capital herein. The Company's Closing Balance Sheet shall
be binding and conclusive upon, and deemed accepted by UBC unless UBC shall have
notified the Company, the Shareholders' Representative and the Escrow Agent in
writing of any objections thereto within thirty (30) days after the receipt by
UBC thereof, which notice shall specify in reasonable detail each item on the
Company's Closing Balance Sheet that UBC disputes and a summary of the reasons
for such dispute. The Company shall allow UBC and any agent of UBC, upon
reasonable advance notice to the Company, access to all books and records,
accountants' work papers, personnel and all other documents necessary in
connection with its review of the Company's Closing Balance Sheet, during normal
working hours at the Company's principal places of business or at any location
where such materials are located, and UBC and any agent of UBC shall have the
right, at its cost, to make copies of any such materials. In addition, the
Company shall authorize and instruct its accountants to cooperate with and
provide all assistance reasonably deemed necessary by UBC and UBC's accountants
in connection with the review of the Company's Closing Balance Sheet. UBC's
accountants shall be entitled to carry out such additional inquiries as they
reasonably consider appropriate in connection with the Company's Closing Balance
Sheet, including access to the work papers, if any, prepared by the Company's
accountants with respect thereto and detailed books and records relating to the
business. The Shareholders' Representative shall also have access to UBC's
accountants' work papers with respect to the Company's Closing Balance Sheet, if
any.
(ii) No later than thirty days following the Second Closing Date, UBC shall
prepare and deliver to the Company a balance sheet of the Domestic Businesses
dated as of the Second Closing Date (the "ACQUIROR'S CLOSING BALANCE SHEET")
prepared in accordance with the
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Accounting Principles. The Acquiror's Closing Balance Sheet shall be accompanied
by a certificate from the chief financial officer of UBC stating that the
Acquiror's Closing Balance Sheet (A) has been prepared in accordance with the
Accounting Principles, (B) fairly presents the Condition of the Domestic
Businesses as of the Second Closing Date, (C) is substantially equivalent to the
Acquiror's Pro Forma Closing Balance Sheet, including cash of at least
$2,000,000 as well as cash in an amount equal to the fair market value of
certain of the furniture and fixtures owned by the Acquiror and currently
located at 90 Park Avenue, as appraised by an independent third-party appraiser
and working capital of at least $4,527,000, and (D) includes all Domestic Assets
and Domestic Liabilities (as defined in the Distribution Agreement) as
determined in accordance with GAAP. The Acquiror's Closing Balance Sheet shall
also be accompanied by a "COMFORT LETTER" from Deloitte & Touche certifying that
the Acquiror's Closing Balance Sheet fairly presents the Condition of the
Domestic Businesses as of the date thereof, has been prepared in accordance with
the Accounting Principles, and is substantially equivalent to the Acquiror's Pro
Forma Closing Balance Sheet including cash of at least $2,000,000 as well as
cash in an amount equal to the fair market value of certain of the furniture and
fixtures owned by the Acquiror and currently located at 90 Park Avenue, as
appraised by an independent third-party appraiser. The Acquiror's Closing
Balance Sheet shall be binding and conclusive upon, and deemed accepted by the
Company and Shareholders unless the Shareholders' Representative shall have
notified UBC in writing of any objections thereto within thirty (30) days after
the receipt thereof by the Shareholders' Representative which notice shall
specify in reasonable detail each item on the Acquiror's Closing Balance Sheet
that the Shareholders' Representative disputes and a summary of the reasons for
such dispute. UBC shall allow the
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Shareholders' Representative and any agent of the Shareholders' Representative,
upon reasonable advance notice to UBC, access to all books and records,
accountants' work papers, personnel and all other documents necessary in
connection with its review of the Acquiror's Closing Balance Sheet, during
normal working hours at the UBC's principal places of business or at any
location where such materials are located, and the Shareholders' Representative
and any agent of the Shareholders' Representative shall have the right, at its
cost, to make copies of any such materials. In addition, UBC shall authorize and
instruct its accountants to cooperate with and provide all assistance reasonably
deemed necessary by the Shareholders' Representative and the Shareholders'
Representative's accountants in connection with the review of the Acquiror's
Closing Balance Sheet. The Shareholders' Representative's accountants shall be
entitled to carry out such additional inquiries as they reasonably consider
appropriate in connection with the Acquiror's Closing Balance Sheet, including
access to the work papers, if any, prepared by the UBC's accountants with
respect thereto and detailed books and records relating to the business. UBC
shall also have access to the Shareholders' Representative's accountants' work
papers with respect to the Acquiror's Closing Balance Sheet, if any.
(e) DISPUTES. Disputes between (i) UBC and the Shareholders' Representative
relating to the Company's Closing Balance Sheet or (ii) the Shareholders'
Representative and UBC relating to the Acquiror's Closing Balance Sheet that are
not resolved by them within thirty (30) days after receipt by the respective
parties of the relevant notices referred to in Paragraph 2.2(d) may be referred
thereafter for decision at the request of the Shareholders' Representative or
UBC as the case may be to Coopers & Lybrand LLP or such other independent
accounting firm acceptable to the Shareholders' Representative and UBC (such
firm being referred to herein as
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the "AUDITOR"). The Auditor shall review only items in dispute. Upon a request
to refer a matter to the Auditor, the Shareholders' Representative and the UBC
shall use their best efforts to agree on the procedures to be followed by the
Auditor (including procedures with regard to presentation of evidence) within
thirty (30) days following such request. If the Shareholders' Representative and
UBC are unable to agree upon procedures at the end of such thirty (30) day
period, the Auditor shall establish such procedures giving due regard to the
intention of the Shareholders' Representative and UBC to resolve disputes as
quickly, efficiently and inexpensively as possible, which procedures may be, but
need not be, those proposed by either the Shareholders' Representative or UBC.
The Shareholders' Representative and UBC shall then submit evidence in support
of its position on each item in dispute as well as the procedures to be followed
by the Auditor, and the Auditor shall decide the dispute in accordance
therewith. In reaching a decision on each item in dispute, the Auditor's
decision is expressly limited to the selection of either the Shareholders'
Representative's or UBC's position on each such disputed item. The Auditor's
decision on any matter referred to it shall be final and binding on the parties.
The fee of the Auditor shall be borne by the Company and the Acquiror in
proportion to the net dollar value of the items resolved in the other party's
favor. By way of example, suppose UBC asserts that the Company's Closing Balance
Sheet should reflect a $500,000 downward adjustment in Working Capital
(attributable to various disputed items), the Company asserts that the
Acquiror's Closing Balance Sheet should reflect a $500,000 downward adjustment
in working capital (also attributable to various disputed items) and the Auditor
decides that there should be a $250,000 downward adjustment in Working Capital
and a $350,000 downward adjustment in the Acquiror's working capital. If the
Auditor's fees are
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$85,000, the fees would be borne as follows: Company-- (($250,000 +
$150,000)/$1,000,000) x $85,000 = $34,000; Acquiror-- (($250,000 +
$350,000)/$1,000,000) x $85,000 = $51,000.
(f) FINAL CLOSING BALANCE SHEETS. (i) The Company's Closing Balance Sheet
shall become final and binding upon the parties upon the earliest of (x) the
failure by UBC to object thereto within the period permitted with respect
thereto, (y) the agreement between UBC and the Company with respect thereto or
(z) the decision by the Auditor with respect to any disputes under Paragraph
2.2(e). The Company's Closing Balance Sheet, when final and binding in
accordance with the immediately preceding sentence, is referred to herein as the
"COMPANY'S FINAL CLOSING BALANCE SHEET."
(ii) The Acquiror's Closing Balance Sheet shall become final and binding
upon the parties upon the earliest of (x) the failure by the Shareholders'
Representative to object thereto within the period permitted with respect
thereto, (y) the agreement between the Shareholders' Representative and UBC with
respect thereto or (z) the decision by the Auditor with respect to any disputes
under Paragraph 2.2(e). The Acquiror's Closing Balance Sheet, when final and
binding in accordance with the immediately preceding sentence, is referred to
herein as the "ACQUIROR'S FINAL CLOSING BALANCE SHEET."
(g) AMOUNTS NOT IN DISPUTE. Notwithstanding anything to the contrary
contained in this Paragraph 2.2, pending resolution of all disputed items with
respect to the Company's Closing Balance Sheet, the number of Acquiror Shares
held in escrow having a total value based on the Per Share Value equal to the
amount of Consideration that is not in dispute shall be released promptly from
the escrow to the Shareholders. The number of Acquiror Shares having a total
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value based on the Per Share Value equal to the amount of Consideration that is
disputed shall be released promptly upon resolution of any dispute with respect
to such amounts or portions.
(h) ADJUSTMENTS. (i) If the Working Capital shown on the Company's Final
Closing Balance Sheet is less than $359,000 minus the Short-fall Amount (such
difference between (x) $359,000 minus the Short-fall Amount and (y) the Working
Capital shown on the Company's Final Closing Balance Sheet, the "ADDITIONAL
SHORT-FALL AMOUNT"), then the number of shares deliverable out of Escrow upon
resolution of any disputes shall be reduced by the number of Acquiror Shares
having a total value based on the Per Share Value equal to the Additional
Short-fall Amount.
(ii) If the Working Capital shown on the Company Final Closing Balance
Sheet exceeds $1,409,000 (such excess, the "EXCESS AMOUNT") then the number of
shares deliverable upon the resolution of any disputes shall be increased by the
number of Acquiror Shares having a total value based on the Per Share Value
equal to the Excess Amount plus any Short-fall Amount. In such event, Acquiror
shall issue and deliver such number of additional Acquiror Shares to the
Shareholders as promptly as practicable following resolution of the adjustment
contemplated by this subparagraph; PROVIDED, HOWEVER, that the total number of
Acquiror Shares issued to the Shareholders, after giving effect to their
issuance, shall not exceed 44% of the issued and outstanding shares of the
Acquiror's common stock.
(iii) If the cash shown on the Acquiror's Final Closing Balance Sheet is
less than the sum of $2,000,000 plus the fair market value of certain of the
furniture and fixtures currently located at 90 Park Avenue and/or the working
capital shown on the Acquiror's Final Closing Balance Sheet is less than
$4,527,000, then, upon resolution of any disputes, UBC shall within
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five (5) Business Days transfer to the Acquiror cash to make up any cash deficit
and/or cash and/or other current assets to make up any working capital deficit.
(i) RECAPITALIZATION, ETC. In the event that any capital stock or other
securities are issued in respect of, in exchange for, or in substitution of, any
shares of the Acquiror's capital stock by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, reverse split-up, sale of
assets, distribution to stockholders or any other change in the Acquiror's
capital structure appropriate adjustments shall be made in the amounts and
percentage (including the definition of Per Share Value) specified in this
Agreement so as to fairly and equitably preserve, as far as practicable, the
original rights and obligations of the parties under this Agreement.
ss. 2.3 CLOSING. The portion of the Acquisition referred to in Section
2.2(a) shall take place at 10:00 A.M. at the offices of White & Case, 1155
Avenue of the Americas, New York, New York 10036 on a date set forth in a notice
from the Acquiror to the Company, Escrow Agent and the Shareholders'
Representative which shall be a date (i) not less than ten (10) Business Days
and not more than 30 Business Days after the date of such notice, (ii) after all
conditions to the Spin-Off shall have been satisfied and (iii) within the first
ten days of the calendar month (but in any event prior to the Spin-Off), or at
such other time and date (not later than July 31, 1998) as the parties hereto
shall agree in writing, (such date, the "FIRST CLOSING DATE"). The portion of
the Acquisition referred to in Section 2.2(b) shall take place at 10:00 A.M. at
such offices of White & Case on the Second Closing Date.
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ARTICLE III
REPRESENTATIONS OF THE COMPANY
------------------------------
ss. 3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and
warrants to the Acquiror that as of the date hereof:
ss. 3.1 EXISTENCE AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the character or location of the
properties owned, leased or operated by the Company or the nature of the
business conducted by the Company makes such qualification or license necessary,
except where the failure to be so duly qualified, licensed or in good standing
could not reasonably be expected to have a Material Adverse Effect on the
Company.
ss. 3.2 CAPITAL STOCK. The Company has an authorized capitalization
consisting of 5,000,000 shares of Common Stock, .01 par value, of which
4,152,019 shares are issued and outstanding. All outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth on Schedule 3.2, there are no
outstanding subscriptions, options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character providing for the purchase, issuance or sale of any shares of the
capital stock of the Company.
ss. 3.3 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT. (a) The Company has
the requisite corporate right, power, legal capacity and authority to execute
and deliver this Agreement and
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to perform its obligations hereunder. The execution, delivery and performance of
this Agreement by the Company and the performance of its obligations hereunder
have been duly authorized and approved by its Board of Directors and no other
corporate action on the part of the Company or action by the stockholders of the
Company is necessary to authorize the execution, delivery and performance of
this Agreement by the Company. This Agreement has been duly executed and
delivered by the Company and, assuming due execution of this Agreement by the
Acquiror and each Shareholder, is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
(b) Except as set forth on SCHEDULE 3.3(B), no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, is required by or with respect to the Company in connection with the
execution and delivery of, and the consummation by the Company of the
transactions contemplated by this Agreement, or to permit the Company to
continue, without material change, the business activities of the Company as
currently conducted and as proposed to be conducted, except for the filing of
the appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business.
ss. 3.4 Subsidiaries and Investments. (a) Set forth in Schedule 3.4(a)
attached hereto is a list of each corporation in which the Company owns,
directly or indirectly, any equity security. Each Subsidiary of the Company is a
corporation duly organized, validly existing and in good standing (to the extent
such concept is applicable under relevant law) under the laws of the
jurisdiction of its organization (which is set forth on SCHEDULE 3.4(A)), and
has the corporate
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power and authority to own, lease and operate its property and to carry on its
business as now being conducted.
(b) Set forth on SCHEDULE 3.4(B) is a list of jurisdictions in which each
Subsidiary of the Company is qualified as a foreign corporation. Such
jurisdictions are the only jurisdictions in which the character or location of
the properties owned or leased by each such Subsidiary, or the nature of the
business conducted by each such Subsidiary, makes such qualification necessary
except where the failure to be so qualified would not have a Material Adverse
Effect.
(c) Each Subsidiary of the Company has the capitalization set forth on
Schedule 3.4(c). The outstanding shares of capital stock of each such Subsidiary
have been duly authorized and validly issued, are (to the extent such concepts
are relevant under applicable law) fully paid and nonassessable, and, except as
set forth in SCHEDULE 3.4(C), are owned, of record and beneficially, by the
Company, free and clear of all liens, encumbrances, restrictions and claims of
every kind. Except as set forth on SCHEDULE 3.4(C), no shares of capital stock
of any such Subsidiary are reserved for issuance and there are no outstanding
options, warrants, rights, subscriptions, claims, agreements, obligations,
calls, commitments, conversion rights, rights of exchange or other commitments
of any character, contingent or otherwise, providing for the purchase, issuance,
sale or transfer of any shares of the capital stock of any such Subsidiary.
(d) Neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity, except as set forth on SCHEDULE 3.4(A).
ss. 3.5 FINANCIAL STATEMENTS; NO MATERIAL CHANGES. (a) The consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1996, 1995
and 1994, and the related
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consolidated statements of income and retained earnings and cash flows for the
years or periods then ended, audited by Ernst & Young LLP in accordance with
statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants (attached hereto as EXHIBIT F
collectively, the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements, including the footnotes thereto, except as indicated therein, have
been prepared in accordance with the Accounting Principles. The Company
Financial Statements fairly present the financial condition of the Company and
its Subsidiaries at the respective dates thereof and the related statements of
income and retained earnings and cash flows fairly present the results of the
operations of the Company and its Subsidiaries and the changes in their
financial position for the respective periods indicated. Since December 31, 1996
(the "COMPANY BALANCE SHEET DATE"), and except as set forth on SCHEDULE 3.5(A),
there has been no (i) change that has or could reasonably be expected to have a
Material Adverse Effect on the assets or liabilities, or in the business or
financial condition, or in the results of operations (the "Condition") of the
Company or its Subsidiaries and no fact or condition exists or is contemplated
or threatened with respect to the Company or its Subsidiaries which could
reasonably be expected to cause such a change in the future (except for the
possible termination or non-renewal of existing MARAD Contracts) or (ii)
material damage, destruction or loss to any asset or property, tangible or
intangible, of the Company which materially affects the ability of the Company
to conduct its business.
(b) The Company has delivered to the Acquiror a PRO FORMA balance sheet in
the form of EXHIBIT C hereto (the "COMPANY PRO FORMA CLOSING BALANCE SHEET").
The Company's PRO FORMA Closing Balance Sheet represents the Company's
reasonable best estimate on the date
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hereof of the Condition of the Company as of the Second Closing Date. The
Company Pro Forma Closing Balance Sheet has been prepared in accordance with the
Accounting Principles. Any computation of Working Capital using amounts derived
from the Company Pro Forma Closing Balance Sheet will be calculated in
accordance with the definition of Working Capital.
ss. 3.6 BOOKS AND RECORDS. The respective minute books of the Company and
its Subsidiaries, as previously made available to the Acquiror and its
representatives, contain accurate records of all meetings of, and corporate
action taken by (including action taken by written consent) the respective
stockholders and Boards of Directors of the Company and each Subsidiary. Except
as set forth on Schedule 3.6, neither the Company nor any Subsidiary has any of
its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company or a
Subsidiary.
ss. 3.7 Title to Properties; Encumbrances. Except as set forth on Schedule
3.7 attached hereto and except for such properties and assets which have been
sold or otherwise disposed of in the ordinary course of business, the Company
and each Subsidiary has good and marketable title to or a valid and subsisting
leasehold interest in its material properties and assets (real and personal,
tangible and intangible), including, without limitation, the properties and
assets reflected in the Company Financial Statements, subject to no encumbrance,
lien, charge or other restriction of any kind or character and in the case of
chartered in vessels, mortgages or other liens against the vessel
("ENCUMBRANCES"), except for (i) Encumbrances reflected in the
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Company Financial Statements, (ii) Encumbrances for current Taxes, not yet due
and delinquent, (iii) Encumbrances arising by operation of law, (iv)
Encumbrances imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's liens and other similar Encumbrances arising in the
ordinary course of business securing obligations including maritime liens or
other statutory rights in rem arising in the ordinary course of owning and
operating vessels and incurred in the ordinary course of business that (a) are
not overdue for a period of more than 45 days and (b) either individually or
when aggregated with all other Encumbrances described in this Section 3.7
outstanding on any date of determination, do not materially affect the use or
value of the property to which they relate and (v) Encumbrances described on
SCHEDULE 3.7 attached hereto (liens described in clauses (i), (ii), (iii), (iv)
and (v) above are hereinafter sometimes referred to as "COMPANY PERMITTED
ENCUMBRANCES").
ss. 3.8 REAL PROPERTY. The Company owns no real property.
ss. 3.9 INTELLECTUAL PROPERTY. Except as set forth on SCHEDULE 3.9, the
operation of the business of the Company and its Subsidiaries as currently
conducted requires no rights under Intellectual Property (as hereinafter
defined) and within the six year period immediately prior to the date of this
Agreement, the business of the Company and its Subsidiaries made use of no
Intellectual Property rights. "INTELLECTUAL PROPERTY" means domestic and foreign
patents, patent applications, registered and unregistered trade marks and
service marks, trade dress, registered and unregistered copyrights, computer
programs, data bases, material trade secrets and proprietary information
including, without limitation, any proprietary know-how, formulae, computer
software (including source and object code listings and algorithms), procedures,
processes, technology, innovations, inventions, manufacturing drawings or
information, engineering draw-
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ings or information, product designs, product patterns, and other intangible
property rights of the Company and its Subsidiaries.
ss. 3.10 LEASES AND SHIP CHARTERS. SCHEDULE 3.10 attached hereto contains
an accurate and complete list of all leases and ship charters (including, but
not limited to, capital leases) to which the Company or any Subsidiary is a
party (as lessee or lessor) and which require an annual rental payment
aggregating at least $10,000. Each lease and ship charter set forth on SCHEDULE
3.10 (or to the Knowledge of the Company required to be set forth on SCHEDULE
3.10) is in full force and effect; all rents and additional rents due to date on
each such lease and ship charter have been paid; in each case, the lessee has
been in peaceable possession since the commencement of the original term of such
lease or ship charter and is not in default thereunder and no waiver, indulgence
or postponement of the lessee's obligations thereunder has been granted by the
lessor; and there exists no event of default by the Company or any of its
Subsidiaries or event, occurrence, condition or act (including the consummation
of the transactions contemplated hereby) which, with the giving of notice, the
lapse of time or the happening of any further event or condition, would become a
default by the Company or any of its Subsidiaries or give rise to a right of
termination by a party (other than the Company or any of its Subsidiaries) under
such lease or ship charter. Neither the Company nor any Subsidiary has violated
any of the terms or conditions under any such lease or ship charter in any
material respect, and, to the Knowledge of the Company, all of the covenants to
be performed by any other party under any such lease or ship charter have been
performed in all material respects. The property leased by the Company or any
Subsidiary is in a state of good maintenance and repair and is adequate and
suit-
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able for the purposes for which it is presently being used. Each of the vessels
chartered or owned by the Company or any of its Subsidiaries is in class.
ss. 3.11 MATERIAL CONTRACTS. Except as set forth on SCHEDULE 3.11 attached
hereto, neither the Company nor any Subsidiary has or is bound by (a) any
agreement, contract or commitment (other than purchase orders or like
commitments in the ordinary course of business) that involves the performance of
services or the delivery of goods and/or materials by it of an amount or value
in excess of $25,000, (b) any agreement, indenture or other instrument which
contains restrictions with respect to payment of dividends or any other
distribution in respect of its capital stock, (c) any agreement, contract or
commitment relating to capital expenditures, (d) any loan (other than accounts
receivable arising in the ordinary course of business consistent with past
practice) or advance to (other than travel and entertainment advances to
employees made in the ordinary course of business consistent with past
practice), or investment in, any Person or any agreement, contract or commitment
relating to the making of any such loan, advance or investment, (e) any
guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person (other than the endorsement of negotiable instruments
for collection in the ordinary course of business consistent with past
practice), (f) any employment, consulting or any other similar type contract,
(g) any agreement, contract or commitment limiting the ability of the Company or
any Subsidiary to engage in any line of business or to compete with any Person,
(h) any agreement, contract or commitment not entered into in the ordinary
course of business consistent with past practice which involves estimated total
payments of $25,000 or more and is not cancelable without penalty within 30 days
or (i) any agreement, contract or commitment which is expected to have a
Material Adverse Effect on the Company. Each contract, commitment or agreement
set forth on Schedule 3.11 (or required to be set forth on Schedule 3.11) is in
full force and effect and there exists no default or event of default by the
Company or any of its Subsidiaries or event, occurrence, condition or act
(including the consummation of the transactions contemplated hereby) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default by the Company or any of
its Subsidiaries or give rise to a right of termination by a party (other than
the Company or any of its Subsidiaries) thereunder. Neither the Company nor any
Subsidiary has violated any of the material terms or conditions of any contract,
commitment or agreement
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set forth on SCHEDULE 3.11 (or required to be set forth on SCHEDULE 3.11) in any
material respect, and, to the Knowledge of the Company, except as set forth on
SCHEDULE 3.11, all of the material covenants to be performed by any other party
thereto have been fully performed. SCHEDULE 3.11A hereto sets forth the results
of the audits or examinations of the Company under the current and immediately
preceding United States Department of Transportation, Maritime Administration
("MARAD") contracts. Except as set forth on SCHEDULE 3.11A, no past or present
actions, conditions, events or circumstances presently exist or to the Knowledge
of the Company is threatened, which could (i) result in a financial finding
relating to any such contract or (ii) disqualify the Company from future awards
of MARAD contracts, except for MARAD's current policy restricting the number of
vessels that any one company can manage to 12.
ss. 3.12 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and delivery
of this Agreement by the Company and the Shareholders and the consummation of
the transactions contemplated hereby by the Company (a) will not violate or
contravene any provision of the Articles of Incorporation or By-laws of the
Company or its Subsidiaries, (b) will not violate or con-
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travene any statute, rule, regulation, order or decree of any public body or
authority by which the Company or any of its Subsidiaries is bound or by which
any of its respective properties or assets are bound subject to receipt of the
consents set forth on SCHEDULES 3.3(B) AND 3.12, (c) except as set forth on
SCHEDULE 3.12, will not require any filing with, or permit, consent or approval
of, or the giving of any notice to any other Person and (d) except as set forth
on SCHEDULE 3.12, will not result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Encumbrance upon any of the properties
or assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease, franchise agreement or any other
instrument or obligation to which the Company or its Subsidiaries is a party, or
by which the Company or its Subsidiaries or any of their respective properties
or assets may be bound.
ss.3.13 LITIGATION. Except as set forth on SCHEDULE 3.13, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or to the Knowledge of the Company any
investigation by) any Governmental Authority, pending, or, to the Knowledge of
the Company, threatened, against or affecting the Company or any of its
Subsidiaries or any of their properties or rights which could have a Material
Adverse Effect on the Company or any of its Subsidiaries; and to the Knowledge
of the Company no valid basis for any such action, proceeding or investigation.
Except as set forth on SCHEDULE 3.13, neither the Company nor any of its
Subsidiaries is subject to any judgment, order or decree entered in any lawsuit
or proceeding which could reasonably be expected to have a Material Adverse
Effect.
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ss. 3.14 TAXES.
(a) TAX RETURNS. Except as otherwise disclosed to an officer of the
Acquiror, the Company has timely filed or caused to be timely filed with the
appropriate taxing authorities all material returns, statements, forms and
reports for Taxes ("RETURNS") that are required to be filed by, or with respect
to, the Company or any of its Subsidiaries on or prior to the First Closing
Date. The Returns have accurately reflected in all material respects all
liability for Taxes of the Company and each of its Subsidiaries for the periods
covered thereby.
(b) PAYMENT OF TAXES. Except as otherwise disclosed to an officer of the
Acquiror, all material Taxes and Tax liabilities of the Company or any of its
Subsidiaries for all taxable years or periods that end on or before the date
hereof have been timely paid or accrued and adequately disclosed to the Acquiror
and fully provided for on the books and records of the Company and its
Subsidiaries in accordance with the Accounting Principles. The U.S. Federal
income tax liability of the Company and its Subsidiaries has been finally
determined (or the statute of limitations has closed) for all years to and
including the year ended December 31, 1992.
