-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M6bP+2atImQzPdA8VeLwwD4nQfYlV2dgaPBwqzqOFRc7RmeB6esDlop9YUEYWIrX pRSLLkyPAQcP0WcyZvwQrg== 0000950116-03-001892.txt : 20030311 0000950116-03-001892.hdr.sgml : 20030311 20030310184449 ACCESSION NUMBER: 0000950116-03-001892 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARITRANS INC /DE/ CENTRAL INDEX KEY: 0000810113 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 510343903 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09063 FILM NUMBER: 03598645 BUSINESS ADDRESS: STREET 1: 1818 MARKET STREET SUITE 3540 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2158641200 MAIL ADDRESS: STREET 1: 1818 MARKET STREET SUITE 3540 CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: MARITRANS PARTNERS L P DATE OF NAME CHANGE: 19920703 10-K 1 tenk.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) |X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2002 or |_| Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period from _______ to _______ Commission File Number 1-9063 MARITRANS INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter)
DELAWARE 51-0343903 ------------------------------------------------ ------------------------------------ (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) TWO HARBOUR PLACE 302 KNIGHTS RUN AVENUE TAMPA, FLORIDA 33602 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (813) 209-0600 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock, Par Value $.01 Per Share New York Stock Exchange
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 requirements for the past 90 days. Yes |X| No |_| 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 the 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. |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |X| No |_| As of June 30, 2002, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant (based on the last sales price on that date) was $61,922,724. As of March 5, 2003, Maritrans Inc. had 8,174,897 shares of common stock outstanding. Documents Incorporated By Reference Part III incorporates information by reference from the registrant's Proxy Statement for Annual Meeting of Stockholders to be held on April 30, 2003. Exhibit Index is located on page 38. MARITRANS INC. TABLE OF CONTENTS PART I
Item 1. Business.............................................................................................1 Item 2. Properties...........................................................................................8 Item 3. Legal Proceedings....................................................................................8 Item 4. Submission Of Matters To A Vote Of Security Holders..................................................9 PART II Item 5. Market For The Registrant's Common Equity And Related Stockholder Matters...........................10 Item 6. Selected Financial Data ............................................................................11 Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations...............11 Item 8. Financial Statements & Supplemental Data............................................................19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................35 PART III Item 10. Directors and Executive Officers of the Registrant..................................................35 Item 11 Executive Compensation..............................................................................36 Item 12 Security Ownership of Certain Beneficial Owners and Management......................................36 Item 13 Certain Relationships and Related Transactions......................................................36 PART IV Item 14. Controls and Procedures.............................................................................36 Item 15. Exhibits, Financial Statement Schedules And Reports On Form 8-K.....................................37 Signatures....................................................................................................40
Special Note Regarding Forward-Looking Statements Some of the statements under "Business," "Properties," "Legal Proceedings," "Market for Registrant's Common Stock and Related Stockholder Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K (this "10-K") constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements made with respect to present or anticipated utilization, future revenues and customer relationships, capital expenditures, future financings, and other statements regarding matters that are not historical facts and involve predictions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, growth, performance, earnings per share or achievements to be materially different from any future results, levels of activity, growth, performance, earnings per share or achievements expressed in or implied by such forward-looking statements. The forward-looking statements included in this 10-K relate to future events or the Company's future financial performance. In some cases, the reader can identify forward-looking statements by terminology such as "may," "seem," "should," "believe," "future," "potential," "estimate," "offer," "opportunity," "quality," "growth," "expect," "intend," "plan," "focus," "through," "strategy," "provide," "meet," "allow," "represent," "commitment," "create," "implement," "result," "seek," "increase," "establish," "work," "perform," "make," "continue," "can," "will," "include," or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans or assessments that are believed to be reasonable as of the date of this 10-K. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecast, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the factors outlined in this 10-K, changes in oil companies' decisions as to the type and origination point of the crude that it processes, changes in the amount of imported petroleum products, competition for marine transportation, domestic and international oil consumption, the continuation of federal law restricting United States point-to-point maritime shipping to U.S. vessels (the Jones Act), demand for petroleum products, future spot market rates, changes in interest rates, the effect of war or terrorists activities and the general financial, economic, environmental and regulatory conditions affecting the oil and marine transportation industry in general. Given such uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. These factors may cause the Company's actual results to differ materially from any forward-looking statement. Although the Company believes that the expectations in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. The Company is under no duty to update any of the forward-looking statements after the date of this 10-K to conform such statements to actual results. PART I Item 1. BUSINESS General Maritrans Inc. and its subsidiaries (the "Company" or the "Registrant"), together with its predecessor, Maritrans Partners L.P. (the "Partnership"), herein collectively called "Maritrans," has historically served the petroleum and petroleum product industry by using tank barges, tugboats and oil tankers to provide marine transportation services primarily along the East and Gulf Coasts of the United States. The Company makes available, free of charge, all filings made with the Securities and Exchange Commission as soon as reasonably practicable on our website www.maritrans.com. Structure Current. The Registrant is a Delaware corporation whose common stock, par value $.01 per share ("Common Stock"), is publicly traded. The Registrant conducts most of its marine transportation business activities through Maritrans Operating Company L.P. and its managing general partner, Maritrans General Partner Inc. Both entities are wholly owned subsidiaries of the Registrant. Historical. Maritrans' predecessor was founded in the 1850's and incorporated in 1928 under the name Interstate Oil Transport Company. Interstate Oil Transport Company was one of the first tank barge operators in the United States with a fleet that increased in size and capacity as United States consumption of petroleum products increased. On December 31, 1980, the predecessor operations and tugboat and barge affiliates were acquired by Sonat Inc. ("Sonat"). On April 14, 1987, the Partnership acquired the tug and barge business and related assets from Sonat. On March 31, 1993, the limited partners of the Partnership voted on a proposal to convert the Partnership to a corporation. The proposal was approved and on April 1, 1993, Maritrans Inc., then a newly formed Delaware corporation, succeeded to all assets and liabilities of the Partnership. The holders of general and limited partnership interests in Maritrans Partners L.P. and in Maritrans Operating Partners L.P. were issued shares of Common Stock in exchange for their partnership interest representing substantially the same percentage equity interest, directly or indirectly, in the Registrant as they had in the Partnership. Each previously held Unit of Limited Partnership Interest in the Partnership was exchanged for one share of Common Stock of the Registrant. Overview. Since 1987, Maritrans and its predecessors have transported annually over 178 million barrels of crude oil and refined petroleum products. The Company operates a fleet of tank barges, tugboats and oil tankers. Its largest barge has a capacity of approximately 380,000 barrels and its current operating cargo fleet capacity aggregates approximately 3.6 million barrels. Demand for the Company's services is dependent primarily upon general demand for petroleum and petroleum products in the geographic areas served by its vessels. Management believes that United States petroleum consumption, and particularly consumption on the Gulf and Atlantic Coasts, is a significant indicator of demand for the Company's services. Increases in product consumption generally increase demand for services; conversely, decreases in consumption generally lessen demand for services. Management also believes that the level of domestic consumption of imported refined products is also significant to the Company's business. Imported refined petroleum products generally can be shipped on foreign-flag vessels directly into the United States ports for storage, distribution and eventual consumption. These shipments reduce the need for domestic marine transportation service providers such as Maritrans to carry products from United States refineries to such ports. Marine transportation services are provided for refined petroleum products ("clean oil") from refineries located primarily in Texas, Louisiana and Mississippi to distribution points along the Gulf and Atlantic Coasts, generally south of Cape Hatteras, North Carolina and particularly into Florida. Lightering is a process of off-loading crude oil or petroleum products from deeply laden inbound tankers into smaller tankers and/or barges. This enables the larger inbound tanker to navigate draft-restricted rivers and ports to discharge cargo at a refinery or storage and distribution terminal. The Company's lightering services are performed in the Delaware Bay area. Maritrans maintains offices and support personnel in both Tampa, Florida and in the Philadelphia, Pennsylvania area. 1 In October 2001, the Company repaid $33.0 million of its long-term debt in advance of its due date. The Company recorded an extraordinary charge of approximately $2.5 million, net of taxes, or approximately $0.24 per share, in prepayment penalties and the write-off of unamortized financing costs in the fourth quarter of 2001as a result of the repayment. In November 2001, the Company entered into an $85 million credit and security agreement ("Credit Facility") with Citizens Bank (formerly Mellon Bank, N.A.) and a syndicate of other financial institutions ("Lenders"). Pursuant to the terms of the Credit Facility, the Company could borrow up to $45 million of term loans and up to $40 million under a revolving credit facility. Interest is variable based on either the LIBOR rate plus an applicable margin (as defined) or the prime rate. Principal payments on the term loans are required on a quarterly basis and began in April 2002. The Credit Facility expires in January 2007. The Company has granted first preferred ship mortgages and a first security interest in some of the Company's vessels and other collateral to the Lenders as a guarantee of the debt. At December 31, 2002, there was $41.3 million of term loans outstanding under the Credit Facility and $27.5 million outstanding under the revolving line of credit. During December 2001, the Company announced a self-tender offer (the "Offer") to purchase up to 2,000,000 shares of its common stock at a price between $11.00 and $12.50. On January 18, 2002, the Offer closed, and the Company subsequently purchased 2,176,296 shares of common stock for a purchase price of $11.50 per share, or approximately $25.0 million. The purchase price was funded through borrowings under the Company's Credit Facility. Sales and Marketing Maritrans provides marine transportation services primarily to integrated oil companies, independent oil companies, petroleum trading companies and petroleum distributors in the southern and eastern United States. The Company monitors the supply and distribution patterns of its actual and prospective customers and focuses its efforts on providing services that are responsive to the current and future needs of these customers. The Company relies primarily on direct sales efforts. Business is done on both a term contract basis and a spot market basis. The Company strives to maintain an appropriate mix of contracted business, based on current market conditions. In light of the potential liabilities of oil companies and other shippers of petroleum products under the Oil Pollution Act of 1990 ("OPA") and analogous state laws, management believes that some shippers select transporters in larger measure than in the past on the basis of a demonstrated record of safe operations. Maritrans believes that the measures it has implemented to promote higher quality operations and its longstanding commitment to safe transportation of petroleum products benefit its marketing efforts with these shippers. In July 1998, all of Maritrans' vessels received ISM (International Safety Management) certification, which is an international requirement for all tankers. Maritrans voluntarily undertook tug and barge certification as well. Maritrans continues to maintain these certifications. In 2002, approximately 90 percent of the Company's revenues were generated from 10 customers. Contracts with ChevronTexaco, Sunoco Inc. and Marathon Ashland Petroleum accounted for approximately 18 percent, 17 percent, and 15 percent, respectively, of the Company's revenue. During 2002, contracts were renewed with some of the Company's' larger customers. The Company's current portfolio of contracts includes some with terms that extend through 2005. There could be a material effect on Maritrans if any of these customers were to cancel or terminate their various agreements with the Company. However, management believes that cancellation or termination by any of its larger customers is unlikely. Competition and Competitive Factors Overview. The maritime petroleum transportation industry is highly competitive. The Jones Act, a federal law, restricts United States point-to-point maritime shipping to vessels built in the United States, owned by U.S. citizens and manned by U.S. crews. In Maritrans' market areas, its primary direct competitors are the operators of U.S. flag oceangoing barges and U.S. flag tankers. In the Southern clean-oil market, management believes the primary competitors are the fleets of other independent petroleum transporters and integrated oil companies. In the lightering operations, Maritrans competes with foreign-flag operators which lighter offshore. Additionally, in certain 2 geographic areas and in certain business activities, Maritrans competes with the operators of petroleum product pipelines. Competitive factors that also affect Maritrans include the output of United States refineries and the importation of refined petroleum products. U.S. Flag Barges and Tankers. Maritrans' most direct competitors are the other operators of U.S. flag oceangoing barges and tankers. Because of the restrictions imposed by the Jones Act, a finite number of vessels are currently eligible to engage in U.S. maritime petroleum transport. The Company believes that more Jones-Act eligible tonnage is being retired due to OPA than is being added as replacement double-hull tonnage and that this trend is reducing, but not eliminating, what has historically been an over-supply of capacity. Competition in the industry is based upon vessel availability, price and service and is intense. A significant portion of the Company's revenues in 2002 was generated in the coastal transportation of petroleum products from refineries or pipeline terminals in the Gulf of Mexico to ports that are not served by pipelines. Maritrans currently operates nine barges and three oil tankers in this market. The Company can generally provide flexibility in meeting customers' needs as a result of the relatively large size and composition of the Company's fleet. General Agreement on Trade in Services ("GATS") and North American Free Trade Agreement ("NAFTA"). Cabotage is vessel trade or marine transportation between two points within the same country. Currently cabotage is not included in the GATS and the NAFTA, although the possibility exists that cabotage could be included in the GATS, NAFTA or other international trade agreements in the future. If maritime services are deemed to include cabotage and are included in any multi-national trade agreements in the future, management believes the result will be to open the Jones Act trade (i.e., transportation of maritime cargo between U.S. ports in which Maritrans and other U.S. vessel owners operate) to foreign-flag vessels. These vessels would operate at significantly lower costs. This could have a material adverse effect on the Company. Maritrans and the U.S. maritime industry will continue to resist the inclusion of cabotage in the GATS, NAFTA and any other international trade agreements. Refined Product Pipelines. Existing refined product pipelines generally are the lowest incremental cost method for the long-haul movement of petroleum and refined petroleum products. Other than the Colonial Pipeline system, which originates in Texas and terminates at New York Harbor, the Plantation Pipeline, which originates in Louisiana and terminates in Washington D.C., and smaller regional pipelines between Philadelphia and New York, there are no pipelines carrying refined petroleum products to the major storage and distribution facilities currently served by Maritrans. Management believes that high capital costs, tariff regulation and environmental considerations make it unlikely that a new refined product pipeline system will be built in its market areas in the near future. It is possible, however, that new pipeline segments (including pipeline segments that connect with existing pipeline systems) could be built or that existing pipelines could be converted to carry refined petroleum products. Either of these occurrences could have an adverse effect on Maritrans' ability to compete in particular locations. Imported Refined Petroleum Products. A significant factor affecting the level of Maritrans' business operations is the level of refined petroleum product imports. Imported refined petroleum products may be transported on foreign-flag vessels, which are generally less costly to operate than U.S. flag vessels. To the extent that there is an increase in the importation of refined petroleum products to any of the markets served by the Company, there could be a decrease in the demand for the transportation of refined products from United States refineries, which would likely have an adverse impact upon Maritrans. Delaware River Channel Deepening. Legislation approved by the United States Congress in 1992 authorizes the U.S. Army Corps of Engineers (the "ACOE") to deepen the channel of the Delaware River between the river's mouth and Philadelphia from forty to forty-five feet (the "Project"). If this Project becomes fully funded at the federal and state levels and fully constructed (including access dredging by private refineries), it would reduce the quantity of lightering performed by Maritrans in the Delaware Bay. The Company's lightering business primarily occurs at the mouth of the Delaware Bay with transportation up the Delaware River to the Delaware Valley refineries. The deepening of the channel would allow arriving ships to proceed up the river with larger loads. The reduction of lightering resulting from a completed channel deepening project may have a material adverse effect on Maritrans' lightering business. However, the effect of the Project on the Company's business overall is uncertain. Once initiated, the Project will take at least five years to complete, and options at that time to reduce the impact of lightering volume reduction may include rate adjustments or vessel re-deployments that offset the effect of lightering reduction. 3 At this time, it is uncertain whether this Project will actually be undertaken. In June 2002, the General Accounting Office issued a review of the ACOE's economic justification for the project, and concluded that the ACOE's analysis was fundamentally flawed and failed to provide reliable support for undertaking the Project. In response, the ACOE suspended work on the Project and performed an economic "re-analysis," in which the ACOE again concluded that the Project was economically justified. However, management believes that the re-analysis also contains fundamental material errors that again demonstrate the absence of an economic basis for proceeding with the Project. Members of Congress have again asked the General Accounting Office to review the latest ACOE's effort. Further, the States of New Jersey and Delaware are reconsidering whether they will contribute necessary non-federal funding for the Project. Management is closely monitoring developments regarding the Project, but does not foresee an immediate impact on its business. Employees and Employee Relations At December 31, 2002, Maritrans and its subsidiaries had a total of 396 employees. Of these employees, 60 are employed at the Tampa, Florida headquarters of the Company or at the Philadelphia area office, 216 are seagoing employees who work aboard the tugs and barges and 120 are seagoing employees who work aboard the tankers. Maritrans and its predecessors have had collective bargaining agreements with the Seafarers' International Union of North America, Atlantic, Gulf and Inland District, AFL-CIO ("SIU"), and with the American Maritime Officers ("AMO"), formerly District 2 Marine Engineers Beneficial Association, Associated Maritime Officers, AFL-CIO, for over 40 years. Approximately 40 percent of the total number of seagoing employees employed by the Company are supervisors. These supervisors are covered by an agreement with the AMO limited to a provision for benefits. The collective bargaining agreement with the SIU covers approximately 163 employees consisting of seagoing non-supervisory personnel on the tug/barge units and on the tankers. The tug/barge supplement of the agreement expires on May 31, 2005. The tankers supplement of the agreement expires on May 31, 2006. The collective bargaining agreement with the AMO covers approximately 40 non-supervisory seagoing employees and expires on October 8, 2007. Shore-based employees are not covered by any collective bargaining agreements. Management believes that the seagoing supervisory and non-supervisory personnel contribute significantly to responsive customer service. Maritrans maintains a policy of seeking to promote from within, where possible, and generally seeks to draw from its marine personnel to fill supervisory and other management positions as vacancies occur. Management believes that its operational audit program (performed by Tidewater School of Navigation, Inc.), Safety Management System and training programs are essential to insure that its' employees are knowledgeable and highly skilled in the performance of their duties as well as in their preparedness for any unforeseen emergency situations that may arise. Consequently, various training sessions and additional skill improvement seminars are held throughout the year. Regulation Marine Transportation -- General. The Interstate Commerce Act exempts from economic regulation the water transportation of petroleum cargoes in bulk. Accordingly, Maritrans' transportation rates, which are negotiated with its customers, are not subject to special rate regulation under the provisions of such act or otherwise. The operation of tank ships, tugboats and barges is subject to regulation under various federal laws and international conventions, as interpreted and implemented primarily by the United States Coast Guard, as well as certain state and local laws. Tank ships, tugboats and barges are required to meet construction and repair standards established by the American Bureau of Shipping, a private organization, and/or the United States Coast Guard and to meet operational and safety standards presently established by the United States Coast Guard. Maritrans' seagoing supervisory personnel are licensed by the United States Coast Guard. Seamen and tankermen are certificated by the United States Coast Guard. Jones Act. The Jones Act is a federal law that restricts maritime transportation between United States points to vessels built and registered in the United States and owned and manned by United States citizens. Since the Company engages in maritime transportation between United States points, it is subject to the provisions of the law. As a result, the Company is responsible for monitoring the ownership of its subsidiaries that engage in maritime transportation and for taking any remedial action necessary to insure that no violation of the Jones Act ownership restrictions occurs. The Jones Act also requires that all United States flag vessels be manned by United States citizens. Foreign-flag seamen generally receive lower wages and benefits than those received by United States citizen seamen. Foreign-flag vessels are generally exempt from U.S. legal requirements and from U.S. taxes. As a result, U.S. vessel operators incur significantly higher labor and operating costs compared to foreign-flag vessel operators. Certain foreign governments subsidize 4 those nations' shipyards. This results in lower shipyard costs both for new vessels and repairs than those paid by United States-flag vessel owners, such as Maritrans, to United States shipyards. Finally, the United States Coast Guard and American Bureau of Shipping maintain the most stringent regime of vessel inspection in the world, which tends to result in higher regulatory compliance costs for United States-flag operators than for owners of vessels registered under foreign flags of convenience. Because Maritrans transports petroleum and petroleum products between United States ports, most of its business depends upon the Jones Act remaining in effect. There have been various unsuccessful attempts in the past by foreign governments and companies to gain access to the Jones Act trade, as well as by interests within the United States to modify, limit or do away with the Jones Act. The Maritime Cabotage Task Force, a coalition of ship owners, ship operators, shipyards, maritime unions and industry trade groups, has opposed these efforts. Recent legislative attempts to modify the Jones Act have been unsuccessful. Management expects that efforts to gain access to the Jones Act trade as well as attempts to block the introduction will continue. Port Security Act. The Maritime Transportation Security Act of 2002 (the "MTSA") was signed into law on November 25, 2002. This landmark legislation establishes a series of complex requirements applicable to a broad array of U.S. vessels and facilities. The MTSA requires, among other things, U.S. and foreign port vulnerability assessments; national, area, vessel, and facility security plans; terrorist incident response requirements; security cards; security teams; and automatic electronic identification systems. Although the Coast Guard has yet to issue final rules implementing the requirements, the Company has already prepared vessel security plans and has undertaken an initial training program to address the security issues identified in the Act. The Company will incur additional operating expenses to comply with the Act, but at this time does not believe such costs will have a material adverse impact on the financial condition and results of operations of the Company. Environmental Matters Maritrans' operations present potential environmental risks, primarily through the marine transportation of petroleum. Maritrans, as well as its competitors, is subject to regulation under federal, state and local environmental laws that have the effect of increasing the costs and potential liabilities arising out of its operations. The Company is committed to protecting the environment and complying with applicable environmental laws and regulations. The general framework of significant environmental legislation and regulation affecting Maritrans' operations is described herein. Legislation and regulation of the marine industry has historically been driven largely in response to major marine casualties. In the event of future serious marine industry incidents that occur in U.S. waters resulting in significant Resource Conservation and Recovery Act oil pollution, it is foreseeable that additional legislation or regulation could be imposed on marine carriers that could affect Maritrans' profitability. Water Pollution Legislation. OPA and other federal statutes, such as the Clean Water Act and the Refuse Act, create substantial liability exposure for owners and operators of vessels, oil terminals and pipelines. Under OPA, each responsible party for a vessel or facility from which oil is discharged will be jointly, strictly and severally liable for all oil spill containment and clean-up costs and certain other damages arising from the discharge. These other damages are defined broadly to include (i) natural resource damage (recoverable only by government entities), (ii) real and personal property damage, (iii) net loss of taxes, royalties, rents, fees and other lost revenues (recoverable only by government entities), (iv) lost profits or impairment of earning capacity due to property or natural resource damage, and (v) net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards. The owner or operator of a vessel from which oil is discharged will be liable under OPA unless it can be demonstrated that the spill was caused solely by an act of God, an act of war, or the act or omission of a third party unrelated by contract to the responsible party. Even if the spill is caused solely by a third party, the owner or operator must pay all removal cost and damage claims and then seek reimbursement from the third party or the trust fund established under OPA. OPA establishes a federal limit of liability for tank vessels of $1,200 per gross ton. A vessel owner's liability is not limited, however, if the spill results from a violation of federal safety, construction or operating regulations. In addition, OPA does not preclude states from adopting their own liability laws. Numerous states in which Maritrans operates have adopted legislation imposing unlimited strict liability for vessel owners and operators. 5 OPA also requires all vessels to maintain a certificate of financial responsibility for oil pollution in an amount equal to the greater of $1,200 per gross ton per vessel, or $10 million per vessel in conformity with U.S. Coast Guard regulations. Additional financial responsibility in the amount of $300 per gross ton is required under U.S. Coast Guard regulations under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), the federal Superfund law. Owners of more than one tank vessel, such as Maritrans, however, are only required to demonstrate financial responsibility in an amount sufficient to cover the vessel having the greatest maximum liability (approximately $40 million in Maritrans' case). The Company has acquired such certificates through filing required financial information with the U.S. Coast Guard. The Company presently maintains oil pollution liability insurance in the amount of $1 billion to cover environmental liabilities. Although liability exceeding the Company's insurance coverage amount is possible, management believes that such liability is unlikely and that such insurance is sufficient to cover foreseeable oil pollution liability arising from operations. OPA requires all newly constructed petroleum tank vessels engaged in marine transportation of oil and petroleum products in the U.S. to be double-hulled. It also gradually phases out the operation of single-hulled tank vessels in U.S. waters, based on size and age, which includes most of Maritrans' existing barges. Currently six of the Company's barges and two tankers are equipped with double-hulls meeting OPA's requirements. Maritrans is in the midst of a barge rebuild program. Under the program, the Company's single-hull tank barges are rebuilt to comply with OPA. This rebuilding of the single-hull barges relies upon a process of computer assisted design and prefabrication. In January 2001, the Company was granted a patent for this process. The following table summarizes the vessels the Company has rebuilt as part of the double-hull rebuild program:
Previous Name New Name Original Build Date OPA Retirement Date Re-Delivery Date - ------------- ------------- ------------------- ------------------- ---------------- Ocean 192 Maritrans 192 1979 2006 November 1998 Ocean 244 Maritrans 244 1971 2005 December 2000 Ocean Cities Maritrans 252 1972 2005 February 2002 Ocean 250 M254 1970 2005 November 2002 Ocean States TBD 1975 2005 Estimated - 2004
It is the Company's intention to rebuild all of its single-hulled barges prior to their respective retirement dates. The cost of rebuilding single-hull barges is approximately $50-100 per barrel compared to estimated costs of approximately $150-200 per barrel for construction of a completely new double-hull barge. The total cost of the barge rebuild program is expected to exceed $200 million of which approximately $63 million has already been incurred. The OPA 90-mandated retirement dates are significantly in advance of the useful working life of the barges. Once the vessels are rebuilt, the useful life is assumed to exceed 20 years from reconstruction. In 2001, the Company initiated a program to refurbish each married tugboat at the same time its barge is being double-hulled. In 2001, the Company extensively refurbished the tugboat that works with the MARITRANS 252 at a cost of approximately $5 million. The Company also refurbished the tugboat that works with the M254 at a cost of $6 million during the time that the M254 underwent her double-hull rebuilding. The Company plans to continue the tug refurbishment process during future barge rebuilds. In November 2002, the Company entered into a contract with a shipyard to double hull the OCEAN STATES. The OCEAN STATES rebuild is expected to cost approximately $21 million and will commence no earlier than the third quarter of 2003. The rebuild of the OCEAN STATES will include the insertion of an additional set of tanks ("midbody") that increases the cargo capacity by approximately 15 percent. The cost for the midbody is equivalent to new building costs. OPA further requires all tank vessel operators to submit detailed vessel oil spill contingency plans which set forth their capacity to respond to a worst case spill situation. In certain circumstances involving oil spills from vessels, OPA and other environmental laws may impose criminal liability upon vessel and shoreside marine personnel and upon the corporate entity. Liability can be imposed for negligence without criminal intent, or it may be strictly applied. The Company believes the laws, in their present form, may negatively impact efforts to recruit Maritrans seagoing employees. In addition, many of the states in which the Company does business have enacted laws providing for strict, unlimited liability for vessel owners in the event of an oil spill. Certain states have also enacted or are considering legislation or regulations involving at least some of the following provisions: tank-vessel-free zones, 6 contingency planning, state inspection of vessels, additional operating, maintenance and safety requirements and state financial responsibility requirements. However, in March of 2000, the U.S. Supreme Court (the "Court") decided United States v. Locke, a suit brought by INTERTANKO challenging tanker regulations imposed by the State of Washington. The Court struck down a number of state regulations and remanded to the lower courts for further review of other regulations. The ruling significantly limits the authority of states to regulate vessels, holding that regulation of maritime commerce is generally a federal responsibility because of the need for national and international uniformity. To the extent not covered by OPA and the Refuse Act, strict liability is also imposed for discharges of hazardous substances into the navigable waters by the Clean Water Act and CERCLA. Since its inception, Maritrans has maintained and cultivated a strong safety culture and environmental ethic. The following table sets forth Maritrans' quantifiable cargo oil spill record for the period January 1, 1998 through December 31, 2002:
Gallons Spilled No. of No. of Gals. Per Million Period No. of Gals. Carried Spills Spilled Gals. Carried ------ -------------------- ------ ------------ ---------------- (000) (000) 1/1/1998 -- 12/31/1998 10,987,000 3 .29 .027 1/1/1999 -- 12/31/1999 10,463,000 5 .06 .006 1/1/2000 -- 12/31/2000 7,951,000 1 .008 .001 1/1/2001 -- 12/31/2001 7,705,000 3 .001 .000 1/1/2002 -- 12/31/2002 7,460,000 1 .001 .000
Maritrans believes that its spill ratio compares favorably with the other independent, coastwise operators in the Jones Act trade. Hazardous Waste Regulation. In the course of its vessel operations, Maritrans engages contractors to remove and dispose of waste material, including tank residue. In the event that any of such waste is deemed "hazardous," as defined in the Federal Water Pollution Control Act, CERCLA or the Resource Conservation and Recovery Act, and is disposed of in violation of applicable law, the Company could be jointly and severally liable with the disposal contractor for the clean-up costs and any resulting damages. The United States Environmental Protection Agency ("EPA") previously determined not to classify most common types of "used oil" as a "hazardous waste," provided that certain recycling standards are met. Some states in which the Company operates, however, have classified "used oil" as hazardous. Maritrans has found it increasingly expensive to manage the wastes generated in its operations. Air Pollution Regulations. Pursuant to the 1990 amendments to the Clean Air Act, the EPA and/or states have imposed regulations affecting emissions of volatile organic compounds ("VOCs") and other air pollutants from tank vessels. It is likely that the EPA and/or various state environmental agencies will require that additional air pollution abatement equipment be installed in oil tankers, tank barges or tugboats, including those owned by Maritrans. In December 1999, the EPA issued its final rule for emissions standards for marine diesel engines. The final rule applies emissions standards only to new engines, beginning with the 2004 model year. The EPA retained the right to revisit the issue of applying emission standards to rebuilt or remanufactured engines if, in the agency's opinion, the industry does not take adequate steps to introduce new emission-reducing technologies. The emission control requirements noted herein could result in a material expenditure by Maritrans, which could have an adverse effect on Maritrans' profitability if it is not able to recoup these costs through increased charter rates. User Fees and Taxes. The Water Resources Development Act of 1986 permits local non-federal entities to recover a portion of the costs of new port and harbor improvements from vessel operators with vessels benefiting from such improvements. A Harbor Maintenance Tax has been proposed, but not adopted. Federal legislation has been enacted imposing user fees on vessel operators such as Maritrans to help fund the U.S. Coast Guard's activities. Federal, state and local agencies or authorities could also seek to impose additional user fees or taxes on vessel operators and their vessels. There can be no assurance that current fees will not materially increase or that additional user fees will not be imposed in the future. Such fees could have a material adverse effect upon the financial condition and results of operations of Maritrans. 7 War Risk. In February 2002, insurance carriers reaffirmed that terrorist attacks would only be covered under the Company's traditional "war risk" protection and indemnity insurance. The maximum amount of coverage available under war risk liability insurance is currently $400 million. While the Company has traditional protection and indemnity insurance in excess of $4 billion and oil spill insurance of $1 billion, if an incident was deemed to be a terrorist attack, the maximum coverage would be $400 million per incident plus any hull value, which could prove to be insufficient. The Company is currently seeking higher levels of coverage. In addition, the Company carries war risk insurance on the hull value of the Company's vessels. Item 2. PROPERTIES Vessels. The Company's subsidiaries owned, at December 31, 2002, a fleet of 27 vessels, of which 11 are tank barges, 12 are tugboats and 4 are oil tankers. The following table summarizes the Company's fleet:
Double-Hull Barges Capacity in Barrels Double-Hull Redelivery Date Married Tugboat Horsepower ------ ------------------- ----------- --------------- --------------- ---------- MARITRANS 400 380,000 YES ** CONSTITUTION 11,000 MARITRANS 300 265,000 YES ** LIBERTY 7,000 M254 250,000 YES 2002 INTREPID 6,000 MARITRANS 252 250,000 YES 2002 NAVIGATOR 6,000 MARITRANS 244 245,000 YES 2000 SEAFARER 6,000 OCEAN 215 210,000 NO FREEDOM 6,000 OCEAN 211 207,000 NO INDEPENDENCE 6,000 OCEAN 210 207,000 NO COLOMBIA 6,000 OCEAN STATES 180,000 NO Est. 2004 HONOUR 6,000 OCEAN 193 178,000 NO VALOUR 6,000 MARITRANS 192 175,000 YES 1998 ENTERPRISE 6,000
Oil Tankers Capacity in Barrels Double-Hull - ----------- ------------------- ----------- ALLEGIANCE 252,000 NO PERSEVERANCE 252,000 NO INTEGRITY 265,000 YES ** DILIGENCE 265,000 YES ** ** These vessels were originally built with double-hulls. The tugboat fleet also includes a 15,000 horsepower class vessel, which is not currently operating. Other Real Property. Maritrans is headquartered in Tampa, Florida. In Tampa, the Company leases office space and four acres of Port Authority land. The Company also leases office space near Philadelphia, Pennsylvania. In addition, the Company owns property in Philadelphia not used in its operations, which is currently for sale. Item 3. LEGAL PROCEEDINGS Maritrans is a party to routine, marine-related claims, lawsuits and labor arbitrations arising in the ordinary course of its business. The claims made in connection with Maritrans' marine operations are covered by marine insurance, subject to applicable policy deductibles that are not material as to any type of insurance coverage. Based on its current knowledge, management believes that such lawsuits and claims, even if the outcomes were to be adverse, would not have a material adverse effect on the Company's financial condition. 8 The Company has been sued by approximately 90 individuals alleging unspecified damages for exposure to asbestos and, in most of these cases, for exposure to tobacco smoke. Although the Company believes these claims are without merit, it is impossible at this time to express a definitive opinion on the final outcome of any such suit. Management believes that any liability would be adequately covered by applicable insurance and would not have a material adverse effect. In 1996, Maritrans filed suit against the United States government under the Fifth Amendment to the U.S. Constitution for "taking" Maritrans' tank barges without just compensation. The Fifth Amendment specifically prohibits the United States government from taking private property for public use without just compensation. Maritrans asserts that its vessels were taken by Section 4115 of OPA, which prohibits all existing single-hull tank vessels from operating in U.S. waters under a retirement schedule that began January 1, 1995, and ends on January 1, 2015. This OPA provision will force Maritrans to remove its single-hull barges from service commencing on January 1, 2005 or rebuild them, thus depriving the Company of their continued use for a significant portion of their remaining economic lives. In December 2001, the United States Court of Federal Claims ruled that the OPA double hull requirement did not constitute a taking of Maritrans' vessels. The Company is currently appealing the decision. On February 7, 2003, Oral Argument was held before the Court of Appeals for the Federal Circuit on Maritrans appeal. The Company anticipates receiving a decision in 2003. The Company is engaged in litigation instituted by a competitor to challenge its double-hull patent. Penn Maritime, Inc. v. Maritrans Inc., was filed in the U.S. District Court for the Eastern District of New York on September 6, 2001. The Plaintiff is seeking damages of $3 million and an injunction restraining Maritrans from enforcing its patent, which if awarded, would have a material adverse effect on the Company. However, management believes the suit to be without merit. Maritrans is challenging the jurisdiction of the Court to hear the matter in New York and upon resolution of the jurisdictional issue, intends to seek affirmative damages from Penn Maritime, Inc. for infringement of its patent as well as other claims arising from the conduct of Penn Maritime, Inc.'s double hull program. In December 1999, Maritrans sold 18 vessels from its Northeast fleet to K-Sea Transportation. The purchaser alleged that Maritrans breached warranties in the contract of sale pertaining to one of the vessels and initiated binding arbitration to recover damages arising from the alleged breach. The purchaser claimed damages of approximately $1.5 million. On January 24, 2002, the arbitrators concluded that the Company had technically, if inadvertently, breached a warranty, but also concluded that much of K-Sea's claim was not attributable to Maritrans. The arbitrator deemed that K-Sea was two-thirds at fault for its damages and Maritrans one-third. The Company was ordered to pay $334,546, including pre-judgment interest to K-Sea Transportation. The award is not subject to appeal. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Registrant's security holders, through the solicitation of proxies or otherwise, during the last quarter of the year ended December 31, 2002. 9 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information and Holders ------------------------------ Maritrans Inc. Common Shares trade on the New York Stock Exchange under the symbol "TUG." The following table sets forth, for the periods indicated, the high and low sales prices per share as reported by the New York Stock Exchange. QUARTERS ENDED IN 2002: HIGH LOW - ----------------------- ---- --- March 31, 2002 $14.00 $10.95 June 30, 2002 $15.70 $13.01 September 30, 2002 $13.86 $10.65 December 31, 2002 $13.50 $10.75 QUARTERS ENDED IN 2001: HIGH LOW - ----------------------- ---- --- March 31, 2001 $9.10 $8.25 June 30, 2001 $10.05 $8.30 September 30, 2001 $9.70 $8.70 December 31, 2001 $12.00 $8.51 As of March 5, 2003, the Registrant had 8,174,897 Common Shares outstanding and approximately 658 stockholders of record. Dividends --------- For the years ended December 31, 2002 and 2001, Maritrans Inc. paid the following cash dividends to stockholders: PAYMENTS IN 2002: PER SHARE ----------------- --------- March 6, 2002 $ .10 June 5, 2002 $ .10 September 4, 2002 $ .11 December 4, 2002 $ .11 ----- Total $ .42 ===== PAYMENTS IN 2001: PER SHARE ----------------- --------- March 7, 2001 $ .10 June 6, 2001 $ .10 September 5, 2001 $ .10 December 5, 2001 $ .10 ----- Total $ .40 ===== The dividend policy is determined at the discretion of the Board of Directors of Maritrans Inc. While dividends have been made quarterly in each of the last two years, there can be no assurance that the dividend will continue. 10 Item 6. SELECTED FINANCIAL DATA
MARITRANS INC. --------------------------------------------------------------- January 1 to December 31, ($000, except per share amounts) CONSOLIDATED INCOME STATEMENT DATA: 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Revenues (a) ....................................... $128,987 $123,410 $123,715 $151,667 $151,839 Operating income before depreciation and amortization ..................................... 35,741 35,770 28,288 28,092 30,407 Depreciation and amortization ...................... 19,137 17,958 17,254 20,279 19,578 Operating income ................................... 16,604 17,812 11,034 7,813 10,829 Interest expense ................................... 2,600 4,437 6,401 6,778 6,945 Income before income taxes and extraordinary item .. 15,222 16,308 8,113 21,151 4,986 Income tax provision ............................... 5,708 6,115 3,101 9,095 1,870 Extraordinary item, net of taxes (b) ............... -- 2,501 -- -- -- Net income ......................................... $ 9,514 $ 7,692 $ 5,012 $ 12,056 $ 3,116 Basic earnings per share ........................... $ 1.18 $ 0.77 $ 0.46 $ 1.03 $ 0.26 Diluted earnings per share ......................... $ 1.10 $ 0.72 $ 0.45 $ 1.02 $ 0.26 Cash dividends per share ........................... $ 0.42 $ 0.40 $ 0.40 $ 0.40 $ 0.37 CONSOLIDATED BALANCE SHEET DATA (at period end): Total assets ........................................ $211,557 $200,427 $247,579 $251,021 $254,906 Long-term debt ...................................... $ 63,000 $ 32,250 $ 67,988 $ 75,861 $ 83,400 Stockholders' equity ................................ $ 69,387 $ 88,064 $ 90,446 $ 94,697 $ 89,815
- ------------ (a) The decrease in revenue in 2000 resulted from the sale of vessels and petroleum storage terminals, which occurred in 1999. (b) The extraordinary item resulted from the early extinguishment of debt and is discussed in Note 8 of the consolidated financial statements. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the consolidated financial condition and results of operations of the Company. Some of the statements under this section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements made with respect to present or anticipated utilization, future revenues and customer relationships, capital expenditures, future financings, and other statements regarding matters that are not historical facts and involve predictions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, growth, performance, earnings per share or achievements to be materially different from any future results, levels of activity, growth, performance, earnings per share or achievements expressed in or implied by such forward-looking statements. The forward-looking statements included in this 10-K relate to future events or the Company's future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "seem," "should," "believe," "future," "potential," "estimate," "offer," "opportunity," "quality," "growth," "expect," "intend," "plan," "focus," "through," "strategy," "provide," 11 "meet," "allow," "represent," "commitment," "create," "implement," "result," "seek," "increase," "establish," "work," "perform," "make," "continue," "can," "will," "include," or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans or assessments that are believed to be reasonable as of the date of this 10-K. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecast, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the factors outlined in this 10-K, changes in oil companies' decisions as to the type and origination point of the crude that it processes, changes in the amount of imported petroleum products, competition for marine transportation, domestic and international oil consumption, the continuation of federal law restricting United States point-to-point maritime shipping to U.S. vessels (the Jones Act), demand for petroleum products, future spot market rates, changes in interest rates, the effect of war or terrorists activities and the general financial, economic, environmental and regulatory conditions affecting the oil and marine transportation industry in general. Given such uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. These factors may cause the Company's actual results to differ materially from any forward-looking statement. Although the Company believes that the expectations in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, growth, earnings per share or achievements. However, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. The Company is under no duty to update any of the forward-looking statements after the date of this 10-K to conform such statements to actual results. Overview Maritrans serves the petroleum and petroleum product distribution industry by using tank barges, tugboats and oil tankers to provide marine transportation services primarily along the Gulf and Atlantic coasts of the United States. Between 1998 and 2001, the Company has transported at least 178 million barrels annually, with a high of 262 million barrels in 1998 and a low of 178 million barrels in 2002. Maritrans sold vessels in 1999 resulting in a reduction in capacity. In 2002 and 2001, the Company has transported 178 million and 183 million barrels, respectively. Many factors affect the number of barrels transported and may affect future results for Maritrans. Such factors include the Company's vessel and fleet size and average trip lengths, the continuation of federal law restricting United States point-to-point maritime shipping to U.S. vessels (the Jones Act), domestic oil consumption, environmental laws and regulations, oil companies' decisions as to the type and origination point of the crude that it processes, changes in the amount of imported petroleum products, competition, labor and training costs and liability insurance costs. Overall U.S. oil consumption during 1998-2002 fluctuated between 19.0 million and 19.7 million barrels a day. In 1999, the Company made several strategic moves in order to focus on those markets where it believes it possesses a long-term competitive advantage and that should provide additional opportunities. As a result, the Company sold two small tug and barge units, which were working in Puerto Rico, two petroleum storage terminals in Philadelphia, Pennsylvania and Salisbury, Maryland, and twenty-seven vessels working primarily in the Northeastern United States. Before the sales, the sold vessels had transported approximately 69 million barrels in 1999 and had represented approximately 23 percent of 1999 revenues. Maritrans has successfully rebuilt four of its existing, single-hulled, barges to a double-hull design configuration, which complies with the provisions of the OPA (see table in "Legislation" below). The Company intends to apply the same methodology to up to five more of its existing large, oceangoing, single-hull barges. The timing of the rebuilds will be determined by a number of factors, including market conditions, shipyard pricing and availability, customer requirements and OPA retirement dates for the vessels. The OPA retirement dates fall between 2005 and 2010. Each of the Company's superbarges represent approximately 5 to 7 percent of the total fleet capacity, which will be removed from revenue generating service during the rebuilding of that vessel. Results of Operations Time Charter Equivalent ("TCE") is a commonly used industry measure where direct voyage costs are deducted from revenue. Maritrans enters into various types of charters, some of which involve the customer paying substantially all voyage costs, while other types of charters involve Maritrans paying some or substantially all of the voyage costs. The Company monitors the TCE basis 12 because it essentially nets the voyage costs and voyage revenue to yield a measure that is comparable between periods regardless of the types of charters utilized. The Company began reporting on the TCE basis in the first quarter of 2002. For comparison purposes, the following table lists the TCE revenue for all quarters in 2002 and 2001:
12/31/02 9/30/02 6/30/02 3/31/02 12/31/01 9/30/01 6/30/01 3/31/01 -------- ------- ------- ------- -------- ------- ------- ------- Voyage revenue $34,610 $30,586 $32,468 $31,323 $31,717 $28,276 $31,826 $31,558 Voyage costs 5,498 4,906 4,970 4,381 4,803 4,995 5,707 5,997 ------- ------- ------- ------- ------- ------- ------- ------- Time Charter Equivalent $29,112 $25,680 $27,498 $26,942 $26,914 $23,281 $26,119 $25,561 ======= ======= ======= ======= ======= ======= ======= =======
Year Ended December 31, 2002 Compared With Year Ended December 31, 2001 TCE revenue for the year ended December 30, 2002 compared to the year ended December 30, 2001 is as follows: 12/31/02 12/31/01 -------- -------- Voyage revenue $128,987 $123,377 Voyage costs 19,755 21,502 -------- -------- Time Charter Equivalent $109,232 $101,875 ======== ======== TCE revenue increased from $101.9 million for the year ended December 31, 2001 to $109.2 million for the year ended December 31, 2002, an increase of $7.3 million or 7 percent. Vessel utilization, as measured by revenue days divided by calendar days available, decreased from 83.4 percent for the year ended December 31, 2001 to 81.9 percent for the year ended December 31, 2002. Utilization decreased due to more vessel out of service time in the year ended December 31, 2002 as a result of vessels being taken out of service for maintenance. In late May 2002, the OCEAN 250 went out of service for her double hull rebuild and re-entered service in the fourth quarter of 2002. In addition, the MARITRANS 252 was out of service in the beginning of 2002 while her double hull rebuild was being completed. She re-entered service in the first quarter of 2002. Term contract rates renewed with customers in 2001 were renewed at higher levels than those experienced in 2000 on long-term contracts. The increase in these rates resulted from a more stable supply/demand relationship in the Jones Act trade. These rate increases had a positive impact on 2002 revenue and helped to offset the weak spot market. Spot market rates were significantly lower in 2002 than in 2001 as a result of the following factors. Warm weather in the early part of 2002 in the Northeast reduced the demand for heating oil resulting in excess distillate inventory through most of the year. The cold weather in the Northeast in the fourth quarter of 2002 increased heating oil demand, but that demand was met mostly by the high inventories and imports from Europe. 2002 saw a continued reduction in the demand for jet fuel, which began with the terrorist attack of September 11th and continued throughout the year. Gasoline demand remained high throughout 2002. This demand was met primarily from increased imports from Europe as their sluggish economy reduced their internal demand. Refined product imports typically reduce demand for the Company's services by diminishing the need for U.S. Gulf refineries to supply product to the Atlantic coast. The Company believes the spot market will continue to be fairly soft through much of 2003 due to all these factors. The Company believes that a European economic recovery would have a positive impact on rates by reducing refined product imports into our market. It is uncertain at this time what the impact of a continued strike of the Venezuelan oil industry or a war with Iraq would have on the Company's revenue. Barrels of cargo transported decreased from 183.5 million in the year ended December 31, 2001 to 177.6 million in the year ended December 31, 2002, due to decreases in demand and utilization (as discussed above). Voyage costs decreased from $21.5 million for the year ended December 31, 2001 to $19.8 million for the year ended December 31, 2002, a decrease of $1.7 million or 8 percent. The primary decrease in voyage costs was in fuel costs, which resulted from the downturn in the economy in the later part of 2001 and continued in 2002. The average price per gallon of fuel decreased approximately 12 percent in 2002 compared to 2001. 13 Total costs and operating expenses, excluding voyage costs discussed above, increased from $84.1 million for the year ended December 31, 2001 to $92.7 million for the year ended December 31, 2002, an increase of $8.6 million or 10 percent. Routine maintenance expenses incurred during voyages and in port have declined in 2002 compared to 2001, while expenditure levels for maintenance incurred in shipyards has increased. This reflects efforts being made to meet increased regulatory and customer vetting requirements and rising shipyard costs. These shipyard expenses are expected to continue to increase and the Company has adjusted the 2003 shipyard accrual rate to meet these increased costs. In addition, insurance costs increased for the year ended December 31, 2002 compared to the year ended December 31, 2001 as the result of increased premiums charged by the insurance companies on policies renewed and to additional deductible amounts paid in the current year. Seagoing salary increases, which took effect early in 2002, increased crew costs for the year ended December 31, 2002 compared to the year ended December 31, 2001. Professional fees increased in the year ended December 31, 2002 compared to the year ended December 31, 2001 for consulting fees incurred to review port security and other security issues. General and administrative expenses increased due to increased professional fees including higher litigation and consulting costs for the year ended December 31, 2002 compared to the year ended December 31, 2001. Litigation costs and professional fees arose from both immaterial litigation arising in the ordinary course of business and the legal proceedings described in Part II Item 1 of this Form 10-K. In addition, the Company experienced increased premiums charged by the insurance companies on the Directors and Officers policy renewed in 2002. Operating income decreased as a result of the aforementioned changes in revenue and expenses. Interest expense for the year ended December 31, 2002 of $2.6 million decreased compared to $4.4 million for the year ended December 31, 2001 as a result of the refinancing of debt that took place in the fourth quarter of 2001. The new debt has a variable interest rate, which is lower than the fixed interest rate of 9.25 percent on most of the previously held debt and therefore resulted in decreased interest expense when compared to 2001. Interest and other income for the year ended December 31, 2002 was $1.2 million compared to interest and other income for the year ended December 31, 2001 of $2.9 million. Other income is made up primarily of interest income. Interest income decreased due to a lower amount of cash invested in 2002 compared to 2001. The decrease in the average cash balance is primarily the result of the debt refinancing discussed above. Other income in the year ended December 31, 2002 includes both a $0.5 million litigation settlement received and a charge of $0.3 million for a litigation settlement to be paid in 2003 (see Item 3 "Legal Proceedings"). Other income in the year ended December 31, 2001 includes a pre-tax gain of $0.2 million on the sale of a barge. Net income for the year ended December 31, 2002 increased compared to the year ended December 31, 2001 due to the aforementioned changes in revenue and expenses. Year Ended December 31, 2001 Compared With Year Ended December 31, 2000 Revenues for 2001 of $123.4 million were consistent with revenues for 2000 of $123.7 million. Vessel utilization, as measured by revenue days divided by calendar days available, decreased from 85.7 percent in 2000 to 83.4 percent in 2001. Utilization decreased due to more vessel out of service time for maintenance in 2001 compared to 2000. In 2000, the MARITRANS 244 was out of service for nine months for her double hull rebuild. The MARITRANS 252 went out of service for her double hull rebuild late in the second quarter of 2001 and re-entered service early in February 2002. As a result, the fleet lost less days to double hull rebuilding in 2001 than in 2000, offsetting the maintenance out of service time. Term contract rates renewed with customers in 2001 were renewed at higher levels than those experienced in 2000. The increase in these rates resulted from a more stable supply/demand relationship in the Jones Act trade. Spot market rates fluctuated greatly in 2001, and overall were slightly higher than in 2000. In the first half of the year, spot rates were significantly higher than the same period in 2000 due to increased distillate demand and the restocking of inventory balances. In the third quarter, spot rates dropped as a result of refinery maintenance projects and less demand for refined products. In addition, there was a general downturn in the economy, which continued through the end of the year. In the fourth quarter, spot rates declined to below 2000 levels for the comparable period. The terrorists attacks on September 11th worsened the downturn in the economy. As a result, gasoline inventories grew and the demand 14 for jet fuel decreased. In addition, warm weather in the Northeast reduced the demand for heating oil. Barrels of cargo transported decreased from 189.3 million in 2000 to 183.5 million in 2001, due to decreases in demand during the year. Total costs and operating expenses for 2001 were $105.6 million compared to $112.7 million in 2000, a decrease of $7.1 million or 6.3 percent. The primary decreases in operating expenses were in voyage costs, which are primarily fuel consumed and port charges incurred. In 2001 more of the Company's tankers were under contracts that pass all fuel and other voyage costs directly to the customer than in 2000, resulting in a decrease in expenses. The downturn in the economy in 2001, discussed above, also reduced fuel prices. The average price per gallon of fuel decreased 8 percent compared to 2000. The decrease in utilization, discussed above, also caused port charges and fuel costs to decrease compared to the same period in 2000. Offsetting these decreases was an increase in crew costs. In 2001, a higher volume of seminars and training took place than in 2000. Routine maintenance increased during 2001 as a result of a higher number of vessel repairs. Other maintenance expenses decreased due to the extensive renewals and refurbishments that occur during the rebuilding of the single-hulled barges to double- hulled barges. In 2000, the Company had incurred $1.4 million in relocation costs as a result of moving the corporate headquarters from Philadelphia, Pennsylvania to Tampa, Florida, which were not incurred in 2001. Operating income increased from $11.0 million in 2000 to $17.8 million in 2001, as a result of the aforementioned changes in revenue and expenses. Interest and other income in 2001 included interest income of $2.4 million and a gain of $0.5 million on the sale of a barge. Interest and other income in 2000 included interest income of $4.0 million offset by a loss of $0.7 million on the sale of Philadelphia real estate and equipment. Interest income decreased due to a lower amount of cash invested in 2001 compared to 2000. The extraordinary loss of $2.5 million, net of taxes, resulted from prepayment penalties and the write-off of unamortized financing costs on the prepayment of the Company's fleet mortgage. Net income increased from $5.0 million for the twelve months ended December 31, 2001 to $7.7 million for the twelve months ended December 31, 2002. This increase was due to the aforementioned changes in revenue and expenses. Liquidity and Capital Resources In 2002, net cash provided by operating activities was $31.2 million. These funds, augmented by the Company's Credit Facility, were sufficient to meet debt service obligations and loan agreement restrictions, to make capital acquisitions and improvements and to allow Maritrans Inc. to pay a dividend in the current quarter. Management believes funds provided by operating activities, augmented by the Company's Credit Facility, described below, and investing activities, will be sufficient to finance operations, anticipated capital expenditures, lease payments and required debt repayments in the foreseeable future. While dividends have been made quarterly in each of the last two years, there can be no assurances that the dividend will continue. The ratio of total debt to capitalization is .50:1 at December 31, 2002. On February 9, 1999, the Board of Directors authorized a share buyback program for the acquisition of up to one million shares of the Company's common stock, which represented approximately 8 percent of the 12.1 million shares outstanding at that time. In February 2000 and again in February 2001, the Board of Directors authorized the acquisition of an additional one million shares in the program. The total authorized shares under the buyback program are three million. As of December 31, 2002, 2,456,700 shares had been purchased under the plan and financed by internally generated funds. The Company intends to hold the majority of the shares as treasury stock, although some shares will be used for employee compensation plans and others may be used for acquisition currency and/or other corporate purposes. Subsequent to December 31, 2002 and through March 5, 2003, the Company purchased 10,000 shares of its common stock under the share buyback program. In August 2000, the Company awarded a contract to rebuild a third large single hull barge, the OCEAN CITIES, to a double hull configuration. In February 2002, this vessel was completed and put back into service as the MARITRANS 252. The total cost of the rebuild and other improvements made while in the shipyard was $18.9 million. The Company financed this project from internally generated funds. 15 In September 2001, the Company awarded a contract to rebuild a fourth large single hull barge, the OCEAN 250, to a double hull configuration. In November 2002, this vessel was completed and put back into service as the M254. The total cost of the rebuild was $19.5 million. The Company financed this project from a combination of internally generated funds and borrowings under the Company's Credit Facility. In October 2001, the Company repaid $33.0 million of its long-term debt in advance of its due date. The Company recorded an extraordinary charge of approximately $2.5 million, net of taxes, or approximately $0.24 per share, in prepayment penalties and the write-off of unamortized financing costs in the fourth quarter as a result of the repayment. In November 2001, the Company entered into a credit facility, discussed in "Debt Obligations and Borrowing Facility" below. The amortization of the term portion of the facility calls for escalating payments over the life of the debt. The Credit Facility requires the Company to maintain its properties in a specific manner, maintain specified insurance on its properties and business, and abide by other covenants, which are customary with respect to such borrowings. The Credit Facility also requires the Company to meet certain financial covenants. If the Company fails to comply with any of the covenants contained in the Credit Facility, the Lenders may foreclose on the collateral or call the entire balance outstanding on the Credit Facility immediately due and payable. The Company was in compliance with all applicable covenants at December 31, 2002 and currently expects to remain in compliance going forward. Total future commitments and contingencies related to the Company's outstanding debt facility and noncancellable operating leases, as of December 31, 2002, are as follows:
($000's) Less than One Year One to Five Years After Five Years ------------------ ----------------- ---------------- Debt Obligations $5,750 $63,000 $ - Operating Leases 491 1,792 1,001 ------ ------- ------ Total $6,241 $64,792 $1,001 ====== ======= ======
In December 2001, the Company announced a self-tender offer (the "Offer") to purchase up to 2,000,000 shares of its common stock at a price between $11.00 and $12.50. On January 18, 2002, the Offer closed, and the Company subsequently purchased 2,176,296 shares of common stock for a purchase price of $11.50 per share, or approximately $25.0 million. The purchase price was funded through borrowings under the Company's Credit Facility with Citizens Bank. In November 2002, the Company awarded a contract to rebuild a fifth large single hull barge, the OCEAN STATES, to a double hull configuration, which is expected to have a total cost of approximately $21 million. The Company intends to finance this project from a combination of internally generated funds and borrowings under the Company's Credit Facility. Debt Obligations and Borrowing Facility At December 31, 2002, the Company had $68.8 million in total outstanding debt, secured by mortgages on some of the fixed assets of the Company. The current portion of this debt at December 31, 2002, is $5.8 million. In August 1999, the Company entered into an agreement with Coastal Tug and Barge Inc. to purchase the MV PORT EVERGLADES. The Company had a vessel note payable to Coastal Tug and Barge Inc. as a result of the sale, which the Company paid off in the first quarter of 2002. In December 1999, the Company entered into an agreement with General Electric Capital Corporation to purchase two tugboats, the Enterprise and the Intrepid. The Company had a vessel note payable to General Electric Credit Corporation as a result of the purchase, which the Company paid off in the first quarter of 2002. In October 2001, the Company paid off the fleet mortgage that was part of the original indebtedness incurred when the Company became a public company in 1987. The Company recorded an extraordinary charge of $2.5 million, net of taxes, or approximately $0.24 per share, in prepayment penalties and the write-off of unamortized financing costs during the fourth quarter as a result of the repayment. 16 In November 2001, the Company entered into an $85 million credit and security agreement ("Credit Facility") with Citizens Bank (formerly Mellon Bank, N.A.) and a syndicate of other financial institutions ("Lenders"). Pursuant to the terms of the Credit Facility, the Company could borrow up to $45 million of term loans and up to $40 million under a revolving credit facility. Interest is variable based on either the LIBOR rate plus an applicable margin (as defined) or the prime rate. Principal payments on the term loans are required on a quarterly basis and began in April 2002. The Credit Facility expires in January 2007. The Company has granted first preferred ship mortgages and a first security interest in some of the Company's vessels and other collateral to the Lenders as a guarantee of the debt. At December 31, 2002, there was $41.3 million of term loans outstanding under the Credit Facility and $27.5 million outstanding under the revolving line of credit. Critical Accounting Policies Maintenance and Repairs Provision is made for the cost of upcoming major periodic overhauls of vessels and equipment in advance of performing the related maintenance and repairs. Based on the Company's methodology, approximately one-third of this estimated cost is included in accrued shipyard costs as a current liability with the remainder classified as long-term. Although the timing of the actual disbursements have fluctuated over the years, particularly as a result of changes in the size of the fleet and timing of the large maintenance projects, the classification has been in line with the actual disbursements over time. The Company believes that providing for such overhauls in advance of performing the related maintenance and repairs provides a more appropriate view of the financial position of the Company at any point in time. In September 2001, the rule making body of the AICPA issued an Exposure Draft on a Statement of Position, "Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment" (the "Proposed Statement"). This group, referred to as AcSEC, recently decided that it will no longer issue accounting guidance and planned to transition the majority of its projects to the FASB. However, the FASB subsequently requested that AcSEC address certain portions of the Proposed Statement in smaller scope projects. The FASB expressed their concern that the project would not be completed timely, by AcSEC or the FASB, if the scope of the project was not reduced. At this time, it is unclear whether the Proposed Statement will be issued or in what form. If the existing Proposed Statement is issued, it would require the Company to modify its accounting policy for maintenance and repairs. Such costs would no longer be accrued in advance of performing the related maintenance and repairs; rather, the Proposed Statement requires these costs to be capitalized and amortized over their estimated useful life. The Company has not yet quantified the impact of adopting the Proposed Statement on its financial statements; however, the Company's preliminary assessment is that the adoption of this pronouncement would increase the value of vessels and equipment, decrease the shipyard accrual and increase stockholders' equity of the Company. Market Risk The principal market risk to which the Company is exposed is a change in interest rates on debt instruments. The Company manages its exposure to changes in interest rate fluctuations by optimizing the use of fixed and variable rate debt. As of December 31, 2002, all of the Company's debt is variable rate debt. The information below summarizes the Company's market risks associated with its debt obligations and should be read in conjunction with Note 8 of the Consolidated Financial Statements. The table below presents principal cash flows by year of maturity. Variable interest rates disclosed fluctuate with the LIBOR and federal fund rates. The weighted average interest rate at December 31, 2002 was 3.69%. Expected Years of Maturity ($000) 2003 ......................................... $5,750 2004 ......................................... 7,500 2005 ......................................... 11,000 2006 ......................................... 13,500 2007 ......................................... 31,000 ------- $68,750 ======= 17 Impact of Recent Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Intangible Assets" as of January 1, 2002. SFAS No. 142 provides that goodwill and intangible assets with indefinite lives will not be amortized. As such, the Company did not record goodwill amortization for the year ended December 31, 2002. Rather, the Company performed an impairment test on its net carrying value as of January 1, 2002, its initial test, as required by SFAS No. 142. The Company was not required to record an impairment charge based on its test. The test required estimates, assumptions and judgments and results could be materially different if different estimates, assumptions and judgments had been used. In April 2002, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS 145"). SFAS 145 requires, among other things, gains or losses on extinguishment of debt to be classified as income (loss) from continuing operations rather than as an extraordinary item, unless such extinguishment is determined to be extraordinary pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of a Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently Occurring Transactions" ("Opinion 30"). The provisions of SFAS 145 related to the rescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item must be reclassified. The Company will adopt the provisions of SFAS 145 beginning January 1, 2003 and accordingly, will reclassify the loss of $2.5 million on the retirement of debt during the year ended December 31, 2001, from an extraordinary item to a separate component of income before taxes. In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting". SFAS 148 is effective for fiscal years ending after December 15, 2002, with certain disclosure requirements effective for interim periods beginning after December 15, 2002. Accordingly, the Company has disclosed the required provisions in its notes to the consolidated financial statements for the year ended December 31, 2002. In addition, the Company will adopt the transition provisions of SFAS 148 using the prospective method beginning January 1, 2003. The prospective method requires the Company to recognize the fair value of all employee stock awards in its consolidated financial statements of income beginning on the date of adoption. If the Company had adopted SFAS 148 using the prospective method on January 1, 2002, diluted earnings per share would have been lower by $.01 for the year ended December 31, 2002. The Company is currently unable to quantify the effect of adoption on earnings per share for the year ended December 31, 2003, as actual information such as stock price, fair value, and number of shares outstanding is unknown. Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK See discussion under "Market Risk" included in Management's Discussion and Analysis of Financial Condition and Results of Operations. 18 Item 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA Report of Independent Certified Public Accountants Stockholders and Board of Directors Maritrans Inc. We have audited the accompanying consolidated balance sheets of Maritrans Inc. as of December 31, 2002 and 2001, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the management of Maritrans Inc. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 present fairly, in all material respects, the consolidated financial position of Maritrans Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Tampa, Florida January 23, 2003 19 MARITRANS INC. CONSOLIDATED BALANCE SHEETS ($000, except share amounts)
December 31, -------------------------- 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents ............................................. $ 239 $ 3,558 Trade accounts receivable (net of allowance for doubtful accounts of $690) .............................................................. 9,396 8,703 Other accounts receivable ............................................. 2,696 3,620 Inventories ........................................................... 3,253 2,453 Deferred income tax benefit ........................................... 8,097 7,258 Prepaid expenses ...................................................... 3,135 2,659 -------- -------- Total current assets .............................................. 26,816 28,251 Vessels and equipment ..................................................... 339,574 307,540 Less accumulated depreciation ........................................ 162,713 144,223 -------- -------- Net vessels and equipment ......................................... 176,861 163,317 Notes receivable (net of allowance of $4,500).............................. 3,780 4,271 Other...................................................................... 4,100 4,588 -------- -------- Total assets ...................................................... $211,557 $200,427 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Debt due within one year............................................... $ 5,750 $10,738 Trade accounts payable ................................................ 2,829 681 Accrued shipyard costs ................................................ 5,060 6,370 Accrued wages and benefits ............................................ 1,718 2,098 Other accrued liabilities ............................................. 3,642 2,353 -------- -------- Total current liabilities ......................................... 18,999 22,240 Long-term debt ............................................................ 63,000 32,250 Accrued shipyard costs .................................................... 7,590 9,555 Other liabilities ......................................................... 3,149 3,527 Deferred income taxes ..................................................... 49,432 44,791 Stockholders' equity:...................................................... Preferred stock, $.01 par value, authorized 5,000,000 shares; none -- -- issued.............................................................. Common stock, $.01 par value, authorized 30,000,000 shares; issued: 2002 - 13,558,970 shares; 2001 - 13,342,018 shares ................. 135 133 Capital in excess of par value ........................................ 80,980 79,781 Retained earnings ..................................................... 36,061 29,983 Unearned compensation ............................................... (759) (855) Less: Cost of shares held in treasury: 2002 - 5,418,653 shares; 2001 - 3,181,792 shares.................................................... (47,030) (20,978) -------- -------- Total stockholders' equity ........................................ 69,387 88,064 -------- -------- Total liabilities and stockholders' equity ........................ $211,557 $200,427 ======== ========
See accompanying notes. 20 MARITRANS INC. CONSOLIDATED STATEMENTS OF INCOME ($000, except per share amounts)
For the year ended December 31, --------------------------------------- 2002 2001 2000 ---- ---- ---- Revenues. .................................................... $128,987 $123,410 $123,715 Costs and expenses:........................................... Operation expense ......................................... 66,299 64,665 69,407 Maintenance expense ....................................... 19,088 15,652 17,234 General and administrative ................................ 7,859 7,323 8,786 Depreciation and amortization ............................. 19,137 17,958 17,254 -------- -------- -------- 112,383 105,598 112,681 -------- -------- -------- Operating income ............................................. 16,604 17,812 11,034 Interest expense (net of capitalized interest of $383, $472, and $662 respectively)..................................... (2,600) (4,437) (6,401) Interest income............................................... 857 2,405 3,973 Other income (loss), net ..................................... 361 528 (493) -------- -------- -------- Income before income taxes and extraordinary item............. 15,222 16,308 8,113 Income tax provision ......................................... 5,708 6,115 3,101 -------- -------- -------- Income before income taxes and extraordinary item............. 9,514 10,193 5,012 Extraordinary charge on early extinguishment of debt, net of taxes of $1,500........................................... -- 2,501 -- -------- -------- -------- Net income ................................................... $ 9,514 $ 7,692 $ 5,012 ======== ======== ======== Basic earnings per share ..................................... Income before extraordinary item .......................... $ 1.18 $ 1.02 $ 0.46 Extraordinary item......................................... -- (0.25) -- -------- -------- -------- Net income ................................................ $ 1.18 $ 0.77 $ 0.46 ======== ======== ======== Diluted earnings per share ................................... Income before extraordinary item .......................... $ 1.10 $ 0.96 $ 0.45 Extraordinary item......................................... -- (0.24) -- -------- -------- -------- Net income ................................................ $ 1.10 $ 0.72 $ 0.45 ======== ======== ========
See accompanying notes. 21 MARITRANS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents ($000)
For the year ended December 31, ---------------------------------------- 2002 2001 2000 ---- ---- ---- Cash flows from operating activities: Net income ....................................................... $ 9,514 $ 7,692 $ 5,012 Adjustments to reconcile net income to net cash provided by operating activities:.......................................... Depreciation and amortization ................................ 19,137 17,958 17,254 Deferred income taxes ........................................ 3,802 1,438 (2,091) Stock compensation ........................................... 193 852 803 Extraordinary loss ........................................... -- 4,001 -- Changes in receivables, inventories and prepaid expenses ..... (1,045) 1,898 8,036 Changes in current liabilities, other than debt .............. 1,747 (8,796) (779) Non-current changes, net ..................................... (2,130) (4,154) 1,884 (Gain) loss on sale of assets ................................ -- (472) 637 ------- ------- ------- Total adjustments to net income ............................. 21,704 12,725 25,744 ------- ------- ------- Net cash provided by operating activities ................. 31,218 20,417 30,756 Cash flows from investing activities:............................. Proceeds from sale of marine vessels and equipment ........... -- 175 165 Release of cash and cash equivalents - restricted............. -- 13,500 25,500 Collections on notes receivable............................... 766 478 386 Purchase of marine vessels and equipment ..................... (32,681) (20,172) (15,498) ------- ------- ------- Net cash (used in) provided by investing activities ....... (31,915) (6,019) 10,553 Cash flows from financing activities: Borrowings under long-term debt ............................. 9,000 36,000 -- Prepayment of Fleet Mortgage, including prepayment penalty of $3,640 ................................................... -- (36,640) -- Payment of long-term debt ................................... (10,738) (13,872) (7,773) Net borrowings (repayments) under credit facilities ......... 27,500 (22,000) -- Proceeds from stock option exercises ........................ 878 298 143 Purchase of treasury stock .................................. (25,826) (7,071) (5,800) Dividends declared and paid ................................. (3,436) (4,153) (4,513) ------- ------- ------- Net cash used in financing activities ...................... (2,622) (47,438) (17,943) Net (decrease) increase in cash and cash equivalents ............ (3,319) (33,040) 23,366 Cash and cash equivalents at beginning of year ................... 3,558 36,598 13,232 ------- ------- ------- Cash and cash equivalents at end of year ......................... $ 239 $ 3,558 $36,598 ======= ======= ======= Supplemental Disclosure of Cash Flow Information: Interest paid .................................................... $ 2,624 $ 5,630 $ 7,057 Income taxes paid ................................................ $ 500 $ 5,516 $ 8,015 Non-cash activities: Note receivable from sale of property........................... -- -- $1,575 Note receivable from sale of vessels............................ -- $ 300 --
See accompanying notes. 22 MARITRANS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($000, except share amounts)
Outstanding Common Capital in shares of Stock, $.01 excess of Retained Treasury Unearned Common Stock Par Value Par Value Earnings Stock Compensation Total ------------ ----------- --------- -------- -------- ------------- --------- Balance at January 1, 2000.......... 11,702,890 $132 $78,279 $25,945 $(8,487) $(1,172) $94,697 Net income.......................... 5,012 5,012 Cash dividends ($0.40 per share of Common Stock).................... (4,513) (4,513) Purchase of treasury shares......... (982,300) (5,800) (5,800) Stock option exercises ............. 30,768 143 143 Stock incentives ................... 115,317 1 537 -- 209 160 907 ----------- ---- ------- ------- ------- ------- ------- Balance at December 31, 2000........ 10,866,675 133 78,959 26,444 (14,078) (1,012) 90,446 ----------- ---- ------- ------- ------- ------- ------- Net income.......................... 7,692 7,692 Cash dividends ($0.40 per share of Common Stock)................... (4,153) (4,153) Purchase of treasury shares......... (802,000) (7,071) (7,071) Stock option exercises ............. 44,587 146 152 298 Stock incentives ................... 50,964 -- 676 -- 19 157 852 ----------- ---- ------- ------- ------- ------- ------- Balance at December 31, 2001........ 10,160,226 133 79,781 29,983 (20,978) (855) 88,064 ----------- ---- ------- ------- ------- ------- ------- Net income.......................... 9,514 9,514 Cash dividends ($0.42 per share of Common Stock).................... (3,436) (3,436) Purchase of treasury shares......... (2,234,296) (25,826) (25,826) Stock option exercises ............. 210,311 2 773 103 878 Stock incentives ................... 4,076 -- 426 -- (329) 96 193 ----------- ---- ------- ------- ------- ------- ------- Balance at December 31, 2002........ 8,140,317 $ 135 $80,980 $36,061 $(47,030) $ (759) $69,387 =========== ===== ======= ======= ======== ======= =======
See accompanying notes. 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies Organization Maritrans Inc. owns Maritrans Operating Company L.P. (the "Operating Company"), Maritrans General Partner Inc., Maritrans Tankers Inc., Maritrans Barge Co., Maritrans Holdings Inc. and other Maritrans entities (collectively, the "Company"). These subsidiaries, directly and indirectly, own and operate oceangoing petroleum tank barges, tugboats, and oil tankers principally used in the transportation of oil and related products along the Gulf and Atlantic Coasts. The Company primarily operates in the Gulf of Mexico and along the coastal waters of the Northeastern United States, particularly the Delaware Bay. The nature of services provided, the customer base, the regulatory environment and the economic characteristics of the Company's operations are similar, and the Company moves its revenue-producing assets among its operating locations as business and customer factors dictate. Maritrans believes that aggregation of the entire marine transportation business provides the most meaningful disclosure. Principles of Consolidation The consolidated financial statements include the accounts of Maritrans Inc. and subsidiaries, all of which are wholly owned. All significant intercompany transactions and accounts have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Cash and Cash Equivalents Cash and cash equivalents at December 31, 2002 and 2001 consisted of cash and commercial paper, the carrying value of which approximates fair value. For purposes of the consolidated financial statements, short-term highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. Inventories Inventories, consisting of materials, supplies and fuel are carried at cost, which does not exceed net realizable value. Vessels and Equipment Vessels and equipment, which are carried at cost, are depreciated using the straight-line method. Vessels are depreciated over a period of up to 30 years. Certain electronic equipment is depreciated over periods of 7 to 10 years. Other equipment is depreciated over periods ranging from 2 to 20 years. Gains or losses on dispositions of fixed assets are included in other income in the accompanying consolidated statements of income. The Oil Pollution Act of 1990 requires all newly constructed petroleum tank vessels engaged in marine transportation of oil and petroleum products in the U.S. to be double-hulled and gradually phases out the operation of single-hulled tank vessels based on size and age. The Company has announced a construction program to rebuild its single-hulled barges with double hulls over the next several years. By July 2005, two of the Company's large oceangoing, single-hulled vessels will be at their legislatively determined retirement date if they are not rebuilt by that time. Long-lived assets, including goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When required, an impairment loss is recognized based on the difference between the fair value of an asset and its related carrying value. During the years ended December 31, 2002, 2001 and 2000, the Company did not recognize an impairment loss. 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible Assets Other assets include $2,863,000 of goodwill at December 31, 2002 and 2001. Goodwill represents the excess cost over the fair market value of the net assets acquired at the date of acquisition. Goodwill was being amortized using the straight-line method over twenty-five years through December 31, 2001. Maintenance and Repairs Provision is made for the cost of upcoming major periodic overhauls of vessels and equipment in advance of performing the related maintenance and repairs. Based on the Company's methodology, approximately one-third of this estimated cost is included in accrued shipyard costs as a current liability with the remainder classified as long-term. Although the timing of the actual disbursements have fluctuated over the years, particularly as a result of changes in the size of the fleet and timing of the large maintenance projects, the classification has been in line with the actual disbursements over time. The Company believes that providing for such overhauls in advance of performing the related maintenance and repairs provides a more appropriate view of the financial position of the Company at any point in time. Non-overhaul maintenance and repairs are expensed as incurred. In September 2001, the rule making body of the AICPA issued an Exposure Draft on a Statement of Position, "Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment" (the "Proposed Statement"). This group, referred to as AcSEC, recently decided that it will no longer issue accounting guidance and planned to transition the majority of its projects to the FASB. However, the FASB subsequently requested that AcSEC address certain portions of the Proposed Statement in smaller scope projects. The FASB expressed their concern that the project would not be completed timely, by AcSEC or the FASB, if the scope of the project was not reduced. At this time, it is unclear whether the Proposed Statement will be issued or in what form. If the existing Proposed Statement is issued, it would require the Company to modify its accounting policy for maintenance and repairs. Such costs would no longer be accrued in advance of performing the related maintenance and repairs; rather, the Proposed Statement requires these costs to be capitalized and amortized over their estimated useful life. The Company has not yet quantified the impact of adopting the Proposed Statement on its financial statements; however, the Company's preliminary assessment is that the adoption of this pronouncement would increase the value of vessels and equipment, decrease the shipyard accrual and increase stockholders' equity of the Company. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Revenue Recognition Revenue is recognized when services are performed. Significant Customers During 2002, the Company derived revenues aggregating 50 percent of total revenues from three customers, each one representing more than 10 percent of revenues. In 2001, revenues from three customers aggregated 61 percent of total revenues and in 2000, revenues from three customers aggregated 54 percent of total revenues. The Company does not necessarily derive 10 percent or more of its total revenues from the same group of customers each year. In 2002, approximately 90 percent of the Company's total revenue was generated by ten customers. Credit is extended to various companies in the petroleum industry in the normal course of business. The Company generally does not require collateral. This concentration of credit risk within this industry may be affected by changes in economic or other conditions and may, accordingly, affect the overall credit risk of the Company. Related Party Transactions The Company obtained protection and indemnity insurance coverage from a mutual insurance association, whose chairman is also the chairman of Maritrans Inc. The related insurance expense was $2,398,000, $1,926,000 and $1,854,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company paid amounts for legal services to a law firm, a partner of which serves on the Company's Board of Directors. The related legal expense was $569,000, $381,000 and $220,000 for the years ended December 31, 2002, 2001 and 2000, respectively. 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value of Financial Instruments The book value of cash, accounts and notes receivable, accounts payable, and accrued expenses approximate the carrying value due to the short-term nature of these financial instruments. The carrying value of the Company's long-term debt approximates fair value based on variable interest rates. Impact of Recent Accounting Pronouncements In September 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill is no longer amortized but is subject to the annual impairment tests in accordance with the Statements. Other intangible assets continue to be amortized over their useful lives. The Company adopted the new rules on accounting for goodwill and other intangible assets on January 1, 2002. A reconciliation of net income for the years ended December 31, 2001 and 2000 had goodwill not been amortized pursuant to FASB No. 142 is as follows:
($000, except per share amounts) Year Ended Year Ended December 31, 2001 December 31, 2000 ----------------- ----------------- Net income as reported $7,692 $5,012 Elimination of goodwill amortization 279 284 ------ ------ Adjusted net income $7,971 $5,296 ====== ====== Adjusted basic earnings per share $ .79 $ .49 ====== ====== Adjusted diluted earnings per share $ .75 $ .47 ====== ======
The Company has completed its required impairment tests of goodwill for the year ended December 31, 2002 and the Company has concluded that there is no impairment of goodwill on the accompanying consolidated balance sheet. In April 2002, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS 145"). SFAS 145 requires, among other things, gains or losses of extinguishment of debt to be classified as income (loss) from continuing operations rather than as an extraordinary item, unless such extinguishment is determined to be extraordinary pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of a Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently Occurring Transactions" ("Opinion 30"). The provisions of SFAS 145 related to the rescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item must be reclassified. The Company will adopt the provisions of SFAS 145 beginning January 1, 2003 and accordingly, will reclassify the loss of $2.5 million on the retirement of debt during the year ended December 31, 2001, from an extraordinary item to a separate component of income before taxes. 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting". SFAS 148 is effective for fiscal years ending after December 15, 2002, with certain disclosure requirements effective for interim periods beginning after December 15, 2002. Accordingly, the Company has disclosed the required provisions in its notes to the consolidated financial statements for the year ended December 31, 2002. In addition, the Company will adopt the transition provisions of SFAS 148 using the prospective method beginning January 1, 2003. The prospective method requires the Company to recognize the fair value of all employee stock awards in its consolidated financial statements of income beginning on the date of adoption. If the Company had adopted SFAS 148 using the prospective method on January 1, 2002, diluted earnings per share would have been lower by $.01 for the year ended December 31, 2002. The Company is currently unable to quantify the effect of adoption on earnings per share for the year ended December 31, 2003, as actual information such as stock price, fair value, and number of shares outstanding is unknown. Through December 31, 2002, the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and Related Interpretations in accounting for its employee stock options. Pro forma information regarding net income and earnings per share is required by Statement 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001 and 2000, respectively: risk free rates of 4.4%, 5% and 5%; weighted average dividend yields of 3.4%, 5% and 5%; weighted average volatility factors of the expected market price of the Company's common stock of 0.30, 0.26 and 0.43; and a weighted average expected life of the option of seven years. The weighted average fair value of options granted in 2002, 2001 and 2000 was $3.12, $1.47 and $1.49, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The Company's pro forma information is as follows:
2002 2001 2000 ---- ---- ---- ($000, except per share data) Net income as reported........................... $9,514 $7,692 $5,012 Pro forma net income............................. $9,400 $7,553 $4,815 Basic earnings per share as reported............. $ 1.18 $ 0.77 $ 0.46 Pro forma basic earnings per share .............. $ 1.17 $ 0.75 $ 0.44 Diluted earnings per share as reported........... $ 1.10 $ 0.72 $ 0.45 Pro forma diluted earnings per share ............ $ 1.08 $ 0.71 $ 0.43
2. Stock Buyback On February 9, 1999, the Board of Directors authorized a stock buyback program for the acquisition of up to one million shares of the Company's common stock. In February 2000 and again in February 2001, the Board of Directors authorized the acquisition of an additional one million shares in the program. The total authorized shares under the program are three million. As of December 31, 2002, 2,456,700 shares were purchased under the plan. The total cost of the shares repurchased during 2002 was $0.7 million. In December 2001, the Company announced a self-tender offer (the "Offer") to purchase up to 2,000,000 shares of its common stock. On January 18, 2002, the Offer closed and the Company subsequently purchased 2,176,296 shares of common stock for a purchase price of $11.50 per share, or approximately $25.0 million, on January 29, 2002. The purchase price was funded through borrowings under the Company's Credit Facility. 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Earnings per Common Share The following data show the amounts used in computing basic and diluted earnings per share (EPS):
2002 2001 2000 ---- ---- ---- (thousands) Income available to common stockholders used in basic EPS.......................... $ 9,514 $ 7,692 $ 5,012 ======= ======= ======= Weighted average number of common shares used in basic EPS.......................... 8,055 10,043 10,883 Effect of dilutive securities: Stock options and restricted shares... 629 594 315 ------- ------- ------- Weighted number of common shares and dilutive potential common stock used in diluted EPS 8,684 10,637 11,198 ======= ======= =======
The following options to purchase shares of common stock with their range of exercise prices were not included in the computation of diluted earnings per share for each period because their exercise prices were greater than the average market price of common stock during the relevant periods:
2002 2001 2000 ---- ---- ---- Number of options. 18,040 -- 132,271 Range of exercise price $14.20 -- $6.25-$9.125
4. Shareholder Rights Plan On June 26, 2002, the Board of Directors of Maritrans Inc. adopted a new Shareholder Rights Plan (the "Plan"), which became effective on August 1, 2002 and declared a dividend distribution of one Right for each outstanding share of Common Stock, $.01 par value of the Company to stockholders of record at the close of business on August 1, 2002. The Plan became effective immediately upon the expiration of the Company's previous shareholder rights plan adopted in 1993. Under the Plan, each share of Common Stock has attached thereto a Right (a "Right") which entitles the registered holder to purchase from the Company one one-hundredth of a share (a "Preferred Share Fraction") of Series A Junior Participating Preferred Shares, par value $.01 per share, of the Company ("Preferred Shares"), or a combination of securities and assets of equivalent value, at a Purchase Price of $57, subject to adjustment. Each Preferred Share Fraction carries voting and dividend rights that are intended to produce the equivalent of one share of Common Stock. The Rights are not exercisable for a Preferred Share Fraction until the earlier of (each, a "Distribution Date") (i) 10 days following a public announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of the outstanding shares of Common Stock or (ii) the close of business on a date fixed by the Board of Directors following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20 percent or more of the outstanding shares of Common Stock. The Rights may be exercised for Common Stock if a "Flip-in" or "Flip-over" event occurs. If a "Flip-in" event occurs and the Distribution Date has passed, the holder of each Right, with the exception of the acquirer, is entitled to purchase $114 worth of Common Stock for $57. The Rights will no longer be exercisable into Preferred Shares at that time. "Flip-in" events are events relating to 20 percent stockholders, including without limitation, a person or group acquiring 20 percent or more of the Common Stock, other than in a tender offer that, in the view of the Board of Directors, provides fair value to all of the Company's shareholders. If a "Flip-over" event occurs, the holder of each Right is entitled to purchase $114 worth of the acquirer's stock for $57. A "Flip-over" event occurs if the Company is acquired or merged and no outstanding shares remain or if 50 percent of the Company's assets or earning power is sold or transferred. The Plan prohibits the Company from entering into this sort of transaction unless the acquirer agrees to comply with the "Flip-over" provisions of the Plan. The Rights can be redeemed by the Company for $.01 per Right until up to ten days after the public announcement that someone has acquired 20 percent or more of the Company's Common Stock (unless the redemption period is extended by the Board in its discretion). If the Rights are not redeemed or substituted by the Company, they will expire on August 1, 2012. 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Stock Incentive Plans Maritrans Inc. has a stock incentive plan (the "Plan"), whereby non-employee directors, officers and other key employees may be granted stock, stock options and, in certain cases, receive cash under the Plan. Any outstanding options granted under the Plan are exercisable at a price not less than market value of the shares on the date of grant. The maximum aggregate number of shares available for issuance under the Plan is 1,750,000. The Plan provides for the automatic grant of non-qualified stock options to non-employee directors, on a formulaic biannual basis, of options to purchase shares equal to two multiplied by the aggregate number of shares distributed to such non-employee director under the Plan during the preceding calendar year. In 2002, 2001 and 2000 there were 3,203, 4,064 and 6,528 shares, respectively, issued to non-employee directors. Compensation expense equal to the fair market value on the date of the grant to the directors is included in general and administrative expense in the consolidated statement of income. During 2002, 2001 and 2000, there were 26,172, 31,858 and 64,526 shares, respectively, of restricted stock issued under the Plan and subject to restriction provisions. The restrictions lapse in up to a three-year period from the date of grant. The weighted average fair value of the restricted stock issued during 2002, 2001 and 2000 was $11.45, $8.85 and $6.00. The shares are subject to forfeiture under certain circumstances. Unearned compensation, representing the fair market value of the shares at the date of issuance, is amortized to expense on a straight-line basis over the vesting period. At December 31, 2002 and 2001, 287,416 and 318,606 remaining shares and options within the Plan were reserved for grant, respectively. In May 1999, the Company adopted the Maritrans Inc. 1999 Directors' and Key Employees Equity Compensation Plan (the "99 Plan"), which provides non-employee directors, officers and other key employees with certain rights to acquire common stock and stock options. The aggregate number of shares available for issuance under the 99 Plan is 900,000 and the shares are to be issued from treasury shares. Any outstanding options granted under the 99 Plan are exercisable at a price not less than market value of the shares on the date of grant. During 2002, 2001 and 2000, there were 35,706, 35,147 and 94,962, respectively, shares of restricted stock issued under the 99 Plan and subject to restriction provisions. The restrictions lapse in up to a three-year period from the date of grant. The weighted average fair value of the restricted stock issued during 2002, 2001 and 2000 was $11.62, $8.82 and $5.99. The shares are subject to forfeiture under certain circumstances. Unearned compensation, representing the fair market value of the shares at the date of issuance, is amortized to expense on a straight-line basis over the vesting period. At December 31, 2002 and 2001, 165,154 and 207,298 remaining shares and options within the Plan were reserved for grant, respectively. Compensation expense for all restricted stock was $715,000, $749,000 and $851,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Information on stock options follows:
Number of Weighted Average Options Exercise Price Exercise Price ---------- -------------- ---------------- Outstanding at 12/31/99 ............. 1,046,313 4.000-9.188 5.82 Granted ........................ 83,270 5.750-6.000 5.89 Exercised ...................... 30,768 4.000-6.250 4.64 Cancelled or forfeited ......... 32,300 6.000-6.000 6.00 Expired ........................ -- -- -- --------- ------------- ----- Outstanding at 12/31/00 ............. 1,066,515 4.000-9.125 5.87 --------- ------------- ----- Granted ........................ 89,429 8.550-8.850 8.77 Exercised ...................... 44,587 5.375-9.125 6.68 Cancelled or forfeited ......... -- -- -- Expired ........................ 15,147 6.250-9.125 8.03 --------- ------------- ----- Outstanding at 12/31/01 ............. 1,096,210 4.000-9.125 6.04 --------- ------------- ----- Granted ........................ 79,131 11.450-14.200 12.08 Exercised ...................... 220,630 4.000-9.125 4.38 Cancelled or forfeited ......... 14,697 6.000-8.850 7.47 Expired ........................ 5,023 7.938-9.125 8.19 --------- ------------- ----- Outstanding at 12/31/02.............. 934,991 5.000-14.200 6.90 --------- ------------- ----- Exercisable.......................... December 31, 2000 .............. 380,712 4.000-9.125 5.21 December 31, 2001 .............. 544,905 4.000-9.125 5.51 December 31, 2002 .............. 543,777 5.000-9.125 6.25
29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Outstanding options have an original term of up to ten years, are exercisable in installments over two to four years, and expire beginning in 2002. The weighted average remaining contractual life of the options outstanding at December 31, 2002 is six years. 6. Income Taxes The income tax provision consists of:
2002 2001 2000 ---- ---- ---- ($000) Current: Federal ................................... $1,499 $4,426 $4,259 State ..................................... 407 251 122 Deferred: Federal .................................... 3,639 1,380 (1,244) State ...................................... 163 58 (36) ------ ------ ------ $5,708 $6,115 $3,101 ====== ====== ======
The differences between the federal statutory tax rate in 2002, 2001 and 2000 and the effective tax rates were as follows:
2002 2001 2000 ---- ---- ---- ($000) Statutory federal tax provision ....................... $5,328 $5,707 $2,840 State income taxes, net of federal income tax benefit . 492 235 88 Non-deductible items .................................. 68 249 249 Other ................................................. (180) (76) (76) ------ ------ ------ $5,708 $6,115 $3,101 ====== ====== ======
Principal items comprising deferred income tax liabilities and assets as of December 31, 2002 and 2001 are:
2002 2001 ---- ---- ($000) Deferred tax liabilities: Depreciation ................................... $49,432 $44,791 Prepaid expenses ............................... 2,037 1,562 ------- ------- 51,469 46,353 ------- ------- Deferred tax assets: Reserves and accruals .......................... 10,134 8,820 ------- ------- 10,134 8,820 ------- ------- Net deferred tax liabilities .......................... $41,335 $37,533 ======= =======
30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Retirement Plans Most of the shoreside employees participate in a qualified defined benefit retirement plan of Maritrans Inc. Substantially all of the seagoing supervisors who were supervisors in 1984, or who were hired as or promoted into supervisory roles between 1984 and 1998 have pension benefits under the Company's retirement plan for that period of time. Beginning in 1999, the seagoing supervisors retirement benefits are provided through contributions to an industry-wide, multi-employer seaman's pension plan. Upon retirement, those seagoing supervisors will be provided with retirement benefits from the Company's plan for service periods between 1984 and 1998, and from the multi-employer seaman's plan for other covered periods. Net periodic pension cost was determined under the projected unit credit actuarial method. Pension benefits are primarily based on years of service and begin to vest after two years. Employees who are members of unions participating in Maritrans' collective bargaining agreements are not eligible to participate in the qualified defined benefit retirement plan of Maritrans Inc. The following table sets forth changes in the plan's benefit obligation, changes in plan assets and the plan's funded status as of December 31, 2002 and 2001:
2002 2001 ---- ---- ($000) Change in benefit obligation Benefit obligation at beginning of year......................... $ 26,156 $ 25,282 Service cost.................................................... 505 513 Interest cost................................................... 1,772 1,665 Actuarial loss.................................................. 540 -- Benefits paid................................................... (1,507) (1,304) -------- -------- Benefit obligation at end of year............................... $ 27,466 $ 26,156 -------- -------- Change in plan assets Fair value of plan assets at beginning of year.................. $ 29,114 $ 31,168 Actual return on plan assets.................................... (2,222) (750) Benefits paid................................................... (1,507) (1,304) -------- -------- Fair value of plan assets at end of year........................ $ 25,385 $ 29,114 -------- -------- Funded status................................................... (2,081) 2,958 Unrecognized net actuarial gain................................. (1,970) (7,070) Unrecognized prior service cost................................. 1,329 1,398 Unrecognized net (asset)/obligation............................. -- -- -------- -------- Accrued benefit cost............................................ ($ 2,722) ($ 2,714) ======== ======== Weighted average assumptions as of December 31, 2002 Discount rate................................................... 6.75% 6.75% Expected rate of return......................................... 6.75% 6.75% Rate of compensation increase................................... 5.00% 5.00%
Net periodic pension cost included the following components for the years ended December 31,
2002 2001 2000 ---- ---- ---- ($000) Components of net periodic benefit pension cost Service cost of current period .................... $ 505 $ 513 $ 489 Interest cost on projected benefit obligation ..... 1,772 1,665 1,606 Expected return on plan assets..................... (2,006) (2,062) (2,025) Amortization of net (asset)/obligation ............ -- (204) (204) Amortization of prior service cost................. 138 132 132 Recognized net actuarial (gain)/loss............... (401) (597) (540) ------ ------- ------- Net periodic pension cost ......................... $ 8 ($ 553) ($ 542) ====== ======= ========
31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Substantially all of the shoreside employees participate in a qualified defined contribution plan. Contributions under the plan are determined annually by the Board of Directors of Maritrans Inc. and were $132,000, $256,000 and $375,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Approximately 51 percent of the Company's employees are covered under collective bargaining agreements. Beginning in 1999, all of the Company's seagoing employee retirement benefits are provided through contributions to industry-wide, multi-employer seaman's pension plans. Prior to 1999, the seagoing supervisors were included in the Company's retirement plan as discussed above. Contributions to industry-wide, multi-employer seamen's pension plans, which cover substantially all seagoing personnel, were approximately $997,000, $940,000 and $1,029,000 for the years ended December 31, 2002, 2001 and 2000, respectively. These contributions include funding for current service costs and amortization of prior service costs of the various plans over periods of 30 to 40 years. The pension trusts and union agreements provide that contributions be made at a contractually determined rate per man-day worked. Maritrans Inc. and its subsidiaries are not administrators of the multi-employer seamen's pension plans. 8. Debt Long term debt is as follows:
December 31, 2002 2001 ---- ---- ($000) Term loan, graduated quarterly payments, maturity date January 2007, variable interest rate (3.64% at December 31, 2002) ..................................... $ 41,250 $ 36,000 Revolving credit facility with Citizens Bank variable interest rate ................ 27,500 -- Vessel notes payable, no stated interest rate (interest imputed at a rate of 6.5%) repaid in 2002 ................................................................. -- 2,545 Vessel notes payable, variable interest rate (5.48% at December 31, 2001) repaid in 2002 ........................................................................ -- 4,443 ------- ------- 68,750 42,988 Less current portion ............................................................... 5,750 10,738 ------- ------- $63,000 $32,250 ======= =======
In October 2001, the Company paid off the Fleet Mortgage that was part of the original indebtedness incurred when the Company became a public company in 1987. The Company recorded an extraordinary charge of $2.5 million, net of taxes, or approximately $0.24 per share diluted, in prepayment penalties and the write-off of unamortized financing costs related to the refinanced debt during the fourth quarter as a result of the repayment. In November 2001, the Company entered into an $85 million credit and security agreement ("Credit Facility") with Citizens Bank (formerly Mellon Bank N.A.) and a syndicate of other financial institutions ("Lenders"). Pursuant to the terms of the Credit Facility, the Company could borrow up to $45 million of term loans and up to $40 million under a revolving credit facility. Interest is variable based on either the LIBOR rate plus an applicable margin (as defined) or at prime rate. Principal payments on the term loans are required on a quarterly basis and began in April 2002. The Credit Facility expires in November 2007, at which time all amounts are due. The Company has granted first preferred ship mortgages and a first security interest in some of the Company's vessels and other collateral to the Lenders as a guarantee of the Credit Facility. At December 31, 2002, there was $41.3 million of term loans outstanding under the Credit Facility and $27.5 million outstanding under the revolving line of credit. 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Credit Facility requires the Company to maintain its properties in good condition, maintain specified insurance on its properties and business, and abide by other covenants, which are customary with respect to such borrowings. The Credit Facility also requires the Company to meet certain financial covenants. The Company was in compliance with all applicable covenants at December 31, 2002. The maturity schedule for outstanding indebtedness under existing debt agreements at December 31, 2002 is as follows: ($000) 2003 ......................................... $5,750 2004 ......................................... 7,500 2005 ......................................... 11,000 2006 ......................................... 13,500 2007 ......................................... 31,000 ------- $68,750 ======= 9. Commitments and Contingencies Minimum future rental payments under noncancellable operating leases at December 31, 2002 are as follows: ($000) 2003 ................................... $ 491 2004 ................................... 507 2005 ................................... 457 2006 ................................... 407 2007 ................................... 421 Thereafter ............................. 1,001 ------ $3,284 ====== Total rent expense for all operating leases was $578,000, $582,000, and $584,000 for the years ended December 31, 2002, 2001 and 2000, respectively. In the ordinary course of its business, claims are filed against the Company for alleged damages in connection with its operations. Management is of the opinion that the ultimate outcome of such claims at December 31, 2002 will not have a material adverse effect on the consolidated financial statements. In July 2002, the Company received a $0.5 million litigation award and is included in other income in the consolidated statement of income. The Company is engaged in litigation instituted by a competitor to challenge its double-hull patent. Penn Maritime, Inc. v. Maritrans Inc., was filed in the U.S. District Court for the Eastern District of New York on September 6, 2001. The Plaintiff is seeking damages of $3 million and an injunction restraining Maritrans from enforcing its patent, which if awarded, would have a material adverse effect on the Company. However, management believes the suit to be without merit. Maritrans is challenging the jurisdiction of the Court to hear the matter in New York and upon resolution of the jurisdictional issue, intends to seek affirmative damages from Penn Maritime, Inc. for infringement of its patent as well as other claims arising from the conduct of Penn Maritime, Inc.'s double hull program. In November 2002, the Company awarded a contract to rebuild a fifth large single hull barge, the OCEAN STATES, to a double hull configuration, which is expected to have a total cost of approximately $21 million. The Company intends to finance this project from a combination of internally generated funds and borrowings under the Company's Credit Facility. 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Subsequent Event In December 1999, the Company sold 18 vessels from its Northeast fleet to K-Sea Transportation. The purchaser alleged that the Company breached warranties in the contract of sale pertaining to one of the vessels and initiated binding arbitration to recover damages arising from the alleged breach. The purchaser claimed damages of approximately $1.5 million. On January 24, 2002, the arbitrators ordered the Company to pay $335,000, including pre-judgment interest to K-Sea Transportation. This amount was recorded in other income in the year ended December 31, 2002 consolidated statement of income. 11. Quarterly Financial Data (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- ($000, except per share amounts) 2002 - ---- Revenues .................................. $31,323 $32,468 $ 30,586 $ 34,610 Operating income .......................... 5,311 4,738 2,600 3,955 Net income ................................ 2,957 2,759 1,687 2,111 Basic earnings per share................... $ 0.35 $ 0.35 $ 0.21 $ 0.27 Diluted earnings per share................. $ 0.32 $ 0.32 $ 0.20 $ 0.25 2001 - ---- Revenues .................................. $31,567 $31,834 $ 28,284 $ 31,725 Operating income .......................... 4,897 5,336 2,684 4,895 Income before extraordinary item .......... 2,660 2,954 1,422 3,157 Net income 2,660 2,954 1,422 656 Income before extraordinary item per share. Basic earnings per share................ $ 0.26 $ 0.29 $ 0.14 $ 0.33 Diluted earnings per share.............. $ 0.24 $ 0.28 $ 0.14 $ 0.30
In the fourth quarter of 2001, the Company repaid $33.0 million of long-term debt in advance of its due date. The Company recorded an extraordinary charge of $2.5 million, net of taxes, or approximately $0.24 diluted earnings per share, in prepayment penalties and the write-off of unamortized financing costs related to the refinanced debt in the fourth quarter as a result of the repayment. 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to directors of the Registrant, and information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, is incorporated herein by reference to the Registrant's definitive Proxy Statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission (the "Commission") not later than 120 days after the close of the year ended December 31, 2002, under the captions "Information Regarding Nominees For Election As Directors And Regarding Continuing Directors" and "Section 16(A) Beneficial Ownership Reporting Compliance." The individuals listed below are directors and executive officers of Maritrans Inc. or its subsidiaries.
