-----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, TOEH6c83NQl3XozFCXRCT9NB/hJQ2LhWjZpGBnZZTyiI4wwIu6oAcjdT1h+WXxlZ 3eNeKpLn51RRlxjH7d7Njw== 0000950116-98-000694.txt : 19980331 0000950116-98-000694.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950116-98-000694 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE 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: SEC FILE NUMBER: 001-09063 FILM NUMBER: 98579201 BUSINESS ADDRESS: STREET 1: ONE LOGAN SQUARE 26TH FLOOR CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2158641200 MAIL ADDRESS: STREET 1: ONE LOGAN SQUARE STREET 2: 26TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: MARITRANS PARTNERS L P DATE OF NAME CHANGE: 19920703 10-K 1 FORM 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, 1997 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 (I.R.S. Employer. incorporation or organization) Identification No.) ONE LOGAN SQUARE PHILADELPHIA, PENNSYLVANIA 19103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 864-1200 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class 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. / / As of March 23, 1998, the aggregate market value of the common stock held by non-affiliates of the registrant was $138,427,799. As of March 23, 1998, Maritrans Inc. had 12,102,977 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 May 19, 1998. Exhibit Index is located on page 33. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K MARITRANS INC. TABLE OF CONTENTS PART I
Page ----- Item 1. Business ..................................................................... 1 Item 2. Properties ................................................................... 8 Item 3. Legal Proceedings ............................................................ 9 Item 4. Submission of Matters to a Vote of Security Holders .......................... 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .... 11 Item 6. Selected Financial Data ...................................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................... 12 Item 8. Financial Statements and Supplemental Data ................................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................................................... 30 PART III Item 10. Directors and Executive Officers of the Registrant ........................... 30 Item 11. Executive Compensation ....................................................... 31 Item 12. Security Ownership of Certain Beneficial Owners and Management ............... 31 Item 13. Certain Relationships and Related Transactions ............................... 31 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............. 32 Signatures ............................................................................. 35
In this Report the statements contained or incorporated by reference that are not historical facts or statements of current condition are forward-looking statements. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "forecasts," "will," or "anticipates," or the negative thereof or other variations thereon or comparable terminology; or by discussion of strategy or intentions. These forward-looking statements, such as statements regarding present or anticipated utilization, certification of safety programs, future revenues and customer relationships, capital expenditures, future financings, and other statements regarding matters that are not historical facts, involve predictions. Maritrans Inc.'s (the "Company") actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect the Company's actual results, performance, or achievements include, but are not limited to, the factors outlined in this report and general financial, economic, environmental and regulatory conditions affecting the oil and marine transportation industry in general. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such foward-looking statements. Furthermore, the Company disclaims any obligation or intent to update any such factors or forward-looking statements to reflect future events or developments. i PART I Item 1. BUSINESS General Maritrans Inc. (the "Corporation" or the "Registrant"), together with its predecessor, Maritrans Partners L.P. (the "Partnership"), herein called "Maritrans," has historically served the petroleum and petroleum product industry by using tugs, barges and marine terminal facilities to provide marine transportation and terminalling services along the East and Gulf Coasts of the United States. This year, Maritrans expanded its services by adding three oil tankers to its fleet. Maritrans also began serving the Caribbean by acquiring two tug/barge units based in Puerto Rico. Structure Current. The Corporation is a Delaware corporation whose common stock, par value $.01 per share ("Common Stock"), is publicly traded. The Corporation conducts most of its marine transportation business activities through operating divisions of Maritrans Operating Partners L.P. (the "Operating Partnership") and its managing general partner, Maritrans General Partner Inc., wholly owned subsidiaries of the Corporation. Most of the Corporation's terminalling and distribution services are conducted through subsidiaries of Maritrans Holdings Inc., a wholly owned subsidiary of the Corporation. Historical. Founded in the 1850's and incorporated in 1928 under the name Interstate Oil Transport Company, Maritrans' predecessor was one of the first tank barge operators in the United States, with a fleet which increased in size and capacity as United States consumption of petroleum products increased. On December 31, 1980, Maritrans' predecessor operations and its 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 corporate form (the "Conversion"). 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 the Partnership and in the Operating Partnership were issued shares of Common Stock representing substantially the same percentage equity interest in the Corporation as they had in the Partnership, directly or indirectly, in exchange for their partnership interest. Each previously held Unit of Limited Partnership Interest in the Partnership was exchanged for one share of Common Stock of the Corporation. For financial accounting purposes, the conversion to corporate form has been treated as a reorganization of affiliated entities, with the assets and liabilities recorded at their historical costs. In addition, the Partnership recognized a net deferred income tax liability for temporary differences in accordance with Statement of Financial Accounting Standard ("FAS") No. 109, "Accounting for Income Taxes," which resulted in a one-time charge to earnings of $16.6 million in the first quarter of 1993. Overview. Since 1981, Maritrans and its predecessors have transported annually over 200 million barrels of crude oil and refined petroleum products. Based on its internal research regarding competition, Maritrans believes that it is one of the largest United States marine transporters of petroleum and petroleum products in the United States coastwise Jones Act trade (i.e. from point-to-point within the United States), excluding affiliates of integrated oil companies, and that it owns one of the largest domestic fleets of U.S. flag oceangoing tank barges in terms of cargo-carrying capacity. This year, Maritrans expanded its services by adding three product tankers to its fleet. Maritrans also began serving the Caribbean by acquiring two tug/barge units based in Puerto Rico. Maritrans operates a fleet of oil tankers, tank barges and tugboats and two terminal facilities. In 1997, Maritrans acquired three oil tankers that have a total capacity of approximately 0.7 million barrels. Its largest barge has a capacity of approximately 400,000 barrels, and its current operating cargo fleet capacity aggregates approximately 4.9 million barrels. Aggregate capacity at Maritrans' terminal facilities totals approximately 1.2 million barrels at December 31, 1997. 1 Demand for Maritrans' 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 in New England and Florida, are significant indicators of demand for Maritrans' services. Increases in product consumption generally increase demand for Maritrans' services; conversely, decreases in consumption generally lessen demand for Maritrans' services. Management further believes that the level of domestic consumption of imported product is also significant to Maritrans' business. Imported petroleum products generally can be shipped on foreign-flag vessels directly into 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. While Maritrans does benefit somewhat from the increase in demand for domestic redistribution services that results from the delivery of excess product to terminals by foreign-flag vessels, the overall effect of refined product imports on the demand for Maritrans' services is generally negative. In 1997, Maritrans functionally organized into a matrix organization to better allow resources to be focused on different tasks regardless of where they are needed. This also allows for standards to be applied consistently across the companies regardless of the operation or location. The main matrix groups are operations, marketing and business services. The Gulf of Mexico operations, headquartered in Tampa, Florida, provides marine transportation services for petroleum products from refineries located 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. The East Coast operations, supported by a major fleet center in Philadelphia, Pennsylvania, transports petroleum products from East Coast refineries (primarily located in and near Philadelphia) and pipeline terminals located in the New York Harbor area to distribution terminals primarily located along the Eastern Seaboard between the Canadian Maritime Provinces and Norfolk, Virginia and transports petroleum products between refineries and distribution points along the Delaware River and in the Chesapeake Bay. Maritrans also provides, as part of its East Coast operations, lightering services for large tankers (a process of off-loading crude oil or petroleum products from an inbound tanker into smaller tankers and/or barges, thereby enabling the tanker to navigate draft-restricted rivers and ports to discharge cargo at a refinery or storage and distribution terminal). As part of its tanker acquisition, Maritrans also acquired two small tug/barge units and an operations office in Yabucoa, Puerto Rico. These units transport petroleum products largely within the island of Puerto Rico. Sales and Marketing Maritrans provides marine transportation, storage, and distribution coordination services primarily to integrated oil companies, independent oil companies, and petroleum distributors in the southern and eastern United States. Maritrans relies primarily on direct sales efforts, minimizing its use of chartering brokers. Maritrans 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. Maritrans does business on a term contract basis, a spot market basis and, to a minimal extent, on a product exchange basis. Maritrans 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 have begun to 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 in the last seven years to promote higher quality operations and its longstanding commitment to safe transportation of petroleum products benefit its marketing efforts with these shippers. In 1997, approximately 77 percent of Maritrans revenues were generated from 10 customers. In 1997, contracts with Sun Oil Company, Marathon Oil and Star Enterprise, accounted for approximately 24 percent, 15 percent, and 12 percent, respectively, of Maritrans revenue. During 1997, contracts were renewed with some of Maritrans' larger customers. While several of these contracts result in lower revenue per barrel transported, 2 Maritrans has gained either higher vessel utilization or higher volume commitments with those customers. There could be a material effect on Maritrans if any of these customers were to cancel or terminate their various agreements with Maritrans. Management believes that cancellation or termination of all its business with 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 Gulf market, management believes the primary competitors are the fleets of both other independent petroleum transporters and integrated oil companies. In the Eastern market, management believes that Maritrans competes primarily with other independent oceangoing barge operators and with the captive fleets of integrated oil companies and, in lightering operations, competes with foreign-flag operators which lighter offshore. Some of the integrated oil company fleets with which Maritrans competes are larger than Maritrans' fleet. Additionally, in certain geographic areas and in certain business activities, Maritrans competes with the operators of petroleum product pipelines. Competitive factors which also affect Maritrans include the output of United States refineries and the importation of refined petroleum products. The primary competition for Maritrans' marine terminals is proprietary storage capacity of integrated oil companies, merchant refiners, and independent marine terminal operators. 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, there is a finite number of vessels that are currently eligible to engage in U.S. maritime petroleum transport. The number of vessels eligible to engage in Jones Act trade has declined significantly over the past several years. The gradual implementation of regulations requiring significant capital modifications and in some cases loss of vessel capacity, as well as a decrease in the number of new vessels constructed since 1982, have been the major causes of this decline. Competition in the industry is based upon price and service (including vessel availability) and is intense. Maritrans is engaged in several different market activities. A significant portion of its revenues in 1997 was generated in the coastal transportation of petroleum products from refineries or pipeline terminals in the Gulf of Mexico to ports which are not served by pipelines. Management believes that the optimal vessel size suited to serve these ports is between 20,000 deadweight tons ("DWT") (approximately 160,000 barrels) and 40,000 DWT (approximately 320,000 barrels). Maritrans currently operates seven barges in this size range in this market, which comprises a significant number of the vessels able to compete in this market. The relatively large size of Maritrans' fleet generally provides greater flexibility in meeting customers' needs. Maritrans competes with operators of generally smaller vessels in its Eastern transportation activities. In this activity Maritrans is competing primarily with other barge operators. This is a diverse market allowing a broader size range of vessels to participate than in the Gulf of Mexico. Management believes that, based on the Corporations' fleet size, maintenance and training programs, and spill record, Maritrans' independent competitors do not provide the same level of service, quality performance, or attention to safe operations as Maritrans. General Agreement on Trade in Services ("GATS") and North American Free Trade Agreement ("NAFTA"). The possible inclusion of maritime services within the scope of the GATS and the NAFTA was the subject of discussion in the Uruguay Round of GATS negotiations and NAFTA negotiations. Maritime services were not included in GATS until at least the year 2000. If maritime services were deemed to include cabotage (vessel trade or marine transportation between two points within the same country) and were included in any multi-national trade agreements, the result would 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 which would operate at lower costs. While cabotage will not be included in the GATS and the NAFTA in the immediate 3 future, the possibility exists that cabotage could be included in the GATS, NAFTA or other international trade agreements in the future. In the meantime, Maritrans and the maritime industry will continue to resist vigorously 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. While the Colonial Pipeline system reduces the amount of refined product transported into the New York area by ship, it provides an origination point for Maritrans' business of transporting such products from New York Harbor to New England ports. Management believes that high capital costs, tariff regulation and environmental considerations make it unlikely that a new refined product pipeline system which would have a material adverse effect on Maritrans' business 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 which could have a competitive effect on Maritrans 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, particularly in Florida and New England. 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 Maritrans, 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. One possible outcome of the Clean Air Act Amendments of 1990 could be the importing of more refined product from outside the United States in order to avoid the expense of upgrading United States refineries to comply with such Act. In this case, while there would still be a need for marine petroleum transportation, the demand would decrease, thereby possibly materially adversely affecting the coastwise business of Maritrans and its competitors. Delaware River Channel Deepening. Legislation approved by the United States Congress in 1992 authorizes the U.S. Army Corps of Engineers to deepen the channel of the Delaware River between the river's mouth and Philadelphia from forty to forty-five feet. If further legislation appropriating the funds for this project should become law and this project is implemented and used by vessels calling on the Delaware Valley refineries, it would have a material adverse effect on Maritrans' lightering business which currently transports crude oil which is off-loaded from deeply laden tankers from the mouth of the Delaware Bay up the Delaware River to the Delaware Valley refineries. Employees and Employee Relations At December 31, 1997, Maritrans and its subsidiaries employed a total of 587 persons. Of these employees, 86 are employed at the Philadelphia, Pennsylvania headquarters of the Corporation or at the Philadelphia and Tampa fleet centers, 366 are seagoing employees who work aboard the tugs and barges, 122 are seagoing employees who work aboard the tank ships, and 13 are employed in Maritrans' terminal facilities. 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 American Maritime Officers ("AMO"), formerly District 2 Marine Engineers Beneficial Association, Associated Maritime Officers, AFL-CIO, for approximately 40 years. Approximately one-half of the total number of seagoing employees employed are supervisors and, hence, as part of management, are not represented by maritime unions. The collective bargaining agreement with the SIU covers approximately 218 employees and expires on May 31, 1999. The collective bargaining agreement with the AMO covers approximately 77 employees and expires on October 8, 2007. None of the shore-based employees are covered by any collective bargaining agreement. 