(c) OTHER TAX MATTERS. (i) Schedule 3.14 attached hereto sets forth (A)
each taxable year or other taxable period of the Company or any of its
Subsidiaries for which an audit or other examination of Taxes by the appropriate
Tax authorities of any nation, state or locality is currently in progress (or,
to the Knowledge of the Company, scheduled as of the date hereof to be
conducted) together with the names of the respective Tax authorities conducting
(or, to the Knowledge of the Company, scheduled to conduct) such audits or
examinations and a description of the subject matter of such audits or
examinations, (B) the most recent taxable year or other taxable period for which
an audit or other examination relating to U.S. Federal income taxes of
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the Company or any of its Subsidiaries has been finally completed and the
disposition of such audit or examination, (C) the taxable years or other taxable
periods of the Company or any of its Subsidiaries which, to the Knowledge of the
Company, will not be subject to the normally applicable statute of limitations
by reason of the existence of circumstances that would cause any such statute of
limitations for applicable Taxes to be extended, (D) the amount of any proposed
adjustments (and the principal reason therefor) relating to any Returns for Tax
liability of the Company or any of its Subsidiaries, which have been proposed or
assessed by any taxing authority and have not been paid and (E) a list of all
notices which, to the Knowledge of the Company, have been received by the
Company or any of its Subsidiaries from any taxing authority relating to any
issue which could affect the Tax liability of the Company or any of its
Subsidiaries, which issue has not been finally determined and which, if
determined adversely to the Company or any of its Subsidiaries, could result in
a Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has been included in
and could reasonably be expected after the date hereof to have any liability for
Taxes from any "CONSOLIDATED," "UNITARY" or "COMBINED" Return with any group
other than the one that includes the Company provided for under the law of the
United States, any foreign jurisdiction or any state or locality with respect to
Taxes for any taxable period for which the statute of limitations has not
expired.
(iii) All Taxes which the Company or any of its Subsidiaries is (or was)
required by law to withhold or collect have been duly withheld or collected, and
have been timely paid over to the proper authorities to the extent due and
payable other than those Taxes the failure of which
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to withhold, collect or timely pay over would not have a Material Adverse Effect
on the Company.
(iv) Neither the Company nor any of its Subsidiaries is a "UNITED STATES
REAL PROPERTY HOLDING CORPORATION" within the meaning of Section 897(c)(2) of
the Code.
(v) Except as set forth on SCHEDULE 3.14(C), there are no tax sharing,
allocation, indemnification or similar agreements in effect as between the
Company, any of its Subsidiaries, or any predecessor or Affiliate thereof and
any other party (including the Shareholders and any predecessors or Affiliates
thereof) under which the Acquiror or the Company or any of its Subsidiaries
could be liable for any Taxes of any party other than the Company or its
Subsidiaries.
(vi) No indebtedness of the Company or any of its Subsidiaries consists of
"CORPORATE ACQUISITION INDEBTEDNESS" within the meaning of Section 279 of the
Code.
(vii) Neither the Company nor any of its Subsidiaries has applied for, been
granted, or agreed to any accounting method change for which it will be required
to take into account any adjustment under Section 481 of the Code or any similar
provision of the Code or the corresponding tax laws of any nation, state or
locality.
(viii) No election under Section 341(f) of the Code has been made to treat
the Company or any of its Subsidiaries as a consenting corporation, as defined
in Section 341 of the Code.
(ix) As a result of the transactions contemplated by this Agreement,
neither the Company nor any of its Subsidiaries will be obligated to make any
payment that would constitute an "EXCESS PARACHUTE PAYMENT" as defined in
Section 280G of the Code.
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Solely for purposes of this section and section 5.14, "MATERIAL" shall mean
an amount of Taxes (including interest and penalties), or an action giving rise
to an amount of such Taxes, that when aggregated with all other (i) Taxes that
could arise from not having filed any required Return, (ii) Taxes not accurately
reflected on a Return and (iii) Taxes not timely paid or accrued and adequately
disclosed to Acquiror, does not exceed $100,000.
ss. 3.15 INSURANCE. Set forth on Schedule 3.15 attached hereto is a
complete list of insurance policies or binders which the Company and its
Subsidiaries maintain with respect to their businesses, properties or employees.
Such policies or binders are in full force and effect and are free from any
right of termination on the part of the insurance carriers. Such policies or
binders, with respect to their amounts and types of coverage, are in the opinion
of management adequate to insure against risks to which the Company, its
Subsidiaries and their property and assets are normally exposed in the operation
of their respective businesses and otherwise consistent with industry standards.
Since the Company Balance Sheet Date, except as disclosed on Schedule 3.15 there
has not been any material adverse change in the Company's or any Subsidiary's
relationship with its insurers or in the premiums payable pursuant to such
policies.
ss. 3.16 COMPLIANCE WITH LAWS. Each of the Company and its Subsidiaries is
in compliance with all applicable laws, statutes, ordinances, regulations,
orders, judgments and decrees of any government or political subdivision
thereof, whether federal, state or local and whether domestic or foreign, or any
agency or instrumentality thereof, or any court or arbitrator, and has not
received any notice that any violation of the foregoing is being or may be
alleged except where such failure to comply or violations would not have a
Material Adverse Effect on the Company.
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ss. 3.17 EMPLOYMENT RELATIONS. (a) Except as set forth on Schedule 3.17,
(i) each of the Company and its Subsidiaries is in compliance in all material
respects with all federal, state or other applicable laws, domestic or foreign,
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice; (ii) no unfair labor practice complaint against the Company or
any of its Subsidiaries is pending before the National Labor Relations Board;
(iii) there is no labor strike, material dispute, slowdown or stoppage actually
pending or threatened against or involving the Company or any of its
Subsidiaries; (iv) no representation question exists respecting the employees of
the Company or any of its Subsidiaries; (v) no grievance which could reasonably
be expected to have a Material Adverse Effect upon the Company exists, no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefor has been asserted other than routine
grievance procedures and routine claims for benefits under benefit plans; (vi)
except as set forth on SCHEDULE 3.17, no collective bargaining agreement is
currently being negotiated by the Company or any of its Subsidiaries; and (vii)
neither the Company nor any of its Subsidiaries has experienced any material
labor difficulty during the last three years.
(b) There has not been any material adverse change in relations with
employees of the Company or any of its Subsidiaries as a result of any
announcement of the transactions contemplated by this Agreement.
ss. 3.18 Company Employee Benefit Plans. (a) Set forth on Schedule 3.18
attached hereto is an accurate and complete list of all domestic and foreign (i)
"EMPLOYEE BENEFIT PLANS," within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974,
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as amended, or any successor law, and the rules and regulations thereunder
("ERISA"); (ii) bonus, stock option, stock purchase, restricted stock, stock
appreciation rights, incentive, equity participation, profit-sharing, savings,
pension, retirement, deferred compensation, medical, health, sickness, life,
disability, accident, severance, salary continuation, accrued leave, vacation,
fringe benefit, sick pay, sick leave, cafeteria or flexible spending, dependent
care, supplemental retirement and unemployment benefit plans, programs,
arrangements, commitments, obligations, practices, and/or funds (whether or not
insured) and "VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS" (for purposes of
this Section, "COMPANY VEBAS") under Section 501(c)(9) of the Code; and (iii)
employment, consulting, termination, severance and change in control contracts
or agreements; in each case for active, retired or former employees or
directors, whether or not any such plans, programs, arrangements, commitments,
obligations, contracts, agreements, practices, and/or funds (referred to in (i),
(ii) or (iii) above) are in writing or are otherwise exempt from the provisions
of ERISA; that are or have been established, maintained, sponsored, adopted,
followed, participated in or contributed to (or with respect to which an
obligation to contribute has been undertaken) or with respect to which any
obligation or liability (including, for this purpose and for the purpose of all
of the representations in this Section 3.18, any indirect, contingent, potential
or secondary liability) is borne by the Company or any of its current or
previous Subsidiaries or affiliates (including, for this purpose and for the
purpose of all of the representations in this Section 3.18, any predecessors to
the Company or to any such Subsidiaries or affiliates and all employers (whether
or not incorporated) that would be treated together with the Company and/or any
of its Subsidiaries as a single employer (i) within the meaning of Section 414
of the Code or (ii) as a result of the Company, any Subsidiary or affiliate
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being or having been a general partner of any such employer) since September 2,
1974 ("COMPANY EMPLOYEE BENEFIT PLANS"); and such list identifies as such all
Company Employee Benefit Plans that are: (A) "SINGLE-EMPLOYER PLANS" (within the
meaning of Section 4001(a)(15) of ERISA) covered by Title IV of ERISA ("COMPANY
SINGLE-EMPLOYER PLANS"); (B) "MULTIEMPLOYER PLANS" (within the meaning of
Section 4001(a)(3) of ERISA) ("COMPANY MULTIEMPLOYER PLANS"); (C) "PENSION
PLANS" (within the meaning of Section 3(2) of ERISA) that are intended to be
qualified under Section 401(a) of the Code other than Company Single-Employer
Plans and Company Multiemployer Plans (all Company Employee Benefit Plans
identified in (A), (B), and (C) above collectively referred to as "COMPANY
QUALIFIED PLANS"); (D) "PENSION PLANS" (within the meaning of Section 3(2) of
ERISA) or deferred compensation plans or arrangements that are not intended to
be qualified under Section 401(a) of the Code, separately identifying such plans
and arrangements with respect to which assets are allocated to or held in a
"RABBI TRUST" or similar funding vehicle and such plans and arrangements with
respect to which assets are not so allocated or held; (E) "WELFARE PLANS"
(within the meaning of Section 3(1) of ERISA) ("COMPANY WELFARE PLANS"),
separately identifying such plans that are insured and such plans that are
self-insured; and (F) Company VEBAs.
(b)(i) Except as set forth on SCHEDULE 3.18, each Company Employee Benefit
Plan (and each related trust, insurance contract or fund) complies in form with
the requirements of all applicable laws, including, without limitation, ERISA
and the Code, and has at all times been maintained and operated in substantial
compliance with its terms and the requirements of all such laws. All filings
required by ERISA and the Code as to each Company Employee Benefit Plan have
been timely filed, and all reports, notices and disclosures to participants and
beneficiaries
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under each Company Employee Benefit Plan which is not a Company Multiemployer
Plan required by either ERISA or the Code have been timely and appropriately
distributed or otherwise provided.
(ii) No complete or partial termination of any Company Employee Benefit
Plan has occurred or is expected to occur. No proceedings have been instituted
to terminate or appoint a trustee to administer any Company Single-Employer Plan
or Company Multiemployer Plan, and no event has occurred or circumstance exists
that may constitute grounds under Section 4042 of ERISA for the termination of,
or appointment of a trustee to administer any such plan.
(iii) Except as required to maintain the tax-qualified status of any
Company Qualified Plan under Section 401(a) of the Code, or in connection with
the transactions contemplated by this Agreement, neither the Company nor any of
its Subsidiaries has any express or implied commitment, obligation, intention or
understanding, whether formal or informal and whether legally binding or not, to
create, modify, amend, terminate or adopt any Company Employee Benefit Plan.
Except as required to maintain the tax-qualified status of any Company Qualified
Plan under Section 401(a) of the Code, no condition or circumstance exists that
would prevent the amendment or termination of any Company Employee Benefit Plan,
and the Company and its Subsidiaries may terminate or cease contributions to any
Company Employee Benefit Plan without incurring any material liability.
(iv) To the Knowledge of the Company, no event has occurred and no
condition or circumstance exists that could reasonably be expected to result in
a material increase in the benefits under or the expense of maintaining any
Company Employee Benefit Plan from the level of benefits or expense incurred for
the most recent fiscal year ended thereof other than such increases
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as may be the result of salary increases or workforce changes occurring in the
ordinary course of business.
(v) No Company Employee Benefit Plan is a "MULTIPLE EMPLOYER PLAN" within
the meaning of the Code or ERISA.
(c) Except as set forth on SCHEDULE 3.18: (i) No Company Employee Benefit
Plan (excluding Company Multiemployer Plans) subject to Section 412 of the Code
or Section 302 of ERISA and, to the Knowledge of the Company, no Company
Multiemployer Plan, has incurred any accumulated funding deficiency within the
meaning of Section 412 or 418B of the Code or Section 302 of ERISA,
respectively, or has applied for or obtained a waiver of any minimum funding
standard or an extension of any amortization period, under Section 412 of the
Code or Section 303 or 304 of ERISA, and no such waiver or extension is
contemplated, and no event has occurred or circumstance exists that may result
in an accumulated funding deficiency as of the last day of the current plan year
of any such Company Employee Benefit Plan. Except for payments of premiums to
the Pension Benefit Guaranty Corporation, or any successor thereto (the "PBGC"),
neither the Company nor any of its Subsidiaries has incurred any liability to
the PBGC in connection with any Company Employee Benefit Plan covering any
active, retired or former employees or directors of the Company or any of its
Subsidiaries, including, without limitation, any liability under Section 4069 or
4212(c) of ERISA or any penalty imposed under Section 4071 of ERISA, or ceased
operations at any facility or withdrawn from any such Company Employee Benefit
Plan in a manner which could subject it to liability under Section 4062, 4063 or
4064 of ERISA, or knows of any facts or circumstances that could reasonably be
expected to give rise to any liability of the Company or any of its Subsidiaries
to the PBGC
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under Title IV of ERISA that could reasonably be anticipated to result in any
claims being made against the Acquiror by the PBGC. The Company and its
Subsidiaries have paid all amounts due to the PBGC pursuant to Section 4007 of
ERISA.
(i) Neither the Company nor any of its Subsidiaries has incurred any
withdrawal liability (including any contingent or secondary withdrawal
liability) within the meaning of Section 4201 or 4204 of ERISA to any Company
Multiemployer Plan, and to the Knowledge of the Company no event has occurred
and no condition or circumstance has existed, that presents a material risk of
the occurrence of any withdrawal from or the partition, termination,
reorganization or insolvency of any such Company Multiemployer Plan which could
reasonably be expected to result in any liability of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has received
notice from any Company Multiemployer Plan that it is in reorganization or is
insolvent, that increased contributions may be required to avoid a reduction in
plan benefits or the imposition of any excise tax, or that such plan intends to
terminate or has terminated.
(ii) Neither the Company nor any of its Subsidiaries maintains any Company
Welfare Plan which is a "GROUP HEALTH PLAN" (as such term is defined in Section
607(1) of ERISA or Section 5000(b)(1) of the Code) that has not been
administered and operated in all respects in compliance with the applicable
requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of
the Code ("COBRA") and any applicable similar state law and neither the Company,
any of its Subsidiaries is or may be subject to any material liability,
including, without limitation, additional contributions, fines, taxes, penalties
or loss of tax deduction, as a result of such administration and operation.
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(iii) No Company Employee Benefit Plan (whether qualified or nonqualified
within the meaning of Section 401(a) of the Code) provides for post-employment
or retiree welfare benefits (including, without limitation, health and/or life
insurance benefits but excluding any such benefits provided to comply with COBRA
or any applicable state law requiring continuation of welfare benefits), and
neither the Company nor any of its Subsidiaries is obligated to provide any such
benefits to any retired or former employees or active employees following any
such employee's retirement or other termination of service.
(iv) No Company Welfare Plan has provided any "DISQUALIFIED BENEFIT" (as
such term is defined in Section 4976(b) of the Code) with respect to which an
excise tax could reasonably be expected to be imposed.
(v) Neither the Company nor any of its Subsidiaries has any unfunded
liabilities pursuant to any Company Employee Benefit Plan described in Clause
(D) of subsection (a), above.
(vi) Neither the Company nor any of its Subsidiaries has incurred any
liability to the Internal Revenue Service (including, to the extent relevant,
the United States Department of the Treasury), or any successor agency (the
"IRS"), with respect to any Company Employee Benefit Plan which liability has
not been satisfied, including, without limitation, any liability imposed under
Chapter 43 of the Code, and, to the Knowledge of the Company, no event has
occurred and no condition or circumstance has existed that could reasonably be
expected to give rise to any such liability.
(vii) No asset of the Company or any of its Subsidiaries is subject to
any lien arising under ERISA or the Code on account of any Company Employee
Benefit Plan, and no event has
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occurred and no condition or circumstance has existed that could give rise to
any such lien. Neither the Company nor any of its Subsidiaries has been required
to provide any security under Section 307 of ERISA or Section 401(a)(29) or
412(f) of the Code, and no event has occurred and no condition or circumstance
has existed that could reasonably be expected to give rise to any such
requirement to provide any such security.
(viii) There are no actions, suits, proceedings, hearings, audits,
investigations or claims pending, or, to the Knowledge of the Company,
threatened, anticipated or expected to be asserted with respect to any Company
Employee Benefit Plan, or any fiduciary or sponsor of any such plan, with
respect to its duties under such plan, or the assets of any such plan (other
than routine claims for benefits and appeals of denied routine claims arising in
the ordinary course). There is no dispute pending between the Company and/or its
Subsidiaries and any Company Multiemployer Plan concerning payment of
contributions or withdrawal liability payments. No civil or criminal action
brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is
pending, threatened, anticipated, or expected to be asserted against the Company
or any of its Subsidiaries or any fiduciary of any Company Employee Benefit
Plan, in any case with respect to any Company Employee Benefit Plan. No Company
Employee Benefit Plan or any fiduciary thereof has been the direct or indirect
subject of an audit, investigation or examination by any governmental or
quasi-governmental entity or agency.
(d)(i) Except as set forth on SCHEDULE 3.18: Full payment has been timely
made of all amounts which the Company or any of its Subsidiaries is required,
under applicable law or under any Company Employee Benefit Plan or any agreement
relating to any Company Employee Benefit Plan to which the Company or any of its
Subsidiaries is a party, to have paid, including
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all contributions and premiums thereunder, as of the last day of the most recent
fiscal year of such Company Employee Benefit Plan ended prior to the date
hereof. All contributions, premiums and payments paid or accrued with respect to
any Company Employee Benefit Plan have been fully deducted for income tax
purposes (to the extent deductible) and no such deduction has been challenged or
disallowed by any governmental entity, and, to the Knowledge of the Company, no
event has occurred and no condition or circumstance has existed that could
reasonably be expected to give rise to any such challenge or disallowance. No
amount, or any asset, with respect to any Company Employee Benefit Plan is or
may be subject to tax as unrelated business taxable income under the Code. The
Company and its Subsidiaries have made adequate provisions in their financial
records and statements, in accordance with generally accepted United States
accounting principles applied on a consistent basis and prior practices of the
Company or such Subsidiary, for all obligations and liabilities under all
Company Employee Benefit Plans that have accrued but have not been paid because
they are not yet due under the terms of any Company Employee Benefit Plan or
related agreements.
(ii) Benefits under all Company Employee Benefit Plans are as represented
and subsequent to the date as of which documents have been provided no such
benefits have been increased and neither the Company nor any Subsidiary of the
Company has entered into, adopted, created or amended (except as required to
maintain the tax-qualified status of any Company Qualified Plan under Section
401(a) of the Code or as otherwise required by law) any Company Employee Benefit
Plan.
(iii) From and after the Closing Date, if and to the extent the
Acquiror and/or any of its Subsidiaries and/or affiliates assumes or succeeds to
any obligation under any Company
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Employee Benefit Plan, the Acquiror and any such Subsidiaries and affiliates
will receive for purposes of satisfying such respective obligations the full
benefit of any funds, trusts, accruals or reserves in connection with any such
Company Employee Benefit Plan.
(e)(i) As of the date of this Agreement, the current value of the
accumulated benefit obligations (whether or not vested and based upon an
acceptable funding method under ERISA and the Code and actuarial assumptions
which are individually and in the aggregate reasonable in all respects and which
have been furnished to and relied upon by the Acquiror) under each Company
Single-Employer Plan did not exceed the current fair value of the assets of each
such Company Single-Employer Plan allocable to such accrued benefits, and since
the Company Balance Sheet Date, there has been: (A) no material adverse change
in the financial condition of any Company Single-Employer Plan, (B) no change in
the actuarial assumptions with respect to any Company Single-Employer Plan and
(C) no increase in benefits under any Company Single-Employer Plan as a result
of plan amendments, written interpretations or announcements (whether written or
not), change in applicable law or otherwise, which individually or in the
aggregate, would result in the current value of any Company Single-Employer
Plan's accrued benefits exceeding the current value of all such Company
Single-Employer Plan's assets.
(ii) As of the date of this Agreement, using actuarial assumptions and
computation methods consistent with Subpart 1 of Subtitle E of Title IV of
ERISA, the aggregate liabilities of the Company and its Subsidiaries to all
Company Multiemployer Plans in the event of a complete withdrawal therefrom, as
of the close of the most recent fiscal year of each Company Multiemployer Plan
ended prior to the date hereof, based on union information, would not exceed
$1.5 million. To the Knowledge of the Company there has been no material change
in
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the financial condition of any Company Multiemployer Plan, in any such
actuarial assumption or computation method or in the benefits under any Company
Multiemployer Plan as a result of collective bargaining or otherwise since the
close of each such fiscal year which, individually or in the aggregate, would
materially increase such liability.
(f) Except as set forth on SCHEDULE 3.18: (i) Each Company Qualified Plan
has been qualified under Section 401(a) of the Code during the period from its
adoption to date and has been determined to be so qualified by the IRS. (ii)
Each trust established in connection with any Company Qualified Plan has been
during the period from its creation to date exempt from Federal income taxation
under Section 501(a) of the Code and has been determined to be so exempt by the
IRS. (iii) Each Company VEBA has qualified during the period from its creation
to date as a voluntary employees' beneficiary association under Section
501(c)(9) of the Code and has been determined by the IRS to be exempt from
Federal income tax. Since the date of each most recent determination referred to
in this paragraph (f), no event has occurred and no condition or circumstance
has existed that resulted or is likely to result in the revocation of any such
determination, approval or exemption or that could reasonably be expected to
adversely affect the qualified status of any such Company Employee Benefit Plan
or the exempt status of any such trust or Company VEBA.
(g) Except as set forth on SCHEDULE 3.18: (i) No "REPORTABLE EVENT" (as
such term is defined in Section 4043 of ERISA) has occurred or is expected to
occur with respect to any Company Single Employer Plan.
(ii) Neither the Company nor any of its Subsidiaries nor any of their
respective directors, officers, employees or, to the Knowledge of the Company,
other persons who partic-
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ipate in the operation of any Company Employee Benefit Plan or related trust or
funding vehicle, has engaged in any transaction with respect to any Company
Employee Benefit Plan or breached any fiduciary responsibilities or obligations
under Title I of ERISA or other applicable law that could reasonably be expected
to subject the Company or its Subsidiaries to a tax, penalty or liability under
ERISA or the Code (including, without limitation, with respect to any
transaction in violation of Section 406 of ERISA or any "PROHIBITED
TRANSACTION," within the meaning of Section 4975 of the Code) or that would
otherwise result in liability on the part of the Company or its Subsidiaries.
(h) Except as set forth on SCHEDULE 3.18: (i) The execution of this
Agreement and the consummation of the transactions contemplated hereby, do not
constitute a triggering event under any Company Employee Benefit Plan, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment, severance, bonus,
retirement or job security or similar-type benefit, or increase any benefits or
accelerate the payment or vesting of any benefits to any employee or former
employee or director of the Company or any of its Subsidiaries. (ii) No Company
Employee Benefit Plan provides for the payment of severance, termination, change
in control or similar-type payments or benefits.
(i) The Company has made available, delivered or caused to be delivered
to the Acquiror (or its counsel) true, correct and complete copies of all
material documents in connection with each Company Employee Benefit Plan
(excluding Company Multiemployer Plans unless specifically provided for below),
including, without limitation (where applicable): (i) all Company Employee
Benefit Plans as in effect on the date hereof, together with all amendments
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and
written interpretations with respect thereto, including, in the case of any
Company Employee Benefit Plan not set forth in writing, a written description
thereof; (ii) all current summary plan descriptions, summaries of material
modifications, material communications and other summaries and descriptions
furnished to participants and beneficiaries; (iii) all current trust agreements,
declarations of trust and other documents establishing other funding
arrangements (and all amendments thereto and the latest financial statements
thereof); (iv) the most recent IRS determination letter obtained, and any
outstanding request for such a determination, with respect to each Company
Employee Benefit Plan intended to be qualified under Section 401(a) of the Code
or exempt under Section 501(a) of the Code and each Company VEBA; (v) the annual
report on IRS Form 5500-series for each of the last three years for each Company
Employee Benefit Plan required to file such form, including all schedules
thereto; (vi) the most recent PBGC Form 1 for each Company Employee Benefit Plan
required to file such form; (vii) the most recent IRS Form 990 for each Company
VEBA; (viii) the most recent reports submitted by third party administrators,
actuaries, investment managers, consultants or other independent contractors
with respect to any Company Employee Benefit Plan, including, without
limitation, the most recently prepared actuarial valuation report for each
Company Employee Benefit Plan covered by Title IV of ERISA; (ix) a letter or
notice from the trustee or administrator of each Company Multiemployer Plan
setting forth the estimated withdrawal liability which would be imposed on the
Company and/or its Subsidiaries in the event of a complete withdrawal from each
such plan as of the close of the most recent fiscal year of each such plan ended
prior to the date hereof; (x) the most recently prepared financial statements
and related opinions of independent accountants; (xi) all collective bargaining
agreements pursuant to which contributions are or have
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been made or obligations incurred (including for pension, profit-sharing and/or
welfare benefits) by the Company and/or any of its Subsidiaries; (xii) the most
recent registration statements filed with respect to any Company Employee
Benefit Plan; (xiii) standard notifications to employees of their rights under
COBRA; and (xiv) all legally binding contracts, agreements, obligations,
promises or undertakings (whether written or oral and whether express or
implied) relating to each Company Employee Benefit Plan, including, without
limitation, service provider agreements, insurance contracts, annuity contracts,
investment management agreements, subscription agreements, participation
agreements, and recordkeeping agreements.
ss. 3.19 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as set forth on
Schedule 3.19 attached hereto, neither the Shareholders nor any officer or
director of the Company or any of its Subsidiaries possesses, directly or
indirectly, any ownership interest in, or is a director, officer or employee of,
any Person which is a supplier, customer, lessor, lessee, licensor, developer,
competitor or potential competitor of the Company or any of its Subsidiaries.