Name Age(1) Position ---- ------ -------- Stephen A. Van Dyck 59 Chairman of the Board of Directors and Chief Executive Officer Dr. Robert E. Boni (2)(3) 75 Lead Director Dr. Craig E. Dorman (2)(4) 62 Director Frederick C. Haab (2)(3) 65 Director Robert J. Lichtenstein (4) 55 Director Brent A. Stienecker (3) 64 Director Philip J. Doherty 43 President of Maritrans General Partner Inc. Walter T. Bromfield 47 Vice President and Chief Financial Officer Stephen M. Hackett 44 President, Chartering Division of Maritrans Operating Company L.P. Peter G. Nielsen 53 President, Operations Division of Maritrans Operating Company L.P. Janice M. Van Dyck 43 Secretary
(1) As of March 1, 2003 (2) Member of the Compensation Committee (3) Member of the Audit Committee (4) Member of the Nominating Committee 35 In February 2003, the Board of Directors of Maritrans Inc. announced the appointment of Philip J. Doherty to Chief Executive Officer effective April 1, 2003. Stephen A. Van Dyck will continue to be employed by the Company as Chairman of Maritrans Inc. Mr. Van Dyck has been Chairman of the Board and Chief Executive Officer of the Company and its predecessor since April 1987. For the previous year, he was a Senior Vice President - Oil Services, of Sonat Inc. and Chairman of the Boards of the Sonat Marine Group, another predecessor, and Sonat Offshore Drilling Inc. For more than five years prior to April 1986, Mr. Van Dyck was the President and a director of the Sonat Marine Group and Vice President of Sonat Inc. Mr. Van Dyck is a member of the Board of Directors of Amerigas Propane, Inc. Mr. Van Dyck is also the Chairman of the Board and a director of the West of England Ship Owners Mutual Insurance Association (Luxembourg), a mutual insurance association. See "Certain Transactions" in the Proxy Statement. Mr. Doherty is President of Maritrans General Partner Inc., a wholly owned subsidiary of the Company, and has been continuously employed by Maritrans since 1997. Previously, Mr. Doherty was Director of Business Development for Computer Command and Control Company where he had been employed since April 1995. Mr. Bromfield is Vice President and Chief Financial Officer of the Company. Previously, Mr. Bromfield served as Treasurer and Controller of the Company and has been continuously employed in various capacities by Maritrans or its predecessors since 1981. Mr. Hackett is President, Chartering Division of Maritrans Operating Company L.P., a wholly owned subsidiary of the Company, and has been continuously employed in various capacities by Maritrans or its predecessors since 1980. Mr. Nielsen is President, Operations Division of Maritrans Operating Company L.P., a wholly owned subsidiary of the Company and began employment with the Company in 2002. From 2000 to 2002, Mr. Nielsen was Managing Partner of P.G. Nielsen and Company, LLC. From 1998 to 2000, Mr. Nielsen Managing Director at Seabulk Offshore, S.A. From 1996 to 1998, Mr. Nielsen was Director, Project Management at Hvide Marine Inc. Ms. Van Dyck is Secretary of the Company. Previously, Ms. Van Dyck served as Senior Vice President of the Company and has been continuously employed by the Company or its predecessors in various capacities since 1982. Item 11 Executive Compensation* Item 12 Security Ownership of Certain Beneficial Owners and Management* Item 13 Certain Relationships and Related Transactions* *The information required by Item 11, Executive Compensation, by Item 12, Security Ownership of Certain Beneficial Owners and Management, and by Item 13, Certain Relationships and Related Transactions, is incorporated herein by reference to the Proxy Statement under the headings "Compensation of Directors and Executive Officers", "Security Ownership of Certain Beneficial Owners and Management" and "Certain Transactions". Item 14 Controls and Procedures As of December 31, 2002, an evaluation was performed with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2002. There have been no significant changes in the Company's internal controls or other factors that could significantly affect internal controls subsequent to December 31, 2002. 36 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page ---- (a) (1) Financial Statements Report of Independent Certified Public Accountants 19 Maritrans Inc. Consolidated Balance Sheets at December 31, 2002 and 2001 20 Maritrans Inc. Consolidated Statements of Income for the years ended 21 December 31, 2002, 2001 and 2000 Maritrans Inc. Consolidated Statements of Cash Flows for the years ended 22 December 31, 2002, 2001 and 2000 Maritrans Inc. Consolidated Statements of Stockholders' Equity for the years 23 ended December 31, 2002, 2001 and 2000 Notes to the Consolidated Financial Statements 24 (2) Financial Statement Schedules Schedule II Maritrans Inc. Valuation Accounts for the years ended December 43 31, 2002, 2001 and 2000. All other schedules called for under Regulation S-X are not submitted because they are not applicable, not required, or because the required information is not material, or is included in the financial statements or notes thereto. (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended December 31, 2002
37 Exhibits Exhibit Index ------------- 3.1 Certificate of Incorporation of the Registrant, as amended (Incorporated by reference herein to the Exhibit of the same number filed with the Corporation's Post-Effective Amendment No. 1 to Form S-4 Registration Statement No. 33-57378 dated January 26, 1993). 3.2 By Laws of the Registrant, amended and restated February 9, 1999 (Incorporated by reference herein to the Exhibit number in parentheses filed with Maritrans Inc. Annual Report on Form 10-K, dated March 30, 1999 for the fiscal year ended December 31, 1998.). 4.1 Certain instruments with respect to long-term debt of the Registrant or Maritrans Operating Partners L.P., Maritrans Philadelphia Inc. or Maritrans Barge Company which relate to debt that does not exceed 10 percent of the total assets of the Registrant are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K. Maritrans hereby agrees to furnish supplementally to the Securities and Exchange Commission a copy of each such instrument upon request. 4.2 Rights Agreement dated as of August 1, 2002, between Maritrans Inc, and American Stock Transfer and Trust (Incorporated by reference herein to Exhibit 4 filed with the Maritrans Inc. Form 8-K, dated August 1, 2002). 10.4(a) Agreement of Sale dated October 11, 1999 between Maritrans Operating Partners L.P. and K-Sea Transportation LLC (Incorporated by reference herein to Exhibit 10 filed with the Maritrans Inc. Form 8-K, dated December 22, 1999). 10.4(b) Credit and Security Agreement dated November 20, 2001, among Maritrans Inc., the Other Borrowers and Lenders and Mellon Bank N.A. for a term loan up to $45,000,000 and a revolving credit facility up to $40,000,000 (Incorporated by reference herein to Exhibit 10.4(f) filed with the Maritrans Inc. Annual Report on Form 10-K, dated March 15, 2002 for the fiscal year ended December 31, 2001). Executive Compensation Plans and Arrangements 10.5 Severance and Non-Competition Agreement, as amended and restated effective June 30, 2001, between Maritrans General Partner Inc. and Stephen M. Hackett (Incorporated by reference herein to the Exhibit 10.5 filed with the Maritrans Inc. Annual Report on Form 10-K, dated March 15, 2002 for the fiscal year ended December 31, 2001). 10.7 Employment Agreement, as amended and restated effective April 1, 2003 between Maritrans Inc. and Stephen A. Van Dyck. 10.9 Employment, Severance and Non-Competition Agreement, effective December 14, 2001, between Maritrans Inc. and Janice M. Van Dyck (Incorporated by reference herein to the Exhibit 10.9 filed with the Maritrans Inc. Annual Report on Form 10-K, dated March 15, 2002 for the fiscal year ended December 31, 2001). 10.10 Profit Sharing and Savings Plan of Maritrans Inc. as amended and restated effective January 1, 2002. 10.11 Executive Award Plan of Maritrans GP Inc. (Incorporated by reference herein to Exhibit 10.31 filed with the Maritrans Partners L. P. Annual Report on Form 10-K, dated March 29, 1993 for the fiscal year ended December 31, 1992). 10.12 Excess Benefit Plan of Maritrans GP Inc. as amended and restated effective January 1, 1988 (Incorporated by reference herein to Exhibit 10.32 filed with the Maritrans Partners L. P. Annual Report on Form 10-K, dated March 29, 1993 for the fiscal year ended December 31, 1992). 38 10.13 Retirement Plan of Maritrans GP Inc. as amended and restated effective January 1, 2002 10.15 Executive Compensation Plan as amended and restated effective March 18, 1997 (Incorporated by reference herein to Exhibit A of the Registrant's definitive Proxy Statement filed on March 31, 1997). 10.16 1999 Directors Equity and Key Employees Equity Compensation Plan (Incorporated by reference herein to the Exhibit 99.1 filed with the Maritrans Inc. Form S-8 Registration Statement No. 333-79891 dated June 3, 1999). 10.17 Severance and Non-Competition Agreement, as amended and restated effective October 1, 2002, between Maritrans General Partner Inc. and Philip J. Doherty (Incorporated by reference herein to the Exhibit 10.17 filed with the Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 2002 for the quarter ended September 30, 2002). 10.18 Severance and Non-Competition Agreement, as amended and restated effective July 12, 2002, between Maritrans Inc. and Walter T. Bromfield (Incorporated by reference herein to the Exhibit 10.18 filed with the Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 2002 for the quarter ended September 30, 2002). 10.19 Severance and Non-Competition Agreement effective September 25, 2002, between Maritrans General Partner Inc. and Peter G. Nielsen (Incorporated by reference herein to the Exhibit 10.19 filed with the Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 2002 for the quarter ended September 30, 2002). 21.1 Subsidiaries of Maritrans Inc. 23.1 Consent of Independent Certified Public Accountants 99.1 Certification of Chief Executive Officer 99.2 Certification of Chief Financial Officer 39 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. MARITRANS INC. (Registrant) By: /s/ Stephen A. Van Dyck ------------------------------ Stephen A. Van Dyck Chairman of the Board Dated: March 10, 2003 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 dates indicated.
By: /s/ Stephen A. Van Dyck ---------------------------------------- Stephen A. Van Dyck Chairman of the Board and Dated: March 10, 2003 Chief Executive Officer (Principal Executive Officer) By: /s/ Dr. Robert E. Boni ---------------------------------------- Dr. Robert E. Boni Lead Director Dated: March 10, 2003 By: /s/ Dr. Craig E. Dorman ---------------------------------------- Dr. Craig E. Dorman Director Dated: March 10, 2003 By: /s/ Frederick C. Haab ---------------------------------------- Frederick C. Haab Director Dated: March 10, 2003 By: /s/ Robert J. Lichtenstein ---------------------------------------- Robert J. Lichtenstein Director Dated: March 10, 2003 By: /s/ Brent A. Stienecker ---------------------------------------- Brent A. Stienecker Director Dated: March 10, 2003 By: /s/ Walter T. Bromfield ---------------------------------------- Walter T. Bromfield Chief Financial Officer Dated: March 10, 2003 (Principal Financial Officer) By: /s/ Judith M. Cortina ---------------------------------------- Judith M. Cortina Controller Dated: March 10, 2003 (Principal Accounting Officer)
40 CERTIFICATION I, Stephen A. Van Dyck, certify that: 1. I have reviewed this annual report on Form 10-K of Maritrans Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 10, 2003 /s/ Stephen A. Van Dyck ------------------------ Stephen A. Van Dyck Chief Executive Officer 41 CERTIFICATION I, Walter T. Bromfield, certify that: 1. I have reviewed this annual report on Form 10-K of Maritrans Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 10, 2003 /s/ Walter T. Bromfield ------------------------ Walter T. Bromfield Chief Financial Officer 42 MARITRANS INC. SCHEDULE II - VALUATION ACCOUNTS ($000)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD ----------- ---------- ---------- ---------- --------- JANUARY 1 TO DECEMBER 31, 2000 Allowance for doubtful accounts .......... $1,393 $ 77 $ 254(a) $1,216 Allowance for notes receivable............ $4,500 $ -- $ -- $4,500 Accrued shipyard costs ................... $17,403 $10,466 $7,942(b) $19,927 JANUARY 1 TO DECEMBER 31, 2001 Allowance for doubtful accounts .......... $1,216 $(469) $ 57(a) $ 690 Allowance for notes receivable............ $4,500 $ -- $ -- $4,500 Accrued shipyard costs ................... $19,927 $ 7,927 $11,929(b) $15,925 JANUARY 1 TO DECEMBER 31, 2002 Allowance for doubtful accounts .......... $ 690 $ -- $ -- $ 690 Allowance for notes receivable............ $4,500 $ -- $ -- $4,500 Accrued shipyard costs ................... $15,925 $ 12,860 $16,135(b) $12,650
- ------------ (a) Deductions are a result of write-offs of uncollectible accounts receivable for which allowances were previously provided. (b) Deductions reflect expenditures for major periodic overhauls. 43 EX-10 3 ex10-7.txt EXHIBIT 10.7 Exhibit 10.7 EMPLOYMENT AGREEMENT -------------------- Maritrans Inc., a Delaware corporation (the "Company"), and Stephen A. Van Dyck ("Employee") entered into an Employment Agreement (the "Agreement") in October, 1993, which was amended and restated effective as of April 1, 2001 and continues in full force and effect. Employee is presently employed by the Company as its Chairman and Chief Executive Officer. Both parties wish to update the Agreement to reflect Employee's voluntary relinquishments of his position of Chief Executive Officer, effective as of April 1, 2003, and the compensation and benefit arrangements that will be in effect while employed by the Company as its Chairman and to make other desirable and conforming changes. The Agreement is hereby amended and restated, effective as of April 1, 2003; NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. Employment. The Company hereby continues the employment of Employee, and Employee hereby accepts such employment and agrees to perform his duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1. Employment Term. The term of this Agreement (the "Employment Term") shall commence on April 1, 2003 and shall continue for an indefinite period until terminated in accordance with Section 5 or Section 6 hereof. 1.2. Duties and Responsibilities. During the Employment Term, Employee shall serve as the Chairman of the Company and shall perform all duties and accept all responsibilities incident to such position or as otherwise may be assigned to him by the Company's Board of Directors (the "Board") and agreed to by Employee. 1.3. Extent of Service. During the Employment Term, Employee agrees to use his best efforts to carry out his duties and responsibilities under Section 1.2 hereof and, consistent with the other provisions of this Agreement, to devote such attention and energy thereto as is required by his position; provided, however, that Employee shall not be required to transfer to a location outside the metropolitan Tampa area (fifty miles surrounding the Company's principal location as of the date hereof) without Employee's prior written consent. Except as provided in Section 3 hereof, the foregoing shall not be construed as preventing Employee from making minority investments in other businesses or enterprises provided that Employee agrees not to become engaged in any other business activity which may interfere with his ability to discharge his duties and responsibilities to the Company. Except with respect to current engagements, Employee further agrees not to work either on a part time or independent contracting basis for any other business or enterprise during the Employment Term without the prior written consent of the Board. 1.4. Base Salary. (a) For all the services rendered by Employee hereunder, the Company shall pay Employee the basic annual rate of compensation being paid to Employee as of the date hereof for each full year of the Employment Term ("Base Salary"), payable in installments at such times as the Company customarily pays its other senior executives (but in any event no less often than monthly). Employee's Base Salary shall be subject to review and adjustment from time to time, to reflect Employee's then contribution to the Company, by the Board's Compensation Committee pursuant to its normal performance review policies for senior executives but shall not be reduced without Employee's consent. The Company shall be entitled to make proper withholdings from Employee's Base Salary (and all other payments of compensation under this Agreement) as required by law. (b) During the Employment Term, Employee shall also be (i) entitled to participate in such retirement, profit sharing, equity compensation, group insurance, medical and other fringe benefit plans, if any, as may be authorized from time to time by the Board in its sole discretion for any other senior executive of the Company, (ii) provided with reimbursement of expenses related to his employment by the Company on a basis similar to that which may be authorized from time to time by the Board in its sole discretion for senior executives of the Company generally, (iii) entitled to vacation and holidays during the Employment Term in accordance with the Company's normal policy, and (iv) entitled to financial and tax consulting services and an automobile allowance of $750 per month. 2 1.5 Incentive Compensation. Employee shall not participate in any Company annual bonus plan or equity compensation plan but shall be entitled to participate in the Company's cash long-term incentive compensation plan, if any, for senior executives generally. The terms and provisions of such incentive compensation plan shall be determined in the sole discretion of the Board. 1.6 Special Retirement Benefit. Notwithstanding anything herein to the contrary, Employee's retirement benefit under the Company's defined benefit retirement plans, equal to the sum under both the Company's "qualified" plan (the "Retirement Plan") and non-qualified plan (the "Excess Benefit Plan") shall not be less than $300,000, on a pre-tax basis, in the normal form provided under the Retirement Plan, but payable in any actuarially equivalent form permitted under the Retirement Plan, in the event that Employee remains employed at least through his 63rd birthday, except as provided in Sections 5.1 or 5.4(d)(F), and the cost of any additional benefit to be provided, in excess of that otherwise provided by the Retirement Plan, shall be paid by the Company from its general assets, not from the assets of the Retirement Plan, the present value of which shall be contributed, within thirty days after Employee's termination of employment, to the trust maintained for Employee under the Company's Excess Benefit Plan, to the extent the assets of the trust are not then sufficient to provide such additional benefit. 2. Confidential Information. Employee recognizes and acknowledges that by reason of his employment by and service to the Company (both during the Employment Term and before or after it), he has had and will continue to have access to confidential information of the Company and its affiliates, including, without limitation, information and knowledge pertaining to products and services offered, innovations, designs, ideas, plans, trade secrets, proprietary information, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its affiliates and other distributors, customers, clients, suppliers and others who have business dealings with the Company and its affiliates ("Confidential Information"). Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that he will not, either during or after the Employment Term, disclose any such Confidential Information to any person for any reason whatsoever without the prior written authorization of the Board, unless such information is in the public domain through no fault of Employee or except as may be required by law. 3 3. Non-Competition. (a) During the Employment Term and for a period of two years thereafter, Employee will not, unless acting pursuant hereto or with the prior written consent of the Board, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with or use or permit his name to be used in connection with, any business or enterprise engaged in a geographic area in which the Company or any of its affiliates is operating either during the Employment Term or on the date Employee's employment terminates, as applicable, presently on the East Coast of the United States or at any port in the Gulf of Mexico (whether or not such business is physically located within those areas) (the "Geographic Area"), in any business that is competitive to a business from which the Company or any of its affiliates derive at least five percent of its respective gross revenues either during the Employment Term or on the date Employee's employment terminates, as applicable. It is recognized by Employee that the business of the Company and its affiliates and Employee's connection therewith is or will be involved in activity throughout the Geographic Area, and that more limited geographical limitations on this non-competition covenant are therefore not appropriate. In addition, Employee agrees that he will not, for a period of two years after the expiration or termination of the Employee's employment with the Company, unless such termination follows a Change of Control, as defined below, without the prior written consent of the Company, whether directly or indirectly, employ, whether as an employee, officer, director, agent, consultant or independent contractor, or solicit the employment of, any managerial or higher level person who is or at any time during the previous twelve months was an employee, representative, officer or director of the Company or any of its affiliates. 4 (b) The foregoing restriction shall not be construed to prohibit the ownership by Employee of less than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934, provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising his rights as a shareholder, or seeks to do any of the foregoing. 4. Equitable Relief. (a) Employee acknowledges that the restrictions contained in Sections 2 and 3 hereof are reasonable and necessary to protect the legitimate interests of the Company and its affiliates, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to the Company. Employee represents that his experience and capabilities are such that the restrictions contained in Section 3 hereof will not prevent Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as anticipated by this Agreement. Employee further represents and acknowledges that (i) he has been advised by the Company to consult his own legal counsel in respect of this Agreement, and (ii) that he has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with his counsel. (b) Employee agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 2 or 3 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. 5 (c) Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 2 or 3 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief or other equitable relief, may be brought in the United States District Court in Florida, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Tampa, Florida, (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waives any objection which Employee may have to the laying of venue of any such suit, action or proceeding in any such court. Employee also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 10 hereof. (d) Employee agrees that he will provide, and that the Company may similarly provide, a copy of Sections 2 and 3 hereof to any business or enterprise (i) which he may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, control or control of, or (ii) with which he may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which he may use or permit his name to be used; provided, however, that this provision shall not apply in respect of Section 3 hereof after expiration of the time period set forth therein. 5. Termination. The Employment Term shall terminate upon the occurrence of any one of the following events: 6 5.1. Disability. The Company may terminate the Employment Term if Employee is unable fully to perform his duties and responsibilities hereunder to the full extent required by the Board by reason of illness, injury or incapacity for six consecutive months, or for more than six months in the aggregate during any period of twelve calendar months. In such event, the Company shall have no further liability or obligation to Employee under this Agreement; provided, however, that Employee shall continue to receive his Base Salary and a continuation of all welfare and pension and profit sharing benefits for twenty four months thereafter, less the payments prescribed under any disability benefit plan which may be in effect for senior officers of the Company and in which he participated, plus his incentive compensation, as referred to in Section 1.5 hereof, for such twenty-four month period at the target percentage level in effect for the year during which Employee first became disabled and entitlement to the Special Retirement Benefit under Section 1.6, if not otherwise already eligible, beginning at age 63; and provided, further, that if the amount that actually would have been earned under the Company's cash long-term incentive compensation plan in any of the relevant fiscal years of the Company is less than the full target then the amount due hereunder shall be reduced to such amount. Employee agrees, in the event of any dispute under this Section 5.1, to submit to a physical examination by a licensed physician selected by the Board. 5.2. Death. The Employment Term shall terminate in the event of Employee's death. In such event, the Company shall pay to Employee's executors, legal representatives or administrators, as applicable, an amount equal to the installment of his Base Salary set forth in Section 1.4 hereof for the month in which he dies, and, thereafter, the Company shall have no further liability or obligation under this Agreement to his executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through him; provided, however, that Employee's estate or designated beneficiaries shall be entitled to receive (i) the payments prescribed for such recipients under any death benefit plan which may be in effect for executives of the Company, generally, (ii) a life insurance benefit in an amount equal to $2.0 million, and (iii) a pro rata portion of the cash long-term incentive compensation, if any, as referred to in Section 1.5 hereof, in respect of the year during which Employee died. 5.3. Cause. The Company may terminate the Employment Term, at any time, for "cause" upon thirty days' written notice, in which event all liabilities and obligations of the Company under this Agreement shall cease, except for payment of Base Salary to the extent already accrued. For purposes of this Agreement, Employee's employment may be terminated for "cause" if he engages in gross misconduct, material dishonesty, deliberate and premeditated acts against the interest of the Company, which has a material and adverse effect on the Company's business, materially fails to perform or observe any of the terms or provisions of this Agreement or is convicted of a felony. 7 5.4. Other Terminations. (a) Employee may terminate the Employment Term upon thirty days prior written notice to the Company if the Company fails to fulfill any of the material terms and provisions hereof including the failure to pay Employee any amounts payable hereunder within ten business days after the same shall be due and payable (and has not cured any such failure by the end of the notice period) including the transfer of Employee to a location outside of the metropolitan Tampa area without his consent. In any such case, the Employment Term shall end immediately and Employee retains all rights to enforce this Agreement. (b) The Company may remove Employee without cause from the position in which he is employed hereunder at any time upon written notice in which case the Employment Term shall end immediately upon the giving of such notice. (c) Upon any such termination or removal under either clause (a) or (b), Employee shall be entitled to receive, as liquidated damages for the failure of the Company to continue to employ Employee, only the amount due to Employee under the Company's then severance pay plan for employees. No other payments or benefits shall be due under this Agreement to Employee and the Company shall have no further liability or obligation. (d) Notwithstanding subparagraph (c), in the event that Employee executes a written release, substantially in the form attached hereto as Exhibit A, but subject to such reasonable changes as counsel to the Company may recommend from time to time that are approved by Employee, such approval not to be unreasonably withheld, of any and all claims against the Company and all related parties with respect to all matters arising out of Employee's employment by the Company (other than his entitlement under any employee benefit plan or 8 program sponsored by the Company in which he participated and under which he has accrued a benefit), and the termination thereof, Employee shall receive, in lieu of the payment described in subparagraph (c) hereof, which Employee agrees to waive, (i) a lump sum payment equal to twelve months of Employee's Base Salary, (ii) a lump sum payment equal to the cash long-term incentive compensation, as referred to in Section 1.5 hereof, for such twelve month period at the target percentage level in effect for the year during which Employee terminates this Agreement in accordance herewith or is removed, and (iii)(A) appropriate senior executive level outplacement services for 18 months or until Employee secures and accepts a new position, if sooner, (B) service credit, for purposes of determining the vesting of any cash long-term incentive compensation cycles then in effect, for an additional thirty-six months, (C) a lump sum payment equal to the amount of benefits he would have received under the Company's profit sharing and savings plan for such thirty-six month period, (D) a monthly amount (together with a tax equalization payment) for thirty six months equal to the premium due under the Company's health benefit plan, (E) continuation of death and disability benefits for thirty six months at the level in effect at the time of such termination or removal (or a cash payment sufficient to replace such benefits), (F) treated as if he had continued in employment until, and were then, age 63 under the Retirement Plan (but such additional benefit, if any, to be provided by the Company from its general assets, not from the assets of the Retirement Plan, and contributed, within thirty days after Employee's termination, to the trust maintained for Employee under the Excess Benefit Plan); and (G) in exchange for Employee's undertakings under Section 3 hereof, (i) a lump sum payment equal to twenty-four months of Employee's Base Salary, and (ii) a lump sum payment equal to the cash long-term incentive compensation, as referred to in Section 1.5 hereof, for such twenty-four month period at the target percentage level in effect for the year during which Employee terminates this Agreement in accordance herewith or is removed. No other payments or benefits shall be due under this Agreement to Employee and the Company shall have no further liability or obligation. All monies due Employee shall be paid to Employee within thirty days after his termination or removal. 9 (e) Employee may voluntarily terminate the Employment Term upon thirty days' prior written notice for any reason; provided, however, that no further payments or benefits shall be due under this Agreement to Employee in that event and the Company shall have no further liability or obligation except for Employee's rights under those retirement benefit plans (pension, profit sharing, etc) maintained by the Company and in which Employee participated and is owed a benefit. 5.5 No Mitigation. Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise. 6. Payments Upon a Change in Control. 6.1. Definitions. For all purposes of this Section 6, the following terms shall have the meanings specified in this Section 6.1 unless the context clearly otherwise requires: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) "Base Compensation" shall mean the average of Employee's Base Salary for the three completed fiscal years of the Company ending immediately prior to the Change of Control. (c) "Beneficial Owner" of any securities shall mean: (i) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange; 10 (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of any security under this subsection (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) where voting securities are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subsection (ii) above) or disposing of any voting securities of the Company; provided, however, that nothing in this subsection (c) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. 11 (d) "Change of Control" shall be deemed to have taken place if (i) any Person (except the Company or any employee benefit plan of the Company or of any Affiliate, any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, shall become the Beneficial Owner in the aggregate of 20% or more of the common stock then outstanding of Maritrans Inc.); provided, however, that no "Change of Control" shall be deemed to occur during any period in which any such Person, and its Affiliates and Associates, are bound by the terms of a standstill agreement under which such parties have agreed not to acquire more than 30% of the Common Stock of Maritrans Inc. then outstanding or to solicit proxies, (ii) the Company sells substantially all of its assets or the Company's stockholders approve its liquidation, or (iii) during any twenty-four month period, individuals who at the beginning of such period constituted the Board of Directors of Maritrans Inc. cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by the shareholders of Maritrans Inc., of at least seventy-five percent of the directors who were not directors at the beginning of such period was approved by a vote of at least seventy-five percent of the directors in office at the time of such election or nomination who were directors at the beginning of such period. (e) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following Employee's 68th birthday. (f) "Person" shall mean any individual, firm, corporation, partnership or other entity. (g) "Termination Date" shall mean the date of receipt of a Notice of Termination of this Agreement or any later date specified therein, as the case may be. (h) "Termination of Employment" shall mean the termination of Employee's actual employment relationship with the Company. 12 (i) "Termination upon a Change of Control" shall mean a Termination of Employment upon or within two years after a Change of Control or six months prior to a Change of Control, and it is reasonably demonstrated by Employee that such Termination of Employment was the result of the request of a third party who has taken steps reasonably calculated to effect the Change of Control or otherwise arose in connection with or in anticipation of the Change of Control, either: (i) initiated by the Company for any reason other than (x) the Employee's disability, as described in Section 5.1 hereof, (y) death, or (z) for "cause," as described in Section 5.3 hereof, or (ii) initiated by the Employee upon any of the following occurrences: (A) a transfer of Employee, without his express written consent, to a location that is outside the metropolitan Tampa area (as defined in Section 1.3 hereof), or the general area in which his principal place of business immediately preceding the Change of Control may be located at such time if other than metropolitan Tampa; (B) any failure of the Company to comply with and satisfy any of the terms of this Agreement; (C) any significant reduction by the Company of the authority, duties or responsibilities of Employee; (D) any removal by the Company of Employee from the employment grade, compensation level or officer or director positions which he holds as of the effective date hereof; (E) the requirement that Employee undertake business travel to an extent substantially greater than is reasonable and customary for the position he holds pursuant hereto; or (F) the good faith determination by Employee that due to any change in circumstances with the Company that directly or indirectly affect Employee's position, duties or responsibilities or status as in effect immediately preceding his Termination Date he is no longer able effectively to discharge his duties and responsibilities. 13 6.2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for a Termination of Employment and the applicable provision hereof, and (iii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not be more than 15 days after the giving of such notice). 6.3. Severance Compensation upon Termination. (a) Subject to adjustment as provided in paragraph (b) below, in the event of Employee's Termination upon a Change of Control, in the event that Employee executes a written release, substantially in the form attached hereto as Exhibit A, but subject to such reasonable changes as counsel to the Company may recommend from time to time and approved by Employee, such approval not to be unreasonably withheld, of any and all claims against the Company and all related parties with respect to all matters arising out of Employee's employment by the Company (other than his entitlement under any employee benefit plan or program sponsored by the Company in which he participated and under which he has accrued a benefit), and the termination thereof, Employee shall receive all amounts and benefits provided by Section 5.4(d), in accordance with the terms and conditions of that Section, based upon (i) Employee's Base Compensation instead of Employee's Base Salary and (ii) pre-Change of Control benefits, if those benefits were more favorable to Employee. (b) In the event Employee's Normal Retirement Date would occur prior to twenty-four months after the Termination Date, the aggregate cash amount determined as set forth in (a) above shall be reduced by multiplying it by a fraction, the numerator of which shall be the number of days from the Termination Date to Employee's Normal Retirement Date and the denominator of which shall be 730. 14 6.4. Other Payments. In the event of Employee's Termination upon a Change of Control, the Company shall also pay to Employee within fifteen days after the Termination Date, to the extent not theretofore paid, Employee's Base Salary through the Termination Date and a further amount equal to Employee's Base Salary in lieu of his unused vacation pay, if any, both calculated at the rate in effect on the Termination Date or, if higher, at the highest rate in effect at any time within the 90-day period preceding the Termination Date; 6.5. Enforcement. (a) In the event that the Company shall fail or refuse to make payment of any amounts due Employee hereunder within the appropriate time period, the Company shall pay to Employee, in addition to the payment of any other sums provided in this Agreement, interest, compounded daily, on any amount remaining unpaid from the date payment is required until paid to Employee, at the rate from time to time announced by Mellon Bank (East) as its "prime rate" plus 2%, each change in such rate to take effect on the effective date of the change in such prime rate. (b) It is the intent of the parties that Employee not be required to incur any expenses associated with the enforcement of his rights under this Agreement by arbitration, litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, the Company shall pay Employee on demand the amount necessary to reimburse Employee in full for all expenses (including all attorneys' fees and legal expenses) incurred by Employee in enforcing any of the obligations of the Company under this Section. 6.6. No Mitigation. Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise. 15 6.7. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee's continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company or any Affiliate and for which Employee may qualify; provided, however, that if Employee becomes entitled to and receives all of the payments provided for in this Agreement, Employee agrees to waive his right to receive payments under any severance plan or similar program applicable to all employees of the Company. 6.8. No Set-Off. The Company's obligation to make the payments provided for in this Section 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 Employee or others. 6.9. Certain Increases of Payments. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payment"), would constitute an "excess parachute payment " within the meaning of Section 280G of the Code, Employee shall be paid an additional amount (the "Gross-Up Payment") such that the net amount retained by Employee after deduction of any excise tax imposed under Section 4999 of the Code, and any federal, state and local income and employment tax and excise tax imposed upon the Gross-Up Payment shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Employee's residence (or, if greater, the state and locality in which Employee is required to file a nonresident income tax return with respect to the Payment) on the Termination Date, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes. 16 (b) All determinations to be made under this Section 6.9 shall be made by the Company's independent public accountant immediately prior to the Change of Control (the "Accounting Firm"), which firm shall provide its determinations and any supporting calculations both to the Company and Employee within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and Employee. Within five days after the Accounting Firm's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of Employee such amounts as are then due to Employee under this Agreement. (c) Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the thirty day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and 17 (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax, income tax or employment tax, including interest and penalties, with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6.9, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearing and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a termination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided further, however, that if the Company directs Employee to pay such claim and sue for a refund the Company shall advance the amount of such payment to Employee, on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax, income tax or employment tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.(d) If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section, Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's 18 complying with the requirements of this Section) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to subsections (b) and (c) above, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm. (f) Following a Change of Control and for a period of not less than three years after the Date of Termination, Employee shall be entitled to indemnification and, to the extent available on commercially reasonable terms, insurance coverage therefore, with respect to the various liabilities as to which Employee has been customarily indemnified prior to the Change of Control. 6.10. Settlement of All Disputes. (a) The Company and Employee mutually consent to the resolution by arbitration, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, to be held in Tampa, Florida, of all claims or controversies arising out of Employee's employment (or its termination) that the Company may have against Employee or that Employee may have against the Company or against its officers, directors, shareholders, employees or agents in their capacity as such other than a claim which is primarily for an injunction or other equitable relief. The Company shall pay the fees and costs of the arbitrator and all other costs in connection with any arbitration, including reasonable legal fee and expenses. 19 (b) The party or parties challenging the right of Employee to the benefits of this Agreement shall in all circumstances have the burden of proof. 6.11. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation, exchange or otherwise) to all or substantially all of the business or assets of the Company or its Affiliates as of the date hereof, by agreement in form and substance satisfactory to Employee, to acknowledge expressly that this Agreement is binding upon and enforceable against the Company in accordance with the terms hereof, and to become jointly and severally obligated with the Company to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of the Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business or assets (or that of its Affiliates as of the date hereof), jointly and severally. 7. Survival. Notwithstanding the termination of the Employment Term or this Agreement, Employee's obligations under Sections 2 and 3 hereof shall, except to the extent otherwise provided herein, survive and remain in full force and effect for the periods therein provided, and the provisions for equitable relief against Employee in Section 4 hereof shall continue in force. 8. Governing Law. This Agreement shall be governed by and interpreted under the laws of the state of Florida without giving effect to any conflict of laws provisions. 9. Litigation Expenses. Except as provided in Section 6.5 above, in the event of a lawsuit by either party to enforce the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 20 10. Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: ---------------------- Maritrans Inc. Two Harbour Place 302 Knights Run Ave., Suite 1200 Tampa, FL 33602 With a required copy to: ------------------------ Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103-6993 Attention: Robert J. Lichtenstein, Esquire If to Employee, to: ------------------- Stephen A. Van Dyck 1131 Abbeys Way Tampa, FL, 33602 or to such other names or addresses as the Company or Employee, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 11. Contents of Agreement; Amendment and Assignment. ----------------------------------------------- (a) This Agreement supersedes all prior agreements and sets forth the entire understanding among the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer. (b) Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement or to create express or implied obligations of any nature to Employee. 21 (c) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. 12. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 13. Remedies Cumulative; No Waiver. No remedy conferred upon the Company by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company from time to time and as often as may be deemed expedient or necessary by the Company in its sole discretion. 14. Miscellaneous. All section headings are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 22 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement on the date first above written. MARITRANS INC. Attest: [SEAL] /s/ Arthur J. Volkle By /s/Walter T. Bromfield - -------------------- ---------------------- Asst. Secretary Name: W. Bromfield Title: VP & CFO Witness: /s/ Paula Bradford /s/ Stephen A. Van Dyck ------------------- STEPHEN A. VAN DYCK 23 EX-10 4 ex10-10.txt EXHIBIT 10.10 Exhibit 10.10 PROFIT SHARING AND SAVINGS PLAN OF MARITRANS INC. (as amended and restated effective January 1, 2002 with amendments effective through January 1, 2003)
Table of Contents Page ---- ARTICLE I ADOPTION OF PLAN...............................................................................1 ARTICLE II DEFINITIONS....................................................................................2 ARTICLE III ELIGIBILITY...................................................................................11 ARTICLE IV CONTRIBUTIONS.................................................................................12 ARTICLE V ALLOCATIONS OF CONTRIBUTIONS..................................................................17 ARTICLE VI INVESTMENT DIRECTIONS.........................................................................20 ARTICLE VII VESTING.......................................................................................22 ARTICLE VIII DISTRIBUTION OF BENEFITS......................................................................24 ARTICLE IX LIFE INSURANCE................................................................................27 ARTICLE X WITHDRAWALS AND LOANS.........................................................................28 ARTICLE XI SPECIAL PROVISIONS FOR TOP-HEAVY PLANS........................................................31 ARTICLE XII ADMINISTRATION AND FIDUCIARY RESPONSIBILITY...................................................34 ARTICLE XIII AMENDMENT OF PLAN.............................................................................37 ARTICLE XIV TERMINATION OF PLAN...........................................................................38 ARTICLE XV MISCELLANEOUS.................................................................................39 SCHEDULE A PROVISIONS PERTAINING TO MARITANK INC. AND MARISPOND INC. PARTICIPANTS........................41 i
ARTICLE I ADOPTION OF PLAN Sonat Marine Inc. adopted the Performance Retirement Plan of Sonat Marine Inc. (the "Plan") for the benefit of its eligible employees effective January 1, 1985. The Plan continued the benefits provided under the revised Profit Sharing Plan of IOT Corporation and Subsidiary Corporations. As a result of the purchase of the assets of the Sonat Marine Group by Maritrans Operating Partners L.P., sponsorship of the Plan was transferred to Maritrans GP Inc., effective April 14, 1987, and the Plan name was changed to the Profit Sharing Plan of Maritrans GP Inc. Effective January 1, 1988, the Plan was amended and restated in its entirety to incorporate all amendments and to comply with the Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1986. Effective April 1, 1993, in connection with a change in business structure, the sponsorship of the Plan was transferred to Maritrans Inc. and the name of the Plan was changed to the Profit Sharing Plan of Maritrans Inc. Effective December 31, 1993, the Plan was amended and restated in its entirety to reflect the merger of the Maritrans Inc. 401(k) Savings Plan (the "Savings Plan") with and into the Plan. As a result of the merger, the Plan name was changed to the Profit Sharing and Savings Plan of Maritrans Inc. Effective January 1, 1994, the Plan was amended and restated in its entirety to comply with legislative requirements and to incorporate all previous amendments (effective through January 1, 1995). Effective January 1, 1997 (except as otherwise provided herein), the Plan was amended and restated in its entirety to incorporate recent amendments and to comply with applicable provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, and the Taxpayer Relief Act of 1997. Effective January 1, 2002 (except as otherwise provided herein), the Plan was amended and restated, to incorporate recent amendments and to reflect applicable provisions of the Community Renewal and Tax Relief Act of 2000, the IRS Restructuring and Reform Act of 1998, required and optional provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), required minimum distributions, and certain provisions of final regulations issued by the Department of Labor with respect to claims administration; provided, however, that the Plan as amended and restated herein, shall apply in general only to an Employee who terminates employment on or after January 1, 2002. This Plan is intended to meet the requirements for good faith compliance with EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. The Plan is now amended and restated to incorporate final regulations issued by the Department of Treasury regarding required minimum distributions, to transfer certain powers to the Retirement Plans Committee, and to incorporate various administrative changes. The rights and benefits, if any, of a former Employee shall be determined in accordance with the provisions of the Plan in effect on the date the former Employee's employment terminated. 1 ARTICLE II DEFINITIONS Whenever used herein the following words and phrases shall have the meaning set forth below unless a different meaning is plainly required by the context. The singular shall include or mean the plural and the masculine pronoun shall include or mean the feminine pronoun, where applicable. Section 2.1. "Account" shall mean the accounts maintained under the Plan for each Participant which represent the Participant's interest in the Fund. The term "Account" shall refer, as the context indicates, to any or all of the following: (a) "Employer Contribution Account" -- the Account to which are credited Employer Contributions allocated to a Participant, adjustments for withdrawals and distributions, and earnings, losses and expenses attributable thereto. (b) "Rollover Account" -- the Account to which are credited a Participant's rollover contributions pursuant to Section 4.8 and Section 4.9 of the Plan. (c) "Salary Reduction Contribution Account" -- the Account to which are credited Salary Reduction Contributions and Catch-up Contributions, allocated to a Participant, adjustments for withdrawals and distributions, and the earnings, losses and expenses attributable thereto. Section 2.2. "Affiliated Company" shall mean (a) any entity which, with any Employer, constitutes (1) a "controlled group of corporations" within the meaning of section 414(b) of the Code, (2) a "group of trades or businesses under common control" within the meaning of section 414(c) of the Code, or (3) an "affiliated service group" within the meaning of section 414(n) of the Code; or (b) is required to be aggregated with any Employer pursuant to Treasury regulations under Section 414(o) of the Code. An entity shall be considered an Affiliated Company only with respect to such period as the relationship described in the preceding sentence exists. When the term "Affiliated Company" is used in Section 5.5 or Section 5.6 of the Plan, sections 414(b) and (c) of the Code shall be deemed modified by application of the provisions of Section 415(h) of the Code, which substitutes the phrase "more than 50 percent" for the phrase "at least 80 percent" in section 1563(a)(l) of the Code, which is then incorporated by reference in sections 414(b) and (c) of the Code. Section 2.3. "Anniversary Date" shall mean the first day of each Plan Year during which the Plan is in effect. Section 2.4. "Board" shall mean the Board of Directors of the Company. Section 2.5. "Break in Service" shall mean any 12-consecutive month period beginning on an Employee's Date of Severance and each anniversary thereof during which an Employee fails to perform an Hour of Service. An Employee who is absent from work for maternity or paternity reasons shall not be treated as having incurred a Break in Service during the 12-consecutive month period beginning on the first anniversary of the first date of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. In order for this paragraph to apply, an Employee shall provide to the Committee, in the form and manner prescribed by the Committee, information establishing (a) that the absence from work is for reasons set forth in this paragraph, and (b) the number of days for which there was such an absence. Nothing in this Section shall be interpreted as an expansion or modification of any policy of the Employer regarding maternity and paternity leave. 