<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
NATIONAL CONVENIENCE STORES INCORPORATED
(NAME OF SUBJECT COMPANY)
NATIONAL CONVENIENCE STORES INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE PREFERRED STOCK)
WARRANTS TO PURCHASE COMMON STOCK
(TITLES OF CLASSES OF SECURITIES)
CUSIP NO. 635570500
(WITH RESPECT TO THE COMMON STOCK)
CUSIP NO. 635570112
(WITH RESPECT TO THE WARRANTS)
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
------------------------
A. J. GALLERANO
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
NATIONAL CONVENIENCE STORES INCORPORATED
100 WAUGH DRIVE
HOUSTON, TEXAS 77007
(713) 863-2200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
EDGAR J. MARSTON III
BRACEWELL & PATTERSON, L.L.P.
711 LOUISIANA STREET, SUITE 2900
HOUSTON, TEXAS 77002-2781
(713) 223-2900
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is National Convenience Stores
Incorporated, a Delaware corporation (the "Company"). The address of the
principal executive offices of the Company is 100 Waugh Drive, Houston, Texas
77007. The titles of the classes of equity securities to which this Schedule
relates are (i) the Company's Common Stock, par value $.01 per share (the
"Common Stock"), including the associated Rights to Purchase Preferred Stock
(the "Rights") issued pursuant to the Rights Agreement dated as of August 31,
1995 (the "Rights Agreement"), between the Company and Boatmen's Trust Company,
as Rights Agent, and (ii) the Warrants to Purchase Common Stock (the "Warrants")
issued pursuant to the Warrant Agreement dated as of March 9, 1993 (the "Warrant
Agreement"), between the Company and Boatmen's Trust Company, as Warrant Agent.
The Common Stock, including the associated Rights, and the Warrants are
sometimes collectively referred to herein as the "Securities."
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule relates to the tender offer by Shamrock Acquisition Corp., a
Delaware corporation (the "Offeror") and a wholly owned subsidiary of Diamond
Shamrock, Inc., a Delaware corporation ("Diamond Shamrock"), to purchase (i) all
outstanding shares of Common Stock, together with the associated Rights, at the
purchase price of $27.00 per share of Common Stock (and associated Right), net
to the tendering holder (pre-tax) in cash, and (ii) all outstanding Warrants at
the purchase price of $9.25 per Warrant, net to the tendering holder (pre-tax)
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated November 14, 1995 (the "Offer to Purchase"), and the related
Letters of Transmittal (which together constitute the "Diamond Shamrock Offer").
The Diamond Shamrock Offer is disclosed in a Tender Offer Statement on Schedule
14D-1 dated November 14, 1995. According to the Offer to Purchase, the principal
executive offices of the Offeror and Diamond Shamrock are located at 9830
Colonnade Blvd., San Antonio, Texas 78230.
The Diamond Shamrock Offer is being made pursuant to the Agreement and Plan
of Merger dated as of November 8, 1995 (the "Merger Agreement"), among the
Company, Diamond Shamrock and the Offeror. A copy of the Merger Agreement is
filed as Exhibit 1 to this Schedule and is incorporated herein by reference in
its entirety. For a description of the material terms of the Merger Agreement,
see Annex I to this Schedule. The Merger Agreement provides that following the
completion of the Diamond Shamrock Offer, the Offeror will be merged into the
Company, with the Company continuing as a wholly owned subsidiary of Diamond
Shamrock (the "Merger"). In the Merger, all remaining shares of Common Stock not
tendered in the tender offer will be converted into the right to receive $27.00
in cash. Pursuant to the terms of the Merger Agreement, Warrants not tendered in
the tender offer and not exercised prior to the completion of the Merger will
remain outstanding after the Merger, but upon exercise will represent only the
right to receive $27.00 in cash rather than one share of Common Stock. In the
Merger Agreement, the Company also agreed to redeem the Rights immediately prior
to the acceptance for payment of the Securities in the Diamond Shamrock Offer.
See Item 8(d) below.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Identity.
The name and business address of the Company, which is the person filing
this Schedule, are set forth in Item 1 above.
(b) Contracts.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its executive officers, directors or
affiliates are described in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, as amended by Form 10-K/A dated October 5,
1995, under Item 11 "Executive Compensation." A copy of such portion of the
Annual Report on Form 10-K, as amended, has been filed as Exhibit 2 to this
Schedule and is incorporated herein by reference. Descriptions of how
outstanding options to purchase Common Stock, some of which are held by officers
and directors of the
2
<PAGE> 3
Company, will be treated in connection with the Diamond Shamrock Offer and the
Merger, and of provisions in the Merger Agreement dealing with the
indemnification of and insurance for officers and directors of the Company and
certain employee benefit and employment matters, are set forth in Annex I,
"Description of the Merger Agreement" under the captions "Company Options,"
"Directors/Officers Indemnification and Insurance," and "Employment Matters,"
which are incorporated herein by reference.
Following the execution of the Merger Agreement, Roger R. Hemminghaus,
Diamond Shamrock's Chairman, President and Chief Executive Officer, informed V.
H. Van Horn, President and Chief Executive Officer of the Company, that Diamond
Shamrock would be interested in exploring the possibility of Mr. Van Horn
becoming a consultant following the consummation of the Merger to assist Diamond
Shamrock in the transition following the Merger and with respect to other
matters related to retail marketing. As of November 14, 1995, the specific terms
of any such consulting arrangement had not been agreed to by Diamond Shamrock
and Mr. Van Horn.
Except as described in this Schedule, to the knowledge of the Company, as
of the date hereof, there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest, between the
Company or its affiliates and (i) the Company or its executive officers,
directors or affiliates, or (ii) the Offeror, Diamond Shamrock or their
executive officers, directors or affiliates.
(c) Background.
