SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-6479-1
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OVERSEAS SHIPHOLDING GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2637623
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
511 Fifth Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-869-1222
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock - (par New York Stock Exchange
value $1.00 per share) Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (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
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the Common Stock held by non-affiliates
of the registrant, based on the closing price on the New York Stock
Exchange on March 23, 1999: $313,846,727. (For this purpose, all
outstanding shares of Common Stock have been considered held by non-
affiliates, other than the shares beneficially owned by directors,
officers and certain 5% shareholders of the registrant; certain of
such persons disclaim that they are affiliates of the registrant.)
Number of shares of Common Stock outstanding at March 23, 1999:
36,561,397.
Documents incorporated by reference: portions of the registrant's
Annual Report to Shareholders for 1998 (incorporated in Parts I and
II); portions of the definitive proxy statement to be filed by the
registrant in connection with its 1999 Annual Meeting of
Shareholders (incorporated in Part III).
<PAGE>
ITEM 1. BUSINESS
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Overseas Shipholding Group, Inc. (the "registrant") and
its subsidiaries (collectively the "Company") constitute a major
international shipping enterprise owning and operating a
diversified fleet of oceangoing bulk cargo vessels (principally
tankers). The Company's total bulk fleet as of February 23, 1999
consists of 51 vessels having an aggregate carrying capacity of
approximately 6,032,050 deadweight tons ("DWT"), including four
ships aggregating approximately 1,121,150 DWT which the Company
owns jointly with others and in which the Company has a 50%
interest.* Twelve vessels in the Company's fleet, which total
approximately 793,850 DWT, are registered under the U.S. flag;
the balance are registered under foreign flags. Forty tankers
and petroleum products carriers account for 85% of the total
tonnage, and ten dry bulk carriers and a pure car carrier account
for the remainder.
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* The Company's "total bulk fleet" includes four vessels that
are leased from financial institutions under bareboat
charters having remaining terms of from 5 to 13 years, but
does not include (i) two 308,700 DWT Very Large Crude
Carriers ("VLCCs") on order for delivery in the first half
of 2000 as discussed under "Vessel Disposals and Fleet
Renewal" below, and (ii) a 29,300 DWT petroleum barge which
is owned by a partnership in which the Company has a 50%
interest. Subsequent to February 23, 1999 the Company sold
one 31,600 DWT petroleum products carrier in March 1999 and
contracted for the sale of three 64,000 DWT dry bulk
carriers for delivery in the second quarter of 1999. These
sales are part of the planned disposal of 16 of the
Company's oldest vessels as discussed under "Vessel
Disposals and Fleet Renewal" below.
<PAGE>
The Company charters its ships to commercial shippers
and U.S. and foreign governmental agencies for the carriage of
bulk commodities, primarily crude oil, petroleum products, grain,
coal and iron ore. Generally, each ship is chartered for a
specific period of time ("time charter"), or for a specific
voyage or voyages ("voyage charter"). Under the terms of time
and voyage charters covering the Company's vessels, the ships are
equipped and operated by the Company and are manned by personnel
in the Company's employ. From time to time, the Company also has
some of its vessels on bareboat charter. Under the terms of
bareboat charters, the ships are chartered for fixed periods of
time (generally medium- or long-term) during which they are
operated and manned by the charterer. In addition, the Company
has from time to time chartered in tonnage under arrangements
where the vessels are owned and operated by third parties.
The Company's ships engage in carriage of cargo in
various parts of the world. Revenues from carriage of petroleum
and its derivatives represented approximately 91% of the voyage
revenues of the Company in 1998, 85% in 1997 and 82% in 1996.
Revenues from carriage of dry cargo accounted for the balance of
such voyage revenues for each of those years. The carriage of
petroleum and its derivatives also accounted for the majority of
the voyage revenues of the Company's bulk shipping joint
ventures. The relative contributions to voyage revenues of the
various types of cargoes carried varied from year to year,
depending upon demand for particular kinds of carriage and the
purposes for which and the terms on which the ships are
chartered.
As of February 23, 1999, all of the vessels in the
Company's fleet were employed. Forty-three of these vessels were
chartered to non-governmental commercial shippers. These 43
ships include nine U.S.-flag ships and 34 foreign-flag ships,
which together represent approximately 83% of the combined
carrying capacity of the Company's fleet. Of the remaining ships
in the Company's fleet, three U.S.-flag ships and five foreign-
flag ships were under charter to foreign or U.S. governmental
agencies.
U.S.-FLAG AND FOREIGN-FLAG OPERATIONS
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The Company is principally engaged in the ocean
transportation of liquid, as well as dry bulk cargoes, in both
the worldwide markets and the self-contained U.S. markets through
the ownership and operation of a diversified fleet of bulk cargo
vessels. The bulk shipping industry has many markets that have
distinct characteristics and are subject to different market
forces. The primary markets for individual vessels are
determined to a large degree by their types, sizes and flags.
Unlike container or liner ships, which the Company does not own,
bulk vessels are not bound to specific ports or schedules and
therefore can respond to market opportunities by moving between
trades and geographical areas.
The Company's U.S.-flag and foreign-flag bulk fleets
operate substantially in separate markets. The Company believes
that ownership of a diversified fleet, with vessels of different
types, sizes and flags, enables the Company to take advantage of
chartering opportunities for domestic and international shipment
of bulk commodities and thereby cushions the effects of weakness
in particular markets. Information regarding the Company's
reportable segments and its operations under U.S. and foreign
flags for the three years ended December 31, 1998 is set forth in
the tables in Note B to the Company's financial statements
incorporated by reference in Item 8 below. For information
regarding the revenues and results of operations of the Company's
bulk shipping joint ventures for the three years ended December
31, 1998, see Note E to the Company's financial statements
incorporated by reference in Item 8 below.
EMPLOYMENT OF VESSELS
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The bulk shipping industry is highly competitive and
fragmented, with no one shipping group owning as much as 4% of
the world fleet. The Company competes with other owners of U.S.
and foreign-flag tankers and dry cargo ships operating on an
unscheduled basis similar to the Company.
In the spot and short-term charter market, the
Company's vessels compete with all other vessels of a size and
type required by a charterer that can be available at the date
specified. In the spot market, competition is based primarily on
price. Nevertheless, within a narrow price band, factors related
to quality of service and safety enter into a potential
customer's decision as to which vessel to charter. In the long-
term charter market additional factors such as financial strength
of the operator/owner and the age and quality of the vessel
become more important. In chartering vessels to the United
States government, the Company competes primarily with other
owners of U.S.-flag vessels. Demand for U.S.-flag product
carriers is closely linked to changes in regional energy demands
and in refinery activity. These vessels also compete with
pipelines and oceangoing barges and are affected by the level of
imports on foreign-flag product carriers.
Prevailing rates for charters of particular types of
ships are subject to fluctuations depending on conditions in
United States and international bulk shipping markets and other
factors. Although medium- and long-term charter business avoids,
to some extent, the sharp rate fluctuations characteristic of the
spot or voyage markets, the availability of such business in
international markets has been limited, and, when available,
rates of return have generally been unattractive.
For additional information as of February 23, 1999
regarding the 51 vessels in the Company's total bulk fleet,
including information as to the employment of such vessels, see
the tables on page 39 of the registrant's Annual Report to
Shareholders for 1998, which tables are incorporated herein by
reference.
U.S. DOMESTIC AND PREFERENCE TRADES
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Under the Jones Act, shipping between United States
coastal ports, including the movement of Alaskan oil, is reserved
by law to U.S.-flag vessels, owned by U.S. citizens, crewed by
U.S. seafarers and built in the United States. The Company owns
six U.S.-flag crude carriers, five of which are under long-term,
fixed-rate charters to BP Oil Shipping Company, USA ("BP") which
have recently been extended; three of the charters now expire in
2005, one in 2006 and one at year-end 2003, coinciding with the
Oil Pollution Act of 1990 expiry dates for each such vessel.
This employment will provide a steady level of core earnings for
the Company over the next seven years. Also included in the
Company's U.S.-flag fleet are three petroleum products carriers
engaged in the U.S. coastwise trade, two dry bulk carriers that
participate in the preference trades (see below) and one car
carrier that is on long-term charter transporting vehicles from
Japan.
In each of the years 1998, 1997 and 1996 revenues from
BP were in excess of 10% of revenues from voyages, amounting in
1998 to approximately $98.6 million, in 1997 to approximately
$118 million, and in 1996 to approximately $98.3 million. No
other charterer accounted for revenues in excess of 10% of voyage
revenues.
United States military cargo must be transported on
U.S.-flag vessels, if available. The Merchant Marine Act, 1936,
as amended, requires that preference be given to U.S.-flag
vessels, if available at reasonable rates, in the shipment of at
least half of all U.S. government-generated cargoes and 75% of
food-aid cargoes.
Vessels in the Company's fleet have been chartered from
time to time to the Military Sealift Command of the United States
Navy ("MSC"), and to recipient nations for the carriage of grain
and other cargoes under United States foreign aid and
agricultural assistance programs. Charters to MSC reflect in
large part the requirements of the United States military for
waterborne carriage of cargoes, and, accordingly, depend in part
on world conditions and United States foreign policy.
Since late 1996, the Company's U.S.-flag car carrier,
which is under long-term charter, has participated in the U.S.
Maritime Security Program, which ensures that militarily-useful
U.S.-flag ships are available to the Department of Defense in the
event of war or national emergency. Under the program, the
Company receives approximately $2.1 million per year through
2005, subject to annual Congressional appropriations.
SIGNIFICANT DEVELOPMENTS
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During 1998, the Company embarked on a number of
strategic initiatives designed to enhance the Company's
competitive position and financial strength in the years to come.
COMPANY STRENGTHENS ORGANIZATIONAL STRUCTURE. On
October 30, 1998, the registrant assumed direct management of its
bulk shipping fleet, terminating by mutual consent its
arrangement with Maritime Overseas Corporation ("MOC"), which had
managed the fleet since the registrant's inception in 1969. The
Company has employed the staff of MOC, thereby ensuring the
maintenance of customer satisfaction and high quality operations.
In addition, the Company initiated a comprehensive review of its
business processes and structure. As a result, the Company has
reduced costs of operation, eliminated organizational layers and
staff, consolidated office locations, and increased productivity.
COMPANY EXPANDS STRATEGIC ALLIANCES. The Company,
British Petroleum and Keystone Shipping Co. are collaborating to
form a joint operating company that will manage the vessels
carrying British Petroleum's Alaskan crude oil, including five of
the Company's vessels. By combining personnel from each of the
founding companies into a single operation, this joint company
will eliminate numerous interfaces and significantly streamline
operations. By incorporating the highest performance standards
of each company, the joint operating company intends to become
the premier quality provider of marine transportation services in
the environmentally sensitive Alaskan crude oil trade.
The Company's Aframax (80,000 to 120,000 DWT) tanker
pool with PDV Marina, the marine transportation subsidiary of the
Venezuelan state oil company, continues to expand its activities.
With 20 vessels, the majority of which are 1990s-built and double-
hulled, the pool is the largest modern Aframax fleet operating in
the Caribbean Basin. The pool has entered into a number of long-
term contracts of affreightment to complement the pool's
Venezuelan cargoes; this has reduced overall ballast time for the
pool vessels, facilitating optimal fleet utilization. With
increasing shipments of oil expected from Venezuela and other
Latin American countries over the next decade, the pool is poised
for continued growth.
VESSEL DISPOSALS AND FLEET RENEWAL. The Company's 1998
results reflect a reserve of $91 million ($59.2 million after
tax) related to planned vessel dispositions. The major portion
of the reserve relates to the six remaining vessels in the
Company's ten-vessel dry bulk disposal program announced in 1997.
The Asian financial crisis has continued to have a particularly
adverse effect on dry bulk markets, including the prices for
existing tonnage, and the Company has determined to adjust the
carrying value of these vessels accordingly. The balance of the
reserve reflects a reduction to estimated realizable value of the
carrying amounts for ten of the Company's older tankers scheduled
for disposal, including three held in a joint venture. Upon
completion of all these disposals, anticipated to occur during
1999, the Company will have one of the most modern fleets in the
industry. Such actions will permit the Company to focus its
capital on those areas of the bulk shipping business where the
Company's capabilities and resources will provide the highest
return. To date, three of the remaining six vessels in the
Company's dry bulk disposal program are under contract of sale
for delivery in the second quarter of 1999, and three of the
Company's ten older tankers scheduled for disposal have been sold
(including one held in a joint venture).
In August 1998, the Company reaffirmed its long-
standing policy of continual fleet renewal by placing orders, at
very competitive prices, for two 308,700 DWT double-hulled
foreign flag VLCCs. The vessels are being constructed by Hyundai
Heavy Industries Co., Ltd., for delivery in the first half of
2000. The Company expects to make additional investments in
modern tonnage through selected acquisitions of new and
secondhand tonnage, and bareboat chartering or time chartering of
tonnage.
There is no assurance that the Company's fleet will
expand, or that the Company will acquire vessels or place orders
for the construction of new vessels to the same extent as in the
past.
COMPANY'S FINANCIAL STRENGTH. During 1998, the Company
reduced long-term debt by over $220 million to $834 million from
$1,056 million. A substantial portion of this reduction was
attributable to the application of $180 million of after-tax
proceeds received from the Company's sale of 3,650,000 shares of
Royal Caribbean Cruises Ltd. common stock previously acquired in
the disposition of the Company's interest in Celebrity Cruise
Lines Inc. The Company also significantly reduced its interest
expense and increased its financial flexibility by refinancing
$310 million of debt containing the Company's most restrictive
financial covenants. The interest cost on the replacement
borrowing will be lower than the interest cost on the refinanced
debt by over $5 million per year. With more than $400 million of
aggregate liquidity and credit availability at year end, the
Company has the financial resources to implement its strategic
objectives.
In December 1998, the registrant announced its
authorization to purchase up to three million shares of its
common stock from time to time in the open market. Such
purchases will be made at the registrant's discretion and will
take into account such factors as price and prevailing market
conditions.
ADOPTION OF STOCKHOLDER RIGHTS PLAN. In October 1998,
the registrant's Board of Directors adopted a Stockholder Rights
Plan, and declared a rights distribution under the Plan of one
common stock purchase right on each outstanding share of common
stock of the registrant. The rights plan is designed to guard
against attempts to take over the Company for a price that does
not reflect the Company's full value, or that are conducted in a
manner or on terms not approved by the board as being in the best
interests of the Company and the stockholders. The rights are
preventative in nature and are not being distributed in response
to any known attempt to acquire control of the Company.
ENVIRONMENTAL MATTERS RELATING TO BULK SHIPPING
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Since 1990, the tanker industry has experienced a more
rigorous regulatory environment. Safety and pollution concerns
have led to a greater emphasis on quality and to the
strengthening of the inspection programs of classification
societies, governmental authorities and charterers.
OPA 90. The Oil Pollution Act of 1990 ("OPA 90")
significantly expands the potential liability of a vessel owner
or operator (including a bareboat charterer), for damage
resulting from spills in U.S. waters (up to 200 miles offshore).
OPA 90 applies to all U.S. and foreign-flag vessels.
Under OPA 90, a vessel owner or operator is liable
without fault for removal costs and damages, including economic
loss without physical damage to property, up to $1,200 per gross
ton of the vessel. When a spill is proximately caused by gross
negligence, willful misconduct or a violation of a Federal
safety, construction or operating regulation, liability is
unlimited. OPA 90 did not preempt State law, and therefore States
remain free to enact legislation imposing additional liability.
Virtually all coastal States have enacted pollution prevention,
liability and response laws, many with some form of unlimited
liability.
In addition, OPA 90 imposes a requirement that tankers
calling at U.S. ports have double hulls. This requirement applied
to newly constructed tankers contracted for after June 1990, or
delivered after 1993. Beginning in 1995, the double-hull
requirement was phased in for existing tankers. The age
requirement is reduced in stages so that by the year 2000,
tankers of at least 30,000 gross tons over 23 years old (and
tankers between 15,000 and 30,000 gross tons over 30 years old)
must have double hulls, and by 2010, all tankers must have double
hulls, except that tankers with double bottoms or double sides
are afforded an additional five years for compliance but must
comply no later than the year 2015. Tankers discharging at a
deepwater port or lightering more than 60 miles offshore will not
be required to have double hulls until 2015.
OPA 90 also requires owners and operators of vessels
calling at U.S. ports to adopt contingency plans for responding
to a worst case oil spill under adverse weather conditions. The
plans must include contractual commitments with clean-up response
contractors in order to ensure an immediate response to an oil
spill. Furthermore, training programs and drills for vessel,
shore and response personnel are required. The Company has
developed and timely filed its vessel response plans with the
U.S. Coast Guard and has received approval of such plans.
Under U.S. Coast Guard financial responsibility
regulations issued pursuant to OPA 90, all vessels entering U.S.
waters are required to obtain Certificates of Financial
Responsibility ("COFRs") from the Coast Guard demonstrating
financial capability to meet potential oil spill liabilities. All
the vessels in the Company's U.S. and foreign-flag fleets have
obtained COFRs.
INTERNATIONAL REQUIREMENTS. The Company's ships undergo
routine and rigorous in-house safety reviews. They are also
routinely inspected by port authorities, classification societies
and major oil companies. All of the Company's vessels are now
certified under the new standards reflected in ISO 9002's quality
assurance program, and International Safety Management's (ISM)
safety and pollution prevention protocols.
In addition to the OPA 90 requirements, in worldwide
trade MARPOL regulations of the International Maritime
Organization (IMO) require double hulls or equivalent tanker
designs for newbuildings ordered after 1993 and mandate double
hulls for existing tankers at 30 years of age. Under MARPOL
Regulation 13G, existing tankers upon reaching 25 years of age,
are required to either have protectively located segregated
ballast tanks or double bottom spaces not used for cargo carriage
covering at least 30% of the cargo tank area, or they must
utilize hydrostatically balanced loading. These tanker
modifications will reduce the carrying capacity of the affected
vessel. Given the large number of existing VLCCs that were
delivered in the mid-1970s, these pollution protection measures
may lead to an increase in scrapping.
INSURANCE. Consistent with the currently prevailing
practice in the industry, the Company presently carries $700
million of pollution coverage per occurrence on every vessel in
its fleet. While the Company has historically been able to
obtain such insurance at commercially reasonable rates, no
assurances can be given that such insurance will continue to be
available in the future.
BULK SHIPPING MARKETS
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Information regarding bulk shipping markets is set
forth in the text of the "Global Bulk Shipping Markets" section
(pages 14 and 15) of the registrant's Annual Report to
Shareholders for 1998, which information is incorporated herein
by reference.
EMPLOYEES
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As of February 23, 1999, the Company employed
approximately 2,200 seagoing personnel and shore staff. The
Company has collective bargaining agreements with three different
maritime unions, covering seagoing personnel employed on the
Company's U.S.-flag vessels. These agreements are in effect
through June 15, 2001 with one of the unions and through June 15,
2000 with two of the unions. Under the collective bargaining
agreements, the Company is obligated to make contributions to
pension and other welfare programs. The Company believes that
its relations with its employees are satisfactory.
CAPITAL CONSTRUCTION FUND
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To encourage private investment in U.S.-flag ships, the
Merchant Marine Act of 1970 permits deferral of taxes on earnings
deposited into a Capital Construction Fund and amounts earned
thereon, which can be used for the construction or acquisition
of, or retirement of debt on, qualified U.S.-flag vessels
(primarily those limited to United States foreign and
noncontiguous domestic trades). The registrant is a party to an
agreement under the Act. Under the agreement, the general
objective is (by use of assets accumulated in the fund) for three
vessels to be constructed or acquired by the end of 2004. If the
agreement is terminated or amounts are withdrawn from the Capital
Construction Fund for non-qualified purposes, such amounts will
then be subject to Federal income taxes. Monies can remain tax-
deferred in the fund for a maximum period of 25 years (commencing
January 1, 1987 for deposits prior thereto). See the second
paragraph of Note J to the Company's financial statements
incorporated by reference in Item 8 below.
UPDATE ON IMPACT OF YEAR 2000
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The Company is continuing its review of all phases of
its activities that could be affected by Year 2000 issues. Year
2000 issues relate to the inability of computer programs or
microchips to distinguish between the year 1900 and the year
2000. In connection with computer processing of its financial
records, the Company primarily uses software that is Year 2000
compliant. The Company is reviewing its computer supported
operational activities (most of which do not relate to record
keeping), which include computer operated machinery or processes
or computer based backup systems on board its vessels. The
Company is testing its applications and has found those tested
either to be Year 2000 compliant or to have minor deficiencies
that are expected to be corrected by mid-1999. The Company is
performing further tests of its systems which it expects to
complete in mid-1999.
The Company has communicated with vendors and others
whose Year 2000 compliance is critical to the Company and is
following up with them concerning their plans and progress in
addressing Year 2000 issues. The Company is not aware of any
Year 2000 problems as a result of this effort.
The costs associated with the Company's Year 2000
compliance activities are not expected to be material to the
Company's financial position and such costs are being expensed as
incurred.
The failure to correct a Year 2000 problem could result
in an interruption in certain normal business activities or
operations. The Company, however, believes that, with completion
of its Year 2000 project, significant interruptions will not be
encountered.
Completion of the Company's Year 2000 project is based
on management's best estimates, which were derived utilizing
numerous assumptions regarding future events. There can,
however, be no assurance that there will not be a delay in, or
unanticipated costs associated with, the Year 2000 project.
Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, timely
responses by third parties and suppliers, and similar
uncertainties. The Company expects to evaluate the necessity for
a contingency plan by mid-1999.
FORWARD-LOOKING STATEMENTS
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This Form 10-K, including portions of the registrant's
Annual Report to Shareholders for 1998 incorporated herein by
reference, contains forward-looking statements regarding the
outlook for tanker and dry cargo markets, and the Company's
prospects, including the timing and proceeds of vessel disposals,
anticipated vessel acquisitions and fleet renewal, prospects for
certain strategic alliances with customers and the implementation
of certain overhead and operating cost reductions. There are a
number of factors, risks and uncertainties that could cause
actual results to differ from the expectations reflected in these
forward-looking statements, including changes in production of or
demand for oil and petroleum products, and various dry bulk
commodities, either generally or in particular regions; greater
than anticipated levels of newbuilding orders or less than
anticipated rates of scrapping; the timing of the Company's dry
bulk and tanker disposals or the amount of actual proceeds
generated by the disposals; the availability of suitable vessels
for acquisition or chartering in on terms the Company deems
favorable; changes in trading patterns for particular commodities
significantly impacting overall tonnage requirements; changes in
the rates of growth of the world and various regional economies;
risks incident to vessel operation, including pollution;
increases in costs of operation and unanticipated delays in
implementing various cost reduction measures; and unanticipated
changes in laws and regulations. Forward-looking statements in
the registrant's Annual Report to Shareholders for 1998 and
written and oral forward looking statements attributable to the
Company or its representatives after the date of this Form 10-K
are qualified in their entirety by the cautionary statement
contained in this paragraph and in other reports hereafter filed
by the registrant with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
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See Item 1.
ITEM 3. LEGAL PROCEEDINGS
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The Company is a party, as plaintiff or defendant, to
various suits in the ordinary course of business for monetary
relief arising principally from personal injuries, collision or
other casualty and to claims arising under charter parties. All
such personal injury, collision and casualty claims against the
Company are fully covered by insurance (subject to deductibles
not material in amount). Each of the other claims involves an
amount which in the opinion of management is not material in
relation to the consolidated current assets of the Company as
shown in the Company's Consolidated Balance Sheet as at December
31, 1998, incorporated herein by reference. There have not been
any material developments in the investigation reported on in
Item 1 of Part II of the registrant's Form 10-Q report for the
quarter ended June 30, 1996 and incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
EXECUTIVE OFFICERS OF THE REGISTRANT
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Has Served as
Name Age Position Held Such Since
- ---- --- ------------- -------------
Morton P. Hyman 63 President October 1971
Robert N. Cowen 50 Senior Vice President, February 1993
Secretary June 1982
Myles R. Itkin 51 Senior Vice President, June 1995
Chief Financial Officer
and Treasurer
Robert E. Johnston 51 Senior Vice President October 1998
Ariel Recanati 35 Senior Vice President October 1998
Peter J. Swift 55 Vice President October 1998
The term of office of each executive officer continues
until the first meeting of the Board of Directors of the
registrant immediately following the next annual meeting of its
stockholders, to be held in June 1999, and until the election and
qualification of his successor. There is no family relationship
between the executive officers.
Messrs. Morton P. Hyman and Robert N. Cowen have served
as directors of the registrant since 1969 and 1993, respectively.
Prior to joining the registrant in 1995, Mr. Myles R. Itkin was
employed for one year by Alliance Capital Management L.P. as
Senior Vice President-Finance, and prior thereto was employed by
Northwest Airlines, Inc. as Vice President-Finance. Mr. Robert
E. Johnston has served as an officer and director of certain of
the registrant's subsidiaries during the past five years; he has
also served as a senior officer of MOC during the past five
years. Mr. Ariel Recanati has served as an officer and director
of certain of the registrant's subsidiaries during the past five
years; he has also served as a senior officer of MOC during the
past five years. Mr. Ariel Recanati is a nephew of Mr. Raphael
Recanati and a first cousin of his son, Mr. Oudi Recanati, both
directors of the registrant. Mr. Peter J. Swift has served as an
officer and director of certain of the registrant's subsidiaries
since October 1998; he also served as an officer of MOC and one
of its subsidiaries during the past five years.
PART II
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The information called for by Items 5 through 8 is
incorporated herein by this reference from the following
respective portions and page numbers of the registrant's Annual
Report to Shareholders for 1998:
Item Incorporated from:
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ITEM 5. Market for Registrant's Last three paragraphs under
- ------ Common Equity and "Shareholder Information" and
Related the "Stock Price and Dividend
Stockholder Matters Data" table, all on page 38;
------------------------
ITEM 6. Selected Financial Data The information for the years
- ------ ------------------------ 1994 through 1998 under
"Eleven-Year Statistical
Review" section (pages 36 and
37).
ITEM 7. Management's Discussion Information set forth in text
- ------ and Analysis of of "Management's Discussion
Financial and Analysis" section (pages
Condition and Results of 16 through 20).
Operations
------------------------
ITEM 7A. Quantitative and Information set forth in text
- ------- Qualitative Disclosures of "Management's Discussion
About Market Risk and Analysis" section under
------------------------ caption "Risk Management"
(pages 19 and 20) and table on
page 20.
ITEM 8. Financial Statements and "Consolidated Statements of
- ------ Supplementary Data Operations", "Consolidated
------------------------ Balance Sheets", "Consolidated
Statements of Cash Flows",
"Consolidated Statements of
Changes in Shareholders'
Equity", "Notes to
Consolidated Financial
Statements" and "Report of
Independent Auditors" sections
(pages 21 through 35).
ITEM 9.Changes in and Disagreements with Accountants on
- ------ ------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
PART III
---------
The information called for by Items 10 through 13,
except for the information set forth in Part I above regarding
the executive officers of the registrant, is incorporated herein
by this reference from the following respective portions of the
definitive proxy statement to be filed by the registrant in
connection with its 1999 Annual Meeting of Shareholders.
Item Incorporated from:
----- -----------------
ITEM 10. Directors and Executive "Election of Directors"
- ------- Officers of the Registrant
--------------------------
ITEM 11. Executive Compensation "Compensation and Certain
- ------- -------------------------- Transactions"*
ITEM 12. Security Ownership of "Election of Directors"
- ------- Certain Beneficial Owners and "Information as to
and Management Stock Ownership"
--------------------------
ITEM 13. Certain Relationships and "Election of Directors" and
- ------- Related Transactions "Compensation and Certain
Transactions"*
- ---------
* Excluding material under "Stockholder Return Performance
Presentation" and "Executive Compensation Report of the
Executive Compensation Committee and the Stock Option Plan
Committees".
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K
--------
(a) See the accompanying index to financial statements
and schedules, and the accompanying Exhibit Index.
(b) Reports on Form 8-K: During the quarter ended
December 31, 1998 the registrant filed a report on Form 8-K dated
October 20, 1998 which reported on Item 5 (Other Events) and
Item 7 (Financial Statements, Pro Forma Information and
Exhibits).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
OVERSEAS SHIPHOLDING GROUP, INC.
By S/Myles R. Itkin
----------------------------------
Myles R. Itkin
Senior Vice President,
Chief Financial Officer & Treasurer
Date: March 26, 1999
<PAGE>
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated. Each of such persons appoints Morton P. Hyman
and Myles R. Itkin, and each of them, as his agents and attorneys-
in-fact, in his name, place and stead in all capacities, to sign
and file with the SEC any amendments to this report and any
exhibits and other documents in connection therewith, hereby
ratifying and confirming all that such attorneys-in-fact or either
of them may lawfully do or cause to be done by virtue of this power
of attorney.
By S/Morton P. Hyman
-------------------------------
Morton P. Hyman, Principal
Executive Officer and Director
By S/Myles R. Itkin
-------------------------------
Myles R. Itkin, Principal
Financial Officer and
Principal Accounting Officer
By S/Robert N. Cowen
-------------------------------
Robert N. Cowen, Director
By S/Ran Hettena
-------------------------------
Ran Hettena, Director
By S/Solomon N. Merkin
-------------------------------
Solomon N. Merkin, Director
By S/William L. Frost
-------------------------------
William L. Frost, Director
By S/Thomas H. Dean
-------------------------------
Thomas H. Dean, Director
By S/Joel I. Picket
-------------------------------
Joel I. Picket, Director
Date: March 26, 1999
<PAGE>
FORM 10-K--ITEM 14(a) (1) and (2)
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Overseas
Shipholding Group, Inc. and subsidiaries, included in the annual
report of the registrant to its shareholders for the year ended
December 31, 1998 are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Operations -- Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity --
Years Ended December 31, 1998, 1997 and 1996
Notes to Financial Statements --December 31, 1998
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and therefore have been omitted.
<PAGE>
Exhibit Index
*3(i) Certificate of Incorporation of the registrant,
as amended to date (previously filed more than
10 years ago and refiled herewith).
3(ii) By-Laws of the registrant, as amended to date
(filed via EDGAR as Exhibit 3(ii) to the
registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(a) Second Amended and Restated Credit Agreement
dated as of August 19, 1997 (previously amended
and restated as of October 31, 1994), among the
registrant, two subsidiaries of the registrant
and certain banks (filed via EDGAR as Exhibit 4
to the registrant's Form 10-Q for the quarter
ended September 30, 1997 and incorporated
herein by reference).
4(b) Rights Agreement dated as of October 20, 1998
between the registrant and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent,
with the form of Right Certificate attached as
Exhibit A thereto and the Summary of Rights to
Purchase Shares attached as Exhibit B thereto
(filed via EDGAR as Exhibit 4.1 to the
registrant's Form 8-A filed November 9, 1998
and incorporated herein by reference).
4(c)(1) Form of Indenture dated as of December 1, 1993
between the registrant and The Chase Manhattan
Bank (National Association) providing for the
issuance of debt securities by the registrant
from time to time (filed via EDGAR as Exhibit
4(d)(1) to the registrant's Form 10-K for 1993
and incorporated herein by reference).
4(c)(2) Resolutions dated December 2, 1993 fixing the
terms of two series of debt securities issued
by the registrant under the Indenture (filed
via EDGAR as Exhibit 4(d)(2) to the
registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(c)(3) Form of 8% Notes due December 1, 2003 of the
registrant (filed via EDGAR as Exhibit 4(d)(3)
to the registrant's Form 10-K for 1993 and
incorporated herein by reference).
4(c)(4) Form of 8-3/4% Debentures due December 1, 2013
of the registrant (filed via EDGAR as Exhibit
4(d)(4) to the registrant's Form 10-K for 1993
and incorporated herein by reference).
NOTE: The Exhibits filed herewith do not
include other instruments authorizing long-term
debt of the registrant and its subsidiaries,
where the amounts authorized thereunder do not
exceed 10% of total assets of the registrant
and its subsidiaries on a consolidated basis.
The registrant agrees to furnish a copy of each
such instrument to the Commission upon request.
*10(a) Transfer Agreement dated October 30, 1998
between the registrant, OSG Ship Management,
Inc. and Maritime Overseas Corporation.
10(b)(1) Exchange Agreement dated December 9, 1969
(including exhibits thereto) between the
registrant and various parties relating to the
formation of the registrant (the form of which
was filed as Exhibit 2(3) to Registration
Statement No. 2-34124 and is incorporated
herein by reference).
10(b)(2) Form of Additional Exchange Agreement referred
to in Section 2.02 of Exhibit 10(c)(1) hereto
(filed as Exhibit 2(4) to Registration
Statement No. 2-34124 and incorporated herein
by reference).
10(c)(1) Supplemental Executive Retirement Plans of the
registrant, as amended and restated as of
January 1, 1997 (filed via EDGAR as Exhibit
10(k)(1) to the registrant's Form 10-K for 1996
and incorporated herein by reference).
*10(c)(2) Supplemental Executive Retirement Plans of OSG
Ship Management, Inc., effective as of October
30, 1998.
10(d)(1) Agreement with an executive officer (filed via
EDGAR as Exhibit 10(k)(4) to the registrant's
Form 10-K for 1996 and incorporated herein by
reference).
10(d)(2) Agreement with an executive officer (filed via
EDGAR as Exhibit 10(k)(5) to the registrant's
Form 10-K for 1996 and incorporated herein by
reference).
10(d)(3) Agreement with an executive officer (filed via
EDGAR as Exhibit 10 to the registrant's Form 10-
Q for the quarter ended September 30, 1998 and
incorporated herein by reference).
*10(d)(4) Agreement with an executive officer.
*10(d)(5) Form of Amendment to the agreements listed as
Exhibits (10)(d)(1), (2), (3) and (4) hereto.
*10(d)(6) Agreement with an executive officer.
*10(d)(7) Agreement with an executive officer.
10(e)(1) 1989 Stock Option Plan adopted for officers and
key employees of the registrant or its
subsidiaries (filed as Exhibit 10(l) to the
registrant's Form 10-K for 1989 and
incorporated herein by reference).
10(e)(2) Amendment adopted October 9, 1990 to the
registrant's 1989 Stock Option Plan referred to
above (filed as Exhibit 10(l)(2) to the
registrant's Form 10-K for 1990 and
incorporated herein by reference).
10(e)(3) 1998 Stock Option Plan adopted for employees of
the registrant and its affiliates (filed via
EDGAR as Exhibit 10 to the registrant's Form 10-
Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
*10(e)(4) 1999 Non-Employee Director Stock Option Plan of
the registrant.
*10(e)(5) Maritime Overseas Corporation 1990 Stock Option
Plan, as amended, assumed by the registrant
pursuant to the agreement filed as Exhibit
10(a) hereto.
10(f) Stock Purchase Agreement dated July 2, 1997 by
and among Archinav Holdings Ltd., Overseas
Cruiseship Inc. ("OCI"), Celebrity Cruise Lines
Inc. and Royal Caribbean Cruises Ltd. (filed
via EDGAR on August 7, 1997 as Exhibit 7.1 to
registrant's and OCI's combined Schedule 13D
and incorporated herein by reference).
*13 Such portions of the Annual Report to security
holders for 1998 as are expressly incorporated
herein by reference.
*21 List of subsidiaries of the registrant.
*23 Consent of Independent Auditors of the
registrant.
*27 Financial Data Schedule.
NOTE: The Exhibits which have not previously
been filed or listed or are being refiled are
marked with an asterisk (*).
List of Executive Compensation Plans and
Arrangements - See Exhibits 10(c)(1) and (2),
10(d)(1),(2),(3),(4), (5), (6) and (7), and
10(e)(1), (2), (3), (4) and (5) above.
Exhibit 3(i)
------------
CERTIFICATE OF INCORPORATION
OF
OVERSEAS SHIPHOLDING GROUP, INC.
The undersigned, in order to form a corporation for the
purposes hereinafter stated under and pursuant to the General
Corporation Law of the State of Delaware, does hereby certify as
follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is OVERSEAS SHIPHOLDING GROUP, INC.
SECOND: The address of the Corporation's registered office
in the State of Delaware is 100 West Tenth Street, City of
Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes of the
Corporation are as follows:
(1) To purchase, build, charter, lease, hire,
take in exchange or otherwise acquire the
ownership or use of, to hold, use, operate and
own, and to let out on hire or charter, mortgage,
pledge, sell, exchange or otherwise deal with and
dispose of, ships, boats, tankers, launches, tugs,
barges, lighters and other vessels of any class,
and all equipment, appurtenances, supplies,
implements, materials and things incidental
thereto or useful in connection therewith.
(2) To apply for and obtain from the
Government of the United States of America or any
instrumentality thereof, or from any other
government or any instrumentality thereof, either
as principal or agent, the registry,
documentation, enrollment or license of such
vessels of which the Corporation may acquire the
ownership or use as may be cognizable by the
registry, documentation, enrollment or license
laws of such government or governments.
(3) To purchase, lease, charter, construct
or otherwise acquire, and to hold, own, use,
maintain, manage and operate, and to sell, lease
or otherwise dispose of, wharves, piers, docks,
slips, drydocks, bulkheads, basins and landings,
terminals, warehouses and tanks, plants and repair
shops, offices, and other establishments of every
kind, nature or description used or useful in the
conduct of the business of the Corporation.
(4) To purchase, lease, manufacture or
otherwise acquire, and to use, develop, experiment
with, equip, remodel, construct, operate, install
and otherwise hold, and to sell, lease, exchange
or otherwise dispose of, engines, motors,
machines, machinery, apparatus, instruments,
fixtures, appliances, implements, contrivances and
other goods, wares and articles of every kind,
nature and description used or useful in the
conduct of the business of the Corporation.
(5) To acquire by purchase, exchange, lease,
devise or otherwise and to hold, own, maintain,
manage, improve, develop and operate, and to sell,
transfer, mortgage, pledge, encumber, lease,
assign, convey, exchange and otherwise turn to
account or dispose of, and to merchandise, buy and
sell, import and export, and otherwise trade and
generally deal in and with, personal and real
property, tangible or intangible, of every kind
and description, wheresoever situated, and any and
all rights, interests and privileges therein.
(6) To adopt, apply for, obtain, register,
purchase, lease or otherwise acquire and to
maintain, protect, hold, use, own, exercise,
develop, manufacture under, operate and introduce,
and to sell and grant licenses or other rights in
respect of, assign or otherwise dispose of, turn
to account, or in any manner deal with and
contract with reference to, any trademarks, trade
names, patents, patent rights, concessions,
franchises, designs, copyrights and distinctive
marks and rights analogous thereto, and
inventions, devices, improvements, processes,
receipts, formulae and the like, including such
thereof as may be covered by, used in connection
with, or secured or received under, Letters Patent
of the United States of America or elsewhere or
otherwise, and any licenses in respect thereof and
any or all rights connected therewith or
appertaining thereto.
(7) To purchase, or otherwise acquire, and
to hold, mortgage, pledge, sell, exchange or
otherwise dispose of, securities (which term, for
the purpose of this article THIRD, includes,
without limitation of the generality thereof, any
shares of stock, bonds, debentures, notes,
mortgages or other obligations, and any
certificates, receipts or other instruments
representing rights to receive, purchase or
subscribe for the same, or representing any other
rights or interests therein or in any property or
assets) created or issued by any person, firm,
association, corporation or government or
subdivision or agency or instrumentality thereof;
to make payment therefor in any lawful manner, or
to issue in exchange therefor its own securities;
and to exercise, as owner or holder of any
securities, any and all rights, powers and
privileges in respect thereof, including the right
to vote thereon or consent in respect thereof for
any and all purposes.
(8) To borrow money for any of the purposes
of the Corporation, from time to time, and without
limit as to amount, to such extent as a
corporation organized under the General
Corporation Law of the State of Delaware may now
or hereafter lawfully do; from time to time to
issue and sell its own securities, in such
amounts, on such terms and conditions, for such
purposes and at such prices, as the Board of
Directors of the Corporation may determine; and,
to a like extent, to secure such securities by
mortgage upon, or the pledge of, or the conveyance
or assignment in trust of, the whole or any part
of the properties, assets, business and good will
of the Corporation, then owned or thereafter
acquired; and to purchase, acquire, hold, dispose
of and transfer its own securities (including
shares of its capital stock), in any manner and to
the extent now or hereafter permitted by the laws
of the State of Delaware.
(9) To such extent as a corporation
organized under the General Corporation Law of the
State of Delaware may now or hereafter lawfully
do, to lend its uninvested funds from time to time
to such extent, on such terms and on such
security, if any, as the Board of Directors of the
Corporation may determine.
(10) To acquire by purchase, exchange or
otherwise, all, or any part of, or any interest
in, the properties, assets, business and good will
of any one or more corporations, associations,
partnerships, firms, syndicates or individuals,
engaged in any business for which a corporation
may now or hereafter be organized under the
General Corporation Law of the State of Delaware;
to pay for the same in any lawful manner, or to
issue in exchange therefor its own securities; to
hold, operate, lease, reorganize, liquidate,
mortgage, pledge, encumber, sell, exchange or in
any manner dispose of the whole or any part
thereof; and in connection therewith, to assume or
guarantee performance of any liabilities,
obligations or contracts of corporations,
associations, partnerships, firms, syndicates or
individuals, and to conduct in any lawful manner
the whole or any part of any business thus
acquired, provided such business is of a kind
herein stated.
(11) To promote, organize, aid or assist,
financially or otherwise, corporations,
associations, partnerships, firms, syndicates or
individuals engaged in any business whatsoever, to
such extent as a corporation organized under the
General Corporation Law of the State of Delaware
may now or hereafter lawfully do; and to a like
extent to assume, guarantee or underwrite their
securities as to principal, interest, dividends,
or sinking fund obligations in respect thereof or
all or any thereof, or the performance of all or
any of their other obligations.
(12) To carry out all or any part of the
foregoing purposes as principal, agent or
otherwise either alone or in association with any
other corporations or any associations,
partnerships, firms, syndicates or individuals,
and in any part of the world, or, to such extent
as a corporation organized under the General
Corporation Law of the State of Delaware may now
or hereafter lawfully do, as a member of, or as
the owner or holder of any stock of, or shares or
interests in, any corporation, association,
partnership, firm, trust or syndicate; and to a
like extent, in connection therewith to make,
enter into and perform such contracts or deeds
with any corporations, associations, partnerships,
firms, syndicates, governments, states,
municipalities or other political or governmental
divisions or subdivisions, and to do such acts and
things and to exercise such powers as a natural
person could lawfully make, enter into, do or
exercise.
(13) To conduct its business in any and all
of its branches and to maintain offices both
within and without the State of Delaware, in any
and all states of the United States of America, in
the District of Columbia, in any and all
territories, dependencies, colonies or possessions
of the United States of America, and in foreign
countries.