Ownership of securities of a company whose securities are registered under the
Exchange Act of 1934 of 2% or less of any class of such securities shall not be
deemed to be a financial interest for purposes of this Section 3.19.
ss. 3.20 ENVIRONMENTAL MATTERS AND CLAIMS. Except as set forth in Schedule
3.20 (i) the Company, each of its Subsidiaries and their Affiliates are in
substantial compliance with all applicable United States federal and state,
local, foreign and international laws, regulations, conventions and agreements
relating to pollution prevention or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, navigable waters, waters of the contiguous zone, ocean waters and
international waters), including, without
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limitation, laws, regulations, conventions and agreements relating to (1)
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous materials, oil, hazardous
substances, petroleum and petroleum products and by-products ("MATERIALS OF
ENVIRONMENTAL CONCERN"), or (2) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environmental Concern ("ENVIRONMENTAL LAWS") except where the failure to be in
compliance could not reasonably be expected to have a Material Adverse Effect on
the Company or any of its Subsidiaries; (ii) the Company, each of its
Subsidiaries and their Affiliates, have all permits, licenses, approvals,
rulings, variances, exemptions, clearances, consents or other authorizations
required under applicable Environmental Laws ("ENVIRONMENTAL APPROVALS") and are
in compliance with all Environmental Approvals required to operate their
business as then being conducted except where the failure to have all such
Environmental Approvals or be in compliance therewith could not reasonably be
expected to have a Material Adverse Effect on the Company or any of its
Subsidiaries; (iii) to the Knowledge of the Company, none of the Company, any
Subsidiary nor any Affiliate thereof has received any notice of any claim,
action, cause of action, investigation or demand by any person, entity,
enterprise or Governmental Authority, alleging potential liability for, or a
requirement to incur, material investigatory costs, cleanup costs, response
and/or remedial costs (whether incurred by a governmental entity or otherwise),
natural resources damages, property damages, personal injuries, attorneys' fees
and expenses, or fines or penalties, in each case arising out of, based on or
resulting from (1) the presence, or release or threat of release into the
environment, of any Materials of Environmental Concern at any location, whether
or not owned by such person, or (2) circumstances forming the basis of any
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violation, or alleged violation, of any Environmental Law or Environmental
Approval ("ENVIRONMENTAL CLAIM") (other than Environmental Claims that have been
fully and finally adjudicated or otherwise determined and all fines, penalties
and other costs, if any, payable by the Company, its Subsidiaries and Affiliates
in respect thereof have been paid in full or which are fully covered by
insurance (including permitted deductibles)); and (iv) to the Knowledge of the
Company, there are no circumstances that may prevent or interfere with such full
compliance in the future; and (a) except as heretofore disclosed in writing to
the Acquiror there is no Environmental Claim pending or threatened against the
Company, any Subsidiary or any Affiliate thereof and there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or disposal of
any Materials of Environmental Concern, that to the Knowledge of the Company,
could form the basis of any Environmental Claim against such persons the adverse
disposition of which may result in a Material Adverse Effect.
ss. 3.21 COMPENSATION OF EMPLOYEES. The Company has, prior to the execution
of this Agreement, delivered to the Acquiror an accurate and complete list for
calendar year 1996 showing the names of all persons employed by the Company or
any Subsidiary who received more than $60,000 in 1996 cash compensation
(including, without limitation, salary, commission and bonus) or who are
reasonably expected to receive more than $60,000 in 1997 cash compensation
(including, without limitation, salary, commission and bonus) and who are
expected to be employed by the Company or any Subsidiary on the Second Closing
Date. Such list sets forth the present salary or hourly wage, total in 1996 and
expected 1997 and 1998 cash
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compensation (including, without limitation, salary, commission and bonus) and
fringe benefits, of each such person.
ss. 3.22 CONDUCT OF BUSINESS. Except as expressly contemplated by this
Agreement and the schedules hereto, since December 31, 1996, the Company has
taken no action which, if taken subsequent to the execution of this Agreement
and on or prior to the Closing Dates, would constitute a breach of the Company's
agreements set forth in Section 6.1.
ss. 3.23 RESTRICTIVE DOCUMENTS. Except as set forth on Schedule 3.23, none
of the Company, any of its Subsidiaries or any Shareholder is subject to, or a
party to, any charter, by-law, mortgage, lien, lease, ship charter, license,
permit, agreement, contract, instrument, law, rule, ordinance, regulation,
order, judgment or decree, or any other restriction of any kind or character,
which (a) has a Material Adverse Effect on the Company, or which might
reasonably be expected to have a Material Adverse Effect on the Company, (b)
would prevent the continued operation of the Company's or any Subsidiary's
business after the date hereof or the Closing Date on substantially the same
basis as heretofore operated, (c) would restrict the ability of the Company or
any Subsidiary to acquire any property or (d) would prevent consummation by the
Company of the transactions contemplated by this Agreement.
ss. 3.24 NO CHANGES SINCE COMPANY BALANCE SHEET DATE. Since the Company
Balance Sheet Date, except as set forth on SCHEDULE 3.24 attached hereto,
disclosed in the Company Pro Forma Closing Balance Sheet or otherwise permitted
by this Agreement, neither the Company nor any of its Subsidiaries has (a)
incurred any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), except in the ordinary course of business consistent
with past practice, (b) permitted any of its assets to be subjected to any
mortgage, pledge, lien,
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security interest, encumbrance, restriction or charge of any kind (other than
Company Permitted Encumbrances), (c) sold, transferred or otherwise disposed of
any assets except in the ordinary course of business consistent with past
practice, or made any acquisition of all or any part of the properties, capital
stock or business of any other Person, (d) sold, transferred or otherwise
disposed of any vessel, (e) made any capital expenditures or commitments
therefor which in the aggregate total more than $500,000, (f) declared or paid
any dividend or made any distribution on any shares of its capital stock, (g)
redeemed, purchased or otherwise acquired any shares of its capital stock, (h)
granted or issued any option, warrant or other right to purchase or acquire any
shares of its capital stock, (i) made any bonus or profit sharing distribution
or payment of any kind, except in the ordinary course of business consistent
with past practice, (j) increased its indebtedness for borrowed money, except
current borrowings from banks in the ordinary course of business consistent with
past practice, or made any loan to any Person (other than accounts receivable
arising in the ordinary course of business consistent with past practice), (k)
written off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business consistent with past practice, none of which
individually or in the aggregate is material to the Company or its Subsidiaries,
(l) granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any employee, except in the ordinary course of business
consistent with past practice, (m) cancelled, waived or settled any material
claims or rights, (n) made any change in any method, principle or practice of
accounting or auditing, (o) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary course
of business consistent with past practice or (p) materially amended
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or terminated any material contract or agreement or entered into any material
contract or agreement.
To the Knowledge of the Company, no fact or condition exists or is
threatened which is expected to cause any change described in the immediately
preceding paragraph and none of the Shareholders, the Company and its
Subsidiaries have agreed, whether or not in writing, to do any of the foregoing.
ss. 3.25 CONDITION OF ASSETS. The assets and properties utilized in and
material to the conduct of the Company's business (other than ships), whether
owned or leased, are in the aggregate in good operating condition and repair and
are suitable for the purposes for which they are presently being used. All ships
which are owned, leased or operated by the Company or any of its Subsidiaries
are in class.
ss. 3.26 LIMITATION OF WARRANTIES. In making its decision to enter into
this Agreement and to consummate the transactions contemplated hereby, the
Company has not relied upon any representation, warranty, statement, advice,
document, projection or other information of any type provided by the Acquiror
or its directors, officers, employees or agents (whether during the Company's
due diligence process or otherwise) or the Shareholders other than the
representations and warranties of the Acquiror and Shareholders (including
Schedules relating thereto) expressly set forth in this Agreement. The Company
acknowledges and agrees that, except for the representations and warranties of
the Acquiror expressly set forth in this Agreement (including the schedules
relating thereto), neither the Acquiror nor any of its directors, officers,
employees or agents, nor the Shareholders has made, or is making, any
representation or warranty, written
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or oral, to the Company concerning the Acquiror or its business, operations,
prospects, financial statements, financial condition or results of operations or
any other matter whatsoever.
ss. 3.27 BROKER'S OR FINDER'S FEES. Other than the fees of First Stanford
Corp. and Den Norske Bank arising under that certain letter agreement dated
February 28, 1996, no agent, broker, person or firm acting on behalf of the
Company or the Shareholders, is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
ss. 3.28 DISCLOSURE. The Company does not have any Knowledge that any
current material customer or supplier of the Company or its Subsidiaries intend
to cease doing business with the Company or its Subsidiaries (whether or not as
a result of the transactions contemplated by this Agreement) or materially
decrease the amount of business that such Person is presently doing with the
Company or its Subsidiaries, except that MARAD currently has a policy
restricting the number of vessels that any one company can manage to 12.
ss. 3.29 COPIES OF DOCUMENTS. The Company has caused to be made available
for inspection and copying by the Acquiror and its advisers complete and correct
copies of all documents referred to in this Article III or in any Schedule
attached hereto.
ARTICLE IV
REPRESENTATIONS OF THE SHAREHOLDERS
-----------------------------------
ss. 4. REPRESENTATIONS OF THE SHAREHOLDERS. Each Shareholder severally as
to itself, and not jointly, represents and warrants to the Acquiror that as of
the date hereof:
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ss. 4.1 Ownership of Stock. Such Shareholder is the lawful owner of the
number of shares of Stock listed opposite his or its name in EXHIBIT A attached
hereto, free and clear of all liens, encumbrances, restrictions and claims of
every kind except as provided in (i) the Amended and Restated Stockholders'
Agreement dated as of July 31, 1996 among the Company and certain stockholders
of the Company as the same may be amended by the agreement among selling
stockholders referred to in SCHEDULE 3.11 (the "SHAREHOLDERS AGREEMENT"), (ii)
the option agreement dated as of July 31, 1996 among the Company and Harrowston
Corporation and the Wolfson Descendants' 1983 Trust as the same may be amended
by the agreement among selling stockholders referred to in SCHEDULE 3.11 (the
"OPTION AGREEMENT") (iii) the provisions of the Company's Restated Certificate
of Incorporation and By-laws which restrict the transfer of the stock to
"ALIENS" (as such term is defined in the Company's Bylaws (the "RESTRICTIVE
CHARTER AND BYLAW PROVISIONS") which restrictions except the Restrictive Charter
and Bylaw Provision will terminate on or before the Second Closing Date. Such
Shareholder has the full legal right, power and authority to enter into this
Agreement and to assign, transfer and convey the shares of Stock so owned by
such Shareholder pursuant to this Agreement, and the delivery to the Acquiror of
the Stock pursuant to the provisions of this Agreement will transfer to the
Acquiror good title thereto, free and clear of all Encumbrances.
ss. 4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Such Shareholder has
requisite power and authority to execute and deliver this Agreement, to perform
such Shareholder's obligations hereunder and to consummate the transactions
contemplated to be performed by such Shareholder hereby. This Agreement has been
duly executed and delivered by such Shareholder and, assuming the due execution
of this Agreement by the Acquiror, the Company and the other Share-
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holders party to this Agreement, is a valid and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and to general equitable principles.
ss. 4.3 RESTRICTIVE DOCUMENTS. Such Shareholder is not subject to any
mortgage, lien, lease, agreement, instrument, order, law, rule, regulation,
judgment or decree, or any other restriction of any kind or character which, in
any such case, would prevent consummation by such Shareholder of the
transactions contemplated by this Agreement except (i) the Shareholders
Agreement, (ii) the Option Agreement, (iii) the Restrictive Charter and Bylaw
Provisions, (iv) the HSR Act and (v) statutory provisions pertaining to
citizenship requirements for ownership of vessels documented under the laws of
the United States of America (Sec. 2 of the Shipping Act of 1916, 46 U.S.C.
ss.802 and 46 U.S.C. Chapter 121/Documentation of Vessels) and (vi) the Letter
Agreement dated November 16, 1989 among First City Securities, Inc., Intrepid
Shipping USA, Inc., Richard T. du Moulin, Paul B. Gridley, Mark Filanowski and
the Company, but only to the extent that the transaction contemplated by this
Agreement would constitute a "MARITIME INVESTMENT" for purposes of such Letter
Agreement, which restriction will terminate on or before the Second Closing
Date. This representation assumes buyer is a citizen of the United States for
purposes of statutory provisions pertaining to citizenship requirements for
ownership of vessels documented under the laws of the United States of America
(Sec. 2 of the Shipping Act of 1916, 46 U.S.C. ss. 802 and 46 U.S.C. Chapter
121/ Documentation of Vessels).
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ss. 4.4
ACQUISITION FOR INVESTMENT. (a) Each Shareholder represents and warrants,
severally and not jointly and solely as to itself, that: (i) such Shareholder is
acquiring the Acquiror Shares for investment for such Shareholder's own account
and not with a view to, or for the resale in connection with, the distribution
or other disposition thereof in violation of the Securities Act, PROVIDED,
HOWEVER, that the disposition of each Shareholder's property shall at all times
remain within the sole control of such Shareholder; (ii) such Shareholder has
either (A) preexisting personal or business relationships with the Company, or
any of its respective officers, directors or any of its respective Affiliates or
(B) knowledge and experience in financial and business matters such that such
Shareholder is capable of evaluating the merits and risks relating to the
acquisition of Acquiror Shares under this Agreement, or such Shareholder has
been advised by a representative possessing such knowledge and experience who is
unaffiliated with and who is not compensated, directly or indirectly, by the
Acquiror; (iii) such Shareholder has been given an opportunity which such
Shareholder deems adequate to obtain information and documents relating to the
Acquiror and to ask questions of and receive answers from representatives of the
Acquiror concerning such Shareholder's investment in the Acquiror Shares; (iv)
such Shareholder's financial condition is such that such Shareholder can afford
to bear the economic risk of holding the Acquiror Shares for an indefinite
period of time; such Shareholder has adequate means of providing for such
Shareholder's current needs and contingencies and has no need for such
Shareholder's investment in the Acquiror Shares to be liquid; and (v) such
Shareholder can afford to suffer a complete loss of such Shareholder's
investment in the Acquiror Shares.
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(b) Each Shareholder further acknowledges that such Shareholder has been
advised by the Acquiror that: (i) the Acquiror Shares have not been registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the
securities laws of any states and are being offered and sold in reliance on
exemptions from the registration requirements of the Securities Act and such
laws; (ii) the Acquiror Shares are subject to restrictions on transferability
and resale and may not be transferred or resold except as permitted under the
Securities Act and such law pursuant to registration or exemption therefrom;
(iii) a restrictive legend shall be placed on the certificates representing the
Acquiror Shares; (iv) a notation shall be made in the appropriate records of the
Acquiror indicating that the Acquiror Shares are subject to restrictions on
transfer; and (v) the shares of common stock of UBC which the Shareholders will
receive in the Spin-Off will not be "RESTRICTED SECURITIES" within the meaning
Securities Act Rule 144(a)(3).
ss. 4.5 LIMITATION OF WARRANTIES. In making its decision to enter into this
Agreement and to consummate the transactions contemplated hereby, such
Shareholder has not relied upon any representation, warranty, statement, advice,
document, projection or other information of any type provided by the Acquiror
or its directors, officers, employees or agents (whether during such
Shareholder's due diligence process or otherwise) other than the representations
and warranties of the Acquiror (including Schedules relating thereto) expressly
set forth in this Agreement. Each Shareholder acknowledges and agrees that,
except for the representations and warranties of the Acquiror expressly set
forth in this Agreement (including the schedules relating thereto), neither the
Acquiror nor any of its directors, officers, employees or agents, has made, or
is making, any representation or warranty, written or oral, to such Shareholder
concerning
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the Acquiror or its or their business, operations, prospects, financial
statements, financial condition or results of operations or any other matter
whatsoever.
ss. 4.6 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of such Shareholder is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
ARTICLE V
REPRESENTATIONS OF THE ACQUIROR
-------------------------------
ss. 5. REPRESENTATIONS OF THE ACQUIROR. The Acquiror represents and
warrants to the Company and the Shareholders that as of the date hereof:
ss. 51 CAPITAL STOCK. (a) The Acquiror has an authorized capitalization
consisting of 80,000,000 shares of common stock, par value $.50 per share, of
which on the date hereof 43,008,593 shares of common stock are issued and
outstanding, and 5,000,000 shares of Preferred Stock, par value $1.00 per share,
none of which are issued or outstanding. All outstanding shares of capital stock
of the Acquiror have been duly authorized and validly issued and are fully paid
and nonassessable. Except for the options to purchase Common Stock set forth on
Schedule 5.1 attached hereto, there are no outstanding subscriptions, options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of the Acquiror.
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(b) The Acquiror Shares have been duly authorized and will be, when issued
and paid for in accordance with the terms of this Agreement, validly issued,
fully paid and nonassessable.
ss. 5.2 EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY. (a) The Acquiror
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Acquiror has the requisite corporate right,
power, legal capacity and authority to own, lease and operate its Domestic
Businesses, enter into, execute and deliver this Agreement and perform its
obligations hereunder. The U.S. Subsidiaries are duly qualified or licensed to
do business and are in good standing in each jurisdiction in which the character
or location of the properties owned, leased or operated by the U.S. Subsidiaries
or the nature of the business conducted by the U.S. Subsidiaries makes such
qualification or license necessary, except where the failure to be so duly
qualified, licensed or in good standing could not reasonably be expected to have
a Material Adverse Effect on the Domestic Businesses. The execution, delivery
and performance of this Agreement by the Acquiror and the performance of its
obligations hereunder have been duly authorized and approved by its Board of
Directors and, except for approval by the Acquiror's stockholders, no other
corporate action on the part of the Acquiror or action by the stockholders of
the Acquiror is necessary to authorize the execution, delivery and performance
of this Agreement by the Acquiror. This Agreement has been duly executed and
delivered by the Acquiror and, assuming the due execution of this Agreement by
the Company and by each Shareholder, is a valid and binding obligation of the
Acquiror enforceable against the Acquiror in accordance with its terms, except
to the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
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(b) Except as set forth on SCHEDULE 5.2(b), no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, is required by or with respect to the Acquiror in connection with the
execution and delivery of, and the consummation by the Acquiror or its domestic
businesses of the transactions contemplated by this Agreement or to permit the
Acquiror to continue, without material change, the Domestic Businesses as
currently conducted and as proposed to be conducted, except for (i) the filing
of the appropriate documents with the relevant authorities of other states in
which the Acquiror is qualified to do business, (ii) filings with the SEC, the
New York Stock Exchange and appropriate state securities authorities in respect
of the Spin-Off and Acquisition and (iii) filings under the HSR Act.
ss. 5.3 SUBSIDIARIES AND INVESTMENTS. (a) Set forth in SCHEDULE 5.3(a)
attached hereto is a list of each corporation in which the Acquiror owns,
directly or indirectly, any equity security. Each U.S. Subsidiary is a
corporation duly organized, validly existing and in good standing (to the extent
such concept is relevant under applicable law) under the laws of the
jurisdiction of its organization (which is set forth on Schedule 5.3(a)), and
has the corporate power and authority to own, lease and operate its property and
to carry on its business as now being conducted.
(b) Set forth on SCHEDULE 5.3(b) is a list of jurisdictions in which each
U.S. Subsidiary is qualified as a foreign corporation. Such jurisdictions are
the only jurisdictions in which the character or location of the properties
owned or leased by each U.S. Subsidiary, or the nature of the business conducted
by each U.S. Subsidiary, makes such qualification necessary except where the
failure to be so qualified would not have a Material Adverse Effect.
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(c) Each U.S. Subsidiary has the capitalization set forth on Schedule
5.3(c). The outstanding shares of capital stock of each U.S. Subsidiary have
been duly authorized and validly issued, are (to the extent such concepts are
applicable under relevant law) fully paid and nonassessable, and, except as set
forth in Schedule 5.3(c), are owned, of record and beneficially, by the
Acquiror, free and clear of all liens, encumbrances, restrictions and claims of
every kind. No shares of capital stock of any U.S. Subsidiary are reserved for
issuance and there are no outstanding options, warrants, rights, subscriptions,
claims, agreements, obligations, calls, commitments, conversion rights, rights
of exchange or other commitments of any character, contingent or otherwise,
providing for the purchase, issuance, sale or transfer of any shares of the
capital stock of any U.S. Subsidiary.
(d) None of the Domestic Businesses or any U.S. Subsidiary owns, directly
or indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust, joint venture or
other entity, except as set forth on Schedule 5.3(a).
ss. 5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and delivery
of this Agreement by the Acquiror and the consummation of the transactions
contemplated hereby (a) will not violate or contravene any provision of the
Articles of Incorporation or By-laws of the Acquiror or its U.S. Subsidiaries,
(b) will not violate or contravene any statute, rule, regulation, order or
decree of any public body or authority by which the Acquiror or its U.S.
Subsidiaries are bound or by which any of its respective properties or assets
are bound (c) except as set forth on SCHEDULE 5.4 will not require any filing
with, permit, consent or approval of, or the giving of any notice to any other
Person, and (d) as soon as consents or waivers from the lenders listed
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on SCHEDULE 5.4 are obtained, which consents and waivers the Acquiror reasonably
believes will be obtained prior to the First Closing Date, will not result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
Encumbrance upon any of the properties or assets of the Domestic Businesses
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease, franchise
agreement or any other instrument or obligation to which any of the Domestic
Businesses is a party, or by which any of the Domestic Businesses or any of
their respective properties or assets may be bound.
ss. 5.5 RESTRICTIVE DOCUMENTS. Except as set forth in Schedule 5.5,
neither the Acquiror nor any of its U.S. Subsidiaries is subject to, or a party
to, any charter, by-law, mortgage, lien, lease, ship charter, license, permit,
agreement, contract, instrument, order, law, rule, ordinance, regulation,
judgment or decree, or any other restriction of any kind or character which (a)
has a Material Adverse Effect, or which might reasonably be expected to have a
Material Adverse Effect on the Domestic Businesses, (b) would restrict the
ability of the Domestic Businesses to acquire any property or (c) would prevent
consummation by it of the transactions contemplated by this Agreement or the
Spin-Off.
ss. 5.6 BOOKS AND RECORDS. The minute books of the Acquiror, as previously
made available to the Company and Shareholders' Representative and their
representatives, contain accurate records of all meetings of, and corporate
action taken by (including action taken by written consent) the respective
stockholders and Boards of Directors of the Acquiror. The Acquiror does not have
any of its records, systems, controls, data or information recorded, stored,
maintained,
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operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of one of the Domestic
Businesses.
ss. 5.7 FINANCIAL STATEMENTS; NO MATERIAL CHANGES. (a) The Acquiror has
heretofore furnished the Company and Shareholders' Representative with (i) the
individual financial statements for the Domestic Businesses for the years ended
1993-1996 and for the five months ended May 31, 1997 attached hereto as EXHIBIT
G and (ii) the consolidated balance sheets of the Domestic Businesses as of
December 31, 1996 and 1995, and the related consolidated statements of income
and retained earnings for the years or periods then ended, prepared by
management of the Acquiror attached hereto as Exhibit H (such consolidated
financial statements of the Domestic Businesses are hereinafter referred to as
the "DOMESTIC BUSINESSES UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS"). The
Domestic Businesses Unaudited Consolidated Financial Statements, except as
indicated therein, have been prepared in accordance with GAAP consistently
followed throughout the periods indicated. Except as indicated in the notes
thereto, the Domestic Businesses Unaudited Consolidated Financial Statements
fairly present the financial condition of the Domestic Businesses as a unified
group at the respective dates thereof and, the related statements of income and
retained earnings and cash flows fairly present the results of the operations of
the Domestic Businesses and the changes in its financial position for the
respective periods indicated. Since December 31, 1996 (the "DOMESTIC BUSINESSES
BALANCE SHEET DATE"), except as permitted by the terms of this Agreement or the
Distribution Agreement, there has been no (i) change that has or could
reasonably be expected to have a Material Adverse
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Effect on the Domestic Businesses and no fact or condition exists or is
contemplated or is threatened that could reasonably be expected to cause such a
change in the future except as set forth in Section 7.3(a) and except for the
possible termination or non-renewal of existing MARAD contracts or (ii) material
damage, destruction or loss to any asset or property, tangible or intangible, of
the Domestic Businesses which materially affects the ability of the Domestic
Businesses to conduct their respective businesses.
(b) The Acquiror has delivered to the Company a PRO FORMA balance sheet in
the form of EXHIBIT I hereto which gives effect to the Spin-Off (the "ACQUIROR'S
PRO FORMA CLOSING BALANCE Sheet"). The Acquiror's PRO FORMA Closing Balance
Sheet represents the Acquiror's reasonable best estimate on the date hereof of
the Condition of the Domestic Businesses as of the Second Closing Date. The
Acquiror's Pro Forma Closing Balance Sheet has been prepared on a basis
consistent with the Domestic Businesses Unaudited Consolidated Financial
Statements.
ss. 5.8 TITLE TO PROPERTIES; ENCUMBRANCES. Except as set forth on SCHEDULE
5.8 attached hereto and except for such properties and assets which have been
sold or otherwise disposed of in the ordinary course of business, each of the
Domestic Businesses has good and marketable title to or a valid and subsisting
leasehold interest in its respective material properties and assets (real and
personal, tangible and intangible), including, without limitation, the
properties and assets reflected in the Acquiror's Pro Forma Closing Balance
Sheet, subject to no Encumbrances, except for (i) Encumbrances reflected in the
Domestic Business Unaudited Consolidated Financial Statements, (ii) Encumbrances
for current Taxes, not yet due and delinquent, (iii) Encumbrances arising by
operation of law, (iv) Encumbrances imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar
Encumbrances
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arising in the ordinary course of business securing obligations including
maritime liens or other statutory rights in rem arising in the ordinary course
of owning and operating vessels and incurred in the ordinary course of business
that (a) are not overdue for a period of more than 45 days and (b) either
individually or when aggregated with all other Encumbrances described in this
Section 5.8 outstanding on any date of determination, do not materially affect
the use or value of the property to which they relate and (v) Encumbrances
described on Schedule 5.8 attached hereto (liens described in clauses (i), (ii),
(iii), (iv) and (v) above are hereinafter sometimes referred to as "DOMESTIC
BUSINESSES' PERMITTED ENCUMBRANCES"). Assuming adequate cash, the assets set
forth on the Acquiror's Pro Forma Closing Balance Sheet constitute all of the
assets necessary to conduct the Domestic Businesses as presently conducted.
ss. 5.9 REAL PROPERTY. SCHEDULE 5.9 attached hereto contains an accurate
and complete list of all real property owned in whole or in part by the Domestic
Businesses and includes the name of the record title holder thereof and a list
of all indebtedness secured by a lien, mortgage or deed of trust thereon. Each
of the Domestic Businesses has good and marketable title in fee simple to all
the real property owned by it, free and clear of all encumbrances, liens,
charges or other restrictions of any kind or character, except for Domestic
Businesses' Permitted Encumbrances. All of the buildings, structures and
appurtenances situated on the real property owned in whole or in part by the
Domestic Businesses are in good operating condition and in a state of good
maintenance and repair, are adequate and suitable for the purposes for which
they are presently being used and, each of the Domestic Businesses has adequate
rights of ingress and egress for operation of such business in the ordinary
course. None of such buildings, structures or appurtenances (or any equipment
therein), nor the operation or maintenance thereof, violates
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any restrictive covenant or any provision of any federal, state or local law,
ordinance, rule or regulation, or encroaches on any property owned by others. No
condemnation proceeding is pending or, to the best knowledge, information and
belief of the Acquiror, threatened which would preclude or impair the use of any
such property by the Domestic Businesses for the purposes for which it is
currently used.
ss. 5.10 INTELLECTUAL PROPERTY. Except as set forth on SCHEDULE 5.10, the
operation of the businesses of the Domestic Businesses as currently conducted
requires no rights under Intellectual Property and within the six year period
immediately prior to the date of this Agreement, the businesses of the Domestic
Businesses made use of no Intellectual Property.
ss. 5.11 LEASES AND SHIP CHARTERS. SCHEDULE 5.11 attached hereto contains
an accurate and complete list of all leases and ship charters (including, but
not limited to, capital leases) relating to the Domestic Businesses (as lessee
or lessor) and which require an annual rental payment aggregating at least
$10,000. Each lease and ship charter set forth on Schedule 5.11 (or to the
Knowledge of the Acquiror required to be set forth on Schedule 5.11) is in full
force and effect; all rents and additional rents due to date on each such lease
and ship charter have been paid; in each case, the lessee has been in peaceable
possession since the commencement of the original term of such lease or ship
charter and is not in default thereunder and no waiver, indulgence or
postponement of the lessee's obligations thereunder has been granted by the
lessor; and there exists no event of default by any of the Domestic Businesses
or event, occurrence, condition or act (including the consummation of the
transactions contemplated hereby) which, with the giving of notice, the lapse of
time or the happening of any further event or condition, would become a default
by the Domestic Businesses or give rise to a right of termination by a party
(other than
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the Domestic Businesses) under such lease or ship charter. None of the Domestic
Businesses has violated any of the terms or conditions under any such lease or
ship charter in any material respect, and, to the Knowledge of the Acquiror, all
of the covenants to be performed by any other party under any such lease or ship
charter have been performed in all material respects. The property leased by
each of the Domestic Businesses is in a state of good maintenance and repair and
is adequate and suitable for the purposes for which it is presently being used.