The Circle K Tender Offer. On August 7, 1995, John F. Antioco, Chairman,
President and Chief Executive Officer of The Circle K Corporation ("Circle K")
contacted Mr. Van Horn and requested an immediate meeting with him. The two met
on August 8 in Dallas, and Mr. Antioco told Mr. Van Horn that Circle K had
decided to acquire the Company and that Mr. Van Horn would receive a letter
later that day from Circle K offering to acquire the Company for $17 per share
of Common Stock (the "Circle K Proposal"). Mr. Van Horn expressed his view that
this price would be unfair to the Company's stockholders. Mr. Antioco advised
Mr. Van Horn that if the Company did not agree to be acquired by Circle K within
three days, Circle K would attempt to gain control of the Company by nominating
a number of directors to be elected at the Company's annual stockholders'
meeting. Mr. Van Horn stated that he did not believe Circle K would be able to
gain control of the Board of Directors of the Company (the "Board") at the next
annual meeting because of the Company's staggered Board. Mr. Antioco indicated
that Circle K believed it had found a way to circumvent that provision. Later on
August 8, Mr. Van Horn received a letter from Circle K confirming and describing
the Circle K Proposal. On August 9, the Company engaged Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") to act as its financial advisor.
On August 10, the Board met and determined that it would consider the
Circle K Proposal. Also at this meeting, the Board amended the Company's
Restated By-Laws (the "By-Laws") to increase the vote required to amend the
section of the By-Laws dealing with the number of directors of the Company or to
adopt a By-Law inconsistent with that section to 75% of the shares of Common
Stock eligible to vote at a stockholders' meeting (the "By-Law Amendment"). See
Item 8(a). Following this meeting, Mr. Van Horn called Mr. Antioco and told him
that the Company's Board was considering the Circle K Proposal.
On August 11, the Company received from Circle K a notice that, in
connection with the Company's next annual meeting of stockholders, Circle K
would propose an amendment to the By-Laws that would increase the number of
directors of the Company from eight to seventeen and would nominate a slate of
nine candidates for election as directors of the Company. The Company also
received notice from Bedford Falls Investors, L.P. ("Bedford"), a stockholder of
the Company, that it intended to nominate four persons for election as directors
of the Company, to propose, in effect, an amendment to the By-Laws to increase
the number of directors to be elected at the upcoming annual meeting to five and
to nominate a person for election to fill the additional directorship. See Item
8(b).
On August 31, the Company's Board met and unanimously determined to reject
the Circle K Proposal based in part on the opinion dated August 31, 1995 of
Merrill Lynch that, as of the date of such opinion and based upon and subject to
the matters set forth therein, the proposed cash consideration to be received by
the Company's stockholders pursuant to the Circle K Proposal was inadequate to
such stockholders from a
3
<PAGE> 4
financial point of view. Also at this meeting, the Board adopted the Rights
Agreement, which is described in Item 8(d) of this Schedule, and authorized in
concept certain agreements and the amendment of certain employment contracts and
benefit plans of the Company, which are described in Exhibit 2 hereto.
On September 5, Circle K announced its intention to commence the Circle K
Offer (as defined below) and filed two lawsuits against the Company, which are
described in Item 8(c) of this Schedule. On September 7, 1995, Circle K
commenced a tender offer for all outstanding shares of Common Stock, together
with the associated Rights, at the purchase price of $20 per share of Common
Stock (and associated Right), net to the tendering holder in cash, and all
outstanding Warrants at the purchase price of $2.25 per Warrant, net to the
tendering holder in cash (the "Circle K Offer").
After the close of business on September 14, 1995, the Company received a
letter from Diamond Shamrock setting forth an unsolicited proposal to acquire
the Company for $23.50 per share of Common Stock and $5.75 per Warrant (the
"Diamond Shamrock Acquisition Proposal").
The Board met on September 18, 1995 to consider the Circle K Offer and
related matters. The Board considered the Company's business, financial
condition, current business strategy and future prospects, the long-term
business outlook in Texas, where all of the Company's stores are located, recent
and historical market prices for the Common Stock, the terms and conditions of
the Circle K Offer and other matters. In addition, the Company's management and
Merrill Lynch each reviewed and updated presentations made earlier to the Board.
Also, Merrill Lynch delivered to the Board its opinion dated September 18, 1995
that, as of the date of such opinion and based upon and subject to the matters
set forth therein, the proposed cash consideration to be received by the holders
of Common Stock and Warrants pursuant to the Circle K Offer was inadequate to
such holders, other than Circle K, from a financial point of view. Based, in
part, on the opinion of Merrill Lynch, at the September 18, 1995 meeting the
Board unanimously rejected the Circle K Offer as inadequate and not in the best
interests of the stockholders and the warrantholders of the Company and
recommended that all holders of Common Stock (and associated Rights) and
Warrants reject the Circle K Offer and not tender their securities. The Board's
recommendation, the reasons therefor and various other matters were set forth in
a Solicitation/Recommendation Statement on Schedule 14D-9 dated September 19,
1995 which was filed with the Securities and Exchange Commission (the
"Commission") and sent to the Company's securityholders.
At its September 18, 1995 meeting, the Board also determined not to accept
the Diamond Shamrock Acquisition Proposal. However, given all available
information, including the Diamond Shamrock Acquisition Proposal and other
indications of interest which the Company had received subsequent to August 8,
1995, the Board considered and reviewed at the same meeting the desirability of
exploring and investigating other alternative transactions. After careful
consideration and consultation with management of the Company, the Board
instructed management of the Company and Merrill Lynch to establish a process to
explore the Company's strategic alternatives, including the possible sale of the
Company.
The Company invited over 25 parties to participate in this process, of
which 13 signed confidentiality agreements, and 11 visited the Company's data
room, received management presentations and received requests to submit
proposals for the acquisition of the Company. Following the submission of bids
by interested parties on November 3, 1995, the evaluation of those bids by the
Company's legal and financial advisors, and consideration by the Board on
November 6, 1995, the Board entered into negotiations with Diamond Shamrock for
the purchase of the Company. See "Agreement with Diamond Shamrock" below.