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 union and non-union personnel to fill supervisory and other management positions as vacancies occur. Management believes that its operational audit program (performed by Tidewater 4 School of Navigation, Inc.) and training program 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 cargos 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 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, a federal law, restricts maritime transportation between United States points to vessels built and registered in the United States and owned by United States citizens. The entities in the Maritrans organizational structure engaged in maritime transportation between United States points are subject to the provisions of the law. Therefore, it is the responsibility of Maritrans to monitor ownership of these entities and take any remedial action necessary to insure that no violation of the Jones Act ownership restrictions occurs. In addition, the Jones Act requires that all United States flag vessels be manned by United States citizens, which requirement significantly increases the labor and certain other operating costs of United States flag vessel operations compared to foreign-flag vessel operations. Foreign-flag seamen generally receive lower wages and benefits than those received by United States citizen seamen. In addition, a significant number of foreign governments subsidize, at least to some extent, the wages and/or benefits received by the seamen of those nations. Furthermore, certain of these foreign governments subsidize those nations' shipyards, resulting 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 those paid by 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 limit or do away with the Jones Act. Legislation to this effect was introduced in the last session of Congress. Management expects that efforts of this type will continue. Environmental Matters Maritrans' operations present potential environmental risks, primarily through the marine transportation or storage of petroleum. Maritrans is committed to protecting the environment and complying with applicable environmental laws and regulations. Maritrans, as well as its competitors, is subject to regulation under federal, state and local environmental laws which have the effect of increasing the costs and potential liabilities arising out of its operations. Marine Storage Terminal Regulation. Maritrans marine terminal subsidiaries are subject to various federal, state and local environmental laws and regulations, particularly with respect to air quality, the handling of materials removed from the tanks of vessels which are cleaned, and any spillage of petroleum products on or adjoining marine terminal premises. Management believes that this regulatory scheme will become progressively stricter in the future, resulting in greater capital expenditures by Maritrans for environmentally related equipment. Also, there are significant fines and penalties for any violations of this scheme. Management intends to reflect any such additional expenditures, to the extent possible, in the rates which are charged to customers from time to time for services. 5 Oil Pollution Legislation. Many of the states in which Maritrans does business have enacted laws providing for strict, unlimited liability for vessel owners in the event of an oil spill. In addition, certain states have enacted or are considering legislation or regulations involving at least some of the following provisions: tank- vessel-free zones, contingency planning, state inspection of vessels, additional operating, maintenance and safety requirements, and state financial responsibility requirements. As a result of this legislation and regulation, Maritrans has limited its carriage of persistent oils, primarily crude and #6 oil, to or through portions of several of these states. Persistent oils are those which continue to exist longer in the water when spilled than do more highly refined products, such as gasoline, thus making them more difficult to clean up. In August 1990, OPA became law. OPA substantially changes the liability exposure of owners and operators of vessels, oil terminals and pipelines from that imposed under prior law. 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 of the greater of $1,200 per gross ton or $10 million per tank vessel. 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. Management believes that the liability provisions of OPA and similar state laws have greatly expanded Maritrans' potential liability in the event of an oil spill, even where Maritrans is not at fault. OPA 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 conformance 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). Maritrans has acquired such certificates through filing required financial information with the U.S. Coast Guard. OPA will require the retirement of, or retrofitting with double hulls, all single-hulled petroleum tankers and barges operating in U.S. waters, including most of Maritrans' existing barges. The first of Maritrans' affected barges will have to be retired or retrofitted by 2003. However, most of Maritrans' large oceangoing, single-hulled barges will be affected January 1, 2005. Maritrans' barges under 5,000 gross registered tons are not scheduled for retirement until 2015. The two single-hulled tankers purchased in 1997 are affected in 2005 and 2006, respectively, at which time they will be required to comply with OPA or be operated outside U.S. waters. Approximately 19 percent of Maritrans' operating capacity has been qualified by the United States Coast Guard as meeting the double-hull requirements and, therefore, is allowed to continue operating without modification and without a legislatively determined retirement date. If Maritrans were to replace its entire single-hulled oil- carrying vessel capacity with newly built double hulls, the estimated cost would be approximately $500 million, based on an estimated replacement cost of $125 per barrel of capacity. This estimate could be higher as shipyard costs increase. During 1997, Maritrans announced plans for a pilot double-hull rebuild project to convert one of its existing single-hulled 190,000-barrel class barges to a double-hull design configuration. Recently Maritrans awarded 6 a shipyard contract to carry out the double-hull rebuilding and coating of the tanks for the barge to be used in the pilot project, the OCEAN 192, for a total cost of approximately $10 million. The results of this initial rebuild project, including subsequent performance of the vessel, will be evaluated in order to determine whether Maritrans enters into a multi-vessel rebuilding program for other single-hulled vessels of similar size. Maritrans believes that eight of its additional barges may be suitable candidates for the double-hull design and related construction methodology of the pilot project. If Maritrans were to double-hull these nine vessels, it would represent approximately 40 percent of Maritrans' operating capacity. In 1996, Maritrans filed suit against the United States government under the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank barges without just compensation by passage of OPA. See "Item 3--Legal Proceedings." OPA further required all tank vessel operators to submit, by February 18, 1993, for federal approval, detailed vessel oil spill contingency plans setting forth their capacity to respond to a worst case spill situation. Maritrans filed its plans prior to that deadline. Several states have similar contingency or response plan requirements. Because of the large number of ports served by Maritrans, the cost of compliance may be substantial, and, while Maritrans is presently in compliance, there is no assurance that Maritrans will be able to remain in compliance with all the federal requirements or those of one or more states. OPA is expected to have a continuing adverse effect on the entire U.S. oil and petroleum marine transportation industry, including Maritrans. The effects on the industry could include, among others, (i) increased requirements for capital expenditures, which the independent marine transporters of petroleum may not be able to finance, to fund the cost of double-hulled vessels, (ii) increased maintenance, training, insurance and other operating costs, (iii) civil penalties and liability, (iv) decreased operating revenues as a result of a further reduction of volumes transported by vessels and (v) increased difficulty in obtaining sufficient insurance, particularly oil pollution coverage. These effects could adversely affect Maritrans' profitability and liquidity. The following table sets forth Maritrans' quantifiable cargo oil spill record for the period January 1, 1993 through December 31, 1997:
Gallons Spilled No. of No. of No. of Per Million Period Gals. Carried Spills Gals. Spilled Gals. Carried - ------------------------- --------------- -------- --------------- ---------------- (000) (000) 1/1/1993 -- 12/31/1993* 10,433,000 2 .01 .001 1/1/1994 -- 12/31/1994 9,954,000 2 .02 .002 1/1/1995 -- 12/31/1995 9,450,000 1 16.80 1.780 1/1/1996 -- 12/31/1996 9,160,000 3 .08 .009 1/1/1997 -- 12/31/1997 10,136,000 1 .05 .005
- ------------ * Results for 1993 exclude the product lost, mostly burned, in the collision of Maritrans' barge, the OCEAN 255, with vessels owned by others off the coast of Florida in August 1993. Management believes that Maritrans was not at fault in this incident. Maritrans believes that its spill ratio compares favorably with the other independent, coastwise operators in the Jones Act trade. Water Pollution Regulations. The Federal Water Pollution Control Act of 1972 ("FWPCA"), as amended by the Clean Water Act of 1977, imposes strict prohibitions against the discharge of oil (and its derivatives) and hazardous substances into navigable waters of the United States. FWPCA provides civil and criminal penalties for any discharge of petroleum products in harmful quantities and imposes substantial liability for the clean-up costs of removing an oil spill. State laws for the control of water pollution also provide varying civil and criminal penalties and clean-up cost liabilities in the case of a release of petroleum or its derivatives into surface waters. In the course of its vessel operations, Maritrans engages contractors, in addition to Maritank Philadelphia Inc., to remove and dispose of waste material, including tank residue. In the event that any of such waste is deemed "hazardous," as defined in FWPCA or the Resource Conservation and Recovery Act, and is disposed of in violation of applicable law, Maritrans could be jointly and severally liable with the disposal contractor for 7 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. While it is unlikely that used oil will be classified as hazardous, the management of used oil under EPA's proposed regulations will increase the cost of disposing of or recycling used oil from Maritrans' vessels. Some states in which Maritrans 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. The 1990 amendments to the Clean Air Act give the EPA and the states the authority to regulate emissions of volatile organic compounds ("VOCs") and any other air pollutant from tank vessels in all ports served by Maritrans and storage terminals. Several states with ports served by Maritrans already have established regulations to require the installation of vapor recovery equipment on petroleum-carrying vessels to reduce the emissions of VOCs. Compliance with these federal and state regulations has required material capital expenditures for the retrofitting of Maritrans' barges and has increased operating costs. Similarly, various states require vapor recovery equipment at storage terminals for the loading of petroleum into vessels and tank trucks. Maritrans' terminal facilities are equipped with vapor recovery capabilities for the loading of tank trucks. They do not currently load petroleum into vessels and therefore have not acquired vapor recovery capabilities for that activity. The EPA also has the authority to regulate emissions from marine vessel engines; however, with the possible exception of the use of low sulfur fuels, direct regulation of marine engine emissions is not likely in the near future in ports served by Maritrans. However, it is possible that the EPA and/or various state environmental agencies ultimately may require that additional air pollution abatement equipment be installed in tugboats or tank ships, including those owned by Maritrans. Such a requirement 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. Also, the application of various air quality rules in connection with the operation of Maritrans' facilities may require significant additional expenditures which may not be recovered through increased 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 benefitting from such improvements. Management does not believe that Maritrans' vessels currently benefit from such improvements. However, there can be no assurance that such entities will not seek to recover a portion of such costs from Maritrans. Federal legislation has been enacted imposing user fees on vessel operators such as Maritrans to help fund the United States Coast Guard's regulatory activities. Other federal, state and local agencies or authorities could also seek to impose additional user fees or taxes on vessel operators or their vessels. The Coast Guard collects fees for vessel inspection and documentation, licensing and tank vessel examinations. These fees have not been material to Maritrans. There can be no assurance that additional user fees, which could have a material adverse effect upon the financial condition and results of operations of Maritrans, will not be imposed in the future. Item 2. PROPERTIES Vessels. The Corporation's subsidiaries owned, at December 31, 1997, a fleet of 55 vessels, of which 3 are oil tankers, 29 are barges and 23 are tugboats. In the second half of 1997 Maritrans purchased a variety of marine assets, which increased the size of its fleet. Maritrans acquired three oil tankers, two tugboats and two barges. The acquired vessels were renamed and placed in Maritrans' service immediately. The oil tankers consisted of two 230,000-barrel petroleum tankers and one 260,000-barrel double-hull petroleum tanker. Under the purchase agreement with Chevron U.S.A. Inc., Maritrans will acquire one additional 260,000-barrel double-hull petroleum tanker in 1998. Maritrans also purchased two 3800 hp tugs, along with a 64,165-bbl barge and a 72,693 bbl barge. The barge fleet consists of a variety of vessels falling within six different barge classifications. The largest vessels in the fleet are the twelve superbarges ranging in capacity from 188,065 to 400,000 barrels. The oldest vessel in that class is the OCEAN 250 which was constructed in 1970, while the largest vessel is the OCEAN 400, for which modifications were completed as recently as 1990. For the most part, however, the bulk of the superbarge fleet was constructed during the 1970's and early 1980's. 8 The fleet's next ten largest barges range in capacity from 61,638 barrels to 165,881 barrels and were constructed or substantially renovated between 1967 and 1981. The remainder of the barge fleet is comprised of three vessels falling in the 50,000 barrel class, and four vessels in the 30,000 barrel class. The majority of these vessels were constructed between 1961 and 1977. The tugboat fleet is comprised of one 11,000 horsepower class vessel, eleven 5,600 horsepower class vessels (two of which are chartered), five 4,000 horsepower class vessels, four 3,200 horsepower class vessels, three 2,200 horsepower class vessels, one pusher class vessel and one chartered 15,000 horsepower class vessel. The year of construction or substantial renovation of these vessels ranges from 1962 to 1990 with the bulk of the tugboats having been constructed sometime between 1967 and 1981. Substantially all of the vessels in the fleet are subject to first preferred ship mortgages. These mortgages require the Operating Partnership to maintain the vessels at a high standard and to continue a life-extension program for certain of its larger barges. At December 31, 1997, Maritrans is in compliance with the Operating Partnership's mortgage covenants. Marine Terminals. At December 31, 1997, Maritank Philadelphia Inc. ("MPI") owns 35 acres on the west bank of the Schuylkill River in Philadelphia where twelve storage tanks with a total capacity of 1,040,000 barrels, truck loading racks, office space and related equipment used in MPI's marine terminal and tank cleaning operations are located. In early 1993, Maritank Maryland Inc. ("MMI") acquired 25 acres on the Wicomico River in Salisbury, Maryland where fourteen storage tanks with a total capacity of 170,000 barrels, truck loading racks, office space and related equipment used in MMI's marine terminal operations are located. In March 1997, MMI sold 20 acres in Baltimore, Maryland with ten storage tanks with a total capacity of 530,000 barrels, truck loading racks and related equipment. Other Real Property. The Corporation's operations are headquartered in Philadelphia, Pennsylvania, where it leases office space, expiring in 1998. East Coast operations are located on the west bank of the Schuylkill River in Philadelphia, Pennsylvania where the Operating Partnership owns approximately six acres of improved land. In addition, the Operating Partnership also leases a bulkhead of approximately 430 feet from the federal government for purposes of mooring vessels adjacent to the owned land. This lease was renewed in 1993 and expires in 1998 and is expected to be renewed. The Operating Partnership also leases four acres of Port Authority land in Tampa, Florida for use as its Gulf fleet center. The lease expires in 2004, with three renewal options of ten years each. Maritrans also leases a limited amount of office space in Wilmington, Delaware for itself and its affiliated entities. 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 which are not material as to any type of insurance coverage. Management believes, based on its current knowledge, that such lawsuits and claims, even if the outcomes were to be adverse, would not have a material adverse effect on Maritrans' financial condition. Maritrans has been sued by 58 individuals alleging unspecified damages for exposure to asbestos and, in at least 47 such cases, for exposure to tobacco smoke. Although Maritrans 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 not have a material adverse effect as it would be adequately covered by applicable insurance. During 1993, one of Maritrans' tug/barge units was involved in a collision off the coast of Florida. Claims resulting from this incident have been covered by insurance and remaining claims are expected to be covered by insurance. In 1993, Maritrans received insurance proceeds in excess of the barge's net book value for the constructive total loss of the barge. In 1996, Maritrans filed suit against the United States government under the Fifth Amendment to the U.S. Constitution for "taking" 37 of Maritrans' tank barges without just compensation. Maritrans asserts that the vessels were taken with the passage of Section 4115 of OPA and that this taking was done in contravention of the 9 Fifth Amendment, which specifically prohibits the United States government from taking private property for public use without just compensation. Maritrans is seeking compensation based on the fact that Maritrans has been deprived of its reasonable investment-backed expectation in the continued use of its barges by Section 4115 of OPA, which prohibits all existing single-hull tank vessels from operating in U.S. waters under a retirement schedule which began January 1, 1995, and ends on January 1, 2015. Under this OPA provision, Maritrans' single-hull tank barges will be forced from service commencing on January 1, 2003, with a significant portion of the economic lives remaining, or be required to be retrofitted. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Corporation's security holders, through the solicitation of proxies or otherwise, during the last quarter of the year ended December 31, 1997. 10 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 1997: HIGH LOW - ------------------------- -------- ------- March 31, 1997 $ 7.125 $ 5.875 June 30, 1997 7.875 5.750 September 30, 1997 9.813 7.750 December 31, 1997 9.875 8.313 QUARTERS ENDED IN 1996: HIGH LOW - ------------------------- -------- ------- March 31, 1996 $ 6.250 $ 5.000 June 30, 1996 6.250 5.125 September 30, 1996 7.000 5.875 December 31, 1996 6.500 6.000 As of January 31, 1998, the Registrant had 12,055,261 Common Shares outstanding and approximately 1,004 stockholders of record. Dividends For the years ended December 31, 1997 and 1996, Maritrans Inc. paid the following cash dividends to stockholders: PAYMENTS IN 1997: PER SHARE - --------------------------- ------------- March 12, 1997 $ .075 June 11, 1997 $ .075 September 10, 1997 $ .075 December 10, 1997 $ .090 ------ Total $ .315 ====== PAYMENTS IN 1996: PER SHARE - --------------------------- ------------- March 13, 1996 $ .050 June 12, 1996 $ .075 September 11, 1996 $ .075 December 11, 1996 $ .075 ------ Total $ .275 ====== While dividend policy is determined at the discretion of the Board of Directors of Maritrans Inc., management believes that it is likely Maritrans will pay quarterly cash dividends during 1998. 11 Item 6. SELECTED FINANCIAL DATA ($000 except per share amounts)