Each of the vessels chartered or owned by the Domestic Businesses is in class.
ss. 5.12 MATERIAL CONTRACTS. Except as set forth on SCHEDULE 5.12 attached
hereto, none of the Domestic Businesses has or is bound by (a) any agreement,
contract or commitment (other than purchase orders or like commitments in the
ordinary course of business) that involves the performance of services or the
delivery of goods and/or materials by it of an amount or value in excess of
$25,000, (b) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution in
respect of its capital stock, (c) any agreement, contract or commitment relating
to capital expenditures, (d) any loan (other than accounts receivable arising in
the ordinary course of business consistent with past practice) or advance to
(other than travel and entertainment advances to employees made in the ordinary
course of business consistent with past practice), or investment in, any Person
or any agreement, contract or commitment relating to the making of any such
loan, advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any Person (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business consistent with past practice), (f) any management service, consulting
or any other similar type contract, (g) any agreement, contract or commitment
limiting the ability of any of
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the Domestic Businesses to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment not entered into in the
ordinary course of business consistent with past practice which involves
estimated total payments of $25,000 or more and is not cancelable without
penalty within 30 days or (i) any agreement, contract or commitment which is
expected to have Material Adverse Effect on the Domestic Businesses. Each
contract, commitment or agreement set forth on SCHEDULE 5.12 (or required to be
set forth on SCHEDULE 5.12) is in full force and effect and there exists no
default or event of default by any of the Domestic Businesses or event,
occurrence, condition or act (including the consummation of the transactions
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default by such Domestic Business or give rise to a right of termination by a
party (other than the Domestic Businesses) thereunder. None of the Domestic
Businesses has violated any of the material terms or conditions of any contract,
commitment or agreement to which such Domestic Business is bound set forth on
SCHEDULE 5.12 (or required to be set forth on SCHEDULE 5.12) in any material
respect, and, to the Knowledge of the Acquiror, all of the material covenants to
be performed by any other party thereto have been fully performed. Schedule
5.12A hereto sets forth the results of the audits or examinations of the
Acquiror under the current and immediately preceding MARAD contracts. No past or
present actions, conditions, events or circumstances presently exist or to the
Knowledge of Acquiror is threatened, which could (i) result in a financial
finding relating to any such contract or (ii) disqualify Acquiror from future
awards of MARAD contracts, except for MARAD's current policy restricting the
number of vessels that any one company can manage to 12.
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ss. 5.13 LITIGATION. Except as set forth on Schedule 5.13, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or to the Knowledge of the Acquiror any
investigation by) any Governmental Authority pending, or, to the Knowledge of
the Acquiror, threatened, against or affecting any of the Domestic Businesses or
any of their properties or rights which could have a Material Adverse Effect on
the Domestic Businesses and the Acquiror knows of no valid basis for any such
action, proceeding or investigation. Except as set forth on Schedule 5.13, none
of the Domestic Businesses is subject to any judgment, order or decree entered
in any lawsuit or proceeding which could reasonably be expected to have a
Material Adverse Effect.
ss. 5.14 TAXES. (a) Tax Returns. Except as otherwise disclosed to an
officer of the Company, the Acquiror has timely filed or caused to be timely
filed with the appropriate taxing authorities all Returns that are required to
be filed by, or with respect to, the Acquiror or any of its U.S. Subsidiaries on
or prior to the First Closing Date. The Returns have accurately reflected in all
material respects all liability for Taxes of the Acquiror and each of its U.S.
Subsidiaries for the periods covered thereby.
(b) PAYMENT OF TAXES. Except as otherwise disclosed to an officer of the
Company, all material Taxes and Tax liabilities of the Acquiror or any of its
U.S. Subsidiaries for all taxable years or periods that end on or before the
date hereof have been timely paid or accrued and adequately disclosed to the
Company and fully provided for on the books and records of the Acquiror and its
U.S. Subsidiaries in accordance with the Accounting Principles. The U.S. Federal
income tax liability of the Acquiror and its U.S. Subsidiaries has been finally
determined
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(or the statute of limitations has closed) for all years to and including the
year ended December 31, 1993.
(c) OTHER TAX MATTERS. (i) SCHEDULE 5.14 attached hereto sets forth (A)
each taxable year or other taxable period of the Acquiror or any of its U.S.
Subsidiaries for which an audit or other examination of Taxes by the appropriate
Tax authorities of any nation, state or locality is currently in progress (or,
to the Knowledge of the Acquiror, scheduled as of the date hereof to be
conducted) together with the names of the respective Tax authorities conducting
(or, to the Knowledge of the Acquiror, scheduled to conduct) such audits or
examinations and a description of the subject matter of such audits or
examinations, (B) the most recent taxable year or other taxable period for which
an audit or other examination relating to U.S. Federal income taxes of the
Acquiror or any of its U.S. Subsidiaries has been finally completed and the
disposition of such audit or examination, (C) the taxable years or other taxable
periods of the Acquiror or any of its U.S. Subsidiaries to the Knowledge of the
Acquiror which will not be subject to the normally applicable statute of
limitations by reason of the existence of circumstances that would cause any
such statute of limitations for applicable Taxes to be extended, (D) the amount
of any proposed adjustments (and the principal reason therefor) relating to any
Returns for Tax liability of the Acquiror or any of its U.S. Subsidiaries, which
have been proposed or assessed by any taxing authority and have not been paid
and (E) a list of all notices which, to the Knowledge of the Acquiror, received
by the Acquiror or any of its U.S. Subsidiaries from any taxing authority
relating to any issue which could affect the Tax liability of the Acquiror or
any of its U.S. Subsidiaries, which issue has not been finally determined and
which, if determined adversely to the Acquiror or any of its U.S. Subsidiaries,
could result in a Tax liability.
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(ii) Neither the Acquiror nor any of its U.S. Subsidiaries has been
included in and could reasonably be expected to have any liability for Taxes
from any "CONSOLIDATED," "UNITARY" or "combined" Return with any group other
than the one that includes the Acquiror provided for under the law of the United
States, any foreign jurisdiction or any state or locality with respect to Taxes
for any taxable period for which the statute of limitations has not expired.
(iii) All Taxes which the Acquiror or any of its U.S. Subsidiaries is (or
was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable other than those Taxes the failure of which to withhold,
collect or timely pay over would not have a Material Adverse Effect on the
Acquiror or any of its U.S. Subsidiaries.
(iv) Neither the Acquiror nor any of its U.S. Subsidiaries is a "UNITED
STATES REAL PROPERTY HOLDING CORPORATION" within the meaning of Section
897(c)(2) of the Code.
(v) Except as set forth on SCHEDULE 5.14(C)(V), there are no tax sharing,
allocation, indemnification or similar agreements in effect as between the
Acquiror, any of its U.S. Subsidiaries, or any predecessor or Affiliate thereof
and any other party under which the Company or the Acquiror or any of its U.S.
Subsidiaries could be liable for any Taxes of any party other than the Acquiror
or any of its U.S. Subsidiaries.
(vi) No indebtedness of the Acquiror or any of its U.S. Subsidiaries
consists of "CORPORATE ACQUISITION INDEBTEDNESS" within the meaning of Section
279 of the Code.
(vii) Neither the Acquiror nor any of its U.S. Subsidiaries has applied
for, been granted, or agreed to any accounting method change for which it will
be required to take into account any
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adjustment under Section 481 of the Code or any similar provision of the Code or
the corresponding tax laws of any nation, state or locality.
(viii) No election under Section 341(f) of the Code has been made to treat
the Acquiror or any of its U.S. Subsidiaries as a consenting corporation, as
defined in Section 341 of the Code.
(ix) As a result of the transactions contemplated by this Agreement or the
Distribution Agreement, neither the Acquiror nor any of its U.S. Subsidiaries
will be obligated to make any payment that would constitute an "EXCESS PARACHUTE
PAYMENT" as defined in Section 280G of the Code.
ss, 5.15 INSURANCE. Set forth on Schedule 5.15 attached hereto is a
complete list of insurance policies or binders which each of the Domestic
Businesses maintains with respect to its businesses, properties or employees.
Such policies or binders are in full force and effect and are free from any
right of termination on the part of the insurance carriers. Such policies or
binders, with respect to their amounts and types of coverage, are in the opinion
of management adequate to insure against risks to which the Domestic Businesses
and their property and assets are normally exposed in the operation of their
respective businesses and otherwise consistent with industry standards. Since
the Domestic Businesses Balance Sheet Date, there has not been any material
adverse change in the Domestic Businesses relationship with their respective
insurers or in the premiums payable pursuant to such policies with respect to
the Domestic Businesses.
ss. 5.16 ACQUISITION FOR INVESTMENT. The Acquiror will acquire the Stock
for its own account for investment and not with a view toward any resale,
distribution or other disposition thereof; PROVIDED, HOWEVER, that the
disposition of the Acquiror's property shall at all times
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remain within the sole control of the Acquiror. The Acquiror understands that
(a) the Stock has not been registered under the Securities Act, or the
securities laws of any states and is being offered and sold in reliance on
exemptions from the registration requirements of the Securities Act and such
laws, (b) the Stock is subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the Securities Act
and such laws pursuant to registration or exemption therefrom and (c) the Stock
is not transferable, and that there is no market into which the Acquiror could
sell the Stock.
ss. 5.17 COMPLIANCE WITH LAWS. Each of the Domestic Businesses is in
compliance with all applicable laws, statutes, ordinances, regulations, orders,
judgments and decrees of any government or political subdivision thereof,
whether federal, state or local and whether domestic or foreign, or any agency
or instrumentality thereof, or any court or arbitrator, and has not received any
notice that any violation of the foregoing is being or may be alleged except
where such failure to comply or violation would not have a Material Adverse
Effect.
ss. 5.18 EMPLOYMENT RELATIONS. (a) (i) Each of the Domestic Businesses is
in compliance in all material respects with all federal, state or other
applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labor practice; (ii) no unfair labor practice
complaint against any of the Domestic Businesses is pending before the National
Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or
stoppage actually pending or threatened against or involving any of the Domestic
Businesses; (iv) no representation question exists respecting the employees of
the any of the Domestic Businesses; (v) no grievance which could reasonably be
expected to have a Material Adverse Effect upon the Domestic
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Businesses or the conduct of their respective businesses exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted; (vi) no collective bargaining
agreement is currently being negotiated by any of the Domestic Businesses; and
(vii) none of the Domestic Businesses has experienced any material labor
difficulty during the last three years.
(b) There has not been any material adverse change in relations with
employees of the Domestic Businesses as a result of any announcement of the
transactions contemplated by this Agreement.
ss. 5.19 ACQUIROR EMPLOYEE BENEFIT PLANS. (a) Set forth in SCHEDULE 5.19
attached hereto is an accurate and complete list of all domestic and foreign (i)
"EMPLOYEE BENEFIT PLANS," within the meaning of Section 3(3) of ERISA; (ii)
bonus, stock option, stock purchase, restricted stock, stock appreciation
rights, incentive, equity participation, profit-sharing, savings, pension,
retirement, deferred compensation, medical, health, sickness, life, disability,
accident, severance, salary continuation, accrued leave, vacation, fringe
benefit, sick pay, sick leave, cafeteria or flexible spending, dependent care,
supplemental retirement and unemployment benefit plans, programs, arrangements,
commitments, obligations, practices, and/or funds (whether or not insured) and
"VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS" ("ACQUIROR VEBAS") under Section
501(c)(9) of the Code; and (iii) employment, consulting, termination, severance
and change in control contracts or agreements; in each case for active, retired
or former employees or directors, whether or not any such plans, programs,
arrangements, commitments, obligations, contracts, agreements, practices, and/or
funds (referred to in (i), (ii) or (iii) above) are in writing or are otherwise
exempt from the provisions of ERISA; that are or have been established,
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maintained, sponsored, adopted,
followed, participated in or contributed to (or with respect to which an
obligation to contribute has been undertaken) or with respect to which any
obligation or liability (including, for this purpose and for the purpose of all
of the representations in this Section 5.19, any indirect, contingent, potential
or secondary liability) is borne by the Acquiror or any of its current or
previous Subsidiaries or affiliates (including, for this purpose and for the
purpose of all of the representations in this Section 5.19, any predecessors to
the Acquiror or to any such Subsidiaries or affiliates and all employers
(whether or not incorporated) that would be treated together with the Acquiror
and/or any of its Subsidiaries as a single employer (i) within the meaning of
Section 414 of the Code or (ii) as a result of the Acquiror, any Subsidiary or
affiliate being or having been a general partner of any such employer) since
September 2, 1974 ("ACQUIROR EMPLOYEE BENEFIT PLANS"); and such list identifies
as such all Acquiror Employee Benefit Plans that are: (A) "SINGLE-EMPLOYER
PLANS" (within the meaning of Section 4001(a)(15) of ERISA) covered by Title IV
of ERISA ("ACQUIROR SINGLE-EMPLOYER PLANS"); (B) "MULTIEMPLOYER PLANS" (within
the meaning of Section 4001(a)(3) of ERISA) ("ACQUIROR MULTIEMPLOYER Plans");
(C) "PENSION PLANS" (within the meaning of Section 3(2) of ERISA) that are
intended to be qualified under Section 401(a) of the Code other than Acquiror
Single-Employer Plans and Acquiror Multiemployer Plans (all Acquiror Employee
Benefit Plans identified in (A), (B), and (C) above collectively referred to as
"ACQUIROR QUALIFIED PLANS"); (D) "PENSION PLANS" (within the meaning of Section
3(2) of ERISA) or deferred compensation plans or arrangements that are not
intended to be qualified under Section 401(a) of the Code, separately
identifying such plans and arrangements with respect to which assets are
allocated to or held in a "RABBI TRUST" or similar funding vehicle and such
plans and arrangements with
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respect to which assets are not so allocated or held; (E) "WELFARE PLANS"
(within the meaning of Section 3(1) of ERISA) ("ACQUIROR WELFARE PLANS"),
separately identifying such plans that are insured and such plans that are
self-insured; and (F) Acquiror VEBAs.
(b)(i) Except as set forth in SCHEDULE 5.19, each Acquiror Employee Benefit
Plan (and each related trust, insurance contract or fund) complies in form with
the requirements of all applicable laws, including, without limitation, ERISA
and the Code, and has at all times been maintained and operated in substantial
compliance with its terms and the requirements of all such laws. Except as set
forth on SCHEDULE 5.19, all filings required by ERISA and the Code as to each
Acquiror Employee Benefit Plan have been timely filed, and all reports, notices
and disclosures to participants and beneficiaries under each Acquiror Employee
Benefit Plan which is not an Acquiror Multiemployer Plan required by either
ERISA or the Code have been timely and appropriately distributed or otherwise
provided.
(ii) Except in connection with the transactions contemplated by this
Agreement, (and as set forth on SCHEDULE 5.19) no complete or partial
termination of any Acquiror Employee Benefit Plan has occurred or is expected to
occur. No proceedings have been instituted to terminate or appoint a trustee to
administer any Acquiror Single-Employer Plan or Acquiror Multiemployer Plan, and
no event has occurred or circumstance exists that may constitute grounds under
Section 4042 of ERISA for the termination of, or appointment of a trustee to
administer any such plan.
(iii) Except as required to maintain the tax-qualified status of any
Acquiror Qualified Plan under Section 401(a) of the Code, or in connection with
the transactions contemplated by this Agreement, neither the Acquiror nor any of
its Subsidiaries has any express or implied
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commitment, obligation, intention or understanding, whether formal or informal
and whether legally binding or not, to create, modify, amend, terminate or adopt
any Acquiror Employee Benefit Plan. Except as required to maintain the
tax-qualified status of any Acquiror Qualified Plan under Section 401(a) of the
Code, no condition or circumstance exists that would prevent the amendment or
termination of any Acquiror Employee Benefit Plan, and the Acquiror and its
Subsidiaries may terminate or cease contributions to any Acquiror Employee
Benefit Plan without incurring any material liability.
(iv) To the Knowledge of the Acquiror, no event has occurred and no
condition or circumstance exists that could reasonably be expected to result in
a material increase in the benefits under or the expense of maintaining any
Acquiror Employee Benefit Plan from the level of benefits or expense incurred
for the most recent fiscal year ended thereof other than such increases as may
be the result of salary increases or workforce changes occurring in the ordinary
course of business.
(v) No Acquiror Employee Benefit Plan is a "MULTIPLE EMPLOYER PLAN" within
the meaning of the Code or ERISA.
(c)(i) No Acquiror Employee Benefit Plan (excluding Acquiror Multiemployer
Plans) subject to Section 412 of the Code or Section 302 of ERISA and, to the
Knowledge of the Acquiror, no Acquiror Multiemployer Plan, has incurred any
accumulated funding deficiency within the meaning of Section 412 or 418B of the
Code or Section 302 of ERISA, respectively, or has applied for or obtained a
waiver of any minimum funding standard or an extension of any amortization
period, under Section 412 of the Code or Section 303 or 304 of ERISA, and no
such waiver or extension is contemplated, and no event has occurred or
circumstance exists that
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may result in an accumulated funding deficiency as of the last day of the
current plan year of any such Acquiror Employee Benefit Plan. Except for
payments of premiums to the PBGC, neither the Acquiror nor any of its
Subsidiaries has incurred any liability to the PBGC in connection with any
Acquiror Employee Benefit Plan covering any active, retired or former employees
or directors of the Acquiror or any of its Subsidiaries, including, without
limitation, any liability under Section 4069 or 4212(c) of ERISA or any penalty
imposed under Section 4071 of ERISA, or ceased operations at any facility or
withdrawn from any such Acquiror Employee Benefit Plan in a manner which could
subject it to liability under Section 4062, 4063 or 4064 of ERISA, or knows of
any facts or circumstances that could reasonably be expected to give rise to any
liability of the Acquiror or any of its Subsidiaries to the PBGC under Title IV
of ERISA that could reasonably be anticipated to result in any claims being made
against the Company by the PBGC. The Acquiror and its Subsidiaries have paid all
amounts due to the PBGC pursuant to Section 4007 of ERISA.
(ii) Neither the Acquiror nor any of its Subsidiaries has incurred any
withdrawal liability (including any contingent or secondary withdrawal
liability) within the meaning of Section 4201 or 4204 of ERISA to any Acquiror
Multiemployer Plan, and to the Knowledge of the Acquiror no event has occurred
and no condition or circumstance has existed, that presents a material risk of
the occurrence of any withdrawal from or the partition, termination,
reorganization or insolvency of any such Acquiror Multiemployer Plan which could
reasonably be expected to result in any liability of the Acquiror or any of its
Subsidiaries. Neither the Acquiror nor any of its Subsidiaries has received
notice from any Acquiror Multiemployer Plan that it is in reorganization or is
insolvent, that increased contributions may be required to avoid a reduction
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in plan benefits or the imposition of any excise tax, or that such plan intends
to terminate or has terminated.
(iii) Neither the Acquiror nor any of its Subsidiaries maintains any
Acquiror Welfare Plan which is a "GROUP HEALTH PLAN" (as such term is defined in
Section 607(1) of ERISA or Section 5000(b)(1) of the Code) that has not been
administered and operated in all respects in compliance with the applicable
requirements of COBRA and any applicable similar state law and neither the
Acquiror nor any of its Subsidiaries is or may be subject to any material
liability, including, without limitation, additional contributions, fines,
taxes, penalties or loss of tax deduction, as a result of such administration
and operation.
(iv) Except as set forth on SCHEDULE 5.19, no Acquiror Employee Benefit
Plan (whether qualified or nonqualified within the meaning of Section 401(a) of
the Code) provides for post-employment or retiree welfare benefits (including,
without limitation, health and/or life insurance benefits but excluding any such
benefits provided to comply with COBRA or any applicable state law requiring
continuation of welfare benefits), and neither the Acquiror nor any of its
Subsidiaries is obligated to provide any such benefits to any retired or former
employees or active employees following any such employee's retirement or other
termination of service.
(v) No Acquiror Welfare Plan has provided any "DISQUALIFIED BENEFIT" (as
such term is defined in Section 4976(b) of the Code) with respect to which an
excise tax could reasonably be expected to be imposed.
(vi) Except as set forth on SCHEDULE 5.19, neither the Acquiror nor any of
its Subsidiaries has any unfunded liabilities pursuant to any Acquiror Employee
Benefit Plan described in Clause (D) of Subsection (a), above.
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(vii) Neither the Acquiror nor any of its Subsidiaries has incurred any
liability to the IRS, with respect to any Acquiror Employee Benefit Plan which
liability has not been satisfied, including, without limitation, any liability
imposed under Chapter 43 of the Code, and, to the Knowledge of the Acquiror, no
event has occurred and no condition or circumstance has existed that could
reasonably be expected to give rise to any such liability.
(viii) No asset of the Acquiror or any of its Subsidiaries is subject to
any lien arising under ERISA or the Code on account of any Acquiror Employee
Benefit Plan, and no event has occurred and no condition or circumstance has
existed that could give rise to any such lien. Neither the Acquiror nor any of
its Subsidiaries has been required to provide any security under Section 307 of
ERISA or Section 401(a)(29) or 412(f) of the Code, and no event has occurred and
no condition or circumstance has existed that could reasonably be expected to
give rise to any such requirement to provide any such security.
(ix) There are no actions, suits, proceedings, hearings, audits,
investigations or claims pending, or, to the Knowledge the Acquiror, threatened,
anticipated or expected to be asserted with respect to any Acquiror Employee
Benefit Plan, or any fiduciary or sponsor of any such plan, with respect to its
duties under such plan, or the assets of any such plan (other than routine
claims for benefits and appeals of denied routine claims arising in the ordinary
course). There is no dispute pending between the Acquiror and/or its
Subsidiaries and any Acquiror Multiemployer Plan concerning payment of
contributions or withdrawal liability payments. No civil or criminal action
brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is
pending, threatened, anticipated, or expected to be asserted against the
Acquiror or any of its Subsidiaries or any fiduciary of any Acquiror Employee
Benefit Plan, in any case with respect
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to any Acquiror Employee Benefit Plan. No Acquiror Employee Benefit Plan or any
fiduciary thereof has been the direct or indirect subject of an audit,
investigation or examination by any governmental or quasi-governmental entity or
agency.
(d)(i) Full payment has been timely made of all amounts which the Acquiror
or any of its Subsidiaries is required, under applicable law or under any
Acquiror Employee Benefit Plan or any agreement relating to any Acquiror
Employee Benefit Plan to which the Acquiror or any of its Subsidiaries is a
party, to have paid, including all contributions and premiums thereunder, as of
the last day of the most recent fiscal year of such Acquiror Employee Benefit
Plan ended prior to the date hereof. All contributions, premiums and payments
paid or accrued with respect to any Acquiror Employee Benefit Plan have been
fully deducted for income tax purposes (to the extent deductible) and no such
deduction has been challenged or disallowed by any governmental entity, and, to
the Knowledge of the Acquiror, no event has occurred and no condition or
circumstance has existed that could reasonably be expected to give rise to any
such challenge or disallowance. No amount, or any asset, with respect to any
Acquiror Employee Benefit Plan is or may be subject to tax as unrelated business
taxable income under the Code. The Acquiror and its Subsidiaries have made
adequate provisions in their financial records and statements, in accordance
with GAAP for all obligations and liabilities under all Acquiror Employee
Benefit Plans that have accrued but have not been paid because they are not yet
due under the terms of any Acquiror Employee Benefit Plan or related agreements.
(ii) Benefits under all Acquiror Employee Benefit Plans are as represented
and subsequent to the date as of which documents have been provided no such
benefits have been increased and, except as set forth on SCHEDULE 5.19, neither
the Acquiror nor any Subsidiary of the
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Acquiror has entered into, adopted, created or amended (except as required to
maintain the tax-qualified status of any Acquiror Qualified Plan under Section
401(a) of the Code or as otherwise required by law) any Acquiror Employee
Benefit Plan.
(iii) From and after the Closing Date, if and to the extent the Company
and/or any of its Subsidiaries and/or affiliates assumes or succeeds to any
obligation under any Acquiror Employee Benefit Plan, the Company and any such
Subsidiaries and affiliates will receive for purposes of satisfying such
respective obligations the full benefit of any funds, trusts, accruals or
reserves in connection with any such Acquiror Employee Benefit Plan.
(e)(i) As of the date of this Agreement, the current value of the
accumulated benefit obligations (whether or not vested and based upon an
acceptable funding method under ERISA and the Code and actuarial assumptions
which are individually and in the aggregate reasonable in all respects and which
have been furnished to and relied upon by the Company) under each Acquiror
Single-Employer Plan did not exceed the current fair value of the assets of each
such Acquiror Single-Employer Plan allocable to such accrued benefits, and since
the Domestic Businesses Balance Sheet Date, there has been: (A) no material
adverse change in the financial condition of any Acquiror Single-Employer Plan,
(B) no change in the actuarial assumptions with respect to any Acquiror
Single-Employer Plan and (C) no increase in benefits under any Acquiror
Single-Employer Plan as a result of plan amendments, written interpretations or
announcements (whether written or not), change in applicable law or otherwise,
which individually or in the aggregate, would result in the current value of any
Acquiror Single-Employer Plan's accrued benefits exceeding the current value of
all such Acquiror Single-Employer Plan's assets.
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(ii) As of the date of this Agreement, using actuarial assumptions and
computation methods consistent with Subpart 1 of Subtitle E of Title IV of
ERISA, the aggregate liabilities of the Acquiror and its Subsidiaries to all
Acquiror Multiemployer Plans in the event of a complete withdrawal therefrom, as
of the close of the most recent fiscal year of each Acquiror Multiemployer Plan
ended prior to the date hereof, based on union information would not exceed
$50,000. To Knowledge of the Acquiror there has been no material change in the
financial condition of any Acquiror Multiemployer Plan, in any such actuarial
assumption or computation method or in the benefits under any Acquiror
Multiemployer Plan as a result of collective bargaining or otherwise since the
close of each such fiscal year which, individually or in the aggregate, would
materially increase such liability.
(f) Each Acquiror Qualified Plan has been qualified under Section 401(a) of
the Code during the period from its adoption to date and has been determined to
be so qualified by the IRS. Each trust established in connection with any
Acquiror Qualified Plan has been during the period from its creation to date
exempt from Federal income taxation under Section 501(a) of the Code and has
been determined to be so exempt by the IRS. Each Acquiror VEBA has qualified
during the period from its creation to date as a voluntary employees'
beneficiary association under Section 501(c)(9) of the Code and has been
determined by the IRS to be exempt from Federal income tax. Since the date of
each most recent determination referred to in this paragraph (f), no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination, approval or exemption or
that could reasonably be expected to adversely affect the qualified status of
any such Acquiror Employee Benefit Plan or the exempt status of any such trust
or Acquiror VEBA.