Agreement with Diamond Shamrock. On August 9, 1995, Mr. Hemminghaus met
with Mr. Van Horn. In that meeting, Mr. Hemminghaus informed Mr. Van Horn that
Diamond Shamrock believed that a business combination transaction between the
two companies might be mutually advantageous and that Diamond Shamrock was
interested in exploring that possibility on a negotiated basis. Mr. Van Horn
informed Mr. Hemminghaus that the Company believed that its recent marketing
strategies and capital spending programs were beginning to result in significant
improvements in the Company's results of operations and indicated that the
Company would prefer to remain independent.
4
<PAGE> 5
On August 18, 1995, following the public announcement of the Circle K
Proposal, Mr. Hemminghaus again contacted Mr. Van Horn. Mr. Hemminghaus informed
Mr. Van Horn that Diamond Shamrock continued to be interested in exploring a
possible business combination transaction. Mr. Van Horn informed Mr. Hemminghaus
that the Company was in the process of analyzing the Circle K Proposal and
related matters and, as such, was unable to respond to Diamond Shamrock's
interest at that time.
On September 14, 1995, following the public announcement of the Circle K
Offer, Mr. Hemminghaus contacted Mr. Van Horn and informed Mr. Van Horn that
Diamond Shamrock was prepared to make an alternative proposal at a price higher
than the Circle K Offer. Later that day, Diamond Shamrock sent the Company a
written proposal indicating Diamond Shamrock's willingness to pursue the
possible acquisition of the Company at $23.50 per share of Common Stock and
$5.75 per Warrant. The Board declined to accept the Diamond Shamrock Acquisition
Proposal at its meeting on September 18, 1995, but for the reasons noted above,
determined to explore the Company's strategic alternatives, including the
possible sale of the Company.
In connection with the Company's process of exploring strategic
alternatives, Diamond Shamrock signed a confidentiality agreement dated October
2, 1995, conducted a due diligence review of the Company and, on November 3,
1995, submitted a proposal to purchase the Company in accordance with the terms
of the Company's bidding procedures. The Company's legal and financial advisors
analyzed the proposals received over the weekend and contacted the bidders'
advisors to clarify certain matters prior to the Board's meeting on November 6,
1995.
The Board convened on the afternoon of November 6, 1995 to evaluate the
bids to acquire the Company. Following this evaluation, the Board instructed the
Company's financial and legal advisors to contact the representatives of Diamond
Shamrock and clarify certain matters. After clarification of these matters, the
Board instructed its advisors and management of the Company to endeavor to
negotiate a definitive merger agreement by the end of the following day and to
present that agreement to the Board for its consideration. Extensive
negotiations then ensued.
At a continuation of the previous day's meeting, late in the afternoon on
November 7, 1995, the Board received presentations from management and the
Company's legal advisors regarding the status of the negotiations of the Merger
Agreement. In addition, Merrill Lynch delivered its oral opinion (which was
subsequently confirmed in writing) that, as of that date and subject to the
matters described by it, the cash consideration to be received by the holders of
Common Stock and Warrants pursuant to the Diamond Shamrock Offer and the Merger
was fair to such holders from a financial point of view. Subsequently, the Board
approved the Merger Agreement. Immediately thereafter, Diamond Shamrock, the
Offeror and the Company executed the Merger Agreement, pursuant to which the
Offeror agreed to make the Diamond Shamrock Offer.
See Annex I, "Description of the Merger Agreement," below for additional
information regarding the terms and conditions of the Diamond Shamrock Offer and
the Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation.
THE BOARD HAS DETERMINED UNANIMOUSLY THAT THE DIAMOND SHAMROCK OFFER AND
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS AND THE
WARRANTHOLDERS OF THE COMPANY. THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL HOLDERS
OF COMMON STOCK (AND ASSOCIATED RIGHTS) AND WARRANTS ACCEPT THE DIAMOND SHAMROCK
OFFER AND TENDER ALL OF THEIR SECURITIES PURSUANT TO THE DIAMOND SHAMROCK OFFER.
This recommendation is based in part on the oral opinion delivered by Merrill
Lynch to the Board on November 7, 1995, that, as of such date, the cash
consideration to be received by the holders of Common Stock and Warrants
pursuant to the Diamond Shamrock Offer and the Merger is fair to such holders
from a financial point of view. Merrill Lynch subsequently confirmed its opinion
in writing. The full text of such opinion, which sets forth the assumptions
made, the matters considered and the limitations on the review undertaken by
Merrill Lynch, is set forth as Annex II hereto and is incorporated herein by
reference. Securityholders are urged to read such opinion carefully in its
entirety.
5
<PAGE> 6
A copy of the letter to the Company's stockholders and warrantholders
communicating the Board's recommendation is filed as Exhibit 18 to this Schedule
and is incorporated herein by reference.
(b) Reasons for the Recommendation.
At the Board's meeting held on November 6 and 7, 1995, the Board considered
the bids received for the purchase of the Company and the results of subsequent
conversations with representatives of the bidders. The Board also considered the
Company's business, financial condition, results of operations, employees,
customer base, current business strategy and future prospects, recent and
historical market prices for the Common Stock and Warrants and other matters. In
addition, Merrill Lynch reviewed and updated its presentations made earlier to
the Board.