(14) To such extent as a corporation
organized under the General Corporation Law of the
State of Delaware may now or hereafter lawfully
do, to do all things necessary, suitable,
conducive, convenient or proper for, or in
connection with, or incidental to, the
accomplishment of any one or more of the objects
herein enumerated, or designed directly or
indirectly to promote the interests of the
Corporation or to enhance the value of its
properties; and in general to engage in any lawful
act or activity for which corporations may be
organized under the General Corporation Law of the
State of Delaware.
The foregoing provisions of this Article THIRD shall be construed
both as purposes and powers and each as an independent purpose
and power in furtherance of, and not in limitation of, the powers
granted to the Corporation by virtue if its organization under
and pursuant to the provisions of the General Corporation Law,
and the purposes and powers hereinbefore specified shall, except
when otherwise provided in this Article THIRD, be in no wise
limited or restricted by reference to, or reference from, the
terms of any provisions of this or any other Article of this
Certificate of Incorporation; provided, however, that nothing
herein contained shall be construed as authorizing the
Corporation to carry on any business, or to exercise any power,
or to do any act which a corporation now or hereafter organized
under the General Corporation Law may not at the time lawfully
carry on, exercise or do; and provided further that the
Corporation shall not carry on any business or exercise any power
in any state, territory or country which under the laws thereof
the Corporation may not lawfully carry on or exercise.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 10,000,000 shares of
Common Stock of the par value of $1.00 each.
FIFTH: The By-Laws of the Corporation, and procedures
established from time to time by the Board of Directors
consistent with the By-Laws, may provide that the outstanding
shares of the Corporation will be at all times owned by citizens
of the United States to such extent as will in the judgment of
the Board reasonably assure the Corporation's status as a United
States citizen within the provisions of the Shipping Act of 1916,
as amended, or any successor statute, applicable to the business
being conducted by the Corporation and in order to effectuate
said provisions, may provide restrictions relating to the
transfer of the shares of the Corporation.
SIXTH: The Corporation shall indemnify to the full extent
permitted by law any person made, or threatened to be made, a
party to any action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he,
his testator or intestate is or was a director or officer of the
Corporation or serves or served any other enterprise at the
request of the Corporation. Nothing herein shall be deemed to
preclude indemnification of any person, firm or corporation who
serves or has served as an employee or agent of the Corporation
or of any other enterprise at the request of the Corporation.
SEVENTH: The Board of Directors shall have the power,
without the assent or vote of the shareholders, to make, alter,
amend, change, supplement or repeal the By-Laws of the
Corporation.
EIGHTH: The name and mailing address of the incorporator
are
Samuel Rosenbloom
511 Fifth Avenue
New York, New York 10017
NINTH: The Corporation reserves the right at any time and
from time to time to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, and
other provisions authorized by the laws of the State of Delaware
at the time in force may be added or inserted, in the manner now
or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the right reserved in this
Article.
IN WITNESS WHEREOF, I have hereunto set my hand and seal,
this 18th day of July, 1969.
-----------------------------
In the presence of:
- --------------------------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that on this 18th day of July, 1969,
personally came before me, DAVID G. ZUCKERMAN, a Notary Public in
and for the County and State aforesaid, SAMUEL ROSENBLOOM, party
to the foregoing Certificate of Incorporation, known to me
personally to be such, and acknowledged the said Certificate to
be his act and deed, and that the facts therein stated are true.
GIVEN under my hand and seal of office the day and year
aforesaid.
-----------------------------
DAVID G. ZUCKERMAN
NOTARY PUBLIC
STATE OF NEW YORK
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OVERSEAS SHIPHOLDING GROUP, INC.
The undersigned, President of Overseas Shipholding Group,
Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby
certify as follows:
l. The name of the corporation (hereinafter called the
"Corporation") is Overseas Shipholding Group, Inc.
2. The certificate of incorporation of the Corporation is
hereby amended by deleting Article Fourth thereof and
substituting in lieu of said Article the following new Article:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 20,000,000
shares of Common Stock of the par value of $l.00 each."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on June 6, 1974.
-------------------------------
Morton P. Hyman
President
Attest:
- -------------------------
Ran Hettena
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OVERSEAS SHIPHOLDING GROUP, INC.
The undersigned, President of Overseas Shipholding Group,
Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby
certify as follows:
l. The name of the corporation (hereinafter called the
"Corporation") is Overseas Shipholding Group, Inc.
2. The certificate of incorporation of the Corporation is
hereby amended by deleting Article Fourth thereof and
substituting in lieu of said Article the following new Article:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 30,000,000
shares of Common Stock of the par value of $l.00 each."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on July 15, 1980.
-------------------------------
Morton P. Hyman
Attest: President
- -------------------------
Morris Feder
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OVERSEAS SHIPHOLDING GROUP, INC.
The undersigned, President of Overseas Shipholding Group,
Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby
certify as follows:
l. The name of the corporation (hereinafter called the
"Corporation") is Overseas Shipholding Group, Inc.
2. The certificate of incorporation of the Corporation is
hereby amended by deleting Article Fourth thereof and
substituting in lieu of said Article the following new Article:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 60,000,000
shares of Common Stock of the par value of $l.00 each."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to on June 10, 1981.
-------------------------------
Morton P. Hyman
Attest: President
- -------------------------
Morris Feder
Secretary
<PAGE>
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the
Delaware Code, the undersigned Agent for service of process, in
order to change the address of the registered office of the
corporations for which it is registered agent, hereby certifies
that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be
changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective on July 30, 1984.
4. The names of the corporations represented by said agent
are set forth on the list annexed to this certificate and
made a part hereof by reference.
IN WITNESS WHEREOF, said agent has caused this certificate
to be signed on its behalf by its Vice-President and Assistant
Secretary this 25th day of July, 1984.
THE CORPORATION TRUST COMPANY
-----------------------------
(Name of Registered Agent)
By---------------------------
(Vice-President)
ATTEST:
- ------------------------
(Assistant Secretary)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OVERSEAS SHIPHOLDING GROUP, INC.
The undersigned, Senior Vice President of Overseas
Shipholding Group, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware, does hereby certify as follows:
1. The name of the corporation (hereinafter called the
"Corporation") is Overseas Shipholding Group, Inc.
2. The certificate of incorporation of the corporation is
hereby amended by adding a new Article Tenth to read as follows:
"TENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from
liability or limitation thereof is not permitted under
the Delaware General Corporation Law as the same exists
or may hereafter be amended. Any repeal or modification
of the foregoing provision by the stockholders of the
Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at
the time of such repeal or modification."
3. The amendment of the certificate of incorporation
herein certified has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware.
Signed and attested to on June 2, 1987.
-----------------------------
Attest Milton R. Kliger
Senior Vice President
- -------------------------
Robert N. Cowen
Secretary
<PAGE>
CERTIFICATE OF MERGER
OF
FRIBOURG ASSOCIATES, INC.
(a Delaware corporation)
INTO
OVERSEAS SHIPHOLDING GROUP, INC.
(a Delaware corporation)
----------------------------------
Pursuant to Section 251
of the General Corporation Law
of the State of Delaware
-----------------------------------
The undersigned corporation organized and existing under and
by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST, That the name and state of incorporation of each of
the constituent corporations of the merger are as follows:
Name State of Incorporation
Fribourg Associates, Inc. Delaware
Overseas Shipholding Group, Inc. Delaware
SECOND: That an agreement and plan of merger between the
parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations
in accordance with the requirements of Section 251 of the General
Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the
merger is Overseas Shipholding Group, Inc. (the "Surviving
Corporation").
FOURTH: That the certificate of incorporation of Overseas
Shipholding Group, Inc., a Delaware corporation, shall be the
certificate of incorporation of the Surviving corporation.
FIFTH: That the executed agreement and plan of merger is
on file at the principal place of business of the Surviving
Corporation. The address of the principal place of business of
the Surviving Corporation is 1114 Avenue of the Americas, New
York, New York 10036.
SIXTH: That a copy of the agreement and plan of merger
will be furnished by the Surviving Corporation, on request and
without cost to any stockholder of any constituent corporation.
IN WITNESS WHEREOF, the undersigned have executed this
certificate as of the 9th day of January, 1989.
OVERSEAS SHIPHOLDING GROUP, INC.
By:------------------------------
SENIOR VICE PRESIDENT
ATTEST:
By:-------------------
SECRETARY
EXHIBIT 10(a)
-------------
TRANSFER AGREEMENT
AGREEMENT, dated October 30, 1998, between Overseas
Shipholding Group, Inc., a Delaware corporation ("OSG"), OSG Ship
Management, Inc., a Delaware corporation ("OSGM"), and Maritime
Overseas Corporation, a New York corporation ("MOC").
WHEREAS, MOC, under various agreements with the OSG and
various shipowning subsidiaries of OSG (the "OSG Subsidiaries"
and, collectively with OSG and OSGM, the "OSG Companies"), acts
as agent in respect of the operation of ships owned by certain
OSG Subsidiaries and provides general and administrative services
required by the OSG Companies;
WHEREAS, MOC also acts as exclusive chartering broker and as
exclusive broker in connection with sales, purchases and
construction of ships owned by certain OSG Subsidiaries;
WHEREAS, OSG has determined that it is in its best interest
to assume direct management and operation of its bulk shipping
fleet, terminating its arrangements with MOC by mutual consent,
but obtaining for itself MOC's valuable staff and infrastructure,
thereby ensuring that the high quality of operations and customer
satisfaction historically enjoyed by OSG will be maintained;
WHEREAS, MOC and OSG have determined to terminate by mutual
consent the arrangements between MOC and the OSG Companies,
effective at the close of business on October 30, 1998 (the
"Effective Time"), and have agreed upon the other matters set
forth herein.
NOW, THEREFORE, it is agreed that:
1. TERMINATION OF AGENCY AGREEMENTS. All of the Agency
Agreements between MOC and the OSG Subsidiaries (the "Agency
Agreements") are hereby terminated effective at the Effective
Time, provided that the provisions set forth in Section 10 of the
respective Agency Agreements (relating, among other things, to
rights of indemnification and exculpation) shall remain in full
force and effect notwithstanding such termination. The OSG
Companies hereby agree to take over as of the Effective Time all
outstanding matters with respect to the Vessels (as such term is
defined in the respective Agency Agreements). MOC shall
cooperate with the OSG Companies and with any successor agent
whom the OSG Companies may appoint, to effect the prompt and
effective transfer of all records, funds and duties and
thereafter MOC shall be permitted to inspect all such records at
reasonable times during normal business hours.
2. TERMINATION OF GENERAL SERVICES AGREEMENT. That
certain General Services Agreement, dated December 31, 1969, as
amended, between OSG and MOC (the "General Services Agreement")
is hereby terminated effective at the Effective Time, provided
that the provisions set forth in Section 7 of the General
Services Agreement (relating, among other things, to rights of
indemnification and exculpation) shall remain in full force and
effect notwithstanding such termination. The Accounting provided
under Section 5(f) of the General Services Agreement shall be
prepared as promptly as practicable following the Effective Time
for the period January 1, 1998 through the Effective Time, with
(i) any over-payment or underpayment of fees to be refunded or
paid, as the case may be, pursuant to Section 6 of the General
Services Agreement and (ii) any refund of excess fees under
Section 5(e) of the General Services Agreement to be made, in
each case not later than 30 days following the presentation of
the Accounting. The agreed maximum MOC consolidated net income
from shipping operations shall be calculated for the period
January 1, 1998 through the Effective Time by multiplying the
agreed maximum for 1998 by a fraction the numerator is the number
of days elapsed during 1998 through the Effective Time and the
denominator of which is 365. In the event that after the
Effective Time MOC incurs a cost which relates to a period prior
to the Effective Time, which was not reflected as a liability on
MOC's balance sheet as of the Effective Time, and which would
have been a cost of shipping operations for which MOC would have
been compensated under the General Services Agreement had it been
so reflected, MOC shall, notwithstanding the termination of the
General Services Agreement, receive compensation for such cost in
accordance with the provisions of the General Services Agreement
as though such cost had been so reflected on such balance sheet.
3. ALLOCATION OF COMMISSIONS. Brokerage commissions shall
be allocated between MOC and OSGM as follows: Brokerage
commissions for voyage charters fixed on or prior to the
Effective Time shall be allocated to MOC; brokerage commissions
for voyage charters fixed thereafter shall be allocated to OSGM.
Brokerage commissions for time charters in effect at the
Effective Time shall be allocated between MOC and OSGM based on
the relative the periods of time covered by such charters before
and after the Effective Time. To the extent necessary to
effectuate the foregoing, or otherwise as the parties shall agree
to be appropriate, MOC shall assign (or shall, if applicable,
cause its subsidiaries to assign) to OSGM as of the Effective
Time the brokerage and other commissions which are due and
payable to MOC or such subsidiaries after the Effective Time in
accordance with the terms of the General Services Agreement or
the Agency Agreements, as the case may be.
4. MOC SUBSIDIARIES.
(a) PURCHASE OF SUBSIDIARIES. Effective at the
Effective Time, or, in the case of Souter Shipping (Bermuda)
Ltd., a Bermuda corporation ("Souter"), at December 31, 1998 (the
"Souter Effective Time"), OSGM shall purchase from MOC, and MOC
shall sell to OSGM, all of the outstanding shares (the "MOC
Subsidiary Shares") of capital stock of Maritime Overseas Company
Limited, an English corporation ("MOCL"), Maritime Overseas
Company Asia-Pacific Pte. Ltd., a Singapore corporation
("MOCAP"), and Souter (Souter, MOCL and MOCAP being sometimes
herein collectively referred to as the "Purchased MOC
Subsidiaries") for a cash purchase price (the "Subsidiary
Purchase Price") payable at the Closing (as hereinafter defined),
or, in the case of Souter, at the Souter Closing (as hereinafter
defined), equal to the respective book values of such shares. At
the Closing or the Souter Closing, as the case may be, the
parties shall agree on a good faith estimate of such respective
book values and make payment based on such estimate. Promptly
after the completion of MOC's audited financial statements as of
October 30, 1998 and for the period then ended (or, in the case
of Souter, as of December 31, 1998 and for the year then ended),
the parties shall finalize their calculation of such respective
book values and make such payments as may be necessary to adjust
the estimated payments made at the Closing or the Souter Closing,
as the case may be. At the Closing or the Souter Closing, as the
case may be, MOC shall deliver to OSGM certificates representing
all of the MOC Subsidiary Shares, accompanied by stock powers
duly executed in blank, with payment of all applicable transfer
taxes, free and clear of all liabilities, options, contractual or
other restrictions or obligations, liens, claims, security
interests, mortgages and encumbrances (collectively, "Liens").
(b) CHANGE OF NAME OF SUBSIDIARIES. OSGM shall
reasonably promptly after the Effective Time cause MOCL to change
its name to Overseas Shipholding Group Limited, and MOCAP to
change its name to Overseas Shipholding Group Asia Pacific Pte.
Ltd.
5. ASSUMPTION OF LEASE OBLIGATIONS. Effective at the
Effective Time, MOC shall assign to OSG and OSG shall assume the
obligations and liabilities of MOC accruing after the Effective
Time under those certain leases identified on Schedule 5 hereto
(the "Assigned Leases"), pursuant to instruments of assignment
and assumption of lease mutually agreed upon by MOC and OSG and
their respective landlords and to be executed and delivered prior
to or at the Closing.
6. PURCHASE OF FIXED AND OTHER ASSETS. Effective at the
Effective Time, MOC shall sell, assign, convey and deliver to
OSGM, and OSGM shall purchase from MOC, for an aggregate
estimated cash purchase price of $4,000,000 payable at the
Closing (representing the estimated book value of the Fixed
Assets, as such term is defined below), all of MOC's right, title
and interest in (i) all of the tangible assets owned by MOC and
held by MOC at the Effective Time, including without limitation
all of MOC's computer, telephone and other equipment, fixtures,
leasehold improvements, furniture and other tangible personal
property, excluding, however, such items as may be mutually
agreed upon (the "Fixed Assets"); (ii) all rights under the
contracts, agreements, licenses, leases and instruments agreed
upon by MOC and OSGM (the "Assigned Contracts"); and (iii) all
registrations, permits, authorizations, files, records,
trademarks, trade names, service marks, copyrights, applications
or agreements for any of the foregoing, goodwill, know-how,
software, computer programs, other electronic systems and
databases, all proprietary processes, operating procedures, other
documents and information, and other intellectual property agreed
upon by MOC and OSGM (the "Intangible Assets", and collectively
with the Fixed Assets and Assigned Contracts, the "Assets"), all
of the Assets to be free and clear of all Liens, except as
expressly assumed by the OSG Companies pursuant to this
Agreement. Promptly after the completion of MOC's audited
financial statements as of October 30, 1998 and for the period
then ended (the "Audited Statements"), the parties shall finalize
the purchase price referred to in the immediately preceding
sentence and make such payment as shall be necessary to adjust
such estimated payment to the actual amount reflected in MOC's
Audited Statements (such purchase price as so adjusted is
sometimes collectively herein referred to with the Subsidiary
Purchase Price as the "Purchase Price"). MOC shall deliver to
OSGM at the Closing such bills of sale, and other instruments of
assignment and conveyance as shall be reasonably satisfactory to
OSGM to convey to OSGM good and marketable title to the Assets
free and clear of all Liens, except as permitted herein.
7. CERTAIN ASSUMED LIABILITIES.
(a) ASSUMPTION OF LIABILITIES. Effective at the
Effective Time, OSGM shall assume, and hereby agrees to pay,
perform, satisfy or discharge all unperformed and unfulfilled
obligations and liabilities which are required to be performed
and fulfilled by MOC after the Effective Time under the terms of
all Assigned Contracts and for which MOC was not compensated
under the General Services Agreement (collectively, the "Assumed
Liabilities").
(b) INSTRUMENTS OF ASSUMPTION. OSGM shall deliver to
MOC at the Closing such agreements and instruments of assumption
as shall be reasonably satisfactory to MOC to provide for the
assumption and performance by OSGM of the Assumed Liabilities.
(c) NO OTHER ASSUMPTIONS. Except as expressly
provided in this Agreement, no OSG Company shall assume, agree to
perform or discharge, indemnify MOC against, or otherwise have
any responsibility for any other liabilities or obligations of
MOC or any direct or indirect subsidiary or other affiliate
thereof, fixed or contingent, known or unknown, matured or
unmatured, liquidated or unliquidated, secured or unsecured, and
whether arising prior to, on or after the Effective Time.
8. REPRESENTATIONS AND WARRANTIES OF MOC. MOC hereby
represents and warrants to the OSG Companies:
(a) ORGANIZATION, STANDING AND POWER. Each of MOC,
the Purchased MOC Subsidiaries and Souter Shipping Limited, an
English corporation, East Coast Gaugings Limited, an English
corporation, and Union Shipping Corporation, a Japanese
corporation (collectively the "Souter Subsidiaries"; MOC, the
Purchased MOC Subsidiaries and the Souter Subsidiaries being
sometimes herein collectively referred to as the "MOC Companies")
is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and
has the power and authority to own, lease and operate its
properties and to conduct its business as now being conducted.
Each of the MOC Companies is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a
material adverse impact on the consummation by the MOC Companies
of the transactions contemplated hereunder or, in the case of the
Purchased MOC Subsidiaries and Souter Subsidiaries (collectively,
the "MOC Subsidiaries") on the business, condition or properties
of the MOC Subsidiaries taken as a whole.
(b) LEGAL AUTHORITY, BINDING EFFECT. Each MOC Company
has, and shall at the Effective Time or the Souter Effective
Time, as applicable, have, the right, power and authority to
execute, deliver and perform this Agreement and the other
documents, certificates and instruments relating hereto
(collectively, the "MOC Transfer Documents") to be executed and
delivered by such MOC Company in connection herewith and to
consummate the transactions contemplated hereunder and
thereunder. This Agreement does, and when executed by the
applicable MOC Company, the other MOC Transfer Documents shall,
constitute legal, valid and binding obligations of the applicable
MOC Company, enforceable against such MOC Company in accordance
with their respective terms. MOC and each other applicable MOC
Company has duly authorized by all necessary corporate action the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
(c) NO CONFLICTS, ETC. Neither the execution,
delivery or performance of this Agreement, nor any of the other
MOC Transfer Documents, nor the consummation by any of the MOC
Companies of the transactions contemplated hereby or thereby, nor
compliance with any of the provisions hereof or thereof, will:
(i) conflict with or result in a breach of the Certificate of
Incorporation or By-Laws or similar organizational document of
such MOC Company; (ii) violate any Law (as defined below) or any
order, writ, injunction or decree of any court or Government (as
defined below); (iii) violate or conflict with, result in any
breach of, constitute a default under, give rise to any right of
termination or acceleration of, or require any consent, approval
or other action of any third party, under any Assigned Contract,
Assigned Lease or Subsidiary Lease (as such term is defined
below) (the Assigned Contracts, Assigned Leases and Subsidiary
Leases being sometimes herein collectively referred to as the
"MOC Contracts"). Other than such approvals as shall have been
obtained and such notifications as shall have been given in a
timely fashion, no approval of or notification to any Government
is required in connection with the execution, delivery or
performance by any MOC Company of this Agreement or any MOC
Transfer Document or the consummation of the transactions
contemplated hereby or thereby.
(d) TITLE TO PROPERTY AND RELATED MATTERS. MOC has
good and marketable title to all the Assets, and OSGM shall have
good and marketable title to all the Assets at the Effective
Time, free and clear of all material Liens except as created by
OSGM. The Fixed Assets are in adequate working order to permit
the operation thereof consistent with MOC's historical practices.
(e) SUBSIDIARIES. The MOC Subsidiary Shares are all
of the issued and outstanding shares of capital stock of the
Purchased MOC Subsidiaries. MOC has good and marketable title to
all the MOC Subsidiary Shares, and OSGM shall have good and
marketable title to all the MOC Subsidiary Shares at the
Effective Time or the Souter Effective Time, as applicable, free
and clear of all Liens except as created by OSGM. Souter has
good and marketable title, and shall have good and marketable
title at the Souter Effective Time, to all of the shares of
capital stock of Souter Shipping Limited and East Coast Gaugings
Limited, and 50% of the shares of capital stock of Union Shipping
Corporation (the shares of which are held subject to contractual
provisions heretofore disclosed by MOC to OSG), free and clear of
all Liens except as created by OSGM (the shares of capital stock
of the Souter Subsidiaries held by Souter being sometimes herein
referred to as the "Souter Subsidiary Shares"). There are no
options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued
capital stock of any MOC Subsidiary or obligating any MOC
Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, any MOC Subsidiary. There are no
outstanding contractual obligations of any MOC Subsidiary to
repurchase, redeem or otherwise acquire any shares of its capital
stock or make any material investment (in the form of a loan,
capital contribution or otherwise) in any other person or entity.
All of the MOC Subsidiary Shares and Souter Subsidiary Shares
have been duly authorized and validly issued and are fully paid
and nonassessable and not subject to preemptive rights. The
financial statements for the MOC Subsidiaries made available to
OSG fairly present, in all material respects, the consolidated
assets and liabilities of the MOC Subsidiaries as at the dates
indicated therein; changes in such assets and liabilities since
such dates have not been material and such changes have been in
the ordinary course of business of the MOC Subsidiaries.
(f) LEASES. Each of the Assigned Leases, and each of
the leases for real property under which an MOC subsidiary is a
lessee (collectively, the "Subsidiary Leases" and with the
Assigned Leases, the "MOC Leases"), is legal, valid and binding
as between MOC or other lessee thereunder (each, an "MOC
Lessee"), and the other party or parties thereto, and the
applicable MOC Lessee is a tenant or possessor in good standing
thereunder, free of any material default or breach and quietly
enjoys the premises provided for therein. Each rental and other
payment due thereunder has been duly made; each material act
required to be performed has to the best of the knowledge of the
applicable MOC Lessee, been duly performed; and, to the best of
the knowledge of the applicable MOC Lessee, no material act
forbidden to be performed has been performed thereunder. The
applicable MOC Lessee has the legal right (without the consent or
other approval of any other party) to possess and quietly enjoy
each of such premises and properties under MOC Lease to which it
is a party.
(g) LITIGATION, ETC. Other than actions, suits,
claims, proceedings and investigations (collectively,
"Proceedings") (i) heretofore disclosed by MOC to OSG or (ii)
arising in the ordinary course of business of MOC and covered by
appropriate insurance, there are no Proceedings pending or, to
the best knowledge of any MOC Company, threatened against or
directly affecting the business or affairs of any MOC Company
(insofar as they relate to the services rendered to the OSG
Companies), the employees of MOC (including any Proceedings by
such employees), the Assets, the MOC Leases or the MOC
Subsidiaries, at law or in equity, before or by any court,
commission, board, bureau, agency, instrumentalities or other
foreign, federal, state, local or other governmental authority
("Government"), which if adversely determined would have a
material adverse effect on the business or affairs of MOC and its
subsidiaries taken as a whole. There is no outstanding order,
injunction or decree of any court or Government against or
directly affecting any MOC Company, the employees thereof, or the
Assets, the MOC Leases or the MOC Subsidiaries.
(h) CONTRACTS, ETC. All MOC Contracts are in full
force and effect and constitute legal, valid and binding
obligations of the respective parties thereto; the applicable MOC
Company has performed all material obligations required to be
performed by it under the MOC Contracts and no material default,
or event which with notice or lapse of time or both would
constitute a material default, exists in respect thereof on the
part of the applicable MOC Company or, to the best of the
knowledge of the applicable MOC Company, the other parties
thereto; and the continuation, validity and effectiveness of all
MOC Contracts under the current material terms thereof (including
without limitation the current rentals or royalties under any
leases or licenses) will not be adversely affected in any
material respect by the consummation of the transactions
contemplated by this Agreement or, if any would be affected
without a consent or waiver, MOC shall cause an appropriate
consent or waiver respecting such transfer to be delivered to
OSGM prior to the Effective Time.
(i) COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. Except
as previously disclosed to OSG, no MOC Company has during the
past three years has received any notice asserting or charging
that it is not in material compliance with any foreign, federal,
state or local laws, statutes, ordinances, rules, regulations and
orders ("Laws") applicable to the operation, conduct or ownership
of its business insofar as it relates to the OSG Companies, MOC's
employees, the Assets, the MOC Leases and/or the MOC
Subsidiaries, including without limitation matters relating to
the environment, anti-competitive practices, improper payments,
discrimination, employment, health and safety (including but not
limited to the Occupational Safety and Health Act ("OSHA"), the
Clean Water Act, the Clean Air Act, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Oil
Pollution Act of 1990, the Equal Employment Opportunity Act
("EEOC") or any amendments thereto). The MOC Companies have, to
the best of their knowledge, all material foreign, federal, state
and local Government licenses, permits, approvals, authorizations
and consents ("Permits") necessary in the conduct of their
business insofar as it relates to the OSG Companies, and such
Permits are in full force and effect, and no notices of violation
have been received by an MOC Company in respect of any thereof,
and no Proceeding (other than any Proceeding heretofore disclosed
by MOC to OSG) is pending or, to the best of the knowledge of any
MOC Company, threatened to revoke or limit any thereof. MOC has
heretofore provided to OSG an accurate list of: (1) all such
Permits (none of which will be adversely affected in any material
respect by the consummation of the transactions contemplated
hereby unless otherwise indicated on said Schedule) and (2) all
consents, orders, decrees and other compliance agreements under
which any MOC Company is operating or bound, copies of all of
which have been furnished to OSG. Within the past three years,
no MOC Company has entered into any agreement with, or had any
material dispute with, any Government or other third party that
could reasonably be expected to restrict the operation of its
business insofar as it relates to the OSG Companies.
(j) LABOR RELATIONS: EMPLOYEES.
(i) MOC has heretofore provided to OSGM an
accurate list of the names and base compensation rates of the
employees of MOC and the Purchased MOC Subsidiaries as of
September 30, 1998.
(ii) No strike or labor dispute involving the MOC
Companies has occurred during the last three years or, to the
knowledge of the MOC Companies, is threatened. None of the
employees of the MOC Companies are represented by a union, and
none of the MOC Companies are a party to any collective
bargaining agreement.
(iii) To the knowledge of the MOC Companies, there
are no: (A) unfair labor practices charges or complaints against
any of the MOC Companies pending or threatened before the
National Labor Relations Board or any similar state or foreign
agency; (B) charges with respect to or relating to any of the MOC
Companies pending or threatened before the Equal Employment
Opportunity Commission or any other similar agency; or (C)
Proceedings relating to any of the MOC Companies pending or
threatened in connection with the enforcement of labor or
employment laws.
(k) ERISA.
(i) MOC has heretofore provided to OSGM an
accurate list of all "employee benefit plans," within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and any other bonus, severance,
change of control, deferred compensation, supplemental executive
retirement, insurance, health or welfare benefit, post-retirement
health or welfare benefit, stock option, fringe benefit or other
plan or agreement or payroll practice, currently maintained,
sponsored, or contributed to by any of the MOC Companies on
behalf of any employee of MOC or the Purchased MOC Subsidiaries
or such employees' beneficiaries (each a "Plan" and,
collectively, the "Plans"), including, without limitation, any
single employer pension plan (within the meaning of Section
4001(a)(15) of ERISA) which is subject to Sections 4063 and 4064
of ERISA ("Multiple Employer Plan"). With respect to each Plan,
a copy of the document embodying the Plan has been delivered or
made available to OSG and OSGM.
(ii) Each Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), has
received a favorable determination letter from the Internal
Revenue Service (the "IRS") that the Plan is qualified and that
its related trust has been determined to be exempt from taxation
under Section 501(a) of the Code. Neither MOC nor any of the
Purchased MOC Subsidiaries has withdrawn from or terminated
participation in any Multiple Employer Plan within the past three
years.
(iii) None of the MOC Companies maintains,
sponsors or contributes to or has maintained, sponsored or
contributed to any multiemployer plan within the meaning of
Section 3(37) of ERISA.
(iv) To the knowledge of the MOC Companies, each
MOC Company has, performed all material obligations required to
be performed under, and is in material compliance with, the terms
of each Plan and the requirements applicable to each Plan
prescribed by ERISA and the Code. All contributions required or
payments due and owing under each Plan, trust or otherwise
required by law with respect to all periods through the Effective
Time will be timely made.
(v) Neither MOC nor any of the MOC Companies, is
aware of any lawsuit or claim (other than routine claims for
benefits, and appeals of such claims) that in the last three
years has been asserted or instituted against any Plan or its
fiduciaries with regard to any such Plan.
(vi) To the knowledge of MOC and the other MOC
Companies, no Plan is under audit by the Internal Revenue Service
or the Department of Labor.
(vii) The consummation of the transactions
contemplated by the Agreement will not accelerate the time of
payment or vesting or increase the amount of compensation or
benefits due to any officer, director or employee of any of the
MOC Companies.
9. REPRESENTATIONS AND WARRANTIES OF OSG. OSG hereby
represents and warrants:
(a) ORGANIZATION. The OSG Companies are each
corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of
incorporation.
(b) ORGANIZATION, STANDING AND POWER. Each of the OSG
Companies is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation. OSG is duly qualified or licensed to do business
and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a
material adverse impact on the consummation by the OSG Companies
of the transactions contemplated hereunder.
(c) LEGAL AUTHORITY, BINDING EFFECT. Each OSG Company
has and shall have at the Effective Time or the Souter Effective
Time, as the case may be, the right, power and authority to
execute, deliver and perform this Agreement and the other
documents, certificates and instruments relating hereto
(collectively the "OSG Transfer Documents") to be executed and
delivered by such OSG Company in connection herewith and to
consummate the transactions contemplated hereunder and
thereunder. This Agreement does, and when executed by the
applicable OSG Company, the other OSG Transfer Documents shall,
constitute legal, valid and binding obligations of the applicable
OSG Company, enforceable against such OSG Company in accordance
with their respective terms. OSG and each other applicable OSG
Company has duly authorized by all necessary corporate action the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
(d) NO CONFLICTS, ETC. Neither the execution,
delivery or performance of this Agreement, nor any of the other
OSG Transfer Documents, nor the consummation by any of the OSG
Companies of the transactions contemplated hereby or thereby, nor
compliance with any of the provisions hereof or thereof, will:
(i) conflict with or result in a breach of the Certificate of
Incorporation or By-Laws or similar organizational document of
such OSG Company; (ii) violate any Law or any order, writ,
injunction or decree of any court or Government; (iii) violate or
conflict with, result in any breach of, constitute a default
under, give rise to any right of termination or acceleration of,
or require any consent, approval or other action of any third
party, under any material agreement of such OSG Company. Other
than such approvals as shall have been obtained and such
notifications as shall have been given in a timely fashion, no
approval of or notification to any Government is required in
connection with the execution, delivery or performance by any OSG
Company of this Agreement or any OSG Transfer Document or the
consummation of the transactions contemplated hereby or thereof.
(e) LITIGATION. There are no Proceedings pending, or,
to the best of the knowledge of any OSG Company, threatened
against or affecting the business or affairs of any OSG Company,
at law, or in equity, before or by any court or Government,
wherein an unfavorable judgment, decree or order would restrain,
prohibit, invalidate, set aside, rescind, prevent or make
unlawful this Agreement or the carrying out of this Agreement or
the transactions contemplated by this Agreement.
10. COVENANTS OF MOC.
(a) CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME.
MOC agrees that from the date hereof until the Effective Time
(or, insofar as such matters pertain to Souter or the Souter
Subsidiaries, until the Souter Effective Time), except as
required or contemplated by this Agreement or as otherwise
consented to or approved by OSG, such consent not to be
unreasonably withheld:
(i) The business of the MOC Companies shall be
operated in the ordinary course of business consistent with
present practices.
(ii) The MOC Companies shall not enter into any
contract relating to employment, compensation or benefits or
enter into or amend any employee benefit plan.
(iii) The MOC Companies shall maintain in effect
all insurance policies with respect to their business and
properties of the type and in amounts consistent with present
practice.
(iv) The MOC Companies shall maintain and
preserve the Assets (and the assets of the MOC Subsidiaries)
consistent with prior practice and shall not dispose of or
subject to any Liens any Assets (or assets of the MOC
Subsidiaries) other than in the ordinary course of business,
shall not dispose of or subject to any Liens any MOC Subsidiary
Shares, and shall not permit the issuance of nor any agreement to
issue any shares of capital stock of any MOC Subsidiary.
(v) The MOC Companies shall comply in all
material respects with provisions of Law and the MOC Contracts.
(vi) The MOC Companies shall not knowingly take
any action which would make materially untrue any of the
representations or warranties of MOC pursuant to this Agreement.
(b) CHANGE OF INFORMATION. MOC shall give OSG
reasonably prompt notice of any material change in any of the
information contained in the representations and warranties of
MOC hereunder or the Schedules hereto which occurs prior to the
Effective Time or, insofar as such information pertains to Souter
or the Souter Subsidiaries, prior to the Souter Effective Time.
11. REASONABLE EFFORTS; APPROVALS. Upon the terms and
subject to the conditions hereof, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws and the MOC
Contracts to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary waivers, consents and approvals
and affecting all necessary registrations and filings.
12. EMPLOYEES AND EMPLOYEE BENEFITS.
(a) At such time prior to the Effective Time as
mutually agreed by MOC and OSGM, OSGM shall make an offer of
employment, effective as of the Effective Time, to all employees
of MOC and the Purchased MOC Subsidiaries. All such employees
who accept or do not affirmatively decline OSGM's offer of
employment within ten business days after the Effective Time will
become employees of OSGM as of the Effective Time. The employees
to be employed by OSGM are referred to collectively as the
"Transferred Employees".
(b) As of the Effective Time, unless otherwise agreed
by the parties hereto, OSGM shall assume and/or become the
sponsor of each of the Plans. With respect to the stock option
plan maintained by MOC and previously disclosed by MOC to OSG, as
of the Effective Time, OSG shall assume all outstanding option
grants thereunder. Nothing described herein shall limit the
ability of OSGM or OSG, as the case may be, to amend or terminate
the Plans at any time on or after the Effective Time. To the
extent that OSGM provides employee benefits to the Transferred
Employees under plans sponsored or maintained by OSGM, nothing
contained in this Section 12 shall cause or result in the
Transferred Employees receiving, or being eligible to receive,
duplicate benefits.
(c) As of the Effective Time, OSGM shall adopt a basic
supplemental executive retirement plan (the "OSGM Basic SERP")
and a supplemental executive retirement plan plus (the "OSGM SERP
Plus") substantially in the forms of the respective supplemental
executive retirement plans maintained by MOC (the "MOC Basic
SERP" and the "MOC SERP Plus", as applicable). Except as
provided in the following sentence, the OSGM Basic SERP and the
OSGM SERP Plus shall recognize all compensation from and service
with MOC or its affiliates recognized by MOC or its affiliates
under the MOC Basic SERP and the MOC SERP Plus, as applicable.
Notwithstanding the foregoing, to the extent any participant
under the MOC Basic SERP does not waive his or her rights to
benefits under the MOC Basic SERP, OSGM shall assume the MOC
Basic SERP and the obligations thereunder and shall not recognize
compensation for and service with MOC or its affiliates under the
OSGM Basic SERP.
(d) Except as provided in (c) above, OSGM shall ensure
that any employee benefit plan or compensation arrangement
established, maintained or contributed to by OSGM or any of its
affiliates, will grant full credit for all service or employment
with MOC and any of its affiliates recognized by MOC or its
affiliates under a similar employee benefit plan sponsored by MOC
or its affiliates prior to the Effective Time, to the extent
applicable, for purposes of eligibility, vesting and benefit
accrual. OSGM shall ensure that any Plan which it assumes or
becomes the replacement sponsor of, including, without
limitation, any qualified defined benefit plan, qualified defined
contribution plan or supplemental executive retirement plan
sponsored by MOC, shall recognize service for purposes of
eligibility, vesting and benefit accrual to the same extent such
service had been recognized prior to the Effective Time under the
applicable Plan.
(e) As of the Effective Time, OSGM shall cause any
employee welfare benefit plan, as defined in Section 3(1) of
ERISA, which it establishes or maintains ("OSGM Welfare Plan"),
to the extent such OSGM Welfare Plan is a plan under which the
Transferred Employees were not eligible prior to the Effective
Time, but under which the Transferred Employees will participate
as of the Effective Time, to waive any pre-existing condition
exclusions, evidence of insurability provisions, waiting periods
(except to the extent that such exclusions would have then
applied or such waiting periods were not satisfied under MOC's
health plans) or any similar provisions with respect to
Transferred Employees (and their dependents or other
beneficiaries) after the Effective Time. For purposes of
computing deductible amounts, co-pays or other maximums under any
OSGM Welfare Plan, expenses and claims recognized prior to the
Effective Time for similar purposes under the applicable welfare
plan of MOC or any MOC Company shall be credited or recognized
under OSGM's Welfare Plan.
(f) None of OSG, OSGM nor the MOC Companies intend
this Section 12 to create any rights or interest except as
between OSGM and the MOC Companies and no present or future
employees of either party (or any dependents of such employees)
will be treated as third party beneficiaries in or under this
Section.
(g) OSGM shall be responsible for satisfying any and
all obligations under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") to provide COBRA
continuation coverage to current and former employees of MOC and
the Purchased MOC Subsidiaries and their beneficiaries
(regardless of whether the employee or beneficiary experiences a
"qualifying event" (as defined in COBRA) prior to, on or after
the Effective Time).
13 CONDITIONS PRECEDENT TO OSG AND OSGM'S OBLIGATIONS. All
obligations of OSG and OSGM under this Agreement are subject to
the fulfillment and satisfaction, prior to or at the Effective
Time (or, in the case of the purchase and sale of the shares of
Souter, the Souter Effective Time), of each of the following
conditions, any one or more of which may be waived by OSG:
(a) CONVEYANCE OF ASSETS, ETC. All of the Assets, MOC
Subsidiary Shares and Assigned Leases shall have been conveyed,
transferred and assigned to the applicable OSG Company, in
accordance with this Agreement, which conveyances, transfers and
assignments shall have been effected by bills of sale,
endorsements, assignments and other instruments of transfer and
conveyance, reasonably satisfactory to OSG, and the MOC Contracts
and Intangible Assets shall be unimpaired by the consummation of
the transactions contemplated hereby.
(b) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of MOC contained in this Agreement
shall be deemed to have been made again at and as of the
Effective Time or the Souter Effective Time, as applicable, and
shall then be true and correct in all material respects, and at
the Closing and the Souter Closing MOC shall have delivered to
OSG a certificate to such effect signed by an executive officer
of MOC.
(c) MOC'S PERFORMANCE. Each of the obligations of
each MOC Company to be performed by each of them at or before the
Effective Time or the Souter Effective Time, as applicable,
pursuant to the terms of this Agreement shall have been performed
in all material respects at or before the Effective Time or the
Souter Effective Time, as applicable, and at the Closing and the
Souter Closing MOC shall have delivered to OSG a certificate to
such effect signed by an executive officer thereof.
(d) AUTHORITY. All action required to be taken by or
on the part of any MOC Company to authorize the execution,
delivery and performance of this Agreement and all other MOC
Transfer Documents by the MOC Companies, and the consummation of
the transactions contemplated hereby and thereby, shall have been
duly and validly taken by the Board of Directors and shareholders
of the respective MOC Companies, and at the Closing and the
Souter Closing MOC shall have delivered to OSG a certificate to
such effect signed by an executive officer thereof.
(e) CONSENTS. MOC shall have obtained, in form and
substance reasonably satisfactory to OSG, any written consents
necessary to transfer any of the Assets, MOC Subsidiary Shares
and Assigned Leases or to maintain unimpaired notwithstanding the
consummation of the transactions contemplated hereby the MOC
Contracts and the Intangible Assets.
(f) LITIGATION. There shall not be any Proceeding by
or before any Government (i) which shall seek to restrain,
enjoin, prohibit or invalidate this Agreement or the transactions
contemplated hereby or which might affect the right of OSGM to
own, operate or control the Assets or the MOC Subsidiary Shares
or the Souter Subsidiary Shares, or impair the MOC Contracts or
Intangible Assets; or (ii) which seeks to subject any OSG Company
or MOC Subsidiary to any material liability, fine, forfeiture or
penalty on the grounds that any MOC Company either has or will
breach any Law or has otherwise acted improperly in connection
with this Agreement or the transactions contemplated hereby.
(g) ABSENCE OF CERTAIN MATERIAL ADVERSE CHANGES.
There shall not have occurred since the date hereof any material
adverse change in the Assets, or the Assumed Liabilities, or the
assets or liabilities of any MOC Subsidiary.
14 CONDITIONS PRECEDENT TO MOC'S OBLIGATIONS. All obligations
of MOC under this Agreement are subject to the fulfillment and
satisfaction, prior to or at the Effective Time or the Souter
Effective Time, as applicable, of each of the following
conditions, any one or more of which may be waived by MOC
(a) PAYMENT OF PURCHASE PRICE. OSGM shall have paid
the Purchase Price to MOC.