2 Section 2.6. "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. Section 2.7. "Committee" shall mean the Retirement Plans Committee appointed by the Board to assist in administration of the Plan in accordance with Articles XII and XIII. Section 2.8. "Common Stock" shall mean the common stock of Maritrans Inc. without any rights that may have been issued with respect thereto. Section 2.9. "Company" shall mean Maritrans Inc., a Delaware corporation with its principal office in Philadelphia, Pennsylvania and any successor thereto that adopts the Plan. Section 2.10. "Compensation" shall mean, for purposes of Section 5.1 and Section 5.4 of the Plan, the annual base earnings paid by the Employer or Participating Employer to an Employee during the portion of a Plan Year in which he is eligible to participate in the Plan, including all amounts which the Employee elects to defer under the provisions of a Code section 125 plan or a cash or deferred arrangement maintained by the Employer, and, for Plan Years beginning after January 1, 2001, amounts excluded under section 132(f) of the Code. Compensation shall include bonuses and overtime pay, but shall not include fringe benefits or severance pay. Notwithstanding the foregoing, for purposes of determining the amount of a Participant's Salary Reduction Contributions pursuant to Section 4.5, Compensation shall mean the annual base earnings paid by the Employer or Participating Employer to an Employee during the portion of a Plan Year in which he is eligible to participate in the Plan, including all amounts which the Employee elects to defer under the provisions of a Code section 125 plan or a cash or deferred arrangement maintained by the Employer, and, for Plan Years beginning after January 1, 2001, amounts excluded under section 132(f) of the Code, but excluding bonuses, fringe benefits and severance pay. Compensation taken into account under the Plan shall not exceed the dollar limitation in effect under section 401(a)(17) of the Code (effective January 1, 2002, $200,000) with respect to any Plan Year. Section 2.11. "Compensation Committee" shall mean the Compensation Committee of the Board. Section 2.12. "Date of Employment" shall mean the first day on which an Employee performs an Hour of Service. Section 2.13. "Date of Reemployment" shall mean the first day on which an Employee performs an Hour of Service after incurring a Break in Service. Section 2.14. "Date of Severance" shall mean the earliest of: (a) the date on which an Employee quits, is discharged, retires or dies; (b) the date on which an individual ceases to be an Employee by reason of the sale or other disposition of the stock of a subsidiary or of assets constituting a separate trade or business with the Employees of the subsidiary or business, who were covered by the Plan, continuing to work for that subsidiary or business; or 3 (c) the first anniversary of an Employee's absence from Service for any reason other than quit, discharge, retirement or death. Notwithstanding the foregoing, if the Employee is absent for a period of Qualified Military Service, the Employee shall not be considered to have had a Date of Severance provided that the absent Employee is reemployed by the Employer or an Affiliated Company within the time during which his or her right to reemployment is protected by applicable law. Section 2.15. "Disability" shall mean a physical or mental condition that restricts the Participant's ability to work and qualifies him for disability benefits under the Social Security Act. Section 2.16. "Earliest Retirement Age" shall mean, for purposes of Section 2.399, the earlier of (a) the date on which the Participant is entitled to a distribution under the Plan; or (b) the later of (i) the date the Participant attains age 50, or (ii) the earliest date on which, under the Plan, the Participant could elect to receive benefits if the Participant incurred a Date of Severance. Section 2.17. "Effective Date" shall mean January 1, 1994 for the amended and restated Plan as set forth herein. The original effective date of the Plan is January 1, 1981. Section 2.18. "Eligibility Computation Period" shall mean the 12-month period beginning on an Employee's Date of Employment or Date or Reemployment, whichever is applicable, and each anniversary thereof. Section 2.19. "Employee" shall mean any person who is employed by the Employer or a Participating Employer. However, no such person shall be considered an Employee under this Plan for any period during which such Employee is (a) covered by a collective bargaining agreement (unless that collective bargaining agreement provides for participation in the Plan); (b) a leased employee within the meaning of section 414(n)(2) or 414(o) of the Code; (c) a non-resident alien who receives no compensation from sources within the United States (within the meaning of Code section 861(a)(3)); or (d) classified by the Company as a "temporary" employee. For this purpose, a temporary employee is an individual who may be called by the Employer or a Participating Employer for employment on a non-scheduled and non-recurring basis or to work on a specific project for a designated length of time. (a) In addition, no person whose duties are primarily seagoing shall be considered an Employee under this Plan; provided, however, that on or after August 15, 1984, any person who is a seagoing supervisor and who is not covered by a collective bargaining agreement shall be considered an Employee under this Plan as of August 15, 1984, or, if later, the date on which the collective bargaining agreement covering such seagoing supervisor expires. (b) Notwithstanding subsection (a), effective on or after January 1, 1997, any person who is a seagoing supervisor shall not be considered an Employee under this Plan if such person's retirement benefits are provided by the American Maritime Officers 401(k) Plan. (c) The term "Employee" shall not include any person characterized by the Employer or an Affiliated Company as an "independent contractor" or any other person who is not treated by the Employer or the Affiliated Company as an employee for purposes of withholding federal employment taxes, regardless of any contrary Internal Revenue Service, governmental or judicial determination relating to such employment status or tax withholding. In the event that a person is engaged in an independent contractor or similar capacity and is subsequently classified by the Employer, an Affiliated Company, the Internal Revenue Service or a court as an employee, such person, for purposes of this Plan, shall be deemed an Employee from the actual (and not the effective) date of such classification. 4 (d) Other categories of employees may be excluded from the definition of Employee only by specific direction set forth in the Adoption Agreement of a Participating Employer. Section 2.20. "Employer" shall mean the Company and each Participating Employer, either singularly or collectively, as required by the context. Section 2.21. "Employer Contributions" shall mean monies paid into the Fund on behalf of a Participant by the Employer in accordance with Article IV. Section 2.22. "Entry Date" shall mean as soon as administratively practicable following the first day of the month coinciding with or next following the day on which an Employee is eligible to become a Participant in accordance with Section 3.1 but no later than the earlier of: the first day of the next Plan Year or six months following the date of eligibility. Section 2.23. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. Section 2.24. Fiduciary" shall mean the individuals, corporation or other entity which has consented to be responsible for administration of any part of the Plan including, but not limited to, the Employer, the Committee, the Trustee and, if any, the Investment Advisor but only with respect to the specific responsibilities assigned to each as described in Article XII. The term "Fiduciary" shall also include any other person properly authorized, in accordance with Committee rules, by any of the aforementioned persons to deal with Fund assets, for purposes of the Plan, but only with respect to the scope of the authority so delegated. Section 2.25. "415 Compensation" shall mean a Participant's remuneration including wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the Plan including overtime, bonuses, premium time, etc., but excluding the following: (a) contributions made by the Employer to a deferred compensation plan which, without regard to section 415 of the Code, are not includable in the Participant's gross income for the taxable year in which contributed; (b) Employer contributions made on behalf of a Participant to a simplified employee pension to the extent they are deductible by the Participant under section 219(b)(7) of the Code; (c) distributions from a deferred compensation plan (except from an unfunded non-qualified plan when includable in gross income); (d) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; 5 (e) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; or (f) other amounts which receive special tax benefits, such as premiums for group term life insurance (to the extent excludable from gross income) or Employer contributions towards the purchase of an annuity contract described in section 403(b) of the Code. Notwithstanding the foregoing, effective January 1, 1998, 415 Compensation shall include all elective deferrals (as defined in section 402(g)(3) of the Code), as well as any other amounts contributed or deferred by the Employer at the election of the Employee which are excluded from the gross income of the Employee under section 125 or 457 of the Code, and for Plan Years beginning after January 1, 2001, amounts excluded under section 132(f) of the Code. Section 2.26. "Fund" shall mean the assets held by the Trustee from contributions made by the Employer and Participating Employers, including income, gains and losses thereon, as the source of benefits under this Plan. Section 2.27. "Highly Compensated Employee" means any employee who either: (a) is a 5% owner (as defined in Code section 416(i)(1)) at any time during the Plan Year for which Highly Compensated Employees are being identified or the preceding Plan Year; or (b) with respect to the Plan Year preceding the Plan Year for which Highly Compensated Employees are being identified both (1) had 415 Compensation in excess of the dollar amount under Code section 414(1)(1)(B)(i), as in effect for such Plan Year, and (2) was in the top 20% of all Employees when ranked on the basis of 415 Compensation. (c) A former employee shall be treated as a Highly Compensated Employee, if such employee was a Highly Compensated Employee while an active employee in either the Plan Year in which such employee separated from service or in any Plan Year ending after his 55th birthday. (d) The determination of Highly Compensated Employee made pursuant to this Section shall be made in accordance with section 414(q) of the Code and the regulations issued thereunder. Section 2.28. "Hour of Service" shall mean (a) each hour for which an employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliated Company; (b) each hour for which an employee is paid, or entitled to payment, by the Employer or an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacations, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this Section to any employee on account of any single continuous period during which such employee performs no duties (whether or not such period occurs in a single Plan Year). For purposes of this Section, a payment shall be deemed to be made by or due from the Employer or an Affiliated Company regardless of whether such payment is made by or due from the Employer or an Affiliated Company directly or through, among others, a trust fund (other than the Fund), or insurer, to which the Employer or an Affiliated Company contributes or pays premiums and regardless of whether contributions made or due from such trust fund (other than the Fund), insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate; and 6 (c) each hour for which an employee is absent for Qualified Military Service, provided the employee returns to Service with the Employer or an Affiliated Company within the time period during which the employee's right to reemployment is protected by applicable law. (d) each hour for which back-pay, irrespective of mitigation of damages, has either been awarded or agreed to by the Employer or an Affiliated Company. In the event that the same hours could, by the terms of this Section, be credited under more than one paragraph of this Section, such hours shall be credited as provided in paragraph (a) or (b) only, whichever is applicable. (e) Hours of Service shall be credited pursuant to the provisions of 29 CFR 2530.200b-2(b) and (c), which are incorporated herein by reference. Nothing in this Section shall be construed to deny an employee credit for an Hour of Service if credit is required by federal statute other than ERISA. In applying such other federal statutes, the nature and extent of such credit shall be governed by such other federal law. (f) For purposes of Sections 2.52(c), 3.1 and 5.1 only, Hours of Service shall be credited in accordance with paragraphs (a), (b), (c), (d) and (e) of this Section 2.288. For all other purposes of the Plan, Hours of Service shall be credited only in accordance with paragraph (a) of this Section 2.288. (g) Notwithstanding the foregoing, the following individuals shall receive credit for Hours of Service for purposes of Section 3.1 of the Plan: (i) individuals who are employed by the Employer and are represented by a collective bargaining agent; and (ii) leased employees within the meaning of section 414(n)(2) of the Code, unless section 414(n)(5) of the Code applies. Section 2.29. "Investment Advisor" shall mean an adviser which is (a) registered under the "Investment Advisers Act of 1940," (b) a bank, or (c) an insurance company qualified to perform investment services in more than one State, which is appointed by the Compensation Committee to render investment advice as provided in Article XII hereof and which acknowledges in writing its status as a Fiduciary under the Plan. Section 2.30. "Investment Fund" shall mean any one of the funds comprising the Fund, as designated from time to time by the Compensation Committee. Notwithstanding the foregoing, the available Investment Funds shall at all times include at a minimum three Investment Funds in addition to the Stock Fund. Section 2.31. "Merger Effective Date" shall mean close of business December 31, 1993, the effective date of the merger of the Maritrans Inc. Savings Plan with and into the Plan. Section 2.32. "Net Profits" shall mean the Employer's, or a Participating Employer's, net income for any fiscal year or its accumulated income from prior years determined in accordance with standard accounting practices regularly employed by the Employer, or Participating Employer, in maintaining its books of account. In the case of a current year, Net Profits shall be determined without deduction for federal, state or local taxes based upon net income or for contributions made by the Employer, or Participating Employers, under this Plan. 7 Section 2.33. "Non-Highly Compensated Employee" shall mean an Employee who is not a Highly Compensated Employee. Section 2.34. "Normal Retirement Age" shall mean age 65. "Normal Retirement Date" shall mean the first day of the month coinciding with or next following an Employee's attainment of Normal Retirement Age. Section 2.35. "Participant" shall mean any Employee qualifying for participation in accordance with Article III hereof. A person shall cease to be a Participant when he and any beneficiary of his no longer have rights to any benefits under the Plan. "Maritank Inc. Participant" shall mean any person participating in the Plan by reason of his employment as an Employee of Maritank Inc. "Marispond Inc. Participant" shall mean, effective on or after July 1, 1994 and prior to January 1, 1995, any person participating in the Plan by reason of his employment as an Employee of Marispond Inc. Section 2.36. "Participating Employer" shall mean any Affiliated Company which is designated by the Board as a Participating Employer under the Plan and whose designation as such has become effective upon acceptance of such status by the Board of Directors of the Affiliated Company. A Participating Employer may revoke its acceptance of such designation at any time, but until such acceptance has been revoked, all of the provisions of the Plan and amendments thereto shall apply to the Employees of the Participating Employer. In the event the designation as a Participating Employer is revoked by the Board of Directors of such Participating Employer, the Plan shall be deemed terminated only as to such Participating Employer. Section 2.37. "Plan" shall mean the Profit Sharing and Savings Plan of Maritrans Inc. and its related Trust Agreement, as the same may be amended from time to time. Section 2.38. "Plan Year" shall mean the period from January 1 through December 31 for any year in which the Plan is in effect. Section 2.39. "Qualified Domestic Relations Order" shall mean a judgment, decree or order (including approval of a property settlement agreement) made pursuant to a state domestic relations law (including a community property law) which: (a) relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant (the "Alternate Payee"); (b) creates or recognizes the existence of the Alternate Payee's right to, or assigns to the Alternate Payee the right to, receive all or a portion of the benefits payable to a Participant under this Plan; (c) specifies (i) the name and last known mailing address (if any) of the Participant and each Alternate Payee covered by the order, (ii) the amount or percentage of the Participant's Plan benefits to be paid to the Alternate Payee, or the manner in which such amount or percentage is to be determined, and (iii) the number of payments or the period to which the order applies and each plan to which the order relates; and 8 (d) does not require the Plan to (i) provide any type or form of benefit, or any option not otherwise provided under the Plan, (ii) provide increased benefits, or (iii) pay benefits to the Alternate Payee that are required to be paid to another Alternate Payee under a prior Qualified Domestic Relations Order. Notwithstanding the foregoing, a Qualified Domestic Relations Order may provide that distribution commence on or after the date on which the Participant attains, or would have attained his Earliest Retirement Age regardless of whether the Participant has incurred a Date of Termination on that date, if the Order directs (i) that the payment of the benefits be determined as if the Participant had retired on the date on which payment is to begin under such Order, taking into account only the balance standing to the Participant's credit in his Accounts on such date, and (ii) that the payment be made in a form in which such benefits may be paid under the Plan to the Participant. Section 2.40. "Qualified Military Service" shall mean service in the uniformed service (as defined in chapter 43 of title 38, United States Code) by any employee if such employee is entitled to reemployment rights under such chapter with respect to such service. Section 2.41. "Required Distribution Date" shall mean: (a) in the case of a Participant who is a 5% owner (within the meaning of Code section 416(i)) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70-1/2, April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2; and (b) in the case of a Participant who is not a 5% owner, as described above, April 1 of the calendar year following the later of (i) the calendar year in which the Participant attains age 70-1/2, or (ii) the calendar year in which the Participant has a Date of Severance. Notwithstanding the foregoing, in the case of a Participant who attained age 70-1/2 prior to January 1, 1999 and who is not a 5% owner, as described above, Required Distribution Date shall mean April 1 of the calendar year following the calendar year in which the Participant attained age 70-1/2. Section 2.42. "Salary Reduction Contributions" shall mean Basic Contributions and Catch-up Contributions (as such terms are defined in Section 4.5) paid into the Fund for a Participant pursuant to Article IV, in a manner intended to satisfy the requirements of sections 401(k) and 414(v) of the Code. Section 2.43. "Service" shall mean all periods of active employment with the Employer or an Affiliated Company commencing on the Employee's Date of Employment or Date of Reemployment, whichever is applicable, and ending on his Date of Severance. Service shall also include all periods of Severance during which an Employee does not incur a Break in Service. In addition, "Service" shall also include all periods during which an individual is (i) employed by the Employer and is represented by a collective bargaining agent; or (ii) rendering services to the Employer as a leased employees within the meaning of section 414(n)(2) of the Code, unless section 414(n)(5) of the Code applies. For purposes of vesting under the Plan, Participants who are former employees of Computer Command and Control Company ("CCCC"), and who transferred to employment with the Employer or a Participating Employer on or before March 31, 1997, shall be credited with Service under the Plan for all periods of active employment with CCCC prior to March 31, 1997; provided, however, that no more than 5 years of Service shall be credited pursuant to this paragraph. Section 2.44. "Severance" shall mean the period of time commencing on an Employee's Date of Severance and ending on the date on which the Employee again performs an Hour of Service. 9 Section 2.45. "Spouse" shall mean the husband or wife of a Participant who is married to that Participant on the date on which the payments to the Participant are to begin as provided in the Plan or on the date Spousal consent is necessary under Section 8.4; provided, that a former spouse shall be treated as a Spouse to the extent required under a Qualified Domestic Relations Order. Section 2.46. "Stock" shall mean either Common Stock or rights or a combination of Common Stock and rights, as the case may be. Section 2.47. "Stock Fund" shall mean an Investment Fund invested solely in Stock. The availability of the Stock Fund as an Investment Fund shall be determined by the Compensation Committee. Section 2.48. "Trust Agreement" shall mean the separate written agreement adopted as a part of the Plan which sets forth the provisions under which the Trustee shall manage the Fund. Section 2.49. "Trustee" shall mean the bank or trust company or the individuals designated by the Employer to administer the Fund in accordance with this Plan as provided herein. Section 2.50. "Valuation Date" shall mean each business day of the Plan Year on which the fair market value of the Fund shall be determined. Section 2.51. "Years of Service" shall mean the number of whole years of an Employee's Service whether or not such years were completed consecutively. (a) For Eligibility Computation Periods ending after January 1 1985, an Employee shall be credited with one Year of Service for each 12 months of Service he completes. Less than whole year periods of Service, whether or not consecutive, shall be aggregated on the basis that 12 months of Service (30 days are deemed to be a month in the case of the aggregation of fractional months) equal one Year of Service. (b) For Eligibility Computation Periods completed prior to January 1, 1985, an Employee shall be credited with all of the Years of Service credited to him under the Plan as in effect on December 31, 1984. (c) In addition, for purposes of determining an employee's eligibility and vesting, Years of Service shall include each period of Qualified Military Service served by the employee, provided that the employee is reemployed by the Employer or an Affiliated Company within the time during which the employee's right to reemployment is protected by applicable law. (d) If an Employee incurs a Date of Severance and, prior to the occurrence of a Break in Service, the Employee performs an Hour of Service for the Employer or any Affiliated Company, Years of Service shall also include the period between the Date of Severance and the date on which such Hour of Service is performed. (e) In the case of any Participant who has incurred a Date of Severance but who is reemployed after incurring 5 consecutive Breaks in Service, Years of Service after such 5-year period shall not be taken into account for the purposes of determining the vested interest attributable to Employer Contributions made before such 5-year period. 10 (f) In the case of a Participant who has incurred a Date of Severance and who does not have any vested interest in his Account at such Date, Years of Service before any consecutive Breaks in Service shall not be taken into account in determining Years of Service after such Breaks if the number of consecutive Breaks in Service equals or exceeds the greater of (i) 5 or (ii) the aggregate number of Years of Service prior to such Periods. Such aggregate number of Years of Service shall be deemed not to include any Years of Service not required to be taken into account under this Section by reason of any prior Break in Service. For purposes of determining an Employee's eligibility to participate in the Plan under Section 3.1 and his vested percentage under Section 7.1, Years of Service shall include all years of employment with the Employer or an Affiliated Company whether or not the employee qualified as an Employee during those years. 11 ARTICLE III ELIGIBILITY Section 3.1. Eligibility to Participate. (a) General Requirements. All Employees who were Participants in the Plan prior to January 1, 1997 shall continue to participate herein. (b) Employer Contributions. Employees shall be eligible to participate in the Plan for the purpose of receiving Employer Contributions under Section 4.1 on the Entry Date coinciding with or next succeeding their completion of 1,000 Hours of Service in an Eligibility Computation Period and attainment of age 21. Any Employee eligible to participate in the Plan shall automatically become a Participant as provided in this subsection (b) and may not waive benefits provided pursuant to this subsection (b) or elect not to participate in the Plan. (c) Salary Reduction Contributions. (i) Each Employee who is classified as a regular, full-time Employee in the Employer's personnel records shall be eligible to participate in the Plan for the purpose of making Salary Reduction Contributions on the date coinciding with his Date of Employment. (ii) Each Employee who is classified as other than a regular, full-time Employee shall be eligible to participate in the Plan for the purpose of making Salary Reduction Contributions on the later of his Date of Employment or the date on which he attains age 21. An Employee must give direction in the manner prescribed by the Committee with respect to the Investment Fund(s) in which Salary Reduction Contributions are to be invested in order to be eligible to participate under this subsection (c). Section 3.2. Required Information. All eligible individuals must furnish the Committee with such information as it may reasonably request in accordance with the uniform procedures established by the Committee and announced to the Employees. Section 3.3. Change of Job Classification and Transfers. In the event a change of job classification or a transfer to an Affiliated Company results in a Participant no longer qualifying as an Employee, such employee shall cease to be a Participant as of the effective date of such change of job classification or transfer, but the employee shall not be deemed to have incurred a Date of Severance. If the Affiliated Company maintains a qualified retirement plan which permits the transfer of a Participant's Accounts from this Plan to such plan, such Participant, upon notice in the form and at the time prescribed by the Committee, may elect to have the value of his Accounts transferred to such other Plan; provided, however, that the Committee, in its sole discretion, may refuse to allow a transfer if such transfer would violate the provisions of section 411(d)(6) of the Code and the regulations thereunder. Section 3.4. Re-entry. If a Participant incurs a Break in Service and once again qualifies to participate in the Plan, he shall become a Participant on the first day following such Break in Service on which he performs an Hour of Service. If a terminated Employee, who had qualified for participation hereunder, incurs a Break in Service and is subsequently rehired by the Employer, he shall become a Participant on his Date of Reemployment. If a terminated Employee, who had not qualified for participation hereunder, is subsequently rehired by the Employer, he shall be eligible to participate as provided in Section 3.1 as if he had not been previously employed by the Employer. 12 ARTICLE IV CONTRIBUTIONS Section 4.1. Contributions by Employer. For each Plan Year, the Employer shall contribute to the Fund so much of its Net Profits as the Board may authorize and direct. All such contributions shall be held and administered by the Trustee as a part of the Fund according to the terms of the Trust Agreement. Notwithstanding any other provisions of this Section, Employer Contributions for any Plan Year shall not exceed the maximum amount deductible by the Employer for such Plan Year under the provisions of section 404 of the Code taking into account Salary Reduction Contributions under Section 4.5. Except as expressly provided herein, these Employer Contributions shall be irrevocable. All amounts contributed hereunder shall be conditioned on their deductibility. Section 4.2. Determination of Employer Contributions. The Board shall determine the amount of any Employer Contributions to be made to the Fund under the terms of this Plan. In determining such Employer Contributions, the Board shall be entitled to rely upon computations of its Net Profits made by independent public accountants regularly employed by it or made by the Employer's comptroller or treasurer. The determination shall be final and conclusive and shall not be subject to change as the result of any subsequent audit by the Internal Revenue Service or as the result of any subsequent adjustment of the Employer's books of account. The Trustee shall have no duty to inquire into the amount of the Employer's annual Contribution or the method used in determining the amount of the Employer Contribution, but shall be accountable only for funds received by it. Section 4.3. Time and Payment of Employer Contributions. Employer Contributions shall be determined on a quarterly basis. Such amounts shall be paid over to the Trustees within the time prescribed by law, including any extensions of such time, for the filing of the Employer's federal income tax return for such year. Section 4.4. Form of Employer Contributions. Employer Contributions will be in cash. Section 4.5. Salary Reduction Contributions. Participants are not required to make Salary Reduction Contributions hereunder. A Participant may make an election, in the manner prescribed by the Committee, to reduce Compensation and make Salary Reduction Contributions in accordance with the provisions of this Section, which election shall become effective, at the time prescribed by the Committee. Notwithstanding the foregoing, the Committee, in its sole discretion, may unilaterally amend or revoke a Participant's election at any time, or, for eligible Participants, recharacterize Basic Contributions as Catch-up Contributions under subsection (b) to the extent permitted by section 414(v) of the Code and regulations issued thereunder if the Committee determines that Basic Contributions to such Participant's Salary Reduction Contribution Account would otherwise exceed the limitations of Section 5.4. In addition, the Committee may increase the rate of Basic Contributions or limit the amount of Basic Contributions for any Plan Year on a nondiscriminatory basis. (a) Basic Contributions. A Participant's Basic Contributions into the Fund shall be in the aggregate at the rate of 2% through 12% (in whole percentages only), increased to 75% as of January 1, 2003, of the Compensation, otherwise payable to the Participant. Notwithstanding the foregoing, effective January 1, 2002, a Participant's Basic Contributions into the Fund shall be limited to $8,750, increased to $10,000 effective September 1, 2002 and to $12,000, effective January 1, 2003, or such other amount as the Committee shall specify in the Plan. 13 (b) Catch-up Contributions. Effective November 1, 2002, a Participant who has attained, or will attain, age 50 prior to the end of a Plan Year may make, by a separate election, in the manner prescribed by the Committee, Catch-up Contributions (in whole percentages only) provided, however, that (i) Catch-up Contributions shall not be treated as contributed pursuant to this subsection (b) unless the Participant is unable to make additional Basic Contributions for the Plan Year under subsection (a) due to limitations imposed by the Plan or applicable federal law and (ii) the amount contributed pursuant to this subsection (b) for any Plan Year and, to the extent required by Treasury regulation's, any other elective deferrals contributed on the Participant's behalf pursuant to section 414(v) of the Code for a Plan Year shall not exceed the lesser of (A) $1,000 (or such other amount as may be applicable under section 414(v) of the Code) or (B) the excess of the Participant's Compensation (as defined in Section 2.10) for the Plan Year over the Basic Contributions contributed on the Participant's behalf under subsection (a) above for the Plan Year. Catch-up Contributions for the Plan Year under this subsection (b) shall not be subject to the limitations described in Section 4.5(c), Section 5.4, and Section 5.5. (c) Limitation on Salary Reduction Contributions. Notwithstanding anything contained herein to the contrary, a Participant's total Salary Reduction Contributions under the Plan, excluding Catch-up Contributions made under section 414(v) of the Code, together with elective deferrals (as defined in section 402(g) of the Code) under any other plan or arrangement maintained by the Employer or an Affiliated Company shall not exceed $7,000 (or such other amount as is applicable for a calendar year under section 402(g) of the Code and the regulations issued thereunder) for any calendar year. Furthermore, should a Participant claim that his Salary Reduction Contributions under the Plan (reduced by Salary Reduction Contributions previously distributed pursuant to Section 4.7 or returned to the Participant pursuant to Section 5.4(c)) when added to his other elective deferrals under any other plan or arrangement (whether or not maintained by the Employer or an Affiliated Company) exceed the limit imposed by section 402(g) of the Code for the calendar year in which the deferrals occurred, the Participant shall allocate to the Plan or to such other qualified cash or deferred arrangement the excess deferrals. The Committee, notwithstanding any other provision of the Plan, shall distribute, by April 15 of the following calendar year, the amount of the Salary Reduction Contributions specified in the Participant's claim as of the end of the Plan Year plus income thereon from the end of the Plan Year to the date of distribution. The Participant's claim shall be in writing and should be submitted to the Committee no later than the March 1 following the calendar year in which such deferrals occurred. Notwithstanding anything in this Section 4.5 to the contrary, a Participant shall be deemed to have made a claim for distribution of excess elective deferrals from the Plan to the extent that his Salary Reduction Contributions, excluding Catch-up Contributions contributed pursuant to SubSection 4.5(b) of the Plan, together with his elective deferrals under any other plan or arrangement maintained by the Employer or an Affiliated Company exceed the limit imposed by section 402(g) of the Code for the calendar year. (d) Participant Agreement. Amounts representing a Participant's Basic and Catch-up Contributions shall be deducted from payrolls pursuant to a salary reduction agreement between the Employer and the Participant, and such amounts shall, not less frequently than monthly, be paid into the Fund. (e) Suspension or Change in Rates of Basic Contributions and/or Catch-up Contributions. A Participant may suspend or change the rate of his Basic Contributions and/or Catch-up Contributions by submitting a request, in the manner and at the time prescribed by the Committee. The Participant shall be allowed to resume making Basic Contributions in the manner and in the time prescribed by the Committee, in its sole discretion which shall be exercised in a uniform and nondiscriminatory manner. A Participant may change the rate at which he makes Basic Contributions and Catch-up Contributions in the manner and at the time prescribed by the Committee; provided, however, that a Participant whose Compensation is decreased may reduce such rate as of the effective date of such decrease. All Basic Contributions and Catch-up Contributions by a Participant shall be suspended without any request on his part for any month in which he is on leave of absence without Compensation. 14 (f) Records. All Salary Reduction Contributions transferred to the Trustee under the Plan shall be accompanied by instructions from the Committee to the Trustee that: (i) identify the Participant on whose behalf the Salary Reduction Contribution is being made; and (ii) direct the investment of the Salary Reduction Contribution in accordance with the Participant's investment directions pursuant to Article VI. Section 4.6. Expenses of the Plan. All normal expenses incurred in the operation and administration of the Plan, including the Trustee's compensation, shall be paid by the Fund, unless at the election of the Employer such expenses are paid by the Employer. However, extraordinary expenses incurred on behalf of a particular Participant shall, upon determination by the Committee, be charged against the Participant's Accounts. Section 4.7. Return of Contributions. All Contributions under the Plan are conditioned upon the deductibility of such Contributions under section 404 of the Code and, to the extent the deduction is disallowed, shall be returned to the Employer within one year after the disallowance of the deduction. The Employer shall pay amounts attributable to Salary Reduction Contributions thereby returned to it to the appropriate Participants as soon as practicable thereafter. Notwithstanding the foregoing, the maximum amount which may be returned shall be the value of the Salary Reduction Contributions on the date they are returned. In the event that, with respect to any Plan Year, the deductibility of all Contributions under the Plan by the Employer would be limited under section 404 of the Code, the Committee shall reduce the rate of Contribution which may be made to the Plan to the extent necessary to permit full utilization of the deduction from the prior year. Contributions shall be held in trust for the exclusive benefit of Participants and their beneficiaries and may not, except as otherwise provided herein, revert to the Employer. Notwithstanding the foregoing, if the Employer so directs, the Trustee shall return to the Employer that part of the Employer Contribution for any Plan Year which is made under a mistake of fact or which is conditioned on the deductibility of such Contribution, which deduction is subsequently disallowed. The amount of the Employer Contribution which may be returned to the Employer shall not exceed the excess of (a) the amount contributed over (b) the amount that would have been contributed if there had not occurred a mistake of fact or a mistake in determining the deduction. Such amount must be returned to the Employer within one year from the date of such mistaken contribution or disallowance of deduction. Earnings attributable to any excess Employer Contribution may not be returned to the Employer but losses attributable thereto shall reduce the amount returned. Further, if withdrawal of the amount attributable to the mistaken Employer Contribution would cause the balance of any Participant's individual Account to be reduced to less than the balance which would have been in the Account had the mistaken amount not been contributed, then the amount to be returned to the Employer hereunder shall be limited so as to avoid such reduction. Section 4.8. Rollovers and Transfers from Qualified Plans. With the approval of the Committee, an Employee (regardless of whether he has met the eligibility requirements of Article III) may deposit into a Rollover Account all or any portion of the amount of cash received as a distribution from another qualified trust forming a part of a plan described in section 401(a) of the Code or from an individual retirement program described in section 408 (or, on or after January 1, 2002, arrangements described in sections 403, or 457) of the Code, but only if the deposit qualifies as a tax-free rollover as defined in section 402, (or on or after January 1, 2002, sections 403, or 457) of the Code, as applicable, provided, however that the Plan shall not accept a rollover of after-tax contributions. If the deposit does not qualify as a tax-free rollover, the deposit shall be refunded to the Employee. In addition to the foregoing, and with the approval of the Committee, the Trustee may accept on behalf of any Employee an amount of cash or property transferred directly from another qualified trust forming part of a qualified plan described in section 401(a) of the Code and such amount of cash or property shall be deposited into a Rollover Account for such Employee. The Committee shall have the right to refuse to accept the transferred amount if such receipt would cause this Plan to be subject to the provisions of sections 401(a)(11) and 417 of the Code with respect to such Employee. Rollovers and transferred amounts shall be made in cash and shall be invested in accordance with the provisions of Article VI. An Employee who is not a Participant shall be treated as a Participant with respect to his Rollover Account for purposes of valuations, investments and distributions. 15 Section 4.9. Merger of Maritrans Inc. 401(k) Savings Plan. Notwithstanding the foregoing Section 4.8, effective on the Merger Effective Date, all assets held under the Maritrans Inc. 401(k) Savings Plan were transferred to the Fund and merged with the assets of the Plan. All benefits payable after the Merger Effective Date from the Maritrans Inc. 401(k) Savings Plan shall be payable from the Fund under the Plan. With respect to each Participant who had an account under the Maritrans Inc. 401(k) Savings Plan on the Merger Effective Date, the Participant's contribution account under such Savings Plan was transferred to his Salary Reduction Contribution Account under the Plan, and the Participant's rollover account under the Savings Plan was transferred to his Rollover Account under the Plan. Section 4.10. Qualified Military Service. Notwithstanding any provision of this Plan to the contrary, contributions with respect to Qualified Military Service will be provided in accordance with section 414(u) of the Code, as follows: (a) Employer Contributions. The Employer shall make Employer Contributions on behalf of a reemployed Participant pursuant to Section 4.1, provided the Participant would be entitled to share in such contributions pursuant to Section 5.1 had the Participant not been in Qualified Military Service. (b) Salary Reduction Contributions. The Employer shall permit a reemployed Participant to make additional Salary Reduction Contributions, pursuant to Section 4.5, during the period which begins on the date of the reemployment of such Participant and has the same length as the lesser of (i) the product of 3 and the period of Qualified Military Service which resulted in such rights, and (ii) 5 years. The amount of additional Salary Reduction Contributions permitted under this subsection (b) is the maximum amount of the Salary Reduction Contributions that the Participant would have been permitted to make under the Plan during the period of Qualified Military Service if the Participant had continued to be employed by the Employer during such period and received compensation as determined under subsection (e). Proper adjustment shall be made to the amount determined under the preceding sentence for any Salary Reduction Contributions actually made during the period of such Qualified Military Service. 16 (c) Matching Contributions. With respect to Matching Contributions as provided under Schedule A prior to January 1, 1995, the Employer shall make a Matching Contribution on behalf of a Participant with respect to any additional Salary Reduction Contributions made by the Participant pursuant to subsection (b) on the same basis Matching Contributions would have been made under Section F. of SCHEDULE A had such Salary Reduction Contributions actually been made during the period of Qualified Military Service. (d) Limitation on Crediting of Earnings and Forfeitures. Nothing in this Section 4.10 shall be construed as requiring (i) any crediting of earnings to a Participant with respect to any Employer Contribution, Salary Reduction Contribution, Matching Contribution (made prior to January 1, 1995), or Catch-up Contribution before such contribution is actually made, or (ii) any allocation of any forfeiture with respect to the period of Qualified Military Service. (e) Compensation. For purposes of this Section 4.10, a reemployed Participant shall be treated as receiving compensation during a period of Qualified Military Service equal to -- (i) the compensation the Participant would have received during such period if the Participant were not in Qualified Military Service, determined based on the rate of pay the Participant would have received from the Employer but for absence during the period of Qualified Military Service, or (ii) if the compensation the Participant would have received during such period was not reasonably certain, the Participant's average Compensation during the 12-month period immediately preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service). (f) Inapplicability of Certain Limitations. If any contributions are made by a Participant or the Employer in accordance with this Section 4.10: (i) any such contribution shall not be subject to any otherwise applicable limitation contained in, and the Plan shall not be treated as failing to meet the requirements of, Section 4.5(c), Section 5.4, Section 5.5 or ARTICLE XI, as well as Sections G., H., I., and J. shall not be taken into account in applying such limitations to other contributions or benefits under the Plan with respect to the year in which the contribution is made; and (ii) any such contribution shall be subject to the limitations referred to in subparagraph (f)(1), to the extent required by sections 414(u) and 414(v) of the Code, with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary of the Treasury). 17 ARTICLE V ALLOCATIONS OF CONTRIBUTIONS Section 5.1. Allocation of Employer Contributions. Employer Contributions for each Plan Year shall be totaled and shall then be apportioned among and allocated to the Employer Contribution Account established and maintained by the Committee for each Participant. The Employer Contribution Account of each Participant who has completed 1,000 Hours of Service during the Plan Year for which the Employer Contribution is made (and, effective for Plan Years commencing on and after January 1, 1996 but prior to January 1, 2000, who is an Employee on the last day of the Plan Year for which the Employer Contribution is made,) shall receive an allocation of that Employer Contribution in the proportion that the Compensation of each such Participant bears to the total Compensation of all Participants for such Plan Year. Allocation of the Employer Contributions shall be made after appraisal of the Fund and allocation of gains and losses under Section 6.5. Section 5.2. Termination During the Plan Year. In addition to the requirements under Section 5.1, a Participant must be employed on the last day of a calendar quarter during a Plan Year to be entitled to be allocated the portion of the Employer Contribution attributable to that calendar quarter; provided, however, that a Participant otherwise entitled to be allocated an Employer Contribution for at least a portion of the Plan Year shall have all Compensation earned through date of termination of employment taken into account in determining the allocation to that Participant's account. Section 5.3. Allocation of Salary Reduction Contributions. Salary Reduction Contributions made for a Participant in respect of any Plan Year shall be allocated to his Salary Reduction Contribution Account and shall be invested in accordance with the provisions of Article VI. Section 5.4. Limitations on Salary Reduction Contributions. For any Plan Year (a) Salary Reduction Contributions, excluding Catch-up Contributions, under the Plan shall not be in excess of the limitations on deductions imposed under section 404(a)(3) of the Code; (b) the Plan shall satisfy the coverage requirements of section 410(b)(1) of the Code; and (c) the Plan shall satisfy the average deferral percentage test set forth in subsection (a). (a) Average Deferral Percentage Test. The average deferral percentage for Highly Compensated Employees who are Participants in the Plan shall not exceed the greater of (i) or (ii) as follows: (i) The average deferral percentage for all Participants who are Non-Highly Compensated Employees for the preceding Plan Year, multiplied by 1.25, or (ii) The average deferral percentage for all Participants who are Non-Highly Compensated Employees for the preceding Plan Year, multiplied by 2.0; provided that the average deferral percentage for Highly Compensated Employees who are Participants may not exceed the average deferral percentage for Non-Highly Compensated Employees who are Participants by more than two percentage points. In accordance with Treasury regulations, the Employer may elect to apply paragraphs (i) and (ii) based upon the Plan Year rather than the preceding Plan Year. 18 (b) Average Deferral Percentage. For purposes of Section 5.44(a), the term "average deferral percentage" as applied to a specified group of Participants shall mean the average of the ratios, calculated separately for each such Participant in such group of: (i) the amount of Salary Reduction Contributions, excluding any Salary Reduction Contributions used in determining the deferral percentage described in the next paragraph that are distributed to an Employee who is a Non-Highly Compensated Employee pursuant to a distribution under Section 4.5(c) or returned to the Participant pursuant to Section 5.44(d), paid to the Plan on behalf of each such Participant for such Plan Year or contributed pursuant to Section 4.5(b) of the Plan, to (ii) the Participant's Compensation for such Plan Year. For the purposes of this Section 5.44, the deferral percentage of a Highly Compensated Employee who is a Participant under this Plan and who has made elective deferrals under any other qualified cash or deferred arrangement (excluding plans that are not permitted to be aggregated under Treas. Reg. section 1.401(k)-1(b)(3)(ii)(B)) maintained by the Employer or an Affiliated Company pursuant to section 401(k) of the Code shall be the sum of his deferral percentages under all such plans. (c) Return of Excess Salary Reduction Contributions. (i) If the average deferral percentage for all Participants who are Highly Compensated Employees exceeds the amount specified in Section 5.4(a) for any Plan Year, the "Excess Salary Reduction Contributions" (as defined in paragraph (iii), below) shall be distributed from the Salary Reduction Contribution Account of the Highly Compensated Employee with the greatest amount of Salary Reduction Contributions for the Plan Year or until the Salary Reduction Contributions of such Highly Compensated Employee is equal to the Salary Reduction Contributions made by the Highly Compensated Employee with the next greatest amount of Salary Reduction Contributions for the Plan Year. This process shall be repeated until all Excess Contributions have been distributed. (ii) Salary Reduction Contributions that must be distributed pursuant to paragraph (i) shall be distributed within the 12 months of the close of the Plan Year with respect to which the distribution applies. For purposes of determining the Excess Contributions, Salary Reduction Contributions previously distributed pursuant to Section 4.5(c) shall be treated as distributed under this Section 5.44(c) and Catch-up Contributions contributed pursuant to Section 4.5(b) shall not be taken into account. (iii) For purposes of this Section 5.4(c), "Excess Contributions" shall be an amount determined by multiplying the Compensation of Employees who are Highly Compensated Employees for the Plan Year by the difference between (A) the Average Deferral Percentage for such Highly Compensated Employee for such Plan Year by (B) the highest Average Deferral Percentage that would have permitted the Plan to satisfy the nondiscrimination test of Section 5.44(a), as determined in accordance with section 401(k) of the Code and applicable Treasury regulations. (iv) Notwithstanding any other provisions of the plan, the amount so reduced, together with the earnings thereon, shall be deemed to have been contributed to the Plan by mistake of fact, shall (i) be refunded to the Employer, and shall thereafter be paid (subject, however, to the withholding taxes and other amounts as though such amounts were current remuneration) by the Employer to the Participants from whose Compensation such amount was obtained, or (ii) effective January 1, 2002, be recharacterized as Catch-up Contributions contributed pursuant to Section 4.5(b) to the extent permitted by section 414(v) of the Code and regulations issued thereunder, Such payment shall be made within two and one half (2-1/2) months following the close of such Plan Year, if administratively practicable, but in no event later than the last day of the Plan Year following such Plan Year. 19 (d) Any distribution or forfeiture of Salary Reduction Contributions necessary pursuant to Section 5.44(c) shall include a distribution or forfeiture of the income, if any, allocable to such contributions. Such income shall be equal to the sum of the allocable gain or loss for the Plan Year and shall be determined by the Committee in a manner uniformly applicable to all Participants and consistent with Treasury regulations. Section 5.5. Maximum Allocation to Participants. Notwithstanding any other provisions of this Plan, the Annual Additions to any Participant's account for any Plan Year shall not exceed the lesser of (a) $30,000 (or, effective January 1, 2002, $40,000 or such other dollar amount as may be in effect by reason of an adjustment pursuant to section 415(d) of the Code), or (b) 25% of the total 415 Compensation paid to the Participant during a Plan Year (or, effective January 1, 2002, 100% of the Participant's Compensation) as defined in Section 2.10 of the Plan for the Plan Year. The Compensation limit referred to in (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of section 401(h) or section 419A(f)(2) of the Code which is otherwise treated as an Annual Addition. For purposes of Article V, "Annual Additions" for any Plan Year means the sum of: (a) all contributions made by the Employer or an Affiliated Company hereunder or under any other defined contribution plan maintained by either; and (b) the amount of forfeitures allocated to a Participant's Account; provided, however, that Catch-up Contributions are excluded. Section 5.6. Maximum Limit for Employees Also Participating in a Defined Benefit Plan. Prior to January 1, 2000, if a Participant is also earning retirement benefits under a separate defined benefit plan or plans established by the Employer or an Affiliated Company, the benefits under such plan or plans for any Plan Year shall be so limited that the sum of fractions (a) and (b) below shall not exceed 1.0 where: (a) is a fraction, the numerator of which is the projected annual benefit of the Participant under the defined benefit plan and the denominator of which is the lesser of: (i) the product of 1.25 and $90,000 (adjusted to reflect any cost of living increases provided in accordance with section 415 of the Code), or (ii) the product of 1.4 and 100% of the Participant's average annual 415 Compensation for his high three consecutive years; and (b) is a fraction, the numerator of which is the sum of all Annual Additions for all years during which he was a Participant and the denominator of which is the sum of the lesser of (i) and (ii) for each year during which the Participant was an Employee of the Employer: (i) the product of 1.25 and the dollar limitation in effect under section 415(c)(1)(A) of the Code for such year, or (ii) the product of 1.4 and 25% of the Participant's 415 Compensation for such year. Section 5.7. Statements. The Trustee shall furnish each Participant at such times as determined by the Committee, statements reflecting the fair market value of the Participant's Accounts under the Plan as of the most recent Valuation Date and the number of shares of Stock in his Accounts as of such Date. 20 ARTICLE VI INVESTMENT DIRECTIONS Section 6.1. Investment of Participants' Accounts. Each Participant shall, in the manner prescribed by the Committee, direct that the total of his Account be paid into and invested in any one or more of the Investment Funds in such percentages as the Participant may direct, provided that each pay period's investment in any Investment Fund shall be in increments of 1% of such Account. If the Stock Fund is an available Investment Fund, no Participant may direct the investment of more than $2,500 into the Stock Fund in any Plan Year. The percentage allocation of a Participant's future Account to be paid into and invested in the Investment Funds may be changed on any business day and such change will be implemented by the Committee as soon as is practicable. Notwithstanding the foregoing, the available Investment Funds shall at all times include at a minimum three Investment Funds in addition to the Stock Fund. Each Participant shall be solely responsible for his or her investment directions. Neither the Company or its officials, nor the Committee, the Trustee, the Compensation Committee of the Board, or any other Fiduciary will have any responsibility or liability for any losses which may result from Participant investment directions. Section 6.2. Transfer of Investments. A Participant may transfer any portion, in 1% increments of his interest in any Investment Fund attributable to his Account to any one or a combination of the other Investment Funds during business hours on any business day. Section 6.3. Notice. Any direction or notice pursuant to Section 6.1 and/or Section 6.2 shall be made in accordance with such rules as may be established by the Committee. Section 6.4. Reliance on Investment Direction. All investment directions or notices by Participants pursuant to Section 6.1 or Section 6.2 shall be timely furnished by the Committee to the Trustee. In making any investment of Plan assets, the Trustee shall be fully entitled to rely on such directions or notices furnished by the Committee and shall be under no duty to make any inquiry or investigation with respect thereto. If an Investment Fund in which a Participant has amounts invested becomes no longer available and the Participant does not elect an Investment Fund(s) in which to transfer such amount(s) after being given notice and opportunity to elect pursuant to Administrative procedure, all amounts in such Investment Fund shall be transferred in the same proportion to similar Investment Fund(s) available under the Plan. Section 6.5. Valuation of Fund and Allocation of Gains and Losses. The entire Fund shall be appraised as of each Valuation Date to determine its fair market value. The Fund shall also be appraised at other dates as directed by the Committee, in its sole discretion. The appraisal on each Valuation Date shall be made before addition of the Employer Contribution for the Plan Year that includes the Valuation Date, but any appraisal shall take into consideration all income received and accrued, all realized and unrealized gains and losses and all expenses chargeable to the Fund. Thereupon, all Participants' Accounts shall be adjusted so that each Account reflects its portion of the new value of the Fund in the proportion that such Account bore to the aggregate value of all Accounts immediately after addition of the Employer Contributions for the preceding Plan Year. 21 Section 6.6. ERISA Section 404(c) Compliance. It is the intention of the Employer that the requirements of section 404(c) of ERISA and the regulations thereunder be satisfied by the provisions of this Article VI, that this Article VI be construed in a manner consistent with that intention, and that all fiduciaries under the Plan be afforded the maximum insulation from investment liability afforded by section 404(c) of ERISA. Section 6.7. Voting and Tender of Shares of the Stock Fund. The Trustee shall deliver, of cause to be delivered, to each Participant all notices, prospectuses, financial statements, proxies and proxy soliciting material relating to the Stock Fund allocated to the Participant's Accounts. Each Participant or beneficiary of such Participant in the event the Participant dies prior to the complete distribution of such Stock Fund, shall have the right to direct the Trustee as to the exercise of voting rights with respect to shares of Stock in the Stock Fund including fractional shares; provided, however, that the Committee may, to the extent possible, direct the Trustee to vote the combined fractional shares so as to reflect the aggregate direction of all Participants giving direction with respect to fractional shares. Shares of Stock in the Stock Fund that have been allocated to Participants' Accounts but which have not been voted by Participants shall be voted by the Trustee in the same percentages as the remaining shares of the Stock Fund have been voted by the Participants. The voting of shares of stock in the Stock Fund by the Trustee shall be accomplished solely pursuant to this Section 6.7 and shall not constitute a fiduciary duty of the Trustee. 