MARITRANS INC. ---------------------------------------------------------------------------------- January 1 to December 31 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------------ CONSOLIDATED INCOME STATEMENT DATA: Revenues ............................... $ 135,781 $ 126,994 $ 124,527 $ 124,846 $ 132,539 Operating income before depreciation and amortization ......................... 38,339 30,249 30,738 34,250 24,509 Depreciation and amortization .......... 16,943 16,565 16,214 15,797 15,868 Operating income ....................... 21,396 13,684 14,524 18,453 8,641 Interest expense, net .................. 7,565 9,494 9,454 9,934 10,373 Income before income taxes ............. 18,157 8,379 8,120 10,355 5,186 Provision for income taxes ............. 6,696 3,130 3,139 3,823 16,975(1) Net income (loss) ...................... 11,461 5,249 4,981 6,532 (11,789)(1) Basic earnings per share ............... $ 0.95 $ 0.44 $ 0.41 $ 0.52 -- Diluted earnings per share ............. $ 0.94 $ 0.44 $ 0.41 $ 0.52 -- Pro forma (loss) per share ............. -- -- -- -- $ (.94)(1) Cash dividends per share ............... $ 0.315 $ 0.275 $ 0.11 $ 0.02 -- CONSOLIDATED BALANCE SHEET DATA (at period end): Total assets ........................... $ 251,023 $ 235,221 $ 251,961 $ 257,609 $ 253,038 Long-term debt ......................... 75,365 79,123 104,337 113,008 110,556 Stockholders' equity ................... 90,795 82,594 79,875 81,173 74,874
- ------------ (1) On April 1, 1993, Maritrans Partners L.P. converted from partnership to corporate form, and Maritrans Inc. succeeded to all assets and liabilities of Maritrans Partners L.P. In the first quarter of 1993 Maritrans Partners L.P. recognized a net deferred income tax liability for temporary differences in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," which resulted in a one-time charge to earnings of $16.6 million. In this annual report the statements contained or incorporated by reference that are not historical facts or statements of current condtion are forward-looking statements. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "forecasts," "will," or "anticipates," or the negative thereof or other variations thereon or comparable terminology, or by discussion of strategy or intentions. These forward-looking statements, such as statements regarding present or anticipated utilization, certification of safety programs, future revenues and customer relationships, capital expenditures, future financings, and other statements regarding matters that are not historical facts, involve predictions. The Company's actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect the Company's actual results, performance, or achievements include, but are not limited to, the factors outlined in the Company's Form 10-K filed with the Securities Exchange Commission, and general financial, economic, environmental and regulatory conditions affecting the oil and marine transportation industry in general. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. Furthermore, the Company disclaims any obligation or intent to update any such factors or forward-looking statements to reflect future events or developments. 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 Maritrans Inc. (the "Corporation"), and, together with its subsidiaries and its predecessor, Maritrans Partners L.P. (the "Partnership"), herein called "Maritrans" or the "Company." Overview Historically, Maritrans has served the petroleum and petroleum product distribution industry by using tugs, barges and marine terminal facilities to provide marine transportation and terminalling services along the East 12 and Gulf Coasts of the United States. Between 1993 and 1997, Maritrans has transported at least 218 million barrels annually. The high was 248 million barrels in 1993, and the low was 218 million barrels in 1996. Many factors affect the number of barrels transported and will affect future results for Maritrans, including its 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 -- particularly in Florida and the northeastern U.S., environmental laws and regulations, oil companies' operating and sourcing decisions, competition, labor and training costs and liability insurance costs. Overall U.S. oil consumption during 1993-1997 fluctuated between 17.2 million and 18.6 million barrels a day. Since 1990, Maritrans has taken steps to modify the mix of operating characteristics of its fleet. Maritrans has increased its vessel capacity with the placing in service of its two largest oceangoing, double-hulled petroleum tank barges, the OCEAN 400 and MARITRANS 300, with capacities of approximately 400,000 and 300,000 barrels, respectively. In 1997, Maritrans made additional modifications to its fleet by acquiring three oil tankers varying between 230,000 and 260,000 barrels of capacity. Maritrans will be acquiring an additional 260,000-barrel oil tanker in 1998. Additionally, Maritrans has announced a pilot project to rebuild one of its existing, single-hulled, 190,000-barrel class barges with a double-hull design configuration to comply with the provisions of the Oil Pollution Act of 1990 ("OPA"). Should the one-barge pilot project prove successful, the Company intends to apply the same methodology to up to eight more of its existing large, oceangoing, single-hulled barges. Over this period, Maritrans has also made reductions in owned capacity, disposing of vessels which, due to their sizes and operating characteristics, Maritrans considered excess to its long-term business needs. Legislation The enactment of OPA significantly increased the liability exposure of marine transporters of petroleum in the event of an oil spill. In addition, several states in which Maritrans operates have enacted legislation increasing the liability for oil spills in their waters. Maritrans currently maintains oil pollution liability insurance of $900 million on each of its vessels. There can be no assurance that such insurance will be adequate to cover potential liabilities in the event of a catastrophic spill, that additional premium costs will be recoverable through increased vessel charter rates, or that such insurance will continue to be available in satisfactory amounts. Moreover, this legislation has increased other operating costs as Maritrans has taken steps to minimize the risk of spills. Among such costs are those for additional training, safety and contingency programs; these expenses have not yet been and may never be fully recovered through increased vessel charter rates. Additionally, management believes that the legislation has effectively reduced the total volume of waterborne petroleum transportation as shippers of petroleum have tried to limit their exposure to OPA liability. This legislation has had a material adverse effect on Maritrans' operations, financial performance and expectations. OPA is expected to continue having negative effects on the entire U.S. oil and marine petroleum transportation industry, including Maritrans. These effects could include: (i) increased capital expenditures to cover the cost of mandated double-hulled vessels -- expenditures that the independent marine transporters of petroleum may not be able to finance, (ii) continued increased maintenance, training, insurance and other operating costs, (iii) increased liability and exposure to civil penalties, (iv) decreased operating revenues as a result of further reductions in volumes transported on vessels and (v) increased difficulty in obtaining sufficient insurance, particularly oil pollution coverage. These effects could adversely affect Maritrans' profitability and liquidity. OPA will require the retirement of, or retrofitting with double hulls, all single-hulled petroleum tankers and barges operating in U.S. waters, including most of Maritrans' existing barges. The first of Maritrans' affected barges will have to be retired or retrofitted by 2003. However, most of Maritrans' large oceangoing, single-hulled barges will be affected January 1, 2005. Maritrans' barges under 5,000 gross registered tons are not scheduled for retirement until 2015. The two single-hulled tankers purchased in 1997 are affected in 2005 and 2006, respectively, at which time they will be required to comply with OPA or be operated outside U.S. waters. Approximately 19 percent of Maritrans' operating capacity has been qualified by the United States Coast Guard as meeting the double-hull requirements and, therefore, is allowed to continue operating without modification and without a legislatively determined retirement date. If Maritrans were to replace its entire single-hulled oil- carrying vessel capacity with newly built double hulls, the estimated cost would be approximately $500 million, based on an estimated replacement cost of $125 per barrel of capacity. This estimate could be higher as shipyard costs increase. 13 During 1997, Maritrans announced plans for a pilot double-hull rebuild project to convert one of its existing, single-hulled 190,000-barrel class barges to a double-hull design configuration. Recently Maritrans awarded a shipyard contract to carry out the double-hull rebuilding and coating of the tanks for the barge to be used in the pilot project, the OCEAN 192, for a total cost of approximately $10 million. The results of this initial rebuild project, including subsequent performance of the vessel, will be evaluated in order to determine whether Maritrans enters into a multi-vessel rebuilding program for other single-hulled vessels of similar size. Maritrans believes that eight of its additional barges may be suitable candidates for the double-hull design and related construction methodology of the pilot project. If Maritrans were to double-hull these nine vessels, it would represent approximately 40 percent of Maritrans' operating capacity. Results of Operations Year Ended December 31, 1997 Compared With Year Ended December 31, 1996 Revenue for 1997 totalled $135.8 million compared with $127.0 million in 1996, an increase of $8.8 million or 6.9 percent. Barrels of cargo transported increased by 23.2 million, from 218.1 million to 241.3 million or 10.6 percent. Volumes in the comparable prior period were negatively impacted by the shutdowns of refinery capacity in the Delaware Valley area during the first part of 1996. The increase in volumes in 1997 is attributable to improvements in Maritrans' shorter-haul route business as those refineries were placed back in service. Several of the vessels that were reassigned to other geographic areas last year have been moved back into Delaware Valley-based trades. Utilization, as measured by revenue days divided by calendar days available, totaled 82.2 percent for 1997 compared to 75.7 percent in 1996. During 1997, contracts were renewed with some of Maritrans' larger customers. While a number of these contracts will result in lower revenue per barrel transported, Maritrans has gained either higher vessel utilization or higher volume commitments with those customers, and decreased its exposure to the spot market. The markets within which Maritrans operates continue to experience severe price competition for oil transportation services, which is expected to continue. Management believes, however, that the level of contractually committed utilization will partially insulate Maritrans from these pressures. Revenues from sources other than marine transportation decreased from 3.6 percent of total revenues in 1996 to 3.0 percent in 1997. Operating expenses of $114.4 million increased by $1.1 million or 0.9 percent from $113.3 million in 1996. The increase was due to the addition of two tug/barge units and three tankers in the fourth quarter, which increased vessel operating costs. Prior to the fourth quarter, operating costs had decreased primarily from earlier reductions in owned vessel capacity that Maritrans considered excess to its long-term needs due to the equipment's size and operating characteristics, and reduced general and administrative expenses. Interest expense decreased by $1.9 million from $9.5 million in 1996 to $7.6 million in 1997 due to lower levels of principal outstanding. Other income in 1997 increased by $0.1 million from $4.2 million in 1996 to $4.3 million in 1997 due primarily to greater interest earned on short-term investments. Net income for 1997 increased by $6.3 million to $11.5 million as a result of the aforementioned increased revenues and other income more than offsetting the increase in operating costs. Year Ended December 31, 1996 Compared With Year Ended December 31, 1995 Revenues for 1996 were $127.0 million and were $124.5 million in 1995, an increase of $2.5 million, or two percent. Barrels of cargo transported decreased by 6.9 million barrels, from 225.0 million to 218.1 million, or three percent. Curtailment of a portion of refinery throughput in the Delaware Valley refineries in 1996 caused Maritrans to employ its vessel capacity in alternative markets. This had the result of increasing average trip length, which further resulted in higher average revenues per barrel transported, as equipment formerly utilized in and around Delaware Valley refining and terminalling locations was redeployed into the Gulf of Mexico, the Chesapeake Bay, and into delivery locations in the Caribbean. The markets within which Maritrans operates continue to experience severe price competition for oil transportation services which is expected to continue. Revenue from sources other than marine transportation decreased from 4.0 percent of total revenues in 1995 to 3.6 percent in 1996. 14 Operating expenses of $113.3 million for 1996 increased by $3.3 million, or 3.0 percent from $110.0 million in 1995. The MARITRANS 300 unit, Maritrans' second largest tug/barge unit, entered service in the fourth quarter of 1995 and was operational for the full year in 1996. The aforementioned increase in trip length and rising fuel prices contributed to the increase in operating expenses. General and administrative costs rose as a result of the increased use of outside professional services, particularly for matters related to business development and analysis. Interest expense in 1996 was consistent with the prior year. Other income in 1996 increased $1.1 million from $3.1 million in 1995 to $4.2 million in 1996 due primarily to the gain from disposals of vessels which, due to their sizes and operating characteristics, were considered excess to Maritrans' long-term business needs. Net income for 1996 increased by $0.2 million to $5.2 million as the result of the aforementioned increased revenues and other income more than offsetting the increase in operating expenses. Liquidity and Capital Resources In 1997, existing cash and cash equivalents, augmented by operating activities and financing transactions, were sufficient to fully meet debt service obligations (including $10.2 million in required long-term debt repayments), to meet loan agreement restrictions, to make capital acquisitions and improvements, and to allow Maritrans to pay a dividend of $0.075 per common share in each of the first three quarters and $0.09 per common share in the last quarter. Maritrans believes that in 1998, funds provided by operating activities, augmented by financing transactions and investing activities, will be sufficient to finance operations, anticipated capital expenditures, lease payments and required debt repayments. Dividend payments are expected to continue quarterly in 1998. In October 1997, Maritrans completed the acquisition of six vessels from subsidiaries of Sun Company, Inc., ("Sun") for $30.9 million. In the transaction Maritrans purchased two petroleum tankers and two tug and barge units. Maritrans funded this acquisition with existing cash and cash equivalents. On October 17, 1997, Maritrans entered into a revolving credit facility for $33 million with Mellon Bank, N.A., which is collateralized by mortgages on acquired tankers. On October 10, 1997, Maritrans and Chevron U.S.A. Inc. ("Chevron") executed agreements for Maritrans' purchase of two Chevron petroleum tankers under certain conditions. The total cost to Maritrans is approximately $29.5 million. The Chevron vessels are 40,000 deadweight ton, double-hulled oil tankers that comply with all International Maritime Organization ("IMO") and OPA design criteria for future trading. The Company purchased the first vessel on November 7, 1997, for $13 million and expects to purchase the second vessel during 1998, if certain conditions are met. On November 6, 1997, Maritrans borrowed $12 million from its revolving credit facility with Mellon Bank, N.A. to complete the purchase of the first vessel. Maritrans expects to fund the second Chevron vessel acquisition with a combination of its cash and the revolving credit facility referred to above. In addition to the vessel acquisitions previously mentioned, capital expenditures in 1997 for improvements to its existing fleet of vessels and marine terminals were approximately $4 million compared to $3 million in 1996. Additionally, the Company advanced nearly $2 million (of an expected total cost of approximately $10 million) to a shipyard to begin work on prefabrication of a steel structure to be used in the Company's pilot project to rebuild and to coat the tanks of its single-hulled barge, the OCEAN 192, as a double-hulled barge. Total capital expenditure commitments at December 31, 1997, for the second Chevron vessel mentioned above and the OCEAN 192 double-hulling project totaled approximately $24 million. On May 7, 1997, the Company announced a year's extension to its previously announced stock buy-back plan to reacquire up to 1.8 million shares of its common stock, depending on market conditions. This amount represented approximately 15 percent of the 12.5 million shares outstanding at the beginning of the program. Maritrans intends to hold the majority of the shares as treasury stock, although some shares may be used for employee compensation plans and/or other corporate purposes. As of December 31, 1996, the Company had purchased 877,955 shares at a cost of approximately $5.1 million. No open market purchases were made in 1997. Maritrans has financed and expects that additional share purchases, if made, would be financed with internally generated funds. 