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(g)(i) No "REPORTABLE EVENT" (as such term is defined in Section 4043 of
ERISA) has occurred or is expected to occur with respect to any Acquiror Single
Employer Plan.
(ii) Neither the Acquiror nor any of its Subsidiaries nor any of their
respective directors, officers, employees or, to the Knowledge of the Acquiror,
other persons who participate in the operation of any Acquiror Employee Benefit
Plan or related trust or funding vehicle, has engaged in any transaction with
respect to any Acquiror Employee Benefit Plan or breached any fiduciary
responsibilities or obligations under Title I of ERISA or other applicable law
that could reasonably be expected to subject the Acquiror or its Subsidiaries to
a tax, penalty or liability under ERISA or the Code (including, without
limitation, with respect to any transaction in violation of Section 406 of ERISA
or any "PROHIBITED TRANSACTION," within the meaning of Section 4975 of the Code)
or that would otherwise result in liability on the part of the Acquiror or its
Subsidiaries.
(h) Except as set forth on SCHEDULE 5.19: (i) The execution of this
Agreement and the consummation of the transactions contemplated hereby, do not
constitute a triggering event under any Acquiror Employee Benefit Plan, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment, severance, bonus,
retirement or job security or similar-type benefit, or increase any benefits or
accelerate the payment or vesting of any benefits to any employee or former
employee or director of the Acquiror or any of its Subsidiaries. (ii) No
Acquiror Employee Benefit Plan provides for the payment of severance,
termination, change in control or similar-type payments or benefits.
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(i) The Acquiror delivered or caused to be delivered to the Company (or its
counsel) true, correct and complete copies of all material documents in
connection with each Acquiror Employee Benefit Plan (excluding Acquiror
Multiemployer Plans unless specifically provided for below), including, without
limitation (where applicable): (i) all Acquiror Employee Benefit Plans as in
effect on the date hereof, together with all amendments and written
interpretations with respect thereto, including, in the case of any Acquiror
Employee Benefit Plan not set forth in writing, a written description thereof;
(ii) all current summary plan descriptions, summaries of material modifications,
material communications and other summaries and descriptions furnished to
participants and beneficiaries; (iii) all current trust agreements, declarations
of trust and other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent IRS determination letter obtained, and any outstanding request for such a
determination, with respect to each Acquiror Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code or exempt under Section 501(a) of
the Code and each Acquiror VEBA; (v) the annual report on IRS Form 5500-series
for each of the last three years for each Acquiror Employee Benefit Plan
required to file such form, including all schedules thereto; (vi) the most
recent PBGC Form 1 for each Acquiror Employee Benefit Plan required to file such
form; (vii) the most recent IRS Form 990 for each Acquiror VEBA; (viii) the most
recent reports submitted by third party administrators, actuaries, investment
managers, consultants or other independent contractors with respect to any
Acquiror Employee Benefit Plan, including, without limitation, the most recently
prepared actuarial valuation report for each Acquiror Employee Benefit Plan
covered by Title IV of ERISA; (ix) a letter or notice from the trustee or
administrator of each Acquiror Multiemployer Plan setting forth the
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estimated withdrawal liability which would be imposed on the Acquiror and/or its
Subsidiaries in the event of a complete withdrawal from each such plan as of the
close of the most recent fiscal year of each such plan ended prior to the date
hereof; (x) the most recently prepared financial statements and related opinions
of independent accountants; (xi) all collective bargaining agreements pursuant
to which contributions are or have been made or obligations incurred (including
for pension, profit-sharing and/or welfare benefits) by the Acquiror and/or any
of its Subsidiaries; (xii) the most recent registration statements filed with
respect to any Acquiror Employee Benefit Plan; (xiii) standard notifications to
employees of their rights under COBRA; and (xiv) all legally binding contracts,
agreements, obligations, promises or undertakings (whether written or oral and
whether express or implied) relating to each Acquiror Employee Benefit Plan,
including, without limitation, service provider agreements, insurance contracts,
annuity contracts, investment management agreements, subscription agreements,
participation agreements, and recordkeeping agreements.
ss. 5.20 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as set forth on
Schedule 5.20 attached hereto, no officer or director of the Domestic Businesses
possesses, directly or indirectly, any ownership interest in, or is a director,
officer or employee of, any Person which is a supplier, customer, lessor,
lessee, licensor, developer, competitor or potential competitor of the Domestic
Businesses. Ownership of securities of a company whose securities are registered
under the Exchange Act of 2% or less of any class of such securities shall not
be deemed to be a financial interest for purposes of this Section 5.20.
ss. 5.21 ENVIRONMENTAL MATTERS
AND CLAIMS. (a) Except as set forth in SCHEDULE 5.21 (i) the Domestic Businesses
are in substantial compliance with all applicable Environmental Laws,
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including, without limitation, laws, regulations, conventions and agreements
relating to (1) Materials of Environmental Concern, or (2) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern except where the failure to be in
compliance could not reasonably be expected to have a Material Adverse Effect on
the Domestic Businesses; (ii) the Domestic Businesses, have all Environmental
Approvals and are in compliance with all Environmental Approvals required to
operate their business as then being conducted except where the failure to have
all such Environmental Approvals or be in compliance could not reasonably be
expected to have a Material Adverse Effect on the Domestic Businesses; (iii) To
the Knowledge of the Acquiror none of the Domestic Businesses has received any
notice of any Environmental Claim (other than Environmental Claims that have
been fully and finally adjudicated or otherwise determined and all fines,
penalties and other costs, if any, payable by any of the Domestic Businesses in
respect thereof have been paid in full or which are fully covered by insurance
(including permitted deductibles)); and (iv) to the Knowledge of the Acquiror,
there are no circumstances that may prevent or interfere with such full
compliance in the future; and (b) except as heretofore disclosed in writing to
the Company there is no Environmental Claim pending or threatened against any of
the Domestic Businesses and there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that to the Knowledge of the Acquiror, could form the basis of any
Environmental Claim against such persons the adverse disposition of which may
result in a Material Adverse Effect on the Domestic Businesses.
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ss. 5.22 COMPENSATION OF EMPLOYEES. The Acquiror has, prior to the
execution of this Agreement, delivered to the Company an accurate and complete
list for calendar year 1996 showing the names of all persons employed by the
Domestic Businesses or who are expected to be employed by the Domestic
Businesses following the Spin-Off who received more than $50,000 in 1996 cash
compensation (including, without limitation, salary, commission and bonus) or
who are reasonably expected to receive more than $50,000 in 1997 cash
compensation (including, without limitation, salary, commission and bonus). Such
list sets forth the present salary or hourly wage, total in 1996 and expected
1997 and 1998 cash compensation (including, without limitation, salary,
commission and bonus) and fringe benefits, of each such person.
ss. 5.23 CONDUCT OF BUSINESS. Except as expressly contemplated by this
Agreement and the schedules hereto or the Distribution Agreement, since December
31, 1996, the Acquiror has taken no action with respect to its Domestic
Businesses and has caused its Domestic Businesses not to take any action which,
if taken subsequent to the execution of this Agreement and on or prior to the
Closing Dates, would constitute a breach of the Acquiror's agreements set forth
in Section 6.2.
ss. 5.24 NO CHANGES SINCE DOMESTIC BUSINESSES BALANCE SHEET DATE. Since the
Domestic Businesses Balance Sheet Date, except as permitted by the terms of this
Agreement or the Distribution Agreement and except as set forth in SCHEDULE 5.24
attached hereto, neither the Acquiror nor any U.S. Subsidiary has without the
written consent of the Company (a) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise with respect to its
Domestic Businesses), except in the ordinary course of business consistent with
past practice, (b) permitted any of its assets used in the Domestic Businesses
to be subjected to any
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mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind (other than Permitted Encumbrances), (c) sold, transferred or otherwise
disposed of any assets used in the Domestic Businesses except in the ordinary
course of business consistent with past practice, or made any acquisition of all
or any part of the properties, capital stock or business of any other Person for
the Domestic Businesses, (d) sold, transferred or otherwise disposed of any
vessel used in the Domestic Businesses, (e) made any capital expenditure or
commitment therefor which in the aggregate total more than $500,000 other than
the purchase by Petrolink of an additional workboat, (f) declared or paid any
dividend or made any distribution on any shares of its capital stock, (g)
redeemed, purchased or otherwise acquired any shares of its capital stock, (h)
granted or issued any option, warrant or other right to purchase or acquire any
shares of its capital stock, (i) made any bonus or profit sharing distribution
or payment of any kind, except in the ordinary course of business consistent
with past practice, (j) increased its indebtedness for borrowed money, except
current borrowings from banks in the ordinary course of business consistent with
past practice, or made any loan to any Person (other than accounts receivable
arising in the ordinary course of business consistent with past practice), (k)
written off as uncollectible any notes or accounts receivable, except write-offs
in the ordinary course of business consistent with past practice, none of which
individually or in the aggregate is material to the Domestic Businesses, (l)
granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any employee, except in the ordinary course of business
consistent with past practice, (m) cancelled, waived or settled any material
claims or rights, (n) made any change in any method, principle or practice of
accounting or auditing except for changes in allocating general and
administrative expenses and interest expense on all debt and deferred taxes and
the change from
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accruing dry-dock expenses to pre-paying them, (o) otherwise conducted its
business or entered into any transaction, except in the usual and ordinary
manner and in the ordinary course of business consistent with past practice or
(p) materially amended or terminated any material contract or agreement or
entered into any material contract or agreement.
To the Knowledge of the Acquiror, no fact or condition exists or is
threatened which is expected to cause any change described in the immediately
preceding paragraph and none of the Acquiror or any of the Domestic Businesses
have agreed, whether or not in writing, to do any of the foregoing.
ss. 5.25 NO DEFAULTS. None of the Domestic Businesses is in default in
respect of the terms or conditions of any indebtedness.
ss. 5.26 CONDITION OF ASSETS. The assets and properties utilized in and
material to the conduct of the Domestic Businesses (other than ships), whether
owned or leased, are in the aggregate in good operating condition and repair and
are suitable for the purposes for which they are presently being used. All ships
which are owned, leased or operated by the Domestic Businesses are in class and,
other than the ROVER, are eligible to trade in U.S. waters.
ss. 5.27 LIMITATION OF WARRANTIES. In making its decision to enter into
this Agreement and to consummate the transactions contemplated hereby, the
Acquiror has not relied upon any representation, warranty, statement, advice,
document, projection or other information of any type provided by the Company or
its directors, officers, employees or agents (whether during the Acquiror's due
diligence process or otherwise) or the Shareholders other than the
representations and warranties of the Company and Shareholders (including
Schedules relating thereto) expressly set forth in this Agreement. The Acquiror
acknowledges and agrees that, except for the
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representations and warranties of the Company expressly set forth in this
Agreement (including the schedules relating thereto), neither the Company nor
any of its directors, officers, employees or agents, nor the Shareholders has
made, or is making, any representation or warranty, written or oral, to the
Acquiror concerning the Company or the Shareholders or its or their business,
operations, prospects, financial statements, financial condition or results of
operations or any other matter whatsoever.
ss. 5.28 SEC FILINGS. Acquiror has made available to the Company and the
Shareholders' Representative correct and complete copies of (i) its Annual
Reports on Form 10-K for the years ended December 31, 1994, 1995 and 1996, as
filed with the SEC, (ii) its proxy statements relating to all of the meetings of
shareholders (whether annual or special) of Acquiror since January 1, 1994, as
filed with the SEC, and (iii) all other reports filed pursuant to the Exchange
Act (including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,
as amended) filed by Acquiror with the SEC since January 1, 1994 and all
registration statements filed by Acquiror with the SEC since January 1, 1995
(the reports and statements set forth in clauses (i), (ii) and (iii), above, are
referred to collectively as the "ACQUIROR SECURITIES FILINGS"). The Acquiror
Securities Filings complied as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder, and Acquiror has received no notice of violation with respect
thereto from the SEC. As of the date hereof there are no claims, actions,
proceedings or investigations pending or, to the best knowledge of Acquiror,
threatened against Acquiror or any of its Subsidiaries, or any properties or
rights of Acquiror or any of its Subsidiaries, before any court, administrative,
governmental or regulatory authority or body which is or will be required to be
described in any Acquiror Securities Filing
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that is not so described. Since January 1, 1994, other than the Acquiror
Securities Filings, Acquiror has not been required to file any report or other
document with the SEC pursuant to the requirements of the Exchange Act which has
not been timely filed with the SEC. Any documents filed by Acquiror with the SEC
after the date hereof, that would have constituted Acquiror Securities Filings
if filed prior to the date hereof, shall be provided to the Company; and each
such document, shall constitute Acquiror Securities Filings for purposes hereof.
ss. 5.29 COPIES OF DOCUMENTS. The Acquiror has caused to be made available
for inspection and copying by the Company and the Shareholders and their
advisers, complete and correct copies of all documents referred to in this
Article V or in any Schedule attached hereto.
ss. 5.30 DISCLOSURE. The Acquiror does not have any Knowledge that
any current material customer or supplier of the Domestic Businesses intend to
cease doing business with the Domestic Businesses (whether or not as a result of
the transactions contemplated by this Agreement) or materially decrease the
amount of business that such Person is presently doing with the Domestic
Businesses, except that MARAD currently has a policy restricting the number of
vessels that any one company can manage to 12.
ss. 5.31 BROKER'S OR FINDER'S FEES.
Other than Smith Barney, Inc., no agent, broker, person or firm acting on behalf
of the Acquiror is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any Person controlling,
controlled by or under common control with any of the parties hereto in
connection with any of the transactions contemplated by this Agreement.
ARTICLE VI
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COVENANTS OF THE PARTIES
------------------------
ss.6.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement to the Second Closing Date, the Company and each of its
Subsidiaries shall conduct their respective operations only according to their
ordinary and usual course of business consistent with past practice and use
their commercially reasonable best efforts to preserve intact their respective
business organizations, keep available the services of their officers and
employees and maintain satisfactory relationships and goodwill with licensors,
suppliers, distributors, customers, landlords, employees, agents and others
having business relationships with them. Notwithstanding the immediately
preceding sentence, prior to the Second Closing Date, except as may be first
approved in writing by the Acquiror or as is otherwise permitted or required by
this Agreement, the Company and each of its Subsidiaries shall (a) refrain from
amending or modifying the Company's and each of its Subsidiaries' respective
Articles of Incorporation and/or By-Laws (or equivalent governing documents)
except as provided in clause (g) below, (b) refrain from increasing beyond the
levels in effect on the date of this Agreement the compensation payable or to
become payable by the Company and each of its Subsidiaries to any officer,
employee or agent being paid or who would be paid $60,000 per year or more on
the Company Balance Sheet Date, except for increases which are determined by the
Company or its Subsidiaries at year-end to be in the best interests of the
Company and are made in the ordinary course of business and are consistent with
past practice, (c) except for (i) year-end bonuses to employees, other than the
executives listed on SCHEDULE 6.1(C) hereto, in the ordinary course of business
consistent with past practice of the Company and each of its Subsidiaries and
(ii) Bonus Payments to those Company's executives listed on SCHEDULE 6.1(C)
hereto, refrain from making
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any bonus, pension, retirement or insurance payment or arrangement to or with
any such persons except those that may have already been accrued (all such
permitted Bonus Payments and bonus payments in respect of 1997 and that portion
of 1998 prior to the Second Closing Date shall have been declared and, if not
paid, accrued and reflected as a reduction on the Company's Preliminary Closing
Balance Sheet), (d) refrain from entering into any contract or commitment except
contracts in the ordinary course of business consistent with past practice, (e)
refrain from making any change affecting any bank, safe deposit or power of
attorney arrangements of the Company or any such Subsidiary without notifying
Acquiror of any such change, (f) refrain from taking any of the actions of the
type referred to in Section 3.24 (except as expressly permitted thereby), (g)
refrain from issuing or selling any shares of capital stock or any other
securities or issuing any securities convertible into, or option, warrants or
rights to purchase or subscribe to, or entering into any arrangement or contract
with respect to the issue and sale of, any shares of its capital stock or any
other securities, or making any other changes in its capital structure, except
that the Company may amend its Certificate of Incorporation to authorize classes
of common stock having the rights set forth in the proposed form of amendment to
the Company's Certificate of Incorporation attached hereto as Exhibit J and may
issue pro rata to each of the Shareholders, Class B Common Stock upon the terms
and having the rights set forth in such proposed form of amendment, (h) refrain
from declaring, setting aside, making or paying any distribution in redemption
of stock or a dividend, payable in cash, stock, property or otherwise, with
respect to any class of the capital stock of the Company, except Class B Common
Stock and for a distribution in cash not in excess of $2,500,000 (less any cash
fees paid by the Company to First Stanford and DNB pursuant to the Consulting
Agreement) plus any amounts distributed
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pursuant to Section 2.2(c)(iii) in redemption of Common Stock immediately
preceding the Acquisition and, in the event that the Class B Common Stock has
not been distributed, except for the possible distribution of the stock of or
interests in or assets of Marine LNG I, Inc. and/or Marine LNG II, Inc. or
proceeds from the sale of such stock or assets and (i) refrain from agreeing in
writing to do any of the foregoing. During the period from the date of this
Agreement to the Second Closing Date, the Company shall confer on a regular and
frequent basis with one or more designated representatives of the Acquiror to
report material operational matters and to report the general status of ongoing
operations. The Company and each of its Subsidiaries shall notify the Acquiror
of any unexpected emergency or other change in the normal course of its business
or in the operation of its properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings or submissions
involving any material property of the Company and each of its Subsidiaries, and
keep the Acquiror fully informed of such events and permit its representatives
prompt access to all materials prepared in connection therewith.
ss. 6.2 CONDUCT OF BUSINESS OF ACQUIROR. Except as may be necessary in the
reasonable judgment of the Acquiror to carry out the Spin-Off, during the period
from the date of this Agreement to the Second Closing Date, the Acquiror and
each of its U.S. Subsidiaries shall conduct their Domestic Businesses only
according to their ordinary and usual course of business consistent with past
practice and use their commercially reasonable best efforts to preserve intact
their Domestic Business organizations, keep available the services of their
officers and employees and maintain satisfactory relationships and goodwill with
licensors, suppliers, distributors, customers, landlords, employees, agents and
others having business relationships with them in
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respect of their Domestic Businesses. Notwithstanding the immediately preceding
sentence, prior to and including the Second Closing Date, except as may be first
approved in writing by the Shareholders' Representative or as is otherwise
permitted or required by this Agreement and except as may be necessary in the
reasonable judgment of the Acquiror to carry out the Spin-Off, the Acquiror and
each U.S. Subsidiary shall (a) refrain from amending or modifying the Acquiror's
and each of its U.S. Subsidiaries Articles of Incorporation and/or By-Laws (or
equivalent governing documents) from their respective forms on the date of this
Agreement, (b) maintain at all times a sufficient amount of authorized but
unissued common stock to consummate the transactions contemplated hereby, (c)
refrain from issuing or selling any shares of the Acquiror's Preferred Stock,
par value $1.00 per share, or issuing any securities convertible into, or
option, warrants or rights to purchase or subscribe to, or entering into any
arrangement or contract with respect to the issue and sale of, any shares of the
Acquiror's Preferred Stock, (d) refrain from increasing beyond the levels in
effect on the date of this Agreement the compensation payable or to become
payable by the Acquiror or any of its U.S. Subsidiaries to any officer, employee
or agent of the Domestic Businesses being paid or who would be paid $60,000 per
year or more on the Domestic Businesses Balance Sheet Date, except for increases
which are determined by the Acquiror or its U.S. Subsidiaries at year-end to be
in the best interests of the Acquiror and are made in the ordinary course of
business and are consistent with past practice, (e) refrain from entering into
any contract or commitment, including charters in respect of COURIER, PATRIOT or
ROVER in excess of three months, charters out in excess three months of any of
OMI Petrolink Corp.'s vessels and charters in of additional vessels by OMI
Petrolink Corp. in excess of three months, except contracts in the ordinary
course of
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business consistent with past practice, (f) cause the Domestic Businesses to
refrain from taking any of the actions of the type referred to in Section 5.24
(except as expressly permitted thereby), (g) refrain from agreeing in writing to
do any of the foregoing.
During the period from the date of this Agreement to the Second Closing
Date, Acquiror shall confer on a regular and frequent basis with the Company to
report operational matters in respect of its domestic operations and to report
the general status of ongoing domestic operations. The Acquiror shall notify the
Company of any unexpected emergency or other change in the normal course of the
business of the Domestic Businesses or in the operation of their properties and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings, budget
meetings or submissions involving any material property of the Domestic
Businesses, and keep the Company fully informed of such events and permit its
representatives prompt access to all materials prepared in connection therewith.
Acquiror shall also provide the Company with advance written notice of any
proposed changes to the Distribution Agreement, Corporate Restructuring
Transactions (as defined in the Distribution Agreement) or Ancillary Agreements
(as defined in the Distribution Agreement) whether or not such proposed changes
require the consent of the Shareholders' Representative.
ss. 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Between the date of
this Agreement and the Second Closing Date, and except as may otherwise be
required by applicable law, each of the Company and the Acquiror shall (and
shall cause its Subsidiaries and officers, directors, employees, auditors and
agents to) afford the officers, employees and agents of the other party (the
"RESPECTIVE REPRESENTATIVES") reasonable access at all reasonable times to its
officers,
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employees, agents, properties, offices, plants and other facilities, books and
records, and shall furnish such Respective Representatives with all financial,
operating and other data and information as may be reasonably requested for
purposes of consummating the transactions contemplated hereby and conducting a
due diligence review to ensure that the Corporate Restructuring Transactions are
consummated on the terms and with the effect contemplated by the Distribution
Agreement, in each case to the extent that such access and disclosure would not:
(i) violate the terms of any agreement to which the disclosing party
or any of its Affiliates is bound or any applicable law or regulation; or
(ii) impair any attorney-client privilege of the disclosing party.
Notwithstanding the foregoing, the Acquiror shall not be required (and
shall not be required to cause its Subsidiaries and officers, directors,
employees, auditors and agents) to provide the access, data and information
described in the preceding sentence with respect to the Foreign Businesses
unless the Company has a reasonable interest in obtaining such access, data
or information in connection with the Acquisition or the Spin-Off.
(b) All information obtained by the Company, the Acquiror or their
Respective Representatives pursuant to Section 6.3(a) hereof shall be kept
confidential by such Persons in accordance with the confidentiality agreements,
dated March 3, 1997 and February 7, 1997, executed by the Company and the
Acquiror attached as Exhibit K.
(c) The Foreign Businesses (and their respective direct and indirect
Subsidiaries and Affiliates) shall be deemed third party beneficiaries of this
Section 6.3 and all other provisions of this Agreement necessary or appropriate
for purposes of enforcing this Section 6.3.
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ss. 6.4 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a) For a
period of five years or the applicable statute of limitations, whichever is
longer, after the Second Closing Date, the Acquiror shall not cause or permit
any amendment, repeal or other modification of the provisions of
(i) Article VII, Section 7.4 of the by-laws of the Acquiror, or
(ii) Article Thirteenth of the certificate of incorporation of the
Acquiror, in either case in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Second
Closing Date were directors, officers or employees of the Acquiror or any
of its Subsidiaries or Affiliates or who are otherwise entitled to
indemnification pursuant to such provisions in respect of actions or
omissions occurring at or prior to the Second Closing Date (including,
without limitation, the transactions contemplated by this Agreement),
unless such modification is required by the DGCL or applicable federal law,
and then only to the extent of such applicable requirements of the DGCL or
federal law.
(b) From and after the Second Closing Date, the Acquiror shall indemnify,
defend and hold harmless each Person who is now or has been at any time prior to
the First Closing Date an officer, director or employee of the Acquiror or any
of its Subsidiaries (collectively, the "ACQUIROR INDEMNIFIED PARTIES") against
all losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of, with the approval of the indemnifying party (which approval shall
not unreasonably be withheld), or otherwise in connection with any claim,
action, suit, proceeding or investigation (a "ACQUIROR CLAIM"), based in whole
or in part on the fact that such Person is or was a director, officer or
employee of the Acquiror or any of its Subsidiaries
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and arising out of actions or omissions occurring at or prior to the Second
Closing Date (including, without limitation, the transactions contemplated by
this Agreement), whether or not such Claim was asserted prior to, at or after
the Second Closing Date, in each case to the fullest extent permitted under the
DGCL (and shall pay expenses in advance of the final disposition of any such
Claim to each Acquiror Indemnified Party to the fullest extent permitted under
the DGCL, upon receipt from the Acquiror Indemnified Party to whom expenses are
advanced of any undertaking to repay such advances required by Section 145(e) of
the DGCL).
(c) Without limiting the generality of the foregoing, in the event any
Claim is brought against any Acquiror Indemnified Party (for events arising
before the Second Closing Date):
(i) the Acquiror Indemnified Party may retain counsel satisfactory to
him with the consent of the Acquiror which consent may not be unreasonably
withheld or delayed;
(ii) the Acquiror shall pay all reasonable fees and expenses of such
counsel for the Acquiror Indemnified Party promptly as statements therefor
are received; and
(iii) the Acquiror will use all reasonable efforts to assist in the
vigorous defense of any such matter.
Any Acquiror Indemnified Party wishing to claim indemnification under this
Section 6.4, upon learning of any such Claim, shall notify the Acquiror (but any
failure so to notify shall not relieve the Acquiror from any liability which it
may have under this Section 6.4, except to the extent such failure materially
prejudices such party), and shall deliver to the Acquiror, any undertaking
required by Section 145(e) of the DGCL. The Acquiror Indemnified Parties as a
group may retain only one law firm to represent them with respect to each such
Claim unless
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there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Acquiror Indemnified Parties.