In reaching the conclusions and recommendations described above, the Board
considered a number of factors in addition to those already described,
including, among other things, the following:
(i) The financial and other terms and conditions of the Diamond
Shamrock Offer and the Merger Agreement;
(ii) The oral opinion delivered by Merrill Lynch to the Board on
November 7, 1995 (subsequently confirmed in writing) that, as of such date
and on the basis of and subject to the matters described by it, the cash
consideration to be received by the holders of Common Stock and Warrants
pursuant to the Diamond Shamrock Offer and the Merger was fair to such
holders from a financial point of view;
(iii) The fact that the consideration offered for the Common Stock and
Warrants in the Diamond Shamrock Offer and Merger was higher than any other
bid received in the Company's process of exploring strategic alternatives;
(iv) The belief of the Board that, in view of the number of parties
canvassed by management and Merrill Lynch and the number of parties who
participated in the process and received information with respect to the
Company, it was unlikely that any party potentially interested in
submitting a proposal to acquire the Company had not been afforded an
opportunity to do so;
(v) The fact that the consideration to be received by the Company's
stockholders and warrantholders pursuant to the Diamond Shamrock Offer
represents a substantial premium over the most recent closing market prices
of $13.00 for the Common Stock and $2.00 for the Warrants prior to August
8, 1995, the date on which the Company received the Circle K Proposal; and
(vi) The fact that, if required by the fiduciary duties of the Board
under Delaware law, the Company may approve or recommend a tender offer
competing with the Diamond Shamrock Offer or terminate the Merger Agreement
and enter into a definitive acquisition agreement with another party for a
transaction which is financially superior, provided that under the
circumstances described in the Merger Agreement, the Company must pay to
Diamond Shamrock a termination fee of $7 million, plus the documented
expenses of Diamond Shamrock and the Offeror (see "Termination" under
"Description of the Merger Agreement" in Annex I).
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Diamond
Shamrock Offer and the Merger, the Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Board may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated August 9, 1995 (the "Engagement
Letter"), the Company has retained Merrill Lynch as its exclusive financial
advisor in connection with (a) any acquisition by a person or group of persons
of 5% or more of any class of the Company's equity securities; (b) any
solicitation of proxies or shareholder consents in opposition to, or without the
support of, the Board of Directors of the Company; or (c) any oral or written
offer or proposal (an "Acquisition Proposal") to the Company or any of its
6
<PAGE> 7
stockholders relating to an Acquisition Transaction (as defined below) or an
acquisition of any or all of the then outstanding voting capital stock of the
Company, and generally in connection with strategic, financial and stockholder
relations matters. Merrill Lynch was also engaged to assist the Company in
analyzing and advising the Company with respect to other transactions specified
in the Engagement Letter (each, an "Alternative Transaction").
"Acquisition Transaction" is defined in the Engagement Letter as, whether
effected in one transaction or a series of transactions and whether or not
resulting from an Acquisition Proposal, (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business of
the Company is combined with that of one or more third parties, (b) the
acquisition, directly or indirectly, by one or more third parties of more than
50% of the outstanding voting capital stock of the Company, by way of a tender
or exchange offer, negotiated purchases or other means or (c) the acquisition,
directly or indirectly, by one or more third parties of all or a substantial
portion of the assets of, or of any right to all or a substantial portion of the
revenues or income of, the Company by way of a joint venture, negotiated
purchase, lease, license, exchange or other means. With respect to a transaction
described in clause (b), the fee payable to Merrill Lynch will be calculated as
if all of the then outstanding shares of capital stock of the Company on a fully
diluted basis (including stock options) were acquired in the transaction.
For such financial advisory services, the Company has agreed to pay Merrill
Lynch under the Engagement Letter the following fees: (1) a fee of $50,000,
payable in cash on the date of the Engagement Letter; (2) a fee in the amount of
$200,000, payable in cash upon the public announcement of any Acquisition
Proposal or Alternative Transaction; (3) a fee to be mutually agreed upon by the
Company and Merrill Lynch in good faith and based on fees paid to major
investment banks for similar services considering results achieved and efforts
expended, if, on June 30, 1996 neither of the following (i) and (ii) has
occurred: (i) a person or group owns or otherwise is the beneficial owner of a
majority of the Common Stock and other voting securities, if any, (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), of the Company, and (ii) the sale of all or substantially all of the
assets of the Company; and (4) if, during the period Merrill Lynch is retained
by the Company or within one year thereafter, (a) any Acquisition Transaction or
Alternative Transaction is consummated or (b) the Company enters into a
definitive agreement which subsequently results in an Acquisition Transaction or
Alternative Transaction, an additional fee calculated as follows: (i) if the
consideration per share of Common Stock to be received by holders thereof is
less than, or equal to, $17.00, then $1,500,000; or (ii) if the consideration
per share of Common Stock to be received by holders thereof is greater than
$17.00, then the sum of (x) the fee referred to in the immediately preceding
clause (i) and (y) 2.5% of the difference between the Purchase Price (as defined
below), as calculated assuming the per share consideration to holders of Common
Stock of $17.00, and the Purchase Price, as calculated assuming the per share
consideration to be received by the holders of Common Stock. Any such fee shall
be payable in cash upon the closing of such Acquisition Transaction or
Alternative Transaction or, in the case of a tender offer or exchange offer,
upon the first purchase or exchange of shares pursuant to such tender offer or
exchange offer, as the case may be. "Purchase Price" is defined in the
Engagement Letter as an amount equal to the sum of the aggregate fair market
value of any securities issued and any other non-cash consideration delivered
(including, without limitation, any joint venture interest delivered to, or
retained by, the Company), and any cash consideration paid, to or by the Company
or to its security holders in connection with an Acquisition Transaction or
Alternative Transaction and the amount of all indebtedness of the Company or any
subsidiary of the Company, which is assumed or acquired by a prospective
purchaser or retired or defeased in connection with such Acquisition Transaction
or Alternative Transaction. At the date hereof, the Company had paid Merrill
Lynch $250,000 in fees pursuant to the Engagement Letter and expects to pay an
additional $3,528,444 in fees upon consummation of the Diamond Shamrock Offer.
The Company has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
legal counsel, incurred in connection with its representation of the Company,
and to indemnify Merrill Lynch and certain related persons against certain
liabilities resulting from or arising out of its performance under the
Engagement Letter.
7
<PAGE> 8
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to securityholders on their behalf concerning the Diamond
Shamrock Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Transactions in Securities.
To the knowledge of the Company, no transactions in the Common Stock or
Warrants have been effected during the past 60 days by the Company or any
executive officer, director, affiliate or subsidiary of the Company.
(b) Intent to Tender.