15 Working Capital and Other Balance Sheet Changes In 1997, working capital was generated by operating activities, equipment sales, and proceeds under a revolving credit facility established in 1997. Current liabilities increased primarily due to an increase in costs accrued in advance of upcoming shipyard activities related to maintenance of vessels. The ratio of current assets to current liabilities declined from 1.95:1 at December 31, 1996 to 1.27:1 at December 31, 1997. Maritrans utilized available working capital to purchase marine vessels and equipment, repay scheduled long-term debt obligations, and make dividend payments. Debt Obligations and Borrowing Facility At December 31, 1997, Maritrans had $85.1 million in total outstanding debt, secured by mortgages on substantially all of the fixed assets of the subsidiaries of the Corporation. The current portion of this debt at December 31, 1997, was $9.7 million. Maritrans has a $10 million working capital facility, secured by receivables and inventories of a subsidiary, which expires June 30, 1998, and which it expects to renew. This facility was not used in 1997. On October 17, 1997, Maritrans entered into a multi-year revolving credit facility for amounts up to $33 million with Mellon Bank, N.A. This facility is collateralized by mortgages on tankers acquired in 1997. Maritrans initially borrowed $12 million under this facility on November 6, 1997, and had $6 million remaining outstanding at December 31, 1997. At December 31, 1997 and 1996, total debt to total capitalization was 48 percent and 52 percent, respectively. For purposes of this calculation, total capitalization consists of long-term debt, including those portions that are current, and stockholders' equity. Impact of Year 2000 Some of the Company's older computer programs were written using two digits rather than four digits to define the applicable year. As a result, those programs have time-sensitive software that recognize a date using "00" as the year 1900 rather than the year 2000. If left unchanged, this could cause a system failure or miscalculations causing disruptions in operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in normal similar business activities. The Company completed an assessment of its computing systems within the last few years and has begun rewriting software programs and replacing systems to take advantage of newer technology. As a result of this initiative over the past few years, the Company's operating systems will be Year 2000 compliant upon completion of these upgrades, which are scheduled to occur by December 31, 1998. This date is prior to any anticipated impact on its operating systems. The Company believes that with the conversions to new software, the Year 2000 issue will not pose significant operational problems for its computer systems. However, if such conversions are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The total remaining cost of this initiative is approximately $0.6 million, of which most is for the purchase of new software and which will be capitalized. The costs of the project and the date on which the Company believes it will complete the Year 2000 conversions are based on management's best estimates, which were derived utilizing certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to upgrade all relevant operating systems, and similar uncertainties. Earnings per Common Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effect of outstanding stock options. Because of the Company's capital structure, diluted earnings per share is very similar to the previously reported earnings per share. Earnings per common share amounts for all periods have been presented, and where appropriate, restated to conform to Statement 128 requirements. 16 Impact of Recent Accounting Pronouncements In June, 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income and Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, both of which are required to be adopted on January 1, 1998. Statement 130 requires financial statement reporting of all non-owner related changes in equity for the periods being presented. Statement 131 requires disclosure of revenue, earnings and other financial information pertaining to business segments by which a company is managed, as well as factors used by management to determine segments. The Company believes adoption of Statement 130 will have no effect on its financial reporting and is currently evaluating the requirements of Statement 131 to determine the impact it will have on financial statement disclosures. Item 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA Report of Independent Auditors Stockholders and Board of Directors Maritrans Inc. We have audited the accompanying consolidated balance sheets of Maritrans Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maritrans Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. 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. ERNST & YOUNG LLP Philadelphia, Pennsylvania January 23, 1998 17 MARITRANS INC. CONSOLIDATED BALANCE SHEETS ($000)
December 31, --------------------------- 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents .............................................. $ 13,312 $ 33,174 Trade accounts receivable (net of allowance for doubtful accounts of $1,258 and $860, respectively) ....................................... 18,073 16,730 Other accounts receivable .............................................. 4,447 4,523 Inventories ............................................................ 5,066 5,823 Deferred income tax benefit ............................................ 3,491 2,234 Prepaid expenses ....................................................... 3,257 3,014 -------- -------- Total current assets .............................................. 47,646 65,498 Vessels, terminals and equipment ........................................ 329,032 280,231 Less accumulated depreciation .......................................... 132,316 117,741 -------- -------- Net vessels, terminals and equipment .............................. 196,716 162,490 Other ................................................................... 6,661 7,233 -------- -------- Total assets ...................................................... $251,023 $235,221 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Debt due within one year ............................................... $ 9,758 $ 10,213 Trade accounts payable ................................................. 2,390 3,016 Accrued interest ....................................................... 1,563 1,748 Accrued shipyard costs ................................................. 8,723 5,774 Accrued wages and benefits ............................................. 5,208 3,656 Other accrued liabilities .............................................. 9,825 9,128 -------- -------- Total current liabilities ......................................... 37,467 33,535 Long-term debt .......................................................... 75,365 79,123 Deferred shipyard costs ................................................. 13,085 8,661 Other liabilities ....................................................... 5,326 5,364 Deferred income taxes ................................................... 28,985 25,944 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: 1997 -- 12,996,157 shares; 1996 -- 12,837,867 shares ......... 130 128 Capital in excess of par value ......................................... 76,881 75,874 Retained earnings ...................................................... 20,049 12,372 Less: Cost of shares held in treasury 1997 -- 940,896 shares; 1996 -- 877,955 shares .................... (5,433) (5,067) Unearned Compensation ................................................ (832) (713) -------- -------- Total stockholders' equity ........................................ 90,795 82,594 -------- -------- Total liabilities and stockholders' equity ........................ $251,023 $235,221 ======== ========
See accompanying notes. 18 MARITRANS INC. CONSOLIDATED STATEMENTS OF INCOME ($000 except per share amounts)
For the year ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Revenues .................................................. $135,781 $126,994 $124,527 Costs and expenses: Operation expense ........................................ 69,290 67,286 65,260 Maintenance expense ...................................... 19,699 20,289 19,879 General and administrative ............................... 8,453 9,170 8,650 Depreciation and amortization ............................ 16,943 16,565 16,214 -------- -------- -------- 114,385 113,310 110,003 -------- -------- -------- Operating income .......................................... 21,396 13,684 14,524 Interest expense (net of capitalized interest of $0, $0 and $955, respectively) ...................................... (7,565) (9,494) (9,454) Other income, net ......................................... 4,326 4,189 3,050 -------- -------- -------- Income before income taxes ................................ 18,157 8,379 8,120 Income tax provision ...................................... 6,696 3,130 3,139 -------- -------- -------- Net income ................................................ $ 11,461 $ 5,249 $ 4,981 ======== ======== ======== Basic earnings per share .................................. $ 0.95 $ 0.44 $ 0.41 Diluted earnings per share ................................ $ 0.94 $ 0.44 $ 0.41
See accompanying notes. 19 MARITRANS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents ($000)
For the year ended December 31, ----------------------------------------- 1997 1996 1995 ------------ ----------- ------------ Cash flows from operating activities: Net income .................................................... $ 11,461 $ 5,249 $ 4,981 Adjustments to reconcile net income to net cash pro- vided by (used in) operating activities: Depreciation and amortization ............................... 16,943 16,565 16,214 Deferred income taxes ....................................... 1,729 340 2,560 Stock compensation .......................................... 381 347 -- Changes in receivables, inventories, and prepaid expenses ................................................... (753) (3,810) 1,166 Changes in current liabilities other than debt .............. 3,387 2,067 1,403 Non-current changes, net .................................... 3,125 1,063 (532) (Gain) loss on sale of equipment ............................ (2,049) (3,250) (24) --------- --------- --------- Total adjustments to net income ................................ 22,763 13,322 20,787 --------- --------- --------- Net cash provided by (used in) operating activities ......... 34,224 18,571 25,768 Cash flows from investing activities: Acquisition of investments held-to-maturity ................... -- (27,684) (28,064) Maturity of investments held-to-maturity ...................... -- 35,228 28,520 Cash proceeds from sale of marine vessels, terminals and equipment ............................................... 5,066 5,558 340 Purchase of marine vessels, terminals and equipment ........... (51,298) (2,983) (15,323) --------- --------- --------- Net cash provided by (used in) investing activities ......... (46,232) 10,119 (14,527) Cash flows from financing activities: Proceeds from stock option exercises .......................... 143 378 -- Payment of long-term debt ..................................... (10,213) (23,672) (7,654) New borrowings under revolving credit facility ................ 12,000 -- -- Repayments of borrowings under revolving credit facility .................................................... (6,000) -- -- Purchase of treasury stock .................................... -- -- (5,059) Dividends declared and paid ................................... (3,784) (3,255) (1,319) --------- --------- --------- Net cash provided by (used in) financing activities ......... (7,854) (26,549) (14,032) Net increase (decrease) in cash and cash equivalents ........... (19,862) 2,141 (2,791) Cash and cash equivalents at beginning of year ................. 33,174 31,033 33,824 --------- --------- --------- Cash and cash equivalents at end of year ....................... $ 13,312 $ 33,174 $ 31,033 ========= ========= ========= Supplemental Disclosure of Cash Flow Information: Interest paid .................................................. $ 7,661 $ 9,908 $ 10,353 Income taxes paid .............................................. $ 4,500 $ 1,050 $ 85
See accompanying notes. 20 MARITRANS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($000)
Common Capital in Stock, $.01 excess of Retained Treasury Unearned Par Value Par Value Earnings Stock Compensation Total ------------- ------------ ---------- -------------- -------------- ---------- Balance at January 1, 1995 ..... $125 $74,332 $ 6,716 -- -- $ 81,173 Net income January 1, 1995 to December 31, 1995 .......... 4,981 4,981 Cash dividends ($0.11 per share of Common Stock)......... (1,319) (1,319) Purchase of treasury stock ..... $(5,059) (5,059) Stock incentives ............... 1 184 $ (86) 99 ---- ------- -------- -------- ------ -------- Balance at December 31, 1995 ... 126 74,516 10,378 (5,059) (86) 79,875 Net income, January 1, 1996 to December 31, 1996 .......... 5,249 5,249 Cash dividends ($0.275 per share of Common Stock)......... (3,255) (3,255) Stock incentives ............... 2 1,358 (8) (627) 725 ---- ------- -------- -------- ------ -------- Balance at December 31, 1996 ... 128 75,874 12,372 (5,067) (713) 82,594 Net income January 1, 1997 to December 31, 1997 .......... 11,461 11,461 Cash dividends ($0.315 per share of Common Stock)......... (3,784) (3,784) Stock incentives ............... 2 1,007 (366) (119) 524 ---- ------- -------- -------- ------ -------- Balance at December 31, 1997 ... $130 $76,881 $ 20,049 $(5,433) $ (832) $ 90,795 ==== ======= ======== ========= ====== ========
See accompanying notes. 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies Organization Maritrans Inc. owns Maritrans Operating Partners L.P. (the "Operating Partnership"), 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 oil tankers, tugboats, and oceangoing petroleum tank barges principally used in the transportation of oil and related products along the Gulf and Atlantic Coasts, and own and operate petroleum storage facilities on the Atlantic Coast. 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 generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Vessels, Terminals and Equipment Equipment, which is carried at cost, is 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. Petroleum storage tanks are depreciated over periods of up to 25 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 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 all such existing single-hulled vessels to be retrofitted with double hulls or phased out of the industry beginning January 1, 1995. Because of the age and size of Maritrans' individual barges, the first of its operating vessels will be required to be retired or retrofitted by January 2003, and most of its large oceangoing, single-hulled vessels will be similarly affected on January 1, 2005. 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. The current portion of this estimated cost is included in accrued shipyard costs while the portion of this estimated cost not expected to be incurred within one year is classified as long-term. Both the provisions for major periodic overhauls as well as non-overhaul maintenance and repairs are expensed as incurred. Inventories Inventories, consisting of materials, supplies and fuel, are carried at specific cost which does not exceed net realizable value. 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. Significant Customers During 1997, the Company derived revenues aggregating 50 percent of total revenues from 3 customers, each one representing 10 percent or more of total revenues. In 1996, revenues from 3 customers aggregated 42 percent of total revenues and in 1995, revenues from 4 customers aggregated 54 percent of total revenues. The 22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 1. Organization and Significant Accounting Policies -- (Continued) Company does not necessarily derive 10 percent or more of its total revenues from the same group of customers each year. In 1997, approximately 77 percent of the Company's revenues were generated by 10 customers. Credit is extended to various companies in the petroleum industry in the normal course of business. This concentration of credit risk within this industry may be affected by changes in economic or other conditions and may, accordingly, affect overall credit risk of the Company. Related Parties 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 $2,536,000, $2,654,000 and $2,700,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In 1997, 1996 and 1995 the Company paid amounts for the lease of office space and for legal services to a law firm, a partner of which serves on the Company's Board of Directors. 1997 1996 1995 ------ -------- ------- ($000) Lease of office space ......... $228 $277 $277 Legal services ................ 232 163 233 ---- ---- ---- Total ......................... $460 $440 $510 ==== ==== ==== Earnings per Common Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effect of outstanding stock options. Because of the Company's capital structure, diluted earnings per share is very similar to the previously reported earnings per share. Earnings per common share amounts for all periods have been presented, and where appropriate, restated to conform to Statement 128 requirements. Impact of Recent Accounting Pronouncements In June, 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income and Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, both of which are required to be adopted on January 1, 1998. Statement 130 requires financial statement reporting of all non-owner related changes in equity for the periods being presented. Statement 131 requires disclosure of revenue, earnings and other financial information pertaining to business segments by which a company is managed, as well as factors used by management to determine segments. The Company believes adoption of Statement 130 will have no effect on its financial reporting and is currently evaluating the requirements of Statement 131 to determine the impact it will have on financial statement disclosures. 2. Earnings per Common Share The following data show the amounts used in computing earnings per share (EPS) and the effect on income and the weighted average number of shares of dilutive potential common stock.