(b) ASSUMPTION OF OBLIGATIONS. The applicable OSG
Company shall have assumed the Assumed Liabilities and the
obligations accruing after the Effective Time under the Assigned
Leases, in accordance with this Agreement, under agreements and
instruments of assumption reasonably satisfactory to MOC.
(c) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of OSG contained in this Agreement
shall be deemed to have been made again at and as of the
Effective Time and the Souter Effective time, as applicable, and
shall then be true and correct in all material respects, and at
the Closing and the Souter Closing OSG shall have delivered to
MOC a certificate to such effect signed by an executive officer
of OSG.
(d) OSG COMPANIES' PERFORMANCE. Each of the
obligations of the OSG Companies to be performed by the OSG
Companies at or before the Effective Time or the Souter Effective
Time, as applicable, pursuant to the terms of this Agreement
shall have been performed in all material respects at or before
the Effective Time or the Souter Effective Time, as applicable,
and at the Closing and the Souter Closing OSG shall have
delivered to MOC a certificate to such effect signed by an
executive officer thereof.
(e) AUTHORITY. All action required to be taken by or
on the part of any OSG Company to authorize the execution,
delivery and performance of this Agreement and all other OSG
Transfer Documents by the OSG Companies, and the consummation of
the transactions contemplated hereby and thereby, shall have been
duly and validly taken by the Boards of Directors of the
respective OSG Companies, and at the Closing and the Souter
Closing OSG shall have delivered to MOC a certificate to such
effect signed by an executive officer thereof.
(f) LITIGATION. There shall not be any Proceeding by
or before any Government (i) which shall seek to restrain,
enjoin, prohibit or invalidate this Agreement or the transactions
contemplated hereby, or (ii) which seeks to subject any MOC
Company to any material liability, fine, forfeiture or penalty on
the grounds that any OSG Company either has or will breach any
Law or has otherwise acted improperly in connection with this
Agreement or the transactions contemplated hereby.
15 CLOSING; SOUTER CLOSING. The closing hereunder (the
"Closing") shall take place at 10:00 o'clock A.M. on the 30th day
of October, 1998 at the offices of MOC, 511 Fifth Avenue, New
York, New York, or at such other time and place as may be agreed
by OSG and MOC. The closing of the purchase and sale of the
shares of Souter hereunder shall take place at 10:00 o'clock A.M.
on the 31st day of December, 1998 at the offices of OSGM,
511 Fifth Avenue, New York, New York, or at such other time and
place as may be agreed upon by OSG and MOC.
16 INDEMNIFICATION BY MOC. Subsequent to the Effective
Time, MOC shall indemnify, defend and save the OSG Companies and
their respective affiliates, subsidiaries, officers, directors
and shareholders, harmless from, against, for and in respect of
any and all damages, losses, settlement payments, obligations,
liabilities, claims, actions or causes of action, encumbrances
and reasonable costs and expenses (including, without limitation,
reasonable costs of any necessary investigation of any claims and
reasonable attorney's and accounting fees) (collectively,
"Losses") suffered, sustained, incurred or required to be paid by
an OSG Company or any such other indemnified party (or any entity
in control of, controlled by or in common control with an OSG
Company or other indemnified party) because of the material
untruth or inaccuracy or material breach of any representation,
warranty, agreement or covenant of any MOC Company contained in
or made in connection with this Agreement or any Schedule or any
MOC Transfer Document.
17 INDEMNIFICATION BY OSG. Subsequent to the Effective
Time, OSG shall indemnify, defend, and save the MOC Companies and
their respective affiliates, subsidiaries, officers, directors
and shareholders harmless from, against, for and in respect of
any and all Losses suffered, sustained, incurred or required to
be paid by an MOC Company or any such other indemnified party (or
any entity in control of, controlled by or in common control with
an MOC Company) (any of the foregoing, an "MOC Indemnified
Party") because of (i) the material untruth or inaccuracy or
material breach of any representation, warranty, agreement or
covenant of an OSG Company contained in or made in connection
with this Agreement or any OSG Transfer Document; (ii) all
liabilities and obligations originally incurred by an MOC Company
which an OSG Company expressly assumes under or pursuant to this
Agreement provided that this clause (ii) shall apply with respect
to Souter and the Souter Subsidiaries only from and after the
Souter Effective Time; (iii) unless such liability or obligation
arises primarily out of a matter required to be disclosed by MOC
in this Agreement or a Schedule hereto or otherwise and which
matter has not been so disclosed, any and all liabilities and
obligations of any nature whatsoever, whether fixed or
contingent, known or unknown, matured or unmatured, liquidated or
unliquidated, of MOC to any officer, director or employee or
former officer, director or employee of MOC or any trust or other
plan for the benefit of any such employee or former employee; and
(iv) any Proceeding brought by a stockholder of OSG (including
any Proceeding brought by any such stockholder in the right of
OSG, but excluding any Proceeding where such indemnification
would not be permitted by law) alleging that any MOC Indemnified
Party acted improperly in connection with the transactions
contemplated by this Agreement.
18 RULES REGARDING INDEMNIFICATION.
(a) The rights and obligations of each party claiming
a right to indemnification hereunder ("Indemnitee") from the
other party ("Indemnitor") shall be governed by the following
rules:
(i) The Indemnitee shall give prompt written
notice to the Indemnitor of any state of facts which Indemnitee
believes will give rise to a claim by the Indemnitee against the
Indemnitor based on the indemnity agreements contained in
Sections 16 and 17 hereof, reasonably stating the nature and
basis of said claims and the amount thereof, to the extent known.
No failure to give such notice shall affect the indemnification
obligations of Indemnitor hereunder except to the extent such
failure materially prejudiced such Indemnitor's ability to
successfully defend the matter giving rise to the indemnification
claim.
(ii) In the event any Proceeding is brought
against the Indemnitee, with respect to which the Indemnitor may
have liability under the indemnity agreements contained in
Section 16 or Section 17 hereof, then such Proceeding may be
defended by the Indemnitor at Indemnitor's expense with counsel
selected by Indemnitor (subject to Indemnitee's reasonable
consent). In the event that representation of Indemnitee by
Indemnitor's counsel would present such counsel with a conflict
of interest, or if Indemnitor shall fail to assume the defense of
the Proceeding in a timely manner, then such Indemnitee may
employ separate counsel reasonably satisfactory to the Indemnitor
to represent or defend the Indemnitee in the Proceeding and the
Indemnitor will promptly pay from time to time the reasonable
fees and expenses of such counsel; provided, however, that the
Indemnitor will not be required to pay the fees and expenses of
more than one separate counsel for all Indemnitees in any
jurisdiction in any single Proceeding or in separate but similar
Proceedings. In any Proceeding in which the Indemnitee does not
have the right to employ its own counsel at Indemnitor's expense
as permitted by the immediately preceding sentence, the
Indemnitee shall have the right to employ counsel to participate
in such Proceeding, but the fees and expenses of such counsel
employed by Indemnitee to participate in such Proceeding shall be
at the Indemnitee's own expense.
(iii) The Indemnitee shall be kept reasonably in
formed by the Indemnitor of such Proceeding. Each party shall,
at its own expense, make available to the other parties and their
respective attorneys and accountants all books and records of
such party relating to such Proceeding, and the parties hereto
agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper
and adequate defense of any such Proceeding.
(b) The Indemnitor shall make no settlement of any
claims which Indemnitor has undertaken to defend, without
Indemnitee's consent, such consent not to be unreasonably
withheld, and the Indemnitee shall make no settlement of any
claims covered by the indemnities hereunder without the
Indemnitor's consent, such consent not to be unreasonably
withheld.
19 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; PERIOD FOR
CLAIMS. All representations and warranties made hereunder shall
survive the Effective Time for a period of one year; no claim
(other than a claim under Section 17(ii) or (iii) hereof, which
shall survive without limitation as to time) for indemnification
hereunder may be made more than one year after the Effective
Time.
20 FURTHER ACTIONS. At any time and from time to time
after the Effective Time, at OSG's request and without further
consideration, MOC shall, and shall cause the other MOC Companies
to, execute and deliver such other instruments of sale,
conveyance, transfer, assignment and confirmation and take such
further action as OSG may reasonably deem necessary or desirable
in order to more effectively convey, transfer and assign to the
applicable OSG Company, to confirm the applicable OSG Company's
title to, and to preserve unimpaired, all of the Assets and the
MOC Leases, to put the applicable OSG Company in actual
possession and operating control thereof and to assist the
applicable OSG Company in exercising all rights with respect
thereto. At or after the Effective Time, the parties shall make
such payments and take such other actions as they may agree to be
necessary or appropriate to equitably carry out the transactions
contemplated by this Agreement. After the Effective Time, at
reasonable times and on reasonable notice, MOC shall have access
to the books and records conveyed to the OSG Companies hereunder,
and OSG shall have access to any books and records retained by
the MOC Companies.
21 NOTICES. Any and all notices or other communications
or deliveries required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be
deemed to have been duly given (i) three days after the mailing
thereof by registered mail, return receipt requested, (ii) on the
day following mailing when sent by overnight express mail or
courier and (iii) at the actual time of receipt when delivered
personally, addressed to MOC or OSGM at 511 Fifth Avenue,
New York, New York 10017, or to OSG at 1114 Avenue of the
Americas, New York, New York 10036, or such other address as any
such party may designate by notice duly given hereunder.
22. MISCELLANEOUS.
(a) This writing, including all Schedules hereto,
constitutes the entire agreement of the parties with respect to
the subject matter hereof and may not be modified, amended or
terminated except by a written agreement specifically referring
to this Agreement signed by OSG and MOC.
(b) No waiver of any breach or default hereunder shall
be considered valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar
nature.
(c) This Agreement shall be binding upon and inure to
the benefit of each party hereto (and each OSG Subsidiary), its
successors and assigns, and shall not inure to the benefit of or
be enforceable by any other person or entity. OSG shall cause
the OSG Subsidiaries to comply with their obligations under this
Agreement. The benefits of this Agreement may be assigned by OSG
to an entity directly or indirectly owned or controlled by it or
under common control with it, provided that the OSG Companies
shall in any such event continue to be jointly and severally
liable with such new entity for all obligations and undertakings
contained in this Agreement.
(d) The section and subsection headings contained
herein are for the purposes of convenience only and are not
intended to define or limit the contents of such sections.
(e) Each party hereto shall cooperate, shall take such
further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in
order to carry out the provisions and purposes of this Agreement.
(f) Whether or not the transactions contemplated
hereby are consummated, the parties hereto shall each pay its own
expenses in connection with this Agreement and the transactions
contemplated hereby.
(g) This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one
instrument.
(h) To the extent possible, each provision of this
Agreement shall be interpreted in a manner as to be valid, legal
and enforceable. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal or
unenforceable in any respect or in any instance shall be
effective only to the extent of such invalidity, illegality or
unenforceability and shall not affect the validity, legality or
enforceability of any other provision of this Agreement.
(i) This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York,
without regard to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first set forth above.
OVERSEAS SHIPHOLDING GROUP, INC.
By:-----------------------------
Name:
Title:
OSG SHIP MANAGEMENT, INC.
By:-----------------------------
Name:
Title:
MARITIME OVERSEAS CORPORATION
By:-----------------------------
Name:
Title:
EXHIBIT 10(c)(2)
----------------
OSG SHIP MANAGEMENT, INC.
BASIC
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE AS OF OCTOBER 30, 1998
This Plan is established effective as of October 30,
1998 ( the "Effective Date"). Effective as of the Effective
Date, OSG Ship Management, Inc. (the "Company") became the
employer of substantially all of the former employees of Maritime
Overseas Corporation ("MOC"). Prior to the Effective Date, MOC
maintained two supplemental effective retirement plans, both
primarily for the purpose of providing supplementary retirement
benefits for a select group of management and highly compensated
employees of MOC - the Basic Supplemental Executive Retirement
Plan (the "MOC Basic SERP") and the Supplemental Executive Retire
ment Plan Plus (the "MOC SERP Plus").
This Plan applies to participants in the MOC Basic SERP
who are not in pay status under the MOC Basic SERP on the
Effective Date and who elect, in writing, to waive any rights to
benefits under the MOC Basic SERP. This Plan also applies to
future Participants designated by the Board.
1. DEFINITIONS. For purposes of this Plan, the following
definitions apply:
(a) "ACTUARIAL EQUIVALENT" means an amount equal in value
on an actuarial basis, as determined by an actuary selected by
the Committee, based upon the mortality and interest rates set
forth in the Qualified Plan, as amended from time to time.
(b) "BASIC SUPPLEMENTAL BENEFIT" means the lump sum benefit
payable under this Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE OF CONTROL" means a change of control as
provided in Exhibit A hereto.
(e) "CODE" means the Internal Revenue Code of 1986, as
amended.
(f) "COMMITTEE" means the committee, if any, appointed by
the Board to administer this Plan on its behalf. If no committee
is appointed, the Board shall be deemed to be the Committee.
(g) "COMPANY" means OSG Ship Management, Inc. or any
successor thereto as a result of a merger or consolidation.
(h) "EMPLOYEE" means any person employed by the Company.
(i) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(j) "INITIAL PAYMENT DATE" means, except as otherwise
provided herein, the first day of the month coinciding with or
next following the latest of (i) three (3) months after the date
on which the Participant incurs a Termination of Employment, (ii)
the Participant's fifty-fifth (55th) birthday, or (iii) such
later date as the Participant elects in a writing filed with the
Committee at least one (1) year prior to the Employee's Termina
tion of Employment, provided that such election is approved by
the Committee in its sole discretion. Such an election may be
revoked by the Participant by written notice filed with the
Committee at least one (1) year prior to Termination of Employ
ment. Any election made under the Prior Plan shall be deemed to
be an election made under this Plan.
(k) "MOC" means Maritime Overseas Corporation.
(l) "OSG" means Overseas Shipholding Group, Inc. or any
successor thereto as a result of a merger or consolidation.
(m) "PARTICIPANT" means the persons set forth on Exhibit B
hereto and any other Employee of the Company who is designated as
a Participant in this Plan by the Board.
(n) "PARTICIPATING ENTITY" means any entity that partici
pates in the Qualified Plan or that is otherwise classified as a
Participating Entity by the Committee.
(o) "PLAN" means this OSG Ship Management, Inc. Basic
Supplemental Executive Retirement Plan, as amended from time to
time.
(p) "QUALIFIED PLAN" means the Pension Plan for Employees
of OSG Ship Management, Inc., as it is amended from time to time
(formerly, the Pension Plan for Employees of Maritime Overseas
Corporation).
(q) "STANDARD FORM" means a straight life annuity with no
contingent benefit and no period certain.
(r) "TERMINATION OF EMPLOYMENT" means termination of
employment as an Employee of the Company and all Participating
Entities for any reason whatsoever, including but not limited to
death, retirement, resignation or firing (with or without cause).
2. BASIC SUPPLEMENTAL BENEFITS.
(a) The Basic Supplemental Benefit shall be equal to the
Actuarial Equivalent lump sum of the (i) hypothetical vested
monthly accrued benefit (based on the provisions of the Qualified
Plan) in the Standard Form the Participant would have received
under the Qualified Plan (based solely on the Participant's
compensation and service with the Company and MOC), on the
Initial Payment Date if the limitations of Code Sections
401(a)(17), 415 and 416 (as applied under the Qualified Plan) did
not apply, less (ii) the Actuarial Equivalent monthly benefit on
the Initial Payment Date of the Participant's actual monthly
benefit in the Standard Form being received (or, if not then
being received, assuming benefits under the Qualified Plan then
commenced) under the Qualified Plan. The Basic Supplemental
Benefit shall be calculated based on all compensation and service
recognized under the Qualified Plan, whether or not with the
Company or MOC, and then prorated as set forth in (b) below.
(b) If the compensation and service used in determining the
Basic Supplemental Benefit pursuant to (a) above includes
compensation or service with a Participating Entity other than
the Company and MOC, the Basic Supplemental Benefit paid
hereunder shall be limited to the allocable portion attributable
to the Company. The allocable portion attributable to the
Company shall be determined by (i) calculating the total benefit
payable under the Qualified Plan and this Plan, if any, to a
Participant from each Participating Entity based only on his
compensation and service with such Participating Entity (but
aggregating total Hours of Employment in a Plan Year for purposes
of determining Years of Service) and (ii) multiplying the Basic
Supplemental Benefit under this Plan by the ratio of such benefit
attributable to the Company or MOC to the aggregate benefit
attributable to all Participating Entities. Notwithstanding the
foregoing, the Committee may, in its sole discretion, if it
determines it to be equitable based on the Participant's
compensation and service, otherwise allocate responsibility for
any portion of the Basic Supplemental Benefit, provided that the
Participating Entity allocated to has a plan similar to this and
its committee agrees to such allocation. The Company shall not
be responsible for any portion of the Basic Supplemental Benefit
attributable to or allocated to service with another Participat
ing Entity and no such other Participating Entity shall have any
obligation by virtue of the Plan.
3. PAYMENT.
(a) BASIC FORM OF BENEFIT. Subject to (b) below, a Par
ticipant's Basic Supplemental Benefit shall be paid in the form
of a lump sum benefit, payable as soon as administratively
feasible after the Initial Payment Date.
(b) OPTIONAL FORM OF BENEFIT. The Participant shall have
the right, in a writing filed with the Committee, to elect a form
of benefit other than that specified in (a) above, provided,
however, that such optional form of benefit is available under
the Qualified Plan on the Initial Payment Date and that such
election is made and filed at least one (1) year prior to the
Participant's Termination of Employment and is approved by the
Committee in its sole discretion. Such an election may be
revoked by the Participant by written notice filed with the
Committee at least one (1) year prior to Termination of Employ
ment. Any election made under the Prior Plan shall be deemed to
be an election made under this Plan.
(c) RIGHT TO ACCELERATE PAYMENT. Notwithstanding anything
else herein, the Company shall have the right, in its sole and
absolute discretion, to accelerate the payment of any Basic
Supplemental Benefit payable hereunder; provided, that any
accelerated payment(s) shall be equal to the Actuarial Equivalent
of the Participant's Basic Supplemental Benefit assuming that the
acceleration date is the Initial Payment Date and that the
Participant has commenced to receive his benefit under the
Qualified Plan on the date of such payment.
(d) CHANGE OF CONTROL. Notwithstanding the above, upon the
occurrence of a Change of Control, the Actuarial Equivalent of
each Participant's then accrued Basic Supplemental Benefit
(calculated based on the assumption that the Participant has
commenced to receive his benefit under the Qualified Plan on the
date of such payment) shall be promptly paid in a lump sum to
such Participant and, the Actuarial Equivalent of such payment
shall be offset from the Basic Supplemental Benefit due the
Participant on the Initial Payment Date.
(e) FORFEITURE. A Participant shall, in the sole discre
tion of the Committee, forfeit his Basic Supplemental Benefit in
the event that within three (3) years after his Termination of
Employment he engages, without the prior written consent of the
Committee, in any activity which the Committee, in its sole
discretion, believes to be competitive with the activities of the
Company or OSG. Such forfeiture shall be equal to the greater of
(i) the unpaid portion of his Basic Supplemental Benefit and (ii)
the portion of his Basic Supplemental Benefit, whether
theretofore paid or not paid, which in the Standard Form would be
attributable to the period after which he commences to compete.
To the extent any forfeited amounts shall have theretofore been
paid to the Participant, upon demand, he shall promptly refund
such amounts to the Company. If he fails to promptly do so, he
shall be liable to the Company for its costs of collection,
including reasonable attorneys' fees and disbursements. This
Section 3(e) shall not be applicable to any Participants whose
Termination of Employment is less than ninety (90) days before or
less than two (2) years after a Change of Control.
4. DEATH OF PARTICIPANT.
(a) DEATH PRIOR TO INITIAL PAYMENT DATE. In the event of
the death of a Participant who has accrued a Basic Supplemental
Benefit prior to his Initial Payment Date, his spouse and/or
beneficiary shall receive a benefit calculated in the same manner
as in the Qualified Plan (but without regard to Code Sections
401(a)(17), 415 and 416)) to the extent such benefit would be
receivable under the terms of the Qualified Plan upon his death
prior to commencement of benefits if the benefit was payable from
the Qualified Plan less the benefit payable from the Qualified
Plan. His spouse and/or beneficiary shall be the same persons or
entities as designated or determined under the Qualified Plan.
The benefit payable hereunder, however, shall be paid in an
Actuarial Equivalent lump sum as soon as administratively feasi
ble after the Participant's death.
(b) DEATH AFTER INITIAL PAYMENT DATE. If a Participant
dies on or after the Initial Payment Date, no death benefits will
be payable hereunder upon the death of the Participant unless the
Participant is receiving a form of benefit with a survivor
benefit pursuant to Section 3(b) above. If a Participant is
receiving a form of benefit with a survivor benefit, any benefits
becoming due will, subject to Section 3(c) above, be paid in
accordance with such form of benefit.
5. REEMPLOYMENT.
If a Participant is reemployed by the Company after
commencing to receive a Basic Supplemental Benefit hereunder but
does not again become a Participant, the Company shall have the
right at its election to suspend benefits payable hereunder
during such period of employment with an appropriate Actuarial
Equivalent adjustment in his benefits when they recommence. If
the former Participant again becomes a Participant accruing
benefits under the Plan, he shall cease to receive Basic
Supplemental Benefits, his prior election as to his form of
benefit shall be deemed cancelled, he shall have his benefits
recalculated based on his entire service for the Company offset
by the Actuarial Equivalent of the previously received Basic
Supplemental Benefit, and benefits shall be payable in accordance
with Sections 3 and 4 above. In no event shall the combined
Basic Supplemental Benefit (as actuarially adjusted to reflect
Actuarial Equivalents) be greater than the Basic Supplemental
Benefit the Participant would have received if his service had
been continuous.
6. CLAIMS PROCEDURE.
(a) The Committee shall be responsible for determining all
claims for benefits under this Plan by the Participants or their
beneficiaries. Within ninety (90) days after receiving a claim
(or within up to one hundred eighty (180) days, if the claimant
is so notified, including notification of the reason for the
delay), the Committee shall notify the Participant or beneficiary
of its decision in writing, giving the reasons for its decision
if adverse to the claim. If the decision is adverse to the
claimant, the Committee shall advise him of the Plan provisions
involved, of any additional information which he must provide to
perfect his claim and why, and of his right to request a review
of the decision.
(b) A claimant may request a review of an adverse decision
by written request to the Committee made within sixty (60) days
after receipt of the decision. The claimant, or his duly autho
rized representative, may review pertinent documents and submit
written issues and comments.
(c) Within sixty (60) days after receiving a request for
review, the Committee shall notify the claimant in writing of
(i) its decision, (ii) the reasons therefore, and (iii) the Plan
provisions upon which it is based.
(d) The Committee may at any time alter the claims proce
dure set forth above, so long as the revised claims procedure
complies with ERISA, and the regulations issued thereunder.
(e) The Committee shall have the full power and authority
to interpret, construe and administer this Plan in their sole
discretion based on the provisions of the Plan and to decide any
questions and settle all controversies that may arise in connec
tion with the Plan. Both the Committee's and the Board's inter
pretations and construction thereof, and actions thereunder, made
in the sole discretion of the Committee and the Board, including
any valuation of the Basic Supplemental Benefit, any
determination under this Section 6, or the amount of the payment
to be made hereunder, shall be final, binding and conclusive on
all persons for all persons. No member of the Board or Committee
shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this
Plan.
(f) The Board shall determine, subject to the provisions of
this Plan: (i) the additional Employees who shall participate in
the Plan from time to time; and (ii) when an Employee shall cease
to be a Participant.
7. CONSTRUCTION OF PLAN.
Nothing contained in this Plan and no action taken
pursuant to the provisions of this Plan shall create or be
construed to create a trust of any kind, or a fiduciary relation
ship between the Company and the Participants, their designated
beneficiaries or any other person. Any funds which may be
invested under the provisions of this Plan shall continue for all
purposes to be part of the general funds of the Company and no
person other than the Company shall by virtue of the provisions
of this Plan have any interest in such funds. To the extent that
any person acquires a right to receive payments from the Company
under this Plan, such right shall be no greater than the right of
any unsecured general creditor of the Company.
8. MINORS AND INCOMPETENTS.
If the Committee shall find that any person to whom
payment is payable under this Plan is unable to care for his
affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefore shall have been made
by a duly appointed guardian, committee or other legal represen
tative) may be paid to the spouse, a child, parent, or brother or
sister, or to any person deemed by the Committee to have incurred
expense for such person otherwise entitled to payment, in such
manner and proportions as the Committee may determine it its sole
discretion. Any such payment shall be a complete discharge of
the liabilities of the Company, the Committee and the Board under
this Plan.
9. LIMITATION OF RIGHTS.
Nothing contained herein shall be construed as confer
ring upon an Employee the right to continue in the employ of the
Company as an executive or in any other capacity or to interfere
with the Company's right to discharge him at any time for any
reason whatsoever.
10. PAYMENT NOT SALARY.
Any Basic Supplemental Benefit payable under this Plan
shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he may be
entitled under any pension plan or other arrangement of the
Company for the benefit of its employees.
11. SEVERABILITY.
In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be con
strued and enforced as if such illegal and invalid provision
never existed.
12. WITHHOLDING.
The Company shall have the right to make such provi
sions as it deems necessary or appropriate to satisfy any obliga
tions it may have to withhold federal, state or local income or
other taxes incurred by reason of payments or accrual pursuant to
this Plan.
13. ASSIGNMENT.
This Plan shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the
Participants and their heirs, executors, administrators and legal
representatives. In the event that the Company sells all or
substantially all of the assets of its business and the acquiror
of such assets assumes the obligations hereunder, the Company
shall be released from any liability imposed herein and shall
have no obligation to provide any benefits payable hereunder.
14. NON-ALIENATION OF BENEFITS.
The benefits payable under this Plan shall not be
subject to alienation, transfer, assignment, garnishment, execu
tion or levy of any kind, and any attempt to cause any benefits
to be so subjected shall not be recognized.
15. GOVERNING LAW.
To the extent legally required, the Code and ERISA
shall govern this Plan and, if any provision hereof is in viola
tion of any applicable requirement thereof, the Company reserves
the right to retroactively amend this Plan to comply therewith.
To the extent not governed by the Code and ERISA, this Plan shall
be governed by the laws of the State of New York, without regard
to conflict of law provisions.
16. AMENDMENT OR TERMINATION OF PLAN.
The Board or the Committee may amend this Plan from
time to time in any respect, and may at any time terminate the
Plan in its entirety. In addition, at any time, the Board or the
Committee may exclude any Participant from further participation
in the Plan. In the event of any amendment, Termination or
exclusion, the Participant shall have a vested right to a benefit
from this Plan equal to his total vested benefit from this Plan
as of the date of such Termination, amendment or exclusion
reduced by future growth, if any, of the benefit under the
Qualified Plan attributable to increases thereafter, but prior to
payment of the benefit, in the Code Sections 401(a)(17), 415 and
416 limits, including without limitation increase in the
Participant's final average compensation recognized under the
Qualified Plan as a result of increases in the Code 401(a)(17)
limit even though it is applied to future earnings so long as it
is not in excess of the Participant's compensation at the time of
the amendment, termination or exclusion, but not increases in the
Qualified Plan benefit attributable to future service credit,
future compensation, future vesting or increase in the benefit
formula. In the event of a Termination of the Plan or exclusion
of a Participant, the Company may distribute to each or any
Participant, as it deems appropriate, the Actuarial Equivalent of
his accrued benefit as of such date (as if a Termination of
Employment had occurred) and have no further obligation hereun
der. Section 3(e) above shall continue to apply to the Partici
pant. Any such action by the Board or the Committee with respect
to the Plan shall be binding on the Company and Employee.
17. NON-EXCLUSIVITY.
The adoption of the Plan by the Company shall not be
construed as creating any limitations on the power of the Company
to adopt such other supplemental retirement income arrangements
as it deems desirable, and such arrangements may be either
generally applicable or limited in application.
18. GENDER AND NUMBER.
Wherever used in this Plan, the masculine shall be
deemed to include the feminine and the singular shall be deemed
to include the plural, unless the context clearly indicates
otherwise.
19. HEADINGS AND CAPTIONS.
The headings and captions herein are provided for
reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of
the Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed this 30th day of October, 1998.
OSG SHIP MANAGEMENT, INC.
By:
-----------------------
Title:
<PAGE>
EXHIBIT A
CHANGE OF CONTROL
For purposes of this Plan, a "Change of Control" shall
be deemed to have occurred if: (i) any person (as defined in
Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and as used in Sections 13(d) and
14(d) thereof)), excluding MOC, the Company, Overseas Shipholding
Group, Inc. ("OSG"), any "Subsidiary" of either, any employee
benefit plan sponsored or maintained by the Company, OSG or any
Subsidiary of either (including any trustee of any such plan
acting in his capacity as trustee) and any person who (or group
which includes a person who) is the beneficial owner (as defined
in Rule 13(d)-3 under the Exchange Act) as of January 1, 1994 of
at least fifteen percent (15%) of the common stock of OSG,
becomes the beneficial owner (as defined in Rule 13(d)-3 under
the Exchange Act) of shares of OSG having at least thirty percent
(30%) of the total number of votes that may be cast for the
election of directors of OSG; (ii) the shareholders of OSG shall
approve any merger or other business combination of OSG, sale of
all or substantially all of OSG's assets or combination of the
foregoing transactions (a "Transaction"), other than a Transac
tion involving only OSG and one or more of its Subsidiaries, or a
Transaction immediately following which the shareholders of OSG
immediately prior to the Transaction continue to have a majority
of the voting power in the resulting entity (excluding for this
purpose any shareholder of OSG owning directly or indirectly more
than ten percent (10%) of the shares of the other company in
volved in the Transaction if such shareholder is not as of
January 1, 1994, the beneficial owner (as defined in Rule 13(d)-3
under the Exchange Act) of at least fifteen percent (15%) of the
common stock of OSG); or (iii) within any twenty-four (24) month
period beginning on or after the date hereof, the persons who
were directors of OSG immediately before the beginning of such
period (the "Incumbent Directors") shall cease (for any reason
other than death) to constitute at least a majority of the board
of directors of OSG, or the board of directors of any successor
to OSG (the "Board"), provided that, any director who was not a
director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either
actually or by prior operation of the foregoing unless such
election, recommendation or approval was the result of an actual
or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any
successor provision. Notwithstanding the foregoing, no Change of
Control of OSG shall be deemed to have occurred for purposes of
this Plan by reason of any Transaction which shall have been
approved by action or vote of a majority of the Incumbent Direc
tors.
<PAGE>
EXHIBIT 10(c)(2)
----------------
OSG SHIP MANAGEMENT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PLUS
EFFECTIVE AS OF OCTOBER 30, 1998
This Plan is established effective as of October 30,
1998 (the "Effective Date"). Effective as of the Effective Date,
OSG Ship Management, Inc. (the "Company") became the employer of
substantially all of the former employees of Maritime Overseas
Corporation ("MOC"). Prior to the Effective Date, MOC maintained
two supplemental effective retirement plans, both primarily for
the purpose of providing supplementary retirement benefits for a
select group of management and highly compensated employees of
MOC - the Basic Supplemental Executive Retirement Plan (the "MOC
Basic SERP") and the Supplemental Executive Retirement Plan Plus
(the "MOC SERP Plus").
Immediately prior to the Effective Date there were no
participants under the MOC SERP Plus. This Plan applies to
future Participants designated by the Board.
1. DEFINITIONS. For purposes of this Plan, the following
definitions apply:
(a) "ACTUARIAL EQUIVALENT" means an amount equal in value
on an actuarial basis, as determined by an actuary selected by
the Committee, based upon the mortality and interest rates set
forth in the Qualified Plan, as amended from time to time.
(b) "BASIC PLAN" means the OSG Ship Management, Inc. Basic
Supplemental Executive Retirement Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE OF CONTROL" means a change of control as
provided in Exhibit A hereto.
(e) "CODE" means the Internal Revenue Code of 1986, as
amended.
(f) "COMMITTEE" means the committee, if any, appointed by
the Board to administer this Plan on its behalf. If no committee
is appointed, the Board shall be deemed to be the Committee.
(g) "COMPANY" means OSG Ship Management, Inc. or any
successor thereto as a result of a merger or consolidation.
(h) "EMPLOYEE" means any person employed by the Company.
(i) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(j) "INITIAL PAYMENT DATE" means, except as otherwise
provided herein, the first day of the month coinciding with or
next following the latest of (i) three (3) months after the date
on which the Participant incurs a Termination of Employment, (ii)
the Participant's fifty-fifth (55th) birthday, or (iii) such
later date as the Participant elects in a writing filed with the
Committee at least one (1) year prior to the Employee's
Termination of Employment, provided that such election is
approved by the Committee in its sole discretion. Such an
election may be revoked by the Participant by written notice
filed with the Committee at least one (1) year prior to
Termination of Employment. Any election made under the Prior
Plan shall be deemed to be an election made under this Plan.
(k) "MOC" means Maritime Overseas Corporation.
(l) "OSG" means Overseas Shipholding Group, Inc. or any
successor thereto as a result of a merger or consolidation.
(m) "PARTICIPANT" means the persons set forth on Exhibit B
hereto and any other Employee of the Company who is designated as
a Participant in this Plan by the Board.
(n) "PARTICIPATING ENTITY" means any entity that
participates in the Qualified Plan or that is otherwise
classified as a Participating Entity by the Committee.
(o) "PLAN" means this OSG Ship Management, Inc.
Supplemental Executive Retirement Plan Plus, as amended from time
to time.
(p) "QUALIFIED PLAN" means the Pension Plan for Employees
of OSG Ship Management, Inc., as it is amended from time to time
(formerly, the Pension Plan for Employees of Maritime Overseas
Corporation).
(q) "STANDARD FORM" means a straight life annuity with no
contingent benefit and no period certain.
(r) "SUPPLEMENTAL PLUS BENEFIT" means the lump sum benefit
payable under this Plan.
(s) "TERMINATION OF EMPLOYMENT" means termination of
employment as an Employee of the Company and all Participating
Entities for any reason whatsoever, including but not limited to
death, retirement, resignation or firing (with or without cause).
2. SUPPLEMENTAL PLUS BENEFIT.
(a) The Supplemental Plus Benefit shall be equal to the
Actuarial Equivalent lump sum of the (i) hypothetical vested
monthly accrued benefit (based on the provisions of the Qualified
Plan) in the Standard Form the Participant would have received
under the Qualified Plan, on the Initial Payment Date if the
limitations of Code Sections 401(a)(17), 415 and 416 (as applied
under the Qualified Plan) did not apply and the Participant was
credited with such additional service and compensation that the
Board, in its sole discretion, recognizes for purposes of the
Supplemental Plus Benefit, less (ii) the Actuarial Equivalent
monthly benefit on the Initial Payment Date of the Participant's
actual monthly benefit in the Standard Form being received (or,
if not then being received, assuming benefits under the Qualified
Plan and Basic Plan then commenced) under the Qualified Plan and
the Basic Plan.
(b) If the additional compensation and service used in
determining the Supplemental Plus Benefit pursuant to (a) above
includes compensation or service with a Participating Entity
other than the Company or MOC, the Supplemental Plus Benefit paid
hereunder shall be limited to the allocable portion attributable
to the Company. The allocable portion attributable to the
Company shall be determined by (i) calculating the total
Supplemental Plus Benefit payable to a Participant from each
Participating Entity based only on any additional recognized
service and compensation and (ii) multiplying the Supplemental
Plus Benefit under this Plan by the ratio of such benefit
attributable to the additional service and compensation
recognized by the Company and MOC to the aggregate benefit
attributable to all Participating Entities. Notwithstanding the
foregoing, the Committee may, in its sole discretion, if it
determines it to be equitable based on the Participant's
compensation and service, otherwise allocate responsibility for
any portion of the Supplemental Plus Benefit, provided that the
Participating Entity allocated to has a plan similar to this and
its committee agrees to such allocation. The Company shall not
be responsible for any portion of the Supplemental Plus Benefit
attributable to or allocated to service with another
Participating Entity and no such other Participating Entity shall
have any obligation by virtue of the Plan.
(c) The Board, in its sole discretion, may increase a
Participant's Supplemental Plus Benefit, his recognized service
or his recognized compensation and may establish such conditions
on such increase as it deems appropriate. Extra service shall be
recognized as provided in Exhibit C hereto.
3. PAYMENT.
(a) BASIC FORM OF BENEFIT. Subject to (b) below, a
Participant's Supplemental Plus Benefit shall be paid in the form
of a lump sum benefit, payable as soon as administratively
feasible after the Initial Payment Date.
(b) OPTIONAL FORM OF BENEFIT. The Participant shall have
the right, in a writing filed with the Committee, to elect a form
of benefit other than that specified in (a) above, provided,
however, that such optional form of benefit is available under
the Qualified Plan on the Initial Payment Date and that such
election is made and filed at least one (1) year prior to the
Participant's Termination of Employment and is approved by the
Committee in its sole discretion. Such an election may be
revoked by the Participant by written notice filed with the
Committee at least one (1) year prior to Termination of
Employment. Any election made under the Prior Plan shall be
deemed to be an election made under this Plan.
(c) RIGHT TO ACCELERATE PAYMENT. Notwithstanding anything
else herein, the Company shall have the right, in its sole and
absolute discretion, to accelerate the payment of any
Supplemental Plus Benefit payable hereunder; provided, that any
accelerated payment(s) shall be equal to the Actuarial Equivalent
of the Participant's Supplemental Plus Benefit assuming that the
acceleration date is the Initial Payment Date and that the
Participant has commenced to receive his benefits under the
Qualified Plan and Basic Plan on the date of such payment.
(d) CHANGE OF CONTROL. Notwithstanding the above, upon the
occurrence of a Change of Control, the Actuarial Equivalent of
each Participant's then accrued Supplemental Plus Benefit
(calculated based on the assumption that the Participant has
commenced to receive his benefits under the Qualified Plan and
Basic Plan on the date of such payment) shall be promptly paid in
a lump sum to such Participant and, the Actuarial Equivalent of
such payment shall be offset from the Supplemental Plus Benefit
due the Participant on the Initial Payment Date.
(e) FORFEITURE. A Participant shall, in the sole
discretion of the Committee, forfeit his Supplemental Plus
Benefit in the event that within three (3) years after his
Termination of Employment he engages, without the prior written
consent of the Committee, in any activity which the Committee, in
its sole discretion, believes to be competitive with the
activities of the Company or OSG. Such forfeiture shall be equal
to the greater of (i) the unpaid portion of his Supplemental Plus
Benefit and (ii) the portion of his Supplemental Plus Benefit,
whether theretofore paid or not paid, which in the Standard Form
would be attributable to the period after which he commences to
compete. To the extent any forfeited amounts shall have
theretofore been paid to the Participant, upon demand, he shall
promptly refund such amounts to the Company. If he fails to
promptly do so, he shall be liable to the Company for its costs
of collection, including reasonable attorneys' fees and
disbursements. This Section 3(e) shall not be applicable to any
Participants whose Termination of Employment is less than ninety
(90) days before or less than two (2) years after a Change of
Control.
4. DEATH OF PARTICIPANT.
(a) DEATH PRIOR TO INITIAL PAYMENT DATE. In the event of
the death of a Participant who has accrued a Supplemental Plus
Benefit prior to his Initial Payment Date, his spouse and/or
beneficiary shall receive a benefit calculated in the same manner
as in the Qualified Plan (based on the Participant's compensation
and service with the Company that the Board, in its discretion,
recognizes for purposes of the Supplemental Plus Benefit but
without regard to Code Sections 401(a)(17), 415 and 416) to the
extent such benefit would be receivable under the terms of the
Qualified Plan upon his death prior to commencement of benefits
if the benefit was payable from the Qualified Plan less the
benefits payable from the Qualified Plan and Basic Plan. His
spouse and/or beneficiary shall be the same persons or entities
as designated or determined under the Qualified Plan. The
benefit payable hereunder, however, shall be paid in an Actuarial
Equivalent lump sum as soon as administratively feasible after
the Participant's death.
(b) DEATH AFTER INITIAL PAYMENT DATE. If a Participant
dies on or after the Initial Payment Date, no death benefits will
be payable hereunder upon the death of the Participant unless the
Participant is receiving a form of benefit with a survivor
benefit pursuant to Section 3(b) above. If a Participant is
receiving a form of benefit with a survivor benefit, any benefits
becoming due will, subject to Section 3(c) above, be paid in
accordance with such form of benefit.
5. REEMPLOYMENT.
If a Participant is reemployed by the Company after
commencing to receive a Supplemental Plus Benefit hereunder but
does not again become a Participant, the Company shall have the
right at its election to suspend benefits payable hereunder
during such period of employment with an appropriate Actuarial
Equivalent adjustment in his benefits when they recommence. If
the former Participant again becomes a Participant accruing
benefits under the Plan, he shall cease to receive Supplemental
Plus Benefits, his prior election as to his form of benefit shall
be deemed cancelled, he shall have his benefits recalculated
based on his entire service for the Company offset by the
Actuarial Equivalent of the previously received Supplemental Plus
Benefit, and benefits shall be payable in accordance with
Sections 3 and 4 above. In no event shall the combined
Supplemental Plus Benefit (as actuarially adjusted to reflect
Actuarial Equivalents) be greater than the Supplemental Plus
Benefit the Participant would have received if his service had
been continuous.
6. CLAIMS PROCEDURE.
(a) The Committee shall be responsible for determining all
claims for benefits under this Plan by the Participants or their
beneficiaries. Within ninety (90) days after receiving a claim
(or within up to one hundred eighty (180) days, if the claimant
is so notified, including notification of the reason for the
delay), the Committee shall notify the Participant or beneficiary
of its decision in writing, giving the reasons for its decision
if adverse to the claim. If the decision is adverse to the
claimant, the Committee shall advise him of the Plan provisions
involved, of any additional information which he must provide to
perfect his claim and why, and of his right to request a review
of the decision.
(b) A claimant may request a review of an adverse decision
by written request to the Committee made within sixty (60) days
after receipt of the decision. The claimant, or his duly
authorized representative, may review pertinent documents and
submit written issues and comments.
(c) Within sixty (60) days after receiving a request for
review, the Committee shall notify the claimant in writing of
(i) its decision, (ii) the reasons therefore, and (iii) the Plan
provisions upon which it is based.
(d) The Committee may at any time alter the claims
procedure set forth above, so long as the revised claims
procedure complies with ERISA, and the regulations issued
thereunder.
(e) The Committee shall have the full power and authority
to interpret, construe and administer this Plan in their sole
discretion based on the provisions of the Plan and to decide any
questions and settle all controversies that may arise in
connection with the Plan. Both the Committee's and the Board's
interpretations and construction thereof, and actions thereunder,
made in the sole discretion of the Committee and the Board,
including any valuation of the Supplemental Plus Benefit, any
determination under this Section 6, or the amount of the payment
to be made hereunder, shall be final, binding and conclusive on
all persons for all persons. No member of the Board or Committee
shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this
Plan.