To the knowledge of the Company, all of its executive officers, directors,
affiliates or subsidiaries currently intend to tender pursuant to the Diamond
Shamrock Offer all shares of Common Stock or Warrants that are held of record or
beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Negotiations.
Except as set forth in this Schedule, no negotiation is being undertaken or
is underway by the Company in response to the Diamond Shamrock Offer which
relates to or would result in (i) an extraordinary transaction, such as a merger
or reorganization, involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary thereof; (iii) a tender offer for or other acquisition of securities
by or of the Company; or (iv) any material change in the present capitalization
or dividend policy of the Company.
(b) Transactions and Other Matters.
Except as set forth in this Schedule, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Diamond Shamrock Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) By-Law Amendment.
Article X of the Company's Restated Certificate of Incorporation (the
"Charter") provides that the number of directors shall be fixed by, and in the
manner provided in, the By-Laws. It also provides that the directors shall be
divided into three classes. Section 1 of Article II of the By-Laws provides, in
part, that the "total number of authorized directors . . . shall not be greater
than eight." In view of the Circle K Proposal and its potential impact on the
Company and its stockholders, the Board determined during its conference call
meeting on August 10, 1995 to amend Article VIII of the By-Laws to increase the
number of votes of the holders of Common Stock required to amend Section 1 of
Article II of the By-Laws, or to adopt a By-Law inconsistent therewith, from a
majority to 75%.
(b) Proposed Proxy Solicitations.
Circle K's Offer to Purchase in connection with the Circle K Offer stated
that Circle K intended to file preliminary proxy solicitation materials with the
Commission for use in connection with the solicitation of proxies from
stockholders of the Company for use at the Company's 1995 Annual Meeting of
Stockholders which was scheduled for November 7, 1995 or any subsequent meeting
for the following purposes: (i) to amend the By-Laws to fix the number of
directors of the Company at 17 and to permit holders of 25% or more of the
shares of Common Stock to call special meetings of stockholders, (ii) to elect
nine individuals to serve as directors of the Company, and (iii) to repeal each
provision of the By-Laws or amendment thereto adopted subsequent to January 1,
1994 and prior to the effectiveness of such proposals. Circle K delivered to the
8
<PAGE> 9
Company a notice with respect to these matters on August 11, 1995. Circle K's
Offer to Purchase also set forth certain information with respect to positions
and actions which Circle K's nominees would take with respect to a sale of the
Company and the Circle K Offer.
On August 11, 1995, the Company also received from Bedford a proposal
regarding its intention to nominate four persons for election as directors at
the Company's 1995 Annual Meeting, to propose, in effect, an amendment to the
By-Laws to increase the number of directors to be elected at such meeting to
five and to nominate a person for election to fill the resulting directorship.
Copies of the foregoing proposals received from Circle K and Bedford are
filed as Exhibits 26 and 27 to this Schedule; the foregoing descriptions are
qualified in their entirety by reference to such Exhibits.
In view of the Company's decision to explore alternative transactions, on
September 18, 1995 the Board determined to postpone the Company's Annual
Meeting, previously scheduled for November 7, 1995, and the record date
therefor, to undetermined dates.
(c) Litigation.
Delaware Chancery Court. On August 11, 1995, a purported class action
lawsuit was filed in the Chancery Court of New Castle County, Delaware against
the Company and its directors alleging that the directors, by adopting the
By-Law Amendment, carried out a preconceived scheme to entrench themselves in
office, infringed upon the stockholders' ability to choose between competing
slates for control of the Company and, therefore, breached or aided and abetted
breaches of their fiduciary duties to the Company and its stockholders. The
Complaint requested, among other things, that the By-Law Amendment be declared
void and that the directors be ordered to carry out their fiduciary duties to
the plaintiff stockholder and the other members of the class. The case is styled
Thomas J. McKula, Jr., on behalf of himself and all others similarly situated v.
William K. Wilde, et al., C.A. 14481 (the "McKula Case"). The Complaint in the
foregoing action is filed as Exhibit 21 to this Schedule; the foregoing
description is qualified in its entirety by reference to such Exhibit.
On September 5, 1995, Circle K filed a lawsuit against the Company and its
directors in the Chancery Court of New Castle County, Delaware alleging, among
other things, that the directors improperly refused to negotiate or consider any
bona fide offer for the Company and that such action, the By-Law Amendment and
the adoption by the Board of the Rights Agreement constituted unfair dealing,
improper interference with shareholder voting rights, a manipulation of
corporate machinery for personal purposes, an effort by the directors to
entrench themselves in their positions with the Company and a breach of the
directors' fiduciary duties to the Company's stockholders. The Complaint
requests, among other things, that the Court declare the By-Law Amendment and
the Rights Agreement void or enjoin the enforcement thereof and award
unspecified damages. This case is styled The Circle K Corporation v. National
Convenience Stores Incorporated, et al., C.A. 14518 (the "Circle K Case"). The
Complaint in the foregoing action is filed as Exhibit 24 to this Schedule; the
foregoing description is qualified in its entirety by reference to such Exhibit.
Counsel for the plaintiffs and the Company in the McKula Case, the Circle K
Case and the case filed by Circle K in Delaware Federal Court described below
have agreed to postpone indefinitely discovery initiatives and trial settings
pending completion of the Diamond Shamrock Offer and the Merger.
On August 18, 1995, another purported class action lawsuit was filed in the
Chancery Court of New Castle County, Delaware against the Company and its
directors alleging, among other things, that the directors improperly refused to
negotiate or consider any bona fide offer for the Company including the Circle K
Proposal and that such action and the By-Law Amendment constituted unfair
dealing, improper interference with shareholder voting rights, a manipulation of
corporate machinery for personal purposes, an attempt by the directors to
entrench themselves in their positions with the Company and a breach of the
directors' fiduciary duty to maximize shareholder value. The Complaint seeks,
among other things, injunctive relief against enforcement of the By-Law
Amendment, an order compelling the directors of the Company to carry out their
fiduciary duties to the plaintiff stockholder and the other members of the
class, and unspecified damages. The case is styled Crandon Capital Partners v.