1997 1996 1995 ---------- ------------- --------- (thousands) Income available to common stockholders used in basic EPS ..................... $11,461 $ 5,249 $ 4,981 Weighted average number of common shares used in basic EPS .............. 12,003 11,828 12,150 Effect of dilutive securities: Stock options ........................ 177 107 110 Weighted number of common shares and dilutive potential common stock used in diluted EPS ........................... 12,180 11,935 12,260
23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 3. Shareholder Rights Plan In 1993, Maritrans Inc. adopted a Shareholder Rights Plan (the "Plan") in connection with the conversion from partnership to corporate form. 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 $40, 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% 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% 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 exeception of the acquiror, is entitled to purchase $40 worth of Common Stock for $20. The Rights will no longer be exercisable into Preferred Shares at that time. "Flip-in" events are events relating to 20% stockholders, including without limitation, a person or group acquiring 20% 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 entitlted to purchase $40 worth of the acquiror's stock for $20. A "Flip-over" event occurs if the Company is acquired or merged and no outstanding shares remain or if 50% 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 acquiror 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% 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, 2002. 4. Cash and Cash Equivalents Cash and cash equivalents at December 31, 1997, and 1996 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. 5. Stock Incentive Plans 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 because the alternative fair value accounting provided for under FAS Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. The effect of applying Statement No. 123's fair value method to the Company's stock-based awards results in pro forma net income that is not materially different from amounts reported and earnings per share that are the same as the amounts reported. 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. Amendments were made to the Plan and approved by the stockholders in 1997. The amendments included increasing the aggregate number of shares available for issuance under the Plan from 1,250,000 shares 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) to 1,750,000 shares. Additionally, the amendments provide 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 1997, there were 9,986 options and 5,963 shares 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 1997, there were 90,667 shares of restricted stock issued under the Plan. The restrictions lapse over a five year period. 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 as the restrictions lapse. At December 31, 1997 and 1996, 744,252 and 230,467 remaining shares within the Plan were reserved for grant. Information on stock options follows:
Weighted Average Number of Exercise Exercise Options Price Price ----------- -------------- ----------------- Outstanding at 12/31/94 ......... 568,817 4.00-5.00 4.28 Granted ........................ 115,133 5.63-6.00 5.77 Exercised ...................... 11,331 4.00 4.00 Cancelled or forfeited ......... 52,976 4.00-5.00 4.59 Expired ........................ -- -- -- ------- ----------- ----- Outstanding at 12/31/95 ......... 619,643 4.00-6.00 4.54 Granted ........................ 159,428 5.25-5.375 5.32 Exercised ...................... 96,911 4.00-5.375 4.10 Cancelled or forfeited ......... -- -- -- Expired ........................ -- -- -- ------- ------------ ----- Outstanding at 12/31/96 ......... 682,160 4.00-6.00 4.79 Granted ........................ 76,939 5.875-7.937 7.33 Exercised ...................... 71,264 4.00-5.625 4.60 Cancelled or forfeited ......... 140,637 5.25-6.25 5.45 Expired ........................ -- -- -- ------- ------------ ----- Outstanding at 12/31/97 ......... 547,198 4.00-7.937 5.01 ------- ------------ ----- Exercisable December 31, 1995 ............ 178,609 4.00-5.00 4.10 December 31, 1996 ............ 208,957 4.00-5.00 4.20 December 31, 1997 ............ 362,575 4.00-6.00 4.44
Outstanding options are exercisable in installments over two to four years and expire beginning in 2002. 6. Income Taxes The income tax provision consists of: 1997 1996 1995 --------- --------- --------- ($000) Current: Federal ......... $4,553 $2,788 $ 576 State ........... 414 2 3 Deferred: Federal ......... $1,753 $ 272 $2,391 State ........... (24) 68 169 ------ ------ ------ $6,696 $3,130 $3,139 ====== ====== ====== 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 6. Income Taxes -- (Continued) The differences between the federal income tax rate of 35 percent in 1997, 1996 and 1995, and the effective tax rates were as follows:
1997 1996 1995 --------- --------- --------- ($000) Statutory federal tax provision ............................... $6,355 $2,932 $2,842 State income taxes, net of federal income tax benefit ......... 253 46 112 Non-deductible items .......................................... 88 152 181 Other ......................................................... -- -- 4 ------ ------ ------ $6,696 $3,130 $3,139 ====== ====== ======
Principal items comprising deferred income tax liabilities and assets as of December 31, 1997 and 1996 are:
1997 1996 ---------- ---------- ($000) Deferred tax liabilities: Depreciation ........................................ $38,293 $35,423 Prepaid expenses .................................... 1,660 1,828 ------- ------- 39,953 37,251 ------- ------- Deferred tax assets: Reserves and accruals ............................... 10,531 8,598 Net operating loss and credit carryforwards ......... 3,928 4,943 ------- ------- 14,459 13,541 ------- ------- Net deferred tax liabilities ........................... $25,494 $23,710 ======= =======
At December 31, 1997, Maritrans Inc. has net operating loss carryforwards of approximately $14.1 million for income tax reporting purposes which expire in the year 2005 and thereafter. The Company has an Alternative Minimum Tax credit of $6.0 million at December 31, 1997 which does not expire. 7. Retirement Plans Most of the shoreside employees and substantially all of the seagoing supervisors participate in a qualified defined benefit retirement plan of Maritrans Inc. Net periodic pension costs were 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 weighted average discount rate, used to determine the actuarial present value of the projected benefit obligation, and the expected long-term rate of return on plan assets was 6.75 percent for all periods. The weighted average assumed rate of compensation increase used to determine the actuarial present value of the projected benefit obligation was 5 percent for all periods. Net periodic pension costs included the following components for the years ended December 31:
1997 1996 1995 ----------- ----------- ----------- ($000) Service cost of current period ........................ $ 1,440 $ 1,548 $ 1,581 Interest cost on projected benefit obligation ......... 1,451 1,365 1,237 Actual (gain) loss on plan assets ..................... (3,572) (2,031) (3,094) Net (amortization) and deferral ....................... 1,787 423 1,745 -------- -------- -------- Net pension cost ...................................... $ 1,106 $ 1,305 $ 1,469 ======== ======== ========
26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 7. Retirement Plans -- (Continued) The following table sets forth the plan's funded status at December 31, 1997 and 1996:
1997 1996 ---------- ---------- ($000) Actuarial present value of benefit obligations: Vested benefit obligation .............................. $ 19,091 $17,754 ======== ======= Accumulated benefit obligation ......................... $ 19,991 $18,679 ======== ======= Projected benefit obligation ........................... $ 24,044 $22,834 ======== ======= Plan assets at fair value, primarily publicly traded stocks and bonds ................................................ $ 27,256 $23,188 ======== ======= Plan assets (greater) less than projected benefit obliga- tion ..................................................... (3,212) (354) Unrecognized net gain on plan's assets .................... 6,280 3,289 Net assets being amortized over 15 years .................. 803 1,006 -------- ------- Accrued pension cost recognized in the financial state- ments .................................................... $ 3,871 $ 3,941 ======== =======
Substantially all of the shoreside employees and seagoing supervisors also participate in a qualified defined contribution plan. Contributions under the plan are determined annually by the Board of Directors of Maritrans Inc. The cost of the plan was $779,000, $0 and $1,005,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Contributions to industry-wide, multi-employer seamen's pension plans, which cover substantially all seagoing personnel covered under collective bargaining agreements, were approximately $479,000, $474,000 and $480,000 for the years ended December 31, 1997, 1996 and 1995, 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 At December 31, 1997, total outstanding debt of the subsidiaries of Maritrans Inc. is $85.1 million, $75.4 million of which is long-term. At December 31, 1996, total outstanding debt was $89.3 million, $79.1 million of which was long-term. The debt is secured by mortgages on substantially all of the fixed assets of those subsidiaries. At December 31, 1997, total outstanding debt consists of several series -- $6.0 million maturing through 2000, $5.4 million maturing through 2002, $8.7 million maturing through 2005, and $65.0 million maturing through 2006. The weighted average interest rate on this indebtedness is 8.83 percent. Terms of the indebtedness require the subsidiaries to maintain their properties in a specific manner, maintain specified insurance on their properties and business, and abide by other covenants which are customary with respect to such borrowings. At December 31, 1996, the total outstanding debt consisted of several series -- $8.5 million maturing through 1997, $6.6 million maturing through 1998, $9.2 million maturing through 2005 and $65.0 million maturing from 1998 through 2006. In 1997, Maritrans entered into a multi-year revolving credit facility for amounts up to $33 million with Mellon Bank, N.A. This facility is collateralized by mortgages on tankers acquired in 1997. Maritrans initially borrowed $12 million under this facility on November 6, 1997, and had $6 million remaining outstanding at December 31, 1997. The Operating Partnership has a $10 million working capital facility secured by its receivables and inventories. There were no borrowings under this facility during fiscal 1997. 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 8. Debt -- (Continued) Based on the borrowing rates currently available for loans with similar terms and maturities, the fair value of long term debt was $85.9 million and $87.7 million at December 31, 1997 and 1996, respectively. The maturity schedule for outstanding indebtedness under existing debt agreements at December 31, 1997, is as follows: ($000) --------- 1998 ........................... $ 9,758 1999 ........................... 9,808 2000 ........................... 15,862 2001 ........................... 9,920 2002 ........................... 9,384 2003 -- 2007 ................... 30,391 ------- $85,123 ======= 9. Commitments and Contingencies Minimum future rental payments under noncancellable operating leases at December 31, 1997, are as follows: ($000) --------- 1998 ........................... $ 1,995 1999 ........................... 1,854 2000 ........................... 2,012 2001 ........................... 2,012 2002 ........................... 2,012 2003 -- 2007 ................... 5,201 ------- $15,086 ======= The indenture governing the Operating Partnership's long-term debt permits cash distributions by Maritrans Operating Partners L.P. to Maritrans Inc., so long as no default exists under the indenture and provided that such distributions do not exceed contractually prescribed amounts. Total capital expenditure commitments at December 31, 1997, are approximately $24 million. 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, 1997 will not have a material adverse effect on the consolidated financial statements. 10. Quarterly Financial Data (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter ------------ ------------ ------------ ------------ ($000, except per share amounts) 1997 - ---- Revenues ........................... $ 31,812 $ 31,472 $ 33,548 $ 38,949 Operating income ................... 5,172 4,955 6,086 5,183 Net income ......................... 1,891 2,999 3,905 2,666 Basic earnings per share ........... $ 0.16 $ 0.25 $ 0.33 $ 0.22 Diluted earnings per share ......... $ 0.16 $ 0.25 $ 0.32 $ 0.22
28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 10. Quarterly Financial Data (Unaudited) -- (Continued)
First Second Third Fourth Quarter Quarter Quarter Quarter ------------ ------------ ------------ ------------ ($000, except per share amounts) 1996 - ---- Revenues ........................... $ 31,586 $ 30,959 $ 31,831 $ 32,618 Operating income ................... 3,025 2,001 4,326 4,332 Net income ......................... 709 215 1,511 2,814 Basic earnings per share ........... $ 0.06 $ 0.02 $ 0.13 $ 0.23 Diluted earnings per share ......... $ 0.06 $ 0.02 $ 0.13 $ 0.23
29 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 Corporation'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, 1997, 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 (4)(5) ............ 54 Chairman of the Board of Directors and Chief Executive Officer Dr. Robert E. Boni (2)(3)(4) .......... 70 Director Dr. Craig E. Dorman (2)(3) ............ 57 Director Robert J. Lichtenstein(4)(5) .......... 50 Director Eric H. Schless(2)(4) ................. 43 Director H. William Brown ...................... 59 Chief Financial Officer Janice M. Smallacombe ................. 38 President, Maritrans Management Services Inc. John J. Burns ......................... 45 President, Maritrans Operating Partners L.P. Steven E. Welch ....................... 46 President, Maritrans Marketing Inc. Walter T. Bromfield ................... 42 Treasurer and Controller
- ------------ (1) As of March 1, 1998 (2) Member of the Compensation Committee (3) Member of the Audit Committee (4) Member of the Finance Committee (5) Member of the Nominating Committee 30 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. He is a member of the Company's Finance (Chairman) and Nominating Committees of the Board of Directors. See "Certain Transactions" in the Proxy Statement. Mr. Brown was named Chief Financial Officer of the Company in June 1997. Previously, Mr. Brown was Chief Financial Officer of Conrail Inc., where he had been employed since 1986. Mr. Brown is also a member of the Board of Directors of XTRA Corporation. Ms. Smallacombe is President of Maritrans Management Services Inc. and has been continuously employed by the Company or its predecessors in various capacities since 1982. Mr. Burns is President of Maritrans Operating Partners L.P. and has been continuously employed by the Company or its predecessors in various capacities since 1975. Mr. Welch is President of Maritrans Marketing Inc. and has been continuously employed by the Company or its predecessors in various capacities since 1977. Mr. Bromfield is Treasurer and Controller of the Company, and has been continously employed in various capacities by Maritrans or its predecessors since 1981. Items 11, 12 and 13. 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". 31 PART IV
Page ----- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements Report of Independent Auditors 17 Maritrans Inc. Consolidated Balance Sheets at December 31, 1997, and 1996. 18 Maritrans Inc. Consolidated Statements of Income for the years ended 19 December 31, 1997, 1996, and 1995. Maritrans Inc. Consolidated Statements of Cash Flows for the years ended 20 December 31, 1997, 1996, and 1995. Maritrans Inc. Consolidated Statements of Stockholders' Equity for the years 21 ended December 31, 1997, 1996 and 1995. Notes to the Consolidated Financial Statements. 22 (2) Financial Statement Schedules Schedule II Maritrans Inc. Valuation Account for the years ended December 31, 36 1997, 1996, and 1995. 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 One report on Form 8-K was filed on October 28, 1997, pertaining to Maritrans Inc.'s acquisition of six marine vessels from subsidiaries of Sun Company, Inc. The purchase was completed by subsidiaries of Maritrans Inc.
32 (c) Exhibits
Exhibit Index Page - ----------------------------------------------------------------------------------------------------------- ----- 3.1# Certificate of Incorporation of the Registrant, as amended. 3.2# By Laws of the Registrant. 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 Regis- trant 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. 10.1* Amended and Restated Agreement of Limited Partnership of Maritrans Operating Partners L.P., dated as of April 14, 1987 (Exhibit 3.2). 10.2+ Certificate of Limited Partnership of Maritrans Operating Partners L.P., dated January 29, 1987 (Exhibit 3.4). 10.3* Form of Maritrans Capital Corporation Note Purchase Agreement, dated as of March 15, 1987 (Exhibit 10.6). 10.3(a)* Indenture of Trust and Security Agreement, dated as of March 15, 1987 from Maritrans Operating Partners L.P. and Maritrans Capital Corporation to The Wilm- ington Trust Company (Exhibit 10.6(a)). 10.3(b)* Form of First Preferred Ship Mortgage, dated April 14, 1987 from Maritrans Operating Partners L.P., mortgagor, to The Wilmington Trust Company, mortgagee (Exhibit 10.6(b)). 10.3(c)* Guaranty Agreement by Maritrans Operating Partners L.P. regarding $35,000,000 Series A Notes Due April 1, 1997 and $80,000,000 Series B Notes Due April 1, 2007 of Maritrans Capital Corporation (Exhibit 10.6(c)). 10.3(d)= Second Supplemental Indenture of Trust and Security Agreement, dated as of April 1, 1996 from Maritrans Operating Partners L.P. and Maritrans Capital Corpo- ration to Wilmington Trust Company, as Trustee. 10.3(e)= Supplement To First Preferred Ship Mortgages, dated May 8, 1996 from Maritrans Operating Partners L.P., Mortgagor, to Wilmington Trust Company, as Trustee, Mortgagee. 10.4- Credit Agreement of October 17, 1997, by and among Maritrans Tankers Inc., Mari- trans Inc., and Mellon Bank, N.A. for a revolving credit facility up to $33,000,000 (Exhibit 10.2). 10.4(a)- Guaranty (Suretyship) Agreement of October 17, 1997, by Maritrans Inc. regarding up to $50,000,000 in principal amount of credit accomodations to Maritrans Tankers Inc. by Mellon Bank, N.A. (Exhibit 10.1). 10.4(b)- Note of Maritrans Tankers Inc. to Mellon Bank, N.A., dated October 17, 1997 (Exhibit 10.3). 10.4(c)- First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc., mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel ALLEGIANCE (Exhibit 10.4). 10.4(d)- First Preferred Ship Mortgage, dated October 17, 1997, by Maritrans Tankers Inc., mortgagor, to Mellon Bank, N.A., mortgagee, on the vessel PERSEVERANCE (Exhibit 10.5).