(f) The Board shall determine, subject to the provisions of
this Plan: (i) the additional Employees who shall participate in
the Plan from time to time; and (ii) when an Employee shall cease
to be a Participant.
7. CONSTRUCTION OF PLAN.
Nothing contained in this Plan and no action taken
pursuant to the provisions of this Plan shall create or be
construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Participants, their
designated beneficiaries or any other person. Any funds which
may be invested under the provisions of this Plan shall continue
for all purposes to be part of the general funds of the Company
and no person other than the Company shall by virtue of the
provisions of this Plan have any interest in such funds. To the
extent that any person acquires a right to receive payments from
the Company under this Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company.
8. MINORS AND INCOMPETENTS.
If the Committee shall find that any person to whom
payment is payable under this Plan is unable to care for his
affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefore shall have been made
by a duly appointed guardian, committee or other legal
representative) may be paid to the spouse, a child, parent, or
brother or sister, or to any person deemed by the Committee to
have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Committee may
determine it its sole discretion. Any such payment shall be a
complete discharge of the liabilities of the Company, the
Committee and the Board under this Plan.
9. LIMITATION OF RIGHTS.
Nothing contained herein shall be construed as
conferring upon an Employee the right to continue in the employ
of the Company as an executive or in any other capacity or to
interfere with the Company's right to discharge him at any time
for any reason whatsoever.
10. PAYMENT NOT SALARY.
Any Supplemental Plus Benefit payable under this Plan
shall not be deemed salary or other compensation to the Employee
for the purposes of computing benefits to which he may be
entitled under any pension plan or other arrangement of the
Company for the benefit of its employees.
11. SEVERABILITY.
In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal and invalid provision
never existed.
12. WITHHOLDING.
The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any
obligations it may have to withhold federal, state or local
income or other taxes incurred by reason of payments or accrual
pursuant to this Plan.
13. ASSIGNMENT.
This Plan shall be binding upon and inure to the
benefit of the Company, its successors and assigns and the
Participants and their heirs, executors, administrators and legal
representatives. In the event that the Company sells all or
substantially all of the assets of its business and the acquiror
of such assets assumes the obligations hereunder, the Company
shall be released from any liability imposed herein and shall
have no obligation to provide any benefits payable hereunder.
14. NON-ALIENATION OF BENEFITS.
The benefits payable under this Plan shall not be
subject to alienation, transfer, assignment, garnishment,
execution or levy of any kind, and any attempt to cause any
benefits to be so subjected shall not be recognized.
15. GOVERNING LAW.
To the extent legally required, the Code and ERISA
shall govern this Plan and, if any provision hereof is in
violation of any applicable requirement thereof, the Company
reserves the right to retroactively amend this Plan to comply
therewith. To the extent not governed by the Code and ERISA,
this Plan shall be governed by the laws of the State of New York,
without regard to conflict of law provisions.
16. AMENDMENT OR TERMINATION OF PLAN.
The Board or the Committee may amend this Plan from
time to time in any respect, and may at any time terminate the
Plan in its entirety. In addition, at any time, the Board or the
Committee may exclude any Participant from further participation
in the Plan. In the event of any amendment, Termination or
exclusion, the Participant shall have a vested right to a benefit
from this Plan equal to his total vested benefit from this Plan
as of the date of such Termination, amendment or exclusion. In
the event of a Termination of the Plan or exclusion of a
Participant, the Company may distribute to each or any
Participant, as it deems appropriate, the Actuarial Equivalent of
his accrued benefit as of such date (as if a Termination of
Employment had occurred) and have no further obligation
hereunder. Section 3(e) above shall continue to apply to the
Participant. Any such action by the Board or the Committee with
respect to the Plan shall be binding on the Company and Employee.
17. NON-EXCLUSIVITY.
The adoption of the Plan by the Company shall not be
construed as creating any limitations on the power of the Company
to adopt such other supplemental retirement income arrangements
as it deems desirable, and such arrangements may be either
generally applicable or limited in application.
18. GENDER AND NUMBER.
Wherever used in this Plan, the masculine shall be
deemed to include the feminine and the singular shall be deemed
to include the plural, unless the context clearly indicates
otherwise.
19. HEADINGS AND CAPTIONS.
The headings and captions herein are provided for
reference and convenience only. They shall not be considered
part of the Plan and shall not be employed in the construction of
the Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to
be executed this 30th day of October, 1998.
OSG SHIP MANAGEMENT, INC.
By:
----------------------------
Title:
<PAGE>
EXHIBIT A
CHANGE OF CONTROL
For purposes of this Plan, a "Change of Control" shall
be deemed to have occurred if: (i) any person (as defined in
Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and as used in Sections 13(d) and
14(d) thereof)), excluding MOC, the Company, Overseas Shipholding
Group, Inc. ("OSG"), any "Subsidiary" of either, any employee
benefit plan sponsored or maintained by the Company, OSG or any
Subsidiary of either (including any trustee of any such plan
acting in his capacity as trustee) and any person who (or group
which includes a person who) is the beneficial owner (as defined
in Rule 13(d)-3 under the Exchange Act) as of January 1, 1994 of
at least fifteen percent (15%) of the common stock of OSG,
becomes the beneficial owner (as defined in Rule 13(d)-3 under
the Exchange Act) of shares of OSG having at least thirty percent
(30%) of the total number of votes that may be cast for the
election of directors of OSG; (ii) the shareholders of OSG shall
approve any merger or other business combination of OSG, sale of
all or substantially all of OSG's assets or combination of the
foregoing transactions (a "Transaction"), other than a
Transaction involving only OSG and one or more of its
Subsidiaries, or a Transaction immediately following which the
shareholders of OSG immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity
(excluding for this purpose any shareholder of OSG owning
directly or indirectly more than ten percent (10%) of the shares
of the other company involved in the Transaction if such
shareholder is not as of January 1, 1994, the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act) of at least
fifteen percent (15%) of the common stock of OSG); or
(iii) within any twenty-four (24) month period beginning on or
after the date hereof, the persons who were directors of OSG
immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to
constitute at least a majority of the board of directors of OSG,
or the board of directors of any successor to OSG (the "Board"),
provided that, any director who was not a director as of the date
hereof shall be deemed to be an Incumbent Director if such
director was elected to the Board by, or on the recommendation of
or with the approval of, at least two-thirds of the directors who
then qualified as Incumbent Directors either actually or by prior
operation of the foregoing unless such election, recommendation
or approval was the result of an actual or threatened election
contest of the type contemplated by Regulation 14a-11 promulgated
under the Exchange Act or any successor provision.
Notwithstanding the foregoing, no Change of Control of OSG shall
be deemed to have occurred for purposes of this Plan by reason of
any Transaction which shall have been approved by action or vote
of a majority of the Incumbent Directors.
EXHIBIT 10(d)(4)
----------------
AGREEMENT
Agreement made as of the 30th day of October, 1998, by and
between Overseas Shipholding Group, Inc., a corporation
incorporated under the laws of Delaware with its principal office
at 511 Fifth Avenue, New York, New York 10017 (the "Company") and
Robert E. Johnston, residing at (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and
maintenance of a sound and vital management of the Company and
its affiliates is essential to the protection and enhancement of
the interests of the Company and its stockholders;
WHEREAS, the Company also recognizes that the possibility of
a Change of Control of the Company (as defined in Section 1
hereof), with the attendant uncertainties and risks, might result
in the departure or distraction of key employees of the Company
to the detriment of the Company; and
WHEREAS, the Company has determined that it is appropriate
to take steps to induce key employees to remain with the Company,
and to reinforce and encourage their continued attention and
dedication, when faced with the possibility of a Change of
Control of the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as
follows:
1. A CHANGE OF CONTROL shall be deemed to have occurred
if: (i) any person (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
and as used in Sections 13(d) and 14(d) thereof), excluding the
Company, Maritime Overseas Corporation, any "Subsidiary" of
either, any employee benefit plan sponsored or maintained by the
Company, Maritime Overseas Corporation or any Subsidiary of
either (including any trustee of any such plan acting in his
capacity as trustee) and any person who (or group which includes
a person who) is the beneficial owner (as defined in Rule 13(d)-3
under the Exchange Act) as of January 1, 1994 of at least fifteen
percent (15%) of the common stock of the Company, becomes the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange
Act) of shares of the Company having at least thirty percent
(30%) of the total number of votes that may be cast for the
election of directors of the Company; (ii) there is a merger or
other business combination of the Company, sale of all or
substantially all of the Company's assets or combination of the
foregoing transactions (a "Transaction"), other than a
Transaction involving only the Company and one or more of its
Subsidiaries, or a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting
entity (excluding for this purpose any shareholder of the Company
owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction if such
shareholder is not as of January 1, 1994, the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act) of at least
fifteen percent (15%) of the common stock of the Company); or
(iii) during any period of two (2) consecutive years beginning on
or after October 21, 1996, the persons who were directors of the
Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than
death) to constitute at least a majority of the board of
directors of the Company or the board of directors of any
successor to the Company, provided that, any director who was not
a director as of October 21, 1996 shall be deemed to be an
Incumbent Director if such director was elected to the board of
directors by, or on the recommendation of or with the approval
of, at least two-thirds (2/3) of the directors who then qualified
as Incumbent Directors either actually or by prior operation of
the foregoing unless such election, recommendation or approval
occurs as a result of an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act or any successor provision) or
other actual or threatened solicitation of proxies or contests by
or on behalf of a person other than a member of the Board. Only
one (1) Change of Control may occur under this Agreement.
2. TERM. This Agreement shall commence on the date hereof
and shall expire on the earliest of (i) October 21, 1999, subject
to the right of the Board of Directors of the Company (the
"Board") and the Executive to extend it, provided that if a
Change of Control takes place prior to October 21, 1999, the
duration of this Agreement under this subpart (i) shall be until
two (2) years after the Change of Control whether such two (2)
year period ends before or after the end of such three (3) year
period; (ii) the date of the death of the Executive or retirement
or other termination of the Executive's employment (voluntarily
or involuntarily) with the Company prior to a Change of Control
other than as a result of a termination by the Company without
Cause (as defined below) or by the Executive with Good Reason (as
defined below); or (iii) one hundred twenty (120) days after a
termination by the Company without Cause or by the Executive with
Good Reason if a Change of Control does not occur on or prior to
such date. Notwithstanding anything in this Agreement to the
contrary, if the Company becomes obligated to make any payment to
the Executive pursuant to the terms hereof at or prior to the
expiration of this Agreement, then this Agreement shall remain in
effect for such and related purposes until all of the Company's
obligations hereunder are fulfilled. Further, provided that a
Change of Control has taken place prior to the termination of
this Agreement, the provisions of Sections 10(a), (d) and (e)
hereof shall survive and remain in effect notwithstanding the
termination of this Agreement, the termination of the Executive's
employment or any breach or repudiation or alleged breach or
repudiation by the Company or the Executive of this Agreement or
any one or more of its terms.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If, and only if, a
Change of Control occurs and one (1) of the following occurs:
(i) the Executive's employment with the Company is terminated by
the Company without Cause (provided that for purposes of this
Section (i), Cause shall not include (ii)(E) below) or by the
Executive for Good Reason at any time within two (2) years after
the Change of Control, (ii) the Executive's employment with the
Company terminates for any reason whatsoever, including but not
limited to termination by the Executive voluntarily with or
without Good Reason, within thirty (30) days after the end of the
one (1) year period running from the date of the Change of
Control, or (iii) the Executive's employment with the Company
terminates as a result of the Executive's death after the Change
of Control, but prior to the end of the thirty (30) day period
after the end of the one (1) year period running from the date of
the Change of Control, the Executive shall be entitled to the
amounts provided in Section 4 upon such termination. In
addition, notwithstanding the foregoing, in the event the
Executive is terminated without Cause or terminates employment
(as a result of an event occurring within one hundred twenty
(120) days prior to the occurrence of a Change of Control) for
Good Reason within one hundred twenty (120) days prior to the
occurrence of a Change of Control, such termination shall, upon
the occurrence of a Change of Control, be deemed to be covered
under the Agreement and the Executive shall be entitled to the
amounts provided under Section 4 hereof reduced by any amounts
otherwise received in connection with his termination of
employment. The foregoing terms shall have the following
meanings:
(i) TERMINATION FOR GOOD REASON. For purposes of this
Agreement, termination for Good Reason shall mean a
termination by the Executive effected by a written notice
given within sixty (60) days after the occurrence of the
Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following
events without the Executive's express written consent:
(A) following a Change of Control, any material diminution in the
Executive's duties and responsibilities, authority, or any
diminution in the Executive's title, or the assignment to the
Executive of duties and responsibilities materially inconsistent
with the position held by the Executive immediately prior to the
Change of Control, except in each case in connection with the
termination of the Executive's employment for Cause or as a
result of the Executive's death, or temporarily as a result of
the Executive's illness or other absence; (B) a reduction in the
Executive's annual base salary; (C) a relocation of the
Executive's principal business location to an area outside a
fifty (50) mile radius of the Executive's current principal
business location; or (D) a material breach by the Company of any
other agreement with the Executive without proper justification
that remains uncured for ten (10) days after written notice of
such breach is given to the Company.
(ii) CAUSE. As used herein, the term "Cause" shall
mean: (A) the willful engaging by the Executive in gross
misconduct which is materially injurious to the Company,
with written notice of the specific misconduct given to the
Executive; (B) Executive's conviction of (or pleading of
NOLO CONTENDERE to) a crime involving any financial
impropriety or other crime which would materially interfere
with the Executive's ability to perform his services to the
Company or otherwise be materially injurious to the Company;
(C) the willful breach by the Executive of any of his
material obligations under any agreement with the Company
without proper justification, which breach is not cured
within ten (10) days after written notice thereof from the
Company; (D) refusal to follow the proper and achievable
written direction of the Board within five (5) business days
of it being given, provided that the foregoing refusal shall
not be "Cause" if the Executive in good faith believes that
such direction is illegal, unethical or immoral and
Executive promptly so notifies the Board; or (E) the
Executive's inability to perform his material duties and
responsibilities due to the same or related physical or
mental illness for one hundred eighty (180) consecutive
days. For purposes of this paragraph, no act, or failure to
act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by the Executive in bad
faith and without reasonable belief that such action or
omission was in the best interest of the Company.
The Executive's continued employment for a period of up to
sixty (60) days after the occurrence of any act or failure to act
constituting Good Reason hereunder shall not constitute consent
to, or a waiver of rights with respect to, any such act or
failure to act.
4. COMPENSATION ON CHANGE OF CONTROL TERMINATION. If,
pursuant to Section 3, the Executive is entitled to amounts and
benefits under this Section 4, the Company shall, subject to
Section 8, pay and provide to Executive: (A) in a lump sum
within five (5) days after such termination (or, if such
termination occurred prior to a Change of Control, within five
(5) days after the Change of Control) (i) two (2) times
Executive's highest annual base salary in effect within one
hundred twenty-one (121) days prior to, or at any time after, the
Change of Control, (ii) subject to submission of documentation,
any incurred but unreimbursed business expenses for the period
prior to termination payable in accordance with the Company's
policies, and (iii) any base salary, bonus, vacation pay or other
compensation accrued or earned under law or in accordance with
the Company's policies applicable to the Executive but not yet
paid; (B) any other amounts or benefits due under the then
applicable employee benefit (including without limitation any
Supplemental Executive Retirement Plan), equity or incentive
plans of the Company applicable to the Executive as shall be
determined and paid in accordance with such plans; (C) two (2)
years of additional service and compensation credit (at
Executive's highest compensation level in the one hundred twenty-
one (121) day period prior to, or at any time after, the Change
of Control) for pension purposes, and an increase in his age by
two (2) years for purposes of calculating any early retirement
subsidy or actuarial reduction, under any defined benefit type
qualified or nonqualified pension plan or arrangement of the
Company and its affiliates applicable to Executive, measured from
the date of termination of employment and not credited to the
extent that the Executive is otherwise entitled to such credit
during such two (2) year period, which payments shall be made
through and in accordance with the terms of the nonqualified
defined benefit pension plan or arrangement if any then exists
that is not purely an excess plan within the meaning of 4 U.S.C.
Section 114(b)(1)(I)(ii), or, if not, in an actuarially
equivalent lump sum (using the actuarial factors then applying in
the Company's defined benefit plan covering the Executive);
(D) continued coverage under the Company health plans in which
the Executive participates (whether as an active or former
employee) immediately prior to the Change of Control or
equivalent plans thereto (the "Health Plans") for the Executive
(except in the case of the Executive's death) and the Executive's
dependents for two (2) years from the date of termination of the
Executive's employment, provided that premiums for such coverage
shall be paid by the Executive on the same basis as prior to the
Change of Control; and further provided that such coverage shall
cease to the extent that the providing of such coverage would
violate applicable law or result in other participants being
taxed on the benefits under such Health Plans; and (E) continued
coverage under the Company life insurance plan in which the
Executive participates (at the same cost as for active employees
of equivalent age) at a benefit level equal to the higher level
in effect immediately prior to the Change of Control or
immediately prior to the Executive's termination or,
alternatively, equivalent coverage (on a tax grossed up basis, to
the extent the amount taxable to the Executive is greater than
the amount taxable to him if he was an employee and participated
in the Company's life insurance plan) for two (2) years from the
date of termination of the Executive's employment.
5. EXCISE TAX LIMIT. Notwithstanding anything else
herein, to the extent that the Executive would be subject to the
excise tax imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (and any similar tax that
may hereafter be imposed) on the payments and/or benefits
provided by Section 4 or any other amounts (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a
change of ownership or effective control covered by Section
280G(b)(2) of the Code or any person affiliated with the Company
or such person) as a result of a Change of Control, the amounts
to be paid under this Agreement shall be automatically reduced to
an amount one dollar less than that, when combined with such
other amounts and benefits required to be so included, would
subject the Executive to excise tax under Section 4999 of the
Code. Such amount shall be reduced from the lump sum due under
Section 4(A) hereof.
6. NOTICE OF TERMINATION. After a Change of Control, any
purported termination of the Executive's employment (other than
by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in
accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall set forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment.
Further, a Notification of Termination for Cause after a Change
of Control is required to include a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (2/3)
of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such
termination and which the Executive had the right to attend and
speak finding that, in the good faith opinion of the Board, the
Executive has engaged in conduct set forth in the definition of
Cause herein, and specifying the particulars thereof in detail.
7. DATE OF TERMINATION. "Date of termination," with
respect to any purported termination of the Executive's
employment after a Change of Control, shall mean the date
specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than thirty (30)
days (except in the case of a termination for Cause which shall
be the date specified in the Notice of Termination) and, in the
case of a termination by the Executive for Good Reason, shall not
be less than five (5) days nor more than sixty (60) days, from
the date such Notice of Termination is given). In the event of
Notice of Termination by the Company, the Executive may treat
such notice as having a date of termination at any date between
the date of the receipt of such notice and the date of
termination indicated in the Notice of Termination by the
Company; provided, that the Executive must give the Company
written notice of the date of termination if he deems it to have
occurred prior to the date of termination indicated in the
notice.
8. NO DUTY TO MITIGATE/SET-OFF. The Company agrees that
if the Executive's employment with the Company is terminated
pursuant to this Agreement during the term of this Agreement, the
Executive shall not be required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive
by the Company pursuant to this Agreement. Further, the amount
of any payment or benefit provided for in this Agreement shall
not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by
another employer or otherwise. Except as otherwise provided
herein and apart from any disagreement between the Executive and
the Company concerning interpretation of this Agreement or any
term or provision hereof, the Company's obligations to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any
circumstances, including without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive. The amounts due under
Section 4 are inclusive, and in lieu of, any amounts payable
under any other salary continuation or cash severance arrangement
of the Company and to the extent paid or provided under any other
such arrangement shall be offset against the amount due
hereunder.
9. SERVICE WITH SUBSIDIARIES. For purposes of this
Agreement, employment by a subsidiary or a parent of the Company
shall be deemed to be employment by the Company and references to
the Company shall include all such entities, except that the
payment obligation hereunder shall be solely that of the Company.
A Change of Control, however, as used in this Agreement, shall
refer only to a Change of Control of the Company.
10. CONFIDENTIALITY; NO NON-COMPETITION; NO RESIGNATION.
(a) The Executive shall not at any time during the term of this
Agreement, or thereafter, directly or indirectly, for any reason
whatsoever, communicate or disclose to any unauthorized person,
firm or corporation, or use for the Executive's own account,
without the prior written consent of the Board, any proprietary
processes, trade secrets or other confidential data or infor
mation of the Company and its related and affiliated companies
concerning their businesses or affairs, accounts, products,
services or customers, it being understood, however, that the
obligations of this Section shall not apply to the extent that
the aforesaid matters (i) are disclosed in circumstances in which
the Executive is legally required to do so, or (ii) become known
to and available for use by the public other than by the
Executive's wrongful act or omission.
(b) In consideration of this Agreement, the Executive
agrees that he will not resign from the Company without Good
Reason for at least one hundred eighty (180) days from the date
hereof, except the foregoing shall not apply after a Change of
Control.
(c) In consideration of this Agreement, the Executive
agrees that he will, following a Change of Control and timely
payment of amounts due him hereunder, consult in a senior
advisory capacity to assist in the orderly transition to new
management for a period of ninety (90) days following a Change of
Control.
(d) The Company shall continue to cover the Executive,
or cause the Executive to be covered, under any director and
officer insurance maintained after the Change of Control for
directors and officers of the Company (whether by the Company or
another entity) at the highest level so maintained for any other
past or active director or officer with regard to any action or
omission of the Executive while an officer or director of the
Company or its affiliates. Such coverage shall continue for any
period during which the Executive may have any liability for the
aforesaid actions or omissions.
(e) Following a Change of Control, the Company shall
indemnify the Executive to the fullest extent permitted by law
against any claims, suits, judgments, expenses (including
reasonable attorney fees), with advancement of legal fees and
disbursements to the fullest extent permitted by law, arising
from, out of, or in connection with the Executive's services as
an officer or director of the Company, as an officer or director
of any affiliate for which the Executive was required to serve as
such by the Company or as a fiduciary of any benefit plan of the
Company or any affiliate.
11. SUCCESSORS; BINDING AGREEMENT. In addition to any
obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree in writing to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive shall die while any amount would
still be payable to the Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or adminis
trators of the Executive's estate. This Agreement is personal to
the Executive and neither this Agreement or any rights hereunder
may be assigned by the Executive.
12. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Executive
and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter
hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth
in this Agreement. All references to any law shall be deemed
also to refer to any successor provisions to such laws.
13. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
14. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
personally, or sent by registered mail, postage prepaid. Any
such notice shall be deemed given when so delivered personally,
or, if mailed, five days after the date of deposit in the United
States mails, or as follows:
(i) If to the Company, to:
Overseas Shipholding Group, Inc.
511 Fifth Avenue
New York, New York 10017
Attention: Chairman
(ii) If to the Executive, to his or her last shown address
on the books of the Company. Any party may by notice given
in accordance with this Section to the other parties,
designate another address or person for receipt of notices
hereunder.
15. SEPARABILITY. If any provisions of this Agreement
shall be declared to be invalid or unenforceable, in whole or in
part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and
effect.
16. LEGAL FEES. In the event the Company does not make the
payments due hereunder on a timely basis and the Executive
collects any part or all of the payments provided for hereunder
or otherwise successfully enforces the terms of this Agreement by
or through a lawyer or lawyers, the Company shall pay all costs
of such collection or enforcement, including reasonable legal
fees and other reasonable fees and expenses which the Executive
may incur. The Company shall pay to the Executive interest at
the prime lending rate as announced from time to time by
Citibank, N.A. on all or any part of any amount to be paid to
Executive hereunder that is not paid when due. The prime rate
for each calendar quarter shall be the prime rate in effect on
the first day of the calendar quarter.
17. ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration conducted in the City of New York in the State of
New York under the Commercial Arbitration Rules then prevailing
of the American Arbitration Association and such submission shall
request the American Arbitration Association to: (i) appoint an
arbitrator experienced and knowledgeable concerning the matter
then in dispute; (ii) require the testimony to be transcribed;
(iii) require the award to be accompanied by findings of fact and
the statement for reasons for the decision; and (iv) request the
matter to be handled by and in accordance with the expedited
procedures provided for in the Commercial Arbitration Rules. The
determination of the arbitrators, which shall be based upon a de
novo interpretation of this Agreement, shall be final and binding
and judgment may be entered on the arbitrators' award in any
court having jurisdiction. The Company shall pay all costs of
the American Arbitration Association and the arbitrator.
18. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive, equity or other
plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein (except Section
8) limit or otherwise prejudice such rights as the Executive may
have under any other currently existing plan, agreement as to
employment or severance from employment with the Company or
statutory entitlements, provided, that to the extent such amounts
are paid under Section 4 hereof or otherwise, they shall not be
due under any such program, plan, agreement, or statute. Amounts
that are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Company, at
or subsequent to the date of termination shall be payable in
accordance with such plan or program, except as otherwise
specifically provided herein.
19. NOT AN AGREEMENT OF EMPLOYMENT. This is not an
agreement assuring employment and, subject to any other agreement
between the Executive and the Company, the Company reserves the
right to terminate the Executive's employment at any time with or
without cause, subject to the payment provisions hereof if such
termination is after, or within ninety (90) days prior to a
Change of Control, as defined herein. The Executive acknowledges
that he is aware that he shall have no claim against the Company
hereunder or for deprivation of the right to receive the amounts
hereunder as a result of any termination that does not
specifically satisfy the requirements hereof or as a result of
any other action taken by the Company.
20. INDEPENDENT REPRESENTATION. The Executive acknowledges
that he has been advised by the Company to have the Agreement
reviewed by independent counsel and has been given the
opportunity to do so.
21. GOVERNING LAW. This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the
State of Delaware without reference to rules relating to
conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed and the Executive has hereunto set his hand as
of the date first set forth above.
OVERSEAS SHIPHOLDING GROUP, INC.
By:-------------------------------
Title:
EXECUTIVE
------------------------------------
Robert E. Johnston
EXHIBIT 10(d)(5)
----------------
March , 1999
Mr.
Dear Mr. :
This letter agreement shall serve to extend the term of the
agreement (the "Agreement"), dated as of , by and between
you and Overseas Shipholding Group, Inc. a corporation
incorporated under the laws of Delaware with its principal office
at 511 Fifth Avenue, New York, New York 10017, as set forth in
Section 2 of such Agreement, by amending the first sentence of
Section 2 to read as follows:
"This Agreement shall commence on the date hereof and shall
expire on the earliest of (i) October 21, 2002, subject to
the right of the Board of Directors of the Company (the
"Board") and the Executive to extend it, provided that if a
Change of Control takes place prior to October 21, 2002, the
duration of this Agreement under this subpart (i) shall be
until two (2) years after the Change of Control whether such
two (2) year period ends before or after October 21, 2002;
(ii) the date of the death of the Executive or retirement or
other termination of the Executive's employment (voluntarily
or involuntarily) with the Company prior to a Change of
Control other than as a result of a termination by the
Company without Cause (as defined below) or by the Executive
for Good Reason (as defined below); or (iii) one hundred
twenty (120) days after a termination by the Company without
Cause or by the Executive with Good Reason if a Change of
Control does not occur on or prior to such date."
All other terms and conditions contained in the referenced
Agreement shall remain in full force and effect.
Very truly yours,
OVERSEAS SHIPHOLDING GROUP, INC.
By:
---------------------------
Title:
---------------------------
I agree and accept the above terms:
- -----------------------------
EXHIBIT 10(d)(6)
----------------
AGREEMENT
Agreement made as of the 24th day of March, 1999, by
and between Overseas Shipholding Group, Inc., a corporation
incorporated under the laws of Delaware with its principal office
at 511 Fifth Avenue, New York, New York 10017 (the "Company") and
Peter Swift, residing at (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment
and maintenance of a sound and vital management of the Company
and its affiliates is essential to the protection and enhancement
of the interests of the Company and its stockholders;
WHEREAS, the Company also recognizes that the possibil
ity of a Change of Control of the Company (as defined in Section
1 hereof), with the attendant uncertainties and risks, might
result in the departure or distraction of key employees of the
Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is
appropriate to take steps to induce key employees to remain with
the Company, and to reinforce and encourage their continued
attention and dedication, when faced with the possibility of a
Change of Control of the Company.
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1. A CHANGE OF CONTROL shall be deemed to have
occurred if: (i) any person (as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and as used in Sections 13(d) and 14(d) thereof), excluding
the Company, any "Subsidiary", any employee benefit plan
sponsored or maintained by the Company or any Subsidiary
(including any trustee of any such plan acting in his capacity as
trustee) and any person who (or group which includes a person
who) is the beneficial owner (as defined in Rule 13(d)-3 under
the Exchange Act) as of January 1, 1994 of at least fifteen
percent (15%) of the common stock of the Company, becomes the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange
Act) of shares of the Company having at least thirty percent
(30%) of the total number of votes that may be cast for the
election of directors of the Company; (ii) there is a merger or
other business combination of the Company, sale of all or
substantially all of the Company's assets or combination of the
foregoing transactions (a "Transaction"), other than a
Transaction involving only the Company and one or more of its
Subsidiaries, or a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting
entity (excluding for this purpose any shareholder of the Company
owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction if such
shareholder is not as of January 1, 1994, the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act) of at least
fifteen percent (15%) of the common stock of the Company); or
(iii) during any period of two (2) consecutive years beginning on
or after the date hereof, the persons who were directors of the
Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than
death) to constitute at least a majority of the board of
directors of the Company or the board of directors of any
successor to the Company, provided that, any director who was not
a director as of the date hereof shall be deemed to be an
Incumbent Director if such director was elected to the board of
directors by, or on the recommendation of or with the approval
of, at least two-thirds (2/3) of the directors who then qualified
as Incumbent Directors either actually or by prior operation of
the foregoing unless such election, recommendation or approval
occurs as a result of an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act or any successor provision) or
other actual or threatened solicitation of proxies or contests by
or on behalf of a person other than a member of the Board. Only
one (1) Change of Control may occur under this Agreement.
2. TERM. This Agreement shall commence on the date
hereof and shall expire on the earliest of (i) October 21, 2002,
subject to the right of the Board of Directors of the Company
(the "Board") and the Executive to extend it, provided that if a
Change of Control takes place prior to October 21, 2002, the
duration of this Agreement under this subpart (i) shall be until
two (2) years after the Change of Control whether such two (2)
year period ends before or after October 21, 2002; (ii) the date
of the death of the Executive or retirement or other termination
of the Executive's employment (voluntarily or involuntarily) with
the Company prior to a Change of Control other than as a result
of a termination by the Company without Cause (as defined below)
or by the Executive with Good Reason (as defined below); or (iii)
one hundred twenty (120) days after a termination by the Company
without Cause or by the Executive with Good Reason if a Change of
Control does not occur on or prior to such date. Notwithstanding
anything in this Agreement to the contrary, if the Company
becomes obligated to make any payment to the Executive pursuant
to the terms hereof at or prior to the expiration of this
Agreement, then this Agreement shall remain in effect for such
and related purposes until all of the Company's obligations
hereunder are fulfilled. Further, provided that a Change of
Control has taken place prior to the termination of this
Agreement, the provisions of Sections 10(a), (d) and (e) hereof
shall survive and remain in effect notwithstanding the
termination of this Agreement, the termination of the Executive's
employment or any breach or repudiation or alleged breach or
repudiation by the Company or the Executive of this Agreement or
any one or more of its terms.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If, and
only if, a Change of Control occurs and one (1) of the following
occurs: (i) the Executive's employment with the Company is
terminated by the Company without Cause (provided that for
purposes of this Section (i), Cause shall not include (ii)(E)
below) or by the Executive for Good Reason at any time within two
(2) years after the Change of Control, (ii) the Executive's
employment with the Company terminates for any reason whatsoever,
including but not limited to termination by the Executive
voluntarily with or without Good Reason, within thirty (30) days
after the end of the one (1) year period running from the date of
the Change of Control, or (iii) the Executive's employment with
the Company terminates as a result of the Executive's death after
the Change of Control, but prior to the end of the thirty (30)
day period after the end of the one (1) year period running from
the date of the Change of Control, the Executive shall be
entitled to the amounts provided in Section 4 upon such
termination. In addition, notwithstanding the foregoing, in the
event the Executive is terminated without Cause or terminates
employment (as a result of an event occurring within one hundred
twenty (120) days prior to the occurrence of a Change of Control)
for Good Reason within one hundred twenty (120) days prior to the
occurrence of a Change of Control, such termination shall, upon
the occurrence of a Change of Control, be deemed to be covered
under the Agreement and the Executive shall be entitled to the
amounts provided under Section 4 hereof reduced by any amounts
otherwise received in connection with his termination of
employment. The foregoing terms shall have the following
meanings:
(i) TERMINATION FOR GOOD REASON. For purposes of this
Agreement, termination for Good Reason shall mean a termination
by the Executive effected by a written notice given within sixty
(60) days after the occurrence of the Good Reason event. For
purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following events without the Executive's
express written consent:
(A) following a Change of Control, any material
diminution in the Executive's duties and responsibilities,
authority, or any diminution in the Executive's title, or
the assignment to the Executive of duties and
responsibilities materially inconsistent with the position
held by the Executive immediately prior to the Change of
Control, except in each case in connection with the
termination of the Executive's employment for Cause or as a
result of the Executive's death, or temporarily as a result
of the Executive's illness or other absence; (B) a reduction
in the Executive's annual base salary; (C) a relocation of
the Executive's principal business location to an area
outside a fifty (50) mile radius of the Executive's current
principal business location; or (D) a material breach by the
Company of any other agreement with the Executive without
proper justification that remains uncured for ten (10) days
after written notice of such breach is given to the Company.
(ii) CAUSE. As used herein, the term "Cause" shall
mean: (A) the willful engaging by the Executive in gross
misconduct which is materially injurious to the Company, with
written notice of the specific misconduct given to the Executive;
(B) Executive's conviction of (or pleading of NOLO CONTENDERE to)
a crime involving any financial impropriety or other crime which
would materially interfere with the Executive's ability to
perform his services to the Company or otherwise be materially
injurious to the Company; (C) the willful breach by the Executive
of any of his material obligations under any agreement with the
Company without proper justification, which breach is not cured
within ten (10) days after written notice thereof from the
Company; (D) refusal to follow the proper and achievable written
direction of the Board within five (5) business days of it being
given, provided that the foregoing refusal shall not be "Cause"
if the Executive in good faith believes that such direction is
illegal, unethical or immoral and Executive promptly so notifies
the Board; or (E) the Executive's inability to perform his
material duties and responsibilities due to the same or related
physical or mental illness for one hundred eighty (180)
consecutive days. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by the Executive in
bad faith and without reasonable belief that such action or
omission was in the best interest of the Company.
The Executive's continued employment for a period of up
to sixty (60) days after the occurrence of any act or failure to
act constituting Good Reason hereunder shall not constitute
consent to, or a waiver of rights with respect to, any such act
or failure to act.
4. COMPENSATION ON CHANGE OF CONTROL TERMINATION.
If, pursuant to Section 3, the Executive is entitled to amounts
and benefits under this Section 4, the Company shall, subject to
Section 8, pay and provide to Executive: (A) in a lump sum
within five (5) days after such termination (or, if such
termination occurred prior to a Change of Control, within five
(5) days after the Change of Control) (i) two (2) times
Executive's highest annual base salary in effect within one
hundred twenty-one (121) days prior to, or at any time after, the
Change of Control, (ii) subject to submission of documentation,
any incurred but unreimbursed business expenses for the period
prior to termination payable in accordance with the Company's
policies, and (iii) any base salary, bonus, vacation pay or other
compensation accrued or earned under law or in accordance with
the Company's policies applicable to the Executive but not yet
paid; (B) any other amounts or benefits due under the then
applicable employee benefit (including without limitation any
Supplemental Executive Retirement Plan), equity or incentive
plans of the Company applicable to the Executive as shall be
determined and paid in accordance with such plans; (C) two (2)
years of additional service and compensation credit (at
Executive's highest compensation level in the one hundred twenty-
one (121) day period prior to, or at any time after, the Change
of Control) for pension purposes, and an increase in his age by
two (2) years for purposes of calculating any early retirement
subsidy or actuarial reduction, under any defined benefit type
qualified or nonqualified pension plan or arrangement of the
Company and its affiliates applicable to Executive, measured from
the date of termination of employment and not credited to the
extent that the Executive is otherwise entitled to such credit
during such two (2) year period, which payments shall be made
through and in accordance with the terms of the nonqualified
defined benefit pension plan or arrangement if any then exists
that is not purely an excess plan within the meaning of 4 U.S.C.
114(b)(1)(I)(ii), or, if not, in an actuarially equivalent lump
sum (using the actuarial factors then applying in the Company's
defined benefit plan covering the Executive); (D) continued
coverage under the Company health plans in which the Executive
participates (whether as an active or former employee)
immediately prior to the Change of Control or equivalent plans
thereto (the "Health Plans") for the Executive (except in the
case of the Executive's death) and the Executive's dependents for
two (2) years from the date of termination of the Executive's
employment, provided that premiums for such coverage shall be
paid by the Executive on the same basis as prior to the Change of
Control; and further provided that such coverage shall cease to
the extent that the providing of such coverage would violate
applicable law or result in other participants being taxed on the
benefits under such Health Plans; and (E) continued coverage
under the Company life insurance plan in which the Executive
participates (at the same cost as for active employees of
equivalent age) at a benefit level equal to the higher level in
effect immediately prior to the Change of Control or immediately
prior to the Executive's termination or, alternatively,
equivalent coverage (on a tax grossed up basis, to the extent the
amount taxable to the Executive is greater than the amount
taxable to him if he was an employee and participated in the
Company's life insurance plan) for two (2) years from the date of
termination of the Executive's employment.
5. Excise Tax Limit. Notwithstanding anything else
herein, to the extent that the Executive would be subject to the
excise tax imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (and any similar tax that
may hereafter be imposed) on the payments and/or benefits
provided by Section 4 or any other amounts (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a
change of ownership or effective control covered by Section
280G(b)(2) of the Code or any person affiliated with the Company
or such person) as a result of a Change of Control, the amounts
to be paid under this Agreement shall be automatically reduced to
an amount one dollar less than that, when combined with such
other amounts and benefits required to be so included, would
subject the Executive to excise tax under Section 4999 of the
Code. Such amount shall be reduced from the lump sum due under
Section 4(A) hereof.
6. NOTICE OF TERMINATION. After a Change of Control,
any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice
of Termination from one party hereto to the other party hereto in
accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall set forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment.
Further, a Notification of Termination for Cause after a Change
of Control is required to include a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (2/3)
of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such
termination and which the Executive had the right to attend and
speak finding that, in the good faith opinion of the Board, the
Executive has engaged in conduct set forth in the definition of
Cause herein, and specifying the particulars thereof in detail.
7. DATE OF TERMINATION. "Date of termination," with
respect to any purported termination of the Executive's employ
ment after a Change of Control, shall mean the date specified in
the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause which shall be the date
specified in the Notice of Termination) and, in the case of a
termination by the Executive for Good Reason, shall not be less
than five (5) days nor more than sixty (60) days, from the date
such Notice of Termination is given). In the event of Notice of
Termination by the Company, the Executive may treat such notice
as having a date of termination at any date between the date of
the receipt of such notice and the date of termination indicated
in the Notice of Termination by the Company; provided, that the
Executive must give the Company written notice of the date of
termination if he deems it to have occurred prior to the date of
termination indicated in the notice.
8. NO DUTY TO MITIGATE/SET-OFF. The Company agrees
that if the Executive's employment with the Company is terminated
pursuant to this Agreement during the term of this Agreement, the
Executive shall not be required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive
by the Company pursuant to this Agreement. Further, the amount
of any payment or benefit provided for in this Agreement shall
not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by
another employer or otherwise. Except as otherwise provided
herein and apart from any disagreement between the Executive and
the Company concerning interpretation of this Agreement or any
term or provision hereof, the Company's obligations to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any
circumstances, including without limitation, any set-off, counter
claim, recoupment, defense or other right which the Company may
have against the Executive. The amounts due under Section 4 are
inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company
and to the extent paid or provided under any other such
arrangement shall be offset against the amount due hereunder.
9. SERVICE WITH SUBSIDIARIES. For purposes of this
Agreement, employment by a subsidiary or a parent of the Company
shall be deemed to be employment by the Company and references to
the Company shall include all such entities, except that the
payment obligation hereunder shall be solely that of the Company.
A Change of Control, however, as used in this Agreement, shall
refer only to a Change of Control of the Company.
10. CONFIDENTIALITY; NO NON-COMPETITION; NO
RESIGNATION. (a) The Executive shall not at any time during the
term of this Agreement, or thereafter, directly or indirectly,
for any reason whatsoever, communicate or disclose to any
unauthorized person, firm or corporation, or use for the
Executive's own account, without the prior written consent of the
Board, any proprietary processes, trade secrets or other
confidential data or information of the Company and its related
and affiliated companies concerning their businesses or affairs,
accounts, products, services or customers, it being understood,
however, that the obligations of this Section shall not apply to
the extent that the aforesaid matters (i) are disclosed in circum
stances in which the Executive is legally required to do so, or
(ii) become known to and available for use by the public other
than by the Executive's wrongful act or omission.
(b) In consideration of this Agreement, the Executive
agrees that he will not resign from the Company without Good
Reason for at least one hundred eighty (180) days from the date
hereof, except the foregoing shall not apply after a Change of
Control.
(c) In consideration of this Agreement, the Executive
agrees that he will, following a Change of Control and timely
payment of amounts due him hereunder, consult in a senior
advisory capacity to assist in the orderly transition to new
management for a period of ninety (90) days following a Change of
Control.
(d) The Company shall continue to cover the Executive,
or cause the Executive to be covered, under any director and
officer insurance maintained after the Change of Control for
directors and officers of the Company (whether by the Company or
another entity) at the highest level so maintained for any other
past or active director or officer with regard to any action or
omission of the Executive while an officer or director of the
Company or its affiliates. Such coverage shall continue for any
period during which the Executive may have any liability for the
aforesaid actions or omissions.
(e) Following a Change of Control, the Company shall
indemnify the Executive to the fullest extent permitted by law
against any claims, suits, judgments, expenses (including
reasonable attorney fees), with advancement of legal fees and
disbursements to the fullest extent permitted by law, arising
from, out of, or in connection with the Executive's services as
an officer or director of the Company, as an officer or director
of any affiliate for which the Executive was required to serve as
such by the Company or as a fiduciary of any benefit plan of the
Company or any affiliate.