(d) (i) LEGAL DEFENSE OF ACQUIROR CLAIMS. If an Acquiror Claim is made
against an Acquiror Indemnified Party, the Acquiror shall be entitled to
participate in the defense thereof and, if it so chooses, to assume the defense
thereof with counsel selected by the Acquiror, which counsel shall be reasonably
satisfactory to the Acquiror Indemnified Party. Should the Acquiror so elect to
assume the defense of an Acquiror Claim the Acquiror shall pursuant to
subparagraph (c)(ii) continue to be liable to the Acquiror Indemnified Party for
legal or other expenses subsequently incurred by the Acquiror Indemnified Party
in connection with the defense thereof. If the Acquiror assumes such defense,
the Acquiror Indemnified Party shall have the right to participate in the
defense thereof and to employ counsel, at the Acquiror's expense, separate from
the counsel employed by the Acquiror, it being understood that the Acquiror
shall control such defense. If the Acquiror so elects to assume the defense of
any Acquiror, all of the Acquiror Indemnified Parties shall cooperate with the
Acquiror in the defense or prosecution thereof. Notwithstanding the foregoing:
A. the Acquiror shall not be entitled to assume the defense of any
Acquiror Indemnified Party (and shall be liable to the Acquiror Indemnified
Party for the reasonable fees and expenses of counsel incurred by the
Acquiror Indemnified Party in defending such Acquiror Claim) if the
Acquiror Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against the Acquiror Indemnified Party
which the Acquiror Indemnified Party reasonably determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages; PROVIDED,
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HOWEVER, that if such equitable relief or other relief portion of the
Acquiror Claim can be so separated from that for money damages, the
Acquiror shall be entitled to assume the defense of the portion relating to
money damages;
B. The Acquiror shall not be entitled to assume the defense of any
Acquiror Claim (and shall be liable to the Acquiror Indemnified Party for
the reasonable fees and expenses of counsel incurred by the Acquiror
Indemnified Party in defending such Acquiror Claim) if, in the Acquiror
Indemnified Party's reasonable judgment, a conflict of interest between
such Acquiror Indemnified Party and the Acquiror exists in respect of such
Acquiror Claim; and
C. if at any time after assuming the defense of an Acquiror Claim the
Acquiror shall fail to prosecute or withdraw from the defense of such
Acquiror Claim, the Acquiror Indemnified Party shall be entitled to resume
the defense thereof and the Acquiror shall be liable to the Acquiror
Indemnified Party for the reasonable fees and expenses of counsel incurred
by the Acquiror Indemnified Party in such defense.
(ii) SETTLEMENT OF ACQUIROR CLAIMS. Except as otherwise provided below in
this Section 6.4(d)(ii), if the Acquiror has assumed the defense of any Acquiror
Claim, then
A. in no event will the Acquiror Indemnified Party admit any liability
with respect to, or settle, compromise or discharge, any Acquiror Claim
without the Acquiror's prior written consent; PROVIDED, HOWEVER, that the
Acquiror Indemnified Party shall have the right to settle, compromise or
discharge such Acquiror Claim without the consent of the Acquiror if the
Acquiror Indemnified Party releases the Acquiror from its indemnification
obligation hereunder with respect to such Acquiror
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Claim and such settlement, compromise or discharge would not otherwise
adversely affect the Acquiror, and
B. the Acquiror Indemnified Party will agree to any settlement,
compromise or discharge of an Acquiror Claim that the Acquiror may
recommend and that by its terms obligates the Acquiror to pay the full
amount of the liability in connection with such Acquiror Claim and releases
the Acquiror Indemnified Party completely in connection with such Acquiror
Claim and that would not otherwise adversely affect the Acquiror
Indemnified Party.
PROVIDED, HOWEVER, that the Acquiror Indemnified Party may refuse to agree
to any such settlement, compromise or discharge if the Acquiror Indemnified
Party agrees that the Acquiror's indemnification obligation with respect to
such Acquiror Claim shall not exceed the amount that would be required to
be paid by or on behalf of the Acquiror in connection with such settlement,
compromise or discharge.
If the Acquiror has not assumed the defense of an Acquiror Claim then in no
event shall the Acquiror Indemnified Party settle, compromise or discharge such
Acquiror Claim without providing prior written notice to the Acquiror, which
shall have the option within 15 Business Days following receipt of such notice
to:
A. approve and agree to pay the settlement,
B. approve the amount of the settlement, reserving the right to
contest the Acquiror Indemnified Party's right to indemnity pursuant to
this Agreement,
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C. disapprove the settlement and assume in writing all past and future
responsibility for such Acquiror Claim (including all of Acquiror
Indemnified Party's prior expenditures in connection therewith), or
D. disapprove the settlement and continue to refrain from
participation in the defense of such Acquiror Claim. In the event the
Acquiror does not respond to such written notice from the Acquiror
Indemnified Party within such 15 business-day period, the Acquiror shall be
deemed to have elected option A.
(e) (i) MAINTENANCE OF D&O POLICIES. Acquiror shall use its commercially
reasonable best efforts to obtain and pre-pay before the First Closing Date five
years of premiums for a policy or policies of directors' and officers' liability
insurance ("D&O POLICIES") covering the directors and officers of the Acquiror
and having terms reasonably similar to the policies maintained by the Acquiror
on the date hereof (true and correct copies of which have been delivered to the
Company) with respect to acts and omissions occurring prior to the Second
Closing Date. If Acquiror obtains and prepays for the D&O Policies before the
First Closing Date, Acquiror shall issue a promissory note to UBC having a face
amount equal to the lesser of (x) the amount Acquiror pre-paid for the D&O
Policies and (y) $500,000, a term of five years and bearing interest at 8% per
annum, payable semi-annually in equal installments.
(ii) COOPERATION. The Acquiror shall cooperate with the directors and
officers in the defense and settlement of any claim made against them based upon
or arising out of any actual or alleged wrongful act (as such term may be
defined in the applicable D&O Policies or Replacement D&O Policy) occurring at
or prior to the Second Closing Date. The Acquiror shall
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provide any reasonable
assistance or information that may be required by a director or officer in
connection with any such claim. The Acquiror shall not cause any action or
inaction that could reasonably be expected to jeopardize or otherwise impair the
rights or ability of the directors or officers to recover loss amounts due under
the D&O Policies.
(f) The Acquiror shall not take any action that could reasonably be
expected to jeopardize or otherwise interfere with the ability of any of the
Acquiror Indemnified Parties to collect any proceeds payable under any of the
D&O Policies.
(g) This Section 6.4 (and all other provisions of this Agreement necessary
or appropriate for purposes of enforcing this Section 6.4) is intended to be for
the benefit of, and shall be enforceable, by the Acquiror Indemnified Parties,
their heirs and personal representatives and shall be binding on the Acquiror
and each of their respective successors and assigns.
ss. 6.5 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Second Closing Date, the Company and the Acquiror and the Shareholders shall
give prompt notice to the other parties upon becoming aware of:
(i) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would likely cause:
(A) any of its representations or warranties contained in this
Agreement to be untrue or inaccurate, or
(B) any of its covenants, conditions or agreements contained in
this Agreement not to be complied with or satisfied; and
(ii) its failure to comply with or satisfy any of its covenants,
conditions or agreements to be complied with or satisfied by it at or prior
to the Second Closing Date;
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PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 6.5
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice and, provided no owner of Non-Management Stock shall
have any obligation to give notice of events relating to the conditions
contained in this Agreement.
ss. 6.6 TAX MATTERS. (a) Each of the Acquiror, on the one hand, and the
Company and its Subsidiaries, on the other hand, shall use its commercially
reasonable best efforts to cause the Spin-Off to qualify as a tax free
distribution under Code Section 355 and/or Section 368(a). Neither the Acquiror,
on the one hand, nor the Company and its Subsidiaries, on the other hand, shall
take any action other than an Approved Action that (i) is inconsistent with (A)
the Tax treatment of the Transactions set forth in the IRS Ruling Letter or (B)
a factual statement or representation set forth in the Ruling Request (as
amended by any supplement) or (ii) causes a Corporate Restructuring Transaction
for which a ruling is not requested from the IRS and which is intended to
qualify as a tax-free transaction under Section 332, 351, 355 or 368, to fail to
so qualify.
(b) In furtherance of Section 6.6(a) above, the Acquiror shall make the
representations set forth in EXHIBIT L attached hereto, and such other
representations as are reasonably necessary to ensure the tax-free treatment of
the Spin-Off and related transactions described in Section 6.6(a) above, and
shall take actions that are reasonably necessary to assure the continuing
accuracy of such representations.
(c) In furtherance of Section 6.6(a) above, none of the Shareholders, shall
take any actions other than Approved Actions, either before or after the First
Closing Date, inconsistent with the representations set forth in EXHIBIT L
attached hereto. In addition, (i) the Company and
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each of its Subsidiaries shall make such further representations as shall be
necessary in the reasonable judgment of the Acquiror to ensure the tax-free
treatment of the Spin-Off and (ii) each of the Shareholders shall make such
further representations as shall be (A) reasonable and (B) necessary in the
reasonable judgment of the Acquiror to ensure the tax-free treatment of the
Spin-Off; PROVIDED, HOWEVER, that if the Shareholders are asked to make or
confirm representations which have an adverse effect on the value or timing of
the Consideration to be received, the Shareholders will be given the opportunity
to review and consent to such requested representations, such consent not to be
unreasonably withheld. Notwithstanding anything to the contrary contained in
this Agreement, none of the holders of Non-Management Stock shall have any
liability or obligation to the Acquiror, the Company or any other Person by
reason of such holders' of Non-Management Stock failure to comply with any of
the provisions of this Section 6.6(c), it being agreed by the Company that (i)
any liability arising out of the owners' of Non-Management Stock failure to
comply with the provisions of this Section 6.6(a) shall be borne by the Company
and not the owners of Non-Management Stock and (ii) any such failure to comply
shall be considered an action of the Company for purposes of the Distribution
Agreement.
(d) UBC (and its respective direct and indirect Subsidiaries and
Affiliates) shall be deemed a third party beneficiary of this Section 6.6 and
all other provisions of this Agreement necessary or appropriate for purposes of
enforcing this Section 6.6.
ss. 6.7 PROXY STATEMENT. (a) As soon as practicable following the date
hereof, the Acquiror shall prepare and file, or cause to be prepared and filed,
with the SEC a proxy statement (the "PROXY STATEMENT") and other proxy
solicitation materials relating to the Stockholders' Special Meeting (as defined
in Section 6.8 hereof). The Company and its counsel shall be
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afforded an adequate opportunity to review and comment upon the Proxy Statement
before it is filed with the SEC. Each of the Acquiror and the Company shall
furnish or cause to be furnished to the other party all information concerning
itself and its Subsidiaries (including any audited or PRO FORMA financial
information) as the other party may reasonably request in connection with such
actions and the preparation of the Proxy Statement. The Acquiror shall take, and
cause its Subsidiaries to take such actions as may be required to have the Proxy
Statement cleared by the SEC, in each case as promptly as practicable, including
by responding promptly to, any SEC comments with respect thereto. The Company
shall, and cause its Subsidiaries to, take all reasonable action that may be
necessary to assist Acquiror in causing the Proxy Statement to be cleared by the
SEC, including consulting with Acquiror. As promptly as practicable after the
Proxy Statement has been cleared by the SEC, the Acquiror shall mail the Proxy
Statement to its stockholders, and the Proxy Statement shall include the
recommendation of the board of directors of the Acquiror that Acquiror's
stockholders vote in favor of adoption and approval of this Agreement, the
Acquisition, and the Stock Issuance (as defined in Section 6.8 hereof) and the
board nominees as provided in Section 7.3(g) (the "BOARD NOMINEES").
(b) The Acquiror covenants that the Proxy Statement (other than the
information supplied in writing to the Acquiror by the Company for inclusion in
the Proxy Statement) shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, at any of:
(i) the time the Proxy Statement (or any amendment or supplement
thereto) is first mailed to the stockholders of the Acquiror;
(ii) the time of each of the Stockholders' Special Meeting; and
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(iii) the Second Closing Date.
(c) The Company covenants that the financial information supplied or to be
supplied by the Company or its representatives in writing for inclusion in the
Proxy Statement shall comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, shall be prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited financial information, as permitted
by the rules of the SEC) and shall fairly present the financial information
reflected therein as of the dates thereof or for the periods then ended. If at
any time prior to the Second Closing Date any event or circumstance relating to
the Company or any of its Subsidiaries, or their respective officers or
directors, should be discovered by the Company or any of its Subsidiaries that
should be set forth in an amendment or a supplement to the Proxy Statement, the
Company shall promptly inform the Acquiror in writing.
(d) The Company covenants that the information supplied in writing by or on
behalf of the Company for inclusion in the Proxy Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, at
(i) the time the Proxy Statement is first mailed to the stockholders
of the Acquiror;
(ii) the time of the Stockholders' Special Meeting; and
(iii) the Second Closing Date.
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(e) The Acquiror covenants that the financial information included or
incorporated by reference in the Proxy Statement, other than the financial
information supplied to the Acquiror by the Company for inclusion in the Proxy
Statement, shall comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, shall be prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited financial information, as permitted
by the rules of the SEC) and shall fairly present (subject, in the case of
unaudited financial information, to normal, recurring audit adjustments) the
financial information reflected therein as of the dates thereof or for the
periods then ended. The Acquiror covenants that the Proxy Statement will comply
as to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder or the Securities Act and the rules and
regulations thereunder, as applicable, except that no representation is herein
made by the Acquiror with respect to statements made in the Proxy Statement
based on information supplied by the Company or any of its representatives in
writing for inclusion in the Proxy Statement. If at any time prior to the Second
Closing Date any event or circumstance relating to the Acquiror or any of its
Subsidiaries, or their respective officers or directors, should be discovered by
the Acquiror or any of its Subsidiaries which should be set forth in an
amendment or a supplement to the Proxy Statement, the Acquiror shall promptly
inform the Company and file the appropriate amendment with the SEC.
ss. 6.8 STOCKHOLDERS' SPECIAL MEETING. The Acquiror, acting through its
Board of Directors, shall, in accordance with its Amended and Restated
Certificate of Incorporation and By-laws and applicable law, take all action
necessary to convene a meeting of its stockholders
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(the "STOCKHOLDERS' SPECIAL Meeting") as promptly as practicable (it being
intended that the Stockholders' Special Meeting shall be scheduled to occur near
or as soon as practicable after the receipt of the IRS Ruling Letter) for the
purpose of voting upon the approval of the issuance of Acquiror Shares in
connection with the Acquisition as contemplated in this Agreement (the "STOCK
ISSUANCE"), the approval of the Board Nominees and for the purpose of voting
upon such other matters in respect of the Certificate of Incorporation of the
Acquiror as the Company shall reasonably request. Subject to its fiduciary
duties under applicable law, the Board of Directors of the Acquiror shall make
the recommendation (and shall include such recommendation in the Proxy
Statement) that all holders of Acquiror common stock vote in favor of the Stock
Issuance and the Board Nominees, and the Board of Directors of the Acquiror
shall use its commercially reasonable best efforts to cause to be solicited
proxies from holders of Acquiror common stock to be voted at the Stockholders'
Special Meeting in favor of the Stock Issuance and the Board Nominees and to
take all other actions necessary or advisable to secure the vote or consent of
stockholders of the Acquiror required to effect the Acquisition.
ss. 6.9 FURTHER ACTION. (a) Upon the terms and subject to the provisions of
this Agreement, each of the parties hereto (other than the owners of
Non-Management Stock) shall use its commercially reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations promptly to consummate and make effective the transactions
contemplated hereby, including the Spin-Off (subject, however, to the vote of
the stockholders of the Acquiror), including, without limitation, using its
commercially reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of
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Governmental Authorities and parties to contracts with the Acquiror and, to the
extent required, the Company and their respective Subsidiaries as are necessary
for the consummation of the transactions contemplated by this Agreement. Each
party hereto shall promptly consult with each other party with respect to, and
provide to each other party all such non-confidential information or
documentation which shall be reasonably requested with respect to, all filings
made by such party with any Governmental Authority in connection with this
Agreement and the transactions contemplated hereby. In case at any time after
the Second Closing Date any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement (other than the owners of Non-Management Stock) shall
use their reasonable best efforts to take all such action.
(b) Each party shall use its reasonable best efforts to not take any
action, or enter into any transaction, that would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement.
(c) Owners of Non-Management Stock shall use their commercially reasonable
best efforts to take all appropriate action as is necessary to perform their
obligations hereunder.
ss. 6.10 REMOVAL OF GUARANTEES/CANCELLATION OF DEBT. (a) The Acquiror shall
use its commercially reasonable best efforts to have, on or prior to the Second
Closing Date, Domestic Company and any other member of the Domestic Group
removed as a guarantor of, or obligor under or for, any obligation of the
International Company, International Subsidiaries or any other member of the
International Group which the Domestic Company or any other member of the
Domestic Group is a guarantor of, or obligor under or for (as each such term is
defined in the Distribution Agreement).
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(b) The Acquiror shall use its commercially reasonable best effort to
terminate, effective as of the Second Closing Date, each and every agreement
between Domestic Group and International Group other than the Distribution
Agreement and any of the Ancillary Agreements (as each such term is defined in
the Distribution Agreement).
(c) The Acquiror shall use its commercially reasonable best efforts to
cause UBC to be substituted for the Acquiror, and the Acquiror released, from
all liability under the Indenture dated as of November 1, 1993 between Acquiror
and The Chase Manhattan Bank, as Trustee (successor to Chemical Bank), as
amended.
(d) As soon as practicable after the date hereof, the Acquiror and the
Company will meet with representatives of Citicorp North America Inc., and
Citibank, N.A., as necessary, to discuss waiver of the Acquiror's financial
covenants in the guaranty of OMI Challenger Transport, Inc.'s charter
obligations and the negative covenant regarding change of control, effective as
of the Second Closing Date, under the Credit Agreement, dated as of January 29,
1997 among Argosy Ventures Ltd, the Banks named therein, Citicorp North America
Inc., and OMI Challenger Transport, Inc. and OMI Corp.
ss. 6.11 CORPORATE RESTRUCTURING TRANSACTIONS; SPIN-OFF. The Acquiror shall
use its commercially reasonable best efforts to effect the Corporate
Restructuring Transactions and the Spin-Off (as each such term is defined in the
Distribution Agreement).
ss. 6.12 [Intentionally Left Blank]
ss. 6.13 ANTITRUST MATTERS. (a) The Acquiror and the Company shall file
with the Federal Trade Commission and the Antitrust Division of the Department
of Justice, as promptly as practicable but in any event within 60 Business Days
of the date of this Agreement, the notifi-
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cation and report form required for the transactions contemplated hereby and
shall promptly provide any supplemental information which may be reasonably
requested in connection therewith pursuant to the HSR Act, which notification,
report and supplemental information shall comply in all material respects with
the requirements of the HSR Act.
(b) Although the parties do not believe that the Acquisition has any
antitrust implications, the Acquiror shall use all reasonable efforts to resolve
antitrust objections, if any, that may be asserted with respect to the
transactions contemplated hereby by the Federal Trade Commission, the Antitrust
Division of the Department of Justice or any other federal or state agency.
ss. 6.14 ANTITAKEOVER STATUTES. If any "FAIR PRICE," "MORATORIUM," "CONTROL
SHARE ACQUISITION" or other similar antitakeover statute or regulation enacted
under state or federal laws ("TAKEOVER STATUTE") is or may become applicable to
the transactions contemplated hereby, each of the parties (other than the
Shareholders) hereto and the members of its board of directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of any Takeover Statute on any of the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that no party hereto shall be required to take any
action if there is a substantial risk that the subject action would be held to
constitute a breach of the fiduciary duties of the board of directors of the
subject party, as determined by the subject board of directors in good faith
after consultation with and based upon the advice of independent legal counsel
(who may be the subject party's regularly engaged independent counsel).
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ss. 6.15 COVENANTS RELATING TO COMPANY EMPLOYEE BENEFIT PLANS. During the
period from the date of this Agreement to the Second Closing Date, the Company
shall take the actions with respect to certain Company Employee Benefit Plans
that are described in a letter agreement relating to such matters between the
Acquiror and the Company, dated of even date herewith.
ss.6.16 Participation of Acquiror and Domestic Business Employees in
Company Employee Benefit VI.16 Participation of Acquiror and Domestic Business
Employees in Company Employee Benefit Plans. Effective no later than the Second
Closing Date, those employees of the Acquiror and the Domestic Businesses listed
on Schedule 6.16 shall be entitled to participate in all Company Employee
Benefit Plans on the terms and conditions applicable to similarly situated
employees of the Company, or in employee benefit plans otherwise maintained by
the Company the terms and conditions of which are individually substantially
equivalent to similar Company Employee Benefit Plans. All service of any such
employee of the Acquiror and the Domestic Businesses with the Acquiror, the
Domestic Businesses, and/or their Subsidiaries or Affiliates (or any
predecessors of any thereof) shall be treated as service with the Company and/or
its Subsidiaries or Affiliates, as applicable, for all purposes under the
Company Employee Benefit Plans or such other employee benefit plans. With
respect to participation of such employees of the Acquiror and the Domestic
Businesses and their dependents in the Company Employee Benefit Plans or such
other employee benefit plans, which are "WELFARE PLANS," the Company and its
Subsidiaries and Affiliates, other than the Shareholders, shall, or shall cause
the applicable Company Employee Benefit Plan or other plan to, (a) waive any
waiting periods or affiliation periods and any pre-existing condition and
actively-at-work exclusions (or similar limitations on participation) which
would otherwise apply to such employees or their dependents, (b) waive any
evidence of insurability requirements and (c) provide that all claims, expenses
and
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premiums of such employees and their dependents during any plan year within
which they commence participation in the Company Employee Benefit Plans or other
plan shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions (and like
adjustments or limitations on coverage) under such plans; PROVIDED, HOWEVER,
that neither the Company and its Subsidiaries and Affiliates nor any such
Employee Benefit Plan or other plan shall be obligated to effect the actions
described in the preceding clause if: (i) such action cannot be effected without
the consent of any third party (whether to a policy amendment or otherwise) and
such consent is not obtained after the exercise of reasonable diligence by the
Company to obtain such consent, (ii) such actions are contrary to the terms of
any collective bargaining agreement or union welfare plan, or (iii) the cost of
such actions would be prohibitive under the circumstances. The Company agrees to
cooperate and take all actions reasonably necessary to cause the trust under the
Marine Transport Lines, Inc. Salaried Employees Retirement Income Plan to
accept, on a date or dates following the Second Closing Date mutually agreed to
between the Company and the then sponsor of the OMI Corp. Savings Plan, a
transfer from the trust under the OMI Corp. Savings Plan of assets attributable
to the account balances under the OMI Corp. Savings Plan of each participant in
such plan who is an employee of the Acquiror and/or the Domestic Businesses
following the Second Closing Date and who becomes a participant in the Marine
Transport Lines, Inc. Salaried Employees Retirement Income Plan, which amounts
shall be credited to the accounts respectively established for such participants
under the Marine Transport Lines, Inc. Salaried Employees Retirement Income
Plan; PROVIDED that any assets other than cash may be transferred only if
reasonably acceptable to the trustee of the Marine Transport Lines, Inc.
Salaried Employees Retirement
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Income Plan. The Company further agrees to make such reasonable amendments as
may be required to the Marine Transport Lines, Inc. Salaried Employees
Retirement Income Plan, prior to such asset transfer, so that such transfer will
not cause either the OMI Corp. Savings Plan or the Marine Transport Lines, Inc.
Salaried Employees Retirement Income Plan to violate any applicable requirements
of the Code and/or ERISA. Notwithstanding the preceding sentence, the Company
shall have no obligation to make any amendment that would adversely affect the
Company's ability to rely upon the current IRS determination letter of the
Marine Transport Lines, Inc., Salaried Employees Retirement Income Plan.
ss. 6.17 ACQUIROR STOCK OPTIONS. The Acquiror shall use its best efforts to
obtain, prior to the First Closing Date, from each holder of then outstanding
employee stock options to purchase Acquiror Shares or stock appreciation rights
who is, or is expected to become, an employee of UBC or a Subsidiary of UBC such
holder's agreement to surrender his or her stock options to the Acquiror in
exchange for employee stock options granted by UBC to purchase capital stock of
UBC, effective immediately prior to the First Closing Date.
ss. 6.18 NEW CREDIT FACILITY COMMITMENT. (a) The Company shall use its
commercially reasonable best efforts to obtain the New Credit Facility
Commitment and negotiate a definitive agreement providing for the New Credit
Facility.
(b) The Company shall use its commercially reasonable best efforts to
obtain (i) an extension of the maturity date of the loan provided under its
existing Term Loan and Revolving Credit Facility Agreement dated as of July 23,
1996 between the Company and Den Norske Bank ASA until after the Second Closing
Date and (ii) agreement to extend payment of principal and interest and other
amounts outstanding thereunder until after the Second Closing and refinance
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such principal and interest and other amounts under the New Credit Facility.
ss. 6.19 REDEMPTION OF COMMON STOCK. The Company shall use its commercially
reasonable best efforts to redeem (i) $2.5 million of Common Stock (less any
cash fees paid to First Stanford and DNB pursuant to the Consulting Agreement)
prior to the First Closing Date and (ii) such additional shares of Common Stock
in accordance with Section 2.2(c)(iii).
ss. 6.20 AUDITED CONSOLIDATED FINANCIAL STATEMENTS. As soon as they are
prepared, the Acquiror shall deliver to the Company and the Shareholders'
Representative a copy of the Domestic Businesses Audited Consolidated Financial
Statements.
ss. 6.21 MONTHLY FINANCIAL STATEMENTS. (i) Within 15 Business Days of the
end of each month following the date hereof (other than the month in which the
First Closing occurs), the Company shall prepare and deliver to the Acquiror and
Shareholders' Representative (a) an unaudited, consolidated balance sheet of the
Company and its Subsidiaries and unaudited consolidating balance sheets of the
Company and its Subsidiaries as of the end of the immediately preceding month;
and (b) an unaudited, consolidated income statement of the Company and its
Subsidiaries and individual consolidating income statements reflecting the
results of operations for the period ending as of the end of the immediately
preceding month. These monthly financial statements shall be prepared in
accordance with the Accounting Principles.
(ii) Within 15 Business Days of the end of each month following the date
hereof (other than the month in which the First Closing occurs), the Acquiror
shall prepare and deliver to the Company individual financial statements for the
Domestic Businesses as of the end of the
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immediately preceding month. These monthly financial statements shall be
prepared in accordance with the Accounting Principles.
ss. 6.22 STOCK EXCHANGES. The Acquiror will cooperate fully with the
Company to delist the Acquiror Shares from the New York Stock Exchange ("NYSE")
and the Stockholm Stock Exchange and list the Acquiror Shares following the
Second Closing Date on the NASDAQ Exchange or such other national securities
exchange as the Company, Acquiror and Shareholders' Representative shall agree.
ss. 6.23 PERMITTED DISPOSITIONS. Prior to the Second Closing Date, the
Shareholders or the Company may, distribute or otherwise cause the disposition
of all or part of the stock or assets and associated liabilities of Marine LNG
I, Inc. and/or Marine LNG II, Inc. The Company will set aside or cause to be set
aside adequate reserves to pay for any tax liability of the Company or its
Subsidiaries incurred (at any time before or after the Second Closing Date) as a
result of such distribution or disposition.
ss. 6.24 Certain Modifications to this Agreement. In the event of a
disposition described in Section 6.23 of this Agreement, the parties hereto will
use their commercially reasonable best efforts to restructure the Acquisition,
including as a merger of the Company into the Acquiror or a newly formed
Subsidiary of the Acquiror; PROVIDED that any restructuring shall not in the
reasonable judgment of the Acquiror adversely affect the Spin-Off or the
likelihood of a favorable ruling in respect thereof. If the Acquisition is so
restructured, this Agreement and, if necessary, the Ruling Request, shall be
amended in a manner consistent with any such restructuring, subject to the
consent of all parties hereto.