33
Exhibit Index Page - ------------------------------------------------------------------------------------------------- ----- Executive Compensation Plans and Arrangements 10.5 Severance and Non-Competition Agreement, as amended and restated effective July 7, 1997, between Maritrans General Partner Inc. and John C. Newcomb. 10.6 Severance and Non-Competition Agreement, as amended and restated effective July 7, 1997, between Maritrans General Partner Inc. and John J. Burns. 10.7- Employment Agreement, dated October 5, 1993 between Maritrans General Partner Inc. and Stephen A. Van Dyck (Exhibit 10.6). 10.8 Severance and Non-Competition Agreement, as amended and restated effective July 7, 1997, between Maritrans General Partner Inc. and Steven E. Welch. 10.9 Severance and Non-Competition Agreement, as amended and restated effective July 7, 1997, between Maritrans General Partner Inc. and Janice M. Smallacombe. 10.10- Profit Sharing and Savings Plan of Maritrans Inc. as amended and restated effective November 1, 1993 (Exhibit 10.13). 10.11@ Executive Award Plan of Maritrans GP Inc. (Exhibit 10.31). 10.12@ Excess Benefit Plan of Maritrans GP Inc. as amended and restated effective January 1, 1988 (Exhibit 10.32). 10.13@ Retirement Plan of Maritrans GP Inc. as amended and restated effective January 1, 1989 (Exhibit 10.33). 10.14- Performance Unit Plan of Maritrans Inc. effective April 1, 1993 (Exhibit 10.17). 10.15& Executive Compensation Plan as amended and restated effective March 18, 1997. 21.1 Subsidiaries of Maritrans Inc. 23.1 Consent of Independent Auditors to incorporate by reference their report dated Janu- ary 23, 1998, with respect to the consolidated financial statements and schedule of Maritrans Inc. for the year ended December 31, 1997, into the Form S-8 Registra- tion Statement No. 333-33765 dated August 15, 1997. 27 Financial Data Schedule
* Incorporated by reference herein to the Exhibit number in parentheses filed on March 24, 1988 with Amendment No. 1 to Maritrans Partners L. P. Form 10-K Annual Report, dated March 3, 1988, for the fiscal year ended December 31, 1987. + Incorporated by reference herein to the Exhibit number in parentheses filed with Maritrans Partners L. P. Form S-1 Registration Statement No. 33-11652 dated January 30, 1987 or Amendment No. 1 thereto dated March 20, 1987. # 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. & Incorporated by reference herein to Exhibit A of the Registrant's definitive Proxy Statement filed on March 31, 1997. @ Incorporated by reference herein to the Exhibit number in parentheses filed with Maritrans Partners L. P. Annual Report on Form 10-K, dated March 29, 1993 for the fiscal year ended December 31, 1992. - Incorporated by reference herein to the Exhibit number in parentheses filed with Maritrans Inc. Annual Report on Form 10-K, dated March 30, 1994 for the fiscal year ended December 31, 1993. = Incorporated by reference herein to the Exhibit of the same number filed with Maritrans Inc. Annual Report on Form 10-K, dated March 31, 1997 for the fiscal year ended December 31, 1996. - Incorporated by reference herein to the Exhibit number in parentheses filed with Maritrans Inc. quarterly report on Form 10-Q, dated November 12, 1997 for the quarter ended September 30, 1997. 34 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 27, 1998 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. /s/ Stephen A. Van Dyck By: --------------------------- Chairman of the Board Dated: March 27, 1998 Stephen A. Van Dyck and Chief Executive Officer (Principal Executive Officer) /s/ Dr. Robert E. Boni Director Dated: March 27, 1998 By: --------------------------- Dr. Robert E. Boni /s/ Dr. Craig E. Dorman Director Dated: March 27, 1998 By: --------------------------- Dr. Craig E. Dorman /s/ Robert J. Lichtenstein Director Dated: March 27, 1998 By: --------------------------- Robert J. Lichtenstein /s/ Eric Schless Director Dated: March 27, 1998 By: --------------------------- Eric Schless /s/ H. William Brown Chief Financial Officer Dated: March 27, 1998 By: --------------------------- (Principal Financial Officer) H. William Brown /s/ Walter T. Bromfield Treasurer and Controller Dated: March 27, 1998 By: --------------------------- (Principal Accounting Officer) Walter T. Bromfield
35 MARITRANS INC. SCHEDULE II -- VALUATION ACCOUNT ($000)
CHARGED BALANCE AT TO COSTS BALANCE BEGINNING AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - ----------------------------------------- ------------ ---------- ------------ ---------- JANUARY 1 TO DECEMBER 31, 1995 Allowance for doubtful accounts ......... $ 453 $ 31 $ 27(a) $ 457 ===== ==== ===== ====== JANUARY 1 TO DECEMBER 31, 1996 Allowance for doubtful accounts ......... $ 457 $403 $ -- $ 860 ===== ==== ===== ====== JANUARY 1 TO DECEMBER 31, 1997 Allowance for doubtful accounts ......... $ 860 $410 $ 12(a) $1,258 ===== ==== ===== ======
- ------------ (a) Deductions are a result of write-offs of uncollectible accounts receivable for which allowances were previously provided. 36 EX-10.5 2 EXHIBIT 10.5 SEVERANCE AND NON-COMPETITION AGREEMENT Amended Agreement made as of the 7th day of July, 1997, between Maritrans General Partner Inc., a Delaware corporation (the "Company"), and John C. Newcomb (the "Employee"). WHEREAS, the Employee is employed by the Company as its Vice President and General Counsel; WHEREAS, the Company is a subsidiary of Maritrans Inc., a publicly traded corporation ("Maritrans"); WHEREAS, the Employee and Maritrans entered into a Severance and Non-competition Agreement on April 4, 1996 to provide certain payments to the Employee in the event that his employment were terminated, including as a result of a Change of Control of Maritrans (the "Agreement"); WHEREAS, the Employee and the Company now wish to revise the Agreement; and WHEREAS, in consideration for the Employee agreeing not to compete with the Company in the event the Employee's employment is terminated, the Company agrees that the Employee shall receive the compensation set forth in this Agreement as a cushion against the financial and career impact on the Employee in the event the Employee's employment with the Company is terminated without cause whether or not there is a Change of Control of Maritrans; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 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 sum of the Employee=s base salary, at the rate in effect on the Termination Date or at the time of a Change of Control, if higher, the Employee's annual bonus as paid for the year prior to the Termination Date and, if applicable, any payment received under the Company's Performance Unit Plan in the year prior to the year in which the Termination Date occurs, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs, but excluding any amounts attributable to the exercise of stock options by the Employee under the Company's Equity Compensation Plan. (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, securities of the Company; 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; (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 (d) 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. (d) "Board" shall mean the board of directors of the Company. (e) "Cause" shall mean 1) misappropriation of funds, 2) habitual insobriety or substance abuse, 3) conviction of a crime involving moral turpitude, 4) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries taken as a whole. (f) "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 of Maritrans then outstanding); 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 the Company of the Common Stock of the Company then outstanding or to solicit proxies, (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the board of directors of Maritrans cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by the Maritrans' shareholders, 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, (iii) consummation by Maritrans of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the outstanding common stock of Maritrans prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding common stock or Maritrans, or (iv) consummation of a complete liquidation or dissolution of Maritrans or sale or other disposition of all or substantially all of the assets of Maritrans other than to a corporation, business trust or other entity with respect to which, following such sale or disposition, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding common stock of Maritrans immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding common stock immediately prior to such sale or disposition. (g) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the Employee's 65th birthday. (h) "Person" shall mean any individual, firm, corporation, partnership or other entity. (i) "Subsidiary" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (j) "Termination Date" shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be. (k) "Termination of Employment" shall mean the termination of the Employee's actual employment relationship with the Company. (l) "Termination following a Change of Control" shall mean a Termination of Employment within two years after a Change of Control either: (i) initiated by the Company for any reason other than (x) the Employee's continuous illness, injury or incapacity for a period of six consecutive months or (y) for "Cause;" or (ii) initiated by the Employee upon one or more of the following occurrences: (A) any failure of the Company to comply with and satisfy any of the terms of this Agreement; (B) any significant reduction by the Company of the authority, duties or responsibilities of the Employee; (C) any removal by the Company of the Employee from the employment grade, compensation level or officer positions which the Employee holds as of the effective date hereof except in connection with promotions to higher office; (D) the requirement that the Employee undertake business travel to an extent substantially greater than is reasonable and customary for the position the Employee holds. 2. Notice of Termination. Any Termination of Employment shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific reasons for the termination, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employee's employment, 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). 3. Severance Compensation upon Termination. (a) In the event of the Employee's involuntary Termination of Employment for reason other than Cause, the Company shall continue to pay to the Employee, upon the execution of a release substantially in the form being used by the Company, prior to a Change of Control, for terminating executives, an amount equal to one-half his Base Compensation, subject to customary employment taxes and deductions, for six months following the Termination Date but all other benefit coverages (except as specified by law or regulation), retirement benefits and fringe benefit eligibility shall cease upon the Termination Date. (b) Subject to the provisions of Section 11 hereof, in the event of the Employee's Termination following a Change of Control or in the event that a Change of Control occurs within six months after a Termination of Employment requiring a payment under subsection (a), the Company shall pay to the Employee, within 30 days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in Section 11(b) hereof cannot be completed within 30 days or payments have already commenced under subsection (a) above), and in lieu of, or reduced by, as applicable, any payment under subsection (a) above, a single sum in cash equal to one times the Employee's Base Compensation. (c) In the event the Employee's Normal Retirement Date would occur prior to 24 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 the Employee's Normal Retirement Date and the denominator of which shall be 730. (d) As additional consideration for the non-competition and non-solicitation covenants contained in Sections 12 and 13, (i) if payments are made under subsection (a) above, an amount equal to his Base Compensation, subject to customary employment taxes and deductions, for 12 months following his Termination Date, or (ii) if payments are made under subsection (b) above, a single cash payment, within 30 days after the effective date of the Termination of Employment, equal to Employee's Base Compensation. 4. Other Payments. The payment due under Section 3 hereof shall be in addition to and not in lieu of any payments or benefits due to the Employee under any other plan, policy or program of the Company except that no payments shall be due to the Employee under the Company's then severance pay plan for employees. 5. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Company's discretion, as set forth in the agreement pursuant to which the fund will be established. 6. Enforcement. (a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3(b) and 4 hereof within the respective time periods provided therein, the Company shall pay to the 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 under Section 3(b) and 4, as appropriate, until paid to the 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 the Employee not be required to incur any expenses associated with the enforcement of his rights under Section 3(b) of 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 the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys' fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement. 7. No Mitigation. The 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. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the 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 of its Subsidiaries or Affiliates and for which the Employee may qualify; provided, however, that the Employee hereby waives the Employee's right to receive any payments under any severance pay plan or similar program applicable to other employees of the Company. 9. No Set-Off. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others. 10. Taxes. Any payment required under this Agreement shall be subject to all requirements of the law with regard to the withholding of taxes, filing, making of reports and the like, and the Company shall use its best efforts to satisfy promptly all such requirements. 11. Certain Reduction 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 the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 11, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) All determinations to be made under this Section 11 shall be made by Ernst & Young (or the Company's independent public accountant immediately prior to the Change of Control if other than Ernst & Young (the "Accounting Firm")), which firm shall provide its determinations and any supporting calculations both to the Company and the Employee within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section. Within five days after the Employee's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement. (c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest at the Federal Rate. (d) 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. 12. Confidential Information. The Employee recognizes and acknowledges that, by reason of his employment by and service to the Company, 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"). The Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that he will not, either during or after his employment by the Company, 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 the Employee or except as may be required by law. 13. Non-Competition. (a) During his employment by the Company and for a period of one year thereafter, the Employee will not, unless acting 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 his employment by the Company or on the Termination Date, 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 a customer of, 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 his employment by the Company or on the Termination Date, as applicable. It is recognized by the Employee that the business of the Company and its affiliates and the 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. The Employee also shall not, directly or indirectly, during such one-year period (a) solicit or divert business from, or attempt to convert any client, account or customer of the Company or any of its affiliates, whether existing at the date hereof or acquired during Employee's employment nor (b) following Employee's employment, solicit or attempt to hire any then employee of the Employer or of any of its affiliates. (b) The foregoing restriction shall not be construed to prohibit the ownership by the Employee of less than one percent (1%) 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 the 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. 14. Equitable Relief. (a) Employee acknowledges that the restrictions contained in Sections 12 and 13 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. The Employee represents that his experience and capabilities are such that the restrictions contained in Section 13 hereof will not prevent the Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as anticipated by this Agreement. The 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) The 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 12 or 13 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 12 or 13 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. (c) The Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 12 or 13 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 for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia County, Pennsylvania, (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 17 hereof. (d) Employee agrees that he will provide, and that the Company may similarly provide, a copy of Sections 12 and 13 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. 15. Term of Agreement. The term of this Agreement shall be for two years from the date hereof and shall be automatically renewed for successive one-year periods unless the Company notifies the Employee in writing that this Agreement will not be renewed at least sixty days prior to the end of the current term; provided, however, that (i) a failure of the Company to renew at a time when the Employee is employed by the Company shall constitute an involuntary Termination of Employment entitling the Employee to terminate employment from the Company and to the payments provided by Section 3(a) unless the Employee elects to continue employment, within 30 days after a non-renewal, and, thereby, waive such payments in connection with the failure to renew, (ii) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired, and (iii) this Agreement shall terminate if, prior to a Change of Control, the employment of the Employee with the Company or any of its Subsidiaries, as the case may be, shall terminate for any reason, or the Employee shall cease to be an Employee, except as provided in clause (i) or in Section 3(b). 16. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the 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 this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally. 17. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows: If to the Company, to: Maritrans Inc. 2600 One Logan Square Philadelphia, PA 19103 Attention: Corporate Secretary If to the Employee, to: John C. Newcomb 7725 St. Martin Lane Philadelphia, PA 19118 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or to any successor pursuant to Section 16 hereof shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service. 18. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions. 19. Contents of Agreement, Amendment and Assignment. (a) This Agreement supersedes all prior agreements, sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Company's behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Board. (b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company. (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, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company. 20. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 21. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including, without limitation, any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination following a Change of Control pursuant to Section 1(l)(ii) of this Agreement. 22. 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 making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 23. Termination of Agreement. This Agreement shall supersede and replace the Agreement which shall hereafter be null and void and of no further force and effect. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. Attest: Maritrans General Partner Inc. [Seal] By /s/ Arthur J. Volkle /s/ Walter T. Bromfield - ----------------------- -------------------------------- Asst. Secretary Controller /s/ Maureen Heaney /s/ John C. Newcomb - ----------------------- -------------------------------- Witness John C. Newcomb EX-10.6 3 EXHIBIT 10.6 SEVERANCE AND NON-COMPETITION AGREEMENT Amended Agreement made as of the 7th day of July, 1997, between Maritrans General Partner Inc., a Delaware corporation (the "Company"), and John J. Burns (the "Employee"). WHEREAS, the Employee is employed by the Company as its President- Eastern Clean Division; WHEREAS, the Company is a subsidiary of Maritrans Inc., a publicly traded corporation ("Maritrans"); WHEREAS, the Employee and Maritrans entered into a Severance and Non-competition Agreement on February 4, 1997 to provide certain payments to the Employee in the event that his employment were terminated, including as a result of a Change of Control of Maritrans (the "Agreement"); WHEREAS, the Employee and the Company now wish to revise the Agreement; and WHEREAS, in consideration for the Employee agreeing not to compete with the Company in the event the Employee's employment is terminated, the Company agrees that the Employee shall receive the compensation set forth in this Agreement as a cushion against the financial and career impact on the Employee in the event the Employee's employment with the Company is terminated without cause whether or not there is a Change of Control of Maritrans; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 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 sum of the Employee=s base salary, at the rate in effect on the Termination Date or at the time of a Change of Control, if higher, the Employee's annual bonus as paid for the year prior to the Termination Date and, if applicable, any payment received under the Company's Performance Unit Plan in the year prior to the year in which the Termination Date occurs, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs, but excluding any amounts attributable to the exercise of stock options by the Employee under the Company's Equity Compensation Plan. (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, securities of the Company; 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; (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 (d) 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. (d) "Board" shall mean the board of directors of the Company. (e) "Cause" shall mean 1) misappropriation of funds, 2) habitual insobriety or substance abuse, 3) conviction of a crime involving moral turpitude, 4) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries taken as a whole. (f) "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 of Maritrans then outstanding); 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 the Company of the Common Stock of the Company then outstanding or to solicit proxies, (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the board of directors of Maritrans cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by the Maritrans' shareholders, 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, (iii) consummation by Maritrans of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the outstanding common stock of Maritrans prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding common stock or Maritrans, or (iv) consummation of a complete liquidation or dissolution of Maritrans or sale or other disposition of all or substantially all of the assets of Maritrans other than to a corporation, business trust or other entity with respect to which, following such sale or disposition, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding common stock of Maritrans immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding common stock immediately prior to such sale or disposition. (g) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the Employee's 65th birthday. (h) "Person" shall mean any individual, firm, corporation, partnership or other entity. (i) "Subsidiary" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (j) "Termination Date" shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be. (k) "Termination of Employment" shall mean the termination of the Employee's actual employment relationship with the Company. (l) "Termination following a Change of Control" shall mean a Termination of Employment within two years after a Change of Control either: (i) initiated by the Company for any reason other than (x) the Employee's continuous illness, injury or incapacity for a period of six consecutive months or (y) for "Cause;" or (ii) initiated by the Employee upon one or more of the following occurrences: (A) any failure of the Company to comply with and satisfy any of the terms of this Agreement; (B) any significant reduction by the Company of the authority, duties or responsibilities of the Employee; (C) any removal by the Company of the Employee from the employment grade, compensation level or officer positions which the Employee holds as of the effective date hereof except in connection with promotions to higher office; (D) the requirement that the Employee undertake business travel to an extent substantially greater than is reasonable and customary for the position the Employee holds; or (E) a transfer of the Employee, without his express written consent, to a location that is outside the metropolitan Philadelphia area (fifty miles surrounding the Company's principal location as of the date hereof), or the general area in which her principal place of business immediately preceding the Change of Control may be located at such time if other than metropolitan Philadelphia. 