11. SUCCESSORS; BINDING AGREEMENT. In addition to any
obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree in writing to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive shall die while any amount would
still be payable to the Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or adminis
trators of the Executive's estate. This Agreement is personal to
the Executive and neither this Agreement or any rights hereunder
may be assigned by the Executive.
12. MISCELLANEOUS. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modifi
cation or discharge is agreed to in writing and signed by the
Executive and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior
or subsequent time. This Agreement constitutes the entire
Agreement between the parties hereto pertaining to the subject
matter hereof. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set
forth in this Agreement. All references to any law shall be
deemed also to refer to any successor provisions to such laws.
13. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
14. NOTICES. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally, or sent by registered mail, postage
prepaid. Any such notice shall be deemed given when so delivered
personally, or, if mailed, five days after the date of deposit in
the United States mails, or as follows:
(i) If to the Company, to:
Overseas Shipholding Group, Inc.
511 Fifth Avenue
New York, New York 10017
Attention: Chairman
(ii) If to the Executive, to his or her last shown
address on the books of the Company.
Any party may by notice given in accordance with this
Section to the other parties, designate another address or person
for receipt of notices hereunder.
15. SEPARABILITY. If any provisions of this Agreement
shall be declared to be invalid or unenforceable, in whole or in
part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and
effect.
16. LEGAL FEES. In the event the Company does not
make the payments due hereunder on a timely basis and the
Executive collects any part or all of the payments provided for
hereunder or otherwise successfully enforces the terms of this
Agreement by or through a lawyer or lawyers, the Company shall
pay all costs of such collection or enforcement, including
reasonable legal fees and other reasonable fees and expenses
which the Executive may incur. The Company shall pay to the
Executive interest at the prime lending rate as announced from
time to time by Citibank, N.A. on all or any part of any amount
to be paid to Executive hereunder that is not paid when due. The
prime rate for each calendar quarter shall be the prime rate in
effect on the first day of the calendar quarter.
17. ARBITRATION. Any dispute or controversy arising
under or in connection with this Agreement shall be settled
exclusively by arbitration conducted in the City of New York in
the State of New York under the Commercial Arbitration Rules then
prevailing of the American Arbitration Association and such
submission shall request the American Arbitration Association to:
(i) appoint an arbitrator experienced and knowledgeable
concerning the matter then in dispute; (ii) require the testimony
to be transcribed; (iii) require the award to be accompanied by
findings of fact and the statement for reasons for the decision;
and (iv) request the matter to be handled by and in accordance
with the expedited procedures provided for in the Commercial
Arbitration Rules. The determination of the arbitrators, which
shall be based upon a de novo interpretation of this Agreement,
shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and
the arbitrator.
18. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive, equity or
other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein (except Section
8) limit or otherwise prejudice such rights as the Executive may
have under any other currently existing plan, agreement as to
employment or severance from employment with the Company or
statutory entitlements, provided, that to the extent such amounts
are paid under Section 4 hereof or otherwise, they shall not be
due under any such program, plan, agreement, or statute. Amounts
that are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Company, at
or subsequent to the date of termination shall be payable in
accordance with such plan or program, except as otherwise
specifically provided herein.
19. NOT AN AGREEMENT OF EMPLOYMENT. This is not an
agreement assuring employment and, subject to any other agreement
between the Executive and the Company, the Company reserves the
right to terminate the Executive's employment at any time with or
without cause, subject to the payment provisions hereof if such
termination is after, or within ninety (90) days prior to a
Change of Control, as defined herein. The Executive acknowledges
that he is aware that he shall have no claim against the Company
hereunder or for deprivation of the right to receive the amounts
hereunder as a result of any termination that does not
specifically satisfy the requirements hereof or as a result of
any other action taken by the Company.
20. INDEPENDENT REPRESENTATION. The Executive
acknowledges that he has been advised by the Company to have the
Agreement reviewed by independent counsel and has been given the
opportunity to do so.
21. GOVERNING LAW. This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the
State of Delaware without reference to rules relating to
conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agree
ment to be duly executed and the Executive has hereunto set his
hand as of the date first set forth above.
OVERSEAS SHIPHOLDING GROUP, INC.
By:
-----------------------------
Name:
Title:
EXECUTIVE
----------------------------------
Peter Swift
EXHIBIT 10(d)(7)
----------------
AGREEMENT
Agreement made as of the 24th day of March, 1999, by
and between Overseas Shipholding Group, Inc., a corporation
incorporated under the laws of Delaware with its principal office
at 511 Fifth Avenue, New York, New York 10017 (the "Company") and
Ariel Recanati, residing at (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment
and maintenance of a sound and vital management of the Company
and its affiliates is essential to the protection and enhancement
of the interests of the Company and its stockholders;
WHEREAS, the Company also recognizes that the possibil
ity of a Change of Control of the Company (as defined in Section
1 hereof), with the attendant uncertainties and risks, might
result in the departure or distraction of key employees of the
Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is appro
priate to take steps to induce key employees to remain with the
Company, and to reinforce and encourage their continued attention
and dedication, when faced with the possibility of a Change of
Control of the Company.
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1. A CHANGE OF CONTROL shall be deemed to have
occurred if: (i) any person (as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and as used in Sections 13(d) and 14(d) thereof), excluding
the Company, any "Subsidiary", any employee benefit plan
sponsored or maintained by the Company or any Subsidiary
(including any trustee of any such plan acting in his capacity as
trustee) and any person who (or group which includes a person
who) is the beneficial owner (as defined in Rule 13(d)-3 under
the Exchange Act) as of January 1, 1994 of at least fifteen
percent (15%) of the common stock of the Company, becomes the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange
Act) of shares of the Company having at least thirty percent
(30%) of the total number of votes that may be cast for the
election of directors of the Company; (ii) there is a merger or
other business combination of the Company, sale of all or
substantially all of the Company's assets or combination of the
foregoing transactions (a "Transaction"), other than a
Transaction involving only the Company and one or more of its
Subsidiaries, or a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting
entity (excluding for this purpose any shareholder of the Company
owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction if such
shareholder is not as of January 1, 1994, the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act) of at least
fifteen percent (15%) of the common stock of the Company); or
(iii) during any period of two (2) consecutive years beginning on
or after the date hereof, the persons who were directors of the
Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than
death) to constitute at least a majority of the board of
directors of the Company or the board of directors of any
successor to the Company, provided that, any director who was not
a director as of the date hereof shall be deemed to be an
Incumbent Director if such director was elected to the board of
directors by, or on the recommendation of or with the approval
of, at least two-thirds (2/3) of the directors who then qualified
as Incumbent Directors either actually or by prior operation of
the foregoing unless such election, recommendation or approval
occurs as a result of an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act or any successor provision) or
other actual or threatened solicitation of proxies or contests by
or on behalf of a person other than a member of the Board. Only
one (1) Change of Control may occur under this Agreement.
2. TERM. This Agreement shall commence on the date
hereof and shall expire on the earliest of (i) October 21, 2002,
subject to the right of the Board of Directors of the Company
(the "Board") and the Executive to extend it, provided that if a
Change of Control takes place prior to October 21, 2002, the
duration of this Agreement under this subpart (i) shall be until
two (2) years after the Change of Control whether such two (2)
year period ends before or after October 21, 2002; (ii) the date
of the death of the Executive or retirement or other termination
of the Executive's employment (voluntarily or involuntarily) with
the Company prior to a Change of Control other than as a result
of a termination by the Company without Cause (as defined below)
or by the Executive with Good Reason (as defined below); or (iii)
one hundred twenty (120) days after a termination by the Company
without Cause or by the Executive with Good Reason if a Change of
Control does not occur on or prior to such date. Notwithstanding
anything in this Agreement to the contrary, if the Company
becomes obligated to make any payment to the Executive pursuant
to the terms hereof at or prior to the expiration of this
Agreement, then this Agreement shall remain in effect for such
and related purposes until all of the Company's obligations
hereunder are fulfilled. Further, provided that a Change of
Control has taken place prior to the termination of this
Agreement, the provisions of Sections 10(a), (d) and (e) hereof
shall survive and remain in effect notwithstanding the
termination of this Agreement, the termination of the Executive's
employment or any breach or repudiation or alleged breach or
repudiation by the Company or the Executive of this Agreement or
any one or more of its terms.
3. TERMINATION FOLLOWING CHANGE OF CONTROL. If, and
only if, a Change of Control occurs and one (1) of the following
occurs: (i) the Executive's employment with the Company is
terminated by the Company without Cause (provided that for
purposes of this Section (i), Cause shall not include (ii)(E)
below) or by the Executive for Good Reason at any time within two
(2) years after the Change of Control, (ii) the Executive's
employment with the Company terminates for any reason whatsoever,
including but not limited to termination by the Executive
voluntarily with or without Good Reason, within thirty (30) days
after the end of the one (1) year period running from the date of
the Change of Control, or (iii) the Executive's employment with
the Company terminates as a result of the Executive's death after
the Change of Control, but prior to the end of the thirty (30)
day period after the end of the one (1) year period running from
the date of the Change of Control, the Executive shall be
entitled to the amounts provided in Section 4 upon such
termination. In addition, notwithstanding the foregoing, in the
event the Executive is terminated without Cause or terminates
employment (as a result of an event occurring within one hundred
twenty (120) days prior to the occurrence of a Change of Control)
for Good Reason within one hundred twenty (120) days prior to the
occurrence of a Change of Control, such termination shall, upon
the occurrence of a Change of Control, be deemed to be covered
under the Agreement and the Executive shall be entitled to the
amounts provided under Section 4 hereof reduced by any amounts
otherwise received in connection with his termination of
employment. The foregoing terms shall have the following
meanings:
(i) TERMINATION FOR GOOD REASON. For purposes of this
Agreement, termination for Good Reason shall mean a termination
by the Executive effected by a written notice given within sixty
(60) days after the occurrence of the Good Reason event. For
purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following events without the Executive's
express written consent:
(A) following a Change of Control, any material
diminution in the Executive's duties and responsibilities,
authority, or any diminution in the Executive's title, or
the assignment to the Executive of duties and
responsibilities materially inconsistent with the position
held by the Executive immediately prior to the Change of
Control, except in each case in connection with the
termination of the Executive's employment for Cause or as a
result of the Executive's death, or temporarily as a result
of the Executive's illness or other absence; (B) a reduction
in the Executive's annual base salary; (C) a relocation of
the Executive's principal business location to an area
outside a fifty (50) mile radius of the Executive's current
principal business location; or (D) a material breach by the
Company of any other agreement with the Executive without
proper justification that remains uncured for ten (10) days
after written notice of such breach is given to the Company.
(ii) CAUSE. As used herein, the term "Cause" shall
mean: (A) the willful engaging by the Executive in gross
misconduct which is materially injurious to the Company, with
written notice of the specific misconduct given to the Executive;
(B) Executive's conviction of (or pleading of NOLO CONTENDERE to)
a crime involving any financial impropriety or other crime which
would materially interfere with the Executive's ability to
perform his services to the Company or otherwise be materially
injurious to the Company; (C) the willful breach by the Executive
of any of his material obligations under any agreement with the
Company without proper justification, which breach is not cured
within ten (10) days after written notice thereof from the
Company; (D) refusal to follow the proper and achievable written
direction of the Board within five (5) business days of it being
given, provided that the foregoing refusal shall not be "Cause"
if the Executive in good faith believes that such direction is
illegal, unethical or immoral and Executive promptly so notifies
the Board; or (E) the Executive's inability to perform his
material duties and responsibilities due to the same or related
physical or mental illness for one hundred eighty (180)
consecutive days. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by the Executive in
bad faith and without reasonable belief that such action or
omission was in the best interest of the Company.
The Executive's continued employment for a period of up
to sixty (60) days after the occurrence of any act or failure to
act constituting Good Reason hereunder shall not constitute
consent to, or a waiver of rights with respect to, any such act
or failure to act.
4. COMPENSATION ON CHANGE OF CONTROL TERMINATION.
If, pursuant to Section 3, the Executive is entitled to amounts
and benefits under this Section 4, the Company shall, subject to
Section 8, pay and provide to Executive: (A) in a lump sum
within five (5) days after such termination (or, if such
termination occurred prior to a Change of Control, within five
(5) days after the Change of Control) (i) two (2) times
Executive's highest annual base salary in effect within one
hundred twenty-one (121) days prior to, or at any time after, the
Change of Control, (ii) subject to submission of documentation,
any incurred but unreimbursed business expenses for the period
prior to termination payable in accordance with the Company's
policies, and (iii) any base salary, bonus, vacation pay or other
compensation accrued or earned under law or in accordance with
the Company's policies applicable to the Executive but not yet
paid; (B) any other amounts or benefits due under the then
applicable employee benefit (including without limitation any
Supplemental Executive Retirement Plan), equity or incentive
plans of the Company applicable to the Executive as shall be
determined and paid in accordance with such plans; (C) two (2)
years of additional service and compensation credit (at
Executive's highest compensation level in the one hundred twenty-
one (121) day period prior to, or at any time after, the Change
of Control) for pension purposes, and an increase in his age by
two (2) years for purposes of calculating any early retirement
subsidy or actuarial reduction, under any defined benefit type
qualified or nonqualified pension plan or arrangement of the
Company and its affiliates applicable to Executive, measured from
the date of termination of employment and not credited to the
extent that the Executive is otherwise entitled to such credit
during such two (2) year period, which payments shall be made
through and in accordance with the terms of the nonqualified
defined benefit pension plan or arrangement if any then exists
that is not purely an excess plan within the meaning of 4 U.S.C.
Section 114(b)(1)(I)(ii), or, if not, in an actuarially
equivalent lump sum (using the actuarial factors then applying in
the Company's defined benefit plan covering the Executive);
(D) continued coverage under the Company health plans in which
the Executive participates (whether as an active or former
employee) immediately prior to the Change of Control or
equivalent plans thereto (the "Health Plans") for the Executive
(except in the case of the Executive's death) and the Executive's
dependents for two (2) years from the date of termination of the
Executive's employment, provided that premiums for such coverage
shall be paid by the Executive on the same basis as prior to the
Change of Control; and further provided that such coverage shall
cease to the extent that the providing of such coverage would
violate applicable law or result in other participants being
taxed on the benefits under such Health Plans; and (E) continued
coverage under the Company life insurance plan in which the
Executive participates (at the same cost as for active employees
of equivalent age) at a benefit level equal to the higher level
in effect immediately prior to the Change of Control or
immediately prior to the Executive's termination or,
alternatively, equivalent coverage (on a tax grossed up basis, to
the extent the amount taxable to the Executive is greater than
the amount taxable to him if he was an employee and participated
in the Company's life insurance plan) for two (2) years from the
date of termination of the Executive's employment.
5. EXCISE TAX LIMIT. Notwithstanding anything else
herein, to the extent that the Executive would be subject to the
excise tax imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (and any similar tax that
may hereafter be imposed) on the payments and/or benefits
provided by Section 4 or any other amounts (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a
change of ownership or effective control covered by Section
280G(b)(2) of the Code or any person affiliated with the Company
or such person) as a result of a Change of Control, the amounts
to be paid under this Agreement shall be automatically reduced to
an amount one dollar less than that, when combined with such
other amounts and benefits required to be so included, would
subject the Executive to excise tax under Section 4999 of the
Code. Such amount shall be reduced from the lump sum due under
Section 4(A) hereof.
6. NOTICE OF TERMINATION. After a Change of Control,
any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice
of Termination from one party hereto to the other party hereto in
accordance with Section 14. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall set forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment.
Further, a Notification of Termination for Cause after a Change
of Control is required to include a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (_)
of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such
termination and which the Executive had the right to attend and
speak finding that, in the good faith opinion of the Board, the
Executive has engaged in conduct set forth in the definition of
Cause herein, and specifying the particulars thereof in detail.
7. DATE OF TERMINATION. "Date of termination," with
respect to any purported termination of the Executive's employ
ment after a Change of Control, shall mean the date specified in
the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in
the case of a termination for Cause which shall be the date
specified in the Notice of Termination) and, in the case of a
termination by the Executive for Good Reason, shall not be less
than five (5) days nor more than sixty (60) days, from the date
such Notice of Termination is given). In the event of Notice of
Termination by the Company, the Executive may treat such notice
as having a date of termination at any date between the date of
the receipt of such notice and the date of termination indicated
in the Notice of Termination by the Company; provided, that the
Executive must give the Company written notice of the date of
termination if he deems it to have occurred prior to the date of
termination indicated in the notice.
8. NO DUTY TO MITIGATE/SET-OFF. The Company agrees
that if the Executive's employment with the Company is terminated
pursuant to this Agreement during the term of this Agreement, the
Executive shall not be required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive
by the Company pursuant to this Agreement. Further, the amount
of any payment or benefit provided for in this Agreement shall
not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by
another employer or otherwise. Except as otherwise provided
herein and apart from any disagreement between the Executive and
the Company concerning interpretation of this Agreement or any
term or provision hereof, the Company's obligations to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any
circumstances, including without limitation, any set-off, counter
claim, recoupment, defense or other right which the Company may
have against the Executive. The amounts due under Section 4 are
inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company
and to the extent paid or provided under any other such
arrangement shall be offset against the amount due hereunder.
9. SERVICE WITH SUBSIDIARIES. For purposes of this
Agreement, employment by a subsidiary or a parent of the Company
shall be deemed to be employment by the Company and references to
the Company shall include all such entities, except that the
payment obligation hereunder shall be solely that of the Company.
A Change of Control, however, as used in this Agreement, shall
refer only to a Change of Control of the Company.
10. Confidentiality; No Non-Competition; No
Resignation. (a) The Executive shall not at any time during the
term of this Agreement, or thereafter, directly or indirectly,
for any reason whatsoever, communicate or disclose to any
unauthorized person, firm or corporation, or use for the
Executive's own account, without the prior written consent of the
Board, any proprietary processes, trade secrets or other
confidential data or information of the Company and its related
and affiliated companies concerning their businesses or affairs,
accounts, products, services or customers, it being understood,
however, that the obligations of this Section shall not apply to
the extent that the aforesaid matters (i) are disclosed in circum
stances in which the Executive is legally required to do so, or
(ii) become known to and available for use by the public other
than by the Executive's wrongful act or omission.
(b) In consideration of this Agreement, the Executive
agrees that he will not resign from the Company without Good
Reason for at least one hundred eighty (180) days from the date
hereof, except the foregoing shall not apply after a Change of
Control.
(c) In consideration of this Agreement, the Executive
agrees that he will, following a Change of Control and timely
payment of amounts due him hereunder, consult in a senior
advisory capacity to assist in the orderly transition to new
management for a period of ninety (90) days following a Change of
Control.
(d) The Company shall continue to cover the Executive,
or cause the Executive to be covered, under any director and
officer insurance maintained after the Change of Control for
directors and officers of the Company (whether by the Company or
another entity) at the highest level so maintained for any other
past or active director or officer with regard to any action or
omission of the Executive while an officer or director of the
Company or its affiliates. Such coverage shall continue for any
period during which the Executive may have any liability for the
aforesaid actions or omissions.
(e) Following a Change of Control, the Company shall
indemnify the Executive to the fullest extent permitted by law
against any claims, suits, judgments, expenses (including
reasonable attorney fees), with advancement of legal fees and
disbursements to the fullest extent permitted by law, arising
from, out of, or in connection with the Executive's services as
an officer or director of the Company, as an officer or director
of any affiliate for which the Executive was required to serve as
such by the Company or as a fiduciary of any benefit plan of the
Company or any affiliate.
11. SUCCESSORS; BINDING AGREEMENT. In addition to any
obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree in writing to perform this Agreement
in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive shall die while any amount would
still be payable to the Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or adminis
trators of the Executive's estate. This Agreement is personal to
the Executive and neither this Agreement or any rights hereunder
may be assigned by the Executive.
12. MISCELLANEOUS. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modifi
cation or discharge is agreed to in writing and signed by the
Executive and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior
or subsequent time. This Agreement constitutes the entire
Agreement between the parties hereto pertaining to the subject
matter hereof. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set
forth in this Agreement. All references to any law shall be
deemed also to refer to any successor provisions to such laws.
13. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
14. NOTICES. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally, or sent by registered mail, postage
prepaid. Any such notice shall be deemed given when so delivered
personally, or, if mailed, five days after the date of deposit in
the United States mails, or as follows:
(i) If to the Company, to:
Overseas Shipholding Group, Inc.
511 Fifth Avenue
New York, New York 10017
Attention: Chairman
(ii) If to the Executive, to his or her last shown
address on the books of the Company.
Any party may by notice given in accordance with this
Section to the other parties, designate another address or person
for receipt of notices hereunder.
15. SEPARABILITY. If any provisions of this Agreement
shall be declared to be invalid or unenforceable, in whole or in
part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and
effect.
16. LEGAL FEES. In the event the Company does not
make the payments due hereunder on a timely basis and the
Executive collects any part or all of the payments provided for
hereunder or otherwise successfully enforces the terms of this
Agreement by or through a lawyer or lawyers, the Company shall
pay all costs of such collection or enforcement, including
reasonable legal fees and other reasonable fees and expenses
which the Executive may incur. The Company shall pay to the
Executive interest at the prime lending rate as announced from
time to time by Citibank, N.A. on all or any part of any amount
to be paid to Executive hereunder that is not paid when due. The
prime rate for each calendar quarter shall be the prime rate in
effect on the first day of the calendar quarter.
17. ARBITRATION. Any dispute or controversy arising
under or in connection with this Agreement shall be settled
exclusively by arbitration conducted in the City of New York in
the State of New York under the Commercial Arbitration Rules then
prevailing of the American Arbitration Association and such
submission shall request the American Arbitration Association to:
(i) appoint an arbitrator experienced and knowledgeable
concerning the matter then in dispute; (ii) require the testimony
to be transcribed; (iii) require the award to be accompanied by
findings of fact and the statement for reasons for the decision;
and (iv) request the matter to be handled by and in accordance
with the expedited procedures provided for in the Commercial
Arbitration Rules. The determination of the arbitrators, which
shall be based upon a de novo interpretation of this Agreement,
shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and
the arbitrator.
18. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive, equity or
other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein (except Section
8) limit or otherwise prejudice such rights as the Executive may
have under any other currently existing plan, agreement as to
employment or severance from employment with the Company or
statutory entitlements, provided, that to the extent such amounts
are paid under Section 4 hereof or otherwise, they shall not be
due under any such program, plan, agreement, or statute. Amounts
that are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Company, at
or subsequent to the date of termination shall be payable in
accordance with such plan or program, except as otherwise
specifically provided herein.
19. NOT AN AGREEMENT OF EMPLOYMENT. This is not an
agreement assuring employment and, subject to any other agreement
between the Executive and the Company, the Company reserves the
right to terminate the Executive's employment at any time with or
without cause, subject to the payment provisions hereof if such
termination is after, or within ninety (90) days prior to a
Change of Control, as defined herein. The Executive acknowledges
that he is aware that he shall have no claim against the Company
hereunder or for deprivation of the right to receive the amounts
hereunder as a result of any termination that does not
specifically satisfy the requirements hereof or as a result of
any other action taken by the Company.
20. INDEPENDENT REPRESENTATION. The Executive
acknowledges that he has been advised by the Company to have the
Agreement reviewed by independent counsel and has been given the
opportunity to do so.
21. GOVERNING LAW. This Agreement shall be construed,
interpreted, and governed in accordance with the laws of the
State of Delaware without reference to rules relating to
conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agree
ment to be duly executed and the Executive has hereunto set his
hand as of the date first set forth above.
OVERSEAS SHIPHOLDING GROUP, INC.
By:
----------------------------
Name:
Title:
EXECUTIVE
--------------------------------
Ariel Recanati
EXHIBIT 10(e)(4)
----------------
THE OVERSEAS SHIPHOLDING GROUP, INC.
1999 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I. PURPOSE 1
ARTICLE II. DEFINITIONS 1
ARTICLE III. ADMINISTRATION 3
ARTICLE IV. SHARES AND OTHER LIMITATIONS 5
ARTICLE V. ELIGIBILITY 7
ARTICLE VI. STOCK OPTIONS 7
ARTICLE VII. TERMINATION PROVISIONS 9
ARTICLE VIII. NON-TRANSFERABILITY 10
ARTICLE IX. CHANGE OF CONTROL 10
ARTICLE X. TERMINATION OR AMENDMENT OF PLAN 11
ARTICLE XI. UNFUNDED PLAN 12
ARTICLE XII. GENERAL PROVISIONS 12
ARTICLE XIII. EFFECTIVE DATE OF PLAN 14
ARTICLE XIV. TERM OF PLAN 15
ARTICLE XV. NAME OF PLAN 15
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OVERSEAS SHIPHOLDING GROUP, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE I.
PURPOSE
The purpose of the Overseas Shipholding Group, Inc. 1999 Non-
Employee Director Stock Option Plan (the "Plan") is to enhance
the profitability and value of Overseas Shipholding Group, Inc.
(the "Company") for the benefit of its stockholders by enabling
the Company to make automatic grants of Stock Options to Non-
Employee Directors, thereby attracting, retaining and rewarding
such Non-Employee Directors and strengthening the mutuality of
interests between such Non-Employee Directors and the Company's
stockholders.
ARTICLE II.
DEFINITIONS
For purposes of the Plan, the following terms shall have the
following meanings:
2.1. "Annual Grant Date" shall mean the first day of
the month following the annual meeting of the Company's
stockholders.
2.2. "Annual Option" shall have the meaning set forth
in Section 6.2(b) hereof.
2.3. "Board" shall mean the Board of Directors of the
Company.
2.4. "Cause" shall mean, with respect to a
Participant's Termination of Directorship, an act or failure
to act that constitutes "cause" for removal of a director
under applicable Delaware law.
2.5. "Change of Control" shall have the meaning set
forth in Article IX.
2.6. "Code" shall mean the Internal Revenue Code of
1986, as amended. Any reference to any section of the Code
shall also be a reference to any successor provision.
2.7. "Common Stock" shall mean the common stock, par
value $1.00 per share, of the Company.
2.8. "Company" shall mean Overseas Shipholding Group,
Inc., a Delaware corporation, and its successors and
assigns.
2.9. "Disability" shall mean a total and permanent
disability, as defined in Section 22(e)(3) of the Code.
2.10. "Effective Date" shall mean the effective date
of the Plan as defined in Article XIII.
2.11. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
2.12. "Fair Market Value" for purposes of the Plan,
unless otherwise required by any applicable provision of the
Code or any regulations issued thereunder, shall mean, as of
any date, the last sales price reported for the Common Stock
on the applicable date: (i) as reported on the principal
national securities exchange on which it is then traded or
the Nasdaq Stock Market, Inc., or (ii) if not traded on any
such national securities exchange or the Nasdaq Stock
Market, Inc., as quoted on an automated quotation system
sponsored by the National Association of Securities Dealers.
If the Common Stock is not readily tradable on a national
securities exchange, the Nasdaq Stock Market, Inc., or any
automated quotation system sponsored by the National
Association of Securities Dealers, its Fair Market Value
shall be set in good faith by the Board. For purposes of
the grant of any Stock Option, the applicable date shall be
the date on which the Option is granted or, if the sale of
the Common Stock shall not have been reported or quoted on
such date, on the first day prior thereto on which the sale
of the Common Stock was reported or quoted.
2.13. "Initial Grant Date" shall mean the later of the
Effective Date or the date the Non-Employee Director begins
service as a Non-Employee Director on the Board.
2.14. "Initial Option" shall have the meaning set
forth in Section 6.2(a) hereof.
2.15. "Non-Employee Director" shall mean a director of
the Company who is not an active employee of the Company or
any Related Person.
2.16. "Participant" shall mean any Non-Employee
Director to whom a grant of a Stock Option has been made
under the Plan, which Stock Option has not expired.
2.17. "Related Person" shall mean other than the
Company (a) any corporation that is defined as a subsidiary
corporation in Section 424(f) of the Code; (b) any
corporation or trade or business (including, without
limitation, a partnership or limited liability company)
which is controlled 50% or more by the Company or one of its
subsidiaries (whether by ownership of stock, assets or an
equivalent ownership interest); (c) any corporation that is
defined as a parent corporation in Section 424(e) of the
Code; or (d) any corporation or trade or business
(including, without limitation, a partnership or limited
liability company) which controls 50% or more of the Company
(whether by ownership of stock, assets or an equivalent
ownership interest).
2.18. "Retirement" shall mean a Termination of
Directorship without Cause by a Participant at or after age
65 or such earlier date after age 55 as may be approved by
the Board with regard to such Participant.
2.19. "Rule 16b-3" shall mean Rule 16b-3 under Section
16(b) of the Exchange Act as then in effect or any successor
provisions.
2.20. "Securities Act" shall mean the Securities Act
of 1933, as amended and all rules and regulations
promulgated thereunder.
2.21. "Stock Option" or "Option" shall mean any Option
to purchase shares of Common Stock granted to any Non-
Employee Director under the Plan.
2.22. "Subsidiary" shall mean any subsidiary
corporation of the Company within the meaning of Section
424(f) of the Code.
2.23. "Termination of Directorship" shall mean, with
respect to a Non-Employee Director, that the Non-Employee
Director has ceased to be a director of the Company.
2.24. "Transfer" or "Transferred" shall mean
anticipate, alienate, attach, sell, assign, pledge,
hypothecate, encumber, charge or otherwise transfer.
ARTICLE III.
ADMINISTRATION
3.1. THE BOARD. The Plan shall be administered and
interpreted by the Board.
3.2. PLAN AWARDS. The Board shall have full authority to
interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the
Plan; to prescribe the form or forms of instruments evidencing
Stock Options and any other instruments required under the Plan
and to change such forms from time to time; and to make all other
determinations and to take all such steps in connection with the
Plan and the Stock Options as the Board, in its sole discretion,
deems necessary or desirable.
3.3. GUIDELINES. Subject to Article X hereof, the Board
shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan
and perform all acts, including the delegation of its
administrative responsibilities, as it shall, from time to time,
deem advisable; to construe and interpret the terms and
provisions of the Plan and any Stock Option issued under the Plan
(and any agreements relating thereto); and to otherwise supervise
the administration of the Plan. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the
Plan or in any agreement relating thereto in the manner and to
the extent it shall deem necessary to carry the Plan into effect,
but only to the extent any such action would be permitted under
the applicable provisions of Rule 16b-3. To the extent
applicable, the Plan is intended to comply with the applicable
requirements of Rule 16b-3 and shall be limited, construed and
interpreted in a manner so as to comply therewith, however
noncompliance with Rule 16b-3 shall have no impact on the
effectiveness of an Option granted under the Plan.
3.4. DECISIONS FINAL. Any decision, interpretation or
other action made or taken in good faith by or at the direction
of the Company or the Board (or any of its members) arising out
of or in connection with the Plan shall be within the absolute
discretion of the Company or the Board, as the case may be, and
shall be final, binding and conclusive on the Company and all
employees and Participants and their respective heirs, executors,
administrators, successors and assigns.
3.5. RELIANCE ON COUNSEL. The Company or the Board may
consult with legal counsel, who may be counsel for the Company or
other counsel, with respect to its obligations or duties
hereunder, or with respect to any action or proceeding or any
question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6. DESIGNATION OF CONSULTANTS/LIABILITY.
(a) The Board may designate employees of the Company
and professional advisors to assist the Board in the
administration of the Plan and may grant authority to
employees to execute agreements or other documents on behalf
of the Board.
(b) The Board may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion
received from any such counsel or consultant and any
computation received from any such consultant or agent.
Expenses incurred by the Board in the engagement of any such
counsel, consultant or agent shall be paid by the Company.
The Board, its members and any person designated pursuant to
paragraph (a) above shall not be liable for any action or
determination made in good faith with respect to the Plan.
To the maximum extent permitted by applicable law, no
officer or former officer of the Company or member or former
member of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or
any Stock Options granted under it. To the maximum extent
permitted by applicable law and the Certificate of
Incorporation and By-Laws of the Company and to the extent
not covered by insurance, each officer or former officer and
member or former member of the Board shall be indemnified
and held harmless by the Company against any cost or expense
(including reasonable fees of counsel reasonably acceptable
to the Company) or liability (including any sum paid in
settlement of a claim with the approval of the Company), and
advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with the
Plan, except to the extent arising out of such officer's or
former officer's, member's or former member's own fraud or
bad faith. Such indemnification shall be in addition to any
rights of indemnification the officers, directors or members
or former officers, directors or members may have under
applicable law or under the Certificate of Incorporation or
By-Laws of the Company. Notwithstanding anything else
herein, this indemnification will not apply to the actions
or determinations made by an individual with regard to Stock
Options granted to him or her under the Plan.
ARTICLE IV.
SHARES AND OTHER LIMITATIONS
4.1. SHARES.
(a) GENERAL LIMITATIONS. The aggregate number of
shares of Common Stock which may be issued under the Plan
shall not exceed 150,000 shares (subject to any increase or
decrease pursuant to Section 4.2), which may be either
authorized and unissued Common Stock or Common Stock held in
or acquired for the treasury of the Company or both. If any
Stock Option granted under the Plan expires, terminates or
is cancelled for any reason without having been exercised in
full, the number of shares of Common Stock underlying the
unexercised Stock Option shall again be available for
issuance under the Plan. In determining the number of
shares of Common Stock available for issuance under the
Plan, if Common Stock has been exchanged by a Participant as
full or partial payment to the Company in connection with
the exercise of a Stock Option, the number of shares of
Common Stock exchanged as payment in connection with the
exercise shall again be available for issuance under the
Plan.
4.2. CHANGES.
(a) The existence of the Plan and the Stock Options
granted hereunder shall not affect in any way the right or
power of the Board or the stockholders of the Company to
make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of
the Company, any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock,
the authorization or issuance of additional shares of Common
Stock, the dissolution or liquidation of the Company, any
sale or transfer of all or part of its assets or business or
any other corporate act or proceeding.
(b) In the event there is any change in the capital
structure or business of the Company by reason of any stock
dividend or extraordinary dividend, stock split or reverse
stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares,
non-cash distributions with respect to its outstanding
Common Stock or capital stock other than Common Stock,
reclassification of its capital stock, any sale or transfer
of all or part of the Company's assets or business, or any
similar change affecting the Company's capital structure or
business, and the Board determines in good faith that an
adjustment is necessary or appropriate under the Plan to
prevent substantial dilution or enlargement of the rights
granted to, or available for, Participants under the Plan or
as otherwise necessary to reflect the change in order to
provide a substantially equivalent benefit to the
Participants, then the aggregate number and kind of shares
or securities or other property which thereafter may be
subject to Stock Options granted under the Plan, the number
and kind of shares or other securities or other property
(including cash) to be issued upon exercise of an
outstanding Stock Option granted under the Plan that is not
cancelled or terminated pursuant to another provision of the
Plan and the purchase or exercise price of such an Option
shall be appropriately adjusted consistent with such change
in such manner as the Board may deem equitable to prevent
substantial dilution or enlargement of the rights granted
to, or available for, Participants under the Plan or as
otherwise necessary to reflect the change, and any such
adjustment determined by the Board in good faith shall be
binding and conclusive on the Company and all Participants
and their respective heirs, executors, administrators,
successors and assigns.
(c) Fractional shares of Common Stock resulting from
any adjustment to a Stock Option pursuant to Section 4.2(a)
or (b) shall be aggregated until, and eliminated at, the
time of exercise. No fractional shares of Common Stock
shall be issued under the Plan. The Board may reduce the
number of shares to a whole number of shares or may, in its
sole discretion, pay cash in lieu of any fractional shares
of Common Stock in settlement of awards under the Plan.
Notice of any adjustment shall be given by the Board to each
Participant whose Stock Option has been adjusted and such
adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
(d) In the event of a merger or consolidation in which
the Company is not the surviving entity or in the event of
any transaction that results in the acquisition of all or
substantially all of the Company's outstanding Common Stock
by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company's assets
(all of the foregoing being referred to as "Acquisition
Events"), then the Board may, in its sole discretion,
terminate all outstanding Stock Options, effective as of the
date of the Acquisition Event, by delivering notice of
termination to each such Participant at least twenty (20)
days prior to the date of consummation of the Acquisition
Event; provided, that during the period from the date on
which such notice of termination is delivered to the
consummation of the Acquisition Event, each such Participant
shall have the right to exercise in full all of his or her
Stock Options that are then outstanding (whether vested or
not vested and without regard to any limitations on
exercisability otherwise contained in the Stock Option) but
contingent on the occurrence of the Acquisition Event, and,
provided that, if the Acquisition Event does not take place
within a specified period after giving such notice for any
reason whatsoever, the notice and exercise shall be null and
void. If an Acquisition Event occurs, to the extent the
Board does not terminate the outstanding Stock Options
pursuant to this Section 4.2(d), then the provisions of
Section 4.2(b) shall apply.
4.3. PURCHASE PRICE. Notwithstanding any provision of the
Plan to the contrary, if authorized but previously unissued
shares of Common Stock are issued under the Plan, such shares
shall not be issued for a consideration which is less than as
permitted under applicable law.
ARTICLE V.
ELIGIBILITY
5.1. ELIGIBILITY. Non-Employee Directors automatically
receive grants of Stock Options in accordance with Section 6.2.
ARTICLE VI.
STOCK OPTIONS
6.1. NON-QUALIFIED STOCK OPTIONS. Stock Options granted
hereunder shall be non-qualified stock options.
6.2. AWARDS.
(a) Without further action by the Board or the
stockholders of the Company, on the Initial Grant Date, each
Non-Employee Director automatically shall be granted a Stock
Option to purchase 7,500 shares of Common Stock (an "Initial
Option").
(b) Without further action by the Board or the
stockholders of the Company, on each Annual Grant Date
(other than the Annual Grant Date which occurs during the
same calendar year as an Initial Grant Date with respect to
an individual Non-Employee Director), each Non-Employee
Director automatically shall be granted a Stock Option to
purchase 1,000 shares of Common Stock (the "Annual Option"),
provided that a sufficient number of shares are available
under Section 4.1 to satisfy exercise of the Stock Options
and, if a sufficient number of shares are not available,
each Non-Employee Director shall receive an Option to
purchase a pro rata portion of the remaining shares.
6.3. TERMS OF OPTIONS. Stock Options granted under this
Article VI shall be subject to the following terms and conditions
and shall be in such form, not inconsistent with terms of the
Plan, as the Board shall deem desirable:
(a) EXERCISE PRICE. The exercise price per share of
Common Stock subject to a Stock Option shall be equal to the
Fair Market Value of the Common Stock at the time of grant.
(b) EXERCISABILITY. Except as otherwise provided in
Section 7.1 or Section 9.1 hereof, (i) one-third (1/3) of
each Initial Option shall vest and become exercisable on
each anniversary of the Initial Grant Date, provided that
the Participant has not incurred a Termination of
Directorship prior thereto; and (ii) each Annual Option
shall vest and become fully exercisable on the one year
anniversary of the applicable Annual Grant Date, provided
that the Participant has not incurred a Termination of
Directorship prior thereto. Notwithstanding anything herein
to the contrary, no Stock Option may be exercised prior to
the date on which the Plan is approved by the stockholders
of the Company.
(c) METHOD OF EXERCISE. Subject to the vesting and
waiting period provisions of Section 6.3(b) above, Stock
Options may be exercised in whole or in part at any time
during the Option term, by giving written notice of exercise
to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the exercise
price. Common Stock purchased pursuant to the exercise of a
Stock Option shall be paid for at the time of exercise as
follows: (i) in cash or by check, bank draft or money order
payable to the order of Company; (ii) if the Common Stock is
traded on a national securities exchange or quoted on a
national quotation system through the delivery of
irrevocable instructions to a broker to deliver promptly to
the Company an amount equal to the purchase price; (iii)
subject to prior written approval of the Board, by delivery
of Common Stock owned by the Participant for a period of at
least six (6) months (and for which the Participant has good
title free and clear of any liens and encumbrances) based on
the Fair Market Value of the Common Stock on the payment
date; or (iv) by such other method approved by the Board.
No shares of Common Stock shall be issued until payment
thereof, as provided herein, has been made or provided for.
(d) OPTION AGREEMENT. Options shall be evidenced by
Option agreements in such form as the Board shall approve
from time to time.
(e) OPTION TERM. If not previously exercised,
canceled or terminated, each Stock Option shall expire ten
(10) years after the date the Stock Option is granted.
(f) FORM, MODIFICATION, EXTENSION AND RENEWAL OF
OPTIONS. Subject to the terms and conditions and within the
limitations of the Plan, a Stock Option shall be evidenced
by such form of Stock Option agreement as is approved by the
Board, and the Board may modify, extend or renew outstanding
Stock Options granted under the Plan, or accept the
surrender of outstanding Stock Options (up to the extent not
theretofore exercised) and authorize the granting of new
Stock Options in substitution therefor (to the extent not
theretofore exercised).
ARTICLE VII.
TERMINATION PROVISIONS
7.1. TERMINATION OF DIRECTORSHIP. The following rules
apply with regard to Stock Options upon the Termination of
Directorship of a Participant:
(a) TERMINATION OF DIRECTORSHIP BY REASON OF DEATH OR
DISABILITY. Upon a Participant's Termination of
Directorship by reason of death, all of the Participant's
outstanding Stock Options shall vest and become fully
exercisable and shall remain exercisable by the legal
representative of the Participant's estate at any time
within a period of one (1) year from the date of death, but
in no event beyond the expiration of the stated term of such
Stock Options. In the case of a Participant's Termination
of Directorship by reason of Disability, all of the
Participant's outstanding Stock Options shall vest and
become fully exercisable and shall remain exercisable by the
Participant at any time within a period of one (1) year from
the date of such Termination of Directorship (or, in the
event of the Participant's death during such one (1) year
period, such Stock Options shall remain exercisable by the
legal representative of the Participant's estate for a
period of one (1) year from the date of the Participant's
death), but in no event beyond the expiration of the stated
term of such Stock Options.
(b) TERMINATION OF DIRECTORSHIP OTHER THAN FOR CAUSE,
DEATH OR DISABILITY OR BY REASON OF RETIREMENT. Upon a
Participant's Termination of Directorship on account of
resignation, failure to stand for reelection or failure to
be reelected or otherwise other than as set forth in Section
7.1(a), (c) or (d), all then outstanding Stock Options held
by the Participant may be exercised, to the extent
exercisable on the date of such Termination of Directorship,
at any time within a period of one (1) year from the date of
such Termination of Directorship, but in no event beyond the
expiration of the stated term of such Stock Options.
(c) TERMINATION BY REASON OF RETIREMENT. If a
Participant's Termination of Directorship is by reason of
Retirement, any Stock Options held by such Participant, may
be exercised, to the extent exercisable at the Participant's
Termination of Employment, by the Participant at any time
within a period of three (3) years from the date of such
Termination of Directorship, but in no event beyond the
expiration of the stated term of such Stock Options;
provided, however, that if the Participant dies within such
exercise period, any unexercised Stock Options held by such
Participant shall thereafter be exercisable, to the extent
to which it was exercisable at the time of death, until the
later of one (1) year from the date of such death or three
(3) years from such Participant's Termination of
Directorship, but in no event beyond the expiration of the
stated term of such Stock Options.