V. H. Van Horn, et al., C.A. 14489, and as of
9
<PAGE> 10
November 13, 1995 service of process has not been made on the Company or, to its
knowledge, the other defendants. The Complaint in the foregoing action is filed
as Exhibit 22 to this Schedule; the foregoing description is qualified in its
entirety by reference to such Exhibit.
Delaware Federal Court. On September 5, 1995, Circle K filed another
lawsuit against the Company and its directors in the United States District
Court for the District of Delaware alleging, among other things, that the
omission of certain information concerning the By-Law Amendment from a press
release issued by the Company on August 14, 1995 and the omission of certain
information relating to a nomination of directors received from Bedford from a
Current Report on Form 8-K filed by the Company with the Commission on August
14, 1995 rendered the press release and the Form 8-K materially false and
misleading. Therefore, the Complaint alleges, the press release and the Form 8-K
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. The Complaint requests, among other things, that the court compel
the defendants to make corrective disclosures and enjoin the defendants from
soliciting proxies of the Company's stockholders until such corrective action is
completed. The case is styled The Circle K Corporation v. National Convenience
Stores Incorporated, et al., C.A. 95-537. The Complaint in the foregoing action
is filed as Exhibit 23 to this Schedule; the foregoing description is qualified
in its entirety by reference to such Exhibit.
(d) Rights Agreement.
On August 31, 1995, the Board declared a dividend of one Right for each
outstanding share of Common Stock, payable on September 11, 1995 to stockholders
of record at the close of business on that date. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), at a Purchase Price of
$55 per Unit, subject to adjustment.
IN THE MERGER AGREEMENT, THE COMPANY AGREED TO (I) TAKE ALL ACTION
NECESSARY TO DEFER THE DISTRIBUTION DATE (AS DEFINED BELOW) TO PREVENT THE
OCCURRENCE OF THE DISTRIBUTION DATE AS A RESULT OF THE COMMENCEMENT OF THE OFFER
OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
AND (II) REDEEM THE RIGHTS EFFECTIVE IMMEDIATELY PRIOR TO THE OFFEROR'S
ACCEPTANCE FOR PAYMENT OF SHARES OF COMMON STOCK AND WARRANTS PURSUANT TO THE
DIAMOND SHAMROCK OFFER.
A copy of the Rights Agreement is filed as Exhibit 25 to this Schedule; the
following summary description of the Rights Agreement is qualified in its
entirety by reference to such Exhibit.
Initially, the Rights will be attached to all certificates representing
outstanding shares of Common Stock, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and a "Distribution
Date" will occur upon the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the date of
the announcement being the "Stock Acquisition Date"), or (ii) ten business days
(or such later date as may be determined by the Board before the Distribution
Date occurs) following the commencement of a tender offer or exchange offer that
would result in a person's becoming an Acquiring Person. Until the Distribution
Date, (a) the Rights will be evidenced by the Common Stock certificates
(together with a copy of a Summary of Rights or bearing the notation referred to
below) and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after September 11, 1995
will contain a notation incorporating the Rights Agreement by reference and (c)
the surrender for transfer of any certificate for Common Stock outstanding (with
or without a copy of the Summary of Rights) will also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
The Company, its subsidiaries and their employee benefit plans will not at
any time be deemed Acquiring Persons.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on August 31, 2005, unless earlier redeemed or
exchanged by the Company as described below. Pursuant to the Rights Agreement,
the Company reserves the right to require prior to the occurrence of a
Triggering Event (as
10
<PAGE> 11
defined below) that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon exercise or conversion of certain securities will
be issued with Rights. Except as otherwise determined by the Board, no other
shares of Common Stock issued after the Distribution Date will be issued with
Rights.
In the event (a "Flip-In Event") that a Person becomes an Acquiring Person,
each holder of a Right will thereafter have the right to receive, upon exercise
of such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market Price
(as defined in the Rights Agreement) equal to two times the exercise price of
the Right. Notwithstanding any of the foregoing, following the occurrence of any
Flip-In Event, all Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person (or by
certain related parties) will be null and void in the circumstances set forth in
the Rights Agreement. However, Rights are not exercisable following the
occurrence of any Flip-In Event until such time as the Rights are no longer
redeemable by the Company as set forth below.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination transaction or (ii) 50% or more of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right, payable, at the option of the Company, in cash, shares of Common Stock or
such other consideration as the Board may determine. Immediately upon the
effectiveness of the action of the Board ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event, the Company may
exchange the Rights (other than Rights owned by an Acquiring Person or an
affiliate or an associate of an Acquiring Person, which will have become void),
in whole or in part, at an exchange ratio of one share of Common Stock, and/or
other equity securities deemed to have the same value as one share of Common
Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board prior to the Distribution Date. Thereafter, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity, defect or
inconsistency, to make changes that do not materially adversely effect the
interests of holders of Rights (excluding the interests of any Acquiring Person
and certain related parties), or to shorten or lengthen any time period under
the Rights Agreement; provided, however, that no amendment to lengthen the time
period governing redemption shall be made at such time as the Rights are not
redeemable.
The Board, at its September 18, 1995 meeting, adopted a resolution pursuant
to the Rights Agreement that has the effect of providing that the Distribution
Date would be deferred until the earlier of (i) 10 days
11
<PAGE> 12
after the Stock Acquisition Date or (ii) such date as may be subsequently
determined by the Board. The Board took a similar action at its meeting on
November 6 and 7, 1995. At that meeting the Board also resolved that the Rights
shall be redeemed at the redemption price of $.01 per Right immediately prior to
the acceptance for payment of the Common Stock pursuant to the Diamond Shamrock
Offer (but prior to that time shall remain in effect), and that the record date
for determining holders of Rights entitled to receive the redemption price shall
be the time at which the Rights are redeemed.
(e) Charter Provisions.