22 ARTICLE VII VESTING Section 7.1. Separation from Service. Whenever a Participant's Service with the Employer is terminated prior to his Normal Retirement Age for reasons other than death, his vested interest in his Account shall be determined as of his Date of Severance and distributed in accordance with Section 8.2, as follows: (a) A Participant's vested interest in his Employer Contribution Account shall be determined on the basis of the number of Years of Service credited to him as follows: Years of Service Vested Interest ---------------- --------------- Less than 2 0% 2 10% 3 20% 4 40% 5 70% 6 or more 100% Amounts in excess of the value of the Participant's vested interest in his Employer Contribution Account shall be forfeited as of the date the Participant's Service terminates, and shall be reallocated among remaining Participants in accordance with Section 7.3. Participants who were Participants in the IOT Corporation Profit Sharing Plan effective June 30, 1975, may nevertheless elect to have their vested interest computed under Section 10.1 of that plan. (b) A Participant who is an Employee shall become 100% vested in his Employer Contribution Account upon attainment of his Normal Retirement Age, death or Disability. (c) A Participant shall, at all times, have a 100% vested interest in the value of his Salary Reduction Contribution Account. (d) A Participant shall, at all times, have a 100% vested interest in the value of his Rollover Account. Section 7.2. No Forfeiture After Termination of Plan. No forfeiture shall occur under this Article VII if the Plan has been previously terminated by the Employer or if Employer Contributions have been completely discontinued. Section 7.3. Allocation of Forfeitures. All forfeitures arising under Section 7.1(a) shall remain as part of the Fund and shall be allocated among the Employer Contribution Accounts of all other Participants on the Valuation Date coincident with or next succeeding the event giving rise to such forfeiture in the same manner as contributions to the Fund under Section 5.1. Section 7.4. Re-employment Before Break in Service. If the Participant is reemployed by the Employer prior to incurring 5 consecutive Breaks in Service, he shall have restored to his Employer Contribution Account any forfeited amount; provided, however, that if the Participant has received a distribution of all or part of his vested interest in the Plan in accordance with the provisions of this Article VII on account of incurring a termination of Service, then such restoration shall not occur unless such Participant repays the amount distributed prior to the earlier of (a) 5 years after the Participant's Date of Reemployment, or (b) the occurrence of 5 consecutive Breaks in Service. Any amounts restored shall be paid first from forfeitures for the current Plan Year and, where such forfeitures are not sufficient, from additional contributions by the Employer. The Committee shall maintain or cause to be maintained a record of the amounts forfeited in accordance with the above. The Committee shall inform the Employer of any amounts required to be restored hereunder, and the Employer shall pay such amounts within 30 days of such notice. 23 Section 7.5. Vesting Following In-Service Withdrawals. If a Participant has received a distribution described in Section 10.2 from his Employer Contribution Account and, in the case of a Maritank Inc. Participant, his Matching Contribution Account, and, at a time when he has less than a 100% vested interest in such Accounts, his vested interest in such Accounts at all times prior to the date on which he incurs his fifth consecutive Break in Service, shall be an amount "X" determined by the formula X=P(AB+(RxD))-(RxD), when: "P"= the Participant's vested percentage as determined under Section 7.1(a) on the date of reference. "AB"= the balance, as of the date of reference, of the Participant's Employer Contribution Account and, in the case of a Maritank Inc. or Marispond Inc. Participant, his Matching Contribution Account. "D"= the amount of the distribution. "R"= the ratio of AB to the balance, immediately following the distribution, of the Participant's Employer Contribution Account and in the case of a Maritank Inc. Participant, his Matching Contribution Account. In the event that the Participant has received more than one such distribution, his vested interest in such Accounts shall be an amount "X(n)" determined by the formula X(n)=P[AB+((R(1)xD(1))+(R(2)xD(2))+...+(R(n) xD(n))]-[(R(1)xD(1))+(R(2)xD(2))+...+(R(n)xD(n))], when D(1) is the amount of the first such distribution, D(2) is the amount of the second such distribution, and so forth, and R(1) is the ratio of AB to the balance of the appropriate Accounts immediately following the first distribution, R(2) is the ratio of AB to the balance of the appropriate Accounts immediately following the second distribution, and so forth. Immediately after the Participant has 5 consecutive Breaks in Service, his vested interest in such Accounts shall be established as a separate account, and he shall at all times have a vested interest therein. If the Participant is later reemployed as an Employee, any allocations of Employer Contributions and, in the case of a Maritank Inc. Participant, Matching Contributions to him shall be credited to a new account, and his vested interest therein shall be determined under Section 7.1(a). 24 ARTICLE VIII DISTRIBUTION OF BENEFITS Section 8.1. Death Benefits. In the event a Participant dies while an Employee of the Employer or while benefits on his behalf remain undistributed from the Fund, the entire amount credited to his Account, valued as of the Valuation Date immediately succeeding his death, shall be distributed in a lump sum payment to the designated beneficiary or beneficiaries of the Participant set forth in his most recent beneficiary designation filed with the Committee. In the absence of an effective designation, the Committee shall direct distribution to and among the following persons with priority in the order named: (a) surviving Spouse; (b) surviving children; (c) surviving parents; (d) surviving brothers and sisters and (e) executor or administrator. Section 8.2. Benefits Upon Separation from Service. Except as provided in Section 8.3, in the event of a Participant's separation from service for reasons other than for death, a Participant shall receive the entire vested amount credited to his Account, valued as of the Valuation Date immediately succeeding his separation from service, payable in the form of a lump-sum payment. Section 8.3. Postponed Retirement. Notwithstanding the foregoing and in accordance with Section 12(c) of the Age Discrimination in Employment Act, nothing in this Section shall prohibit the compulsory retirement of any Employee who has attained age 65 and who for the 2- year period immediately before retirement is employed in a bona fide executive or high policy-making position, provided that such Employee is entitled to an immediate nonforfeitable annual retirement benefit payable from this or any other pension, profit-sharing, savings or deferred compensation plan or any combination of such plans maintained by the Employer, which benefit equals in the aggregate at least $44,000. Section 8.4. Designation of Beneficiary. Each Participant shall, by written notice to the Committee, designate a beneficiary or beneficiaries to receive any payment to which such Participant may be entitled under the Plan at the time of his death. If a Participant designates a beneficiary (including any class of beneficiaries or any contingent beneficiaries) other than or in addition to his Spouse, the Spouse of the Participant must consent in writing to such beneficiary designation on a form provided by the Committee, which consent shall be irrevocable. Such consent shall acknowledge the financial effect of the election on the Spouse's right to benefits under the Plan, and shall be witnessed by the Chairman of the Committee, a Plan representative designated by the Committee or a notary public. The spousal consent requirement may be waived if it is established, to the satisfaction of the Committee, that the consent may not be obtained because there is no Spouse, because the Spouse cannot be located, or because other circumstances exist to excuse spousal consent under applicable regulations. Any beneficiary designation made by a Participant which does not meet the requirements of this Section shall be null and void. The Participant shall have the right to change a beneficiary designation or any subsequent beneficiary designation, subject to the spousal consent provisions of this Section. Section 8.5. Transfer to Affiliated Company. Transfer of an Employee to the service of an Affiliated Company which is not a Participating Employer or the termination of a corporation's status as a Participating Employer (while remaining an Affiliated Company) under the Plan shall not be treated as a Date of Severance under the Plan, and, in such event, benefits shall be payable in accordance with this Article VII upon the Participant's termination of Service. Section 8.6. Time of Distribution. 25 (a) If a Participant incurs a Date of Severance for any reason, he (or his beneficiary in the event of his death) shall receive a distribution of his vested interest in his Account as soon as practicable after his Date of Severance; provided that (a) no such distribution shall be made to a Participant prior to his Normal Retirement Age unless the Participant consents to the distribution as provided in section 411(a)(11) of the Code (except for distributions made as a result of the Participant's death), and (b) distribution to a Participant who fails to so consent shall be made on such date (not later than the Required Distribution Date) as the Participant may elect in writing (in the manner and at the time prescribed by the Committee), or, if the Participant fails to make such an election, as soon as practicable after the date the Participant attains his Normal Retirement Age. (b) Notwithstanding anything in this Article VIII to the contrary, if the total nonforfeitable amount credited to the Account of the terminated Participant does not exceed $3,500 (effective January 1, 1998, $5,000) or, in the case of a Participant who has not reached Normal Retirement Age, has ever exceeded $3,500 (effective January 1, 1998, $5,000) at the time of any prior distribution, the Committee, in its sole discretion, may distribute such amount in a lump sum at any time without the Participant's or beneficiary's consent. For terminations after December 31, 2002, the total nonforfeitable amount shall be determined without regard to that portion of the Account that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii) and 457(e)(16) of the Code. Any amounts not distributed under this Section 8.6(b) shall remain a part of the Fund and shall continue to share in income, gains and losses, but not in forfeitures. (c) A Participant's election to commence payment prior to the date he attains Normal Retirement Age must be made within the 90 day period ending on the date benefit payment is made and in no event earlier than the date the Committee provides the Participant with written information relating to his right to defer payment until his Normal Retirement Age and his right to make a direct rollover as described in Section 8.8. Such information must be supplied not less than 30 days nor more than 90 days prior to the benefit payment date. Notwithstanding the preceding sentence, a Participant's benefit payment date may occur less than 30 days after such information has been supplied to the Participant, provided that after the Participant has received such information and has been advised of his right to a 30-day period to make a decision regarding the distribution, the Participant affirmatively elects a distribution. Section 8.7. Required Distributions. A Participant's interest in his Accounts shall be distributed to him no later than the Required Distribution Date in accordance with the regulations under section 401(a)(9) of the Code. Effective for distributions after December 31, 2002, required minimum distributions will be determined in accordance with the Single Life Table set forth in section 1.401(a)(9)-9. Section 8.8. Direct Rollovers. In the event any payment or payments (excluding any amount not includable in gross income) to be made to an individual pursuant to this Article VIII would constitute an "eligible rollover distribution" described in section 402(c)(4) of the Code which the individual can elect to roll over to another plan pursuant to section 401(a)(31) of the Code and regulations thereunder, such individual may request that, in lieu of payment to the individual, all or part of such eligible rollover distribution be rolled over directly to the trustee or custodian of an "eligible retirement plan" within the meaning of section 401(a)(31)(C) of the Code and regulations thereunder. Any such request shall be made in writing, on the form and subject to such requirements and restrictions as may be prescribed by the Committee for such purpose pursuant to Treasury regulations, at such time in advance of the date payment would otherwise be made as may be required by the Committee. For purposes of this Section, an "individual" shall include an Employee or former Employee or (a) his surviving spouse or (b) his spouse or former spouse who is an alternate payee under a Qualified Domestic Relations Order. 26 Notwithstanding the foregoing, an "eligible rollover distribution" described in section 402(c)(4), which the Participant can elect to roll over to another plan pursuant to IRC section 401(a)(31), excludes hardship withdrawals made after December 31, 1999, as defined in IRC 401(k)(2)(B)(I)(IV) which are attributable to the Participant's elective contributions under Treasury Regulation section 1.401(k)-1(d)(2)(ii). Notwithstanding the foregoing, any eligible rollover distribution in excess of $1,000 but not in excess of $5,000 made after the effective date of final regulations issued by the Department of Labor with respect to section 401(a)(31)(B) of the Code shall be transferred directly to the individual retirement plan of a designated trustee or insurer, unless the Participant elects to receive such distribution. For purposes of this Section 8.8, (a) "eligible rollover distribution" shall mean a distribution from the Plan, excluding (1) any distribution that is one of a series of substantially equal periodic payments ( not less frequently than annually) over the life (or life expectancy ) of the individual, the joint lives (or joint life expectancies) of the individual and the individual's designated Beneficiary, or a specified period of ten (10) or more years, (2) any distribution to the extent such distribution is required under section 401(a) of the Code, (3) with respect to distributions made prior to January 1, 2002, any distribution to the extent such distribution is not included in gross income, and (4) any hardship distribution described in section 401(k)(2)(B)(i)(IV) of the Code or, effective January 1, 2002, any hardship distribution; and (b) "eligible rollover plan" shall mean (1) an individual retirement account described in section 408(a) of the Code, (2) an individual retirement annuity described in section 408(b) of the Code (other than an endowment contract), (3) an annuity plan described in section 403(a) of the Code, (4) a qualified plan the terms of which permit the acceptance of rollover distributions, (5) effective January 1, 2002, an eligible deferred compensation plan described in section 457(b) of the Code that is maintained by an eligible employer described in section 457(e)(i)(A) of the Code that shall separately account for the distribution, or (6) effective January 1, 2002, an annuity contract described in section 403(b) of the Code; provided, however, that (i) the eligible retirement plans described in clauses (3) and (4) shall not apply with respect to a distribution made prior to January 1, 2002 to a Beneficiary who is the surviving spouse of a Participant and (ii) with respect to a distribution (or portion of a distribution) consisting of after-tax employee contributions, "eligible rollover plan" shall mean a plan described in clause (4) that separately accounts for such amounts or a plan described in clause (1) or (2). Section 8.9. Spousal Consent. Notwithstanding any provision in the Plan to the contrary, no distribution under this Article VIII, except for distributions made pursuant to Section 8.7, shall be made unless the Spouse of the Participant consents, in the manner described in Section 8.4, to such distribution within the time period described in Section 8.6(c). 27 ARTICLE IX LIFE INSURANCE Section 9.1. Purchase of Life Insurance on Request. At the written request of any person who has been a Participant on three consecutive Anniversary Dates, and prior to January 1, 1995, the Committee shall direct the Trustee to purchase one or more contracts of ordinary, cash value life insurance on the life of the Participant from an insurance company approved by the Committee. The Participant's request shall specify the face amount of the insurance contracts and be accompanied by applications for the contracts completed by the Participant who will be solely responsible for selection of options under any contract which options shall be consistent with the Plan. The Trustee shall be the owner of such contracts but the Participant shall have the right to designate the beneficiaries thereof (which may be different than the person(s) designated to receive the value of his account under Section 8.1 of the Plan), pursuant to the spousal consent provisions of Section 8.4. Premiums on such contracts shall be paid by the Trustee from Employer Contributions under the Plan that would otherwise be allocated to the insured Participant's Employer Contribution Account or from funds withdrawn from the insured's Employer Contribution Account. If Employer Contributions that may be applied to pay premiums on insurance contracts are not sufficient to maintain them in full, the Participant shall instruct the Committee as to his election under the contracts. If he fails to instruct the Committee within the period required under the contracts, the Committee shall direct the Trustee to surrender the contracts for their cash value and allocate the proceeds to the Participant's Employer Contribution Account. Section 9.2. Cash Value of Insurance. For purposes of determining the value of an insured Participant's Employer Contribution Account under Section 6.7 of the Plan, no value shall be assigned to the insurance contracts. However, the cash value of such contracts shall be treated as a part of the value of an insured Participant's Employer Contribution Account under Article VIII hereof. Section 9.3. Transfer of Contracts. The Trustee shall deliver any life insurance contracts covering the Participant to the Participant upon his termination of Service or, at the Participant's written request, surrender them for their cash values which shall be delivered to the Participant. A Participant may request in writing that any insurance contracts on his life be assigned to him by the Trustee if the Participant shall (a) first pay that portion of the then determined cash surrender value thereof that exceeds his vested interest therein (as determined under Section 7.1 hereof) to the Trustee or, (b) alternatively, authorize the Trustee to borrow that portion of the cash surrender value that exceeds his vested interest therein and then assign the contracts to the Participant who shall be solely responsible for premium payments and payments of principal and interest on the insurance contract loan. In the absence of such request the Trustee shall surrender any insurance contracts on the life of an Employee to whom Section 8.2 applies and allocate the proceeds to his Employer Contribution Account and Employer Contribution Accounts of other Participants pursuant to Section 7.3 of the Plan. Section 9.4. Limitation on Employer Contributions Allocated to Insurance. In no event shall the aggregate Employer Contributions made on behalf of a Participant and allocated to the purchase of ordinary life insurance contracts on his life equal 50% or more of the total of all Employer Contributions made on behalf of the Participant. 28 ARTICLE X WITHDRAWALS AND LOANS Section 10.1. Withdrawals From Employer Contribution Account. Upon submitting an application, in the manner prescribed by the Committee, at least 30 days prior to the Valuation Date as of which it is to become effective (unless the Committee, in its sole discretion, permits a later application), a Participant may request a withdrawal of up to 50% of his vested interest in his Employer Contribution Account, reduced by all Employer Contributions credited to the Participant's Employer Contribution Account within the 24-month period preceding the withdrawal. The minimum amount of any withdrawal shall be $2,500 or such higher amount as specified by the Committee and any request shall be in integral multiples of $500. Payment to the Participant of the amount subject to the withdrawal request shall be made as soon as administratively possible after the request is approved by the Committee. Section 10.2. Withdrawals From Salary Reduction Contribution Account and Rollover Account. A Participant may request a withdrawal of all or any part of the amount of his Salary Reduction Contribution Account and Rollover Account, upon giving a written request in the manner prescribed by the Committee. A withdrawal may be not less than $1,000, and no more than one withdrawal may be made in any Plan Year. Payment to the Participant of the amount subject to the withdrawal request shall be made as soon as administratively possible after the request is received but in any event within 90 days after the request. Any withdrawal shall be subject to the following limitations: (a) Subject to the provisions of subparagraph (b), no amounts may be withdrawn from a Participant's Salary Reduction Contribution Account unless he has attained age 59-1/2. (b) Notwithstanding the age limitation imposed by subparagraph (a), if the Committee determines, on a uniform, nondiscriminatory basis, and on the basis of all relevant facts and circumstances, that a withdrawal is requested on account of an immediate and heavy financial need of the Participant, and the withdrawal is necessary to satisfy such financial need, the Committee may permit the Participant to withdraw any amounts standing to his credit in his Salary Reduction Contribution Account. A withdrawal request shall be deemed to be on account of an immediate and heavy financial need if it is on account of: (i) expenses for medical care described in section 213(d) of the Code incurred by the Participant, his Spouse or dependents, as defined in section 152 of the Code, (or as the distribution is necessary for such persons to obtain such medical care); (ii) costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, his Spouse or his dependents; or (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. A withdrawal shall be deemed to be necessary to satisfy the Participant's financial need, and shall be approved subject to the following provisions: 29 (i) the distribution shall not be in excess of the amount of the immediate and heavy financial need of the Participant, including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution; (ii) the Participant shall first obtain all loans and withdrawals, other than hardship withdrawals, under the Plan; (iii) the Participant's Salary Reduction Contributions shall be suspended for a 12-month period (6-month period for withdrawals distributed after December 31, 2001 or, 6-month period (or until January 1, 2002, if later) for withdrawals distributed in calendar year 2001) beginning on the date the withdrawal is received; and (iv) for withdrawals made prior to January 1, 2002, the amount of Salary Reduction Contributions made by the Participant in the Plan Year succeeding the Plan Year in which the withdrawal occurs shall not exceed the dollar limit specified in Section 4.5(a), less all Salary Reduction Contributions made in the Plan Year in which the withdrawal occurs. Anything to the contrary herein notwithstanding, effective July 1, 1989, income, earnings, or appreciation attributable to Salary Reduction Contributions and allocated to the Participant's Salary Reduction Contribution Account after December 31, 1988 may not be distributed on account of hardship. Section 10.3. Loans. Not more frequently than once in any 12 month period, a Participant who is an Employee of the Employer and any other Participant who is a "party in interest" as defined in section 3(14) of ERISA) may request a loan from the Plan. Application for a loan must be submitted in writing, in the manner and at the time prescribed by the Committee. The Committee shall direct the Trustee to make loans in accordance with the following provisions: (a) The minimum amount of any loan shall be $1,000. (b) The amount of all loans outstanding at any time for a borrower (including any loans made under any other "qualified" plans of the Employer or an Affiliated Company) shall not exceed 50% of the vested balance in his Account. The amount of any loan, when added to the highest outstanding balance of all loans from the Plan (or under any other "qualified" plan of the Employer or an Affiliated Company) during the one-year period ending on the day before the date on which the loan is made, may not exceed $50,000. (c) No more than two loans may be outstanding from the Plan at any time. (d) Interest on the unpaid principal shall be at a reasonable rate to be determined by the Committee in accordance with generally prevailing market conditions for similar types of loans. (e) No loan shall have a term in excess of 5 years, and the loan shall be repaid on a schedule providing for level amortization determined by the Committee. (f) Each loan shall be considered a separate Investment Fund for purposes of Article VI, and the loan principal shall be provided by liquidating the Investment Fund or Funds in which his Account is invested on a pro-rata basis. 30 (g) If any installment of a loan to a borrower (i) is unpaid on the date that he or his beneficiary becomes entitled to any distribution from the Fund, or (ii) is unpaid upon termination of employment or cessation of party-in-interest status, or (iii) is otherwise unpaid for 30 days, such loan, in all events and notwithstanding the terms thereof, shall become immediately due and payable on such date. If repayment is not made within 90 days thereafter, the amount of the loan, together with any accrued unpaid interest thereon, shall be deducted from the amount of any distribution to which the borrower or his beneficiary may become entitled and shall be treated as a current distribution. (h) Repayments of loans shall be by payroll deductions. In limited circumstances in which, as uniformly determined by the Committee, scheduled periodic payments through payroll withholding are precluded, the loan shall be repaid by monthly payments of principal and interest. A borrower may prepay a loan in full at any time without penalty. (i) Repayments will be suspended under this Plan as permitted under section 414(u)(4) of the Code. Section 10.4. Duties of Trustee. All loans or withdrawal payments to a Participant under the Plan shall be made by the Trustee from the Accounts of the Participant only upon receipt of written instructions furnished by the Committee setting forth the amount of the loan or withdrawal payment and the name and address of the recipient. In making any such loan or withdrawal payment under the Plan, the Trustee shall be fully entitled to rely on the instructions furnished by the Committee and shall be under no duty to make any inquiry or investigation with respect thereto. Section 10.5. Spousal Consent to Loans or Withdrawals. No withdrawal or loan request shall be granted unless the Spouse of the Participant consents in writing to such withdrawal or loan on a form provided by the Committee. Such consent shall acknowledge the effect of the withdrawal or loan on the Participant's benefit under the Plan, shall be witnessed by the Chairman of the Committee, a plan representative designated by the Committee or a notary public, and shall be irrevocable. Spousal consent may be waived if it is established to the satisfaction of the Committee that the consent may not be obtained because there is no Spouse, because the Spouse cannot be located, or because of other circumstances as may be prescribed by applicable regulations. 31 ARTICLE XI SPECIAL PROVISIONS FOR TOP-HEAVY PLANS Section 11.1. General Rule. Notwithstanding any provision in the Plan to the contrary, for any Plan Year in which the Plan is determined to be a Top-Heavy Plan, the provisions of this Article XI shall become effective. Section 11.2. Definitions. For purposes of Article XI, the following terms shall have the following meanings: (a) "Aggregation Group" shall mean the group of qualified plans sponsored by the Employer or by an Affiliated Company formed by including in such group: (i) each plan of the Employer or an Affiliated Company in which a Key Employee participates in the Plan Year containing the Determination Date or any of the four preceding Plan Years, including any terminated plans which are maintained within the 5-year period ending on the applicable Determination Date, and (ii) each other plan of the Employer or an Affiliated Company which enables such plan to meet the requirements of section 401(a)(4) or 410 of the Code. The foregoing notwithstanding, the Employer may treat any plan not required to be included in the Aggregation Group as being part of such group if such group would continue to meet the requirements of sections 401(a)(4) and 410 of the Code with such plan being taken into account. (b) "Key Employee" shall means an Employee as defined in Code section 416(i) and the regulations thereunder. Generally, any Employee or former Employee who, at any time during a Plan Year or the immediately preceding four Plan Years (or, effective January 1, 2002, during the Plan Year) was any of the following: (i) An officer of the Employer or an Affiliated Company having annual 415 Compensation greater than: (i) 50% of the amount in effect under section 415(b)(1)(A) of the Code for the Plan Year or (ii) effective January 1, 2002, $130,000 or such other amount as may be in effect under section 416(i)(1)(A)(i) of the Code. The number of persons to be considered officers in any Plan Year and the identity of the persons to be so considered shall be determined pursuant to the provisions of section 416(i) of the Code and any regulations thereunder. (ii) For periods prior to January 1, 2002, one of the 10 Employees who owns (or is considered as owning under the attribution rules set forth at section 318 of the Code and the regulations thereunder) the largest interest in the Employer or such Affiliated Company, provided that no person shall be considered a Key Employee under this paragraph (b) if his annual 415 Compensation is not greater than the limitation in effect for such Plan Year under section 415(c)(1)(A) of the Code, nor shall any person be considered a Key Employee under this paragraph (b) if his ownership interest in the Plan Year being tested and the preceding four Plan Years was at all times less than 1/2% in value of any of the entities forming the Employer and the Affiliated Companies. (iii) A 5% owner of the Employer or an Affiliated Company. (iv) A person who is both an Employee whose annual 415 Compensation exceeds $150,000 and who is a 1% owner of the Employer or an Affiliated Company. 32 The beneficiary of any deceased Participant who was a Key Employee shall be considered a Key Employee for the same period as the deceased Participant would have been so considered. Section 11.3. Determination of Top-Heavy Status. The Plan shall be considered a Top-Heavy Plan for the Plan Year, if, as of the last day of the first Plan Year and thereafter, as of the last day of the preceding Plan Year (the "Determination Date"): (a) the value of the sum of all Accounts of Participants who are Key Employees (as defined below) exceeds 60% of the sum of all Accounts of all Participants, or (b) the Plan is part of an Aggregation Group and such Aggregation Group is determined to be a Top-Heavy Group (as defined in section 416(g)(2)(B) of the Code). The sum of all Accounts of a Participant equals the sum of (i) the aggregate of the present value of all accrued benefits of a Participant under all qualified defined benefit plans included in the Aggregation Group, (ii) the aggregate of the balances in all of the accounts standing to the credit of the Participant under all qualified defined contribution plans included in the Aggregation Group and (iii) either (A) the amount distributed from all plans in such Aggregation Group to or on behalf of the Participant during the period of 5 Plan Years ending on the Determination Date or (B) effective January 1, 2002, the sum of the amount of any inservice distributions during the period of 5 Plan Years ending on the Determination Date, and the amount of any other distributions during the one-year period ending on the Determination Date, to or on behalf of any Participant from all plans in the Aggregation Group. In determining the above Top-Heavy ratio, the Account balances of an Employee (a) who is a Non-Key Employee (defined for purposes of this Article as an Employee who is not a Key Employee) but who was a Key Employee in any prior Plan Year or (b) who has not performed services for the Employer maintaining the Plan at any time during the 5-year period (or, effective January 1, 2002, the 1-year period) ending on the applicable Determination Date are disregarded. Section 11.4. Minimum Contributions. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 11.3, the Employer Contributions for such Plan Year for each Participant who is a Non-Key Employee shall not be less than the lesser of (a) 3% of the Participant's 415 Compensation for such Plan Year, or (b) the percentage at which Employer Contributions are made or are required to be made under the Plan for the Plan Year for the Key Employee for whom such percentage is the highest. Notwithstanding the foregoing, if a Participant is also participating in another defined contribution plan maintained by the Employer, the minimum contribution hereunder may be reduced in accordance with regulations issued under section 416(f) of the Code. If a Participant is also participating in a defined benefit plan maintained by the Employer, "5%" shall be substituted for "3%" in paragraph (a) of this Section. The Employer Contributions referred to above will be provided to each Non-Key Employee who is a Participant who has not separated from service at the end of the Plan Year, regardless of such Employee's number of Hours of Service, Compensation, or whether such Employee had made any contribution to the Plan. 33 Section 11.5. Minimum Vesting. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 11.3, each Participant's Account shall become vested in accordance with the following schedule: Years of Service Vested Interest ---------------- --------------- Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100% The foregoing notwithstanding and subject to the provisions of Section 14.2, if the Plan ceases to be Top-Heavy, the provisions of Section 7.1 shall thereafter apply. Section 11.6. Adjustments to Maximum Limits on Benefits and Contributions. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 11.3, paragraphs Section 11.2(a)(i) and (b)(i) of Section 5.66 shall be read by substituting the number "1.00" for the number "1.25", wherever it appears. Notwithstanding the foregoing, no adjustment shall be made to Section 5.66 if the following requirements are met: (a) shall be applied by substituting "4%" for "3%;" and the annual accrued benefit derived from employer contributions under the defined benefit plan for each Participant who is not a Key Employee is not less than the product of: (i) 3% of such Participant's average annual compensation during the period of consecutive years (not exceeding 5) which yields the highest average; and (ii) the Participant's Years of Service (not exceeding 10) during which the plan is a top-heavy plan; (b) the aggregate of the accounts of Participants who are Key Employees under the Plan does not exceed 90% of the aggregate of the accounts of all Participants; and (c) the sum of (i) the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans in the Aggregation Group and (ii) the aggregate of the accounts of Key Employees under all defined contribution plans in the Aggregation Group does not exceed 90% of such sum determined for all employees. (d) in the case of a Participant also participating in a defined benefit plan maintained by the Employer, all of the requirements of paragraph (a) shall be met by substituting "7-1/2%" for "3%" in Section 11.4. Section 11.7. Compensation Limitation. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 11.3, the amount of 415 Compensation taken into account under the Plan for such Plan Year shall not exceed the dollar limitation in effect under section 401(a)(17) of the Code (effective January 1, 2002, $200,000) with respect to any Plan Year, adjusted to reflect any cost-of-living increases provided in accordance with section 416(d) of the Code. 34 ARTICLE XII ADMINISTRATION AND FIDUCIARY RESPONSIBILITY Section 12.1. Appointments. The Employer, acting by determination of its Board of Directors, shall appoint the Committee members and determine the amount of contributions as provided in Section 4.1. On behalf of the Board, the Compensation Committee shall oversee the activities of the Committee, appoint the Trustee and the Investment Advisor, if desired, select the Investment Funds, and review the performance of the Fund no less frequently than semi-annually. Section 12.2. Investment Advisor. If appointed by the Employer, the Investment Advisor shall direct the Trustee in the investment and reinvestment of the Fund, or such portion thereof as may be assigned to it for supervision. Section 12.3. Trustee. The Trustee will invest and reinvest the Fund in accordance with the Trust Agreement and make distributions upon instructions of the Committee. Section 12.4. Committee. The Committee will decide questions of Plan interpretation, eligibility and distribution of benefits and will supply any omissions to, and resolve all inconsistencies in the Plan and will make all factual determinations required. Any determinations made by the Committee pursuant to this Section 9.4 shall be conclusive and binding on all parties. The Committee shall receive reports from the Trustee as to the status of the Fund, review the investment performance of the Fund, advise the Compensation Committee as to its activities at least annually and advise as to the status of the Fund from time to time, and instruct the Trustee with respect to benefit distributions. The Committee may contract for clerical, legal, accounting, and actuarial services as may be desirable for the proper administration of the Plan, the costs of which may be paid from the Fund or by the Employer or Participating Employers as the Employer shall determine. The Committee is designated as the agent for service of process. The Committee shall maintain records of Participants' service, age, Compensation, allocation of contributions, and other required information. The Committee shall provide rules for administration of the Plan which are not inconsistent with its terms and the decisions of the Committee, shall determine questions of eligibility and distribution of benefits. Any determinations made by the Committee pursuant to this Section 9.4 shall be conclusive and binding on all parties. The Committee shall also prepare or cause to be prepared all tax returns and other reports that may be required by law. Records of the Committee may be examined by the Employer, and the Participant may examine those records of the Committee relating to him or her. Section 12.5. Claims Procedure. (a) Initial Claim. A Participant or Beneficiary ("claimant") who believes he is entitled to benefits hereunder, may claim those benefits by submitting to the Committee a written notification of any claim of right to such benefits. The Committee shall make all determinations as to the right of any person to receive benefits under the Plan. If such benefits are wholly or partially denied, the Committee shall notify the claimant of the denial of the claim. (b) Notice of Denial of Claim. Any notice of denial of a claim shall (i) be in writing and sent to the claimant by registered or certified mail (or, by means of an electronic medium that satisfies the requirements of 29 CFR 2520.104b-1(c)(1)(i), (iii) and (iv)); (ii) be written in a manner calculated to be understood by the claimant; 35 (iii) contain (A) the specific reason or reasons for the denial of the claim, (B) a specific reference to the pertinent provisions of the Plan upon which the denial is based, (C) a description of the required documentation and procedures necessary to perfect the claim, along with an explanation of why such material or information is necessary, (D) an explanation of the claims review procedure, including time limits applicable to the procedure and (E) a statement of the claimant's right to bring a civil action under section 502(a) of ERISA following an adverse determination on review; and (iv) be given to a claimant within 90 days after receipt of his claim by the Committee unless special circumstances require an extension of time for processing of the claim. If such extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of said 90-day period, and such notice shall indicate the special circumstances which make the postponement appropriate and the date the determination is expected. In no event may the extension exceed a total of 180 days from the date of the original receipt of the claim. (c) Procedure for Appeal. In case of a denial as outlined in this Section 12.5(b), the claimant or his representative shall have the opportunity to appeal to the Committee for review thereof by requesting such review in writing to the Committee; provided, however, that such written request must be received by the Committee (or his delegate to receive such requests) within 60 days after receipt by the claimant of notification of the denial or limitation of the claim. The claimant or his representative shall have a right to review all pertinent documents and submit comments in writing. The claimant or his duly authorized representative shall also be provided, upon request and without charge, reasonable access to and copies of, all documents, records, or other information relevant to the claim. The claimant or his duly authorized representative shall also be permitted to submit to the Committee, documents, records and other information relating to the claim. (d) Decision on Appeal. (i) No later than 60 days after its receipt of the request for review, the Committee shall render a decision in writing, (or, by means of an electronic medium that satisfies the requirements of 29 CFR 2520.104b-1(c)(1)(i), (iii) and (iv)) stating specific reasons therefor and citing specific Plan references. If special circumstances require extension, and upon prior written notice to the claimant, the Committee's decision may be given within 120 days after receipt of the request for review. The extension notice shall indicate the special circumstances requiring an extension and the date that the determination on review is expected. (ii) Notwithstanding the foregoing, if the Committee is a committee that holds regularly scheduled meetings at least quarterly, an individual's request for review will be acted upon at the meeting immediately following the receipt of the individual's request, unless such request is filed within thirty (30) days preceding such meeting. In such instance, the decision shall be made no later than the date of the second meeting following receipt of such request. If special circumstances (such as a need to hold a hearing) require a further extension of time for processing a request, a decision shall be rendered not later than the third meeting of the Committee following the receipt of such request for review and written notice of the extension shall be furnished to the individual prior to the commencement of the extension. The extension notice shall indicate the special circumstances requiring an extension and the date that the determination on review will be made. The Committee shall notify the claimant or his representative of the determination as soon as possible, but not later than five days after the determination is made. 36 (iii) In the event that the decision denies in whole or in part a claim on appeal, the notice furnished to the claimant shall also specify that the claimant or his duly authorized representative has a right to be provided, upon request and without charge, reasonable access to and copies of, all documents, records, or other information relevant to the claim, a description of any voluntary appeal procedures offered by the Plan and specify that the claimant has a right to bring a civil action under section 502(a) of ERISA. Section 12.6. Uniformity of Action. Whenever the Committee is required or permitted to make decisions with respect to eligibility of an Employee for participation, contributions or benefit distributions, such decisions shall be uniform and consistent with respect to all persons similarly situated. No action shall be taken which discriminates in favor of the Employer's officers or supervisory personnel. Section 12.7. Reliance on Others. The Employer and its Board of Directors, Trustee, Investment Advisor (if appointed), Committee shall be Fiduciaries under the Plan but shall be responsible only for those separate duties assigned to each by the Plan, and none shall have responsibility for performance of duties assigned to another of them under the Plan. Each of them may rely on reports, notices, certifications or other communications furnished by the others. The Committee may rely on the reports and opinions furnished by persons retained by them. Section 12.8. Indemnification. The Employer shall indemnify each Board member, Committee member, and other Employees of any Participating Employer involved in the administration of the Plan against all cost, expenses and liabilities, including attorney's fees, incurred in connection with any action, suit or proceeding instituted against him alleging any act of omission or commission performed by him while acting in good faith in discharging his duties with respect to the Plan. This indemnification is limited to the extent such costs and expenses are not covered under insurance as may be now or hereafter provided by the Employer or any Participating Employer. Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party shall notify the Employer of the commencement thereof. The Employer shall be entitled to participate at its own expense in the defense or to assume the defense of any action brought against any party indemnified hereunder. In the event the Employer elects to assume the defense of any such suit, such defense shall be conducted by counsel chosen by the Employer and the indemnified party shall bear the fees and expenses of any additional counsel retained by him. 37 ARTICLE XIII AMENDMENT OF PLAN Section 13.1. Right to Amend. The Employer, acting by formal action of its Board of Directors or by written instrument executed by the Board of Directors' duly appointed delegatee, shall have the right to amend the Plan at any time. The Committee shall have the right to approve amendments that are required to maintain compliance with applicable laws and regulations and amendments to the administrative provisions of the Plan that do not affect the level of benefits (except as provided under Section 4.5(a)) or result in substantial additional cost to the Company. All such amendments shall be in writing. A Participating Employer, acting by formal action of its board of directors or by written instrument executed by the board of directors' duly appointed delegatee, shall also have the right to amend its Adoption Agreement. However, no such amendment shall be effective which would adversely affect the qualified status of the Plan and Fund under sections 401 and 501 of the Code or under the corresponding provisions of subsequent revenue laws. Section 13.2. Amendment to Vesting Schedule. No Plan amendment shall deprive any Participant or beneficiary of any of the benefits to which he is entitled under this Plan with respect to contributions previously made, nor shall any amendment eliminate or reduce a protected benefit under section 411(d)(6) of the Code except as provided in section 412(c)(8) of the Code or in applicable regulations. No Plan amendment shall decrease the vested interest in any Participant's Account, nor shall any amendment change any vesting schedule under the Plan unless each Participant having at least 3 Years of Service at the end of the period described in this sentence is permitted to elect, within a period beginning on the date such amendment is adopted and ending 60 days after the latest of: (a) the day the amendment is adopted, (b) the day the amendment becomes effective, or (c) the day the Participant is issued written notice of the amendment, to have his nonforfeitable percentage computed under the Plan without regard to such amendment. Notwithstanding the foregoing, any modification or amendment of the Plan may be made retroactively, if necessary or appropriate to qualify or maintain the Plan as a plan meeting the requirements of the Code and ERISA, as now in effect or hereafter amended, or any other provisions of law, as now in effect or hereafter amended or adopted, and any regulation issued thereunder. 38 ARTICLE XIV TERMINATION OF PLAN Section 14.1. Right to Terminate Reserved. The Employer (and each Participating Employer as to its participation), acting by formal action of its Board of Directors or by written instruments executed by the Board of Directors' duly appointed delegatee, reserves the right to terminate the Plan at any time. The complete discontinuance of contributions by the Employer shall be deemed a termination of the Plan. Section 14.2. Distribution on Termination. Upon termination or partial termination of the Trust, all (or those affected by the partial termination) Participants' Accounts shall become fully vested, and shall not thereafter be subject to forfeiture. Upon termination of the Trust, the Committee may direct the Trustee to distribute all assets remaining in the Trust, after payment of any expenses properly chargeable against the Trust, to the Participants in accordance with the value of Accounts credited to such Participants as of the date of such termination, in such manner as the Committee shall determine. The Committee's determination shall be conclusive upon all persons. 39 ARTICLE XV MISCELLANEOUS Section 15.1. No Other Benefits. No benefits other than those specifically provided for herein shall be payable under the Plan. Section 15.2. Plan Not an Employment Contract. This Plan shall not be construed to be a contract of employment. Nothing in the Plan shall be deemed to restrict or limit an Employer's right to discharge any Participant or other Employee at any time. Section 15.3. Plan For Exclusive Benefit of Participants. The Plan and the Fund shall exist for the sole and exclusive benefit of Participants and their beneficiaries, and no amendment shall be made that would be inconsistent with such purpose. Section 15.4. Benefits Not Assignable. Except with respect to (a) federal income tax withholding and or federal tax levy under Code section 6331, (b) withdrawals and loans under Article X, or (c) subject to the provisions of section 401(a)(13) of the Code, compliance with the provisions and conditions of a judgment, order, decree or settlement agreement entered into on or after January 1, 1998, between the Participant and the Secretary of Labor or the Pension Benefit Guaranty Corporation relating to a violation (or an alleged violation) of part 4 of subtitle I of ERISA, no benefits payable hereunder shall be subject to assignment, transfer, sale or encumbrance and the Fund shall not be liable for, or subject to, the debts or engagements of any Participant or to any attachment or other legal process to collect the same. Notwithstanding the foregoing, the Committee shall direct the Trustee to comply with a Qualified Domestic Relations Order. Upon receipt of any judgment, decree or order (including approval of a property settlement agreement relating to the provision of payment by the Plan to an Alternate Payee pursuant to a state domestic relations law, the Committee shall promptly notify the affected Participant and any Alternate Payee of the receipt of such judgment, decree or order and shall notify the affected Participant and any Alternate Payee of the Committee's procedure for determining whether or not the judgment, decree or order is a Qualified Domestic Relations Order. The Committee shall establish a procedure to determine the status of a judgment, decree or order as a Qualified Domestic Relations Order and to administer Plan distributions in accordance with Qualified Domestic Relations Orders. Such procedure shall be in writing, shall include a provision specifying the notification requirements enumerated above, shall permit an Alternate Payee to designate a representative for receipt of communications from the Committee and shall include such other provisions as the Committee shall determine, including provisions required under applicable regulations. Nothing herein, however, shall prevent the effective designation of beneficiaries for receipt of survivors' benefits under elections made pursuant to Section 9.4. Section 15.5. Application for Benefits. Each Participant, beneficiary or Alternate Payee believing himself or herself eligible for benefits under the Plan shall apply for such benefits by completing and filing with the Committee an application for benefits on a form supplied by the Committee. Before the date on which benefit payments commence, each such application must be supported by such information and data as the Committee deems relevant and appropriate. Evidence of age, marital status (and, in the appropriate instances, health, death or disability), and location of residence shall be required of all applicants for benefits. In the event a Participant, beneficiary or Alternate Payee fails to apply to the Committee at least 60 days prior to the Required Distribution Date described in Section 8.6 or the latest distribution date required pursuant to the terms of qualified Domestic Relations Order, the Committee shall make diligent efforts to locate such Participant, beneficiary or Alternate Payee and obtain such application. In the event the Participant, beneficiary or Alternate Payee fails to make application by the date described in Section 11.2 or the latest distribution date required pursuant to the terms of qualified Domestic Relations Order, the Committee shall make distribution in the form of a single sum as of such date without such application; provided, however, that in the event the Committee fails to locate the Participant, beneficiary or Alternate Payee so that distribution as of the date described in Section 11.2 or the latest distribution date required pursuant to the terms of qualified Domestic Relations Order is not possible, payment shall be made no later than 60 days after the date on which the Participant, beneficiary or Alternate Payee is located. 40 Section 15.6. Required Information Concerning Participants. The Committee may require eligible Employees to furnish such information as to age, health, employment and family status as they believe reasonably necessary to administer the Plan. Section 15.7. Incompetence of Participant. If the Committee determines that any Participant or beneficiary entitled to benefits under this Plan is physically or mentally incompetent or is a minor, that such person is in the care of another person and that no guardian, committee or other representative has been duly appointed, payment may be made to the person or institution caring for the Participant or beneficiary. The receipt of such person or institution shall be a complete discharge for the payment of such benefit. Section 15.8. Merger with Another Plan. In the event that this Plan merges or consolidates with or transfers assets or liabilities to any other plan after the Effective Date of this Plan, each Participant shall be entitled to a retirement benefit which is equal to or greater than the benefit which he would have been entitled to receive immediately before the merger, consolidation or transfer of assets or liabilities. For purposes of the comparison described above, benefits shall be computed as if this Plan had terminated immediately prior to the merger, consolidation or transfer and as if the surviving or recipient plan had terminated immediately after such merger, consolidation or transfer. Section 15.9. Controlling Laws. The rights and obligations of the Employer and its Employees under this Plan shall be determined in accordance with the laws of the State of Florida and, where applicable, of the United States of America. 