(d) TERMINATION OF DIRECTORSHIP FOR CAUSE. Upon
removal for Cause, or failure to be renominated for Cause,
or if the Company obtains or discovers information after
Termination of Directorship that such Participant had
engaged in conduct that would have justified a removal for
Cause during such directorship, all then outstanding Stock
Options of such Participant shall immediately terminate and
shall be null and void.
ARTICLE VIII.
NON-TRANSFERABILITY
8.1. NON-TRANSFERABILITY. Except as provided in the last
sentence of this Article VIII, no Stock Option shall be
Transferred by a Participant otherwise than by will or by the
laws of descent and distribution. All Stock Options shall be
exercisable, during the Participant's lifetime, only by the
Participant. No Stock Option shall, except as otherwise
specifically provided by law or herein, be Transferred in any
manner, and any attempt to Transfer any Stock Option shall be
void, and no such Stock Option shall in any manner be used for
the payment of subject to, or otherwise encumbered by or
hypothecated for the debts, contracts, liabilities, engagements
or torts of any person who shall be entitled to such Stock
Option, nor shall it be subject to attachment or legal process
for or against such person. Notwithstanding the foregoing, the
Board may determine at the time of grant or thereafter, that a
Stock Option that is otherwise not transferable pursuant to this
Article VIII is transferable in whole or part and in such
circumstances, and under such conditions, as specified by the
Board.
ARTICLE IX.
CHANGE OF CONTROL
9.1. BENEFITS. In the event of a Change of Control of the
Company (as defined below), all outstanding Stock Options granted
prior to the Change of Control shall be fully vested and
immediately exercisable in their entirety.
9.2. CHANGE OF CONTROL. For purposes of the Plan, a "Change
of Control" shall be deemed to have occurred if:
(a) any person (as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d)
thereof), excluding the Company or any Subsidiary, any
employee benefit plan sponsored or maintained by the Company
or any Subsidiary (including any trustee of any such plan
acting in his capacity as trustee) and any person who (or
group which includes a person who) is the beneficial owner
(as defined in Rule 13(d)-3 under the Exchange Act) as of
January 1, 1994 of at least fifteen percent (15%) of the
Common Stock, becomes the beneficial owner (as defined in
Rule 13(d)-3 under the Exchange Act) of shares of Common
Stock having at least thirty percent (30%) of the total
number of votes that may be cast for the election of
directors of the Company;
(b) the stockholders of the Company shall approve any
merger or other business combination of the Company, sale of
all or substantially all of the Company's assets or
combination of the foregoing transactions (a "Transaction"),
other than a Transaction involving only the Company and one
or more of its Subsidiaries, or a Transaction immediately
following which the stockholders of the Company immediately
prior to the Transaction continue to have a majority of the
voting power in the resulting entity (excluding for this
purpose any stockholder of the Company owning directly or
indirectly more than ten percent (10%) of the shares of the
other company involved in the Transaction if such
stockholder is not as of January 1, 1994, the beneficial
owner (as defined in Rule 13(d)-3 under the Exchange Act) of
at least fifteen percent (15%) of the Common Stock); or
(c) within any twenty-four (24) month period beginning
on or after the date hereof, the persons who were directors
of the Company immediately before the beginning of such
period (the "Incumbent Directors") shall cease (for any
reason other than death) to constitute at least a majority
of the Board, or the board of directors of any successor to
the Company (the "Board of Directors"), provided that, any
director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was
elected to the Board of Directors by, or on the recommen
dation of or with the approval of, at least two-thirds (2/3)
of the directors who then qualified as Incumbent Directors
either actually or by prior operation of the foregoing
unless such election, recommendation or approval was the
result of an actual or threatened election contest of the
type contemplated by Regulation 14a-11 promulgated under the
Exchange Act or any successor provision.
ARTICLE X.
TERMINATION OR AMENDMENT OF PLAN
10.1. TERMINATION OR AMENDMENT. Notwithstanding any other
provision of the Plan, the Board may at any time, and from time
to time, amend, in whole or in part, any or all of the provisions
of the Plan (including any amendment deemed necessary to ensure
that the Company may comply with any regulatory requirement
referred to in this Article X), or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that,
unless otherwise required by law or specifically provided herein,
the rights of a Participant with respect to Stock Options granted
prior to such amendment, suspension or termination, may not be
impaired without the consent of such Participant. A Non-Employee
Director shall have no rights with respect to a Stock Option
until such Stock Option is granted pursuant to the terms of the
Plan.
Notwithstanding the first sentence of this Section
10.1, the Board may not effect any amendment that would require
the approval of stockholders under applicable law or under any
regulation of a national securities exchange or automated
quotation system unless such approval is obtained.
ARTICLE XI.
UNFUNDED PLAN
11.1. UNFUNDED STATUS OF PLAN. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments and the value of any
securities or other property as to which a Participant has a
fixed and vested interest but which are not yet made or issued to
a Participant by the Company, nothing contained herein shall give
any such Participant any rights that are greater than those of a
general creditor of the Company.
ARTICLE XII.
GENERAL PROVISIONS
12.1. LEGEND. All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock transfer
orders and other restrictions as the Board may deem advisable
under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
the Common Stock is then listed or any national securities
association system upon whose system the Common Stock is then
quoted, any applicable Federal or state securities law, and any
applicable corporate law, and the Board may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
12.2. OTHER PLANS. Nothing contained in the Plan shall
prevent the Board from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally
applicable or applicable only in specific cases.
12.3. NO RIGHT TO SERVE AS A NON-EMPLOYEE DIRECTOR.
Neither the Plan nor the grant or exercise of any Stock Options
hereunder shall impose any obligations on the Company to retain
any Participant as a Non-Employee Director nor shall it impose on
the part of any Participant any obligation to continue to serve
as a Non-Employee Director.
12.4. WITHHOLDING OF TAXES. The Company shall have the
right to deduct from any payment to be made to a Participant, or
to otherwise require, prior to the issuance or delivery of any
shares of Common Stock or the payment of any cash hereunder,
payment by the Participant of, any Federal, state or local taxes
required by law to be withheld.
The Board may permit any such withholding obligation with
regard to any Participant to be satisfied by reducing the number
of shares of Common Stock otherwise deliverable or by delivering
shares of Common Stock already owned. Any fraction of a share of
Common Stock required to satisfy such tax obligations shall be
disregarded and the amount due shall be paid instead in cash by
the Participant.
12.5. LISTING AND OTHER CONDITIONS.
(a) Unless otherwise determined by the Board, as long
as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities
association, the issuance of any shares of Common Stock
pursuant to the exercise of a Stock Option shall be
conditioned upon such shares being listed on such exchange
or system. The right to exercise any Option with respect to
such shares shall be suspended until such listing has been
effected.
(b) If at any time counsel to the Company shall be of
the opinion that any sale or delivery of shares of Common
Stock pursuant to the exercise of an Option is or may in the
circumstances be unlawful or result in the imposition of
excise taxes on the Company under the statutes, rules or
regulations of any applicable jurisdiction, the Company
shall have no obligation to make such sale or delivery, or
to make any application or to effect or to maintain any
qualification or registration under the Securities Act of
1933, as amended, or otherwise with respect to shares of
Common Stock, and the right to exercise any Option shall be
suspended until, in the opinion of said counsel, such sale
or delivery shall be lawful or will not result in the
imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under
this Section 12.5, any Stock Option affected by such
suspension which shall not then have expired or terminated
shall be reinstated as to all shares available before such
suspension and as to shares which would otherwise have
become available during the period of such suspension, but
no such suspension shall extend the term of any Option.
(d) A Participant shall be required to supply the
Company with any certificates, representations and
information that the Company requests and otherwise
cooperate with the Company in obtaining any listing,
registration, qualification, exemption, consent or approval
the Company deems necessary or appropriate.
12.6. GOVERNING LAW. The Plan shall be governed and
construed in accordance with the laws of the State of Delaware
(regardless of the law that might otherwise govern under
applicable Delaware principles of conflict of laws).
12.7. CONSTRUCTION. Wherever any words are used in the
Plan in the masculine gender they shall be construed as though
they were also used in the feminine gender in all cases where
they would so apply and wherever any words are used herein in the
singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
12.8. OTHER BENEFITS. No Stock Option granted or exercised
under the Plan shall be deemed compensation for purposes of
computing benefits under any retirement plan of the Company nor
affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of
benefits is related to the level of compensation.
12.9. COSTS. The Company shall bear all expenses included
in administering the Plan, including expenses of issuing Common
Stock pursuant to the exercise of any Stock Options hereunder.
12.10. DEATH/DISABILITY. The Board may in its discretion
require the transferee of a Participant's Stock Options to supply
it with written notice of the Participant's death or disability
and to supply it with a copy of the will (in the case of the
Participant's death) or such other evidence as the Board deems
necessary to establish the validity of the Transfer of a Stock
Option. The Board may also require the agreement of the
transferee to be bound by all of the terms and conditions of the
Plan.
12.11. SECTION 16(B) OF THE EXCHANGE ACT. All elections
and transactions under the Plan by persons subject to Section 16
of the Exchange Act involving shares of Common Stock are intended
to comply with all exemptive conditions under Rule 16b-3. The
Board may establish and adopt written administrative guidelines,
designed to facilitate compliance with Section 16(b) of the
Exchange Act, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of
business thereunder.
12.12. SEVERABILITY OF PROVISIONS. If any provision of the
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof,
and the Plan shall be construed and enforced as if such
provisions had not been included.
12.13. HEADINGS AND CAPTIONS. The headings and captions
herein are provided for reference and convenience only, shall not
be considered part of the Plan, and shall not be employed in the
construction of the Plan.
ARTICLE XIII.
EFFECTIVE DATE OF PLAN
The Plan has been adopted by the Board effective as of
February 16, 1999 (the "Effective Date"), subject to and
conditioned upon: the approval of the Plan by the stockholders of
the Company in accordance with the laws of the State of Delaware
and the requirements of any applicable national securities
exchange or automated quotation system ("Stockholder Approval").
Grants of Stock Options under the Plan will be made on or after
the Effective Date of the Plan; provided that, if the Plan is not
approved by the requisite vote of stockholders, all Stock Options
which have been granted pursuant to the terms of the Plan shall
be null and void. Notwithstanding anything else herein to the
contrary, no Stock Options may be exercised prior to Stockholder
Approval of the Plan and Exchange Authorization of the Common
Stock available for issuance thereunder.
ARTICLE XIV.
TERM OF PLAN
No Stock Options shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date, but Stock
Options granted prior to such date may extend beyond that date.
ARTICLE XV.
NAME OF PLAN
The Plan shall be known as the "Overseas Shipholding Group,
Inc. 1999 Non-Employee Director Stock Option Plan."
EXHIBIT 10(e)(5)
----------------
MARITIME OVERSEAS CORPORATION
1990 STOCK OPTION PLAN
(AS AMENDED APRIL 15, 1993 and NOVEMBER 9, 1993)
1. PLAN. Options to purchase shares of the Common Stock
of Overseas Shipholding Group, Inc., par value $1.00 per share
(the "Common Stock"), or other Shares, as defined below, may be
granted in accordance with this Plan to employees or officers of
Maritime Overseas Corporation as of December 6, 1990 or to
employees, officers or directors thereafter selected by the
Committee, provided that no option may be granted to any
employee, officer or director who at the time of the grant serves
on the Committee designated to administer the Plan or who during
the one year prior to the commencement of service on the
Committee was granted an option under the Plan or under any stock
option plan of Overseas Shipholding Group, Inc. For purposes of
the proviso to the preceding sentence, any amendment to an
existing stock option of an employee, officer or director shall
be treated as the grant of an option.
2. DEFINITIONS.
The "Board" means the Board of Directors of Maritime
Overseas Corporation.
The "Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
The "Committee" means a committee which shall consist
of three or more persons designated by the Board or pursuant to a
procedure specified by the Board; provided that each such person
shall be eligible to serve on the Committee only while he is a
Disinterested Person. The Board shall have the power to remove
or replace any member of the Committee and to designate and
appoint new members of the Committee, provided that each such new
member of the Committee shall be eligible to serve on the
Committee only while he is a Disinterested Person. If no
Committee is designated by the Board, the Committee shall mean
the entire Board, provided that a director shall vote on matters
affecting the administration of this Plan or the grant of options
pursuant to this Plan only while he is a Disinterested Person.
Notwithstanding the foregoing, all members of the Board may be
counted in determining the existence of a quorum at any meeting
of the Board during which action is taken on such matters.
The "Corporation" means Maritime Overseas Corporation,
a New York corporation.
"Disability" shall mean permanent and total disability,
as determined by the Committee in its sole discretion.
Disability shall be deemed to occur at the time of the
determination by the Committee of the Disability.
"Disinterested Person" shall mean a person who at any
time within one year prior to any exercise by him of discretion
in administering the Plan has not been granted any stock options
pursuant to the Plan or pursuant to any stock option plan
relating to stock of Overseas Shipholding Group, Inc. For
purposes of the foregoing, any amendment to an existing stock
option shall be treated as the grant of an option.
"Initial Exercise Date" has the meaning set forth in
Section 4(c) hereof.
"OSG" means Overseas Shipholding Group, Inc., a
Delaware corporation.
"Shares" means shares of Common Stock, or such other
shares as are substituted therefor pursuant to Section 6(d) or
6(e) hereof.
"Termination of Employment" means termination of the
relationship with the Corporation so that an individual is no
longer an officer, employee or director of the Corporation or any
subsidiary of the Corporation; provided that voluntary retirement
(either as an officer, employee or director) at age 65 or older
shall not constitute a Termination of Employment. A Termination
of Employment shall not include a leave of absence approved by
the Corporation, whether paid or unpaid.
3. LIMITATION ON AGGREGATE SHARES. The total number of
Shares for which options may be granted under this Plan is
784,435, subject to adjustment in accordance with Sections 6(d)
and (e) hereof. If any options expire unexercised or are
cancelled, terminated or forfeited in any manner without the
issuance of Shares, the Shares for which the options were granted
shall again be available under this Plan. The Shares to be
delivered hereunder shall be delivered from treasury shares of
OSG which OSG will make available to the Corporation for the
purposes of this Plan.
4. OPTIONS. Options to be granted under this Plan shall
be in such form or forms, consistent with this Plan, as the Board
or the Committee may determine. None of the options shall be
incentive stock options (within the meaning of Section 422A of
the Code). Options granted under this Plan shall be subject to
terms and conditions and evidenced by grants in the form or forms
determined from time to time by the Committee and shall be
subject to the terms and conditions set forth in Section 6 and
elsewhere in this Plan, consistent with the following terms:
(a) EXERCISE PRICE. The exercise price per Share for
any options granted prior to April 1, 1992 shall be $16.00 per
share, and for any options granted thereafter shall be such price
as is determined by the Committee, but not less than $14.00 per
share.
(b) TERM OF OPTIONS. All options granted prior to
April 1, 1992 shall be exercisable for a period ending December
15, 1999, subject to earlier termination of exercisability and
other limits on exercisability as provided in paragraphs (c), (d)
or (e), below, and Section 6 hereof and subject to extension (but
not beyond June 15, 2000) pursuant to paragraph (d) below.
Options granted on or after April 1, 1992 shall be exercisable
for a period ending not later than December 31, 2005 as
determined by the Committee.
(c) EXERCISE OF OPTIONS. An option granted under the
Plan prior to April 1, 1992 shall become exercisable in
installments as follows, provided (except as otherwise
specifically provided herein) that with regard to any installment
the holder has not incurred a Termination of Employment prior to
the date such installment becomes exercisable: to the extent of
twenty (20) percent of the number of optioned Shares on December
15, 1991, or the December 15th following the expiration of five
(5) years from the commencement of the optionee's full-time
employment with the Corporation, whichever is later (the "Initial
Exercise Date"); and, to the extent of an additional twenty (20)
percent of such number of optioned Shares, on each December 15
after the Initial Exercise Date through the fourth anniversary of
the Initial Exercise Date; and such exercisability of
installments shall be cumulative. An option granted under the
Plan after April 1, 1992 shall become exercisable at such times
and in such installments as determined by the Committee.
Notwithstanding the foregoing, an option granted under the Plan
shall become exercisable in full in the event of the death or
Disability of the holder prior to Termination of Employment, and
shall remain exercisable to the extent set forth in paragraph
(d), below.
In no event shall any option granted hereunder be
exercisable for a period of six (6) months following the grant of
such option, except in the case of the death or Disability of the
holder. Options may be exercised in whole or in part from time to
time, but an option may not be exercised for a fractional Share.
Subject to the foregoing, an option granted hereunder shall
be exercisable under such conditions as shall be permissible
under the terms of the Plan and of the option granted to the
holder of the option.
Options shall be exercised by written notice to the
Corporation (to the attention of the Corporate Secretary)
accompanied by (i) payment in full of the exercise price, and
(ii) payment required to satisfy the tax withholding requirement
discussed in Section 9, below. Payment shall be made in cash
(including check, bank draft, or money order) or in such other
form as shall be approved by the Committee.
(d) DEATH OR DISABILITY. Upon the death or
Disability of the holder, the option shall remain exercisable
until 180 days after the date of such death or Disability (or any
longer period as the Committee shall provide either at the time
of grant or, in the case of death or Disability, within sixty
(60) days after such death or Disability) by the holder (in case
of Disability), or the estate or by a person who acquires the
right to exercise such option by bequest or by inheritance (in
case of death). To the extent that the option is not so
exercised, it shall expire 180 days after death or Disability (or
such longer period provided by the Committee).
(e) TERMINATION OF EMPLOYMENT. Upon the Termination
of Employment of an option holder (other than for Cause as
defined below), the option, to the extent, if any, then
exercisable, shall remain exercisable by the holder until the
earlier of the expiration of the option or ninety (90) days after
the date of such Termination of Employment (or any longer period
as the Committee shall provide at any time prior to the
Termination of Employment or within ninety (90) days thereafter).
To the extent that the option is not so exercised, it shall
expire at the earlier of the expiration of the option period or
ninety (90) days after the Termination of Employment (or such
longer period provided by the Committee). Notwithstanding the
foregoing, if an option holder incurs a Termination of Employment
as a result of a termination for Cause, then to the extent that
any option theretofore granted to the holder has not been
exercised, such option shall automatically expire immediately
upon such termination for Cause. The Committee shall determine
whether a termination is for cause and the determination of the
Committee shall be conclusive. A termination for "Cause" shall
mean a Termination of Employment by the Corporation (or by its
Board or stockholders) for insubordination, dishonesty, an act of
moral turpitude, misconduct of any kind or the refusal of the
holder to perform his or her normal duties and responsibilities
for any reason other than illness, incapacity or voluntary
termination.
5. NUMBER OF SHARES COVERED BY OPTIONS. The Committee
shall determine the number of Shares for which options shall be
granted to each eligible officer, employee or director.
6. ADDITIONAL PROVISIONS.
(a) ACCELERATION OF EXERCISABILITY. The Committee may
at any time accelerate the exercisability with regard to any
outstanding option, provided that no option shall be exercisable
for six (6) months after grant, except in the case of death or
Disability of the holder.
(b) LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND
REGULATIONS. If the Corporation or OSG determines, in its
discretion, that the listing, registration, or qualification of
the option or the Shares subject to the option upon any
securities exchange or under any state or federal securities or
other law or regulations, or the exemption from such listing,
registration or qualification requirements, or the consent or
approval of any governmental regulatory body is necessary or
desirable as a condition to or in connection with the granting of
an option, the exercisability of an option or the delivery or
purchase of Shares thereunder, no option may be exercised in
whole or in part unless the listing, registration, qualification,
exemption, consent or approval has been effected or obtained free
of any conditions not acceptable to the Corporation and OSG. To
the extent that any applicable law, regulation or stock exchange
requirement requires approvals of any kind in connection with
such option or the delivery or transfer of the underlying Shares,
no option may be exercised in whole or in part unless and until
such approvals have been obtained. The holder of the option will
supply the Corporation and/or OSG with certificates,
representations, and information that the Corporation or OSG
requests and shall otherwise cooperate with the Corporation and
OSG in obtaining the listing, registration, qualification,
exemption, consent or approval. As a condition to the exercise
of an option hereunder, the Corporation may require the person
exercising the option to represent and warrant at the time of any
such exercise that the Shares are being purchased for investment
only and without any present intention to sell or distribute such
Shares if, in the opinion of counsel to the Corporation or OSG,
such a representation is required by relevant law. Without
limiting the foregoing, no Shares shall be delivered or
transferred upon exercise of an option if the Corporation or OSG
determines that the delivery or transfer of shares upon exercise
does not comply with any applicable federal and state securities
laws; in such event, to the extent the Corporation in the Board's
sole discretion, exercised in good faith, deems it reasonably
feasible to do so, the Corporation shall take the necessary
steps, and shall request OSG to take such necessary steps, to
comply with the applicable federal and state securities laws. If
the Corporation or OSG, as part of an offering of securities or
otherwise, finds it desirable, because of federal or state
regulatory requirements, to reduce or suspend the period during
which any options may be exercised, the Corporation may, in its
discretion and without the holder's consent, reduce or suspend
the exercise period on not less than fifteen (15) days' prior
written notice to the holders; provided that, in the event of a
reduction of the exercise period, the Corporation makes the
options immediately fully exercisable.
(c) NONTRANSFERABILITY. Except as provided in this
paragraph (c), options may not be transferred other than by will
or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act, or the rules thereunder.
Notwithstanding the foregoing, any presently outstanding options,
or options granted in the future, may be transferable by the
option holder to members of his or her immediate family, or to
one or more trusts for the benefit of such immediate family
members, or partnerships in which such family members are the
only partners, provided that any such transfer shall be permitted
only if: (1) the option holder does not receive any consideration
for such transfer, (2) written notice of such proposed transfer
and the details thereof shall have been furnished to the
Committee, and (3) the stock option agreement with respect to the
options being transferred (including any amendments thereof)
which shall have been approved by the Committee, expressly
permits such transfer. Any options transferred to such immediate
family members, trusts or partnerships will continue to be
subject to the same terms and conditions that were applicable to
such options immediately prior to their transfer. Any transfer
in violation of this paragraph shall be void and of no effect.
(d) EFFECT OF CHANGES IN SHARES. If OSG shall
combine, subdivide or reclassify the Shares which have been or
may be optioned, or shall declare thereon any dividend payable in
Shares or shall reclassify or take any other action of a similar
nature affecting the Shares, then the number and class of shares
of stock as to which options may thereafter be granted shall be
appropriately adjusted and, in the case of each option
outstanding at the time of any such action, the number and class
of shares which may thereafter be purchased pursuant to such
option and the option price per share shall likewise be
appropriately adjusted, all to such extent as may be determined
by the Board or the Committee to be necessary to preserve
unimpaired the rights of the option holders. Each and every such
determination shall be conclusive and binding upon such option
holder.
(e) EFFECT OF REORGANIZATION. In case of any one or
more reclassifications, changes or exchanges of outstanding
Shares or other stock (other than as provided in paragraph (d)
above, or consolidations of OSG with, or mergers of OSG into,
other corporations, or other recapitalizations or reorganizations
(other than consolidations with a subsidiary in which OSG is the
continuing corporation and which do not result in any
reclassifications, changes or exchanges of outstanding shares of
OSG), or in case of any one or more sales or conveyances to
another corporation of the property of OSG as an entirety, or
substantially as an entirety, any and all of which are
hereinafter in this paragraph (e) called "Reorganizations," an
option holder shall have the right, upon any subsequent exercise
of an option, to acquire the same kind and amount of securities
and property which such holder would then have if such holder had
exercised such option immediately before the first of any such
Reorganizations and continued to hold all securities and property
which came to such holder as result of that and subsequent
Reorganizations, less all securities and property surrendered or
cancelled pursuant to any of same, the adjustment rights in
paragraph (d) above and this paragraph (e) being continuing and
cumulative, except that, notwithstanding any provisions of this
Plan to the contrary, the Board or Committee shall have the right
(and shall, if so requested by OSG) in connection with such
Reorganizations, upon not less than 30 days' prior written notice
to the holder, to terminate the exercisability of options upon
the consummation of such Reorganization. In the event the Board
or Committee terminates the exercisability of the options in
accordance with the foregoing sentence, all outstanding options,
other than options as to which the holder had incurred a
Termination of Employment prior to the giving of such notice,
shall immediately become fully exercisable. In addition, in the
event of a Reorganization, the Committee or Board shall have the
right to cancel and terminate any or all outstanding options as
of the date of the Reorganization by paying to the holder at the
time of the Reorganization an amount in cash for each such
outstanding option equal to the difference between (i) the fair
market value (as determined by the Board or Committee) of the
Shares underlying the outstanding option on the date of the
Reorganization and (ii) the exercise price of the option.
7. ADMINISTRATION. This Plan shall be administered
by the Committee. The Committee shall have full power to
construe and interpret this Plan and options granted under this
Plan, to establish and amend rules for its administration, to
grant options under this Plan, and to correct any defect or
omission or reconcile any inconsistency in this Plan or in any
option to the extent the Committee deems desirable to effectuate
this Plan or any option. The Committee may, with the consent of
the person entitled to exercise any outstanding option, amend an
option within the confines of this Plan.
The Committee shall act by a majority of its members in
office, and the Committee may act either by vote at a meeting or
by a memorandum or other written instrument signed by all members
of the Committee. All actions taken and decisions made by the
Board or the Committee pursuant to this Plan shall be binding and
conclusive on all persons interested in this Plan.
8. TERMINATION AND AMENDMENT. This Plan shall
terminate, other than with regard to outstanding options, on, and
no option shall be granted hereunder after, December 15, 1999.
The Board or the Committee at any time may suspend or terminate
this Plan and make additions or amendments that it deems
advisable under this Plan, provided that, except as otherwise
provided herein, no right of any holder in any outstanding option
may be suspended, terminated or amended adversely without his
consent.
9. WITHHOLDING. The Corporation shall be entitled,
if necessary or desirable, to withhold (or secure payment from
the Plan participant in cash or other property) the amount of any
Federal, state or local taxes required by law to be withheld by
the Corporation for any Shares deliverable under this Plan, and
the Corporation may defer delivery unless such withholding
requirement is satisfied.
10. MISCELLANEOUS.
(a) SEVERABILITY. The provisions of this Plan included
herein are severable. If any provision shall be determined to be
in conflict with statutory provisions or governmental
regulations, or otherwise unlawful, or unenforceable, it shall be
deemed severed from this Plan and every other provision of this
Plan shall remain in full force and effect.
(b) LAWS GOVERNING. This Plan and all actions taken
under it shall be governed as to construction and administration
by the laws of the State of New York.
(c) EFFECT UPON OTHER PLANS. This Plan shall not
affect any other compensation or incentive plans in effect for
the Corporation and this Plan shall not preclude the Board from
establishing any other forms of incentive or compensation for
employees, officers or directors of the Corporation.
(d) NO LIMITATION OF RIGHTS. Nothing contained in
this Plan shall be construed to confer a right of employment, or
to limit in any way the right of the Corporation to terminate the
employment of any employee, or to limit in any way the right of
the Corporation's stockholders and Board with regard to the
election or removal of directors and officers.
(e) TITLES. Titles are provided herein for
convenience only and are not to serve as a basis for
interpretation or construction of this Plan.
(f) EFFECT OF AGREEMENT BETWEEN THE CORPORATION AND
OSG. The corporation is entering into an agreement with OSG
under which OSG will make available to the Corporation the Shares
required by the Corporation under this Plan. Said agreement is
solely for the Corporation's benefit and is enforceable solely by
it, and nothing in said agreement or in this Plan or in any
option granted hereunder shall be deemed to confer upon any
optionee any rights against OSG, whether under said agreement or
otherwise, or to subject OSG to any liability or obligation to
any optionee.
EXHIBIT 13
----------
[From pages 14 and 15 of the 1998 Annual Report]
GLOBAL BULK SHIPPING MARKETS
WORLD OIL DEMAND GROWTH SLOWS SIGNIFICANTLY 1998 was a year of
turmoil in the oil markets with consequent adverse effects on
world tanker markets. Oil demand fell dramatically in Asia and
slowed in most other major consuming areas. With oil prices at
their lowest level in decades, OPEC, along with important non-
OPEC oil producers, implemented the largest program of production
restraint in a decade. Overall, rates for tankers in 1998 were
lower than in the prior year.
Asian oil demand, impacted by the Asian economic crisis,
fell by 440,000 barrels per day (b/d) in 1998, a dramatic swing
from the 880,000 b/d growth in demand in the prior year. The
decline was heavily concentrated in South Korea and Japan. In
South Korea, demand fell by over 300,000 b/d (or 15%) as
industrial activity declined and commercial users minimized their
use of fuel oil. Japan, where economic growth has been weak since
the start of the decade, suffered its first full-blown recession
since the 1980s, pushing oil consumption down nearly 200,000 b/d
(or 3%). Of all the major Far Eastern economies, only China
managed to sustain oil demand growth, but at a slower pace.
In North America and Europe, refiners built crude oil
inventories to take advantage of lower oil prices, generating
brisk seaborne trade early in the year. Stocks, however, rose to
even higher levels as the mild 1997/98 Northern Hemisphere winter
curtailed oil consumption. In order to stem the decline in the
price of oil, the world's major producers began to voluntarily
restrain production beginning in March, with cuts reaching about
2.6 million b/d, or 3.5% of total global supply, by the fourth
quarter. The result was a reduction in seaborne trade and tanker
demand.
VLCC MARKET RELATIVELY STRONG Despite the significant decline in
Asian oil demand, the VLCC market remained robust until the
middle of the third quarter of 1998, when the second round of
OPEC production cuts began to affect the tanker markets. Until
then, eastbound VLCC demand remained unexpectedly strong,
particularly to South Korea, where refineries maintained crude
runs despite a decline in domestic demand in an effort to boost
foreign exchange earnings through product exports. In addition,
the trend toward increased long-haul shipments from the Middle
East to western destinations that began in 1997 extended into
1998. In the Atlantic Basin declining oil prices gave refiners
the incentive to continue to add to already ample stocks. This
benefited VLCCs because short-haul competition was reduced as
a consequence of intentional cutbacks in Latin America and
persistent production problems in the North Sea.
ATLANTIC AFRAMAX MARKET UNDER PRESSURE The Aframax market was
particularly hard hit by the oil production cuts made by
Venezuela and Mexico because the Caribbean trade accounts for
such a large percentage of world Aframax utilization. Increased
shipments of crude oil on VLCC tankers arriving from the Middle
East provided additional competition in an already weak market.
North Sea oil output remained virtually unchanged for the second
consecutive year due to delays in new field start-ups and to
production problems at existing fields, further contributing to
weakness in freight rates.
INTERNATIONAL PRODUCT TRADE ACTIVITY DECLINES The global weakness
in demand for oil products that resulted from the Asian economic
crisis reduced, as well, the worldwide demand for product
tankers. Overall, global seaborne trade in petroleum products
decreased by about 2% in 1998 against a 3% expansion of the
product tanker fleet, driving freight rates lower. In the United
States, petroleum product imports declined as domestic refinery
throughput increased. In addition, high product stock levels and
milder than usual weather in the U.S. Northeast reduced import
demand for heating oil. At the same time, refineries in Asia,
particularly in South Korea, ran at high utilization rates and
sought to export outside the region to earn foreign exchange.
Consequently, product tanker markets were somewhat stronger in
the Pacific than in the Caribbean.
TANKER FLEET AND ORDERBOOK GROWTH CONTINUES The world tanker
fleet grew by a modest 2 million dwt (mdwt) for the second
consecutive year to 264 mdwt as newbuilding deliveries of 12 mdwt
slightly exceeded total deletions from the fleet of 10 mdwt.
While scrap sales began the year at a slow pace, demolition
accelerated later in the year, particularly for VLCCs, in light
of weakening freight rates and the perception of a worsening
outlook for 1999. Despite low scrap prices, the last quarter of
1998 saw the highest rate of scrapping of VLCCs since early 1995.
The tanker orderbook for delivery over the next three years rose
by 3 mdwt in 1998 to 44 mdwt compared with an increase of 20 mdwt
in 1997. Contracting for newbuildings fell to about half of
1997's very high level. VLCC tonnage made up most of the new
orders in 1998, bringing the VLCC orderbook to 20% of the fleet,
up from 16% at the end of 1997. However, with a large number of
VLCCs turning 25 years old over the next three years, scrapping
should further accelerate. Several major charterers have stated
their unwillingness to employ VLCCs over 25 years of age, even
though such vessels are permitted to trade until age 30 if they
utilize hydrostatic balanced loading or make certain prescribed
vessel modifications. The Aframax orderbook represents 17% of the
existing fleet, with a heavy delivery schedule in 1999 and little
prospect for age-related demolition during the next several
years.
INTERNATIONAL DRY BULK MARKETS REMAIN UNDER PRESSURE In 1998, the
dry bulk sector, already straining under a heavy delivery
schedule, was adversely affected by a dramatic decline in Asian
demand for the major dry bulk commodities. The sharp economic
contraction in Asia was particularly harsh on dry bulk markets
because of this region's importance as the primary growth engine
for the overseas transport of iron ore and coal. As a result,
freight rates fell to levels not seen since the depths of the
depressed market of the mid-1980s. In Japan, which is the world's
largest importer of iron ore, steel production fell 10% to its
lowest level since 1971. Even in North America and Western
Europe, where the economies remained strong, steel output levels
deteriorated as the year progressed. The Panamax market continued
to strain under the burden of sizable newbuilding deliveries and
a lackluster grain trade. Seaborne steam coal trade, which
experienced 5-6% growth in recent years, slowed to less than half
that rate in 1998.
SIZE OF DRY BULK FLEET REMAINS UNCHANGED
In 1998, the international dry bulk fleet remained unchanged at
264 mdwt as scrap sales finally caught up with newbuilding
deliveries. The Capesize fleet actually declined by 1 mdwt, the
first ever year-over-year decrease, largely reflecting a sharp
drop in newbuilding deliveries. Despite record scrap sales, the
Panamax fleet expanded by about 1 mdwt. Highly unsatisfactory
freight rates have stimulated increased scrap sales of older dry
bulk vessels in recent years. With 27% of the Capesize fleet and
41% of the Panamax fleet 15 years old or more, lower freight
rates are likely to result in further scrapping of this older
tonnage, especially with increasingly stringent safety and
environmental regulations.
Although the current depressed state of the dry bulk markets
has resulted in a large decline in new orders, the existing
orderbook will result in a significant surge in Capesize
deliveries and a continuing high level of Panamax deliveries
in 1999. Presently, 11% of the Capesize fleet and 13% of the
Panamax fleet are on order, both slightly up from year-ago
levels.
Sources: fleet statistics from Clarkson Research Studies;
other data from International Energy Agency, U.S. Department of
Energy, and various market analysts.
<PAGE>
[From pages 16 and 20 of the 1998 Annual Report]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
SIGNIFICANT EVENTS
The economic crisis in Asia that began in the latter part of 1997
persisted through 1998 and resulted in a major weakening in
demand for bulk tonnage. Oil demand fell dramatically in Asia and
slowed in most other major consuming areas. The sharp economic
contraction in Asia was particularly harsh on dry bulk markets
because of this region's importance as the primary growth engine
for the overseas transport of iron ore and coal. Accordingly,
during 1998 the Company recorded a charge of $91,000,000
($59,200,000 after tax) to adjust the carrying value of certain
vessels that it expects to dispose of in 1999. A major portion of
this 1998 provision relates to the six remaining vessels in the
Company's ten-vessel dry bulk disposal program announced in 1997,
at which time a reserve of $26,536,000 ($17,200,000 after tax)
was established. The balance of the 1998 provision reflects a
reduction to estimated realizable value of the carrying amounts
for the Company's ten oldest tankers, including three in a joint
venture. To date, the Company has sold one of these tankers and
contracted for the sale of a second tanker and one dry bulk
vessel. Completion of all these planned disposals will leave the
Company with one of the most modern fleets in the industry.
During the fourth quarter of 1998, the Company repurchased
Unsecured Senior Notes with an aggregate principal amount of
$310,000,000 at a $21,000,000 premium ($13,600,000 after tax) net
of gains from the termination of related interest rate swaps
(fixed rate interest on the Unsecured Senior Notes had been
converted to a floating rate basis by these interest rate swaps).
The premium net of the swap termination gain has been reported in
the Company's statement of operations as an extraordinary charge.
The Company borrowed the amount needed for the purchase under its
revolving credit agreement; its interest costs on such borrowings
will be lower than the interest cost on the repurchased notes by
approximately $5,000,000 per year, based on the interest rates
and the amount of notes outstanding at the time of the
transaction.
In the first quarter of 1998, the Company recognized a gain of
$42,288,000 ($26,500,000 after tax) from the sale of 3,650,000
shares of Royal Caribbean Cruises Ltd. ("Royal") common stock
that it had acquired in July 1997 in connection with the disposal
of its joint venture interest in Celebrity Cruise Lines Inc.
("Celebrity"). The Company has applied the proceeds from this
sale, approximately $180,000,000, net of taxes, to reduce amounts
outstanding under its long-term credit facility (see Interest
Expense and Liquidity and Sources of Capital below).
During 1998, the Company embarked on a number of strategic
initiatives designed to enhance its competitive position and
financial strength in the years to come. These include
strengthening its organizational structure, expanding strategic
alliances, modernizing its fleet, and both increasing
efficiencies and reducing costs while maintaining the Company's
standard of operational excellence.
OPERATIONS
INCOME FROM VESSEL OPERATIONS Revenues and results of vessel
operations of the Company are highly sensitive to patterns of
supply and demand for vessels of the types and sizes owned and
operated by the Company and the markets in which those vessels
operate. Freight rates for major bulk commodities are determined
by market forces including local and worldwide demand for such
commodities, volumes of trade, distances between sources and
destinations of cargoes, and the amount of available tonnage both
at the time such tonnage is required and over periods of
projected requirements. Available tonnage is affected, over time,
by the amount of newbuilding deliveries and removal of existing
tonnage from service. Results in particular periods are also
affected by such factors as the mix between voyage and time
charters, the timing of the completion of voyage charters, the
time and prevailing rates when charters that are currently being
performed were negotiated, the levels of applicable rates and the
business available as particular vessels come off existing
charters, and the timing of drydocking of vessels.
VLCC rates in the international tanker markets in 1998 averaged
above those for 1997 through most of the third quarter, reaching
a peak of $44,000 per day in both mid-May and mid-July. The market
derived its strength from an increase in long-haul shipments from
the Middle East, primarily to western destinations, and increased
deployment of VLCCs for floating storage. Thereafter, however,
rates entered a steep decline, reaching a low of about $20,000
per day in mid-September as world oil demand continued to wane
and oil production cutbacks were implemented by major producers.
Rates subsequently stabilized and turned higher, ranging up to
around $35,000 per day in late February 1999.
Caribbean Aframax spot rates began 1998 by plunging from above
$25,000 per day to $11,000 by late January as increased shipments
from the Middle East displaced Caribbean business, warm weather
reduced heating oil demand, refineries experienced extensive
turnarounds and North Sea oil production declined. Following a
recovery to above $25,000 per day by late March, the Aframax
market again fell back sharply and largely remained confined to a
$12,000 to $17,000 trading range for most of the remainder of the
year. This weakness at least partially reflected the
disproportionate share taken by Venezuela and Mexico of the oil
production cuts agreed to by OPEC and other major oil-producing
countries. Rates were trading nearer to the lower end of this
range as of late February 1999.
The Company's Aframax tanker pool with PDV Marina, the marine
transportation subsidiary of the Venezuelan state oil company,
which covers all 20 Aframaxes (ten OSG vessels) of both parties,
continues to demonstrate improved earnings for pool vessels as a
result of enhanced opportunities for backhaul cargoes and reduced
idle time. The pool has entered into a number of significant
contracts of affreightment, which further improve the earnings of
pool vessels.
Rates for Suezmaxes on the West Africa to U.S. route traded in a
wide range of $14,000 to $24,000 during the first seven months of
1998, but then swung decisively to the downside, reaching as low
as $10,000 per day in late September. Suezmax rates ended the
year at around $15,000, and then rose to above $17,000 in late
February. Product tanker rates in the Caribbean were
substantially weaker in the first half of 1998 than in the prior
year. Rates for the remainder of the year, and in the Far East
trades for the entire year, were comparable to 1997. Dry bulk
freight rates in 1998 fell to levels not seen since the depressed
market of the mid-1980s and, following a temporary improvement in
late summer, remain near these low levels in late February 1999.
As one indication of recent trends in various charter markets,
set forth below are selected average daily spot market rates for
various types and sizes of vessels in both 1998 and 1997 based on
the published reports of one well-known industry research
organization. It is important to note that rates tend to
fluctuate significantly over the course of time, and can vary
widely based on factors such as the age, condition and position
of a particular vessel. Accordingly, the rates shown are not
necessarily indicative of rates achieved by the Company's vessels
during either year.
<TABLE>
AVERAGE MARKET RATES BY VESSEL TYPE
<CAPTION>
Tankers 1998 1997
- ----------------------------------------------------
<S> <C> <C>
Modern VLCCs $33,400 $35,700
Suezmaxes (W. Africa - U.S.) 20,700 23,200
Aframaxes (Caribbean market) 15,900 23,000
Products carriers 10,300 13,300
- -----------------------------------------------------
Dry Bulk Carriers
Capesize 10,100 14,800
Panamaxes 5,700 8,300
- -----------------------------------------------------
</TABLE>
Income from vessel operations for 1998 of $37,450,000 decreased
by approximately $28,200,000 from the results for 1997. The
foreign flag fleet accounted for over 70% of this decline. This
resulted from reduced rates obtained for the Company's Aframaxes
(particularly in the last three quarters of 1998), double-hulled
VLCC tonnage in the fourth quarter of 1998 and most of its other
classes of foreign flag tonnage. Such decline in rates was
partially offset by the inclusion in 1998 of the operating
results of one double-hulled VLCC that began operations early in
the second quarter of 1997, and improved rates in the first nine
months of 1998 earned by the Company's double-hulled VLCC tonnage
trading in the spot market. Overall, the total number of
operating days for the foreign flag fleet (other than vessels
included in the aforementioned dry cargo disposal program) was
not significantly different in 1998 compared with 1997. The
balance of the 1998 decline was attributable to a reduction in
income from vessel operations of the U.S. flag fleet, reflecting
the lay-up of two small crude tankers (both of which were sold
near the end of 1998) and two small U.S. flag dry cargo ships for
substantial portions of 1998, whereas only one vessel in the U.S.
flag fleet experienced a modest number of lay-up days in 1997.