2. Notice of Termination. Any Termination of Employment shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific reasons for the termination, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employee's employment, 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). 3. Severance Compensation upon Termination. (a) In the event of the Employee's involuntary Termination of Employment for reason other than Cause, the Company shall continue to pay to the Employee, upon the execution of a release substantially in the form being used by the Company, prior to a Change of Control, for terminating executives, an amount equal to his Base Compensation, subject to customary employment taxes and deductions, for 12 months following his Termination Date but all other benefit coverages (except as specified by law or regulation), retirement benefits and fringe benefit eligibility shall cease upon the Termination Date. (b) Subject to the provisions of Section 11 hereof, in the event of the Employee's Termination following a Change of Control or in the event that a Change of Control occurs within six months after a Termination of Employment requiring a payment under subsection (a), the Company shall pay to the Employee, within 30 days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in Section 11(b) hereof cannot be completed within 30 days or payments have already commenced under subsection (a) above), and in lieu of, or reduced by, as applicable any payment under subsection (a) above, a single sum in cash equal to 1.99 times the Employee's Base Compensation. (c) In the event the Employee's Normal Retirement Date would occur prior to 24 months after the Termination Date, the aggregate cash amount determined as set forth in (a) or (b) 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 the Employee's Normal Retirement Date and the denominator of which shall be 730. (d) As additional consideration for the non-competition and non-solicitation covenants contained in Sections 12 and 13, (i) if payments are made under subsection (a) above, an amount equal to his Base Compensation, subject to customary employment taxes and deductions, for 12 months following his Termination Date, or (ii) if payments are made under subsection (b) above, a single cash payment, within 30 days after the effective date of the Termination of Employment, equal to Employee's Base Compensation. 4. Other Payments. The payment due under Section 3 hereof shall be in addition to and not in lieu of any payments or benefits due to the Employee under any other plan, policy or program of the Company except that no payments shall be due to the Employee under the Company's then severance pay plan for employees. 5. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Company's discretion, as set forth in the agreement pursuant to which the fund will be established. 6. Enforcement. (a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3(b) and 4 hereof within the respective time periods provided therein, the Company shall pay to the 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 under Section 3(b) and 4, as appropriate, until paid to the 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 the Employee not be required to incur any expenses associated with the enforcement of his rights under Section 3(b) of 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 the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys' fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement. 7. No Mitigation. The 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. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the 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 of its Subsidiaries or Affiliates and for which the Employee may qualify; provided, however, that the Employee hereby waives the Employee's right to receive any payments under any severance pay plan or similar program applicable to other employees of the Company. 9. No Set-Off. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others. 10. Taxes. Any payment required under this Agreement shall be subject to all requirements of the law with regard to the withholding of taxes, filing, making of reports and the like, and the Company shall use its best efforts to satisfy promptly all such requirements. 11. Certain Reduction 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 the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 11, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) All determinations to be made under this Section 11 shall be made by Ernst & Young (or the Company's independent public accountant immediately prior to the Change of Control if other than Ernst & Young (the "Accounting Firm")), which firm shall provide its determinations and any supporting calculations both to the Company and the Employee within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section. Within five days after the Employee's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement. (c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest at the Federal Rate. (d) 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. 12. Confidential Information. The Employee recognizes and acknowledges that, by reason of his employment by and service to the Company, 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"). The Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that he will not, either during or after his employment by the Company, 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 the Employee or except as may be required by law. 13. Non-Competition. (a) During his employment by the Company and for a period of one year thereafter, the Employee will not, unless acting 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 his employment by the Company or on the Termination Date, 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 a customer of, 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 his employment by the Company or on the Termination Date, as applicable. It is recognized by the Employee that the business of the Company and its affiliates and the 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. The Employee also shall not, directly or indirectly, during such one-year period (a) solicit or divert business from, or attempt to convert any client, account or customer of the Company or any of its affiliates, whether existing at the date hereof or acquired during Employee's employment nor (b) following Employee's employment, solicit or attempt to hire any then employee of the Employer or of any of its affiliates. (b) The foregoing restriction shall not be construed to prohibit the ownership by the Employee of less than one percent (1%) 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 the 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. 14. Equitable Relief. (a) Employee acknowledges that the restrictions contained in Sections 12 and 13 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. The Employee represents that his experience and capabilities are such that the restrictions contained in Section 13 hereof will not prevent the Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as anticipated by this Agreement. The 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) The 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 12 or 13 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 12 or 13 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. (c) The Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 12 or 13 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 for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia County, Pennsylvania, (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 17 hereof. (d) Employee agrees that he will provide, and that the Company may similarly provide, a copy of Sections 12 and 13 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. 15. Term of Agreement. The term of this Agreement shall be for two years from the date hereof and shall be automatically renewed for successive one-year periods unless the Company notifies the Employee in writing that this Agreement will not be renewed at least sixty days prior to the end of the current term; provided, however, that (i) a failure of the Company to renew at a time when the Employee is employed by the Company shall constitute an involuntary Termination of Employment entitling the Employee to terminate employment from the Company and to the payments provided by Section 3(a) unless the Employee elects, within 30 days after a non-renewal, to continue employment and, thereby, waive such payments in connection with the failure to renew, (ii) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired, and (iii) this Agreement shall terminate if, prior to a Change of Control, the employment of the Employee with the Company or any of its Subsidiaries, as the case may be, shall terminate for any reason, or the Employee shall cease to be an Employee, except as provided in clause (i) or in Section 3(b). 16. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the 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 this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally. 17. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows: If to the Company, to: Maritrans Inc. 2600 One Logan Square Philadelphia, PA 19103 Attention: Corporate Secretary If to the Employee, to: John J. Burns 708 Carter Hill Drive West Deptford, NJ 08066 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or to any successor pursuant to Section 16 hereof shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service. 18. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions. 19. Contents of Agreement, Amendment and Assignment. (a) This Agreement supersedes all prior agreements, sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Company's behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Board. (b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company. (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, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company. 20. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 21. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including, without limitation, any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination following a Change of Control pursuant to Section 1(l)(ii) of this Agreement. 22. 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 making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 23. Termination of Agreement. This Agreement shall supersede and replace the Agreement which shall hereafter be null and void and of no further force and effect. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. Attest: Maritrans General Partner Inc. [Seal] By /s/ Arthur J. Volkle /s/ John C. Newcomb - ----------------------- -------------------------------- Asst. Secretary Vice President /s/ Deborah S. Burns /s/ John J. Burns - ----------------------- -------------------------------- Witness John J. Burns EX-10.8 4 EXHIBIT 10.8 SEVERANCE AND NON-COMPETITION AGREEMENT Amended Agreement made as of the 7th day of July, 1997, between Maritrans General Partner Inc., a Delaware corporation (the "Company"), and Steven E. Welch (the "Employee"). WHEREAS, the Employee is employed by the Company as its President- Eastern Black Division; WHEREAS, the Company is a subsidiary of Maritrans Inc., a publicly traded corporation ("Maritrans"); WHEREAS, the Employee and Maritrans entered into a Severance and Non-competition Agreement on March 5, 1997 to provide certain payments to the Employee in the event that his employment were terminated, including as a result of a Change of Control of Maritrans (the "Agreement"); WHEREAS, the Employee and the Company now wish to revise the Agreement; and WHEREAS, in consideration for the Employee agreeing not to compete with the Company in the event the Employee's employment is terminated, the Company agrees that the Employee shall receive the compensation set forth in this Agreement as a cushion against the financial and career impact on the Employee in the event the Employee's employment with the Company is terminated without cause whether or not there is a Change of Control of Maritrans; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 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 sum of the Employee's base salary, at the rate in effect on the Termination Date or at the time of a Change of Control, if higher, the Employee's annual bonus as paid for the year prior to the Termination Date and, if applicable, any payment received under the Company's Performance Unit Plan in the year prior to the year in which the Termination Date occurs, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs, but excluding any amounts attributable to the exercise of stock options by the Employee under the Company's Equity Compensation Plan. (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, securities of the Company; 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; (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 (d) 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. (d) "Board" shall mean the board of directors of the Company. (e) "Cause" shall mean 1) misappropriation of funds, 2) habitual insobriety or substance abuse, 3) conviction of a crime involving moral turpitude, 4) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries taken as a whole. (f) "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 of Maritrans then outstanding); 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 the Company of the Common Stock of the Company then outstanding or to solicit proxies, (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the board of directors of Maritrans cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by the Maritrans' shareholders, 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, (iii) consummation by Maritrans of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the outstanding common stock of Maritrans prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding common stock or Maritrans, or (iv) consummation of a complete liquidation or dissolution of Maritrans or sale or other disposition of all or substantially all of the assets of Maritrans other than to a corporation, business trust or other entity with respect to which, following such sale or disposition, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding common stock of Maritrans immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding common stock immediately prior to such sale or disposition. (g) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the Employee's 65th birthday. (h) "Person" shall mean any individual, firm, corporation, partnership or other entity. (i) "Subsidiary" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (j) "Termination Date" shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be. (k) "Termination of Employment" shall mean the termination of the Employee's actual employment relationship with the Company. (l) "Termination following a Change of Control" shall mean a Termination of Employment within two years after a Change of Control either: (i) initiated by the Company for any reason other than (x) the Employee's continuous illness, injury or incapacity for a period of six consecutive months or (y) for "Cause;" or (ii) initiated by the Employee upon one or more of the following occurrences: (A) any failure of the Company to comply with and satisfy any of the terms of this Agreement; (B) any significant reduction by the Company of the authority, duties or responsibilities of the Employee; (C) any removal by the Company of the Employee from the employment grade, compensation level or officer positions which the Employee holds as of the effective date hereof except in connection with promotions to higher office; (D) the requirement that the Employee undertake business travel to an extent substantially greater than is reasonable and customary for the position the Employee holds; or (E) a transfer of the Employee, without his express written consent, to a location that is outside the metropolitan Philadelphia area (fifty miles surrounding the Company's principal location as of the date 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 Philadelphia. 2. Notice of Termination. Any Termination of Employment shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific reasons for the termination, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employee's employment, 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). 3. Severance Compensation upon Termination. (a) In the event of the Employee's involuntary Termination of Employment for reason other than Cause, the Company shall continue to pay to the Employee, upon the execution of a release substantially in the form being used by the Company, prior to a Change of Control, for terminating executives, an amount equal to his Base Compensation, subject to customary employment taxes and deductions, for 12 months following his Termination Date but all other benefit coverages (except as specified by law or regulation), retirement benefits and fringe benefit eligibility shall cease upon the Termination Date. (b) Subject to the provisions of Section 11 hereof, in the event of the Employee's Termination following a Change of Control or in the event that a Change of Control occurs within six months after a Termination of Employment requiring a payment under subsection (a), the Company shall pay to the Employee, within 30 days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in Section 11(b) hereof cannot be completed within 30 days or payments have already commenced under subsection (a) above), and in lieu of, or reduced by, as applicable any payment under subsection (a) above, a single sum in cash equal to 1.99 times the Employee's Base Compensation. (c) In the event the Employee's Normal Retirement Date would occur prior to 24 months after the Termination Date, the aggregate cash amount determined as set forth in (a) or (b) 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 the Employee's Normal Retirement Date and the denominator of which shall be 730. (d) As additional consideration for the non-competition and non-solicitation covenants contained in Sections 12 and 13, (i) if payments are made under subsection (a) above, an amount equal to his Base Compensation, subject to customary employment taxes and deductions, for 12 months following his Termination Date, or (ii) if payments are made under subsection (b) above, a single cash payment, within 30 days after the effective date of the Termination of Employment, equal to Employee's Base Compensation. 4. Other Payments. The payment due under Section 3 hereof shall be in addition to and not in lieu of any payments or benefits due to the Employee under any other plan, policy or program of the Company except that no payments shall be due to the Employee under the Company's then severance pay plan for employees. 5. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Company's discretion, as set forth in the agreement pursuant to which the fund will be established. 6. Enforcement. (a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3(b) and 4 hereof within the respective time periods provided therein, the Company shall pay to the 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 under Section 3(b) and 4, as appropriate, until paid to the 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 the Employee not be required to incur any expenses associated with the enforcement of his rights under Section 3(b) of 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 the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys' fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement. 7. No Mitigation. The 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. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the 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 of its Subsidiaries or Affiliates and for which the Employee may qualify; provided, however, that the Employee hereby waives the Employee's right to receive any payments under any severance pay plan or similar program applicable to other employees of the Company. 9. No Set-Off. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others. 10. Taxes. Any payment required under this Agreement shall be subject to all requirements of the law with regard to the withholding of taxes, filing, making of reports and the like, and the Company shall use its best efforts to satisfy promptly all such requirements. 11. Certain Reduction 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 the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 11, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) All determinations to be made under this Section 11 shall be made by Ernst & Young (or the Company's independent public accountant immediately prior to the Change of Control if other than Ernst & Young (the "Accounting Firm")), which firm shall provide its determinations and any supporting calculations both to the Company and the Employee within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in his sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section. Within five days after the Employee's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement. (c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest at the Federal Rate. (d) 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. 12. Confidential Information. The Employee recognizes and acknowledges that, by reason of his employment by and service to the Company, 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"). The Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that he will not, either during or after his employment by the Company, 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 the Employee or except as may be required by law. 13. Non-Competition. (a) During his employment by the Company and for a period of one year thereafter, the Employee will not, unless acting 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 his employment by the Company or on the Termination Date, 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 a customer of, 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 his employment by the Company or on the Termination Date, as applicable. It is recognized by the Employee that the business of the Company and its affiliates and the 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. The Employee also shall not, directly or indirectly, during such one-year period (a) solicit or divert business from, or attempt to convert any client, account or customer of the Company or any of its affiliates, whether existing at the date hereof or acquired during Employee's employment nor (b) following Employee's employment, solicit or attempt to hire any then employee of the Employer or of any of its affiliates. (b) The foregoing restriction shall not be construed to prohibit the ownership by the Employee of less than one percent (1%) 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 the 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. 