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ss. 6.25 STANDSTILL. Acquiror agrees that for the period commencing on the
date of this Agreement and terminating on the first to occur of the Second
Closing Date or December 31, 1998, neither it nor any of its Affiliates nor any
of their representatives, officers, directors, agents or stockholders will
entertain, accept or discuss directly or indirectly, any offer or proposal
regarding a possible sale, merger or other business combination or transaction
involving the Domestic Businesses or any interest therein or portion thereof (a
"POTENTIAL SALE"), with any party other than the Company and the Shareholders or
provide any information to any other party in connection therewith or enter into
any agreement or understanding requiring Acquiror to abandon, terminate or fail
to consummate the transactions contemplated hereby. Acquiror agrees to (i)
immediately notify the Company and the Shareholders if Acquiror or any of its
Affiliates receives any indications of interest, requests for information or
offers in respect of a Potential Sale, (ii) communicate to the Company and the
Shareholders in reasonable detail the terms of any such indication, request or
proposal, and (iii) provide the Company and the Shareholders with copies of all
written communications relating to any such indication, request or proposal.
Acquiror hereby represents that neither it nor any of its Affiliates is a party
to or bound by any agreement with respect to a Potential Sale other than this
Agreement. The provisions of this Section 6.25 shall survive any termination of
this Agreement other than (A) a termination by the Acquiror pursuant to Section
8.1(iii), (B) a termination by mutual agreement of Acquiror and the
Shareholders' Representative, (C) a termination by any party pursuant to Section
8.1(ii), (D) a termination by the holders of a majority of the Non-Management
Stock pursuant to Section 8.1(v) or (E) a termination by the Shareholders'
Representative pursuant to Section 8.1(vi).
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ss. 6.26 SCHEDULES. From the date hereof through the Second Closing Date,
each party (other than the Shareholders) shall supplement or amend the Schedules
and Exhibits being delivered by it concurrently with the execution of this
Agreement and annexed hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules; PROVIDED, HOWEVER,
that for the purpose of the rights and obligations of the parties, any such
supplemental or amended disclosure shall not be deemed to have been disclosed as
of the date of this Agreement unless so agreed to in writing by the parties or
to preclude the other parties from seeking a remedy in damages for losses
incurred as a result of such supplemented or amended disclosure. Each party's
obligation to amend or supplement the Schedules and Exhibits hereto shall
terminate on the Second Closing Date.
ss. 6.27 RESTRICTION ON TRANSFER. (a) Each of the Shareholders acknowledges
and agrees that the Acquiror Shares to be issued to each of the Shareholders
pursuant to Section 2.2 will constitute "RESTRICTED SECURITIES" within the
meaning of Rule 144 promulgated by the SEC under the Securities Act ("RULE 144")
and have not been approved or disapproved by the SEC or any state securities
commission of any State of the United States.
(b) Each of the Shareholders acknowledges and agrees that the following
restrictive legend will be imprinted on the certificates evidencing the Acquiror
Shares issued to the Shareholders pursuant to Section 2.2 and that each of the
Shareholders will hold such Acquiror Shares subject to the conditions stated
therein:
The shares represented by this Certificate have not been registered under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and such
shares may
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not be offered, sold, pledged or otherwise transferred except (1) pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements under the Securities Act to the extent supported by an opinion
of counsel who is reasonably acceptable to the issuer or (2) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any State of the United
States.
(c) Each of the Shareholders acknowledges and agrees that the Acquiror
shall not be required to effect any transfer of any of the Acquiror Shares
issued to the Shareholders pursuant to Section 2.2 to the extent such transfer
would be in violation of the Securities Act, and the Acquiror may require an
opinion of counsel reasonably satisfactory to the Acquiror to the effect that
any proposed transfer is exempt from, or is not subject to, the registration
requirements of the Securities Act.
(d) The Acquiror shall cause any restrictive legend imprinted on the
certificates evidencing the Acquiror Shares issued to the Shareholders pursuant
to Section 2.2 to be removed at such time as all conditions to transfer of
restricted securities under Rule 144, as applicable to such shares and the
registered holder of such shares, are satisfied. The Acquiror may require an
opinion of counsel reasonably satisfactory to the Acquiror to support the
removal of such restrictive legend.
ss. 6.28 PURCHASE OF ACQUIROR SHARES. During the twenty consecutive Trading
Days prior to the First Closing Date, Acquiror shall not, and shall cause its
Affiliates not to, purchase or otherwise acquire any Acquiror Shares.
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VI.29 Expenses. (a) Except as provided in this Section 6.29, the parties
shall pay their own expenses relating to the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of their
respective counsel and financial advisors. The Company shall reflect all
expenses payable by it relating to the transactions contemplated by this
Agreement on the Company's Preliminary Closing Balance Sheet. The Acquiror shall
reflect all expenses payable by it relating to the transactions contemplated by
this Agreement on the Acquiror's Closing Balance Sheet (except for those
expenses to be paid by UBC).
(b) Acquiror shall be responsible for all costs and expenses relating to
the Spin-off, including, without limitation, (i) the fees and expenses of its
counsel and accountants and (ii) the fees and expenses of Smith Barney Inc. up
to $350,000 ("FOR PURPOSES OF THIS SECTION, SPIN-OFF Expenses"). Acquiror shall
cause all Spin-off Expenses to be paid on or prior to the First Closing Date.
The fees and expenses of Smith Barney Inc. in excess of $350,000 but not to
exceed $750,000 shall also be the responsibility of Acquiror and shall be paid
by Acquiror on the Second Closing Date out of the proceeds of the New Credit
Facility.
(c) The fees and expenses of First Stanford Corp. and Den Norske Bank
arising under that certain letter agreement dated February 28, 1996 shall be the
responsibility of the Company and shall be paid or provision for payment shall
be made by the Company, on or before the Second Closing Date.
ss. 6.30 PRIVATE LETTER RULING. Prior to or promptly following the
execution of this Agreement, Acquiror shall cause to be filed with the IRS a
private letter ruling request in the form approved by the Company prior to the
date hereof and shall take all commercially reasonable action to obtain such
rulings from the IRS. After submission of such request to the IRS,
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the Acquiror shall, and shall cause its counsel to report to the Company all
developments (including information requests from the IRS and supplemental
responses to the IRS) in respect of the ruling request. Without limiting the
foregoing, the Acquiror shall and shall cause its counsel to (i) promptly inform
the Company of any and all contacts (written or oral) made by the IRS with the
Acquiror or its counsel and (ii) consult with the Company regarding any contact
(written or oral) to be made by the Acquiror with the IRS. The Acquiror or its
counsel shall provide the Company with a copy of any written document provided
by the IRS to Acquiror. The Acquiror or its counsel shall provide the Company
with any written document proposed to be submitted to the IRS and shall provide
the Company with a reasonable time to review and comment on such document.
Comments by the Company on such documents shall be reasonably considered for
inclusion in the documents, but the Acquiror shall be under no obligation to
include such comments.
ss. 6.31 REVERSE STOCK SPLIT. Acquiror shall include a proposal in its
Proxy Statement which will seek approval for a reverse split of its outstanding
common stock immediately after the Spin-Off. The Proxy Statement shall include
the recommendation of the board of directors of the Acquiror in favor of
adoption and approval of this proposal.
ss. 6.32 NON-RECOURSE. It is expressly understood and agreed by the parties
hereto that the representations, undertakings and agreements made in this
Agreement on the part of the Company have been made, and were intended to be
made, solely as representations, undertakings and agreements by the Company and
none of the representations, undertakings or agreement made by the Company
hereunder was made, or was intended to be made, as a personal representation,
undertaking or agreement on the part of any Shareholder, and no personal or
individual
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liability is assumed by, nor shall any recourse at any time be asserted or
enforced against, any such Shareholder in connection with the representations,
undertakings and agreements by the Company, all of which recourse (whether in
common law, in equity, by statute or otherwise) is hereby forever waived and
released. In addition, no Shareholder shall have any liability or obligation
under or with respect to this Agreement except as expressly set forth in Article
II, Article IV, and Sections 6.5, 6.6(c) (other than the owners of
Non-Management Stock), 6.9, 6.24, 6.27, 6.29, 7.1(a)(iv), 7.1(b)(iii), 7.2(b)
(as to such Shareholder), 7.2(d), 8.2, 9.1, 9.2(b), 9.3, 9.4, 9.5, 9.6, 9.7,
10.4, 10.5, 10.6, and 10.12 hereto, all of which obligations shall be several
and not joint.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
ss. 7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ACQUISITION.
(a) The respective obligations of each party hereto to effect the First Closing
herein shall be subject to the satisfaction, at or prior to the First Closing
Date, of the following conditions, any and all of which may be waived, in whole
or in part, to the extent permitted by applicable law:
(i) STOCKHOLDER APPROVAL. This Agreement and the Acquisition and the Board
Nominees shall have been approved and adopted by the requisite vote of the
stockholders of the Acquiror in accordance with the Amended and Restated
Certificate of Incorporation of the Acquiror and the DGCL.
(ii) HSR ACT. The waiting period under the HSR Act applicable to the
transactions contemplated hereby shall have expired or been terminated.
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(iii) OTHER APPROVALS. All authorizations, consents, orders and approvals
of, and declarations or filings with, and expirations of waiting periods imposed
by, any Governmental Authority or other Person which if not obtained or filed
would have a Material Adverse Effect on the Acquiror or a Material Adverse
Effect on the Company or a Material Adverse Effect on their respective abilities
to consummate the transactions contemplated hereby, including the Spin-Off,
shall have been obtained or filed, as applicable, and shall be in full force and
effect.
(iv) NO ORDER. No Governmental Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Spin-Off, Acquisition or
any transaction contemplated by this Agreement; it being understood that the
parties hereto hereby agree to use their commercially reasonable best efforts to
cause any such decree, judgment, injunction or other order applicable to such
parties to be vacated or lifted as promptly as possible.
(v) TAX RULING. The Acquiror shall have received rulings from the Internal
Revenue Service (the "IRS RULING LETTER") in response to the request therefor
submitted by the Acquiror, reasonably acceptable to the Acquiror, which rulings
shall be in full force and effect as of the Distribution Date to the effect that
the Distribution as contemplated hereunder will be tax-free for federal income
tax purposes under Sections 355(c)(1) and/or 361(c) and 355(a) of the Code. The
rulings shall be deemed reasonably acceptable for purposes of this condition
notwithstanding that the Domestic Company, the International Company or any of
their
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respective Affiliates (as each capitalized term is defined in the Distribution
Agreement) incurs, as a result of the Spin-Off or any of the Corporate
Restructuring Transactions, (i) Federal Income Taxes pursuant to Section 367 and
Section 1248 (as provided in any Tax regulations or Tax law enacted, proposed or
promulgated as of the date hereof) and (ii) in addition to such Taxes in (i),
Federal Income Taxes that do not exceed $500,000.
(vi) MANAGEMENT AGREEMENTS. The Acquiror and the Company shall have
executed employment agreements in form and substance reasonably satisfactory to
each of the Acquiror and the Company relating to senior management of the
Acquiror listed on Exhibit M and their compensation.
(vii) DISTRIBUTION AGREEMENT AND TAX COOPERATION AGREEMENT. The
Distribution Agreement shall have been duly executed and delivered by all the
parties thereto promptly after Acquiror receives the IRS Ruling Letter and shall
be in full force and effect. The Tax Cooperation Agreement by and among UBC and
the Acquiror in the form of Exhibit N shall have been duly executed and
delivered by all parties thereto as of the date hereof and shall be in full
force and effect.
(viii) ESCROW AGREEMENT. The Escrow Agreement in the form of Exhibit B
shall have been executed and delivered and shall be in full force and effect.
(ix) REMOVAL OF GUARANTEES/CANCELLATION OF DEBT. The removal of guarantees
and cancellation of all intercompany agreements as contemplated by Sections 5.05
and 5.07 of the Distribution Agreement shall have occurred. In addition, within
60 days of the date hereof, the Company and the Acquiror shall have received a
positive indication, reasonably acceptable to them, from representatives of
Citicorp North America Inc., and Citibank, N.A., as necessary,
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regarding the waiver of Acquiror's financial covenants in the guaranty of OMI
Challenger Transport, Inc.'s charter obligations and the negative covenant
regarding change of control, effective as of the Second Closing Date, under the
Credit Agreement, dated as of January 29, 1997 among Argosy Ventures Ltd, the
Banks named therein, Citicorp North America Inc., and OMI Challenger Transport,
Inc. and OMI Corp.
(x) BANK APPROVAL. The Acquiror shall have obtained all consents, waivers
and releases from Den Norske Bank ASA as arranger under a Term Loan dated as of
July 9, 1996, as may be required to permit the Acquiror to consummate the
transactions contemplated herein (including, without limitation, the Spin-Off)
without triggering an Event of Default or acceleration of the loan thereunder.
In addition, the Acquiror shall have received the consents and approvals set
forth on SCHEDULES 5.2(B) AND 5.4.
(xi) ASSUMPTION OF INDENTURE. UBC shall have assumed by supplemental
indenture the repayment obligation with respect to the outstanding 10 1/4%
Senior Notes due November 1, 2003, and, if necessary, the other obligations
contained in the Indenture, as amended.
(xii) Bank Approval. The Company shall have obtained all consent, waivers
and releases from Den Norske Bank ASA, as Lender and Agent under a Term Loan and
Revolving Credit Facility Agreement dated as of July 23, 1996, as may be
required to permit the Company and the Shareholders to consummate the
transactions contemplated herein without triggering an Event of Default or
acceleration of the loan thereunder. In addition, the Company shall have
received the consents and approvals set forth on SCHEDULE 3.3(B) AND 3.12. All
amounts outstanding under the Subordinated Promissory Note dated July 31, 1996
issued to
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Harrowston by the Company and the Subordinated Promissory Note dated July 31,
1996 issued to Wolfson by the Company shall have been repaid.
(b) The respective obligations of each party hereto to the effect the
Acquisition on the Second Closing Date and the other transactions contemplated
herein shall be subject to the satisfaction at or prior to the Second Closing
Date of the following conditions, any and all of which may be waived, in whole
or in part, to the extent permitted by applicable law:
(i) FIRST CLOSING. The First Closing shall have occurred.
(ii) SPIN-OFF. The Spin-Off shall have occurred.
(iii) NO ORDER. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Spin-Off,
Acquisition or any transaction contemplated by this Agreement; it being
understood that the parties hereto hereby agree to use their reasonable
best efforts to cause any such decree, judgment, injunction or other order
(applicable to such parties) to be vacated or lifted as promptly as
possible.
ss. 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE ACQUIROR. The
obligations of the Acquiror to consummate the First Closing are also subject to
the satisfaction, at the First Closing Date, of all of the following conditions,
any one or more of which may be waived, in whole or in part, by the Acquiror:
(a) NO MATERIAL ADVERSE CHANGE. Since the Company Balance Sheet Date, there
shall have been no material adverse change in the Condition of the Company
(other than the
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disposition of the LNGs in a manner permitted under this Agreement) and the
Company shall have delivered to the Acquiror an officer's certificate, dated the
First Closing Date, to such effect. Without limiting the foregoing, (i) if the
results of the tests of those Company Employee Benefit Plans to be tested in
accordance with the provisions of the letter agreement relating to such matters
between the Acquiror and the Company, dated of even date herewith indicate a
material monetary liability on the part of the Company with respect to such
Company Employee Benefit Plans, then such material monetary liability shall be
considered a material adverse change in the Condition of the Company for
purposes hereof; (ii) if legislation is enacted before the First Closing Date
or, it is expected that, such legislation will be enacted shortly thereafter
which has or would have the effect of prohibiting the MARINE CHEMIST from
remeasuring her gross tonnage in the manner contemplated by the analysis of cash
flow underpinning the Smith Barney fairness opinion, and, as a result thereof,
Smith Barney withdraws its fairness opinion or refuses to give a bring down of
its fairness opinion at the First Closing Date, then such legislation will be
considered a material adverse change in the Condition of the Company for
purposes hereof; (iii) If in connection with the Fuji Bank, Limited matter
disclosed on SCHEDULE 3.13, (A) the Company expends or is obligated to expend
amounts in excess of $500,000 prior to the First Closing Date and/or (B) the
Company is obligated under the Accounting Principles to reflect a liability in
excess of $2,000,000, then such liability will be considered a material adverse
change in the Condition of the Company for purposes hereof.
(b) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company and the Shareholders contained in this Agreement,
without giving effect to any
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notification to the Acquiror delivered pursuant to Section 6.5 hereof, shall be
true and correct on the First Closing Date as though made on and as of such
date, except
(i) for changes specifically permitted by this Agreement, and
(ii) that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date,
except that the representation made in Section 3.14(b) shall be made with
respect to the Second Closing Date and with respect to any taxable year or
period beginning before and ending after the Second Closing Date, the
portion of such taxable year or period ending on and including the Second
Closing Date,
except in any case for such failures to be true and correct which would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(c) AGREEMENTS AND COVENANTS OF THE COMPANY. The Company shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or prior to
the First Closing Date.
(d) AGREEMENTS AND COVENANTS OF THE SHAREHOLDERS. The Shareholders shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them at
or prior to the First Closing Date.
(e) OFFICERS' CERTIFICATES. The Acquiror shall have received certificates,
dated the First Closing Date, of
(i) the President and any Vice President of the Company certifying as
to the matters specified in Sections 7.2(a), (b), (c) and (d) hereof and
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(ii) the Secretary of the Company certifying as to the content and
continuing effectiveness as of the applicable Closing Date of the
resolutions of the board of directors of the Company approving this
Agreement and the transactions contemplated hereby, and
(f) GOOD STANDING AND OTHER CERTIFICATES. The Acquiror shall have received
(i) copies of the Articles of Incorporation, including all amendments thereto,
in each case certified by the Secretary of State of the State of Delaware, (ii)
a certificate from the Secretary of State of the State of Delaware to the effect
that the Company is in good standing, (iii) a certificate from the Secretary of
State or other appropriate official in each State in which the Company is
qualified to do business to the effect that the Company is in good standing in
such State and (iv) a copy of the By-Laws of the Company certified by the
Secretary of the Company as being true and correct and in effect on the First
Closing Date.
(g) Opinions of Counsel. (i) Cadwalader, Wickersham & Taft, special counsel
to the Company and to the Shareholders listed in the first paragraph of the
opinion, shall have furnished the Acquiror with an opinion, dated of even date
herewith, and an opinion, dated the First Closing Date, to the effect set forth
in EXHIBITS O-1 AND O-2 hereto.
(ii) Cadwalader, Wickersham & Taft shall also have furnished the Acquiror
with an opinion, dated the date of the Proxy Statement to the effect set forth
in EXHIBIT P hereto.
(iii) Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the
Company and to the Shareholders, shall have furnished the Acquiror with an
opinion with respect to the Class B Common Stock of the Company (if such stock
has been issued), dated the First Closing Date,
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similar in form and substance to Exhibit Q hereto, to the effect that in the
opinion of counsel the Class B Common Stock of the Company will be treated as
common stock of the Company.
(h) COMPANY'S CLOSING BALANCE SHEET. The Short-fall Amount shall not be
more than $1,000,000 after giving effect to any increases in Working Capital as
contemplated in Section 2.2(c).
(i) FAIRNESS OPINION. The Acquiror's board of directors shall have received
a fairness opinion from Smith Barney Inc. to the effect that the consideration
to be paid by the Acquiror in connection with the transactions contemplated
hereby is fair from a financial point of view to the Acquiror and its
stockholders.
(j) VESSELS' STATUS. Each of the Company's vessels set forth below its name
in Exhibit R shall be in class.
ss. 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The
obligations of the Shareholders to consummate the First Closing are also subject
to the satisfaction, at the First Closing Date of all of the following
conditions, any one or more of which may be waived, in whole or in part, by the
Shareholders:
(a) NO MATERIAL ADVERSE CHANGE. Since the date of the Domestic Businesses'
Unaudited Consolidated Financial Statements, there shall have been no material
adverse change in the Condition of the Domestic Businesses and the Acquiror
shall have delivered to the Company an officer's certificate, dated the First
Closing Date, to such effect; PROVIDED, HOWEVER, that account balance
fluctuations between the Domestic Businesses Unaudited Consolidated Financial
Statements and the Domestic Businesses Audited Consolidated Financial Statements
caused by the differences in allocating general and administrative expenses,
interest expense on all debt and
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deferred taxes and the change from accruing dry-dock expenses to pre-paying them
shall not be deemed a material adverse change in the Condition of the Domestic
Businesses nor a breach of the Acquiror's representations; PROVIDED FURTHER,
that the costs and lost revenue associated with routine maintenance and repairs
and dry-docking to all vessels prior to the First Closing Date shall similarly
not be deemed to be a material adverse change in the Condition of the Domestic
Businesses nor a breach of the Acquiror's representations.
(b) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Acquiror contained in this Agreement, without giving effect to
any notification made by the Acquiror to the Company or the Shareholders
pursuant to Section 6.5 hereof, shall be true and correct on the First Closing
Date, as though made on and as of such date, except
(i) for changes specifically permitted by this Agreement, and
(ii) that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date
except that the representation made in Section 5.14(b) shall be made with
respect to the Second Closing Date, and with respect to any taxable year or
period beginning before and ending after the Second Closing Date, the
portion of such taxable year or period ending on and including the Second
Closing Date,
except in any case for such failures to be true and correct which would not,
individually or in the aggregate, have a Material Adverse Effect on the Domestic
Businesses.
(c) AGREEMENTS AND COVENANTS. The Acquiror and the Shareholders shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the First Closing Date.
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(d) OFFICERS' CERTIFICATES. The Company and Shareholders' Representative
shall have received certificates, dated the First Closing Date, of
(i) the President and any Vice President of the Acquiror certifying as
to the matters specified in Sections 7.3(a), (b) and (c) hereof and
(ii) the Secretaries or Assistant Secretaries of the Acquiror
certifying as to (A) the content and continuing effectiveness as of the
applicable Closing Date of the resolution of the board of directors of the
Acquiror approving this Agreement and the transactions contemplated hereby,
and (B) the fact that the stock issuance has been duly approved by the
requisite vote of the stockholders of the Acquiror in accordance with the
rules and regulations of the NYSE, any other applicable Law and that such
approval is in full force and effect.
(e) GOOD STANDING AND OTHER CERTIFICATES. The Company and Shareholders'
Representative shall have received (i) copies of the Amended and Restated
Articles of Incorporation, including all amendments thereto, in each case
certified by the Secretary of State of the State of Delaware, (ii) a certificate
from the Secretary of State of the State of Delaware to the effect that the
Acquiror is in good standing, (iii) a certificate from the Secretary of State or
other appropriate official in each State in which the Acquiror is qualified to
do business to the effect that the Acquiror is in good standing in such State
and (iv) a copy of the By-Laws of the Acquiror certified by the Secretary of the
Acquiror as being true and correct and in effect on the First Closing Date.
(f) OPINION OF COUNSEL. The Acquiror shall have furnished to the
Shareholders and the Company (i) an opinion, dated of even date herewith and an
opinion, dated the First Closing
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Date, of White & Case, special counsel to the Acquiror to the effect set forth
in Exhibits S-1A and S-1B, respectively, attached hereto and (ii) an opinion,
dated of even date herewith and an opinion, dated the First Closing Date, of
Fredric S. London, Esq., General Counsel of the Acquiror to the effect set forth
in Exhibits S-2A and S-2B, respectively, attached hereto.
(g) RESIGNATIONS. All members of the Board of Directors of the Acquiror
listed on Exhibit T and all officers of the Acquiror listed on Exhibit T shall
have tendered their resignations from such positions and the employment
agreements listed on Exhibit U shall have been terminated effective as of the
Second Closing Date. Provided that the Acquisition is consummated, on the Second
Closing Date the members of the Board of Directors of the Acquiror shall resign
and be replaced by those individuals listed on Exhibit V who shall be nominated
in the Proxy Statement by the current Board of Directors for election by the
stockholders at the Stockholders' Special Meeting.
(h) VESSELS' STATUS. Each of the Acquiror's vessels set forth below its
name in Exhibit M shall be in class and, except the ROVER, shall be eligible to
trade in U.S. waters.
(i) REDEMPTION OF STOCK. The Shareholders shall have received (i) $2.3
million in redemption for certain shares of Stock and (ii) if the Company's
Preliminary Closing Balance Sheet indicates that they are entitled to additional
cash in redemption of shares of Stock as set forth in Section 2.2(c)(iii), such
additional cash in redemption of shares of Stock.
ARTICLE VIII
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TERMINATION
-----------
ss. 8.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the First Closing Date, whether before or after adoption and
approval of this Agreement:
(i) by the mutual written agreement of the Shareholders'
Representative and the Acquiror authorized by their respective boards of
directors;
(ii) by the Company or by the Acquiror if
(A) the Acquisition shall not have been consummated prior to July
31, 1998 unless such eventuality shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe by
such party on or prior to the First Closing Date,
(B) any of the Shareholders do not consent to make a requested
representation pursuant to Section 6.6(c),
(C) the Shareholders' Representative does not consent to a change
to the Distribution Agreement in those instances where consent is
required by the terms of Section 7.1(a) hereof and the Distribution
Agreement,
(D) the Shareholders' Representative does not consent to a change
to the Corporate Restructuring Transactions in those instances where
consent is required by the terms of the Distribution Agreement,
(E) the Shareholders' Representative does not consent to any
changes to Ancillary Agreements in those instances where consent is
required by the terms of the Distribution Agreement;
(iii) by the Acquiror if
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(A) there has been a material breach on the part of the Company
or the Shareholders in the representations, warranties or covenants of
the Company or the Shareholders set forth herein, or any failure on
the part of the Company or the Shareholders to comply with their
respective obligations hereunder or any other events or circumstances
shall have occurred such that, in any such case, any of the conditions
to the consummation of the Acquisition set forth in Sections 7.1 or
7.2 hereof could not be satisfied on or prior to the termination date
contemplated by paragraph (ii) of this Section 8.1,
(B) there has occurred any event, change or effect which has a
Material Adverse Effect on the Company; (iv) by the Company if
(A) there has been a material breach on the part of the Acquiror
in the representations, warranties or covenants of the Acquiror set
forth herein, or any failure on the part of the Acquiror to comply
with its obligations hereunder or any other events or circumstances
shall have occurred such that, in any such case, any of the conditions
to the consummation of the Acquisition set forth in Sections 7.1 or
7.3 hereof could not be satisfied on or prior to the termination date
contemplated by paragraph (ii) of this Section 8.1,
(B) the board of directors of the Acquiror withdraws, amends, or
modifies in a manner materially adverse to the Company its favorable
recommendation of this Agreement, the Acquisition or the Board
Nominees,
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(C) there has occurred any event, change or effect which has a
Material Adverse Effect on the Domestic Businesses, or
(D) if the Distribution Agreement is terminated pursuant to
Section 8.10 thereof prior to the First Closing Date.
(v) by the holders of a majority of the Non-Management Stock if the Second
Closing Date has not occurred by December 31, 1998.