41 SCHEDULE A PROVISIONS PERTAINING TO MARITANK INC. AND MARISPOND INC. PARTICIPANTS The following provisions shall supersede and/or supplement certain of the provisions of Articles I through XI of the Plan to the extent provided below with respect to any Maritank Inc. Participant and, effective July 1, 1994, any Marispond Inc. Participant. References to Section numbers pertain to Sections in the main Plan document unless specifically indicated otherwise. Effective for Plan Years beginning on or after December 31, 1994, the provisions of this Schedule A shall no longer apply. A. The following is added at the end of Section 2.1: "A Maritank Inc. or Marispond Inc. Participant's Accounts may also include his `Matching Account.' `Matching Account' shall include Matching Contributions made on behalf of a Maritank Inc. or Marispond Inc. Participant in respect of any Plan Year and shall be invested in the Investment Fund or Funds in the same manner and to the same proportionate extent as the Maritank Inc. or Marispond Inc. Participant designates for his Salary Reduction Contribution Account." B. The following is added at the end of Section 2.20: "Employer Contributions for a Maritank Inc. or Marispond Inc. Participant may also include `Matching Contributions' (intended to satisfy the requirements of section 401(m) of the Code)." C. The following is added at the end of Section 3.1: "Notwithstanding the foregoing, any Employee employed by Maritank, Inc. or Marispond, Inc. shall not be eligible to participate under this Section 3.1(b)." D. Section 4.5(a) is amended to add the following after the first sentence thereof: "A Maritank Inc. or Marispond Inc. Participant's Basic Contributions into the Fund shall be in the aggregate at a whole percentage rate, elected by the Maritank Inc. or Marispond Inc. Participant, of the Compensation otherwise payable to such Participant." E. Section 4.5(b) is amended to add the following to the end thereof: "In the event a Participant receives a distribution of excess Salary Reduction Contributions pursuant to this subsection (b), the Participant shall forfeit any Matching Contributions, plus income thereon; allocated to the Participant by reason of the distributed Salary Reduction Contributions. Such income shall be equal to the sum of the allocable gain or loss for the Plan Year and for the period from the end of the Plan Year to the date of distribution, and shall be determined by the Committee in a manner uniformly applicable to all Participants and consistent with Treasury regulations. Amounts forfeited shall be used to reduce future Matching Contributions made pursuant to Section 4.11." F. A new Section 4.11 is added to read, in its entirety, as follows: 42 "Section 4.11. Matching Contributions. Maritank Inc. and Marispond Inc. shall make `Matching Contributions' to the Plan for each Plan Year. Such Matching Contributions shall equal 50% of all Basic and Deferred Bonus Contributions made by each Maritank Inc. and Marispond Inc. Participant for that Plan Year, not in excess of 6% of each such Participant's Compensation, provided that such Participant is an Employee on the last day of such Plan Year. Notwithstanding the foregoing, for Plan Years beginning after December 31, 1994, Matching Contributions shall no longer be provided under this Section 4.11." G. The first paragraph of Section 5.3 is amended to read, in its entirety, as follows: "Section 5.3. Limitations on Salary Reduction Contributions and Matching Contributions. For any Plan Year, the Committee shall insure (a) that Contributions under the Plan shall not exceed the limitations on deductions imposed under section 404(a)(3) of the Code; (b) that the Plan shall satisfy the coverage requirements of section 410(b)(1) of the Code; (c) that the Plan shall satisfy the average deferral percentage test set forth in Section 5.3(a); and (d) that the Plan shall satisfy the average contribution percentage test set forth in Section 5.7." H. Section 5.3(c) is amended to read, in its entirety, as follows: "Section 5.3(c) Return of Excess Contributions. If the average deferral percentage (or the average contribution percentage) for all Maritank Inc. and Marispond Inc. Participants who are Highly Compensated Employees exceeds the amount specified in Sections 5.3(a) (or 5.3(c)) for any Plan Year, the Basic and Deferred Bonus Contributions (and if necessary, Matching Contributions) for the Highly Compensated Employee(s) with the highest deferral (or contribution) percentage shall be reduced so that his applicable percentage is reduced to the greater of (a) such percentage that enables the Plan to satisfy the applicable percentage test, or (b) a percentage equal to the applicable percentage of the Highly Compensated Employee(s) with the next highest percentage. This procedure shall be repeated until the applicable percentage test is satisfied. The amount so reduced, together with the attributable earnings thereon, including earnings for the Plan Year for which the excess amounts were contributed and shall be deemed to have been contributed to the Plan by mistake of fact, shall be refunded to the Employer, and shall thereafter be returned by the Employer to the Maritank Inc. and Marispond Inc. Participants from whom such excess contribution was obtained (subject, however, to the withholding of taxes and other amounts as though such amounts were current remuneration). Such payment shall be made within two and one half (2-1/2) months following the close of such Plan Year, if administratively practicable, but in no event later than 12 months of the close of the Plan Year with respect to which the reduction applies. I. A new Section 5.7 is added to read, in its entirety, as follows: "Section 5.7. Average Contribution Percentage Test. The term `average contribution percentage test' shall mean the numerical test set forth in Section 5.3(a) substituting for the term `average deferral percentage' the term `average contribution percentage'. The following rules shall also apply: (a) The term ?average contribution percentage' as applied to a specified group of Participants shall mean the average of the ratios, calculated separately for each such Participant in the group of: (i) the amount of Matching Contributions paid to the Plan on behalf of such Participant for such Plan Year and, at the discretion of the Employer, Basic and Deferred Bonus Contributions, to 43 (ii) the Participant's Compensation for such Plan Year. (b) Basic and Deferred Bonus Contributions may be taken into account under this Section 5.7 only to the extent necessary to satisfy the average contribution percentage test, and only to the extent that the Plan continues to satisfy the average deferral percentage test set forth in Section 5.3(a) without taking into account such Basic and Deferred Bonus Contributions. (c) If two or more plans of the Employer or an Affiliated Company to which Employee contributions or Employer matching contributions are made are treated as one plan for purposes of sections 401(a)(4) and 410(b) of the Code, such plans shall be treated as one plan for purposes of this Section 5.7. If a Highly Compensated Employee participates in any other plan of the Employer to which Employer matching contributions, Employee contributions or elective deferrals are made, all such contributions shall be aggregated for purposes of this Section 5.7 (excluding plans that are not permitted to be aggregated under Treas. Reg. section 1.401(m)-1(b)(3)(ii))." J. A new Section 5.8 is added to read, in its entirety, as follows: "Section 5.8. Limitation on Use of Percentage Tests. For any Plan Year, the sum of the average deferral percentage and the average contribution percentage for all Maritank Inc. and Marispond Inc. Participants who are Highly Compensated Employees shall not exceed the sum of (a) and (b) where: (a) is the product of 1.25 and the greater of (i) the average deferral percentage for all Maritank Inc. and Marispond Inc. Participants who are Non-Highly Compensated Employees; or (ii) the average contribution percentage for all Maritank Inc. and Marispond Inc. Participants who are Non-Highly Compensated Employees; and (b) is the product of 2.0 and the lesser of (i) or (ii) above; provided, however, that in no event shall this amount exceed the lesser of (i) or (ii) above by more than two percentage points. If the limitation in this Section is not met, the actual deferral percentage or the actual contribution percentage of Highly Compensated Employees, as determined by the Committee, shall be reduced in the manner prescribed in Section 5.5 until such limitation is met." K. A new Section 5.9 is added to read, in its entirety, as follows: "Section 5.9. Aggregation. For purposes of Sections 5.3(a), 5.7 and 5.8, the Plan shall be aggregated and treated as a single plan with other plans maintained by the Employer or an Affiliated Company to the extent that the Plan is aggregated with any such other plan for purposes of satisfying section 410(b) (other than section 410(b)(2)(A)(ii)) of the Code." L. A new Subsection 7.1(e) is added to read, in its entirety, as follows: 44 "Section 7.1(e). Vesting of Matching Account. A Maritank Inc. and Marispond Inc. Participant shall become 100% vested in his Matching Account upon the earlier of (i) his Normal Retirement Age, (ii) the occurrence of death or Disability, (iii) termination of the Plan or partial termination of the Plan as to him or complete discontinuance of Matching Contributions, or (iv) the date on which the Maritank Inc. and Marispond Inc. Participant attains age 55. At any time other than a time delineated in the preceding sentence of this Section, the Maritank Inc. and Marispond Inc. Participant's vested percentage in his Matching Account shall be determined according to the schedule set forth in Section 7.1(a). In the event the vesting schedule in this Section 7.1(e) is amended, any Participant who has completed at least three Years of Service as defined in Section 7.6 at the time of such amendment, may elect, pursuant to Section 16.2, to have the vested interest of his Matching Account determined without regard to such amendment." M. A new Section 7.6 is added to read, in its entirety, as follows: "Section 7.6. Years of Service for Vesting. For the purposes of this Article, an Employee shall be credited with a Year of Service for each Plan Year during which he is credited with 1,000 or more Hours of Service beginning with the Plan Year commencing January 1, 1991." N. A new Section 7.7 is added to read, in its entirety, as follows: "Section 7.7. Breaks in Service and Loss of Service. (a) An Employee's Years of Service shall be canceled if he incurs a Break in Service before his Normal Retirement Date and at a time when (i) he has no nonforfeitable interest in his Accounts, other than his Rollover Account or Contribution Account or (ii) he has no Account under the Plan. (b) Except as provided in Subsections (c) and (d) of this Section, an Employee or former Employee shall incur a Break in Service in any Plan Year in which he is not credited with more than 500 Hours of Service. (c) If an Employee is absent for one or more of the following reasons, then, to the extent he is not otherwise credited with Hours of Service with respect to such absence, he shall be credited with an Hour of Service, solely for purposes of Subsection (b) of this Section 7.7, for each Hour of Service with which he would have been credited if he had continued to be actively employed during the period of absence due to: (i) layoff for a period not in excess of one year; (ii) leave of absence with the approval of the Committee for a period not in excess of one year, unless such period is extended by the Committee; (iii) military service such that his right to reemployment is protected by law. (d) If an Employee is absent from work by reason of pregnancy, childbirth, or placement in connection with adoption, or for purposes of the care of such Employee's child immediately after birth or placement in connection with adoption, such Employee shall be credited, solely for purposes of Subsection (b) of this Section 7.7, with the Hours of Service with which such Employee would have been credited but for the absence; or, if such hours cannot be determined, with eight Hours of Service per normal workday. The total number of hours to be treated as Hours of Service under this Subsection (d) shall not exceed 501. The hours described in this Subsection (d) shall be credited either for the Plan Year in which the absence from work begins, if the Employee would be prevented from incurring a Break in Service in such Plan Year because the period of absence is treated as Hours of Service under this Subsection (d), or, in any other case, for the Plan Year next following the one in which the absence from work begins. In order for an absence to be considered on account of the reasons described in this subparagraph, an Employee shall provide the Committee, in the form and manner prescribed by the Committee, information establishing (i) that the absence from work is for the reasons set forth in this subparagraph, and (ii) the number of days for which there was such an absence. Nothing in this Plan relating to such Hours of Service shall be construed as expanding or amending any maternity or paternity leave policy of the Employer." 45 O. A new Section 7.8 is added to read, in its entirety, as follows: "Section 7.8. Restoration of Service. The Years of Service of an Employee that have been canceled pursuant to Section 7.7 shall be restored if he thereafter completes a Year of Service and, at his Reemployment Commencement Date, the number of his consecutive Breaks in Service was less than the greater of (i) the number of Years of Service to his credit when the first such Break in Service occurred, or (ii) 5." P. A new Section 7.9 is added to read, in its entirety, as follows: "Section 7.9. Forfeitures and Restoration of Forfeited Amounts upon Reemployment. (a) If a Maritank Inc. or Marispond Inc. Participant who has had a Termination Date does not thereafter complete an Hour of Service before the end of the Plan Year in which occurs the earlier of: (i) the date on which he receives a distribution of his entire nonforfeitable interest in his Account, which is less than 100%; or (ii) the date on which he incurs a one-year Break in Service; his Matching Account shall be closed, and the forfeitable amount credited thereto shall be forfeited. (b) Amounts forfeited from a Maritank Inc. or Marispond Inc. Participant's Matching Account under subsection (a) of this Section shall be used to reduce future Matching Contributions. (c) If a Maritank Inc. or Marispond Inc. Participant, who has received a distribution described in paragraph (a)(i) of this Section, as a result of which a portion of his Accounts has been forfeited, has a Reemployment Commencement Date prior to incurring 5 consecutive 1-year Breaks in Service, the amount so forfeited shall be restored to his new Matching Account, as applicable, if, and only if, he repays the full amount of such distribution (if any) prior to the earlier of (i) the 5th anniversary of his Reemployment Commencement Date, or (ii) the date on which the Maritank Inc. or Marispond Inc. Participant has completed 5 consecutive 1-year Breaks in Service following the date of the distribution. Amounts restored under this subsection shall be charged against forfeitures for the Plan Year. If the foregoing amounts are insufficient, Maritank Inc. or Marispond Inc., as applicable, shall make any additional contribution necessary to accomplish the restoration. 46 (d) If a Participant has had 5 consecutive 1-year Breaks in Service and again becomes an Employee, the amount forfeited under subsection (a) shall not be restored to his Account for any reason." Q. A new Section 8.4 is added to read, in its entirety, as follows: "Section 8.4. Distribution on Termination. The entire amount of a Participant's nonforfeitable interest in his Accounts shall be distributed after the Participant's Termination Date. Such Distribution shall be made to the Participant except in the event of his death, in which case such distribution will be made to the Participant's designated beneficiary." R. Section 11.4 is Amended by adding the following after the Schedule therein: For any Plan Year in which the Plan is determined to be a Top-Heavy Plan, each Maritank Inc. and Marispond Inc. Participant's interest in his Matching Account shall become vested in accordance with the above schedule or in accordance with the provisions of Section 7.1(a), whichever produces a greater nonforfeitable interest. S. This Schedule A shall be effective, with respect to Maritank, Inc. Participants, as of November 1, 1993, and with respect to Marispond Inc. Participants, as of July 1, 1994. 47 EX-10 5 ex10-13.txt EXHIBIT 10.13 Exhibit 10.13 RETIREMENT PLAN OF MARITRANS INC. (as amended and restated effective January 1, 2002 with amendments through January 1, 2003)
TABLE OF CONTENTS ARTICLE I ADOPTION OF PLAN.......................................................................3 ARTICLE II DEFINITIONS............................................................................4 ARTICLE III ELIGIBILITY............................................................................8 ARTICLE IV CONTRIBUTIONS AND SOURCE OF BENEFITS...................................................8 ARTICLE V RETIREMENT DATES.......................................................................8 ARTICLE VI RETIREMENT BENEFITS....................................................................8 ARTICLE VII DEATH BENEFITS.........................................................................8 ARTICLE VIII SPECIAL PROVISIONS FOR TOP-HEAVY PLANS.................................................8 ARTICLE IX ADMINISTRATION AND FIDUCIARY RESPONSIBILITY............................................8 ARTICLE X AMENDMENT OF PLAN......................................................................8 ARTICLE XI TERMINATION OF PLAN....................................................................8 ARTICLE XII ADOPTION OF PLAN BY AFFILIATED COMPANY.................................................8 ARTICLE XIII MISCELLANEOUS..........................................................................8 EXHIBIT A PARTICIPATING EMPLOYERS................................................................8 EXHIBIT B ADOPTION AGREEMENT OF PARTICIPATING EMPLOYER...........................................8 EXHIBIT C MINIMUM BENEFITS FOR SEAGOING SUPERVISORS..............................................8 EXHIBIT D MINIMUM DISTRIBUTION INCIDENTAL BENEFIT TABLES.........................................8
ARTICLE I ADOPTION OF PLAN Maritrans GP, Inc., (the "Employer") with its principal office in Philadelphia, Pennsylvania, acquired the assets of and employed the employees of Sonat Marine Inc., and certain affiliates, on April 14, 1987, and adopted the Retirement Plan of Sonat Marine Inc. (the "Plan") effective that date for eligible employees. The Plan was renamed the Retirement Plan of Maritrans GP, Inc. at that time. Effective April 1, 1993, in connection with a change in business structure, the sponsorship of the Plan was transferred to Maritrans Inc. and the name of the Plan was changed to the "Retirement Plan of Maritrans Inc." The Plan was previously amended and restated to incorporate all previous amendments and comply with legislative requirements. The Plan was previously amended and restated, effective January 1, 1997 to incorporate prior amendments and to reflect applicable provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994, the General Agreement on Tariffs and Trade adopted through the enactment of the Uruguay Round Agreements, the Small Business Job Protection Act of 1996, and the Taxpayer Relief Act of 1997. The Plan is now amended and restated, effective January 1, 2002 (except as otherwise provided herein) to incorporate all previous amendments and to reflect the applicable provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), certain provisions of final regulations issued by the Department of Labor with respect to claims administration, and final regulations issued by the Department of Treasury regarding required minimum distributions. The Plan as amended and restated herein, shall apply in general only to an Employee who terminates employment on or after January 1, 2002. This Plan is intended to meet the requirements for good faith compliance with EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. The rights and benefits, if any, of a former Employee shall be determined in accordance with the provisions of the Plan in effect on the date the former Employee's employment terminated. -3- ARTICLE II DEFINITIONS ----------- Whenever used herein the following words and phrases shall have the meaning set forth below unless a different meaning is plainly required by the context. The singular shall include or mean the plural and the masculine pronoun shall include or mean the feminine pronoun, where applicable. 2.1 "Accrued Benefit" shall mean the monthly retirement benefit which a Participant has earned to any date and shall be the amount computed as provided in Section 6.1 based upon the number of Years of Credited Service the Participant could have attained if the Participant remained in the Employer's or Participating Employer's Service until Normal Retirement Date multiplied by a fraction in which the numerator is the Participant's actual Years of Participation and the denominator is the total Years of Participation the Participant could have attained if the Participant remained in the Employer's Service until Normal Retirement Date or, in the case of a Participant who remains in the Employer's or Participating Employer's Service after Normal Retirement Date, in which the denominator is the actual Years of Participation the Participant has attained at the Participant's Late Retirement Date. 2.2 "Actuarial Equivalent" (or "Actuarial Reduction") shall mean equality (or reduction) of benefits when computed in accordance with the Unisex Pension Tables for 1984 with interest at 6 1/2% per annum. Notwithstanding the foregoing and effective January 1, 1999, lump sum distributions under Sections 5.4, 6.9, 7.1 or 11.3 shall be the amount equal to the greater of (a) or (b) where (a) is an amount calculated using the "Applicable Interest Rate" and the "Applicable Mortality Table," and (b) is an amount calculated using an interest rate of 6 1/2% and the "Applicable Mortality Table." "Applicable Interest Rate" for distributions in any Plan Year shall mean the annual rate of interest on 30-year Treasury securities for the month immediately preceding the date of distribution. "Applicable Mortality Table" shall mean the table prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(A)(ii)(I) of the Code. For purposes of Section 6.12(b), if a Participant's pension is payable in a form subject to Section 417(e)(3) of the Code, the Actuarial Equivalent shall be an amount determined by using the Applicable Mortality Table and the Applicable Interest Rate, both as described in the preceding paragraph. For purposes of Section 6.12(c), the Actuarial Equivalent of the dollar limitation set forth in subparagraph 6.12(a)(1) applicable to benefits commencing before the Participant attains age 62 shall be determined by using the Applicable Mortality Table, as described in the preceding paragraph, and an interest assumption of 6 1/2%. For purposes of Section 6.12(e), the Actuarial Equivalent of the dollar limitation applicable to benefits commencing after the Participant's Social Security Retirement Age, or effective January 1, 2002, age 65, shall be an amount determined by using the Applicable Mortality Table, as described in the preceding paragraph, and an interest assumption of 5%. 2.3 "Actuary" shall mean an actuary enrolled as provided in section 3042 of the Employee Retirement Income Security Act of 1974, as amended. 2.4 "Affiliated Company" shall mean: (a) any corporation that is a member of the same controlled group of corporations (within the meaning of Code section 414(b)) as the Employer; (b) any member of an affiliated service group, as determined under Code section 414(m), of which the Employer is a member; (c) any trade or business that is under common control with the Employer, as determined under Code section 414(c) and (d) any other entity which is required to be aggregated with the Employer under Code section 414(o). "50% Affiliated Company" means an Affiliated Company, but determined by substituting the phrase "more than 50 percent" for the phrase "at least 80 percent" in Code section 1563(a), when applying Code sections 414(b) and 414(c). -4- 2.5 "Anniversary Date" shall mean the first day of each Plan Year during which the Plan is in effect. 2.6 "Average Basic Monthly Compensation" shall mean the average of a Participant's Basic Monthly Compensation as determined for those 5 consecutive Plan Years (or over the most recent consecutive Years of Service prior to termination of employment with the Employer or Participating Employer if less than 5) prior to termination of employment, that will include the Participant's highest average amount of Basic Monthly Compensation. Years of Service for purposes of determining Average Basic Monthly Compensation shall include all Years of Service credited under the Prior Plan. 2.7 "Basic Monthly Compensation" (a) Except as provided in Subsection 2.7(b), "Basic Monthly Compensation" shall mean 1/12th of a Participant's annual rate of Compensation as determined on each Anniversary Date of the Plan. "Compensation" shall include a Participant's annual rate of base salary and all amounts which the Participant elects to defer under the provisions of a Code section 125 plan or a cash or deferred arrangement maintained by the Employer or Participating Employer pursuant to Code Section 401(k), or, for Plan Years beginning on or after January 1, 2001, section 132(f)(4) of the Code; exclusive of payments for overtime, discretionary or incentive bonuses, fringe benefits and severance pay. In the case of a sea-going supervisor, Basic Monthly Compensation shall be such individual's daily rate of pay multiplied by 182.75, plus 80% of such individual's daily rate of pay multiplied by 18. The annual rate of Compensation for a salaried Employee shall be the regular salary rate in effect at each Anniversary Date, and for an hourly paid Employee it shall mean the regular hourly rate on each Anniversary Date multiplied by 2,080. (b) In addition to other applicable limitations which may be set forth in the Plan and notwithstanding any other contrary provision of the Plan, a Participant's Compensation taken into account under the Plan shall not exceed the dollar limitation in effect under Code section 401(a)(17) with respect to any Plan Year. Notwithstanding the foregoing, the dollar limitation shall be $200,000, as adjusted for cost-of-living increases in accordance with section 401(a)(17) of the Code, for the purposes of determining benefit accruals for a Participant who performs an Hour of Service in a Plan Year beginning after December 31, 2001. 2.8 "Benefit Commencement Date" means, the date as of which a Participant's first benefit payment (whether a single sum or an annuity installment payment) is made (or the date such payment is due, if such payment is delayed) to the Participant (or to the Spouse or other beneficiary of the Participant if the Participant's death occurs prior to that date). 2.9 "Board of Directors" shall mean the Board of Directors of the Employer. 2.10 "Break in Service" shall mean any 12-consecutive month period beginning on an Employee's Date of Severance and each anniversary thereof during which an Employee fails to perform an Hour of Service. An Employee who is absent from work for maternity or paternity reasons shall not be treated as having incurred a Break in Service during the twelve month period beginning on the first anniversary of the first date of such absence. For purposes of this Section 2.10, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. In order for this Section 2.10 to apply, an Employee shall provide to the Committee, in the form and manner prescribed by the Committee, information establishing (a) that the absence from work is for reasons set forth in this Section 2.10, and (b) the number of days for which there was such an absence. Nothing in this Section 2.10 shall be interpreted as an expansion or modification of any policies of the Employer or Participating Employer regarding maternity or paternity leave. -5- 2.11 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.12 "Committee" shall mean the Retirement Plan Committee appointed by the Board of Directors to assist in administration of the Plan in accordance with Article IX. 2.13 "Compensation Committee" shall mean the Compensation Committee of the Board. 2.14 "Contract" shall mean any contract of life insurance issued by an insurance company to the Trustee under the Plan as a source of benefits for Participants or their beneficiaries. 2.15 "Date of Employment" shall mean the first day on which an Employee performs an Hour of Service. 2.16 "Date of Reemployment" shall mean the first day on which an Employee performs an Hour of Service after incurring a Break in Service. 2.17 "Date of Severance" shall mean the earlier of: (a) the date on which an Employee quits, is discharged, retires or dies, or (b) the first anniversary of an Employee's absence from Service for any reason other than a quit, discharge, retirement or death. Notwithstanding the foregoing, if the Employee is absent for a period of Qualified Military Service, the Employee shall not be considered to have had a Date of Severance provided the absent Employee is reemployed by the Employer or an Affiliated Company within the time during which his or her right to reemployment is protected by applicable law. 2.18 "Designated Beneficiary" shall mean the individual who is designated as the beneficiary under Sections 6.14 and 7.3 of the Plan and is the Designated Beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations. 2.19 "Distribution Calendar Year" A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Distribution Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to Subsection 6.14(c). 2.20 "Earliest Retirement Date" shall mean the earliest date on which, under the Plan, the Employee could elect to receive retirement benefits. 2.21 "Effective Date" shall mean January 1, 1997 unless specified otherwise in the Adoption Agreement of a Participating Employer referred to in Section 12.1. -6- 2.22 "Eligibility Computation Period" shall mean the 12-month period beginning on an Employee's Date of Employment or Date of Reemployment, whichever is applicable, and each anniversary thereof. 2.23 "Employee" shall mean any person who is employed by the Employer or a Participating Employer. However, no such person shall be considered an Employee under this Plan for any period during which such Employee is (a) covered by a collective bargaining agreement (unless that collective bargaining agreement provides for participation in the Plan); (b) a leased Employee within the meaning of section 414(n)(2) or 414(o) of the Code; (c) a non-resident alien who receives no compensation from sources within the United States (within the meaning of Code section 861(a)(3)); or (d) classified by the Company as a "temporary" Employee. For this purpose, a temporary Employee is an individual who may be called by the Employer or a Participating Employer for employment on a non-scheduled and non-recurring basis or to work on a specific project for a designated length of time. (a) In addition, no person whose duties are primarily seagoing shall be considered an Employee under this Plan; provided, however, that on or after August 15, 1984, any person who is a seagoing supervisor and who is not covered by a collective bargaining agreement shall be considered an Employee under this Plan as of August 15, 1984, or, if later, the date on which the collective bargaining agreement covering such seagoing supervisor expires. (b) Notwithstanding subsection (a), effective on or after January 1, 1997, any person who is a seagoing supervisor shall not be considered an Employee under this Plan if such person's retirement benefits are provided by the American Maritime Officers Pension Fund. (c) The term "Employee" shall not include any person characterized by the Employer or an Affiliated Company as an "independent contractor" or any other person who is not treated by the Employer or the Affiliated Company as an Employee for purposes of withholding federal employment taxes, regardless of any contrary Internal Revenue Service, governmental or judicial determination relating to such employment status or tax withholding. In the event that a person is engaged in an independent contractor or similar capacity and is subsequently classified by the Employer, an Affiliated Company, the Internal Revenue Service or a court as an Employee, such person, for purposes of this Plan, shall be deemed an Employee from the actual (and not the effective) date of such classification. (d) Other categories of employees may be excluded from the definition of Employee only by specific direction set forth in the Adoption Agreement of a Participating Employer. 2.24 "Employer" shall mean Maritrans Inc., a Pennsylvania corporation with its principal office in Philadelphia, Pennsylvania. 2.25 "Entry Date" shall mean the December 31st or June 30th of the Plan Year in which an Employee becomes a Participant. 2.26 "Fund" or "Trust Fund" shall mean the assets held by the Trustee from contributions made by the Employer and Participating Employers, including income, gains and losses thereon, as the source of benefits under this Plan. 2.27 "Full-time Employee" shall mean an Employee who works at least the regularly scheduled work-week for the type of position that individual holds with the Company as determined in accordance with the Company's personnel policies. 2.28 "Highly Compensated Employee" means any Employee who either: -7- (a) was a 5% owner (as defined in Code section 416(i)(1)) at any time during the Plan Year for which Highly Compensated employees are being identified or the preceding Plan Year; or (b) with respect to the Plan Year preceding the Plan Year for which Highly Compensated employees are being identified both (1) had compensation, as defined below, in excess of the dollar amount under Code section 414(1)(1)(B)(i), as in effect for such Plan Year, and (2) was in the top 20% of all employees when ranked on the basis of compensation. (c) A former Employee shall be treated as a Highly Compensated Employee, if such Employee was a Highly Compensated Employee while an active Employee in either the Plan Year in which such Employee separated from service or in any Plan Year ending after his 55th birthday. (d) For purposes of this Section 2.28, on and after January 1, 1998, the term "compensation" shall mean compensation, as such word is defined in Code section 415(c)(3) (which includes elective deferrals as defined in section 402(g)(3) of the Code, as well as any other amounts contributed or deferred by the Employer at the election of the Employee which are excluded from the gross income of the Employee under section 125 or 457 of the Code), paid to the Employee for the applicable period. Prior to January 1, 1998, the term "compensation" shall mean compensation within the meaning of Code section 415(c)(3), but including amounts that are excluded from gross income under section 125, 402(a)(8), 402(h) or 403(b) of the Code or, for Plan Years beginning on or after January 1, 2001, section 132(f)(4) of the Code. (e) For purposes of this Section 2.28, the term "Employee" shall mean an Employee of the Employer or an Affiliated Company. 2.29 "Hour of Service" shall mean: (a) each hour for which an employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliated Company; (b) each hour for which an employee is paid, or entitled to payment, by the Employer or an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacations, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service shall be credited under this Subsection 2.29(b) to any employee on account of any single continuous period during which such employee performs no duties (whether or not such period occurs in a single Plan Year). For purposes of this Subsection 2.29(b), a payment shall be deemed to be made by or due from the Employer or an Affiliated Company regardless of whether such payment is made by or due from the Employer or an Affiliated Company directly or through, among others, a trust fund (other than the Fund), or insurer, to which the Employer or an Affiliated Company contributes or pays premiums and regardless of whether contributions made or due from such trust fund (other than the Fund), insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate; and (c) each hour for which an employee is absent for Qualified Military Service, provided the employee returns to service with the Employer or an Affiliated Company within the time period during which the employee's right to reemployment is protected by applicable law. (d) each hour for which back-pay, irrespective of mitigation of damages, has either been awarded or agreed to by the Employer or an Affiliated Company. In the event that the same hours could, by the terms of this Section 2.29, be credited under more than one paragraph of this Section 2.29, such hours shall be credited as provided in Subsection 2.29(a) or (b) only, whichever is applicable. -8- (e) Hours of Service shall be credited pursuant to the provisions of 29 CFR 2530.200b-2(b) and (c) which are incorporated herein by reference. Nothing in this Section 2.29 shall be construed to deny an employee credit for an Hour of Service if credit is required by federal statute other than the employee Retirement Income Security Act of 1974, as amended. In applying such other federal statutes, the nature and extent of such credit shall be governed by such other federal law. (f) In the case of an employee who had service as a leased employee of the Employer or an Affiliated Company within the meaning of Code section 414(n) or 414(o), Hours of Service shall be credited as if such employee were employed and paid with respect to such service (or with respect to any related absences or entitlements) by the Employer or Affiliated company that is the recipient thereof. (g) For purposes of Sections 2.10 and 3.1 only, Hours of Service shall be credited in accordance with Subsections (a), (b), (c), (d), (e) and (f) of this Section 2.29. For all other purposes of the Plan, Hours of Service shall be credited only in accordance with Subsection 2.29(a) hereof. 2.30 "Investment Advisor" shall mean an adviser which is (a) registered under the "Investment Advisers Act of 1940", (b) a bank, or (c) is an insurance company qualified to perform investment services in more than one State, which is appointed by the Compensation Committee to render investment advice as provided in Article IX hereof and which acknowledges in writing its status as a fiduciary under the Plan. 2.31 "Late Retirement Date" means, for any Participant, the first day of the calendar month coincident with or next following the date on which the Participant has a Date of Severance, if such Date of Severance occurs after the Participant's Normal Retirement Date. 2.32 "Life Expectancy" shall mean Life Expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations. 2.33 "Normal Retirement Date" shall mean the first day of the month coinciding with or next following the later of (a) the Participant's 65th birthday or (b) the 5th anniversary of the Participant's commencement of participation in the Plan. "Normal Retirement Age" shall mean the later of (a) the Participant's 65th birthday or (b) the 5th anniversary of the Participant's commencement of participation in the Plan. 2.34 "Participant" shall mean any Employee qualifying for participation as provided in Article III. A person shall cease to be a Participant as of the date when the individual and any beneficiary no longer have rights to any benefits under the Plan. "Former Harbor Towing Participant" shall mean any Participant who was a participant or who was eligible to participate in the Harbor Towing Retirement Plan and who became a Participant in this Plan as of January 1, 1983. 2.35 "Participating Employer" shall mean an Affiliated Company which has been authorized by the Board of Directors to adopt, and has adopted, the Plan in accordance with Article XII hereof. A list of Participating Employers shall appear in Exhibit A hereto. 2.36 "Plan" shall mean the Plan of the Employer or Participating Employer as set forth in the Retirement Plan of Maritrans Inc., the Adoption Agreement executed by each Participating Employer, the Trust Agreement, the Prior Plan (to the extent still applicable) and the resolutions of the Board of Directors appointing the Committee and other Fiduciaries. "Harbor Towing Retirement Plan" shall mean the Revised Retirement Plan for Employees of Harbor Towing Corporation, as in effect on December 31, 1982. -9- 2.37 "Plan Year" shall mean the 12-month period beginning on January 1 and ending on December 31 for any year in which the Plan or the Prior Plan is in effect. 2.38 "Prior Plan" shall mean the Retirement Plan of IOT Corporation and Subsidiary Corporations effective July 1, 1974, revised effective July 1, 1976 and as thereafter amended. 2.39 "Qualified Domestic Relations Order" shall mean a judgment, decree or order (including approval of a property settlement agreement) made pursuant to a state domestic relations law (including a community property law) which: (a) relates to the provision of child support, alimony payments or marital property rights to a Spouse, former Spouse, child or other dependent of a Participant (the "Alternate Payee"); (b) creates or recognizes the existence of the Alternate Payee's right to, or assigns to the Alternate Payee the right to receive all or a portion of the benefits payable to a Participant under this Plan; (c) specifies (i) the name and last known mailing address (if any) of the Participant and each Alternate Payee covered by the order, (ii) the amount or percentage of the Participant's Plan benefits to be paid to the Alternate Payee, or the manner in which such amount or percentage is to be determined, and (iii) the number of payments or the period to which the order applies and each plan to which the order relates; and (d) does not require the Plan to (i) provide any type or form of benefit or any option not otherwise provided under the Plan, (ii) pay any benefits to the Alternate Payee prior to the date the affected Participant attains or would have attained the Earliest Retirement Date, (iii) provide increased benefits (determined on the basis of actuarial value), or (iv) pay benefits to the Alternate Payee that are required to be paid to another Alternate Payee under a prior Qualified Domestic Relations Order. Notwithstanding the foregoing, a Qualified Domestic Relations Order may provide that distribution commence on or after the date on which the Participant attains or would have attained the Earliest Retirement Date, regardless of whether the Participant has terminated service on that date, if the order directs (i) that the amount of benefit be determined as if the Participant had retired on the date on which payment is to begin under the Order taking into account only the Actuarial Equivalent of the Accrued Benefit and not taking into account the value of any Employer or Participating Employer subsidy for early retirement, and (ii) that the benefit be paid in a form in which such benefits may be paid under the Plan to the Participant other than in the form of a joint and survivor annuity with respect to the Alternate Payee and the Participant's subsequent Spouse to the extent payment in such form complies with the minimum distribution requirements of Code section 401(a)(9) and regulations thereunder. 2.40 "Part-time Employee" shall mean an Employee who works less than the regularly scheduled work-week for the type of position that individual holds with the Company as determined in accordance with the Company's personnel policies. 2.41 "Qualified Military Service" shall mean service in the uniformed service (as defined in chapter 43 of title 38, United States Code) by any Employee if such Employee is entitled to reemployment rights under such chapter with respect to such service. 2.42 "Required Distribution Date" shall mean the appropriate date described under Section 6.14. 2.43 "Service" shall mean all periods of active employment with the Employer or an Affiliated Company commencing on the Employee's Date of Employment or Date of Reemployment, whichever is applicable, and ending on his or her Date of Severance. Service shall also include all periods of Severance during which an Employee does not incur a Break in Service. -10- For purposes of vesting under the Plan, Participants who are former employees of Computer Command and Control Company ("CCCC"), and who transferred to employment with the Employer or a Participating Employer on or before March 31, 1997, shall be credited with Service under the Plan for all periods of active employment with CCCC prior to March 31, 1997; provided, however, that no more than five (5) years of Service shall be credited pursuant to this paragraph. Service under this Section 2.42 shall be modified by any additional Service credit provided under Appendix B of the Plan. 2.44 "Severance" shall mean the period of time commencing on an Employee's Date of Severance and ending on the date on which the Employee again performs an Hour of Service. 2.45 "Social Security Retirement Age" shall mean (a) for any person born before January 1, 1938, age 65, (b) for any person born after December 31, 1937, but before January 1, 1955, age 66, and (c) for any person born after December 31, 1954, age 67. 2.46 "Spouse" shall mean the individual to whom the Participant is married on the Benefit Commencement Date; provided, however, that for purposes of Section 5.4, "Spouse" shall mean the individual to whom the Participant is married throughout the one-year period ending on the date of the Participant's death. 2.47 "Trust Agreement" shall mean the separate written Agreement adopted as a part of the Plan which sets forth the provisions under which the Trustee shall manage the Fund. 2.48 "Trustee" shall mean the bank or trust company or the individuals designated by the Employer to administer the Fund in accordance with this Plan as provided herein. 2.49 "Years of Credited Service" shall mean a Participant's Years of Service as an Employee beginning on his or her Date of Employment or his or her Date of Reemployment, whichever is applicable, and ending on his or her Date of Severance. (a) Notwithstanding the foregoing, for his or her period of Service prior to January 1, 1981, a Participant's Years of Credited Service as determined in this Section 2.48 shall be at least equal to his or her Years of Credited Service under the Prior Plan as in effect immediately prior to such date. (b) In the case of a Former Harbor Towing Participant, Years of Credited Service shall also include "years of credited service" as defined and credited under the Harbor Towing Retirement Plan. (c) In the case of a seagoing supervisor who is not covered by a collective bargaining agreement or whose retirement benefits are not provided by the American Maritime Officers Pension Fund, Years of Credited Service shall also include Years of Service earned while employed by the Employer other than as an Employee. (d) In addition, an Employee shall be credited with Hours of Service for purposes of calculating Years of Credited Service for each period of Qualified Military Service served by the Employee, provided that the Employee is reemployed by the Employer or a Participating Employer within the time during which the Employee's right to reemployment is protected by applicable law. -11- (e) Years of Credited Service under this Section 2.48 shall be modified by any additional Service credit provided under Appendix B of the Plan. (f) Notwithstanding the foregoing, in the case of a Part-time Employee, a "Year of Credited Service" shall be determined by dividing Hours of Service (as determined in accordance with Subsections (a), (b), (c), (d), (e) and (f)) by 1950. In the case of an Employee who is employed as Full-time Employee and as a Part-time Employee during the Plan Year, service shall be determined separately under each applicable method (as described under Section 2.50(a) for the period of employment as a Full-time Employee and as described under this Section 2.48(f) for the period of employment as a Part-time Employee) and aggregated. 2.50 "Years of Participation" shall mean a Participant's Years of Service beginning on his or her Entry Date and ending on his or her Date of Severance, but disregarding any periods of Service during which the Participant is not an Employee. In the case of a Former Harbor Towing Participant, Years of Participation shall also include "years of credited service" as defined and credited under the Harbor Towing Retirement Plan. 2.51 "Years of Service" shall mean the number of whole years of an Employee's Service whether or not such years were completed consecutively. (a) An Employee shall be credited with one Year of Service for each 12 months of Service the Employee completes. Less than whole year periods of Service, whether or not consecutive, shall be aggregated on the basis that 12 months of Service (30 days are deemed to be a month in the case of the aggregation of fractional months) equal one Year of Service. In the event that an Employee transfers from being a Full-time Employee to being a Part-time Employee or from being a Part-time Employee to being a Full-time Employee during the Plan Year, the foregoing shall apply during such Plan Year for the purpose of determining a "Year of Credited Service" except as otherwise provided under Subsection 2.48(f). (b) An Employee shall receive credit for all Years of Service except that if an Employee with no vested interest under Section 5.6 incurs a period of consecutive Breaks in Service, his or her Years of Service prior to the Breaks in Service shall not be taken into account if the number of consecutive Breaks in Service equals or exceeds the greater of (i) 5, or (ii) the Employee's Years of Service prior to the Breaks in Service. (c) In addition, for purposes of determining an Employee's eligibility and vesting, Years of Service shall include each period of Qualified Military Service served by the Employee, provided that the Employee is reemployed by the Employer or an Affiliated Company within the time during which the Employee's right to reemployment is protected by applicable law. -12- ARTICLE III ELIGIBILITY ----------- 3.1 General Requirements. All Employees who were Participants in the Plan on December 31, 1996, shall automatically continue to participate herein. Each other Employee shall be eligible to participate on the Entry Date following the Eligibility Computation Period in which such Employee completes 1,000 Hours of Service. 3.2 Participation. Any Employee eligible to participate in the Plan shall automatically become a Participant as provided in Section 3.1 and may not waive benefits provided herein or elect not to participate in the Plan. 3.3 Reentry. If a Participant incurs a Break in Service and once again qualifies to participate in the Plan, such Participant shall become a Participant on the first day following such Break in Service on which such Participant performs an Hour of Service. If a terminated Employee, who had qualified for participation hereunder, incurs a Break in Service prior to his or her Entry Date and is subsequently rehired by the Employer or a Participating Employer, such Employee shall become a Participant on the date the Employee is rehired. If a terminated Employee who had not qualified for participation is subsequently rehired by the Employer or a Participating Employer, such Employee shall be eligible to participate as provided in Section 3.1 as if the Employee had not been previously employed by the Employer or Participating Employer. -13- ARTICLE IV CONTRIBUTIONS AND SOURCE OF BENEFITS ------------------------------------ 4.1 Contributions by Employers. The Employer and the Participating Employers shall make contributions to the Fund from time to time in such amounts as are determined by the Actuary to be necessary to provide benefits under the Plan and to permit the Trustee to pay premiums on Contracts; provided, however, that the Employer or Participating Employer may discontinue contributions at any time whether or not all benefits specified in the Plan are then fully funded. 4.2 Participant Contributions. Contributions by Participants are neither required nor permitted. 4.3 Life Insurance Contracts. The Trustee, if instructed by the Committee, shall purchase for the account of each Participant found to be insurable at standard rates by an insurance company as of the date on which such Participant becomes a Participant, life insurance in such form as the Committee shall determine, in the proportion of $1,000 face amount for each $10 per month of his or her anticipated monthly pension determined in accordance with Section 6.5. To the extent that the Participant is found by the insurance company to be insurable only at substandard rates, a policy shall be obtained to provide a graduated death benefit prior to retirement, the amount of death benefit being determined in accordance with the rating. 4.4 Increase in Compensation and Life Insurance. Whenever the Basic Monthly Compensation of a Participant is increased, to the extent of increasing his or her anticipated monthly pension hereunder by $10 or more, the Trustee, if instructed by the Committee, shall purchase additional insurance as of the Anniversary Date on which such increase is determined. The minimum amount of insurance to be purchased in this event shall be $1,000 face value. 4.5 Form of Contracts. The Contracts contemplated by Section 4.3 and 4.4 shall be procured from such legal reserve life insurance company or companies authorized to do business in Pennsylvania as the Committee shall determine. All Contracts will become effective on the June 30th coinciding with or next following each Participant's Entry Date and shall be in form and content as nearly uniform, as regards basic options, cash surrender value, anniversary dates and other material features, as may be from time to time obtainable. Each Contract shall designate the Trustee as the applicant and owner. 4.6 Transfer of Contracts on Termination of Employment. Upon termination of employment for reasons other than death or retirement under the Plan, the Participant shall be entitled to acquire from the Trustee any whole life insurance Contracts issued on his or her life upon payment to the Trustee of the then determined cash value of any dividends accrued under such whole life insurance Contracts. Alternatively, at the request of such Participant, the Trustee may cause the insurance company to deliver to it the full cash value of such whole life insurance Contracts and thereafter transfer the whole life insurance Contracts to the Participant subject to a loan from the insurance company for the amount of such cash value. In either event, the proceeds so received by the Trustee shall be held in the Trust Fund. A Participant shall be given the opportunity to purchase his or her policy upon termination of employment from the Employer or Participating Employer and if the Participant declines this purchase opportunity, the Employer or Participating Employer may direct the Trustee to retain the policy. -14- 4.7 Source of Benefits. As and when directed by the Committee, the Trustee shall: (a) pay the necessary sums to the insurance company which together with the Contract will provide the pensions required under the Plan; or (b) surrender the various Contracts for cash at Normal Retirement Date or at any other time and (i) purchase single premium annuity contracts (which shall be non-transferable), or (ii) pay pensions from the Trust Fund itself. 4.8 Return of Contributions. (a) Any contribution which is made by a mistake of fact shall be returned to the Employer or Participating Employer within one year after the payment of the contribution. (b) All contributions are conditioned on the initial qualification of the Plan under Code section 401(a), and if the Plan is found not to so qualify, contributions made in respect of any period subsequent to the effective date of the disqualification shall be returned to the Employer or Participating Employer within one year after the denial of such qualification. (c) All contributions are conditioned upon the deductibility of such contributions under Code section 404(a), and, to the extent any deductions are disallowed, shall be returned to the Employer or Participating Employer within one year after the disallowance of the deduction. For this purpose, a contribution which is not deductible in the current taxable year but may be deducted in taxable years subsequent to the year in which made will not be considered to have been disallowed. (d) Upon termination of the Plan, if any assets of the Plan remain after distribution in accordance with Section 11.2, such residual assets shall be distributed to the Employer or Participating Employer if all liabilities of the Plan to its Participants and their beneficiaries have been satisfied and such distribution does not contravene any provisions of applicable law. (e) The amount of any contributions which may be returned to the Employer or Participating Employer pursuant to Subsection 4.8(a) or (c) shall not exceed the excess of (i) the amount contributed over (ii) the amount that would have been contributed if there had not occurred a mistake of fact or a mistake in determining the deduction. Earnings attributable to any excess contribution may not be returned to the Employer or Participating Employer, but losses attributable thereto shall reduce the amount returned. -15- ARTICLE V RETIREMENT DATES ---------------- 5.1 Normal Retirement. Each Participant shall have a fully vested right to benefits provided under the Plan on the date the Participant attains Normal Retirement Age. 5.2 Early Retirement. Any Participant who has 15 Years of Credited Service and has attained age 55 may retire on the first day of any month coinciding with or following completion of such age and service requirements, which date shall be known as his or her Optional Early Retirement Date. Any Participant who has an Optional Early Retirement Date shall be entitled to a pension. Such Participant's Benefit Commencement Date shall be the Participant's Normal Retirement Date; provided that the Participant may elect as the Participant's Benefit Commencement Date the Participant's Optional Early Retirement Date or the first day of any month after the Participant's Optional Early Retirement Date and not after the Participant's Normal Retirement Date. Such election must be made no earlier than 90 days prior to the Benefit Commencement Date elected by the Participant and in no event earlier than the date the Participant receives the notice described in Subsection 6.8(a). 5.3 Postponed Retirement. A Participant may retire on the first day of any month following his or her Normal Retirement Date. Notwithstanding the foregoing and in accordance with Section 12(c) of the Age Discrimination in Employment Act, nothing in this Section shall prohibit the compulsory retirement of any Employee who has attained age 65 and who for the two-year period immediately before retirement is employed in a bona fide executive or high policy-making position, provided that such Employee is entitled to an immediate nonforfeitable annual retirement benefit payable from this or any other pension, profit-sharing, savings or deferred compensation plan or any combination of such plans maintained by the Employer or Participating Employer, which benefit equals in the aggregate at least $44,000. 