Vote Required for Certain Matters. The Company's Charter provides that the
holders of at least two-thirds of the outstanding shares of the Common Stock
must approve the following actions: (i) amendment of the Charter; (ii) certain
mergers or consolidations of the Company; (iii) the sale, lease or exchange of
all or substantially all of the property and assets of the Company; or (iv) the
dissolution, or the revocation of a dissolution, of the Company. The Minimum
Condition of the Diamond Shamrock Offer, as described in Annex I, obligates the
Offeror to accept the Securities tendered only if Securities representing at
least two-thirds of the shares of Common Stock on a fully diluted basis are
validly tendered and not withdrawn pursuant to the Diamond Shamrock Offer.
Accordingly, if the Minimum Condition is satisfied, the Offeror will have
sufficient voting power to cause approval of the Merger without the affirmative
vote of any other stockholder of the Company.
Section 382 Transfers. Article V of the Charter provides that until July 1,
1996, any attempted sale, transfer, assignment, conveyance, grant, pledge, gift
or other disposition of any share or shares of Common Stock (within the meaning
of Section 382 of the Internal Revenue Code of 1986 (the "Code")), or any option
or right to purchase such stock, as defined in the Treasury Regulations under
Section 382 of the Code (each, a "Section 382 Transfer"), to any person or
entity (or group of persons or entities acting in concert) who either directly
or indirectly owns or would be treated as owning, or whose shares are or would
be attributed to any person or entity who directly or indirectly owns or would
be treated as owning, in either case prior to the purported transfer and after
giving effect to the applicable attribution rules, 5% or more of the value of
the outstanding stock of the Company or otherwise treated as a 5% stockholder
(within the meaning of Section 382 of the Code) (collectively, a "Five Percent
Stockholder"), regardless of the percent or the value of the stock owned, shall
be void ab initio insofar as it purports to transfer ownership or rights in
respect of such stock to the purported transferee. In addition, the Charter
provides that any attempted Section 382 Transfer to any person or entity (or
group of persons or entities acting in concert) who is not a Five Percent
Stockholder but who would as a result of the purported transfer and after giving
effect to the applicable attribution rules become a Five Percent Stockholder,
shall, as to that number of shares causing such person or entity to be a Five
Percent Stockholder, be void ab initio insofar as it purports to transfer
ownership or rights in respect of such stock to the purported transferee.
These restrictions on transfer shall not, however, prevent a valid transfer
if (A) the transferor obtains the written approval of the Board and provides the
Company with an opinion of counsel satisfactory to the Company that (assuming,
as of the date of such opinion, the full exercise of (i) all warrants issued
under, and (ii) any options granted pursuant to any stock option plan approved
by, the Company's Revised Fourth Amended and Restated Joint Plan of
Reorganization) the transfer shall not result in the application of any tax law
limitation on the use of the Company's loss carryforwards or other tax
attributes or (B) a tender offer, within the meaning of the Exchange Act and
pursuant to the rules and regulations thereof, is made by a bona fide third
party purchaser to purchase at least 66 2/3% of the issued and outstanding
Common Stock and the offeror (i) agrees to effect, within 90 days of the
consummation of the tender offer, a back-end merger in which all non-tendering
shareholders would receive the same consideration as paid in the tender offer,
and (ii) has received the tender of sufficient shares to effect such merger. The
Company may rely and shall be protected in relying on its stockholder lists and
stock transfer records for all purposes relating to such notices, voting,
payment of dividend or other communications or distributions to its
stockholders.
The Charter provides that in the absence of special Board approval, a
purported transfer of shares in excess of the shares that can be transferred
pursuant to the Charter (the "Prohibited Shares") to the purported acquiror (the
"Purported Acquiror") is not effective to transfer ownership of such Prohibited
12
<PAGE> 13
Shares. On demand by the Company, which demand must be made within 30 days of
the time the Company learns of the transfer of the Prohibited Shares, a
Purported Acquiror must transfer any certificate or other evidence of ownership
of the Prohibited Shares within the Purported Acquiror's possession or control,
together with any dividends or other distributions (collectively,
"Distributions") that were received by the Purported Acquiror from the Company
with respect to the Prohibited Shares, to an agent designated by the Company
(the "Agent"). The Agent will sell the Prohibited Shares in an arm's length
transaction, and the Purported Acquiror will receive an amount of sales proceeds
not in excess of the price paid or consideration surrendered by the Purported
Acquiror for the Prohibited Shares (or the fair market value of the Prohibited
Shares at the time of any attempted transfer to the Purported Acquiror by gift,
inheritance, or a similar transfer). If the Purported Acquiror has resold the
Prohibited Shares prior to receiving the Company's demand to surrender the
Prohibited Shares to the Agent, the Purported Acquiror shall be deemed to have
sold the Prohibited Shares as an agent for the initial transferor, and shall be
required to transfer to the Agent any proceeds of such sale and any
Distributions.
If the initial transferor can be identified, the Agent will pay to it any
sales proceeds in excess of those due to the Purported Acquiror, together with
any Distributions received by the Agent. If the initial transferor cannot be
identified within 90 days, the Agent may pay any such amounts to a charity of
its choosing. In no event shall amounts paid to the Agent inure to the benefit
of the Company or the Agent, but such amounts may be used to cover expenses of
the Agent in attempting to identify the initial transferor. If the Purported
Acquiror fails to surrender the Prohibited Shares within the next 30 business
days from the demand by the Company, then the Company will institute legal
proceedings to compel the surrender. The Company shall be entitled to damages,
including reasonable attorneys' fees and costs, from the Purported Acquiror, on
account of such purported transfer. The Company believes that the Offer and the
consummation of the Merger pursuant to the terms of the Merger Agreement comply
with the provisions of Article V of the Charter.