14. Equitable Relief. (a) Employee acknowledges that the restrictions contained in Sections 12 and 13 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. The Employee represents that his experience and capabilities are such that the restrictions contained in Section 13 hereof will not prevent the Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as anticipated by this Agreement. The 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) The 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 12 or 13 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 12 or 13 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. (c) The Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 12 or 13 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 for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia County, Pennsylvania, (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 17 hereof. (d) Employee agrees that he will provide, and that the Company may similarly provide, a copy of Sections 12 and 13 hereof to any business or enterprise (i) which she 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 she 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. 15. Term of Agreement. The term of this Agreement shall be for two years from the date hereof and shall be automatically renewed for successive one-year periods unless the Company notifies the Employee in writing that this Agreement will not be renewed at least sixty days prior to the end of the current term; provided, however, that (i) a failure of the Company to renew at a time when the Employee is employed by the Company shall constitute an involuntary Termination of Employment entitling the Employee to terminate employment from the Company and to the payments provided by Section 3(a) unless the Employee elects, within 30 days after a non-renewal, to continue employment and, thereby, waive such payments in connection with the failure to renew, (ii) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired, and (iii) this Agreement shall terminate if, prior to a Change of Control, the employment of the Employee with the Company or any of its Subsidiaries, as the case may be, shall terminate for any reason, or the Employee shall cease to be an Employee, except as provided in clause (i) or in Section 3(b). 16. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the 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 this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally. 17. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows: If to the Company, to: Maritrans Inc. 2600 One Logan Square Philadelphia, PA 19103 Attention: Corporate Secretary If to the Employee, to: Steven E. Welch 6 Papermill Road Newtown Square, PA 19073 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or to any successor pursuant to Section 16 hereof shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service. 18. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions. 19. Contents of Agreement, Amendment and Assignment. (a) This Agreement supersedes all prior agreements, sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Company's behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Board. (b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company. (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, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company. 20. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 21. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including, without limitation, any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination following a Change of Control pursuant to Section 1(l)(ii) of this Agreement. 22. 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 making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 23. Termination of Agreement. This Agreement shall supersede and replace the Agreement which shall hereafter be null and void and of no further force and effect. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. Attest: Maritrans General Partner Inc. [Seal] By /s/ Arthur J. Volkle /s/ John C. Newcomb - ----------------------- -------------------------------- Asst. Secretary Vice President /s/ Ramona A. Adkins /s/ Steven E. Welch - ----------------------- -------------------------------- Witness Steven E. Welch EX-10.9 5 EXHIBIT 10.9 SEVERANCE AND NON-COMPETITION AGREEMENT Amended Agreement made as of the 7th day of July, 1997, between Maritrans General Partner Inc., a Delaware corporation (the "Company"), and Janice M. Smallacombe (the "Employee"). WHEREAS, the Employee is employed by the Company as its President- Business Services Division; WHEREAS, the Company is a subsidiary of Maritrans Inc., a publicly traded corporation ("Maritrans"); WHEREAS, the Employee and Maritrans entered into a Severance and Non-competition Agreement on April 24, 1996 to provide certain payments to the Employee in the event that her employment were terminated, including as a result of a Change of Control of Maritrans (the "Agreement"); WHEREAS, the Employee and the Company now wish to revise the Agreement; and WHEREAS, in consideration for the Employee agreeing not to compete with the Company in the event the Employee's employment is terminated, the Company agrees that the Employee shall receive the compensation set forth in this Agreement as a cushion against the financial and career impact on the Employee in the event the Employee's employment with the Company is terminated without cause whether or not there is a Change of Control of Maritrans; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 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 sum of the Employee's base salary, at the rate in effect on the Termination Date or at the time of a Change of Control, if higher, the Employee's annual bonus as paid for the year prior to the Termination Date and, if applicable, any payment received under the Company's Performance Unit Plan in the year prior to the year in which the Termination Date occurs, together with any and all salary reduction authorized amounts under any of the Company's benefit plans or programs, but excluding any amounts attributable to the exercise of stock options by the Employee under the Company's Equity Compensation Plan. (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, securities of the Company; 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; (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 (d) 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. (d) "Board" shall mean the board of directors of the Company. (e) "Cause" shall mean 1) misappropriation of funds, 2) habitual insobriety or substance abuse, 3) conviction of a crime involving moral turpitude, 4) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its Subsidiaries taken as a whole. (f) "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 of Maritrans then outstanding); 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 the Company of the Common Stock of the Company then outstanding or to solicit proxies, (ii) during any twenty-four month period, individuals who at the beginning of such period constituted the board of directors of Maritrans cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by the Maritrans' shareholders, 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, (iii) consummation by Maritrans of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the outstanding common stock of Maritrans prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors of the corporation, business trust or other entity resulting from or being the surviving entity in such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding common stock or Maritrans, or (iv) consummation of a complete liquidation or dissolution of Maritrans or sale or other disposition of all or substantially all of the assets of Maritrans other than to a corporation, business trust or other entity with respect to which, following such sale or disposition, more than 50% of the then outstanding shares of common stock entitled to vote generally in the election of directors, is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding common stock of Maritrans immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding common stock immediately prior to such sale or disposition. (g) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the Employee's 65th birthday. (h) "Person" shall mean any individual, firm, corporation, partnership or other entity. (i) "Subsidiary" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (j) "Termination Date" shall mean the date of receipt of the Notice of Termination described in Section 2 hereof or any later date specified therein, as the case may be. (k) "Termination of Employment" shall mean the termination of the Employee's actual employment relationship with the Company. (l) "Termination following a Change of Control" shall mean a Termination of Employment within two years after a Change of Control either: (i) initiated by the Company for any reason other than (x) the Employee's continuous illness, injury or incapacity for a period of six consecutive months or (y) for "Cause;" or (ii) initiated by the Employee upon one or more of the following occurrences: (A) any failure of the Company to comply with and satisfy any of the terms of this Agreement; (B) any significant reduction by the Company of the authority, duties or responsibilities of the Employee; (C) any removal by the Company of the Employee from the employment grade, compensation level or officer positions which the Employee holds as of the effective date hereof except in connection with promotions to higher office; (D) the requirement that the Employee undertake business travel to an extent substantially greater than is reasonable and customary for the position the Employee holds; or (E) a transfer of the Employee, without her express written consent, to a location that is outside the metropolitan Philadelphia area (fifty miles surrounding the Company's principal location as of the date hereof), or the general area in which her principal place of business immediately preceding the Change of Control may be located at such time if other than metropolitan Philadelphia. 2. Notice of Termination. Any Termination of Employment shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 14 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific reasons for the termination, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for termination of the Employee's employment, 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). 3. Severance Compensation upon Termination. (a) In the event of the Employee's involuntary Termination of Employment for reason other than Cause, the Company shall continue to pay to the Employee, upon the execution of a release substantially in the form being used by the Company, prior to a Change of Control, for terminating executives, an amount equal to her Base Compensation, subject to customary employment taxes and deductions, for 12 months following her Termination Date but all other benefit coverages (except as specified by law or regulation), retirement benefits and fringe benefit eligibility shall cease upon the Termination Date. (b) Subject to the provisions of Section 11 hereof, in the event of the Employee's Termination following a Change of Control or in the event that a Change of Control occurs within six months after a Termination of Employment requiring a payment under subsection (a), the Company shall pay to the Employee, within 30 days after the Termination Date (or as soon as possible thereafter in the event that the procedures set forth in Section 11(b) hereof cannot be completed within 30 days or payments have already commenced under subsection (a) above), and in lieu of, or reduced by, as applicable any payment under subsection (a) above, a single sum in cash equal to 1.99 times the Employee's Base Compensation. (c) In the event the Employee's Normal Retirement Date would occur prior to 24 months after the Termination Date, the aggregate cash amount determined as set forth in (a) or (b) 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 the Employee's Normal Retirement Date and the denominator of which shall be 730. (d) As additional consideration for the non-competition and non-solicitation covenants contained in Sections 12 and 13, (i) if payments are made under subsection (a) above, an amount equal to her Base Compensation, subject to customary employment taxes and deductions, for 12 months following her Termination Date, or (ii) if payments are made under subsection (b) above, a single cash payment, within 30 days after the effective date of the Termination of Employment, equal to Employee's Base Compensation. 4. Other Payments. The payment due under Section 3 hereof shall be in addition to and not in lieu of any payments or benefits due to the Employee under any other plan, policy or program of the Company except that no payments shall be due to the Employee under the Company's then severance pay plan for employees. 5. Establishment of Trust. The Company may establish an irrevocable trust fund pursuant to a trust agreement to hold assets to satisfy its obligations hereunder. Funding of such trust fund shall be subject to the Company's discretion, as set forth in the agreement pursuant to which the fund will be established. 6. Enforcement. (a) In the event that the Company shall fail or refuse to make payment of any amounts due the Employee under Sections 3(b) and 4 hereof within the respective time periods provided therein, the Company shall pay to the 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 under Section 3(b) and 4, as appropriate, until paid to the 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 the Employee not be required to incur any expenses associated with the enforcement of her rights under Section 3(b) of 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 the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all expenses (including all attorneys' fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement. 7. No Mitigation. The 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. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the 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 of its Subsidiaries or Affiliates and for which the Employee may qualify; provided, however, that the Employee hereby waives the Employee's right to receive any payments under any severance pay plan or similar program applicable to other employees of the Company . 9. No Set-Off. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others. 10. Taxes. Any payment required under this Agreement shall be subject to all requirements of the law with regard to the withholding of taxes, filing, making of reports and the like, and the Company shall use its best efforts to satisfy promptly all such requirements. 11. Certain Reduction 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 the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and that it would be economically advantageous to the Employee to reduce the Payment to avoid or reduce the taxation of excess parachute payments under Section 4999 of the Code, the aggregate present value of amounts payable or distributable to or for the benefit of the Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to the taxation under Section 4999 of the Code. For purposes of this Section 11, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) All determinations to be made under this Section 11 shall be made by Ernst & Young (or the Company's independent public accountant immediately prior to the Change of Control if other than Ernst & Young (the "Accounting Firm")), which firm shall provide its determinations and any supporting calculations both to the Company and the Employee within 10 days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee. The Employee shall in her sole discretion determine which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section. Within five days after the Employee's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of the Employee such amounts as are then due to the Employee under this Agreement. (c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments, as the case may be, will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the Termination of Employment, the Accounting Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Employee which the Employee shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Employee to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee together with interest at the Federal Rate. (d) 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. 12. Confidential Information. The Employee recognizes and acknowledges that, by reason of her employment by and service to the Company, she 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"). The Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that she will not, either during or after her employment by the Company, 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 the Employee or except as may be required by law. 13. Non-Competition. (a) During her employment by the Company and for a period of one year thereafter, the Employee will not, unless acting 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 her 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 her employment by the Company or on the Termination Date, 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 a customer of, 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 her employment by the Company or on the Termination Date, as applicable. It is recognized by the Employee that the business of the Company and its affiliates and the 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. The Employee also shall not, directly or indirectly, during such one-year period (a) solicit or divert business from, or attempt to convert any client, account or customer of the Company or any of its affiliates, whether existing at the date hereof or acquired during Employee's employment nor (b) following Employee's employment, solicit or attempt to hire any then employee of the Employer or of any of its affiliates. (b) The foregoing restriction shall not be construed to prohibit the ownership by the Employee of less than one percent (1%) 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 the 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 her rights as a shareholder, or seeks to do any of the foregoing. 14. Equitable Relief. (a) Employee acknowledges that the restrictions contained in Sections 12 and 13 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. The Employee represents that her experience and capabilities are such that the restrictions contained in Section 13 hereof will not prevent the Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as anticipated by this Agreement. The Employee further represents and acknowledges that (i) she has been advised by the Company to consult her own legal counsel in respect of this Agreement, and (ii) that she has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with her counsel. (b) The 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 12 or 13 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 12 or 13 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. (c) The Employee irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Section 12 or 13 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 for the Eastern District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Philadelphia County, Pennsylvania, (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 17 hereof. (d) Employee agrees that she will provide, and that the Company may similarly provide, a copy of Sections 12 and 13 hereof to any business or enterprise (i) which she 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 she may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which she may use or permit her 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. 15. Term of Agreement. The term of this Agreement shall be for two years from the date hereof and shall be automatically renewed for successive one-year periods unless the Company notifies the Employee in writing that this Agreement will not be renewed at least sixty days prior to the end of the current term; provided, however, that (i) a failure of the Company to renew at a time when the Employee is employed by the Company shall constitute an involuntary Termination of Employment entitling the Employee to terminate employment from the Company and to the payments provided by Section 3(a) unless the Employee elects, within 30 days after a non-renewal, to continue employment and, thereby, waive such payments in connection with the failure to renew, (ii) after a Change of Control during the term of this Agreement, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired, and (iii) this Agreement shall terminate if, prior to a Change of Control, the employment of the Employee with the Company or any of its Subsidiaries, as the case may be, shall terminate for any reason, or the Employee shall cease to be an Employee, except as provided in clause (i) or in Section 3(b). 16. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the 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 this Agreement. As used in this Agreement, the Company shall mean the Company as hereinbefore defined and any such successor or successors to its business and/or assets, jointly and severally. 17. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows: If to the Company, to: Maritrans Inc. 2600 One Logan Square Philadelphia, PA 19103 Attention: Corporate Secretary If to the Employee, to: Janice M. Smallacombe 2148 Andrea Drive Bensalem, PA 19020 or to such other names or addresses as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or to any successor pursuant to Section 16 hereof shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service. 18. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions. 19. Contents of Agreement, Amendment and Assignment. (a) This Agreement supersedes all prior agreements, sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment executed by the Employee and approved by the Board and executed on the Company's behalf by a duly authorized officer. The provisions of this Agreement may provide for payments to the Employee under certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof. It is the specific intention of the parties that the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Board. (b) Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company. (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, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part by the Company. 20. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application. 21. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, including, without limitation, any delay by the Employee in delivering a Notice of Termination pursuant to Section 2 hereof after an event has occurred which would, if the Employee had resigned, have constituted a Termination following a Change of Control pursuant to Section 1(l)(ii) of this Agreement. 22. 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 making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 23. Termination of Agreement. This Agreement shall supersede and replace the Agreement which shall hereafter be null and void and of no further force and effect. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. Attest: Maritrans General Partner Inc. [Seal] By /s/ Arthur J. Volkle /s/ John C. Newcomb - ----------------------- -------------------------------- Asst. Secretary Vice President /s/ Ramona A. Adkins /s/ Janice M. Smallacombe - ----------------------- -------------------------------- Witness Janice M. Smallacombe EX-21.1 6 EXHIBIT 21.1 Exhibit 21.1 MARITRANS INC. SUBSIDIARIES OF MARITRANS INC. As of December 31, 1997 Direct and indirect subsidiaries of Maritrans Inc. are: Maritrans Operating Partners L.P. Maritrans General Partner Inc. Maritrans Holding Inc. Maritrans Barge Co. Maritrans Ocean Transport Inc. Maritrans Capital Corp. CCF Acquisition Corp. Maritank Philadelphia Inc. Inter-Cities Navigation (Texas) Corp. Maritank Maryland Inc. Interstate Towing (Texas) Co. Maritrans Management Services Inc. MOT Tankers I, Inc. MOT Tankers II, Inc. MOT Tankers III, Inc. MOT Tankers IV, Inc. Maritrans Marketing Inc. Maritrans Puerto Rico Inc. Maritrans Tankers Inc. Maritrans Marine Management Co. EX-23.1 7 EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registation Statement (Form S-8 No. 333-33765) pertaining to the Equity Compensation Plan of Maritrans Inc. of our report dated January 23, 1998, 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, 1997. /s/ Ernst & Young, LLP ----------------------------- Ernst & Young, LLP Philadelphia, Pennsylvania March 24, 1998 EX-27 8 FDS --
5 0000810113 MARITRANS INC. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 13,312 0 18,073 1,258 5,066 47,646 329,032 132,316 251,023 37,467 75,365 130 0 0 90,665 251,023 0 135,781 0 114,385 0 0 7,565 18,157 6,696 11,461 0 0 0 11,461 .95 .94
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