5.4 Death Before Retirement. If a Participant dies while in employment with the Employer or Participating Employer after the Anniversary Date of the Plan that follows his or her Entry Date but prior to his or her Normal or Optional Early Retirement Date, a death benefit shall be paid to his or her beneficiary under Article VII of the Plan. In addition, if a Participant with a nonforfeitable right to his or her Accrued Benefit under Section 5.6 dies prior to his or her Benefit Commencement Date, the Participant's surviving Spouse, if any, shall receive a pre-retirement survivor annuity benefit which shall equal 50% of the benefit that would have been payable to the Participant if (a) in the case of a Participant who dies after his or her Earliest Retirement Date, the Participant had survived and had retired with a benefit under Section 6.6 in effect on the day before the Benefit Commencement Date elected by the Spouse; or (b) in the case of a Participant who dies on or before his or her Earliest Retirement Date, the Participant had (1) terminated service on the date of his or her death, (2) survived to the Benefit Commencement Date elected by the Spouse, (3) retired having elected the form of benefit under Section 6.6 to commence on such Benefit Commencement Date, and (4) died on the following day. -16- The benefit of such surviving Spouse shall begin, as elected in writing by the surviving Spouse not more than 90 days prior to the Benefit Commencement Date, on the date which would have been the Participant's Earliest Retirement Date (but not earlier than the first day of the month following the Participant's death) or the first day of any month thereafter, but not later than the date which would have been the Participant's Normal Retirement Date. In the case of a Participant whose death occurs after his or her Normal Retirement Date, the benefit of such surviving Spouse shall begin no later than the first day of the month following the Participant's death. At the election of the Spouse, the pre-retirement death benefit may be paid in the form of a lump sum cash distribution equal to the Actuarial Equivalent of the survivor annuity benefit. If the Participant dies before his or her Benefit Commencement Date but after the Participant has elected an optional form of benefit that is a joint and survivor annuity with the Participant's Spouse that provides for periodic payments after the Participant's death each of which is at least 50% but not more than 100% of the periodic payment to the Participant, the survivor's benefit shall be the benefit to which the Spouse is entitled under the optional form elected by the Participant. The present value of the Actuarial Equivalent of the survivor annuity benefit, as determined by the Actuary, shall be subtracted from the death benefit payable under Article VII of the Plan and the balance of the death benefit shall be paid to the Participant's beneficiaries in a lump sum or other form of distribution as may be selected. 5.5 Transition Rule. Notwithstanding the foregoing, if a Participant (a) completed at least one Hour of Service under the Plan after September 1, 1974, (b) incurred a Date of Severance before January 1, 1976, and (c) has not reached the date benefits are scheduled to commence and is still alive, the Participant shall have the right to elect to receive benefits in the form of a joint and survivor annuity in accordance with the provisions of the Plan prior to this amendment and restatement. If a Participant whose benefits are not in pay status as of August 23, 1984 (a) has incurred a Date of Severance before August 23, 1984, but after December 31, 1975, (b) has completed at least one Hour of Service in any Plan Year beginning on or after January 1, 1976 and no Hour of Service after August 23, 1984, (c) has completed at least 10 Years of Service under the Plan, (d) has a nonforfeitable right to all or a portion of his or her Accrued Benefit under the Plan, and (e) as of August 23, 1984 has not reached the date benefits are scheduled to commence and is still alive, such Participant shall be entitled to the pre-retirement survivor annuity benefit coverage under Section 5.4. 5.6 Termination with Vested Benefit Payable at Normal Retirement Date. After a Participant has completed 6 or more Years of Service, the Participant shall have a 100% vested right to his or her Accrued Benefit for which payment shall begin at his or her Normal Retirement Date, or, for a Participant who has satisfied the service requirement of Section 5.2, at his or her election as described in Section 5.2, upon or after his or her Optional Early Retirement Date. A Participant whose employment terminates when the Participant has not completed 6 Years of Service shall be entitled to a percentage of his or her Accrued Benefit determined from the following table: Completed Years Percentage of of Service Accrued Benefit ---------- --------------- Less than 2 0% 2 10% 3 20% 4 40% 5 70% 6 or more 100% -17- Payment shall begin at such Participant's Normal Retirement Date. 5.7 Forfeitures. Any forfeiture of benefits arising under the Plan because of a Participant's failure to qualify for benefits shall not be applied to increase benefits of other remaining Participants but rather shall be applied to reduce further contributions of the Employer or Participating Employer. -18- ARTICLE VI RETIREMENT BENEFITS ------------------- 6.1 Normal Retirement. Unless Section 6.4, 6.6 or 6.9 applies, each Participant who is in the employment of the Employer or Participating Employer at his or her Normal Retirement Date and retires at that time shall be entitled to receive a monthly pension commencing on his or her Normal Retirement Date for a minimum period of ten years and thereafter for life equal to an amount which shall be determined as follows: (a)(1) For Participants Whose Dates of Severance Occur On and After January 1, 1992. (A) For those Employees who commenced participation in the Plan after August 14, 1984, 48% of Average Basic Monthly Compensation reduced by 1/30th for each Year of Credited Service at retirement which is under 30 Years of Credited Service; and (B) For those Employees who commenced participation in the Plan before August 15, 1984, the greater of: (i) 48% of Average Basic Monthly Compensation reduced by 1/30th for each Year of Credited Service at retirement which is under 30 Years of Credited Service; or (ii) 38.5% of Average Basic Monthly Compensation, reduced by 1/15th for each Year of Credited Service at retirement which is under 15 Years of Credited Service; provided, however, that a Participant's Accrued Benefit under this subsection (a)(1) shall in no event be less than the Accrued Benefit determined for the Participant as of December 31, 1991 under Paragraph (a)(2) of this Section 6.1. (2) For Participants Whose Date of Severance Occurs On and After the Effective Date and Prior to January 1, 1992. The greater of: (A) the Participant's Accrued Benefit determined as of the Applicable Date, under the following formula: (i) the sum of 0.75% of the first $1000 of his or her Average Basic Monthly Compensation and 1.75% of his or her Average Basic Monthly Compensation in excess of $1,000; multiplied by (ii) his Years of Credited Service but not in excess of 30; or (B) the Participant's Accrued Benefit determined as of the date of determination, under the formula described in subsection (a)(1) of this Section 6.1. For purposes of this subsection (a)(2), "Applicable Date" shall mean (i) in the case of a Participant who is a Highly Compensated Employee within the meaning of Section (a) or (b) with respect to any Plan Year beginning on or after January 1, 1989 or the last day of the last Plan Year in which the Participant was not described in Section 2.28(a) or (b), if later, or (ii) in the case of any other Participant, the date of determination. -19- (b) In addition, if a Participant is entitled to receive, or upon application would be entitled to receive or has received, any retirement or similar benefit from any other retirement plan to which the Employer or any Affiliated Company contributed or on account of his or her period of Service with the Employer or any Affiliated Company if such Service is also credited hereunder (collectively called the "Other Plan"), then notwithstanding other provisions of this Article VI, in calculating any benefit due hereunder, the Participant's Accrued Benefit shall be reduced by the value of such Participant's accrued benefit payable under the Other Plan, (1) to which the Employer or Affiliated Company contributes or has contributed, directly or indirectly, to the extent such benefit is provided by the contributions of the Employer or Affiliated Company and/or (2) based on the same period of employment and/or earnings for which retirement income is credited under this Plan, in either case converted, where appropriate, to an annuity payable for a minimum period of ten years and thereafter for the Participant's life beginning at the Participant's Normal Retirement Age, based upon the assumptions of this Plan used in determining an Actuarial Equivalent. (c) (1) In the event that under a strict application of the formula set forth in Section 6.1(a) as of any given date a reduction in a Participant's Accrued Benefit would result, his or her Accrued Benefit on any date of determination on and after such date shall equal the greater of (1) his or her Accrued Benefit, as determined as of the last day of the Plan Year prior to the Plan Year in which such reduction occurred, under the terms of the Plan as then in effect, or (2) his or her Accrued Benefit determined pursuant to the provisions of the Plan as in effect as of the date of determination. Furthermore, if the Participant has had a Date of Severance and again becomes an active Participant, the amount of any benefit payable to such Participant at his or her subsequent Date of Severance shall not be less than the benefit the Participant was entitled to receive at his or her prior Date of Severance, except as provided in Section 6.9. (2) Notwithstanding any provision in the Plan to the contrary, a Participant's Accrued Benefit shall not be less than his or her accrued benefit, determined as of December 31, 1996 under the terms of the Plan as in effect through December 31, 1996, based on his or her Years of Credited Service and on his or her Average Basic Monthly Compensation determined as of December 31, 1996 and not otherwise disregarded due to the Participant's Separation from Service. (d) Notwithstanding anything herein to the contrary, if a seagoing supervisor became a Participant in this Plan in 1984 or, if later, at the time the last collective bargaining agreement covering him or her expired, his or her total monthly benefit payable under this Plan and under the Seafarers Pension Plan or the District 2 MEBA-AMO Pension Plan (collectively called the "Union Pension Plan") shall not be less than the monthly benefit to which such seagoing supervisor would have been entitled under the Union Pension Plan determined under the terms of such plan in effect on the date on which the last collective bargaining agreement covering such seagoing supervisor expired as set forth in Exhibit C. (e) Unless otherwise provided under the Plan, each Code section 401(a)(17) Employee's Accrued Benefit under the Plan will be the greater of the Accrued Benefit determined for the Employee under (1) or (2) below: (1) the Employee's Accrued Benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee's total Years of Credited Service taken into account under the Plan for the purposes of benefit accruals; or (2) the sum of: (A) the Employee's Accrued Benefit as of December 31, 1993, frozen in accordance with section 1.401(a)(4)-13 of the regulations, and -20- (B) the Employee's Accrued Benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to Years of Credited Service credited to the Employee for Plan Years beginning on or after January 1, 1994. A Code section 401(a)(17) Employee means an Employee whose current Accrued Benefit as of a date on or after January 1, 1994, is based on Compensation for a year beginning prior to January 1, 1994, that exceeded $150,000. 6.2 Amount of Early Retirement Benefit. Unless Section 6.6 applies, a Participant retiring prior to his or her Normal Retirement Date in accordance with Section 5.2 of the Plan will be entitled to receive his or her Accrued Benefit, actuarially reduced, in accordance with actuarial assumptions and factors then in effect, to reflect the Participant's age on his or her Benefit Commencement Date. However, for purposes of applying Paragraph 6.1(a)(2), the reduction of that portion of the benefit attributable to Average Basic Monthly Compensation in excess of $400 or $1,000, whichever is applicable, shall be the lesser of: (a)(1) 1/15th of the amount payable under Section 6.1 for each of the first five years and (2) 1/30th of such amount for each of the next five years by which a Participant's Benefit Commencement Date precedes his or her Normal Retirement Date; or (b) the reduction otherwise calculated in accordance with actuarial assumptions and factors than in effect, to reflect the Participant's age of his or her Benefit Commencement Date. The benefits provided under this Section 6.2 shall be modified by any additional benefits provided under Appendix B of the Plan. 6.3 Postponed Retirement Benefit. (a) Unless Section 6.6 applies, and subject to Section 6.4, a Participant retiring after his or her Normal Retirement Date shall receive a monthly pension commencing on his or her actual retirement date equal to the Participant's Accrued Benefit determined as of the earlier of his or her Late Retirement Date or his or her Required Distribution Date. (b) If a Participant's Benefit Commencement Date precedes his or her Late Retirement Date, the amount of the pension payable to the Participant shall be determined as of his or her Benefit Commencement Date and shall be adjusted annually as of January 1 in each calendar year following his or her Benefit Commencement Date, up to and including the January 1 next following his or her Late Retirement Date. Such annual adjustment shall include any increase (but not any decrease) in the Participant's Accrued Benefit, determined in accordance with Section 6.1, as a result of up to 30 additional Years of Credited Service and compensation since the Participant's Benefit Commencement Date or the last such annual adjustment, whichever applies. In addition, such annual adjustment shall be reduced (but not below zero) by the Actuarial Equivalent of any benefits paid to the Participant since his or her Benefit Commencement Date during any period that would have constituted "Suspension Service" under Section 6.4 had the Participant not reached his or her Required Distribution Date, to the extent not previously taken into account under this Subsection 6.3(b); provided, however, that the amount, if any, of the benefits paid to the Participant which exceeds the amount the Participant would have received if distribution had been made in the form of benefits described in Section 6.1 or 6.6, as applicable, for such Participant shall be disregarded in determining the Actuarial Equivalent of such benefits for purposes of the reduction described in this sentence. (c) This Section 6.3 shall apply only to a Participant credited with one or more Hours of Service on or after January 1, 1988. The pension of any other Participant entitled to a pension under this Article VI shall be determined as if such Participant had a Date of Severance on his or her Normal Retirement Date. 6.4 Suspension of Benefit Rules. -21- (a) Suspensions after Normal Retirement Date. No benefit shall be paid to any Participant under the Plan during any period of employment or reemployment after a Participant's Normal Retirement Date and prior to his Required Distribution Date with respect to any month in which the Participant has any Suspension Service as described in Paragraph 6.4(a)(2) hereof. (1) Commencement or Recommencement of Benefits. Benefits suspended under this Subsection 6.4(a) shall commence or recommence no later than the earliest of: (A) the first day of the month next following the Participant's Date of Severance; (B) the Participant's Required Distribution Date; or (C) the first day of the month following the month in which the Participant first fails to have Suspension Service as described in Paragraph 6.4(a)(2). (2) Suspension Service. A Participant shall be deemed to have Suspension Service in any month which is after his or her Normal Retirement Date, but prior to his Required Distribution Date, and in which month: (A) the Participant completes 40 or more Hours of Service for the Employer or an Affiliated Company, if the Plan has for any purpose with respect to the Participant used or determined the actual number of Hours of Service creditable to the Participant by an actual counting of such Hours of Service, or (B) the Participant receives payment from the Employer or an Affiliated Company for any Hours of Service performed on each of 8 or more days (or separate work shifts), if the Plan has not for any purpose with respect to the Participant used or determined the number of Hours of Service creditable to the Participant by an actual counting of such Hours of Service. (3) Offset. To the extent that the Plan has paid benefits to a Participant with respect to any month in which the Participant has Suspension Service which amounts have not previously been recovered by the Plan, the Plan shall defer commencement or recommencement of benefits under Paragraph 6.4(a)(1) hereof for a period of two calendar months, or until the amounts paid with respect to months in which the Participant has Suspension Service have been recovered (without interest), whichever is the first to occur. If, at the end of the said 2-month period there remains an unrecovered amount which was paid to the Participant during or with respect to a period of Suspension Service, such amount shall be recovered (without interest) by the Plan by reducing each benefit payment due the Participant or the Participant's Spouse or other beneficiary after benefit commencement or recommencement by the lesser of: (A) the excess of the amount of the benefits paid to the Participant with respect to a period of Suspension Service, over the amount of such benefits which have been restored to, or recovered by the Plan, or (B) 25% of the Participant's monthly (or periodic) benefit payments. (4) Notification. No payment shall be withheld or suspended by the Plan pursuant to this Subsection 6.4(a) until the Plan has notified the Participant by personal delivery or first class mail of the fact that such withholding or suspension is occurring or will occur. Such notification will contain a detailed description of the specific reasons why benefit payments are being suspended or withheld, a general description of the Plan provisions relating to the suspension of benefit payments, a copy of such provisions, and a statement that the applicable Department of Labor regulations governing suspensions of benefits may be found at Title 29, Code of Federal Regulations, ss. 2530.203-3. The notification shall also advise the Participant, Spouse or other beneficiary to whom directed of the Plan's procedure for affording a review of the suspension of benefits. -22- (b) Suspensions Prior to Normal Retirement Date. If a Participant is reemployed by the Employer or an Affiliated Company after his or her Benefit Commencement Date and prior to his or her Normal Retirement Date, benefits otherwise payable to the Participant shall be suspended under this Subsection 6.4(b) during the Participant's period of reemployment prior to his or her Normal Retirement Date. If the reemployed Participant continues in employment beyond his or her Normal Retirement Date, such Participant's benefits shall continue to be suspended in accordance with Subsection (a) and shall recommence as described in that Subsection. If the reemployed Participant again has a Date of Severance prior to his or her Normal Retirement Date, the Participant's benefits, recalculated on the basis of compensation and Years of Credited Service (if any) earned during the period of suspension, shall commence to be paid pursuant to Section 6.1 or 6.2, whichever applies, as if the Participant had not previously elected a Benefit Commencement Date. In either event, the Participant's benefits upon recommencement shall be reduced by the Actuarial Equivalent of the benefits paid prior to the Participant's Normal Retirement Date. 6.5 Anticipated Monthly Benefit. At any time during his or her participation in the Plan, each Participant shall be deemed to be entitled to an anticipated pension determined under Section 6.1 but with reference to his or her current and prior rates of Basic Monthly Compensation. In computing anticipated benefits under the Plan, increases in a Participant's Basic Monthly Compensation shall be taken into account as of each Anniversary Date of the Plan only if such increases would increase the monthly pension otherwise payable to the Participant $10.00 or more. 6.6 Adjustment for Interest of Spouse. If a Participant has a Spouse at his or her Benefit Commencement Date and if the Participant has not elected a different method of payment, his or her monthly benefit shall equal the amount provided in Sections 6.1, 6.2 or 6.3, whichever applies, actuarially reduced, pursuant to factors approved by the Actuary, in amount sufficient to provide his or her Spouse, after the Participant's death, with an income equal to 50% of the Actuarial Equivalent of the Participant's monthly benefit based on the ages of the Participant and his Spouse at the date on which monthly benefits begin. Subject to the requirements of Section 6.8, the Participant may elect to receive benefits in a form provided in Section 6.1 or Section 6.7 rather than in the form provided by this Section 6.6.; provided, however, that the election period to waive the joint and survivor annuity shall be the period beginning 90 days before the Benefit Commencement Date, or such later date as may be provided under Section 6.8(b) below, and ending on the Benefit Commencement Date. 6.7 Optional Form of Payment. Prior to his or her Benefit Commencement Date, a Participant may elect, in the manner provided under Section 6.8, to receive retirement benefits in an optional form as will provide a benefit which is the Actuarial Equivalent of the benefit otherwise due hereunder. (a) Option A (Joint and Survivor Annuity). A Participant may elect to receive an actuarially reduced monthly benefit for life with equal monthly payments continuing after his or her death to a joint annuitant designated in writing by him or her for the continued lifetime of such joint annuitant in 50%, 66-2/3% or 100% of the reduced amounts payable to him or her upon retirement, as the Participant may elect. Notwithstanding the foregoing, the percentage payable to the Participant's beneficiary (unless the beneficiary is the Participant's Spouse) after the Participant's death may not exceed the applicable percentage from Table I of Exhibit D. -23- (b) Option B (Payments for Certain Period). A Participant may elect to receive an actuarially reduced monthly benefit payable for life with a stipulation that should the Participant die prior to receiving 60, 120, 180 or 240 monthly payments, as the Participant may elect, the balance of such payments shall continue to be paid to his or her Designated Beneficiary. Notwithstanding the foregoing, the number of monthly payments guaranteed shall be calculated so that the number of guaranteed monthly payments remaining as of the beginning of the calendar year preceding the Participant's Required Distribution Date does not exceed the joint Life Expectancy of the Participant and his or her beneficiary, or if less, and the Participant's beneficiary is not the Participant's Spouse, the applicable number from Table II of Exhibit D multiplied by 12. (c) Option C (Single Life Annuity). A Participant, including a Participant having a Spouse for whom benefits would otherwise be provided under Section 6.6 or this Section 6.7, may elect to receive his or her basic retirement benefits as set forth in Paragraph 6.1 without adjustment for the interest of such Spouse if applicable, with regular equal monthly payments beginning with the Participant's retirement and ending with his or her death. 6.8 Manner of Elections. Any election provided under the Plan shall be made on a form prescribed by the Committee. (a) The Committee shall furnish to each Participant whose vested Accrued Benefit has an Actuarial Equivalent single-sum value in excess of $3,500 (effective January 1, 1998, $5,000), as determined in accordance with Section 6.9, no less than 30 days and no more than 90 days before his or her Benefit Commencement Date, a written explanation in non-technical language of: (1) the terms and conditions of the normal form of benefit under Section 6.1 and the joint and survivor annuity form of benefit under Section 6.6 (the "Normal Forms of Benefit") and all other forms of benefit available to the Participant including information explaining the relative values of each; (2) the Participant's right to make and the effect of, an election to waive the Normal Forms of Benefit; (3) the rights of the Participant's Spouse under Subsection 6.8(c); (4) the right to make, and the effect of a revocation of an election to waive the Normal Forms of Benefit; (5) the financial effect upon the Participant's benefit (in terms of dollars per payment) of making an election not to take the Normal Forms of Benefit and electing another form of benefit; and (6) if the Participant has not attained Normal Retirement Age, the Participant's right to defer commencement of his or her benefit until his or her Normal Retirement Date. (b) An election not to take the Normal Form of Benefit may be made at any time during the 90-day period ending on the Benefit Commencement Date. Such election may be revoked at any time prior to the Benefit Commencement Date. Notwithstanding the foregoing and effective January 1, 1997, a Participant may elect (with any applicable spousal consent, in accordance with Subsection 6.8(c)) that such Participant's Benefit Commencement Date precede or be fewer than 30 days after the explanation described in this subsection (b) is provided if: (1) The Participant is given notice of his right to a 30-day period in which to consider whether to (A) waive the normal form of benefit and elect an optional form and (B) to the extent applicable, consent to the distribution; (2) The Participant affirmatively elects a distribution and a form of benefit and the Spouse, if necessary, consents to the form of benefit elected; -24- (3) The Participant is permitted to revoke his affirmative election at any time prior to his Benefit Commencement Date or, if later, the expiration of a 7-day period beginning on the day after the explanation described in this Section is provided to the Participant; (4) The Benefit Commencement Date is after the date the Committee receives written notice of the Participant's intent to begin receiving benefits; and (5) Distribution to the Participant does not commence before the expiration of the 7-day period described in paragraph (3) above. (c) If a Participant who has a Spouse on his or her Benefit Commencement Date elects a form of retirement benefit other than the joint and survivor annuity under Section 6.6 or Subsection 6.7(a) with his or her Spouse as the designated joint annuitant, such election shall not be effective unless: (1) his or her Spouse (or the Spouse's legal guardian if the Spouse is legally incompetent) executes a written instrument whereby such Spouse: (A) consents not to receive the forms of benefit described in Section 6.6 or 6.7(a); (B) consents to the specific optional form elected by the Participant, or (provided such instrument acknowledges the Spouse's right to limit consent to a specific optional form) to the Participant's right to choose any optional form without any further consent by the Spouse; and (C) if applicable, consents in writing to either the specific beneficiary or beneficiaries designated by the Participant pursuant to his or her election or (provided such instrument acknowledges the Spouse's right to limit consent to a specific beneficiary) to the Participant's right to designate any beneficiary or beneficiaries without any further consent by the Spouse; and (D) within the instrument, acknowledges the financial effect of such election or designation, and that such consent shall be irrevocable; and (E) signs the election or beneficiary designation form in the presence of either a Plan representative designated by the Committee or a notary public. Notwithstanding the foregoing, such consent shall not be required if the Participant establishes to the satisfaction of the Committee that such consent cannot be obtained because: (i) there is no Spouse; (ii) the Spouse cannot be located after reasonable efforts have been made; or (iii) other circumstances exist to excuse spousal consent under applicable regulations. Each election made by a Participant shall at all times satisfy the requirements of this Subsection 6.8(c); if at any time such election shall fail to satisfy these requirements, such election shall thereupon be deemed null and void. -25- (d) An election provided under Section 6.6 or 6.7 may be revoked on a form prescribed by the Committee during the applicable election period and a new election may be made thereafter if it otherwise complies with this Section. Elections provided under Section 6.6 or 6.7 if timely made, shall be effective on the Benefit Commencement Date. Revocations of elections provided under Section 6.6 or 6.7 shall be effective when the designated form is completed and filed with the Committee. 6.9 Permitted Lump-Sum Distributions. (a) Anything to the contrary herein notwithstanding, if the "present value" of the total amount distributable under this Article VI does not exceed $3,500 (effective January 1, 1998, $5,000), and has never exceeded $3,500 (effective January 1, 1998, $5,000) at the time of any prior distribution, the Committee shall make such distribution in one lump sum in cash, which distribution shall be made as soon as practicable but no later than the close of the second Plan Year following the Plan Year in which such termination occurs, without regard to any election by the Participant or his or her beneficiary; provided, however, that no lump sum distribution may be made after the Benefit Commencement Date unless the Participant and his or her Spouse (or the surviving Spouse if the Participant has died) have consented in writing to the distribution. Notwithstanding the foregoing sentence, effective for distributions made on or after March 22, 1999, the nonforfeitable Actuarial Equivalent value of the amount to be paid to a Participant shall be determined as of the date his Accrued Benefit is paid to him or applied for his benefit without regard to the present value of his Accrued Benefit at any earlier time. (b) The vested Accrued Benefit of Participants who terminated employment with the Company prior to October 1, 1999 shall be distributed in the manner described in subsection (a) above as soon as administratively practicable after such date if the total nonforfeitable Actuarial Equivalent "present value" of a Participant's Accrued Benefit (as of the date his Accrued Benefit is paid to him or applied for his benefit without regard to the "present value" of his Accrued Benefit at any earlier time) does not exceed $5,000; provided, however, that the Participant has not been rehired or begun to receive payments in any other form under the Plan prior to the date of the distribution. (c) The vested Accrued Benefit of Participants who terminated employment with the Company prior to September 1, 2002 shall be distributed in the manner described in subsection (a) above as soon as administratively practicable after such date if the total nonforfeitable Actuarial Equivalent "present value" of a Participant's Accrued Benefit (as of the date his Accrued Benefit is paid to him or applied for his benefit without regard to the "present value" of his Accrued Benefit at any earlier time) does not exceed $5,000; provided, however, that the Participant has not been rehired or begun to receive payments in any other form under the Plan prior to the date of the distribution. (d) The retirement benefit of a terminated Participant who has received a lump sum distribution of the Actuarial Equivalent of his or her vested Accrued Benefit and who once again becomes an active Participant, shall be computed without reference to Years of Credited Service attributable to such distribution unless, after such Participant's resumption of employment, the Participant repays, before the earlier of (i) five years after the Participant's Date of Reemployment, or (ii) the end of the first period of five consecutive Breaks in Service commencing after the distribution, the full amount of such distribution plus interest at a rate of 5% per annum computed annually (or such other rate as determined by the Secretary of the Treasury under Code section 411(c)) from the date of distribution to the date of repayment. Notwithstanding the foregoing, however, if a Participant receives the nonforfeitable portion of his Accrued Benefit in accordance with paragraphs (b) or (c) after the close of the second Plan Year beginning after the Participant's termination date (or such later date as may be permitted under Treasury Regulations with respect to a Participant who did not receive a distribution before the close of the second Plan Year beginning after his termination date because the nonforfeitable portion of his Accrued Benefit exceeded the cash-out limit under section 411(a)(11) of the Code prior to such date), the Participant's Years of Credited Service for purposes of Section 6.1 shall not be disregarded, but any benefit that may become payable to the Participant due to his subsequent reemployment shall be reduced by the Actuarial Equivalent of the payment that he received. -26- (e) For purposes of subsections (a), (b) and (c), on or before December 31, 1998, the "present value" of a Participant's Accrued Benefit shall be determined by using an interest rate not greater than the interest rate that would have been used by the Pension Benefit Guaranty Corporation as of the date of distribution for purposes of determining the present value of a lump sum distribution on plan termination to the affected Participant; and, on or after January 1, 1999, "present value" shall mean the Actuarial Equivalent present value of the Participant's Accrued Benefit. (f) Effective January 1, 1989, if the present value of a Participant's vested Accrued Benefit on his or her Date of Severance is zero, the Participant shall be deemed to have received a single-sum payment of his or her entire vested Accrued Benefit as of his or her Date of Severance. (g) Notwithstanding the foregoing, any eligible rollover distribution in excess of $1,000 but not in excess of $5,000 made after the effective date of final regulations issued by the Department of Labor with respect to section 401(a)(31)(B) of the Code shall be transferred directly to the individual retirement plan of a designated trustee or insurer, unless the Participant elects to receive such distribution. 6.10 Failure to Apply for Pension. Benefit payments shall commence when properly written application for same is received by the Committee. In the event that a Participant fails to apply to the Committee for pension benefits by the earlier of (a) his or her Normal Retirement Date or by his or her Date of Severance, if later, or (b) the end of the calendar year in which the Participant attains Age 70 1/2, the Committee shall make diligent efforts to locate such Participant and obtain such application and, in the case of a benefit described in Section 6.9, may file an application for him or her if it has sufficient information to do so. In the event the Participant fails to make application by his or her Required Distribution Date, the Committee shall commence distribution as of the Required Distribution Date without such application. No payments shall be made for the period in which benefits would have been payable if the Participant had made timely application therefor; provided, however, that, if the Participant's Benefit Commencement Date (or, if the Participant has died, his or her Spouse's Benefit Commencement Date under Section 5.4) has been delayed until after the Participant's Normal Retirement Date solely by reason of failure to make application, and not by reason of Suspension Service as described in Section 6.4, the benefit payable (1) to the Participant on and after his or her Benefit Commencement Date, or (2) to the Participant's Spouse pursuant to Section 5.4 on and after the Spouse's Benefit Commencement Date, shall be equal to the Actuarial Equivalent of the benefit the Participant or Spouse would have received had benefits commenced on the Participant's Normal Retirement Date, as determined to reflect the deferral of benefit commencement. 6.11 Time of Distribution. Unless the Participant elects to defer payments due under the Plan, no distribution of benefits shall begin later than 60 days after the latest of: (a) the end of the Plan Year in which the Participant attains Normal Retirement Date; (b) the tenth anniversary of his or her participation in the Plan; or (c) the Participant's termination of employment. 6.12 Maximum Limit on Pensions. -27- (a) Notwithstanding any other provisions herein to the contrary, the combined annual amount of the retirement benefit payable to a Participant under this Plan, and any other defined benefit plan to which the Employer or a 50% Affiliated Company contributes, shall not exceed the lesser of: (1) $90,000 or, effective January 1, 2002, $160,000, (or such other dollar limitation as in effect for the Plan Year under Code section 415(b)(1)(A)) or (2) 100% of the Participant's average annual compensation during the three consecutive calendar years of active participation in which such compensation is the highest; (b) If the benefit payable hereunder is in any form other than a joint and survivor annuity as described in Section 6.6 or the optional forms available under Section 6.7(a) or 6.7(c) (if the contingent annuitant is the Participant's Spouse), the determination as to whether the limitation of this Section 6.12 has been satisfied shall be made by adjusting such benefit so that it is the Actuarial Equivalent of a benefit payable annually in the form of a straight life annuity. (c) If the Participant's Benefit Commencement Date occurs before the Participant attains age 62, the dollar limitation set forth in Paragraph 6.12(a)(1) is the annual benefit payable in the form of a straight life annuity that is the Actuarial Equivalent of the defined benefit dollar limitation applicable to the Participant at age 62 (adjusted under (g) or (h) below, if required). (d) For benefits commencing prior to January 1, 2002, if the Participant's Benefit Commencement Date occurs before the Participant attains his or her Social Security Retirement Age, but on or after the date the Participant attains age 62, the dollar limitation in Paragraph 6.12(a)(1) shall be reduced by 5/9 of 1% for each of the first 36 months and 5/12 of 1% for each additional month by which the Participant's Benefit Commencement Date precedes the date the Participant attains his or her Social Security Retirement Age. (e) If the Participant's Benefit Commencement Date occurs after the date the Participant attains his or her Social Security Retirement Age, or effective January 1, 2002, age 65, the dollar limitation set forth in Paragraph 6.12(a)(1) above is the annual benefit payable in the form of a straight life annuity beginning at the later age that is the Actuarial Equivalent of the defined benefit dollar limitation applicable to the Participant at age 65 (adjusted under (g) or (h) below, if required). (f) Notwithstanding the preceding provisions of this Section 6.12, the benefits payable to a Participant may exceed the limitations of Paragraph 6.12(a)(2) (but not in excess of the amount applicable under Paragraph 6.12(a)(1), adjusted as set forth in Paragraph 6.12(g)) if (i) the retirement benefits payable to such Participant under this and all other defined benefit plans of the Employer or a 50% Affiliated Company do not exceed $10,000 for the calendar year or for any prior calendar year and (ii) the Employer or 50% Affiliated Company has not at any time maintained a defined contribution plan in which the Participant participated. (g) In the case of a Participant who has been an active Participant for less than 10 full years at the time that retirement benefits begin, the dollar limitation referred to in Paragraph 6.12(a)(1) above shall be the limitation otherwise determined herein, multiplied by a fraction, the numerator of which is the number of the Participant's years as an active Participant and the denominator of which is 10. (h) In the case of a Participant who has fewer than 10 Years of Service at the time that retirement benefits begin, the limitations described in Paragraph 6.12(a)(2), Subsection 6.12(f) and Subparagraphs 6.12(j)(1)(A) and (B) shall be multiplied by a fraction, the numerator of which is the number of the Participant's Years of Service and the denominator of which is 10. -28- (i) The limitations of Subsection 6.12(g) shall be applied separately with respect to each change in the benefit structure of any qualified defined benefit plan of the Employer or a 50% Affiliated Company, to the extent required by the Secretary of the Treasury. (j) Prior to January 1, 2000, if a Participant is also participating in a separate defined contribution plan or plans established by the Employer or a 50% Affiliated Company, the benefits hereunder shall be so limited that the sum of (1) and (2) below shall not exceed 1.0 where: (1) Defined Benefit Fraction - is a fraction, the numerator of which is the projected annual benefit of the Participant under this Plan and the denominator of which is the lesser of: (A) the product of 1.25 and $90,000 (adjusted to reflect any cost of living increases provided in accordance with Code section 415), or (B) the product of 1.4 and 100% of the Participant's average annual compensation for his or her highest three consecutive years; and (2) Defined Contribution Fraction - is a fraction, the numerator of which is the sum of all annual additions to the Participant's accounts under such defined contribution plans for all limitation years, and the denominator of which is the sum of the lesser of (A) and (B) for each year during which the Participant was an Employee of the Employer or a 50% Affiliated Company: (A) the product of 1.25 and the dollar limitation in effect under Code section 415(c)(1)(A) for such year, or (B) the product of 1.4 and 25% of the Participant's compensation for such year. (3) Adjustment to Defined Contribution Fraction. Notwithstanding the above, if the Plan satisfied Code section 415 as in effect for the last Plan Year beginning prior to January 1, 1987, an amount shall be subtracted from the numerator of the defined contribution fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the defined benefit fraction and defined contribution fraction computed under Code section 415(e)(1) as amended effective January 1, 1987, does not exceed 1.0 for such Plan Year. (4) Definitions - For the purposes of this Subsection 6.12(j), "projected annual benefit" shall mean the annual benefit to which a Participant would be entitled under the terms of a defined benefit plan if the Participant had continued employment until his or her normal retirement date under such plan and if his or her compensation for the purpose of such plan had continued at the same rate. "annual additions" to a Participant's accounts under any defined contribution plan for any Plan Year shall mean the sum of (A) employer contributions; (B) forfeitures; (C)(i) for Plan Years beginning on or after January 1, 1987, the Participant's own contributions, if any, and (ii) for Plan Years beginning before January 1, 1987, the lesser of (I) one-half of the Participant's own contributions, if any, or (II) the Participant's own contributions in excess of 6% of his or her compensation for such limitation year; (D) all amounts allocated to any Participant after March 31, 1984 to an individual medical account (within the meaning of Code section 415(l)(2)) which is part of a pension or annuity plan maintained by the Employer or any 50% Affiliated Company; and (E) all amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date which are attributable to post-retirement medical benefits allocated to a separate account of a Participant who is a key Employee (as defined in Code section 419A(d)(3)), under a welfare benefit fund maintained by the Employer or any 50% Affiliated Company. -29- (k) For the purposes of this Section 6.12, "annual compensation" shall be annual wages for federal tax withholding purposes, as defined in section 3401(a) of the Code and all other payments to a Participant by an Employer or Participating Employer in the course of such Employer or Participating Employer's trade or business, for which the Employer or Participating Employer is required to furnish the Participant with a written statement under Code section 6041(d) and 6051(a)(3), but determined without regard to any rules under Code section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed; provided, however, that effective January 1, 1998, "annual compensation" shall include elective deferrals as defined in section 402(g)(3) of the Code, as well as any other amounts contributed or deferred by the Employer at the election of the Employee which are excluded from the gross income of the Employee under section 125 or 457 of the Code, or, for Plan Years beginning on or after January 1, 2001, section 132(f)(4) of the Code. Compensation taken into account under this Section 6.12 with respect to any Plan year shall not exceed the dollar limitation in effect under Code section 401(a)(17) for the Plan Year. (l) If a Participant's benefit is otherwise limited by this Section 6.12, the benefit payable to the Participant's Spouse under Section 5.4 or under a qualified joint and survivor annuity shall be based upon the Participant's benefit without regard to this Section 6.12, and the limitations of this Section shall apply to the resulting benefit payable to the Spouse. (m) Notwithstanding anything in the Plan to the contrary, the limitations of this Section 6.12 shall not cause the benefit payable to an individual who was a Participant on December 31, 1998 under any form of distribution which is subject to Section 417(e)(3) of the Code, when expressed as a single life annuity, to be less than such Participant's 1998 Benefit. For this purpose, a Participant's "1998 Benefit" shall mean the benefit payable under the applicable form of distribution expressed as a single life annuity calculated using the interest rate and mortality tables in effect on December 31, 1998 for purposes of this Section 6.12, and the provisions of Section 415 of the Code as in effect on December 7, 1994. In determining the amount of a Participant's 1998 Benefit, the following shall be disregarded: (1) any Plan amendment increasing benefits that was adopted after January 1, 1999; and (2) any cost of living adjustment occurring after January 1, 1999. 6.13 Compliance With Overall Permitted Disparity Limits. Notwithstanding any other provisions herein to the contrary, the overall permitted disparity limits set forth in Treas. Reg. ss.1.401(l)-5 shall not be exceeded with respect to any Participant when all qualified plans of the Employer and all Affiliated Companies are taken into account. 6.14 Required Distributions. Notwithstanding anything in the Plan to the contrary, a Participant's vested Accrued Benefit shall be distributed to him or her beginning no later than his or her Required Distribution Date. The form and the timing of all distributions under the Plan shall be in accordance with regulations issued by the Department of the Treasury under Code section 401(a)(9), including the incidental death benefit requirements of Code section 401(a)(9)(G) and Treas. Reg. ss. 1.401(a)(9)-2. Distributions made on or after January 1, 2002 will be made in accordance with the 401(a)(9) Final and Temporary Regulations and the requirements of this Section 6.14 will take precedence over any inconsistent provisions of the Plan. (a) Required Distribution Date. For this purpose, a Participant's Required Distribution Date is: (1) in the case of a Participant who is a 5% owner (within the meaning of Code section 416(i)) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70-1/2, April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2; and -30- (2) in the case of a Participant who is not a 5% owner, as described above, April 1 of the calendar year following the later of (1) the calendar year in which the Participant attains age 70-1/2, or (2) the calendar year in which the Participant has a Date of Severance. (3) Notwithstanding the foregoing, in the case of a Participant who attained age 70-1/2 prior to January 1, 1999 and who is not a 5% owner, as described above, Required Distribution Date shall mean April 1 of the calendar year following the calendar year in which the Participant attained age 70-1/2. (b) Increase for Retirement Post Age 70 1/2. In the event a Participant commences payment of benefits later than the April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2, an actuarial increase, in accordance with Code section 401(a)(9) and regulations thereunder, shall be provided for the period beginning on the April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2 and ending on his Benefit Commencement Date. (c) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (1) If the Participant's surviving Spouse is the Participant's sole Designated Beneficiary, then distributions to the surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later. (2) If the Participant's surviving Spouse is not the Participant's sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. (3) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (4) If the Participant's surviving Spouse is the Participant's sole Designated Beneficiary and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, this section 6.14, other than section 6.14(c)(1), will apply as if the surviving Spouse were the Participant. For purposes of this Section 6.14(c) and Section 6.14(g), distributions are considered to begin on the Participant's Required Distribution Date (or, if Section 6.14(c)(4) applies, the date distributions are required to begin to the surviving Spouse under Section 6.14(c)(1)). If annuity payments irrevocably commence to the Participant before the Participant's Required Distribution Date (or to the Participant's surviving Spouse before the date on which distributions are required to begin to the surviving Spouse under Section 6.14(c)(1), the date distributions are considered to begin is the date distributions actually commence. (d) Form of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Distribution Date, as of the first Distribution Calendar Year distributions will be made in accordance with Subsections (e), (f) and (g) of this article. If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations. -31- (e) Determination of Amount to be Distributed Each Year. (1) General Annuity Requirements. If the Participant's interest is paid in the form of annuity distributions under the Plan, payments under the annuity will satisfy the following requirements: (i) the annuity distributions will be paid in periodic payments made at intervals not longer than one year; (ii) the distribution period will be over a life (or lives) or over a period certain not longer than the period described in Subsection (f) or (g); (iii) once payments have begun over a period certain, the period certain will not be changed even if the period certain is shorter than the maximum permitted; (iv) payments will either be nonincreasing or increase only as follows: by an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the Bureau of Labor Statistics; to the extent of the reduction in the amount of the Participant's payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described in Subsection (f) dies or is no longer the Participant's beneficiary pursuant to a Qualified Domestic Relations Order within the meaning of section 414(p); or to pay increased benefits that result from a Plan amendment. (2) Amount Required to be Distributed by Required Distribution Date. The amount that must be distributed on or before the Participant's Required Distribution Date (or, if the Participant dies before distributions begin, the date distributions are required to begin under Subsections (c)(1) or (c)(2) is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, e.g., bi-monthly, monthly, semi-annually, or annually. All of the Participant's benefit accruals as of the last day of the first Distribution Calendar Year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Participant's Required Distribution Date. (3) Additional Accruals After First Distribution Calendar Year. Any additional benefits accruing to the Participant in a calendar year after the first Distribution Calendar Year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. (f) Requirements For Annuity Distributions That Commence During Participant's Lifetime. (1) Joint Life Annuities Where the Beneficiary Is Not the Participant's Spouse. If the Participant's interest is being distributed in the form of a joint and survivor annuity for the joint lives of the Participant and a nonspouse beneficiary, annuity payments to be made on or after the Participant's Required Distribution Date to the Designated Beneficiary after the Participant's death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Participant using the table set forth in Q&A-2 of section 1.401(a)(9)-6T of the Treasury regulations. -32- (2) Period Certain Annuities. Unless the Participant's Spouse is the sole Designated Beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the Participant's lifetime may not exceed the applicable distribution period for the Participant under the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations for the calendar year that contains the annuity starting date. If the annuity starting date precedes the year in which the Participant reaches age 70, the applicable distribution period for the Participant is the distribution period for age 70 under the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations plus the excess of 70 over the age of the Participant as of the Participant's birthday in the year that contains the annuity starting date. If the Participant's Spouse is the Participant's sole Designated Beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the Participant's applicable distribution period, as determined under this section 4.2, or the joint life and last survivor expectancy of the Participant and the Participant's Spouse as determined under the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant's and Spouse's attained ages as of the Participant's and Spouse's birthdays in the calendar year that contains the annuity starting date. (g) Requirements For Minimum Distributions Where Participant Dies Before Date Distributions Begin. (1) Participant Survived by Designated Beneficiary. If the Participant dies before the date distribution of his or her interest begins and there is a Designated Beneficiary, the Participant's entire interest will be distributed, beginning no later than the time described in Subsections (c)(1) or (c)(2), over the life of the Designated Beneficiary or over a period certain not exceeding: (A) unless the annuity starting date is before the first Distribution Calendar Year, the Life Expectancy of the Designated Beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year immediately following the calendar year of the Participant's death; or (B) if the annuity starting date is before the first Distribution Calendar Year, the Life Expectancy of the Designated Beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year that contains the annuity starting date. (2) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (3) Death of Surviving Spouse Before Distributions to Surviving Spouse Begin. If the Participant dies before the date distribution of his or her interest begins, the Participant's surviving Spouse is the Participant's sole Designated Beneficiary, and the surviving Spouse dies before distributions to the surviving Spouse begin, this Subsection (g) will apply as if the surviving Spouse were the Participant, except that the time by which distributions must begin will be determined without regard to Subsection (c)(1). 6.15 1993 Early Retirement Incentive. Any Participant: (a) who is employed in the Eastern Division of Maritrans General Partner Inc., the Business Services Division of Maritrans General Partner Inc., or the Operating Services Division of Maritrans General Partner Inc.; (b) who has fifteen Years of Credited Service and has attained age fifty-five as of December 1, 1993; (c) who elects during the period commencing December 1, 1993 and ending December 31, 1993 to retire under the terms of the Maritrans Inc. Voluntary Separation Program; and -33- (d) who retires not later than December 31, 1993 shall be eligible to receive a monthly pension equal to the Participant's Accrued Benefit computed as provided in Section 6.1 based upon (i) the number of Years of Credited Service the Participant could have attained if the Participant remained in Service until his Normal Retirement Date and (ii) the Participant's Average Basic Monthly Compensation determined as of December 31, 1993. The actuarial reduction described in Section 6.2 shall not apply to such monthly pension. Subject to the notice provisions of Section 6.8, the Participant may elect to receive retirement benefits in any optional form provided in Section 6.7. The Participant's monthly pension shall commence as of January 1, 1994, notwithstanding any reasonable administrative delay in providing the notice required under Section 6.8 or any delay on the part of the Participant in making an election pursuant to Section 6.7. 6.16 1995 Early Retirement Incentive. Any Participant (a) who is employed in the Gulf Division of Maritrans General Partner Inc.; (b) whose duties are primarily in a nonseagoing capacity; (c) who has fifteen Years of Credited Service and has attained age fifty-five as of May 8, 1995; (d) who elects during the period commencing May 8, 1995 and ending June 24, 1995 to retire under the terms of the Maritrans Inc. Voluntary Separation Program; (e) who signs a written election and release form provided by the Committee; and (f) who retires not later than December 31, 1995 shall be eligible to receive a monthly pension equal to the Participant's Accrued Benefit computed as provided in Section 6.1 based upon (i) the number of Years of Credited Service the Participant could have attained if the Participant remained in Service until his Normal Retirement Date and (ii) the Participant's Average Basic Monthly Compensation determined as of May 8, 1995. The actuarial reduction described in Section 6.2 shall not apply to such monthly pension. Subject to the notice provisions of Section 6.8, the Participant may elect to receive retirement benefits in any optional form provided in Section 6.7. The Participant's monthly pension shall commence as of the first day of the month following the date the Participant terminates employment, notwithstanding any reasonable administrative delay in providing the notice required under Section 6.8 or any delay on the part of the Participant in making an election pursuant to Section 6.7. 