The U.S. flag crude tanker fleet had 400 fewer operating days
(including the effect of vessels undergoing drydockings) in 1998
than in 1997. As part of its 1998 reserve (see Significant Events
above), the Company recorded a provision of approximately
$5,900,000 ($3,800,000 after tax) to reduce to estimated
realizable value its proportionate share of the carrying amounts
of certain vessels that are held in joint ventures and scheduled
for disposal in 1999; this provision is reflected in the 1998
results of bulk shipping joint ventures.
Income from vessel operations for 1997 increased by approximately
$19,000,000 from the results for 1996. This increase was
attributable to an improvement of approximately $14,500,000 in
income from foreign flag vessel operations. Vessels delivered in
late 1996 and the first quarter of 1997 contributed positive
operating results with approximately 1,700 more operating days in
1997 than in 1996; this contribution reflected high charter rates
obtained for the Company's new VLCCs, particularly in the fourth
quarter of 1997. Rates obtained for the Company's Aframax tonnage
were higher in 1997 compared with 1996, although there were more
than twice as many drydock days for this class in 1997 (219 days)
compared with 1996 (101 days). Notwithstanding some improvement
in dry bulk rates in 1997 compared with 1996, the generally low
level of dry bulk rates for the first nine months of 1997 (see
Significant Events above regarding dry cargo disposal program)
negatively affected results for the Company's dry bulk fleet.
Excluding operating days for new deliveries (see above) and the
effect of vessels sold, the total number of operating days for
the international flag tanker fleet was approximately the same in
both years. U.S. flag fleet vessel operations improved by
$4,500,000 in 1997 compared with 1996. This increase resulted
from increased rates on certain tonnage and increased utilization
of the Company's U.S. flag tanker fleet, following commencement
in 1996 of long-term employment for six of OSG's U.S. flag
tankers in the Alaskan trade. Operating days for the U.S. flag
crude tanker fleet increased to approximately 2,600 days in 1997
from approximately 2,400 days in 1996. The effects of an increase
of approximately 100 days for time lost for drydockings in 1997,
the lay-up (beginning in the fourth quarter of 1997) of a small
crude carrier upon redelivery from a long-term charter and lower
rates obtained in 1997 for certain petroleum products carrier
tonnage are also reflected. Since late December 1996, the
Company's U.S. flag car carrier receives $2,100,000 per year
under the U.S. Maritime Security Program, which continues through
2005, subject to annual Congressional appropriations. Voyage
expenses, such as fuel and port costs, are paid by the vessel
owner under a voyage charter and by the charterer under a time
charter. Revenues and expenses in both the international flag and
U.S. flag fleets for 1998 reflect an increase in the proportion
of voyage charters to time charters compared with the prior year;
for 1997, revenues and expenses in both fleets reflect a decrease
in this proportion compared with the prior year.
EQUITY IN RESULTS OF CRUISE BUSINESS In March 1998, the Company
recognized a gain of $42,288,000 ($26,500,000 after tax) from the
sale of 3,650,000 shares of Royal common stock that it had
acquired in July 1997 in connection with the disposal of its
joint venture interest in Celebrity. The Company applied the
proceeds from this sale, approximately $180,000,000, net of
taxes, to reduce amounts outstanding under its long-term credit
facility (see Interest Expense and Liquidity and Sources of
Capital below). Accordingly, in 1998 the Company did not record
any equity in the earnings of the cruise business, whereas the
Company recorded income in 1997 of $3,712,000 (consisting of a
loss from Celebrity of $179,000 in the first half and a profit
from Royal of $3,891,000 in the second half) and approximately a
breakeven in 1996.
The Company's equity in the results of cruise business is before
interest expense of approximately $12,700,000 (1997) and
$15,800,000 (1996), estimated to have been incurred by the
Company in connection with the funding of its investment in the
cruise business.
OTHER INCOME (NET) The details of other income for the three-year
period are shown in Note K on page 31 of this report. Aggregate
interest and dividend income rose in 1998 because of an increase
on average of the amounts utilized during the year for interest-
bearing deposits and investments. Aggregate interest and
dividends did not materially change in 1997 compared with 1996.
Gain on sale of securities was approximately $21,800,000 in 1998
compared with approximately $31,500,000 in 1997 and $20,100,000
in 1996. There were losses on other investments of approximately
$700,000 in 1997 and $11,200,000 in 1996.
Disposal of vessels (other than those referred to in Significant
Events above) resulted in losses of approximately $1,300,000 in
1998 and $600,000 in 1997 and a gain of approximately $7,000,000
in 1996.
INTEREST EXPENSE Interest expense decreased in 1998 from 1997 as
a result of a substantial decrease in the average amount of debt
outstanding in 1998 compared with 1997, reflecting the reduction
of debt through application of the cash proceeds of $120,000,000
from the sale of the Company's investment in Celebrity in July
1997, the proceeds of approximately $180,000,000, net of taxes,
from the sale of Royal common stock in the first quarter of 1998
referred to above, and gross proceeds of $53,000,000 from the
sale of vessels included in the dry cargo disposal program
referred to above. Interest expense is net of $3,000,000 in 1998
and $1,300,000 in 1997 of interest capitalized in connection with
vessel construction. Interest expense increased in 1997 from 1996
as a result of an increase in the average amount of debt
outstanding in 1997 compared with 1996 (net of debt reductions
from the use of the cash proceeds from the sale of the Company's
investment in Celebrity), including debt incurred in connection
with vessels entering the operating fleet, decreased amounts of
interest capitalized in 1997 in connection with vessel
construction and increased rates on floating rate debt. Interest
expense in 1998, 1997 and 1996 reflects $4,000,000, $4,300,000
and $7,000,000, respectively, of net benefits from the interest
rate swaps referred to below in Liquidity and Sources of Capital.
PROVISION FOR FEDERAL INCOME TAXES The income tax credit of
$10,950,000 in 1998 and the tax provisions of $12,150,000 in 1997
and $885,000 in 1996 were based on pretax income or loss,
adjusted to reflect items that are not subject to tax and the
dividends received deduction. The 1998 credit and the 1997
provision for federal income taxes include approximately
$1,000,000 and $2,000,000, respectively, of tax on previously
untaxed cruise earnings.
NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"), which
is required to be adopted in years beginning after June 15, 1999.
The Company expects to adopt the new statement effective January
1, 2000. FAS 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. For
derivatives that are hedges, depending on the nature of the
hedges, changes in the fair value of derivatives will either be
offset against changes in fair value of the hedged items or firm
commitments through earnings or be recognized in other
comprehensive income until the hedged item is recognized in
earnings. The portion of a derivative's change in fair value that
is deemed not to constitute a hedge will be immediately
recognized in earnings.
The Company believes that the adoption of FAS 133 will not have a
material effect on its earnings and financial position.
LIQUIDITY AND SOURCES OF CAPITAL Working capital at December 31,
1998 was approximately $43,000,000 compared with $99,000,000 at
year-end 1997 and $102,000,000 at year-end 1996; the reduction in
working capital was offset by a commensurate reduction in long-
term borrowings. Current financial resources, together with cash
anticipated to be generated from operations, are expected to be
adequate to meet requirements in 1999. Current assets are
highly liquid, consisting principally of cash, interest-bearing
deposits and receivables. The Company also has investments in
marketable securities carried as noncurrent assets, other than
securities included in the Capital Construction Fund, with a
market value of approximately $11,000,000 at December 31, 1998.
In addition, the Company maintains a Capital Construction Fund
with a market value of approximately $176,000,000 at December 31,
1998. Net cash provided by operating activities approximated
$56,000,000 in 1998, $60,000,000 in 1997 and $50,000,000 in 1996.
The Company has an unsecured long-term credit facility of
$600,000,000, of which $386,000,000 was used at December 31,
1998, and an unsecured short-term credit facility of $30,000,000,
of which $7,000,000 was used at that date. The latter amount has
been classified as long-term since it is expected to be
refinanced under the long-term credit facility. The cash received
from the sale of Royal common stock referred to under Significant
Events above was used to reduce amounts outstanding under the
long-term credit facility. The Company finances vessel additions
primarily with cash provided by operating activities, long-term
borrowings and capital lease obligations. Long-term borrowings
incurred in 1998, 1997 and 1996 aggregated approximately
$105,000,000, $38,000,000 and $76,000,000, respectively.
The Company has used interest rate swaps to effectively convert a
portion of its debt, including capital lease obligations, either
from a fixed to floating rate basis or from floating to fixed
rate, reflecting management's interest rate outlook at various
times. These agreements contain no leverage features. The Company
has hedged its exchange rate risk with respect to contracted
future charter revenues receivable in Japanese yen to minimize
the effect of foreign exchange rate fluctuations on reported
income by entering into currency swaps with a major financial
institution to deliver such foreign currency at fixed rates that
will result in the Company receiving approximately $89,000,000
for such foreign currency from 1999 through 2004.
In 1998, 1997 and 1996, cash used for vessel additions
approximated $19,000,000, $91,000,000 and $151,000,000,
respectively, excluding additions financed by long-term
borrowings. As of December 31, 1998, the Company has commitments
for the construction of two 308,700 dwt double-hulled foreign
flag VLCCs for delivery in 2000, with an aggregate contract price
based on standard shipyard contract terms of $140,000,000,
discounted to approximately $130,000,000 to reflect the
prepayment in August 1998 of a substantial portion of the
purchase price. The prepayment, approximately $105,000,000, is
covered by refundment guaranties from a major U.S. insurance
company. In December 1998, the Company financed its $105,000,000
prepayment and provided for the remaining unpaid costs of these
two vessels with a ten-year borrowing secured by an assignment of
the refundment guaranties and by mortgages to be placed on the
vessels upon their respective deliveries.
RISK MANAGEMENT The Company is exposed to market risk from
changes in interest rates, which could impact its results of
operations and financial condition. The Company manages this
exposure to market risk through its regular operating and
financing activities and, when deemed appropriate, through the
use of derivative financial instruments. The Company manages its
ratio of fixed to floating rate debt with the objective of
achieving a mix that reflects management's interest rate outlook
at various times. To manage this mix in a cost-effective manner,
the Company, from time to time, enters into interest rate swap
agreements, in which it agrees to exchange various combinations
of fixed and variable interest rates based on agreed upon
notional amounts. The Company uses derivative financial
instruments as risk management tools and not for speculative or
trading purposes. In addition, derivative financial instruments
are entered into with a diversified group of major financial
institutions in order to manage exposure to nonperformance on
such instruments by the counterparties.
The following table provides information about the Company's
derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates. For investment
securities and debt obligations, the table presents principal
cash flows and related weighted average interest rates by
expected maturity dates. Additionally, the Company has assumed
that its fixed income securities are similar enough to aggregate
those securities for presentation purposes. For interest rate
swaps, the table presents notional amounts and weighted average
interest rates by contractual maturity dates. Notional amounts
are used to calculate the contractual cash flows to be exchanged
under the contracts.
<TABLE>
INTEREST RATE SENSITIVITY
Principal (Notional) Amount by Expected Maturity and Average Interest (Swap) Rate
<CAPTION>
Fair
Value
at
Dec.
(Dollars in Beyond 31,
millions) 1999 2000 2001 2002 2003 2003 Total 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Fixed income
securities $ 0.8 $ 1.5 $ 3.8 $ 7.4 $ 44.8 $ 58.3 $ 58.3
Average
interest
rate 6.2% 6.2% 5.6% 6.0% 6.8%
LIABILITIES
Long-term
debt and
capital
lease
obliga-
tions,
including
current
portion
Fixed rate $11.1 $ 9.1 $ 8.8 $ 6.6 $106.9 $145.5 $288.0 $290.2
Average
interest
rate 9.5% 10.2% 10.1% 9.8% 8.1% 9.2%
Variable
rate $13.3 $17.2 $19.5 $410.8 $ 19.5 $ 90.0 $570.3 $570.3
Average
spread
over LIBOR 0.53% 0.72% 0.87% 0.52% 0.87% 1.28%
INTEREST
RATE SWAPS
RELATED TO
DEBT
Pay
variable*/
receive
fixed $40.0 $150.0 $ 50.0 $240.0 $ 9.3
Average
receive
rate 6.0% 6.1% 6.4%
Pay fixed/
receive
variable* $13.3 $17.2 $19.5 $327.9 $ 19.5 $ 90.0 $487.4 $ (3.8)
Average pay
rate 6.9% 6.6% 6.3% 5.2% 6.3% 5.6%
<FN>
*LIBOR
</TABLE>
EFFECTS OF INFLATION AND ENVIRONMENTAL MATTERS Additions to the
costs of operating the fleet due to wage increases and price
level increases in certain other expense categories were
experienced over the three-year period. In some cases, these
increases were offset by rates available to tonnage open for
chartering and to some extent by charter escalation provisions.
UPDATE ON IMPACT OF YEAR 2000 The Company is continuing its
review of all phases of its activities that could be affected by
Year 2000 issues. Year 2000 issues relate to the inability of
computer programs or microchips to distinguish between the year
1900 and the year 2000. In connection with computer processing of
its financial records, the Company primarily uses software that
is Year 2000 compliant. The Company is reviewing its computer
supported operational activities (most of which do not relate to
recordkeeping), which include computer operated machinery or
processes or computer based backup systems on board its vessels.
The Company is testing its applications and has found those
tested either to be Year 2000 compliant or to have minor
deficiencies that are expected to be corrected by mid-1999. The
Company is performing further tests of its systems that it
expects to complete in mid-1999.
The Company has communicated with vendors and others whose Year
2000 compliance is critical to the Company and is following up
with them concerning their plans and progress in addressing Year
2000 issues. The Company is not aware of any Year 2000 problems
as a result of this effort.
The costs associated with the Company's Year 2000 compliance
activities are not expected to be material to the Company's
financial position and such costs are being expensed as incurred.
The failure to correct a Year 2000 problem could result in an
interruption in certain normal business activities or operations.
The Company, however, believes that, with completion of its Year
2000 project, significant interruptions will not be encountered.
Completion of the Company's Year 2000 project is based on
management's best estimates, which were derived utilizing
numerous assumptions regarding future events. There can, however,
be no assurance that there will not be a delay in, or
unanticipated costs associated with, the Year 2000 project.
Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, timely
responses by third parties and suppliers and similar
uncertainties. The Company expects to evaluate the necessity for
a contingency plan by mid-1999.
February 23, 1999
[From pages 21 through 35 of the 1998 Annual Report]
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
In thousands, except per share amounts,
for the year ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
SHIPPING REVENUES:
Revenues from voyages - Note B $412,384 $477,950 $452,263
Income/(loss) attributable to bulk
shipping joint ventures - Note E (3,600) 3,109 3,605
- ---------------------------------------------------------------------------
408,784 481,059 455,868
- ---------------------------------------------------------------------------
SHIPPING EXPENSES:
Vessel and voyage - Note H 254,348 292,564 297,209
Depreciation of vessels and
amortization of capital leases 70,806 77,940 71,003
General and administrative - Note H 46,180 44,944 41,040
- ---------------------------------------------------------------------------
371,334 415,448 409,252
- ---------------------------------------------------------------------------
Income from Vessel Operations 37,450 65,611 46,616
Equity in Results of Cruise
Business - Note D - 3,712 21
Other Income (Net) - Note K 32,312 41,945 26,208
- ---------------------------------------------------------------------------
69,762 111,268 72,845
Interest Expense 62,200 82,983 69,458
- ---------------------------------------------------------------------------
7,562 28,285 3,387
Gain on Sale of Investment in
Cruise Business - Note D 42,288 21,576 -
Gain Resulting from Public Offering of
Shares by Royal Caribbean
Cruises Ltd. - Note D - 7,842 -
Provision for Loss on Planned Vessel
Dispositions - Note M (85,072) (26,536) -
- ---------------------------------------------------------------------------
Income/(Loss) before Federal Income
Taxes and Extraordinary Loss (35,222) 31,167 3,387
Provision/(Credit) for Federal Income
Taxes - Note J (10,950) 12,150 885
- ---------------------------------------------------------------------------
Net Income/(Loss) before
Extraordinary Loss (24,272) 19,017 2,502
Extraordinary Loss on Early
Extinguishment of Debt, net of
income tax benefit of $7,350 - Note G (13,648) - -
- ---------------------------------------------------------------------------
Net Income/(Loss) $ (37,920) $ 19,017 $ 2,502
===========================================================================
PER SHARE AMOUNTS - NOTE P:
Basic and diluted net income/(loss)
before extraordinary loss $ (.66) $ .52 $ .07
Extraordinary loss $ (.37) - -
Basic and diluted net income/(loss) $ (1.03) $ .52 $ .07
Cash dividends declared and paid $ .60 $ .60 $ .60
===========================================================================
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
In thousands at December 31, 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including interest-bearing
deposits of $46,494 and $109,835 $ 51,005 $ 113,195
Voyage receivables 15,285 16,187
Other receivables 18,500 14,619
Prepaid expenses 19,868 26,379
- --------------------------------------------------------------------------
Total Current Assets 104,658 170,380
Investments in Marketable Securities - Note F 10,684 26,792
Capital Construction Fund - Notes F and J 176,154 174,892
Vessels, at cost, less accumulated
depreciation - Notes A3, G and O1 1,130,397 1,106,790
Vessels Under Capital Leases, less
accumulated amortization - Notes A4 and O1 54,543 65,475
Vessels Held for Disposal, at estimated
fair value - Note M 44,170 135,860
Investment in Cruise Business - Note D - 160,269
Investments in Bulk Shipping Joint 91,942 95,542
Ventures - Note E
Other Assets 82,967 87,224
- --------------------------------------------------------------------------
$1,695,515 $2,023,224
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,800 $ 6,099
Sundry liabilities and accrued
expenses - Note N2 25,346 29,249
Federal income taxes (all deferred) - Note J 6,200 7,400
- --------------------------------------------------------------------------
37,346 42,748
Current installments of long-term debt - Note G 20,194 22,430
Current obligations under capital
leases - Note O1 4,244 5,867
- --------------------------------------------------------------------------
Total Current Liabilities 61,784 71,045
Advance Time Charter Revenues 6,412 7,433
Long-term Debt - Notes G and O1 757,126 966,212
Obligations Under Capital Leases - Note O1 76,767 90,094
Deferred Federal Income Taxes
($64,584 and $102,514) and
Deferred Credits - Note J 85,804 108,643
SHAREHOLDERS' EQUITY - NOTES G, J AND P:
Common stock 39,591 39,591
Paid-in additional capital 96,156 96,149
Retained earnings 625,132 685,128
- --------------------------------------------------------------------------
760,879 820,868
Cost of treasury stock 41,869 41,719
- --------------------------------------------------------------------------
719,010 779,149
Accumulated other comprehensive income/(loss) (11,388) 648
- --------------------------------------------------------------------------
Total Shareholders' Equity 707,622 779,797
Commitments, Leases and Other
Comments - Notes N and O
- --------------------------------------------------------------------------
$1,695,515 $2,023,224
==========================================================================
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
<CAPTION>
In thousands for the year ended
December 31, 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (37,920) $ 19,017 $ 2,502
Items included in net income/(loss)
not affecting cash flows:
Depreciation and amortization 70,806 77,940 71,003
Provision for loss on planned vessel
dispositions 85,072 26,536 -
(Gain) resulting from public
offering of shares by
Royal Caribbean Cruises Ltd. - (7,842) -
Provision/(credit) for deferred
federal income taxes (32,530) 10,550 685
Equity in results of cruise business - (3,712) (21)
Equity in results of bulk shipping
joint ventures 3,600 (3,143) (3,605)
Other - net 1,897 (4,779) 6,528
Items included in net income/(loss)
related to investing and financing
activities:
(Gain) on sale of investment in
cruise business (42,288) (21,576) -
(Gain) on sale of securities - net (21,789) (31,493) (20,066)
(Gain)/loss on disposal of other
vessels 1,288 588 (6,983)
Extraordinary loss on
early extinguishment of debt 20,998 - -
Changes in operating assets and
liabilities:
Decrease/(increase) in receivables (360) 324 (272)
Net change in prepaid items, accounts
payable and sundry
liabilities and accrued expenses 8,543 (2,295) 796
(Decrease) in advance time
charter revenues (1,021) (261) (387)
- ----------------------------------------------------------------------------
Net cash provided by
operating activities 56,296 59,854 50,180
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment in
cruise business 198,474 120,050 -
Purchases of marketable securities (836)(b) (110,615) (4,672)
Proceeds from sales of marketable
securities 29,490 104,458 11,600
Purchases of vessels under
capital leases (a) (7,700) (4,719) (20,213)
Additions to vessels (c) (11,376) (86,688) (130,953)
Proceeds from sale of vessels included
in dry cargo disposal program 47,306 3,215 -
Proceeds from disposal of other vessels 2,527 9,085 59,426
Investment in Celebrity Cruise
Lines Inc. - - (4,900)
Purchase of minority interest - (5,102) -
Purchases of other investments (1,838) (7,490) (7,083)
Proceeds from dispositions of
other investments 1,754 2,686 6,744
Other - net (5,950) 133 119
- ----------------------------------------------------------------------------
Net cash provided by/(used in)
investing activities 251,851 25,013 (89,932)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt (c) - - 75,754
Payments on long-term debt and
obligations under capital leases (349,101) (68,623) (68,419)
Cash dividends paid (22,076) (21,870) (21,741)
Issuance of common stock upon
exercise of stock options - 8,449 -
Other - net 840 1,252 2,700
- ----------------------------------------------------------------------------
Net cash (used in)
financing activities (370,337) (80,792) (11,706)
- ----------------------------------------------------------------------------
Net increase/(decrease) in cash (62,190) 4,075 (51,458)
Cash, including interest-bearing
deposits, at beginning of year 113,195 109,120 160,578
- ----------------------------------------------------------------------------
Cash, including interest-bearing
deposits, at end of year $ 51,005 $ 113,195 $ 109,120
============================================================================
<FN>
(a) -Excludes $7,906 (1998), $9,052 (1997) and $20,090 (1996), representing
the outstanding principal balance of debt assumed in connection with
the purchases of vessels under capital leases.
(b) -Excludes $4,083, representing the carrying amount of 131,400 shares of
Royal Caribbean Cruises Ltd. ("RCCL") retained and reclassified upon
sale of 3,650,000 shares of RCCL.
(c) Excludes $104,884 (1998) and $38,000 (1997) in connection with the
construction of vessels.
See notes to financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Accumulated
Paid-in Other
Addi- Compre-
Common tional Retained Treasury Stock hensive
Dollars in thousands Stock* Capital Earnings Shares Amount Income/ Total
(Loss)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1995 $39,591 $93,687 $707,220 3,363,243 $(49,297) $ (6,420) $ 784,781
Net Income 2,502 2,502
Other Comprehensive
Income, net of tax:
gross unrealized gains
on available-
for-sale securities
of $14,943,
net of realized gains
included in
net income of $11,172 3,771 3,771
-------
Comprehensive Income 6,273
-------
Cash Dividends
Declared and Paid (21,741) (21,741)
Options Exercised 38 (7,853) 87 125
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1996 39,591 93,725 687,981 3,355,390 (49,210) (2,649) 769,438
Net Income 19,017 19,017
Other Comprehensive
Income, net of tax:
gross unrealized gains
on available- for-sale
securities of $22,947,
net of realized gains
included in
net income of $19,650 3,297 3,297
-------
Comprehensive Income 22,314
-------
Cash Dividends
Declared and Paid (21,870) (21,870)
Options Exercised 959 (557,194) 7,491 8,450
Tax Benefit Related to
Options Exercised 1,465 1,465
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1997 39,591 96,149 685,128 2,798,196 (41,719) 648 779,797
Net (Loss) (37,920) (37,920)
Other Comprehensive
(Loss), net of tax:
gross unrealized gains
on available- for-sale
securities of $1,512,
reflecting realized
gains included in
net (loss) of $13,548 (12,036) (12,036)
-------
Comprehensive (Loss) (49,956)
-------
Cash Dividends
Declared and Paid (22,076) (22,076)
Common Stock Acquired 13,700 (188) (188)
Options Exercised 7 (2,834) 38 45
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1998 $39,591 $96,156 $625,132 2,809,062 $(41,869) $(11,388) $707,622
====================================================================================================
<FN>
*Par value $1 per share; 60,000,000 shares authorized and 39,590,759 shares
issued.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OVERSEAS SHIPHOLDING GROUP, INC. AND SUBSIDIARIES
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. The consolidated financial statements include the accounts of
the Company and its subsidiaries ("Company" or "OSG"). All
subsidiaries are wholly owned. In February 1997, the Company
purchased the 20% minority interest in four previously 80%-owned
subsidiaries for cash of approximately $5,000,000. The excess of
such purchase price over the carrying amount of the minority
interest at December 31, 1996 is being amortized over the
remaining useful lives of the respective subsidiaries' vessels.
Significant intercompany items and transactions have been
eliminated in consolidation. Investments in joint ventures (which
are 50%-owned, except one small venture that is 49%-owned) are
stated at the Company's cost thereof adjusted for its
proportionate share of the undistributed operating results of
such companies.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
2. As required by Statement of Financial Accounting Standards No.
95, "Statement of Cash Flows," only interest-bearing deposits
that are highly liquid investments and have a maturity of three
months or less when purchased are included in cash.
3. Depreciation of vessels is computed for financial reporting
purposes based on cost, less estimated salvage value, by the
straight-line method primarily using a vessel life of 25 years.
Accumulated depreciation was $340,617,000 and $459,965,000 at
December 31, 1998 and 1997, respectively. The 1998 decrease
reflects the reclassification of vessels held for disposal (see
Note M).
4. Certain subsidiaries have bareboat charters-in on vessels that
are accounted for as capital leases. Amortization of capital
leases is computed by the straight-line method over 22 or 25
years, representing the terms of the leases (see Note O1).
Accumulated amortization was $67,547,000 and $87,392,000 at
December 31, 1998 and 1997, respectively.
5. Time charters and a bareboat charter that are operating leases
are reported on the accrual basis. Voyage charters are reported
on the completed voyage basis.
6. Interest costs incurred during the construction of vessels
(until the vessel is substantially complete and ready for its
intended use) are capitalized. Interest capitalized aggregated
$3,035,000 (1998), $1,326,000 (1997) and $9,378,000 (1996).
Interest paid amounted to $66,451,000 (1998), $82,898,000 (1997)
and $70,971,000 (1996), excluding capitalized interest.
7. The Company's investments in marketable securities are
classified as available-for-sale and are carried at market value.
Net unrealized gains or losses are reported as a component of
accumulated other comprehensive income/(loss).
8. Amounts receivable or payable under interest rate swaps
(designated as hedges against certain existing debt and capital
lease obligations - see Note G) are accrued and reflected as
adjustments of interest expense. Such receivables or payables are
included in other receivables or sundry liabilities and accrued
expenses, respectively. Any gain or loss realized upon the early
termination of an interest rate swap is recognized as an
adjustment of interest expense over the remaining term of the
hedged debt.
Changes in the value of currency swaps (designated as hedges
against contracted future charter revenues receivable in a
foreign currency) are deferred and are offset against
corresponding changes in the value of the charter hire, over the
related charter periods (see Note O2). Any gain or loss realized
upon the termination of foreign currency swaps would be
recognized as an adjustment of voyage revenues over the remaining
term of the related charter.
9. In accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"),
compensation cost for stock options is recognized in income based
on the excess, if any, of the quoted market price of the stock at
the grant date of the award or other measurement date, over the
amount an employee must pay to acquire the stock. The exercise
price for stock options granted to employees equals or exceeds
the fair market value of the Company's common stock at the date
of grant, thereby resulting in no recognition of compensation
expense.
10. The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"),
effective with the first quarter of 1998. FAS 130 requires the
presentation of comprehensive income/(loss), which (in the
Company's case) presently comprises net income/(loss) plus or
minus the change in unrealized gains or losses on the available-
for-sale securities portfolio. The Company recognizes such
changes in unrealized gains or losses through the date of sale in
other comprehensive income/(loss). The adoption of this statement
had no impact on the Company's net income/(loss) or shareholders'
equity. Comprehensive income/(loss) for each of the three years
ended December 31, 1998 has been shown in the statement of
changes in shareholders' equity.
11. Effective for 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131").
FAS 131 superceded Statement of Financial Accounting Standards
No. 14, "Financial Reporting for Segments of a Business
Enterprise" and establishes standards for reporting information
about operating segments. The adoption of FAS 131 did not affect
results of operations or financial position, but did affect the
disclosure of segment information (see Note B).
NOTE B - BUSINESS AND SEGMENT REPORTING:
The Company is principally engaged in the ocean transportation of
liquid and dry bulk cargoes in both the worldwide markets and the
self-contained U.S. markets through the ownership and operation
of a diversified fleet of bulk cargo vessels. The bulk shipping
industry has many markets that have distinct characteristics and
are subject to different market forces. The primary markets for
individual vessels are determined to a large degree by their
types, sizes and flags. Unlike container or liner ships, which
the Company does not own, bulk vessels are not bound to specific
ports or schedules and, therefore, can respond to market
opportunities by moving between trades and geographical areas.
The Company's subsidiaries charter their vessels to commercial
shippers and U.S. and foreign governmental agencies primarily on
time and voyage charters and occasionally on bareboat charters
(see Note O2).
The Company has four reportable segments: foreign flag crude
tankers, products carriers and dry bulk carriers and U.S. flag
tankers, including products carriers. Segment results are
evaluated based on income from vessel operations before general
and administrative expenses. The accounting policies followed by
the reportable segments are the same as those followed in the
preparation of the Company's consolidated financial statements.
Information about the Company's reportable segments for the three
years ended December 31, 1998 follows:
<TABLE>
<CAPTION>
U.S. flag
Foreign flag Tankers,
------------------------------- including
Crude Products Dry bulk Products
In thousands tankers carriers carriers carriers All other Totals
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Shipping revenues $204,481 $ 54,088 $ 9,083 $119,889 $21,243 $ 408,784
Depreciation and amortization 36,423 8,777 3,716 19,128 2,762 70,806
Income/(loss) from
vessel operations 33,709+ 4,004 (6,917) 19,881 6,690 57,367*
Provision for loss on
planned vessel dispositions 10,749 6,908 65,400 2,015 85,072
Total assets at December
31, 1998 937,700 129,006 130,322 149,123 33,846 1,379,997
Investments in bulk shipping
joint ventures at December
31, 1998 81,968 8,077 1,897 91,942
Expenditures for vessels,
including purchases of
vessels under capital leases 108,611 1,420 13,263 666 123,960
1997
Shipping revenues 216,619 64,556 47,157 130,364 22,363 481,059
Depreciation and amortization 34,269 9,341 13,556 17,918 2,856 77,940
Income/(loss) from
vessel operations 46,342+ 8,776 (4,672) 26,067 352 76,865*
Provision for loss on planned
vessel dispositions 26,536 26,536
Total assets at December
31, 1997 883,145 139,473 243,451 188,387 37,984 1,492,440
Investments in bulk
shipping joint ventures
at December 31, 1997 85,232 8,830 1,480 95,542
Expenditures for vessels,
including purchases of
vessels under capital leases 58,486 140 50,975 19,696 110 129,407
Purchase of minority interest 5,102 5,102
1996 Shipping revenues 169,804 67,471 57,672 139,192 21,729 455,868
Depreciation and amortization 28,839 9,758 12,991 16,726 2,689 71,003
Income/(loss) from
vessel operations 30,870+ 9,366 (4,355) 21,045 (1,822) 55,104*
Total assets at December
31, 1996 850,855 162,293 235,686 204,359 37,318 1,490,511
Investments in bulk shipping
joint
ventures at December 31, 1996 81,953 8,478 968 91,399
Expenditures for vessels,
including purchases of
vessels under capital leases 99,519 2,543 25,584 23,520 151,166
==================================================================================================
<FN>
*Segment totals are before general and administrative expenses, investment
income and interest expense.
+Includes substantially all of the equity in net income/(loss) of bulk shipping
joint ventures and, in 1998 and 1997, the net earnings from a vessel chartered-
in until 2005 and chartered-out for the same period.
</TABLE>
<TABLE>
Reconciliations of total assets of the segments to amounts included in
the consolidated balance sheets follow:
<CAPTION>
In thousands at December 31, 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of all segments,
which exclude intercompany
receivables $1,379,997 $1,492,440 $1,490,511
Corporate cash and securities,
including capital construction
fund 237,520 302,383 242,927
Other unallocated amounts,
including investment in cruise
business in 1997 and 1996 77,998 228,401 303,863
- ------------------------------------------------------------------------
Consolidated total assets $1,695,515 $2,023,224 $2,037,301
========================================================================
</TABLE>
<TABLE>
Certain additional information about the Company's operations for
the three years ended December 31, 1998 follows:
<CAPTION>
In thousands Consolidated U.S. flag Foreign
flag*
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Shipping revenues $ 408,784 $141,132 $ 267,652
=========================================================================
Vessels and vessels under capital
leases at December 31, 1998+ 1,229,110 159,406 1,069,704
=========================================================================
1997
Shipping revenues 481,059 152,727 328,332
=========================================================================
Vessels and vessels under capital
leases at December 31, 1997+ 1,308,125 175,877 1,132,248
=========================================================================
1996
Shipping revenues 455,868 160,921 294,947
=========================================================================
Vessels and vessels under capital
leases at December 31, 1996 $ 1,293,817 $ 177,729 $ 1,116,088
=========================================================================
<FN>
*Principally Marshall Islands as of December 31, 1998.
+Includes vessels held for disposal.
</TABLE>
The Company had one charterer (a major oil company) during the
above periods from which revenues exceeded 10% of revenues from
voyages. Revenues from such charterer amounted to $98,625,000 in
1998, $118,012,000 in 1997 and $98,321,000
in 1996.
See Note J for information relating to taxation of income and
undistributed earnings of foreign companies.
<TABLE>
NOTE C - ASSETS AND LIABILITIES OF FOREIGN SUBSIDIARIES:
A condensed summary of the combined assets and liabilities of
the Company's foreign (incorporated outside the United States)
subsidiaries, whose operations are principally conducted in U.S.
dollars, follows:
<CAPTION>
In thousands at December 31, 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Current assets $ 25,518 $ 27,004
Vessels, net and vessels held for
disposal 1,023,139 1,048,945
Investment in cruise business - 160,269
Other assets 114,343 121,976
- ----------------------------------------------------------------
1,163,000 1,358,194
- ----------------------------------------------------------------
Current installments of long-
term debt, including intercompany
of $33,400 and $35,800 44,024 46,086
Other current liabilities 13,697 19,613
- ----------------------------------------------------------------
Total current liabilities 57,721 65,699
Long-term debt (including inter-
company of $200,400 and $107,400)
and deferred credits, etc. 356,373 350,177
- ----------------------------------------------------------------
414,094 415,876
- ----------------------------------------------------------------
Net assets $ 748,906 $ 942,318
================================================================
</TABLE>
NOTE D - INVESTMENT IN CRUISE BUSINESS:
In July 1997, the Company sold its 49% ownership interest in
Celebrity Cruise Lines Inc. ("CCLI"), a joint venture that owned
and operated cruise vessels, for $120,050,000 in cash and
approximately 3,650,000 shares of Royal Caribbean Cruises Ltd.
("RCCL") common stock, representing approximately 5% of RCCL's
then outstanding common shares. The Company recognized a gain on
the sale of $21,576,000 (approximately $12,100,000 after tax,
including $2,000,000 of tax on previously untaxed CCLI earnings).
The Company accounted for its ownership of RCCL common stock
(which included approximately 131,000 shares held as available-
for-sale securities prior to the aforementioned transaction) as
an investment in a corporate joint venture, using the equity
method of accounting.
In September 1997, RCCL sold approximately 9,354,000 shares in a
public offering at a net price per share that was substantially
above RCCL's book value per share after giving effect to the
offering. Accordingly, the Company recognized a gain of
$7,842,000 ($5,100,000 after tax), representing an increase in
its share of RCCL's shareholders' equity.
In March 1998, the Company recognized a gain of $42,288,000
($26,500,000 after tax, including $1,000,000 of tax on previously
untaxed RCCL earnings) from the sale of the above mentioned
3,650,000 shares of RCCL common stock.
The Company has applied the net proceeds from the disposition of
its investment in the cruise business, approximately
$300,000,000, to reduce amounts outstanding under its long-term
credit facility.
The Company's equity in the results of cruise business reflects
its share of the results of CCLI through June 30, 1997 and of
RCCL thereafter.
<TABLE>
The results of operations for the cruise business were as
follows:
<CAPTION>
July 1 to January 1 to Year ended
In thousands Dec. 31, 1997 June 30, 1997 Dec. 31, 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Revenue $1,140,950 $265,921 $ 411,891
Costs and expenses 1,042,665 266,264 411,769
- -----------------------------------------------------------------
Net income/(loss) $ 98,285 $ (343) $ 122
=================================================================
</TABLE>
The Company's equity in the results of cruise business is before
interest expense of approximately $12,700,000 (1997) and
$15,800,000 (1996), estimated to have been incurred by the
Company in connection with the funding of its investment in
cruise business. These amounts were calculated based on the
Company's average interest rates during the respective years.
<TABLE>
NOTE E - BULK SHIPPING JOINT VENTURES:
Certain subsidiaries have investments in bulk shipping joint
ventures (see Note A1). A condensed summary of the combined
assets and liabilities and results of operations of the bulk
shipping joint ventures follows:
<CAPTION>
In thousands at December 31, 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Cash ($49,678 and $38,432) and other
current assets (including $177 and
$2,640 due from owners) $ 55,171 $ 47,003
Vessels, net 178,592 205,770
Other assets (including $1,197 and
$557 due from owners) 3,571 3,486
- ----------------------------------------------------------------
237,334 256,259
- ----------------------------------------------------------------
Current installments of long-term debt 7,500 7,500
Other current liabilities 4,396 6,176
- ----------------------------------------------------------------
Total current liabilities 11,896 13,676
Long-term debt 41,250 48,750
- ----------------------------------------------------------------
53,146 62,426
- ----------------------------------------------------------------
Net assets (principally undistributed
net earnings) $184,188 $193,833
================================================================
<CAPTION>
In thousands for the year 1998 1997 1996
ended December 31,
- -----------------------------------------------------------------
<S> <C> <C> <C>
Revenue, primarily from
voyages (including
$23,291, $35,304 and
$29,435 from vessels
chartered to owners) $55,211 $ 49,892 $ 41,998
Costs and expenses* 64,856 43,733 35,205
- -----------------------------------------------------------------
Net income/(loss) $(9,645) $ 6,159 $ 6,793
=================================================================
<FN>
*Includes provisions of approximately $14,255 (1998) and $2,300
(1996) for losses on vessels disposed of or to be disposed of
subsequent to the respective year-ends.
</TABLE>
<TABLE>
NOTE F - INVESTMENTS IN MARKETABLE SECURITIES:
Certain information concerning the Company's marketable
securities (including securities in the Capital Construction
Fund), which consist of available-for-sale securities, follows:
<CAPTION>
Approximate
Gross Unrealized Market and
In thousands at ----------------- Carrying
December 31, Cost Gains Losses Amount
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Equity securities $ 89,064 $2,311 $20,597 $ 70,778
U.S. Treasury
securities and
obligations of
U.S. government
agencies 36,158 490 44 36,604
Mortgage-backed
securities 9,408 92 - 9,500
Other debt securities 11,921 273 13 12,181
- ----------------------------------------------------------------
$146,551 $3,166 $20,654 $129,063
================================================================
1997
Equity securities $121,947 $6,322 $5,815 $122,454
U.S. Treasury
securities and
obligations of U.S.
government agencies 23,005 90 10 23,085
Mortgage-backed 6,851 35 - 6,886
securities
Other debt securities 3,976 26 - 4,002
- ----------------------------------------------------------------
$155,779 $6,473 $5,825 $156,427
================================================================
</TABLE>
At February 23, 1999, the aggregate market quotation of the above
marketable securities was approximately $125,800,000.
<TABLE>
The cost and approximate market value of debt securities held by
the Company as of December 31, 1998, by contractual maturity,
follow:
<CAPTION>
Approximate
In thousands Cost Market
- ----------------------------------------------------------------
<S> <C> <C>
Due after one year through five years $10,949 $10,978
Due after five years through ten years 8,659 8,838
Due after ten years 28,471 28,969
- ----------------------------------------------------------------
48,079 48,785
Mortgage-backed securities 9,408 9,500
- ----------------------------------------------------------------
$57,487 $58,285
================================================================
</TABLE>
<TABLE>
NOTE G - DEBT:
Long-term debt exclusive of current installments follows:
<CAPTION>
In thousands at December 31, 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Unsecured Revolving Credit Agreement
with banks $393,000 $367,000
Unsecured Senior Notes, due from 2000
through 2013, interest from 7.77% to 9.57% - 310,000
8.75% Debentures due 2013, net of
unamortized discount of $225 and $256 93,525 99,744
8% Notes due 2003, net of unamortized
discount of $118 and $143 99,882 99,857
Floating rate secured Term Loans, due
through 2008 135,818 40,315
Floating rate unsecured Promissory Note,
due through 2005 28,250 32,150
Other 6,651 17,146
- ----------------------------------------------------------------
$757,126 $966,212
================================================================
</TABLE>
The Revolving Credit Agreement, as amended, provides for
borrowings of up to $600,000,000 on a revolving credit basis
through August 2002, at which time any outstanding balance is
due. As of December 31, 1998, interest was at the rate of .50%
above the London interbank offered rate ("LIBOR"). The Company
also has an interest rate option related to the money market or
prime rates.
Agreements related to long-term debt provide for prepayment
privileges (in certain instances with penalties), a limitation on
the amount of total borrowings, and acceleration of payment under
certain circumstances, including if any of the financial
covenants contained in certain of such agreements are not met.
The most restrictive of these covenants require the Company to
maintain positive working capital, net worth as of December 31,
1998 of approximately $628,000,000 (increasing quarterly by an
amount related to net income) and a ratio of total debt to net
worth of not more than 1.75:1.
The Company has used interest rate swaps to effectively convert a
portion of its debt, including capital lease obligations, either
from a fixed to floating rate basis or from floating to fixed
rate, reflecting management's interest rate outlook at various
times. As of December 31, 1998, the Company is a party to fixed
to floating interest rate swaps with various major financial
institutions covering notional amounts aggregating $240,000,000,
pursuant to which it pays LIBOR (5.1% as of December 31, 1998)
and receives fixed rates ranging from 5.9% to 6.4% calculated on
the notional amounts. The Company is also a party to floating to
fixed interest rate swaps with various major financial
institutions covering notional amounts aggregating approximately
$487,000,000, pursuant to which it pays fixed rates ranging from
5.1% to 7.1% and receives LIBOR. These agreements contain no
leverage features and have various maturity dates from 2000 to
2008.