(vi) by the Shareholders' Representative if the Distribution Agreement is
terminated pursuant to Section 8.10 thereof prior to the First Closing Date.
ss. 8.2 EFFECT OF TERMINATION. If this Agreement is terminated by the
Company or by the Acquiror as permitted under Section 8.1 hereof, such
termination shall be without liability to the terminating party, or any
stockholder, director, officer, employee, agent, consultant or representative of
such party, but such termination shall not relieve any other party of any
damages or other amounts for which it would otherwise be liable for intentional
breach of any provision of this agreement.
ss. 8.3 WAIVER. Any time prior to the First Closing Date any party hereto,
by action taken or authorized by its board of directors, may, to the extent
legally allowed:
(i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of
the other parties contained herein or in any document delivered pursuant
hereto, and
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(iii) waive compliance by any of the other parties hereto with any of
the agreements or conditions contained herein. Any waiver of rights by any
party hereto shall be valid only if set forth in a written instrument
signed on behalf of such party.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
--------------------------------------------
ss. 9.1 SURVIVAL OF REPRESENTATIONS. The respective representations and
warranties of the Company, the Shareholders and the Acquiror contained in this
Agreement shall not survive past the Second Closing Date except for the
representations and warranties of the Shareholders in Article IV which shall
survive for a period of eighteen months following the Second Closing, Date,
after which time no claim for breach or indemnification may be brought by the
other parties.
ss.9.2 INDEMNIFICATION. Subject to Section 9.1: (a) The Company hereby
agrees to indemnify and hold the Acquiror and its officers, directors,
Affiliates and agents, and any successors thereto, harmless from and against any
and all Indemnifiable Losses incurred or suffered as a result of or arising out
of (i) the breach of any covenant or agreement made or to be performed by the
Company pursuant to this Agreement, (ii) the failure of any representation or
warranty made by the Company in this Agreement to be true and correct or (iii)
an Approved Action (that is not a Permitted Action) taken by the Company or a
Subsidiary of the Company that causes (A) the Spin-off to fail to qualify as a
transaction that is tax-free pursuant to Section 355 and/or Section 368(a) to
the extent described in the Ruling Request or (B) any of the Corporate
Restructuring Transactions which is intended to qualify as a tax-free
transaction under Section 332, 351, 355 or 368 to fail to so qualify, or (iv)
the failure of any Company Employee
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Benefit Plan (other than any Company
Multiemployer Plan) to be administered, maintained or operated in accordance
with its terms and all applicable laws.
(b) Each Shareholder severally hereby agrees to indemnify and hold the
Acquiror and its officers, directors, Affiliates (including without limitation,
after the Second Closing Date, the Company) and agents, and any successors
thereto, harmless from and against any and all Indemnifiable Losses incurred or
suffered as a result of or arising out of (i) the failure of any representation
or warranty made by such Shareholder in Article IV of this Agreement to be true
and correct or (ii) the breach by such Shareholder of any covenant or agreement
to be made or performed by such Shareholder pursuant to Article II and Sections
6.5, 6.6(c) (other than the owners of Non-Management Stock), 6.9, 6.24, 6.27,
6.29, 7.2(b) (as to such Shareholder), 7.2(d), 8.2, 9.1, 9.2(b), 9.3, 9.4, 9.5,
9.6, 9.7, 10.4, 10.5, 10.6, and 10.12 of this Agreement.
(c) The Acquiror hereby agrees to indemnify and hold the Company, the
Shareholders and their respective affiliates, officers, directors, agents,
successors and assigns harmless from and against any and all Indemnifiable
Losses incurred or suffered as a result of or arising out of (i) the breach of
any covenant or agreement made or to be performed by the Acquiror pursuant to
this Agreement or (ii) the failure of any representation or warranty made by the
Acquiror in this Agreement to be true and correct.
(d) Absent fraud, the foregoing indemnification provision shall be the
exclusive remedy for any breach of the covenants, obligations, representations
or warranties set forth in this Agreement; PROVIDED, HOWEVER, that the
provisions of this Section 9.2(d) shall not prevent any of the Shareholders, the
Company or the Acquiror from seeking the remedies of specific
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performance or injunctive relief in connection with a breach of a covenant or
agreement of any party contained herein.
ss.9.3 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that
any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other
Person (an "INDEMNITEE") pursuant to Section 9.2 above, shall be reduced
(retroactively or prospectively) by any Insurance Proceeds or other amounts
actually recovered from third parties by or on behalf of such Indemnitee in
respect of the related Indemnifiable Losses. The existence of a claim by an
Indemnitee for insurance or against a third party in respect of any
Indemnifiable Loss shall not, however, delay any payment pursuant to the
indemnification provisions contained herein and otherwise determined to be due
and owing by an Indemnifying Party. Rather the Indemnifying Party shall make
payment in full of such amount so determined to be due and owing by it against
an assignment by the Indemnitee to the Indemnifying Party of the entire claim of
the Indemnitee for such insurance or against such third party. Notwithstanding
any other provisions of this Agreement, it is the intention of the parties
hereto that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee shall have received the
payment required by this Agreement from an Indemnifying Party in respect of any
Indemnifiable Losses and shall subsequently actually receive Insurance Proceeds
or other amounts in respect of such Indemnifiable Losses, then such Indemnitee
shall hold such Insurance Proceeds in trust for the benefit of such Indemnifying
Party and shall pay to such Indemnifying Party a sum equal to the amount of such
Insurance Proceeds
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or other amounts actually received, up to the aggregate amount of any payments
received from such Indemnifying Party pursuant to this Agreement in respect of
such Indemnifiable Losses.
(b) FOREIGN CURRENCY ADJUSTMENTS. All indemnification payments hereunder
shall be in U.S. Dollars. In the event that any Indemnifiable Loss shall be
denominated in a currency other than U.S. Dollars, the amount of such payment
shall be translated into U.S. Dollars using the foreign exchange rate for such
currency determined in accordance with the following rules:
(i) with respect to any Indemnifiable Losses arising from the payment
by a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the foreign
exchange rate for such currency shall be determined as of the date on which
such financial institution shall have been reimbursed;
(ii) with respect to any Indemnifiable Losses covered by insurance,
the foreign exchange rate for such currency shall be the foreign exchange
rate employed by the insurance company providing such insurance in settling
such Indemnifiable Losses with the Indemnifying Party; and
(iii) with respect to any Indemnifiable Losses not covered by either
clause (i) or (ii) above, the foreign exchange rate for such currency shall
be determined as of the date that payment with respect to such
Indemnifiable Losses shall be made to the Indemnitee.
ss. 9.4 INDEMNIFICATION PROCEDURE. (a) Any Indemnitee seeking
indemnification from any Indemnifying Party with respect to any claim, demand,
action, proceeding or other matter pursuant to this Agreement (the "CLAIM")
shall promptly notify the Indemnifying Party of the existence of the Claim,
setting forth in reasonable detail the facts and circumstances pertaining
thereto and the basis for the Indemnitee's right to indemnification. Such
Indemnifying Party shall
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have a period of 15 Business Days after the receipt of such notice within which
to respond thereto. If such Indemnifying Party does not respond within such 15
business-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such 15 business-day period or rejects such claim in whole or in
part, such Indemnitee shall be free to pursue such remedies as may be available
to such party under applicable law or under this Agreement.
(b) NOTICE OF THIRD PARTY CLAIMS. If any third party shall notify any
Indemnitee with respect to any matter which may give rise to a Claim for
indemnification against an Indemnifying Party under this Agreement (such Claim,
a "THIRD PARTY CLAIM"), such Indemnitee shall notify the Indemnifying Party in
writing, and in reasonable detail, of the Third Party Claim promptly (and in any
event within 15 Business Days) after receipt by such Indemnitee of written
notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give such
notification shall not affect the Indemnitee's right to indemnification
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure (except that the Indemnifying Party shall
not be liable for any expenses incurred during the period in which the
Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver
to the Indemnifying Party, promptly (and in any event within 15 Business Days)
after the Indemnitee's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third Party
Claim.
(c) LEGAL DEFENSE OF THIRD PARTY CLAIMS. If a Third Party Claim is made
against an Indemnitee, the Indemnifying Party shall be entitled to participate
in the defense thereof and, if it so chooses, to assume the defense thereof with
counsel selected by the Indemnifying Party,
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which counsel shall be reasonably satisfactory to the Indemnitee. Should the
Indemnifying Party so elect to assume the defense of a Third Party Claim, the
Indemnifying Party shall not be liable to the Indemnitee for legal or other
expenses subsequently incurred by the Indemnitee in connection with the defense
thereof. If the Indemnifying Party assumes such defense, the Indemnitee shall
have the right to participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the Indemnifying Party,
it being understood that the Indemnifying Party shall control such defense. The
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense of the Third Party Claim (other than
during the period prior to the time the Indemnitee shall have given notice of
the Third Party Claim as provided above). If the Indemnifying Party so elects to
assume the defense of any Third Party Claim, all of the Indemnitees shall
cooperate with the Indemnifying Party in the defense or prosecution thereof.
Notwithstanding the foregoing:
(i) the Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if the Third Party Claim seeks as its
primary claim for relief an order, injunction or other equitable relief or
relief for other than money damages against the Indemnitee which the
Indemnitee reasonably determines, after conferring with its counsel, cannot
be separated from any related claim for money damages; PROVIDED, HOWEVER,
that if such equitable relief or other relief portion of the Third Party
Claim can be so separated from
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<PAGE>
that for money damages, the Indemnifying Party shall be entitled to assume
the defense of the portion relating to money damages;
(ii) an Indemnifying Party shall not be entitled to assume the defense
of any Third Party Claim (and shall be liable to the Indemnitee for the
reasonable fees and expenses of counsel incurred by the Indemnitee in
defending such Third Party Claim) if, in the Indemnitee's reasonable
judgment, a conflict of interest between such Indemnitee and such
Indemnifying Party exists in respect of such Third Party Claim or such
claim involves the possibility of criminal sanction or criminal liability
to the Indemnitee; and
(iii) if at any time after assuming the defense of a Third Party Claim
an Indemnifying Party shall fail to prosecute or withdraw from the defense
of such Third Party Claim, the Indemnitee shall be entitled to resume the
defense thereof and the Indemnifying Party shall be liable to the
Indemnitee for the reasonable fees and expenses of counsel incurred by the
Indemnitee in such defense.
(d) Settlement of Third Party Claims. Except as otherwise provided below in
this Section 9.4(d), if the Indemnifying Party has assumed the defense of any
Third Party Claim, then
(i) in no event will the Indemnitee admit any liability with respect
to, or settle, compromise or discharge, any Third Party Claim without the
Indemnifying Party's prior written consent; PROVIDED, HOWEVER, that the
Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification
obligation hereunder with respect to such Third Party Claim and such
settlement,
-153-
<PAGE>
compromise or discharge would not otherwise adversely affect the
Indemnifying Party, and
(ii) the Indemnitee will agree to any settlement, compromise or
discharge of a Third Party Claim that the Indemnifying Party may recommend
and that by its terms obligates the Indemnifying Party to pay the full
amount of the liability in connection with such Third Party Claim and
releases the Indemnitee completely in connection with such Third Party
Claim and that would not otherwise adversely affect the Indemnitee.
PROVIDED, HOWEVER, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification obligation with respect to such Third
Party Claim shall not exceed the amount that would be required to be paid
by or on behalf of the Indemnifying Party in connection with such
settlement, compromise or discharge.
If the Indemnifying Party has not assumed the defense of a Third Party
Claim then in no event shall the Indemnitee settle, compromise or discharge such
Third Party Claim without providing prior written notice to the Indemnifying
Party, which shall have the option within 15 Business Days following receipt of
such notice to:
(A) approve and agree to pay the settlement,
(B) approve the amount of the settlement, reserving the right to
contest the Indemnitee's right to indemnity pursuant to this
Agreement,
(C) disapprove the settlement and assume in writing all past and
future responsibility for such Third Party Claim (including all of
Indemnitee's prior expenditures in connection therewith), or
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<PAGE>
(D) disapprove the settlement and continue to refrain from
participation in the defense of such Third Party Claim. In the event
the Indemnifying Party does not respond to such written notice from
the Indemnitee within such 15 business-day period, the Indemnifying
Party shall be deemed to have elected option (D).
(e) The Indemnitee shall be entitled to reimbursement of reasonable
expenses included in Damages with respect to any Claim (including, without
limitation, the cost of defense, preparation and investigation relating to
such Claim) as such expenses are incurred by the Indemnitee.
ss. 9.5 INDEMNIFICATION PAYMENTS. Indemnification required by this Article
IX shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or loss, liability,
claim, damage or expense is incurred. IX.6 Other Adjustments.justments
(a) Adjustments for Taxes. The amount of any Indemnifiable Loss shall
be (i) increased to take account of any net Tax cost actually incurred by
the Indemnitee arising from any payments received from the Indemnifying
Party (grossed up for such increase); and (ii) reduced to take account of
any net Tax benefit actually realized by Indemnitee arising from the
incurrence or payment of any such Indemnifiable Loss. In computing the
amount of such Tax cost or tax benefit, the Indemnitee shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt of any payment with respect
to an Indemnifiable Loss or the incurrence or payment of any Indemnifiable
Loss.
-155-
<PAGE>
(b) Reductions for Subsequent Recoveries or Other Events. In addition
to any adjustments required pursuant to Section 9.3 or Section 9.5(a)
above, if the amount of any Indemnifiable Losses shall, at any time
subsequent to any indemnification payment made by the Indemnifying Party
pursuant to this Article IX, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party, up to the aggregate amount of any payments received
from such Indemnifying Party pursuant to this Agreement in respect of such
Indemnifiable Losses.
ss. 9.7 OBLIGATIONS ABSOLUTE. The foregoing contractual obligations of
indemnification set forth in this Article IX shall:
(i) also apply to any and all Third Party Claims that allege that any
Indemnitee is independently, directly, vicariously or jointly and severally
liable to such third party;
(ii) to the extent permitted by applicable law, apply even if the
Indemnitee is negligent or otherwise culpable or at fault, whether or not
such liability arises under any doctrine of strict liability; and
(iii) subject to Section 9.1, be in addition to any liability or
obligation that an Indemnifying Party may have other than pursuant to this
Agreement.
ss. 9.8 REMEDIES CUMULATIVE. Subject to Section 9.1, the remedies provided
in this Article IX shall be cumulative and shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any and all other remedies
against any Indemnifying Party.
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<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
ss. 10.1 ROVER. By December 1, 1997, the Company shall send written notice
to the Acquiror electing whether to have the Acquiror put the ROVER through
dry-dock or, in lieu thereof, having the Acquiror increase by $800,000 the cash
on its Pro Forma Closing Balance Sheet. If the Company sends a written notice
electing the latter, this Agreement shall automatically be amended to reflect
such increase in Article II.
ss. 10.2 GOVERNING LAW. THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT, AND ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY
WITHIN SUCH STATE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
ss. 10.3 CAPTIONS. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
ss. 10.4 PUBLICITY. Except as otherwise required by law or stock exchange
regulation, none of the parties hereto shall issue, prior to the Second Closing
Date, any press release or make any other public statement, in each case
relating to, connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the Company, on the
one hand, and the Acquiror, on the other hand, to the contents and the manner of
presentation and publication thereof which approval shall not be unreasonably
withheld.
-157-
<PAGE>
ss. 10.5 NOTICES. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail, postage prepaid, addressed as
follows: if to the Acquiror, to OMI Corp., 90 Park Avenue, New York, New York
10016 (Facsimile Number (212) 297-2288), Attention: Fredric S. London, Esq.,
with a copy to its counsel, White & Case, 1155 Avenue of the Americas, New York,
New York 10036 (Facsimile Number (212) 354-8113), Attention: Robert L. Clare,
III, Esq.; if to the Company, to Marine Transport Lines, Inc., 1200 Harbor
Boulevard, Weehawken, New Jersey 07087 (Facsimile Number (201) 330-9645),
Attention: Peter Popov, Esq. , with a copy to its counsel, Cadwalader,
Wickersham & Taft, 100 Maiden Lane, New York, New York 10038 (Facsimile Number
(212) 504-6666) Attention: Louis J. Bevilacqua, Esq.; and if to the
Shareholders, their address as set forth on Exhibit A attached hereto with a
copy to Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153
(Facsimile Number (212) 310-8007) Attention: William M. Gutowitz, Esq. or such
other address or number as shall be furnished in writing by any such party, and
such notice or communication shall be deemed to have been given as of the date
so delivered, sent by facsimile or mailed.
ss. 10.6 PARTIES IN INTEREST. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law; PROVIDED, HOWEVER, that UBC shall automatically assign its right and
delegate its obligations under this Agreement to the Person that becomes the
party (other than Acquiror) to the Distribution Agreement effective
simultaneously with the consummation of the Spin-Off and assumes UBC's rights
and obligations under this Agreement. This Agreement shall be binding upon and
shall inure to the benefit of
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<PAGE>
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
ss. 10.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Agreement.
ss. 10.8 ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein and therein which form a part hereof and thereof, contain the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
ss. 10.9 AMENDMENTS. This Agreement may not be changed orally, but only by
an agreement in writing signed by the Acquiror, the Company and each
Shareholder.
ss. 10.10 SEVERABILITY. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
ss. 10.11 THIRD PARTY BENEFICIARIES. Except as expressly provided herein,
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto.
ss. 10.12 JURISDICTION. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of New York, or
in the United States District Court
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<PAGE>
for the Southern District of New York, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts the jurisdiction of
such courts, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. The foregoing consent to jurisdiction shall
not be deemed to confer rights on any Person other than the respective parties
to this Agreement. To the extent any party is not otherwise subject to service
of process in the State of New York, such party appoints the Corporation Trust
Company, as such party's agent in the State of New York for acceptance of legal
process and agrees that service made on any such agent shall have the same legal
force and effect as if served upon such party personally within the State of New
York; PROVIDED, HOWEVER, that Harrowston Corporation appoints Weil, Gotshal &
Manges, 767 Fifth Avenue, New York, New York 100153, Attention: William M.
Gutowitz, Esq. and the other Shareholders appoint Cadwalader, Wickersham & Taft,
100 Maiden Lane, New York, New York 10038, Attention: Louis J. Bevilacqua, Esq.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company, the Acquiror and UBC have caused their
corporate names to be hereunto subscribed by their respective officers thereunto
duly authorized and each of the Shareholders has signed this Agreement, all as
of the day and year first above written.
MARINE TRANSPORT LINES, INC.
By: /s/ Richard T. du Moulin
----------------------------
Name: Richard T. du Moulin
Title: Chairman
OMI CORP.
By: /s/ Fredric S. London
-------------------------
Name: Fredric S. London
Title: Senior Vice President
UNIVERSAL BULK CARRIERS, INC.
By: /s/ Vincent J. de Sostoa
----------------------------
Name: Vincent J. de Sostoa
Title: Senior Vice President
<PAGE>
SHAREHOLDERS
================================================================================
/s/ Richard T. du Moulin /s/ Paul B. Gridley
- -------------------------- ---------------------
Richard T. du Moulin Paul B. Gridley
================================================================================
/s/ Mark L. Filanowski /s/ Irwin S. Meyer
- -------------------------- ---------------------
Mark L. Filanowski Irwin S. Meyer,
as registered owner
================================================================================
/s/ Jerome Shelby Wolfson Descendants' 1983 Trust
- ------------------
Jerome Shelby
/s/ Biniamine Amoyelle
-----------------------
By: Biniamine Amoyelle
Title: Trustee
================================================================================
Steamboat Road Holdings, Inc. Larchmont Partners, L.P.
/s/ Richard T. du Moulin /s/ Richard T. du Moulin
- -------------------------- -------------------------
By: Richard T. du Moulin By: Richard T. du Moulin
Title: President Title: G.P.
================================================================================
Harrowston Corporation /s/ Peter N. Popov
------------------------
Peter N. Popov
/s/ David Sutin
- ----------------
By: David Sutin
Title: Executive Vice President
================================================================================
/s/ Jeffrey Miller /s/ Thomas E. Murphy
- -------------------------- ------------------------
Jeffrey Miller Thomas E. Murphy
================================================================================
/s/ Douglas Newhouse /s/ Stanley Rich
- -------------------------- ------------------------
Douglas Newhouse Stanley Rich
<PAGE>
================================================================================
/s/ Nicholas Orfanidis /s/ Thomas McIntyre
- -------------------------- ------------------------
Nicholas Orfanidis Thomas McIntyre
================================================================================
/s/ Ken Jones Richard T. du Moulin
- ---------------
Ken Jones and Mark Filanowski
as trustees under the
Trust Agreement dated
September 12, 1997
between the Company and
the Trustees
By:/s/ Richard T. du Moulin
---------------------------
Richard T. du Moulin
By:/s/ Mark Filanowski
-----------------------
Mark Filanowski
================================================================================
<PAGE>
OMI CORP.
AMENDED AND RESTATED
ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
--------------------------------------------
PURPOSE
- -------
To improve OMI Corp.'s financial results by creating compensation
incentives based on the performance of its executive personnel.
ELIGIBILITY
- -----------
Prior to the beginning of each calendar year (a "Performance Year"), the
Chief Executive Officer will recommend to the Compensation Committee of the
Board those positions eligible to participate in the plan for that year (the
"Participants"). Participation in the plan is restricted to positions that
perform managerial or other functions that have significant influence on
corporate performance.
PLAN FEATURES
- -------------
Unit Determination - Each Participant shall have allocated a proposed
number of units for each Performance Year in which he or she is a Participant.
The person to whom the Participant reports shall evaluate the Participant's
performance prior to the end of the Performance Year and recommend to the
President or Senior Vice President to whom the Participant's department reports
the percentage of the allocated units to which the Participant shall be
entitled, which percentage shall range from 0 to 125% with the norm expected to
be 75 to 100% and the President or Senior Vice President shall determine the
appropriate percentage. The Chief Executive Officer shall evaluate the
performance of those reporting directly to him, making a similar recommendation
to the Compensation Committee, which shall (1) evaluate the performance of the
<PAGE>
Chairman and (2) determine the appropriate percentages for the Chairman,
President and Senior Vice Presidents (such determination for each Participant
multiplied by the appropriate target incentive award units being the "Multiplier
Units" for the Participant for the Performance Year).
COMPANY PERFORMANCE MEASURES - The performance measures selected may be
different in a given year and may vary from one year to another, at the
discretion of the Compensation Committee. The chosen measures will reflect
important strategic and/or tactical objectives crucial to the Company's success.
The Compensation Committee of the Board has selected the following goals
for 1995 and until otherwise determined:
(a) Stock price: The stock price will be targeted at $7.50 for 1995, $8.50
for 1996, $9.50 for 1997 and $10.50 in 1998. The measurement price
shall be the average of the twenty highest closing prices during the
calendar year. The differential between the applicable targeted stock
price and the average weighted closing price during the measurement
period shall be calculated (the "Price Differential").
(b) Free cash flow: Cash flow after debt service which is Net Income
Before Taxes + Depreciation - Scheduled Principal Amortization +
Drydock Accrual. (The drydock accrual shall be computed as accrued
drydock expense - actual cash expense.) Free cash flow shall be
determined based on the Company's audited financial statements and
shall be divided by the number of common stock shares of the Company
outstanding on December 31 of the Performance Year (the "Cash Flow per
share").
<PAGE>
Calculation - The award (the "Incentive Bonus") for a Participant shall be
the Participant's Multiplier Units times the sum of (a) the Price Differential
and (b) Cash flow per share.
PAYMENT AWARDS
- --------------
The Incentive Bonus shall be paid in full as soon as possible after the end
of the Performance Year, usually on or before March 1.
SPECIAL CONSIDERATIONS
- ----------------------
If a Participant's employment is terminated due to death, long-term
disability, or retirement prior to the end of the Performance Year, the
Participant or the Participant's beneficiary shall be entitled to receive a PRO
RATA portion of the award that would have been received had the Participant been
active for the full year.
If a Participant's employment is terminated for reasons other than those
described above, including resignation or discharge, prior to the end of the
Performance Year any rights to an award will normally be forfeited, except that
the Chief Executive Officer may recommend an award amount for approval by the
Compensation Committee, subject to ratification by the Board.
Individuals who become Participants during a performance year receive
incentive award opportunities prorated accordingly. Participants who are
promoted to a position at a higher level of proposed units are eligible for
prorated award for the amount of time spent in each position and based upon the
performance level achieved in each position.
<PAGE>
LIMITATIONS
- -----------
Participation in the Plan neither implies nor guarantees continuance of
employment. No part of the Plan shall be construed as a compensation contract.
CHANGE OF CONTROL
- -----------------
In the event that a Change in Control as defined in Section 3 of the OMI
Corp. Separation Allowance Program shall occur, the Participants shall be
entitled to receive bonuses annually, using the same criteria as hereinabove set
forth except:
(1) neither the Compensation committee nor any other person nor persons
shall have the right to terminate nor the discretion to change the
Plan without the written consent of each Participant affected.
(2) The multiplier Units for each Participant shall be 100% of the
Participant's target incentive award units
(3) The Price Differential shall be the difference between (a) the higher
of (i) stock price at the time of the calculation of the bonus most
recently paid and (ii) the fair market value of shares of OMI Corp.
common stock at the time of the Change in Control and (b) the target
price for the applicable year, provided that for any year for which a
target price has not been established, the target price shall be $1.00
higher than the previous year.
(4) If a Participant's employment is terminated other than for cause (as
defined in any employment agreement between the Participant and the
Company, if the same is in effect, or otherwise in the OMI Corp.
Separation Allowance Program) or due to death, long term disability or
retirement prior to the end of a Performance Year, the Participant or
the
<PAGE>
Participant's beneficiary shall be entitled to receive a PRO RATA
portion of the award that would have been received had the Participant
been active for the full year.
<PAGE>
November 13, 1997
The Board of Directors
OMI Corp.
90 Park Avenue
New York, NY 10016
Dear Sirs and Madam:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
September 30, 1997 of the facts relating to OMI Corp.'s (the "Company") change,
effective January 1, 1997, in its accounting policy for recording drydock
expense. We believe, on the basis of the facts so set forth and other
information furnished to us by appropriate officials of the Company, that the
accounting change described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of OMI Corp. and its
consolidated subsidiaries as of any date or for any period subsequent to
December 31, 1996. Therefore, we are unable to express, and we do not express,
an opinion on the facts set forth in the above-mentioned Form 10-Q, on the
related information furnished to us by officials of the Company, or on the
financial position, results of operations, or cash flows of OMI Corp. and its
consolidated subsidiaries as of any date or for any period subsequent to
December 31, 1996.
Yours truly,
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27 contains summary information extracted from OMI Corp. and
subsidiaries Consolidated condensed finanical statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 23,309
<SECURITIES> 0
<RECEIVABLES> 23,737
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,339
<PP&E> 561,116
<DEPRECIATION> 197,509
<TOTAL-ASSETS> 538,812
<CURRENT-LIABILITIES> 48,864
<BONDS> 158,365
0
0
<COMMON> 21,512
<OTHER-SE> 200,358
<TOTAL-LIABILITY-AND-EQUITY> 538,812
<SALES> 0
<TOTAL-REVENUES> 169,384
<CGS> 0
<TOTAL-COSTS> 128,445
<OTHER-EXPENSES> 33,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,951
<INCOME-PRETAX> 146
<INCOME-TAX> 1,127
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 13,797
<NET-INCOME> 12,816
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