6.17 Direct Rollovers. (a) This Section 6.17 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section 6.17, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. -34- (1) "Eligible Rollover Distribution." An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's Designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) "Eligible Retirement Plan." An eligible retirement plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, or, effective for distributions made after December 31, 2001, an annuity contract described in section 403(b) or a retirement plan under section 457(b) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) "Distributee." A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a Qualified Domestic Relations Order, as defined in section 414(p) of the Code, are distributees with regard to the interest of the Spouse or former Spouse. (4) "Direct Rollover." A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 6.18 Special Benefit Enhancement for Certain Chief Engineers. Any Participant (a) who was formerly a Participant in the District 2 MEBA-AMO Pension Plan (the "AMO Plan"); (b) who ceased to participate in the AMO Plan and became a Participant in the Plan on August 15, 1984, December 7, 1984, or January 15, 1985; (c) who was employed by the Company (or a predecessor) in the position of "Chief Engineer" at the time of such change in participation; (d) who has 20 or more Years of Credited Service on August 9, 1999 or who had 20 or more Years of Credited Service at the time of termination of employment which occurred on or after June 30, 1991; (e) who elects, during the period commencing August 9, 1999 and ending September 23, 1999, to receive a benefit under the terms of this Section 6.18; (f) who signs a written election and release form provided by the Committee; and (g) who is then retired or actually retires not later than December 31, 1999; -35- shall be eligible to receive a monthly pension equal to the amount of benefit that would have been paid to such Participant under the AMO Plan determined under the benefit formula in effect under the AMO Plan on August 9, 1999. The benefit payable under this Section 6.18 shall be effective and commence as of the later of September 1, 1999 (except as provided below), or the first day of the month following the date the Participant complies with all of the conditions set forth in clauses (a) through (g) above. The actuarial reduction described in Section 6.2 shall not apply to such monthly pension. Subject to the notice provisions of Section 6.8, the Participant may elect to receive retirement benefits in any optional form provided in Section 6.7. The Participant's monthly pension shall commence as provided above, notwithstanding any reasonable administrative delay in providing the notice required under Section 6.8 or any delay on the part of the Participant in making an election pursuant to Section 6.7. The Special Enhancement Benefit provided under this Section 6.18 shall be modified by any additional benefits or forms of payment as provided under Appendix A of the Plan. Notwithstanding anything in the Plan to the contrary, the benefit payable to any Participant under this Section 6.18 shall be in lieu of any other benefit currently being paid or that is currently payable from the Plan for that Participant. -36- ARTICLE VII DEATH BENEFITS -------------- 7.1 Death Before Retirement. If a Participant dies before retirement and while still in the Employer's or Participating Employer's active employ (but after the Anniversary Date on which Contracts on his or her life are first to become effective) or prior to the Benefit Commencement Date, his or her beneficiaries will be paid a death benefit equal to the proceeds of Contracts purchased for his or her benefit as set forth in Article IV hereof less the present value of the Actuarial Equivalent of the survivor annuity benefit under Section 5.4. Such death benefit shall be payable to the Participant's beneficiaries in a lump sum or other form of distribution as may be selected by such beneficiaries. 7.2 Death After Retirement. No death benefit will be paid in the event of the death of a Participant after the later of retirement or the Participant's Benefit Commencement Date, except to the extent that there may be a death benefit provided under any optional method of payment elected by the Participant or remaining payments due a contingent or joint annuitant or the Participant's Spouse. 7.3 Designation of Beneficiaries. Each Participant shall name one or more direct or contingent beneficiaries and shall select the method of payment of death benefits on forms supplied by the insurance company. Any death benefit which is undisposed of because of such Participant's failure to designate a beneficiary or because all or some of the designated beneficiaries have predeceased him or her shall be paid to the Participant's Spouse, if living, otherwise to his or her natural and adopted children, if living, otherwise to his or her parents or survivor thereof, if living, otherwise to his or her brothers and sisters, if living, but otherwise to his or her estate. The benefit shall be paid to the first mentioned person or class, if there be such, in the order named, to the exclusion of all the following persons or classes named. 7.4 Contract Dividends. Any dividend payable while premiums are being paid on any Contracts shall be used in reduction of the premiums. Any dividend payable when there is no premium due, or when premiums are no longer payable on any Contract by the Trustee, shall be used to increase the proceeds of the policy. Any post mortem dividend shall be paid in cash to the Trustee. 7.5 Refund of Premiums on Death. In the event of death of a Participant prior to his or her Normal Retirement Date while any Contract on his or her life is in force on a premium payment basis, any portion of the last premium due and paid which is applicable to the period beyond the Contract month in which the Participant died, shall be paid in cash to the Trustee. -37- ARTICLE VIII SPECIAL PROVISIONS FOR TOP-HEAVY PLANS -------------------------------------- 8.1 General Rule. Notwithstanding any provision herein to the contrary, for any Plan Year beginning after December 31, 1983, in which the Plan is determined to be a Top-Heavy Plan, the provisions of this Article VIII shall become effective. 8.2 Definitions. (a) "Aggregation Group" shall mean: (1) each qualified retirement plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the determination date (as defined in Code section 416(g)), of the Employer or an Affiliated Company in which a Key Employee participates and (2) each other qualified retirement plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of the Employer or an Affiliated Company which enables such plan to meet the requirements of Code section 401(a)(4) or 410. The foregoing notwithstanding, the Employer may treat any or all other qualified retirement plans (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) not required to be included in the Aggregation Group as being part of such group if such group would continue to meet the requirements of Code sections 401(a)(4) and 410 with such other plan or plans being taken into account. (b) "Annual Compensation" is defined and shall be taken into account in the same manner as set out in Section 6.12(k). (c) "Determination Date" shall mean the last day of the preceding Plan Year. (d) "Key Employee" shall mean a person employed or formerly employed by the Employer or an Affiliated Company who, during the Plan Year or during any of the preceding 4 Plan Years (or, effective January 1, 2002, during the Plan Year), was any of the following: (1) An officer of the Employer having an annual Compensation of more than (A) 50% of the amount in effect under section 415(b)(1)(A) of the Code for the Plan Year or (B) effective January 1, 2002, $130,000 or such other amount as may be in effect under section 416(i)(1)(A)(i) of the Code. The number of persons to be considered officers in any Plan Year and the identity of the persons to be so considered shall be determined pursuant to the provisions of section 416(i) of the Code and the regulations published thereunder. (2) For periods prior to January 1, 2002, one of the 10 Employees who owns (or is considered as owning under the attribution rules set forth at section 318 of the Code and the regulations thereunder) the largest interest in the Employer or an Affiliated Company, provided that no person shall be considered a Key Employee under this paragraph (2) if his annual Compensation is not greater than the limitation in effect for such Plan Year under section 415(c)(1)(A) of the Code, nor shall any person be considered a Key Employee under this paragraph (2) if his ownership interest in the Plan Year being tested and the preceding 4 Plan Years was at all times less than 1/2% in value of any of the entities forming the Employer and the Affiliated Companies. (3) A 5% owner of the Employer or an Affiliated Company within the meaning of section 416(i) of the Code. -38- (4) A person who is both an Employee whose annual Compensation exceeds $150,000 and who is a 1% owner of the Employer or an Affiliated Company within the meaning of section 416(i) of the Code. The beneficiary of any deceased Participant who was a Key Employee shall be considered a Key Employee for the same period as the deceased Participant would have been so considered. (e) "Key Employee Ratio" shall mean the ratio (expressed as a percentage) for any Plan Year, determined as of the Determination Date, by dividing the amount described in paragraph (1) hereof by the amount described in paragraph (2) hereof, after deduction from both such amounts the amount described in paragraph (3) hereof. (1) The amount described in this paragraph (1) is the sum of (A) the aggregate of the present value of all accrued benefits of Key Employees under all qualified defined benefit plans included in the Aggregation Group, (B) the aggregate of the balances in all of the accounts standing to the credit of Key Employees under all qualified defined contribution plans included in the Aggregation Group, and (C) either (i) the aggregate amount distributed from all plans in such Aggregation Group to or on behalf of any Key Employee during the period of 5 Plan Years ending on the Determination Date or (ii) effective January 1, 2002, the sum of (I) the amount of any in-service distributions made to any Key Employee made from a plan in the Aggregation Group during the 5-Plan Year period ending on the Determination Date and (II) any other distributions made from a plan in the Aggregation Group to a Key Employee during the one-year period ending on the Determination Date. (2) The amount described in this paragraph (2) is the sum of (A) the aggregate of the present value of all accrued benefits of all Participants under all qualified defined benefit plans included in the Aggregation Group, (B) the aggregate of the balances in all of the accounts standing to the credit of all Participants under all qualified defined contribution plans included in the Aggregation Group, and (C) either (i) the aggregate amount distributed from all plans in such Aggregation Group to or on behalf of any Participant during the period of 5 Plan Years ending on the Determination Date or (ii) effective January 1, 2002, the sum of (I) the amount of any in-service distributions made to any Participant from any plan in the Aggregation Group during the 5-Plan Year period ending on the Determination Date and (II) any other distributions made to any Participant from any plan in the Aggregation Group during the one-year period ending on the Determination Date. (3) The amount described in this paragraph (3) is the sum of (A) all rollover contributions (or similar transfers) to plans included in the Aggregation Group initiated by an Employee and made from a plan sponsored by an employer which is not an Employer or Affiliated Company, (B) with respect to Plan Years beginning after December 31, 1984, any amount that would have been included under paragraph (1) or (2) hereof with respect to any person who has not performed services for any Employer at any time during the 5-year period (or, effective January 1, 2002, the one-year period) ending on the Determination Date, and (C) any amount that is included in paragraph (2) hereof for, on behalf of, or on account of, a person who is a Non-Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year. The present value of accrued benefits under any defined benefit plan shall be determined under the method used for accrual purposes for all plans maintained by the Employer and all Affiliated Companies if a single method is used by all such plans, or otherwise, the slowest accrual method permitted under section 411(b)(1)(C) of the Code. (f) "Non-Key Employee" shall mean any Employee or former Employee who is not a Key Employee as to that Plan Year, or a beneficiary of a deceased Participant who was a Non-Key Employee. -39- (g) "Testing Period Average Compensation" shall mean the average of the Participant's Compensation over the testing period consisting of the 5 consecutive Plan Years during which the Participant was in the employ of the Employer (whether or not such Plan Years were years during any part of which he was an Active Participant) yielding the highest such average, omitting from the Plan Years considered (1) Plan Years within which there ended a Computation Period in which the Participant was not credited with a year of Vesting Service, (2) Plan Years beginning before January 1, 1984, and (3) Plan Years beginning after the close of the last Plan Year in which the Plan was Top-Heavy. If there be fewer than 5 consecutive Plan Years in the testing period as described, the testing period shall be considered to consist of all such years as would be included if the "consecutive" requirement did not apply (to a maximum of the lesser of (I) all such years, if fewer than 5, or (ll) 5 such years). The Section 401(a)(17) Compensation Limit described in Section 2.7(b) will apply for purposes of this Section. 8.3 Determination of Top-Heavy Status. The Plan will be considered a Top-Heavy Plan for the Plan Year, if, as of the Determination Date either of the following conditions are met: (a) the Plan is not part of an Aggregation Group and the Key Employee Ratio, determined by substituting the "Plan" for the "Aggregation Group" each place it appears in Section 8.2(e), exceeds 60%, or (b) the Plan is part of an Aggregation Group, and the Key Employee Ratio of such Aggregation Group exceeds 60%. 8.4 Minimum Benefits. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 8.3, the minimum Accrued Benefit derived from the Employer or Participating Employer contributions for each Participant who is a Non-Key Employee and who has completed 1,000 Hours of Service during such Plan Year, shall not be less than the product of: (a) 2% of such Participant's Testing Period Average Compensation; and (b) the Participant's Years of Service (not exceeding 10) during which the Plan is a Top-Heavy Plan and effective January 1, 2002, excluding any portion of a Plan Year in which no Key Employee or former Key Employee benefits. Notwithstanding the foregoing, if the Participant is also participating in another defined benefit plan and/or defined contribution plan maintained by the Employer or Participating Employer, the minimum benefit hereunder may be reduced in accordance with regulations issued under Code section 416(f). 8.5 Minimum Vesting. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 8.3, each Participant's Accrued Benefit shall become vested in accordance with the following schedule: Years of Service Vested Percentage ---------------- ----------------- Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100% -40- The foregoing notwithstanding and subject to the provisions of Section 10.2, if the Plan ceases to be Top-Heavy, the provisions of Section 5.6 shall thereafter apply. 8.6 Adjustments to Maximum Limitations on Benefits and Contributions. For any Plan Year in which the Plan is determined to be a Top-Heavy Plan pursuant to Section 8.3, paragraph (j) of Section 6.12 shall be read by substituting the number "1.00" for the number "1.25", wherever it appears. Notwithstanding the foregoing, no adjustments shall be made to Paragraph (j) of Section 6.12 if the following requirements are met: (a) Section 8.4 shall be applied by substituting "3%" for "2%"; (b) the employer contribution under the defined contribution plan for each Participant who is a Non-Key Employee is not less than the lesser of: (1) 4% of such Participant's total compensation, or (2) the percentage at which contributions are made under the plan for the year for the Key Employee for whom such percentage is highest; (c) the present value of the cumulative Accrued Benefits under the Plan of Participants who are Key Employees does not exceed 90% of the present value of the total Accrued Benefits of all Participants; and (d) the sum of (i) the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans in the Aggregation Group and (ii) the aggregate of the accounts of Key Employees under all defined contribution plans in the Aggregation Group does not exceed 90% of such sum determined for all Employees. -41- ARTICLE IX ADMINISTRATION AND FIDUCIARY RESPONSIBILITY 9.1 Employer. The Employer, acting by determination of its Board of Directors, may amend the Plan as it deems necessary or desirable and shall appoint the Committee members and determine the amount of contributions as required by Section 4.1. The Compensation Committee shall appoint the Trustee and the Investment Advisor, if desired. 9.2 Investment Advisor. If appointed by the Employer, the Investment Advisor shall direct the Trustee in the investment and reinvestment of the Fund, or such portion thereof as may be assigned to it for supervision. 9.3 Trustee. The Trustee will invest and reinvest the Fund in accordance with the Trust Agreement and make distributions upon instructions of the Committee. 9.4 Committee. The Committee will decide questions of Plan interpretation, eligibility and distribution of benefits and will supply any omissions to, and resolve all inconsistencies in the Plan and will make all factual determinations required. Any determinations made by the Committee pursuant to this Section 9.4 shall be conclusive and binding on all parties. The Committee shall receive reports from the Trustee as to the status of the Fund, review the investment performance of the Fund, advise the Compensation Committee as to the status of the Fund from time to time, and instruct the Trustee with respect to benefit distributions. The Committee may contract for clerical, legal, accounting, and actuarial services as may be desirable for the proper administration of the Plan, the costs of which may be paid from the Fund or by the Employer or Participating Employers as the Employer shall determine. The Committee is designated as the agent for service of process. The Committee shall maintain records of Participants' service, age, compensation and other required information. The Committee shall provide rules for administration of the Plan which are not inconsistent with its terms and the decisions of the Committee, shall determine questions of eligibility and distribution of benefits. Any determinations made by the Committee pursuant to this Section 9.4 shall be conclusive and binding on all parties. The Committee shall also prepare or cause to be prepared all tax returns and other reports that may be required by law. Records of the Committee may be examined by the Employer, and the Participant may examine those records of the Committee relating to him or her. 9.6 Claims Procedure. (a) Initial Claim. A Participant or Beneficiary ("claimant") who believes he is entitled to benefits hereunder, may claim those benefits by submitting to the Committee a written notification of any claim of right to such benefits. The Committee shall make all determinations as to the right of any person to receive benefits under the Plan. If such benefits are wholly or partially denied, the Committee shall notify the claimant of the denial of the claim. (b) Notice of Denial of Claim. Any notice of denial of a claim shall (1) be in writing and sent to the claimant by registered or certified mail (or, by means of an electronic medium that satisfies the requirements of 29 CFR 2520.104b-1(c)(1)(i), (iii) and (iv)); (2) be written in a manner calculated to be understood by the claimant; -42- (3) contain (a) the specific reason or reasons for the denial of the claim, (b) a specific reference to the pertinent provisions of the Plan upon which the denial is based, (c) a description of the required documentation and procedures necessary to perfect the claim, along with an explanation of why such material or information is necessary, (d) an explanation of the claims review procedure, including time limits applicable to the procedure and (e) a statement of the claimant's right to bring a civil action under section 502(a) of ERISA following an adverse determination on review; and (4) be given to a claimant within 90 days after receipt of his claim by the Committee unless special circumstances require an extension of time for processing of the claim. If such extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of said 90-day period, and such notice shall indicate the special circumstances which make the postponement appropriate and the date the determination is expected. In no event may the extension exceed a total of 180 days from the date of the original receipt of the claim. (c) Procedure for Appeal. In case of a denial as outlined in Section 5(b) of this Appendix, the claimant or his representative shall have the opportunity to appeal to the Committee for review thereof by requesting such review in writing to the Committee; provided, however, that such written request must be received by the Committee (or his delegate to receive such requests) within 60 days after receipt by the claimant of notification of the denial or limitation of the claim. The claimant or his representative shall have a right to review all pertinent documents and submit comments in writing. The claimant or his duly authorized representative shall also be provided, upon request and without charge, reasonable access to and copies of, all documents, records, or other information relevant to the claim. The claimant or his duly authorized representative shall also be permitted to submit to the Committee, documents, records and other information relating to the claim. (d) Decision on Appeal. (1) No later than 60 days after its receipt of the request for review, the Committee shall render a decision in writing, (or, by means of an electronic medium that satisfies the requirements of 29 CFR 2520.104b-1(c)(1)(i), (iii) and (iv)) stating specific reasons therefor and citing specific Plan references. If special circumstances require extension, and upon prior written notice to the claimant, the Committee's decision may be given within 120 days after receipt of the request for review. The extension notice shall indicate the special circumstances requiring an extension and the date that the determination on review is expected. (2) Notwithstanding the foregoing, if the Committee is a committee that holds regularly scheduled meetings at least quarterly, an individual's request for review will be acted upon at the meeting immediately following the receipt of the individual's request, unless such request is filed within thirty (30) days preceding such meeting. In such instance, the decision shall be made no later than the date of the second meeting following receipt of such request. If special circumstances (such as a need to hold a hearing) require a further extension of time for processing a request, a decision shall be rendered not later than the third meeting of the Committee following the receipt of such request for review and written notice of the extension shall be furnished to the individual prior to the commencement of the extension. The extension notice shall indicate the special circumstances requiring an extension and the date that the determination on review will be made. The Committee shall notify the claimant or his representative of the determination as soon as possible, but not later than five days after the determination is made. (3) In the event that the decision denies in whole or in part a claim on appeal, the notice furnished to the claimant shall also specify that the claimant or his duly authorized representative has a right to be provided, upon request and without charge, reasonable access to and copies of, all documents, records, or other information relevant to the claim, a description of any voluntary appeal procedures offered by the Plan and specify that the claimant has a right to bring a civil action under section 502(a) of ERISA. -43- 9.7 Uniformity of Action. Whenever the Employer, Participating Employer, or Committee are required or permitted to make decisions with respect to eligibility of an Employee for participation, or benefit distributions, such decisions shall be uniform and consistent with respect to all persons similarly situated. No action shall be taken which discriminates in favor of the Employer's or Participating Employer's officers or supervisory personnel. 9.8 Reliance on Others. The Employer and its Board of Directors, Trustee, Investment Advisor (if appointed) and Committee shall be responsible only for those separate duties assigned to each by the Plan, and none shall have responsibility for performance of duties assigned to another of them under the Plan. Each of them may rely on reports, notices, certifications or other communications furnished by the others. The Committee may rely on the reports and opinions furnished by persons retained by them. 9.9 Indemnification. The Employer shall indemnify each Board member, Committee member, and other Employees of the Employer or any Participating Employer involved in the administration of the Plan against all costs, expenses and liabilities, including attorney's fees, incurred in connection with any action, suit or proceeding instituted against him or her alleging any act of omission or commission performed by him or her while acting in good faith in discharging his or her duties with respect to the Plan. This indemnification is limited to the extent such costs and expenses are not covered under insurance as may be now or hereafter provided by the Employer or any Participating Employer. Promptly after receipt by an indemnified party under this Section 9.9, of notice of the commencement of any action, such indemnified party shall notify the Employer of the commencement thereof. The Employer shall be entitled to participate at its own expense in the defense or to assume the defense of any action brought against any party indemnified hereunder. In the event the Employer elects to assume the defense of any such suit, such defense shall be conducted by counsel chosen by the Employer and the indemnified party shall bear the fees and expenses of any additional counsel retained by him or her. -44- ARTICLE X AMENDMENT OF PLAN ----------------- 10.1 Right To Amend. The Employer, acting by determination of its Board of Directors, shall have the right to amend the Plan at any time. The Committee shall have the right to approve amendments that are required to maintain compliance with applicable laws and regulations and amendments to the administrative provisions of the Plan that do not affect the level of benefits or result in substantial additional cost to the Company. All such amendments shall be in writing. A Participating Employer shall also have the right to amend its Adoption Agreement. However, no such amendment shall be effective which would reduce Accrued Benefits or which would adversely affect the qualified status of the Plan and Fund under Section 401 of the Code or the corresponding provisions of subsequent revenue laws. 10.2 Amendment to Vesting Schedule. No Plan amendment shall change any vesting schedule under the Plan unless each Participant having at least three Years of Service at the end of the period described in this sentence is permitted to elect, within a period beginning on the date such amendment is adopted and ending 60 days after the latest of: (i) the day the amendment is adopted, (ii) the day the amendment becomes effective, or (iii) the day the Participant is issued written notice of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. Notwithstanding the foregoing, any modification or amendment of the Plan may be made retroactively, if necessary or appropriate to qualify or maintain the Plan as a plan meeting the requirements of the Code and the Employee Retirement Income Security Act of 1974, as now in effect or hereafter amended, or any other provisions of law, as now in effect or hereafter amended or adopted, and any regulation issued thereunder. -45- ARTICLE XI TERMINATION OF PLAN ------------------- 11.1 Right to Terminate Reserved. The Employer (and each Participating Employer as to its participation), acting by determination of its Board of Directors, reserves the right to terminate the Plan at any time without regard to whether benefits are then fully funded. However, no termination shall be effective which would adversely affect the qualified status of the Plan and Fund under Code section 401, or under the corresponding provisions of subsequent revenue laws. 11.2 Distribution on Termination. In the event the Plan is terminated, all Participants, or any Participant affected by any partial termination, shall become 100% vested in his or her Accrued Benefit determined as of the Plan termination date. In the event of a termination, the assets of the Fund then held by the Trustee shall be allocated to the extent that they shall be sufficient, after providing for expenses of administration, in the order set forth below: (a) There shall be set aside an amount which will provide retirement income for Participants, Spouses, or designated beneficiaries who were receiving benefits or who were eligible to receive benefits at least three years prior to termination of the Plan based on Plan provisions in effect five years prior to the date of termination. (b) There shall next be set aside an amount sufficient to discharge all other benefits insured by the Pension Benefit Guaranty Corporation. (c) There shall next be set aside an amount which will provide all other vested benefits, as determined under Article V of the Plan on its termination date which are not insured. (d) The balance of the Fund, if any, shall be set aside to provide for all other accrued benefits provided under the Plan. (e) In the case of a Former Harbor Towing Participant, his or her accrued benefit attributable to the Harbor Towing Retirement Plan shall not be considered a Plan liability nor shall the paid-up deferred annuity contract funding such benefit be considered an asset of the Fund for purposes of the allocation described in this Section 11.2. If the assets of the Fund held by the Trustee are not sufficient to provide in whole the amounts required within the classes described above, such assets shall be allocated pro rata within the class in which the amounts first cannot be provided in full. Allocation in any of the above classes will be adjusted for any allocation made to the same Participant under a prior class. After all liabilities of the Plan have been satisfied, the Employer shall be entitled to any balance of the Fund which shall remain. 11.3 Method and Time of Distribution. The amount so allocated with respect to each Participant shall be held by the Trustee pursuant to the Trust Agreement until the Participant separates from service at which time it shall be distributed in accordance with the Plan (or paid at death in a lump sum as set forth in a designation to be filed by each Participant). However, the Employer may direct the liquidation of the Fund and the distribution to each Participant in the form of a paid-up, non-transferable annuity providing for regular equal payment of retirement income, or in a lump sum payable to each Participant no later than his or her Normal Retirement Date or actual termination of employment whichever is later, the form of payment to be determined in accordance with the terms of the Plan. 11.4 Early Termination Restrictions. -46- (a) In the event of Plan termination, distributions to any Highly Compensated Employee or any former Highly Compensated Employee shall be limited to a benefit that is nondiscriminatory under Code section 401(a)(4). If payment of benefits is restricted in accordance with this Subsection 11.4(a), assets in excess of the amount required to provide such restricted benefits shall become a part of the assets available under Section 11.2 for allocation among Participants and their joint annuitants and beneficiaries whose benefits are not restricted under this Subsection 11.4(a). (b) The restrictions of this Subsection 11.4(b) shall apply prior to termination of the Plan to any Participant who is a Highly Compensated Employee or a former Highly Compensated Employee and who is one of the 25 highest paid Employees or former Employees of the Employer or a Participating Employer for any Plan Year. The annual payments to any such Participant shall be limited to an amount equal to: (1) the payments that would have been made to the Participant under a single life annuity that is the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and any other benefits under the Plan (other than a social security supplement), plus (2) the amount of the payments that the Participant is entitled to receive under a social security supplement. (c) The restrictions in Subsection 11.4(b) shall not apply: (1) if, after the payment of benefits to the Participant described in Subsection 11.4(b), the value of the Plan assets equals or exceeds 110% of the value of the current Plan liabilities (within the meaning of Code section 412(l)(7)); or (2) if the value of the benefit to the Participant described in Subsection 11.4(b) is less than 1% of the value of current Plan liabilities; or (3) if the value of the benefit to the Participant described in Subsection 11.4(b) does not exceed $3,500 (effective January 1, 1998, $5,000). -47- ARTICLE XII ADOPTION OF PLAN BY AFFILIATED COMPANY -------------------------------------- 12.1 Employer Approval - Form of Adoption. An Affiliated Company may, with approval of the Board of Directors, adopt the Plan for the benefit of eligible Employees as set forth herein. Such adoption shall be set forth in an Adoption Agreement in the form attached hereto as Exhibit B and shall be effective as of the date set forth in the Adoption Agreement. 12.2 Status as Participating Employer. Upon adoption of the Plan, the Affiliated Company shall become a Participating Employer and its name shall be entered in Exhibit A hereto. -48- ARTICLE XIII MISCELLANEOUS ------------- 13.1 No Other Benefits. No benefits other than those specifically provided for herein shall be payable under the Plan. 13.2 Plan Not an Employment Contract. This Plan shall not be construed to be a contract of employment. Nothing in the Plan shall be deemed to restrict or limit an Employer's or Participating Employer's right to discharge any Participant or other Employees at any time. 13.3 Plan For Exclusive Benefit of Participants. The Plan and the Fund shall exist for the sole and exclusive benefit of Participants and their beneficiaries, and no amendments shall be made that would be inconsistent with such purpose. 13.4 Benefits Not Assignable. Except with respect to (a) federal income tax withholding or federal tax levy under Code section 6331, or (b) subject to the provisions of section 401(a)(13) of the Code, compliance with the provisions and conditions of a judgment, order, decree or settlement agreement entered into on or after January 1, 1998, between the Participant and the Secretary of Labor or the Pension Benefit Guaranty Corporation relating to a violation (or an alleged violation) of part 4 of subtitle I of ERISA, no amount payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge or seizure; and no such amount shall be in any manner subject to the debts, contracts, liabilities, engagements or torts of any Participant or his or her beneficiary. Notwithstanding the foregoing, the Committee shall direct the Trustee to comply with a Qualified Domestic Relations Order. Upon receipt of any judgment, decree or order (including approval of a property settlement agreement) relating to the provision of payment by the Plan to an Alternate Payee pursuant to a state domestic relations law, the Committee shall promptly notify the affected Participant and any Alternate Payee of the receipt of such judgment, decree or order and shall notify the affected Participant and any Alternate Payee of the Committee's procedure for determining whether or not the judgment, decree or order is a Qualified Domestic Relations Order. The Committee shall establish a procedure to determine the status of a judgment, decree or order as a Qualified Domestic Relations Order and to administer Plan distributions in accordance with Qualified Domestic Relations Orders. Such procedure shall be in writing, shall include a provision specifying the notification requirements enumerated above, shall permit an Alternate Payee to designate a representative for receipt of communications from the Committee and shall include such other provisions as the Committee shall determine, including provisions required under applicable regulations. Nothing herein shall prevent the effective designation of beneficiaries for receipt of survivor's benefits under elections made pursuant to Section 6.8. 13.5 Prior Plan Benefits Not Reduced. The actuarial value of benefits payable thereunder to any person who was a Participant in the Prior Plan shall not be less than the actuarial value of the benefits accrued for his or her benefit under the Prior Plan up to December 31, 1980. 13.6 Required Information Concerning Participants. The Committee may require eligible Employees to furnish such information as to age, employment, health and family status as they believe reasonably necessary to administer the Plan. 13.7 Incompetence of Participant. If the Committee determines that any Participant or beneficiary entitled to benefits under the Plan is physically or mentally incompetent or is a minor, that such person is in the care of another person or institution and that no guardian, committee or other representative has been duly appointed, payment may be made to the person or institution caring for the Participant or beneficiary. The receipt of such person or institution shall be a complete discharge for the payment of such benefit. -49- 13.8 Merger With Another Plan. (a) In the event that this Plan merges or consolidates with or transfers assets or liabilities to any other Plan after the Effective Date of this Plan, each Participant shall be entitled to a retirement benefit which is equal to or greater than the benefit which the Participant would have been entitled to receive immediately before the merger, consolidation or transfer of assets or liabilities. For purposes of the comparison described above, benefits shall be computed as if this Plan had terminated immediately prior to the merger, consolidation or transfer and as if the surviving or recipient Plan had terminated immediately after such merger, consolidation or transfer. (b) In the event of a spinoff or termination of the Plan within five years following a merger or consolidation (or series of mergers or consolidations) in which liabilities (or the sum of liabilities, in the event of a series of mergers or consolidations) equal to less than 3% of Plan assets, as of at least one day in the Plan Year in which the merger(s) or consolidation(s) occurs, are merged or consolidated with the Plan, Plan assets shall first be allocated for the benefit of participants in the plan(s) merged or consolidated with this Plan to the extent of the present value of such benefits as of the date of such merger or consolidation. In the case of a merger or consolidation designed to occur in more than one Plan Year, the merger or consolidation shall be deemed to have occurred in the Plan Year in which the first transaction occurred. 13.9 Controlling Laws. The rights and obligations of the Employer or Participating Employer and its Employees under this Plan shall be determined in accordance with the laws of the State of Florida and, where applicable, of the United States of America. 13.10 Titles for Reference Only. The titles are for reference only. In the event of a conflict between the title and the content of a Section, the content of the Section shall control. 13.11 Obligations of Employers. The Employer and the Participating Employers shall have no liability in respect to payments of benefits under the Plan and each Participant and beneficiary shall look solely to the funds held by the Trustee for any payments or benefits under the Plan. -50- EXHIBIT A PARTICIPATING EMPLOYERS ----------------------- EFFECTIVE DATE NAME OF PARTICIPATION ---- ---------------- Maritrans General Partners Inc. January 1, 2002 Maritrans Operating Company L.P. January 1, 2002 Maritrans Business Services Inc. January 1, 2002 -51- EXHIBIT B ADOPTION AGREEMENT OF PARTICIPATING EMPLOYER -------------------------------------------- 1. ____________________________________________ ______________________, a corporation organized under the laws of ______________ (hereafter called the "Participating Employer"), hereby adopts the provisions of the Retirement Plan of Maritrans Inc. (hereafter called the "Plan") for the benefit of its Employees. The Effective Date of the Participating Employer's Plan shall be: _______________ 2. The Participating Employer hereby subscribes to the terms of the Trust Agreement and agrees to make such contributions to the Fund under the Plan as the Employer or the Committee shall determine. 3. The existing members of the Committee established under Article IX of the Plan, and their successors, are hereby approved as Committee members for purposes of administering and applying the Plan to the Participating Employer. 4. The Employer is hereby appointed agent of the Participating Employer for the purposes of: (a) administering the Plan to the extent not done by the Committee; (b) appointing fiduciaries and other advisors and assistants; and (c) making all such amendments to the Plan as do not increase benefits to Participants or impose greater burdens upon any Participating Employer. To record the execution of this Adoption Agreement, the Participating Employer's officers have affixed its corporate name and seal hereto this day of , 19 . By_____________________________ Attest:________________________ The foregoing Adoption Agreement is approved this day of , 19 . MARITRANS INC. By_____________________________ Attest: _______________________ -52- EXHIBIT C MINIMUM BENEFITS FOR SEAGOING SUPERVISORS ------------------------ Refer to the benefit levels in effect as of August 14, 1984, under the Seafarers Pension Plan or the District 2 MEBA-AMD Pension Plan, as the case may be. -53-
EXHIBIT D MINIMUM DISTRIBUTION INCIDENTAL BENEFIT TABLES TABLE I Excess of Age of Participant Applicable Over Age of Beneficiary Percentage - ----------------------- ---------- 10 years of less.........................................................................100% 11........................................................................................96% 12........................................................................................93% 13........................................................................................90% 14........................................................................................87% 15........................................................................................84% 16........................................................................................82% 17........................................................................................79% 18........................................................................................77% 19........................................................................................75% 20........................................................................................73% 21........................................................................................72% 22........................................................................................70% 23........................................................................................68% 24........................................................................................67% 25........................................................................................66% 26........................................................................................64% 27........................................................................................63% 28........................................................................................62% 29........................................................................................61% 30........................................................................................60% 31........................................................................................59% 32........................................................................................59% 33........................................................................................58% 34........................................................................................57% 35........................................................................................56% 36........................................................................................56% 37........................................................................................55% 38........................................................................................55% 39........................................................................................54% 40........................................................................................54% 41........................................................................................53% 42........................................................................................53% 43........................................................................................53% 44 and greater............................................................................52% -54-
TABLE II Age of Participant in calendar year preceding Maximum Guaranteed Required Distribution Date Payments Remaining - -------------------------- ------------------ 70 ...................................................................... 26.2 71 ...................................................................... 25.3 72 ...................................................................... 24.4 73 ...................................................................... 23.5 74 ...................................................................... 22.7 75 ...................................................................... 21.8 76 ...................................................................... 20.9 77 ...................................................................... 20.1 78 ...................................................................... 19.2 79 ...................................................................... 18.4 80 ...................................................................... 17.6 81 ...................................................................... 16.8 82 ...................................................................... 16.0 83 ...................................................................... 15.3 84 ...................................................................... 14.5 85 ...................................................................... 13.8 86 ...................................................................... 13.1 87 ...................................................................... 12.4 88 ...................................................................... 11.8 89 ...................................................................... 11.1 90 ...................................................................... 10.5 91 ...................................................................... 9.9 92 ...................................................................... 9.4 93 ...................................................................... 8.8 94 ...................................................................... 8.3 95 ...................................................................... 7.8 96 ...................................................................... 7.3 97 ...................................................................... 6.9 98 ...................................................................... 6.5 99 ...................................................................... 6.1 100 ...................................................................... 5.7 101 ...................................................................... 5.3 102 ...................................................................... 5.0 103 ...................................................................... 4.7 104 ...................................................................... 4.4 105 ...................................................................... 4.1 106 ...................................................................... 3.8 107 ...................................................................... 3.6 108 ...................................................................... 3.4 109 ...................................................................... 3.2 110 ...................................................................... 2.8 111 ...................................................................... 2.6 112 ...................................................................... 2.4 113 ...................................................................... 2.0 114 ...................................................................... 2.0 115 and older.................................................................. 1.8 -55-
APPENDIX A Special Supplemental Benefit. - ---------------------------- In addition to the Special Enhancement Benefit under Section 6.18 of the Plan, James Devno (SSN: ###-##-####) shall be entitled to receive a Special Supplemental Benefit, equal to a monthly pension in the amount of (a) $391.26 payable to Mr. Devno until his death, if paid in the form of a single life annuity (as described in Section 6.7(c) of the Plan); or (b) $370.70 payable to Mr. Devno until his death, with a survivor annuity monthly pension in the amount of $185.35 payable to his surviving Spouse, if paid in the form of a qualified joint and 50% survivor annuity as described in Section 6.6 of the Plan. Subject to the notice provisions of Section 6.8 of the Plan, Mr. Devno may elect to receive the Special Supplemental Benefit in any optional form set forth in, and in accordance with the provisions of, Section 6.7 of the Plan or in the form of a single lump sum distribution equal to $58,689.36. The benefit payable under this Appendix A shall be effective and commence in accordance with the provisions of Section 6.18. Effective January 1, 2000, in addition to the Special Enhancement Benefit calculated under Section 6.18, Roy Ross (SSN: ###-##-####) shall be entitled to receive a Special Supplemental Benefit, equal to a monthly pension in the amount of $361.88, bringing his total monthly Accrued Benefit under the Plan to $2,783.77. This addition shall be payable to Mr. Ross until his death in the form selected by Mr. Ross with respect to his Special Enhancement Benefit. -56- APPENDIX B Special Benefits for Certain Employees Terminated ------------------------------------------------- in connection with the October, 1999 Company Reorganization ----------------------------------------------------------- 1. Service. With respect to any Participant (a) whose duties are in a seagoing capacity; and (b) whose employment with the Company is terminated in connection with the sale of vessels to Vane Line Bunkering Inc. (effective November/December ___, 1999) or K-Sea Transportation LLC, (effective December ___, 1999), for purposes of vesting and benefit accrual under the Plan, "Service" under Section 2.43 of the Plan shall include the period beginning on January 1, 1999 and ending on December 31, 1999; provided, however, that any such Participant must execute a written election and release form provided by the Company. 2. Unreduced Early Retirement Benefit. With respect to the Accrued Benefits payable under Article VI of the Plan to Kenneth Parks (SSN: ###-##-####) and Mary Hamberg (SSN: ###-##-####), the actuarial reduction described in Section 6.2 shall not apply to such monthly pension. Such Participant's Accrued Benefit shall be computed as provided in Section 6.1 based upon (i) the number of Years of Credited Service and (ii) the Participant's Average Basic Monthly Compensation determined as of October 4, 1999. Such Participant must elect to begin receiving payment of his or her Accrued Benefit effective as of November 1, 1999. Notwithstanding anything in the Plan to the contrary, the benefit payable to a Participant under this paragraph 2 shall be in lieu of any other benefit that is currently payable from the Plan for that Participant. 3. Years of Credited Service. Joan D'Ambrosia (SSN: ###-##-####), whose employment with the Company was terminated on October 4, 1999, as a result of the shoreside staff reduction taking place in connection with the relocation of the Company's offices, shall be deemed to have completed 30 Years of Credited Service for purposes of determining her Accrued Benefit in accordance with Section 6.1 of the Plan. -57- APPENDIX C Special Enhancement Benefits Effective January 1, 2000 for Certain Employees ---------------------------------------------------------------------------- Whose Participation Was Transferred to the District 2 MEBA-AMO Pension Plan --------------------------------------------------------------------------- Special Benefit Enhancement. - --------------------------- With respect to the Accrued Benefits payable under Article VI of the Plan to Thomas Cox, Jr. (SSN: ###-##-####), Harry Scholer (SSN: ###-##-####) and James Ashley Shifflett (SSN: ###-##-####), such Participant's Accrued Benefit under the Plan determined under Section 6.1 based on Years of Credited Service and Years of Participation earned through December 31, 1998 when added to the accrued benefit payable to such a Participant under the District 2 MEBA-AMO Pension Plan at such Participant's Date of Severance shall not be less than the amount that would have been payable to such Participant under the Plan determined as if his Years of Credited Service and Years of Participation had continued to accrue for Plan purposes until his Date of Severance. The actuarial reduction described in Section 6.2 shall apply to such monthly pension, if applicable. Subject to the notice provisions of Section 6.8, the Participant may elect to receive retirement benefits in any optional form provided in Section 6.7. Notwithstanding anything in the Plan to the contrary, the benefit payable to a Participant under this Appendix C shall be in lieu of any other benefit that is currently payable from the Plan for that Participant. -58- EX-21 6 ex21-1.txt EXHIBIT 21.1 Exhibit 21.1 Subsidiaries of Maritrans Inc. Maritrans Inc. Delaware corporation Subsidiaries of Maritrans Inc.: o Maritrans Transportation Company Delaware corporation o Maritrans Holdings Inc. Delaware corporation o Maritrans Business Services Inc. Delaware corporation Subsidiaries of Maritrans Transportation Company: o Maritrans General Partner Inc. Delaware corporation o Maritrans Operating Company L.P. Delaware corporation o Maritrans Barge Co. Delaware corporation o Maritrans Tankers Inc. Delaware corporation Subsidiaries of Maritrans Holdings Inc: o Maritank Philadelphia Inc. Delaware corporation Subsidiaries of Barge Co.: o Maritrans Liberty Co. Nevada corporation o Maritrans Intrepid Co. Nevada corporation o Maritrans Freedom Co. Nevada corporation o Maritrans Navigator Co. Nevada corporation o Maritrans Enterprise Co. Nevada corporation o Maritrans Colombia Co. Nevada corporation o Maritrans Honour Co. Nevada corporation o Maritrans Valour Co. Nevada corporation o Maritrans Independence Co. Nevada corporation o Maritrans Seafarer Co. Nevada corporation o Maritrans Constitution Co. Nevada corporation o Maritrans Tug Co. Nevada corporation o Maritrans 196 Co. Nevada corporation o Maritrans 244 Co. Nevada corporation o Maritrans 192 Co. Nevada corporation o Maritrans 193 Co. Nevada corporation o Maritrans 210 Co. Nevada corporation o Maritrans 211 Co. Nevada corporation o Maritrans 215 Co. Nevada corporation o Maritrans 400 Co. Nevada corporation o Maritrans 300 Co. Nevada corporation o Maritrans 250 Co. Nevada corporation o Maritrans 252 Co. Nevada corporation Subsidiaries of Barge Co.: o Maritrans Integrity Co. Nevada corporation o Maritrans Perseverance Co. Nevada corporation o Maritrans Diligence Co. Nevada corporation o Maritrans Allegiance Co. Nevada corporation EX-23 7 ex23-1.txt EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-33765) pertaining to the Equity Compensation Plan of Maritrans Inc. and in the Registration Statements (Form S-8 No. 333-79891) pertaining to the Maritrans Inc. Directors and Key Employees' Equity Compensation Plan of our report dated January 23, 2003, with respect to the consolidated financial statements and schedule of Maritrans Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002. Tampa, Florida March 5, 2003 EX-99 8 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the period ended December 31, 2002 of Maritrans Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen A. Van Dyck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. ss. 78m(a) or ss. 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen A. Van Dyck - ----------------------- Stephen A. Van Dyck Chief Executive Officer March 10, 2003 EX-99 9 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the period ended December 31, 2002 of Maritrans Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter T. Bromfield, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. ss. 78m(a) or ss. 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Walter T. Bromfield - ----------------------- Walter T. Bromfield Chief Financial Officer March 10, 2003 -----END PRIVACY-ENHANCED MESSAGE-----