During the fourth quarter of 1998, the Company repurchased
Unsecured Senior Notes with an aggregate principal amount of
$310,000,000 at a $21,000,000 premium net of gains from the
termination of related interest rate swaps (fixed rate interest
on the Unsecured Senior Notes had been converted to a floating
rate basis by these interest rate swaps). The premium net of the
swap termination gain has been reported in the Company's
statement of operations as an extraordinary charge. The Company
borrowed the amount needed for the purchase under its Revolving
Credit Agreement; its interest cost on such borrowings will be
lower than the interest cost on the repurchased notes by
approximately $5,000,000 per year, based on the interest rates
and the amount of notes outstanding at the time of the
transaction.
Approximately 19% of the net book amount of the Company's
vessels, including vessels under construction, and vessels under
capital leases, representing four foreign flag and six U.S. flag
vessels, is pledged as collateral for certain long-term debt.
The aggregate annual principal payments required to be made on long-
term debt for the five years subsequent to December 31, 1998 are
$20,194,000 (1999), $20,962,000 (2000), $22,376,000 (2001),
$410,797,000 (2002) and $119,463,000 (2003).
The Company also has a $30,000,000 committed short-term line of
credit facility with a bank, of which $7,000,000 was used as of
December 31, 1998. Such amount has been classified as long-term
and is included in the $393,000,000 in the above table since it is
expected to be refinanced under the Revolving Credit Agreement.
NOTE H - AGENCY FEES AND BROKERAGE COMMISSIONS:
General and administrative expenses include agency fees,
classified separately in prior years.
On October 30, 1998, the Company assumed direct management and
operation of its bulk shipping fleet, terminating its
arrangements (see below), by mutual consent, with Maritime
Overseas Corporation ("Maritime"). The Company has employed the
staff of Maritime, acquired certain employee benefit plan assets
and assumed related obligations of Maritime, and acquired certain
of Maritime's other assets for consideration that was not
material.
All subsidiaries with vessels and certain joint ventures were
parties to agreements with Maritime that provided, among other
matters, for Maritime and its subsidiaries to render services
related to the chartering and operation of the vessels and
certain general and administrative services for which Maritime
and its subsidiaries received specified compensation. General and
administrative expenses include $26,263,000 (January 1 to October
30, 1998), $33,690,000 (1997) and $32,552,000 (1996) of such
agency fees. Vessel and voyage expenses include $4,859,000
(January 1 to October 30, 1998), $6,012,000 (1997) and $5,798,000
(1996) of brokerage commissions to Maritime. By agreement,
Maritime's compensation for any year was limited to the extent
Maritime's consolidated net income from shipping operations would
exceed a specified amount (approximately $1,014,000 (January 1 to
October 30, 1998), $1,110,000 (1997) and $1,009,000 (1996)).
Maritime was owned by a director of the Company; directors or
officers of the Company constituted all four of the directors and
the majority of the principal officers of Maritime until October
1998, at which time the owner of Maritime became its sole
director and officers of the Company resigned as officers of
Maritime in connection with the transaction referred to in the
preceding paragraph.
NOTE I - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
CASH AND INTEREST-BEARING DEPOSITS - The carrying amount reported
in the balance sheet for interest-bearing deposits approximates
its fair value.
INVESTMENT SECURITIES - The fair value for marketable securities
is based on quoted market prices or dealer quotes.
DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS - The carrying amounts
of the borrowings under the Revolving Credit Agreement and the
other floating rate loans approximate their fair value. The fair
values of the Company's fixed rate debt are estimated using
discounted cash flow analyses, based on the rates currently
available for debt with similar terms and remaining maturities.
INTEREST RATE SWAPS - The fair value of interest rate swaps (used
for hedging purposes) is the estimated amount that the Company
would receive or pay to terminate the swaps at the reporting
date.
FOREIGN CURRENCY SWAPS - The fair value of foreign currency swaps
(used for hedging purposes) is the estimated amount that
the Company would receive or pay to terminate the swaps at
the reporting date.
<TABLE>
Estimated fair value of the Company's financial instruments follows:
<CAPTION>
In thousands at Carrying Fair Carrying Fair
Amount Value Amount Value
December 31, 1998 1998 1997 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
(liabilities)
Cash and interest-
bearing deposits $ 51,005 $ 51,005 $ 113,195 $ 113,195
Interest-bearing
deposits in Capital
Construction Fund 57,775 57,775 45,257 45,257
Investments in
marketable
securities 129,063 129,063 156,427 156,427
Debt, including
capital lease
obligations (858,331) (860,480) (1,084,603) (1,134,323)
Interest rate swaps - 5,502 - 12,834
Foreign currency
swaps - 1,601 - 9,197
======================================================================
</TABLE>
NOTE J - TAXES:
Effective from January 1, 1987, earnings of the foreign shipping
companies are subject to U.S. income taxation currently; post-
1986 taxable income may be distributed to the U.S. parent without
further tax. The foreign companies' shipping income earned from
January 1, 1976 through December 31, 1986 ("Deferred Income") is
excluded from U.S. income taxation to the extent that such income
is reinvested in foreign shipping operations, and the foreign
shipping income earned before 1976 is not subject to tax unless
distributed to the U.S. parent. A determination of the amount of
qualified investments in foreign shipping operations, as defined,
is made at the end of each year and such amount is compared with
the corresponding amount at December 31, 1986. If during any
determination period there is a reduction of qualified
investments in foreign shipping operations, Deferred Income,
limited to the amount of such reduction, would become subject to
tax. Treasury Department regulations regarding the foregoing have
not been revised to reflect law changes effective for post-1986
years. The Company believes that it will be reinvesting
sufficient amounts in foreign shipping operations so that any
significant U.S. income taxes on the undistributed income of its
foreign companies accumulated through December 31, 1986 will be
postponed indefinitely. U.S. income taxes on the income of its
foreign companies accumulated through December 31, 1986 will be
provided at such time as it becomes probable that a liability for
such taxes will be incurred and the amount thereof can reasonably
be estimated. No provision for U.S. income taxes on the income of
the foreign shipping companies accumulated through December 31,
1986 was required at December 31, 1998 since undistributed
earnings of foreign shipping companies have been reinvested or
are intended to be reinvested in foreign shipping operations. As
of December 31, 1998, such undistributed earnings aggregated
approximately $475,000,000, including $114,000,000 earned prior
to 1976; the unrecognized deferred U.S. income tax attributable
to such undistributed earnings approximated $165,000,000.
Pursuant to the Merchant Marine Act of 1936, as amended, the
Company is a party to an agreement that permits annual deposits,
related to taxable income of certain of its domestic
subsidiaries, into a Capital Construction Fund. Payments of
federal income taxes on such deposits and earnings thereon are
deferred until, and if, such funds are withdrawn for nonqualified
purposes or termination of the agreement; however, if withdrawn
for qualified purposes (acquisition of vessels or retirement of
debt on vessels), such funds remain tax-deferred and the federal
income tax basis of any such vessel is reduced by the amount of
such withdrawals. Under the agreement, the general objective is
(by use of assets accumulated in the fund) for three vessels to
be constructed or acquired by the end of 2004. Monies can remain
tax-deferred in the fund for a maximum of 25 years (commencing
January 1, 1987 for deposits
prior thereto).
<TABLE>
The significant components of the Company's deferred tax
liabilities and assets follow:
<CAPTION>
In thousands at December 31, 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
- -----------------------------------------------------------------------
Excess of tax over statement
depreciation - net $ 37,542 $ 62,701
Tax benefits related to the Capital
Construction Fund 52,459 52,250
Costs capitalized and amortized for
statement, expensed for tax 4,734 12,448
Other - net 20,326 20,952
- -----------------------------------------------------------------------
Total deferred tax liabilities 115,061 148,351
- -----------------------------------------------------------------------
Deferred tax assets:
- -----------------------------------------------------------------------
Capital leases 2,160 4,237
Alternative minimum tax credit
carryforwards, which can be carried
forward indefinitely 31,350 17,120
Net operating loss carryforwards,
expiring in 2010 and 2011 10,767 17,080
- -----------------------------------------------------------------------
Total deferred tax assets 44,277 38,437
- -----------------------------------------------------------------------
Net deferred tax liabilities $ 70,784 $109,914
=======================================================================
</TABLE>
Federal income taxes paid amounted to $17,500,000 in 1998
($7,000,000 of which related to a prior period) and $1,913,000 in
1997 ($263,000 of which related to 1996).
<TABLE>
The components of income/(loss) before federal income taxes and
extraordinary loss follow:
<CAPTION>
In thousands for the year
ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(39,814) $(19,147) $ (23,720)
Foreign 4,592 50,314 27,107
- -----------------------------------------------------------------
$(35,222) $ 31,167 $ 3,387
=================================================================
</TABLE>
Substantially all of the above foreign income was earned by
companies that were not subject to income taxes in their
countries of incorporation.
<TABLE>
The components of the provision/(credit) for federal income taxes
follow:
<CAPTION>
In thousands for the year
ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Current $ 21,580 $ 1,600 $ 200
Deferred (32,530) 10,550 685
- -----------------------------------------------------------------
$ (10,950) $ 12,150 $ 885
=================================================================
</TABLE>
<TABLE>
The income tax expense (benefit) allocated to each component of
other comprehensive income/(loss) follows:
<CAPTION>
In thousands for the year
ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains
on available-for-sale $ 1,194 $ 10,580 $ 6,015
securities
Reclassification adjustment
for gains included in net
income/(loss) (7,294) (10,580) (6,015)
- -----------------------------------------------------------------
$ (6,100) $ - $ -
=================================================================
</TABLE>
<TABLE>
Reconciliations of the actual federal income tax rate
attributable to pretax income/(loss) before extraordinary loss
and the U.S. statutory income tax rate follow:
<CAPTION>
For the year ended
December 31, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Actual federal income tax
provision/(credit) rate (31.1)% 39.0% 26.1%
Adjustment due to:
Dividends received
deduction 1.2% 1.4% 13.8%
Prior years' undistributed
earnings of cruise
business -see Note D (2.7)% (6.3)% -
Income not subject to U.S.
income taxes - 3.3% 2.0%
Other (2.4)% (2.4)% (6.9)%
- ------------------------------------------------------------------
U.S. statutory income tax
provision/(credit) rate (35.0)% 35.0% 35.0%
==================================================================
</TABLE>
NOTE K - OTHER INCOME (NET):
<TABLE>
Other income (net) consists of:
<CAPTION>
In thousands for the year
ended December 31, 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Interest $ 7,761 $ 7,077 $ 7,500
Dividends 2,303 1,832 1,990
Gain on sale of securities -
net (based on first-in,
first-out method) 21,789 31,493 20,066
Provision for loss
on investments - (714) (11,190)
- -----------------------------------------------------------------
31,853 39,688 18,366
Gain/(loss) on disposal of
vessels - net (1,288) (588) 6,983
Miscellaneous - net 1,747 2,845 859
- -----------------------------------------------------------------
$32,312 $41,945 $ 26,208
=================================================================
</TABLE>
Gross realized gains on sales of securities were $25,895,000
(1998), $35,808,000 (1997) and $23,579,000 (1996), and gross
realized losses were $4,106,000 (1998), $4,315,000 (1997) and
$3,513,000 (1996).
NOTE L - PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
Since October 31, 1998 (see Note H), the Company is the sponsor
of a noncontributory defined benefit pension plan covering
substantially all of its domestic shore-based employees.
Retirement benefits are based primarily on years of service and
final average compensation, as defined. The Company's policy is
to fund pension costs accrued, but not in excess of amounts
allowable under income tax regulations. The Company has an
unfunded, nonqualified supplemental pension plan covering certain
employees, which provides for additional benefits that would
otherwise have been payable to such employees under the Company's
pension plan in the absence of limitations imposed by income tax
regulations. The accrued benefit liability for this supplemental
plan was $8,475,000 at December 31, 1998 and has been reflected
in the accrued benefit cost shown in the table below.
Certain of the Company's foreign subsidiaries have pension plans
that in the aggregate are not significant to the consolidated
financial position.
The Company also provides certain postretirement health care and
life insurance benefits to qualifying domestic retirees and their
eligible dependents. The health care plan is contributory; the
life insurance plan is noncontributory. In general,
postretirement medical coverage is provided to employees who
retire and have met minimum age and service requirements, under a
formula related to total years of service. The Company does not
currently fund these benefit arrangements and has the right to
amend or terminate the health care benefits at any time.
<TABLE>
Certain information as of December 31, 1998 and for the period
October 31 to December 31, 1998 with respect to the above
domestic plans follows (amounts applicable to periods prior to
October 31, 1998 were not material):
<CAPTION>
Pension Other
In thousands Benefits Benefits
- -----------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
- -----------------------------------------------------------------------
Benefit obligation at October 31, 1998 $44,606 $ 4,894
Cost of benefits earned (service cost) 245 52
Interest cost on benefit obligation 499 77
Plan participants' contributions - 3
Benefits paid (495) (42)
- -----------------------------------------------------------------------
Benefit obligation at December 31, 1998 44,855 4,984
- -----------------------------------------------------------------------
Change in plan assets:
- -----------------------------------------------------------------------
Fair value of plan assets at October 31, 1998 42,203
Actual return on plan assets 1,161
Benefits paid (484)
- -----------------------------------------------------------------------
Fair value of plan assets at December 31, 1998 42,880
- -----------------------------------------------------------------------
Excess of benefit obligation over plan assets (1,975) (4,984)
Unrecognized prior-service costs 509 -
Unrecognized net actuarial (gain)/loss 1,474 (716)
Unrecognized transition obligation (522) 3,474
Additional minimum liability (751) -
- -----------------------------------------------------------------------
(Accrued) benefit cost $ (1,265) $(2,226)
=======================================================================
Components of expense for the period from
October 31 to December 31, 1998:
- -----------------------------------------------------------------------
Cost of benefits earned $ 245 $ 52
Interest cost on benefit obligation 499 77
Expected return on plan assets (646) -
Amortization of prior-service costs 37 -
Amortization of transition obligation (43) 48
Recognized net actuarial (gain)/loss 24 (7)
- -----------------------------------------------------------------------
$ 116 $ 170
=======================================================================
</TABLE>
The weighted average discount rate and assumed rate of future
compensation increases used in determining the benefit obligation
at December 31, 1998 were 7% and 4%, respectively. The expected
long-term return on plan assets was 9%. The assumed health care
cost trend rate for measuring the benefit obligation included in
Other Benefits above for 1999 is 5%, which rate is assumed to
decrease to 4% for 2000 and remain at that level thereafter.
<TABLE>
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A 1% change in
assumed health care cost trend rates would have the following
effects:
<CAPTION>
In thousands 1% Increase 1% Decrease
- -------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components $ 13 $ (11)
Effect on postretirement benefit
obligation $519 $(461)
</TABLE>
The Company also has a 401(k) employee savings plan covering all
eligible employees, as defined. Contributions are limited to
amounts allowable for income tax purposes. Employer matching
contributions to the plan are at the discretion of the Company.
Certain subsidiaries make contributions to union-sponsored multi-
employer pension plans covering seagoing personnel. The Employee
Retirement Income Security Act requires employers who are
contributors to domestic multi-employer plans to continue funding
their allocable share of each plan's unfunded vested benefits in
the event of withdrawal from or termination of such plans. The
Company has been advised by the trustees of such plans that it
has no withdrawal liability as of December 31, 1998. Certain
other seagoing personnel of U.S. flag vessels are covered under a
subsidiary's defined contribution plan, the cost of which is
funded as accrued. The costs of these plans were not material
during the three years ended December 31, 1998.
NOTE M - PLANNED VESSEL DISPOSITIONS:
At the end of the third quarter of 1997, the Company established
a reserve of $26,536,000 ($17,200,000 after tax) for the
reduction of the carrying amount (approximately $163,000,000) of
its ten older and less competitive dry cargo vessels held for
disposal to their then estimated fair value (less disposal costs)
and for costs in connection with the elimination of related
overhead. To date, four of such vessels have been sold and a
fifth is under contract of sale. As a result of continued
weakness in world dry bulk markets, reflecting, in particular,
the Asian economic downturn, the Company during 1998 decided to
extend the period over which it expects to dispose of such dry
cargo vessels and recorded a charge of $65,400,000 ($42,500,000
after tax), representing an increase in the reserve. The vessels
held for disposal incurred a pretax loss of approximately
$12,800,000 in the nine months ended September 30,1997, including
a charge for allocated interest of $6,600,000 based on the
estimated fair value of the vessels.
In the fourth quarter of 1998, the Company established a reserve
of $19,700,000 ($12,800,000 after tax), which excludes the
Company's share of the provision referred to in Note E, to reduce
the carrying amount (approximately $36,600,000) of certain older
and less efficient crude oil and product tonnage, which it
expects to dispose of in 1999, to their estimated fair value.
NOTE N - COMMITMENTS AND OTHER COMMENTS:
1. As of December 31, 1998, the Company has commitments for the
construction of two 308,700 dwt double-hulled foreign flag VLCCs
(Very Large Crude Carriers) for delivery in 2000, with an
aggregate contract price based on standard shipyard contract
terms of $140,000,000, discounted to approximately $130,000,000
to reflect the prepayment in August 1998 of a substantial portion
of the purchase price. The prepayment, approximately
$105,000,000, is covered by refundment guaranties from a major
U.S. insurance company. In December 1998, the Company financed
its $105,000,000 prepayment and provided for the remaining unpaid
costs of these two vessels with a ten-year borrowing secured by
an assignment of the refundment guaranties and by mortgages to be
placed on the vessels upon their respective deliveries.
<TABLE>
2. Sundry liabilities and accrued expenses consist of:
<CAPTION>
In thousands at December 31, 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Payroll and benefits $ 4,202 $ 2,524
Interest 4,910 10,236
Insurance 6,443 6,928
Other 9,791 9,561
- ----------------------------------------------------------
$ 25,346 $29,249
==========================================================
</TABLE>
NOTE O - LEASES:
<TABLE>
1. Charters-in:
The approximate minimum commitments under capital leases for four
U.S. flag vessels were:
<CAPTION>
In thousands at December 31, 1998
- ----------------------------------------------------------
<S> <C>
1999 $ 12,371
2000 12,751
2001 12,751
2002 12,751
2003 12,751
Beyond 2003 74,757
- ----------------------------------------------------------
Net minimum lease payments 138,132
Less amount representing interest (57,121)
- ----------------------------------------------------------
Present value of net minimum lease payments $ 81,011
==========================================================
</TABLE>
During the three years ended December 31, 1998, subsidiaries of
the Company purchased four vessels that were under capital
leases. The excesses, $5,044,000 (1998), $3,300,000 (1997) and
$3,427,000 (1996), of the purchase prices, including the
assumption of debt to which the vessels were subject, over the
carrying amounts of the lease obligations (which were removed
from the balance sheets) were recorded as adjustments to the
carrying amounts of the vessels.
In January 1997, the Company chartered-in a newbuilding foreign
flag VLCC from a 50%-owned joint venture for a period of eight
years, under an operating lease, at an annual time charter rental
of approximately $9,500,000. OSG, in turn, time-chartered the
vessel for the same period to the joint venture partner at an
annual rental of approximately $13,500,000 (see Note O2).
The total rental expense for charters accounted for as operating
leases amounted to $19,799,000 in 1998, $20,752,000 in 1997 and
$8,613,000 in 1996.
2. Charters-out:
Revenues from a time charter are not received when a vessel is
off-hire, including time required for normal periodic maintenance
of the vessel. The minimum future revenues expected to be
received subsequent to December 31, 1998 on noncancelable time
charters and a bareboat charter are $118,013,000 (1999),
$114,797,000 (2000), $118,794,000 (2001), $117,622,000 (2002) and
$103,226,000 (2003); the aggregate for 2004 and later years is
$118,220,000.
The foregoing amounts do not include escalations and do not
purport to be an estimate of aggregate voyage revenues for any of
the years. In arriving at the minimum future charter revenues, an
estimated time off-hire to perform periodic maintenance on each
vessel has been deducted, although there is no assurance that
such estimate will be reflective of the actual off-hire in the
future.
The Company has hedged its exchange rate risk with respect
to contracted future charter revenues receivable in Japanese yen
to minimize the effect of foreign exchange rate fluctuations on
reported income by entering into currency swaps with a major
financial institution to deliver such foreign currency at fixed
rates that will result in the Company receiving approximately
$89,000,000 for such foreign currency from 1999 through 2004.
NOTE P - CAPITAL STOCK AND PER SHARE AMOUNTS:
In December 1998, the Board of Directors authorized the
repurchase of up to 3,000,000 shares of the Company's common
stock from time to time in the open market. Such purchases will
be made at the Company's discretion and will take into account
such factors as price and prevailing market conditions.
The Company's 1989 nonqualified stock option plan, as amended,
covered 570,000 treasury shares. Options were granted to certain
officers of the Company and a subsidiary for the purchase of all
the shares covered by the amended plan, at $14.00 per share,
which was in excess of the market price at the date of grant.
Outstanding options remain exercisable until October 2000.
At December 31, 1998, the Company has reserved 464,758 treasury
shares for issuance under its 1990 nonqualified stock option
plan, as amended, including options granted to employees of
Maritime and assumed by the Company (see Note H), at prices
ranging from $14.00 to $19.50 per share (the market prices at
dates of grant). The options granted have a term of approximately
ten years and become exercisable in annual increments of 20% upon
the option holder's completion of five years of service.
In October 1998, the Company reserved 1,300,000 treasury shares
for issuance pursuant to its 1998 nonqualified stock option plan.
The plan provides for options to be granted at exercise prices of
at least market value at the date of grant. Options granted vest
and become exercisable over a three-year period and expire ten
years from the date of grant. In December 1998, options covering
674,100 shares were granted to all employees (except senior
officers), at $16.00 per share (market price at the date of
grant).
<TABLE>
<CAPTION>
Stock option activity under all plans is summarized as follows:
- ------------------------------------------------------------
<S> <C>
Options Outstanding at December 31, 1995 1,024,298
Granted -
Canceled (9,713)
Exercised ($16.00 per share) (7,853)
- ------------------------------------------------------------
Options Outstanding at December 31, 1996 1,006,732
Granted -
Canceled (5,594)
Exercised ($16.00 to $19.63 per share) (557,194)
- ------------------------------------------------------------
Options Outstanding at December 31, 1997 443,944
Granted 730,700
Canceled (42,849)
Exercised ($16.00 per share) (2,834)
- ------------------------------------------------------------
Options Outstanding at December 31, 1998 1,128,961
- ------------------------------------------------------------
Options Exercisable at December 31, 1998 437,246
- ------------------------------------------------------------
</TABLE>
The weighted average remaining contractual life of the above
stock options at December 31, 1998 was 6.7 years.
The Company follows APB 25 and related interpretations in
accounting for its employee stock options. Compensation cost for
the Company's stock option plans determined using the fair value
method of the Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"), for
grants made subsequent to 1994, would have increased the net loss
for 1998 and net loss per share by $169,000 and $.01 per share,
respectively. For purposes of applying FAS 123, the fair
values of the options granted were estimated on the dates of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions: risk free interest rate
of 5.2%, dividend yield of 3.7%, expected stock price volatility
of .31, and an expected life of 7.7 years. The weighted average
grant-date fair value of an option granted in 1998 was $4.48.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Basic net income/(loss) per share is based on the following
weighted average number of common shares outstanding during each
year: 36,793,590 shares (1998), 36,468,284 shares (1997) and
36,233,791 shares (1996). Diluted net income/(loss) per share,
which gives effect to the aforementioned stock options in 1997
and 1996, is based on the following weighted average number of
shares during each year: 36,793,590 shares (1998), 36,569,160
shares (1997) and 36,333,205 shares (1996). Such stock options
have not been included in the computation of diluted net (loss)
per share in 1998 since their effect thereon would be
antidilutive.
In October 1998, the Board of Directors adopted a Stockholder
Rights Plan, and declared a rights distribution under the plan of
one common stock purchase right on each outstanding share of
common stock of the Company. The rights plan is designed to guard
against attempts to take over the Company for a price that does
not reflect the Company's full value, or that are conducted in a
manner or on terms not approved by the board as being in the best
interests of the Company and the stockholders. The rights are
preventative in nature and are not being distributed in response
to any known attempt to acquire control of the Company.
<TABLE>
NOTE Q - 1998 AND 1997 QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED):
<CAPTION>
Results of Operations for
Quarter Ended
(in thousands, except per
share amounts)
March 31, June 30, Sept. 30, Dec. 31,
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Shipping revenues $105,336 $104,906 $105,489 $ 93,053
Income/(loss) from
vessel operations 12,617 13,653 12,259 (1,079)
(Loss) on
disposal of
vessels - net - - (950) (338)
Net income/(loss) before
extraordinary loss 23,826 7,491 5,194 (60,783)*
Net income/(loss) $ 23,826 $ 7,491 $ 5,194 $ (74,431)+
- --------------------------------------------------------------------------
Basic and diluted
net income/(loss)
per share $ .65 $ .20 $ .14 $ (2.02)+
==========================================================================
1997
Shipping revenues $127,793 $122,801 $121,652 $ 108,813
Income from
vessel operations 17,604 18,319 12,240 17,448
Gain/(loss) on
disposal of
vessels - net - 145 (733) -
Net income $ 2,047 $ 7,090 $ 5,183 $ 4,697
- --------------------------------------------------------------------------
Basic and diluted
net income
per share $ .06 $ .19 $ .14 $ .13
==========================================================================
<FN>
*Reflects a provision for loss on planned vessel dispositions
of $55,844 after tax (see Note M), including $3,862 with respect
to vessels held by certain joint ventures.
+Reflects an extraordinary loss on early extinguishment of debt
(net of income tax benefit of $7,350) of $13,648, or $.37 per
share.
</TABLE>
<PAGE>
Report of
Independent Auditors
To the Shareholders
Overseas Shipholding Group, Inc.
We have audited the accompanying consolidated balance sheets of
Overseas Shipholding Group, Inc. and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of
operations, cash flows and changes in shareholders' equity for each
of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above preset fairly,
in all material respects, the consolidated financial position of Overseas
Shipholding Group, Inc. and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
New York, New York
February 23, 1999
<PAGE>
[From pages 36 and 37 of the 1998 Annual Report]
<TABLE>
ELEVEN-YEAR STATISTICAL REVIEW
(unaudited)
<CAPTION>
In thousands, except per 1998 1997 1996 1995 1996
share amounts
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues(a) $ 441,096 $ 526,716 $ 482,097 $ 436,080 $ 390,841
- ---------------------------------------------------------------------------------------------
Income from vessel
operations 37,450 65,611 46,616 30,385 20,333
- ---------------------------------------------------------------------------------------------
Income/(loss) before
federal income taxes and
extraordinary loss(b) (35,222) 31,167 3,387 (13,892) (9,950)
- ---------------------------------------------------------------------------------------------
Net income/(loss (37,920) 19,017 2,502 (8,632 (6,200)
- ---------------------------------------------------------------------------------------------
Depreciation of vessels and
amortization of
capital leases 70,806 77,940 71,003 66,134 59,992
- ---------------------------------------------------------------------------------------------
Vessels, capital leases and
direct financing leases,
at net book amount 1,229,110(c) 1,308,125(c) 1,293,817 1,281,601 1,183,241
- ---------------------------------------------------------------------------------------------
Total assets 1,695,115 2,023,224 2,037,301 2,064,826 1,905,409
- ---------------------------------------------------------------------------------------------
Long-term debt and capital
lease obligations
(exclusive of current
portions) 833,893 1,056,306 1,093,475 1,101,758 910,056
- ---------------------------------------------------------------------------------------------
Reserve for deferred
federal income taxes -
noncurrent 64,584 102,514 94,803 93,218 102,170
- ---------------------------------------------------------------------------------------------
Shareholders' equity $ 707,622 $ 779,797 $ 769,438 $ 784,781 $ 809,779
- ---------------------------------------------------------------------------------------------
<CAPTION>
PER SHARE AMOUNTS:
<S> <C> <C> <C> <C>
Basic and diluted net
income/(loss) $ (1.03)(b) $ .52 $ .07 $ (.24) $ (.17)
- ---------------------------------------------------------------------------------------------
Shareholders' equity $ 19.24 $ 21.19 $ 21.23 $ 21.66 $ 22.36
- ---------------------------------------------------------------------------------------------
Cash dividends paid $ .60 $ .60 $ .60 $ .60 $ .60
- ---------------------------------------------------------------------------------------------
AVERAGE SHARES
OUTSTANDING FOR BASIC
EARNINGS PER SHARE 36,794 36,468 36,234 36,220 35,588
- ---------------------------------------------------------------------------------------------
AVERAGE SHARES
OUTSTANDING FOR DILUTED
EARNINGS PER SHARE 36,794 36,569 36,333 36,220 35,588
- ---------------------------------------------------------------------------------------------
<PAGE>
<FN>
(a) Represents shipping revenues and other income.
(b) 1998 results reflect an extraordinary loss on early
extinguishment of debt of $13,648 ($.37 per share).
(c) Includes vessels held for disposal, at estimated fair value.
</TABLE>
<PAGE>
[From page 38 of the 1998 Annual Report]
SHAREHOLDER INFORMATION
The Company's stock is listed for trading on the New York Stock Exchange
and the Pacific Exchange, Inc.
Stock Symbol: OSG
Shareholders of Record February 23, 1999: 950
<TABLE>
STOCK PRICE AND DIVIDEND DATA
<CAPTION>
1998 Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High 22 22 20-7/16 21-1/8
- ---------------------------------------------------------------
Low 19-1/2 19-1/16 14-1/8 13-1/4
- ---------------------------------------------------------------
Dividend $.15 $.15 $.15* $.15
- ---------------------------------------------------------------
<CAPTION>
1997 Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High 19-1/8 20-3/8 26-7/16 26-3/16
- ---------------------------------------------------------------
Low 16-1/4 16-7/8 19-5/8 20-11/16
- ---------------------------------------------------------------
Dividend $.15 $.15 $.15* $.15
- ---------------------------------------------------------------
<FN>
*Declared in second quarter of the respective year.
</TABLE>
<PAGE>
[From page 39 of the 1998 Annual Report]
THE FLEET
February 23, 1999
Operating Bulk Fleet: 51 vessels, 6,032,050 dwt
On Order: 2 vessels, 617,400 dwt
Total Bulk Tonnage: 53 vessels, 6,649,450 dwt
INTERNATIONAL BULK FLEET
- ---------------------------------------------------------------------
Tankers
Name of Year Deadweight Charter
Ship Built Tonnage Expiration Date
VLCC
----
Regal Unity 1997 305,100 Voyage Charter
Sovereign Unity 1996 305,000 Voyage Charter
Meridian Lion 1997 50%-owned 295,850 March 2005
Majestic Unity 1996 295,800 Voyage Charter
Crown Unity 1996 295,750 Voyage Charter
Equatorial Lion 1997 50%-owned 295,600 December 2004
Southern Lion 1975 50%-owned 264,850 Voyage Charter
Northern Lion 1974 50%-owned 264,850 Voyage Charter
Olympia 1990 254,000 April 2002
SUEZMAX
-------
Eclipse 1989 133,000 June 2005
Concordia C 1976 128,450 Voyage Charter
Shirley 1975 128,250 Voyage Charter
Ruth M 1975 128,200 Voyage Charter
AFRAMAX
-------
Vesta 1980 (a) 96,050 Voyage Charter
Venus V 1981 (a) 96,000 Voyage Charter
Atlantia 1979 (a) 95,600 Voyage Charter
Pacific Ruby 1994 (a) 94,850 Voyage Charter
Pacific Sapphire 1994 (a) 94,650 Voyage Charter
Rebecca 1994 (a) 93,350 Voyage Charter
Ania 1994 (a) 93,350 Voyage Charter
Eliane 1994 (a) 93,300 Voyage Charter
Beryl 1994 (a) 93,300 Voyage Charter
- ---------------------------------------------------------------------
Petroleum Products Carriers
Suzanne 1986 65,150 March 1999
Lucy 1986 65,150 Voyage Charter
Mary Ann 1986 63,200 Voyage Charter
Diane 1987 63,150 Voyage Charter
Neptune 1989 39,450 Voyage Charter
Uranus 1988 39,450 Voyage Charter
Vega 1989 39,100 Voyage Charter
Delphina 1989 39,050 Voyage Charter
Pacific Hunter 1979 31,600 Voyage Charter
- ---------------------------------------------------------------------
Bulk Carriers
Capsesize
---------
Matilde 1997 157,500 Voyage Charter
Chrismir 1997 157,300 May 1999
Esplanade 1982 (b) 138,800 Voyage Charter
Panamax
-------
Equinox 1982 (b) 138,800 Voyage Charter
Northern Light 1981 (b) 64,550 Voyage Charter
Continental Spirit 1983 (b) 64,200 Voyage Charter
Caribbean Sky 1989 (b) 63,350 Voyage Charter
Meridian Sky 1989 (b) 63,250 Voyage Charter
- -----------------------------------------------------------------------
OPERATING INTERNATIONAL
BULK FLEET TOTAL
39 VESSELS 5,238,200 dwt
========================================================================
ON ORDER
TYPE OF DELIVERY DEADWEIGHT CHARTER
SHIP DATE TONNAGE EXPIRATION DATE
- ------------------------------------------------------------------------
Tanker Q1-Q2 2000 308,700 -
Tanker Q1-Q2 2000 308,700 -
2 vessels 617,400 dwt
- ------------------------------------------------------------------------
INTERNATIONAL BULK
FLEET TOTAL
41 vessels 5,855,600 dwt
========================================================================
U.S. BULK FLEET
Name Year Deadweight Charter
of Ship Built Tonnage Expiration Date
- ------------------------------------------------------------------------
Tankers
Overseas Boston 1974 (c) 120,800 December 2003
Overseas Juneau 1973 120,500 Voyage Charter
Overseas Chicago 1977 90,650 May 2005
Overseas Ohio 1977 90,550 September 2005
Overseas Washington 1978 90,500 February 2003
Overseas New York 1977 90,400 November 2005
- ------------------------------------------------------------------------
Petroleum Products Carriers
Overseas New
Orleans 1983 (d) 42,950 Voyage Charter
Overseas
Philadelphia 1982 (d) 42,700 Voyage Charter
Overseas Vivian 1969 37,800 May 1999
- -----------------------------------------------------------------------
Geared Bulk Carriers
Overseas Harriette 1978 (e) 25,550 Voyage Charter
Overseas Marilyn 1978 (e) 25,550 Voyage Charter
- -----------------------------------------------------------------------
Pure Car Carrier (5,000 cars)
Overseas Joyce 1987 15,900 August 2002
- -----------------------------------------------------------------------
U.S. BULK FLEET TOTAL(f)
12 vessels 793,850 dwt
=======================================================================
(a) Participates in OSG/PDV Marina Aframax Pool.
(b) Remaining vessels in OSG's dry bulk disposal program.
(c) Rebuilt in 1981.
(d) 22-year capital leases, commencing in 1989.
(e) 25-year capital leases, commencing in year built.
(f) Does not include a 29,300 dwt petroleum barge, 50%-owned by OSG.
<TABLE>
<CAPTION>
% of % of % of
TWO-YEAR Total U.S. Int'l
CHARTER Through Total Fleet U.S. Fleet Int'l Fleet
POSITION OF Year- Fleet on Fleet on Fleet on
OSG FLEET End DWT Charter DWT Charter DWT Charter
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 6,032,050 24 793,850 63 5,238,200 19
2000 6,649,450 22 793,850 63 5,855,600 17
- ----------------------------------------------------------------------------
</TABLE>
EXHIBIT 21
----------
AS OF 3/23/99
SUBSIDIARIES OF OVERSEAS SHIPHOLDING GROUP, INC.
The following table lists all subsidiaries of the registrant and
all companies in which the registrant directly or indirectly owns at least
a 49% interest, except for certain companies which, if considered in the
aggregate as a single entity, would not constitute a significant entity.
All the entities named below are corporations, unless otherwise noted.
Where
Incorporated
or
Name Organized
---- ------------
Ambrit Holdings, Inc. Delaware
American Shipholding Group, Inc. New York
Amerikanis Company Limited Liberia
Amity Products Carriers, Inc. Delaware
Ania Tanker Corporation Marshall Islands
Antilles Bulk Holdings N.V. Netherlands Antilles
Atlantia Tanker Corporation Marshall Islands
Aurora Shipping Corporation Panama
Baywatch Marine Inc. Liberia
Britamer Holding Company Limited Liberia
Britanis Company Limited Liberia
Cambridge Tankers, Inc. New York
Caribbean Tanker Corporation Marshall Islands
Commonwealth Shipping Company Limited Bermuda
Community Ocean Services, Inc. New York
Concert Tanker Corporation Liberia
Concord Tanker S.A. Panama
Delphina Tanker Corporation Delaware
Diane Tanker Corporation Marshall Islands
Dorado Tanker Corporation Panama
East Coast Gaugings Limited England
Edinburgh Bulk Carriers Limited Bermuda
ERN Holdings Inc. Panama
Excelsior Bulk Carriers Limited Bermuda
Exemplar Bulk Carriers Limited Bermuda
First Pacific Corporation. Marshall Islands
First Products Tankers, Inc. Marshall Islands
First Shipco Inc. Liberia
First Union Tanker Corporation Marshall Islands
First United Shipping Corporation Liberia
400 Equity Corporation Delaware
401 Equity Corporation Delaware
Fourth Aframax Tanker Corporation Marshall Islands
Fourth Products Tankers, Inc. Marshall Islands
Fourth Spirit Holding N.V. Netherlands Antilles
Friendship Marine Inc. Liberia
General Guaranty Corporation Delaware
Glasgow Bulk Carriers Limited Bermuda
Hyperion Shipping Corporation Liberia
Imperial Tankers Corporation Marshall Islands
Intercontinental Bulktank Corporation New York
Intercontinental Coal Transport Inc. Delaware
Intercontinental Coal Transport Limited Bermuda
International Seaways, Inc. Liberia
Interocean Tanker Corporation Marshall Islands
Island Tanker S.A. Panama
ITI Shipping S.A. Panama
Jostelle Shipping Company Limited Bermuda
Juneau Tanker Corporation New York
Lake Michigan Bulk Carriers, Inc. New York
Lake Ontario Bulk Carriers, Inc. New York
Majestic Tankers Corporation Marshall Islands
Mansfield Marine Corporation Marshall Islands
Marina Tanker Corporation. Marshall Islands
Moran Maritime Associates (partnership) Delaware
New Orleans Tanker Corporation Delaware
Northanger Shipping Corporation Marshall Islands
Northwestern Tanker Corporation Marshall Islands
Ocean Bulk Ships, Inc. Delaware
Oleron Tanker S.A. Panama
Olympia Tanker Corporation Marshall Islands
OSG Bulk Ships, Inc. New York
OSG Car Carriers, Inc. New York
OSG Financial Corp. Delaware
OSG Foundation New York
OSG International Partners (partnership) Liberia
OSG International, Inc. Liberia
OSG Ship Management (London) Limited England
OSG Ship Management Asia Pacific Pte Ltd. Singapore
OSG Ship Management, Inc. Delaware
Overseas Airship Corporation Delaware
Overseas Bulktank Corporation New York
Overseas Coal Transport Inc. Delaware
Overseas Coal Transport Limited Bermuda
Overseas Cruiseship Inc. Cayman Islands
Overseas Petroleum Carriers, Inc. Delaware
Philadelphia Tanker Corporation Delaware
Regency Tankers Corporation Marshall Islands
Reliance Shipping B.V. Netherlands
Rex Shipholdings Inc. Liberia
Rio Grande Bulk Carriers, Inc. Marshall Islands
Royal Tankers Corporation Marshall Islands
Ruby Tanker Corporation Marshall Islands
San Jose Tankers, Inc. Delaware
Santa Clara Tankers, Inc. Delaware
Sapphire Tanker Corporation Marshall Islands
Sargasso Tanker Corporation Marshall Islands
Second Pacific Corporation Marshall Islands
Second Products Tankers, Inc. Marshall Islands
Second Shipmor Associates (partnership) Delaware
Second Union Tanker Corporation Marshall Islands
Second United Shipping Corporation Marshall Islands
Ship Paying Corporation No. 1 Delaware
Ship Paying Corporation No. 2 Delaware
Ship Paying Corporation No. 3 Liberia
Souter Shipping (Bermuda) Ltd. Bermuda
Souter Shipping Limited England
Spirit Shipping B.V. Netherlands
Taunton Shipping Co. Ltd. Cyprus
Third Aframax Tanker Corporation Marshall Islands
Third Products Tankers, Inc. Marshall Islands
Third Shipco Inc. Delaware
Third United Shipping Corporation Liberia
398 Equity Corporation Delaware
399 Equity Corporation Delaware
Timor Navigation Ltd. Marshall Islands
Trader Shipping Corporation. Liberia
Transbulk Carriers, Inc. Delaware
Tropical United Shipping Corporation Liberia
Tubarao Bulk Carriers, Inc. Marshall Islands
U.S. Shipholding Group, Inc. New York
Union Shipping Corporation Japan
United Partners (partnership) Liberia
United Steamship Corporation Panama
Valdez Tankships Corporation New York
Vega Tanker Corporation Delaware
Venus Tanker Corporation Marshall Islands
Vivian Tankships Corporation New York
Western Ship Agencies Limited England
Wolcon Corp. Delaware
EXHIBIT 23
----------
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Overseas Shipholding Group, Inc.,
("the Company") of our report dated February 23, 1999,
included in the 1998 Annual Report to Shareholders of
Overseas Shipholding Group, Inc.
We also consent to the incorporation by reference in the
Registration Statement, Form S-8 (No. 33-44013) pertaining
to the Company's 1989 Stock Option Plan, the Company's 1990
Stock Option Plan, 1990 Stock Option Plan of Maritime
Overseas Corporation, whose obligations under such plan have
been assumed by the Company, of our report dated February
23, 1999, with respect to the consolidated financial
statements of Overseas Shipholding Group, Inc., incorporated
herein by reference.
ERNST & YOUNG LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 51,005
<SECURITIES> 0
<RECEIVABLES> 33,785
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,658
<PP&E> 1,637,274
<DEPRECIATION> 408,164
<TOTAL-ASSETS> 1,695,515
<CURRENT-LIABILITIES> 61,784
<BONDS> 833,893
<COMMON> 39,591
0
0
<OTHER-SE> 668,031
<TOTAL-LIABILITY-AND-EQUITY> 1,695,515
<SALES> 0
<TOTAL-REVENUES> 483,384
<CGS> 0
<TOTAL-COSTS> 456,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,200
<INCOME-PRETAX> ( 35,222 )
<INCOME-TAX> ( 10,950 )
<INCOME-CONTINUING> ( 24,272 )
<DISCONTINUED> 0
<EXTRAORDINARY> ( 13,648 )
<CHANGES> 0
<NET-INCOME> ( 37,920 )
<EPS-PRIMARY> ( 1.03 )
<EPS-DILUTED> ( 1.03 )
</TABLE>