Fair Value Provision. Article IX of the Charter provides modified appraisal
rights to all stockholders who comply with the provisions of Section 262 of the
Delaware General Corporation Law in the event of certain transactions (each, an
"Interested Transaction") with an "Interested Stockholder." An "Interested
Stockholder" (as more fully described in the Charter) includes a person who is
(i) a beneficial owner of at least 15% of the Common Stock; (ii) an Affiliate
(as defined in Rule 12b-2 under the Exchange Act) who at any time within the two
year period immediately prior to the date of the first public announcement (the
"Announcement Date") of the proposed Interested Transaction was the beneficial
owner of at least 15% of the Common Stock; or (iii) the assignee or successor,
in the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, to any shares of
Common Stock which were at any time within the two year period immediately prior
to an Announcement Date owned by an Interested Stockholder. Interested
Transactions include (i) the merger or consolidation of the Company with (x) any
Interested Stockholder or (y) any other corporation which is, or after such
merger or consolidation would be, an Affiliate of an Interested Stockholder;
(ii) the sale, lease or exchange of all or substantially all of the property and
assets of Company (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate thereof; or (iii) any amendment of
the Charter which effects a reclassification of securities or a recapitalization
of the Company, which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of voting stock of
the Company which is beneficially owned by any Interested Stockholder or any
Affiliate thereof.
Upon the occurrence of an Interested Transaction, any stockholder of the
Company who complies with the requirements of Section 262 will be entitled to an
appraisal by the Court of Chancery of the State of Delaware of the "fair value"
of his shares of Common Stock. If within 115 days after the effective date of an
Interested Transaction, no stockholder of the Company who has complied with the
provisions of Section 262 and is otherwise entitled to appraisal rights has
filed a petition in the Court of Chancery demanding a determination of the fair
value of the Common Stock owned by all stockholders similarly situated, the
Company is required within 120 days after the effective date of an Interested
Transaction, to file such a petition. In any such appraisal proceeding initiated
by a stockholder or by the Company pursuant to Section 262 relating to an
Interested Transaction, the Company is required to file appropriate pleadings
which confirm and at all stages of the proceeding vigorously assert that the
fair value (as determined under the
13
<PAGE> 14
Charter) of each share of Common Stock subject to such proceeding is not less
than the highest amount determined under the Charter. The price determined
pursuant to the Charter would be the greater of (i) the highest price paid by
the Interested Stockholder for any shares of Common Stock or (ii) the highest
closing price of the shares of Common Stock during the 30-day periods prior to
(x) the date of the announcement of the Merger or (y) the date on which the
Interested Stockholder became an Interested Stockholder. Further, if the Court
of Chancery determines in any appraisal proceeding relating to any of the
foregoing transactions that the fair value of any share of Common Stock is less
than the Minimum Fair Value Per Share (as defined in and determined in
accordance with the Charter), the Company nonetheless is required to pay to
stockholders entitled to receive the fair value of their shares in such
appraisal proceeding an amount per share equal to the Minimum Fair Value Per
Share. The appraisal rights provided by the Charter also would extend to
preferred stock of the Company, if any were outstanding. The affirmative vote of
the holders of at least 66 2/3% of the shares of Common Stock entitled to vote
and not beneficially owned by an Interested Stockholder or its affiliates,
voting as a class, is necessary to amend, repeal, or adopt provisions
inconsistent with, the provisions of the Charter providing for modified
appraisal rights.
The Company's Charter is filed as Exhibit 28 hereto; the foregoing
descriptions are qualified in their entirety by reference to such Exhibit.
(f) Delaware Takeover Statute.
In general, Section 203 prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock) from engaging in a "Business Combination" (defined as a variety of
transactions, including mergers, as set forth below) with a Delaware corporation
for three years following the date such person became an Interested Stockholder
unless: (i) before such person became an Interested Stockholder, the board of
directors of the corporation approved the transaction in which the Interested
Stockholder became an Interested Stockholder or approved the Business
Combination; (ii) upon consummation of the transaction which resulted in the
Interested Stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an Interested
Stockholder, the Business Combination is (x) approved by the board of directors
of the corporation and (y) authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
Section 203 provides that during such three-year period following the date
a person becomes an Interested Stockholder, the corporation may not merge or
consolidate with an Interested Stockholder or any affiliate or associate
thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (i) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all the outstanding stock of the corporation, (ii) any
transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of any stock of the corporation to the Interested
Stockholder, subject to certain exceptions, (iii) any transaction involving the
corporation or certain subsidiaries thereof which has the effect of increasing
the proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation or any
such subsidiary which is owned directly or indirectly by the Interested
Stockholder (except as a result of immaterial changes due to fractional share
adjustments or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the Interested Stockholder), or (iv) any
receipt by the Interested Stockholder of the benefit (except proportionately as
a stockholder of such corporation) of any loans, advances, guarantees, pledges
or other financial benefits provided by or through the corporation.
14
<PAGE> 15
On November 7, 1995, the Board approved the Merger Agreement, the Diamond
Shamrock Offer and the Merger, and, consequently, the restrictions of Section
203 described above will not apply to the Merger Agreement, the Diamond Shamrock
Offer and the Merger.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------
<C> <S>
Exhibit 1* Agreement and Plan of Merger dated as of November 8, 1995, by and among
Diamond Shamrock, the Offeror and the Company.
Exhibit 2* Item 11. "Executive Compensation" of the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995, as amended by Form 10-K/A
dated October 5, 1995.
Exhibit 3 Amended and Restated National Convenience Stores Incorporated Officers'
Retirement Plan effective as of August 31, 1995 (incorporated by reference
from Exhibit 99.4 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 4 Amended and Restated Trust under National Convenience Stores Incorporated
Officers' Retirement Plan effective as of August 31, 1995, by and between
the Company and Bank One, Texas, N.A. (incorporated by reference from
Exhibit 99.5 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 5 Amended and Restated National Convenience Stores Incorporated Directors'
Retirement Plan effective as of August 31, 1995 (incorporated by reference
from Exhibit 99.6 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 6 Amended and Restated Trust under National Convenience Stores Incorporated
Directors' Retirement Plan effective as of August 31, 1995, by and between
the Company and Bank One, Texas, N.A. (incorporated by reference from
Exhibit 99.7 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 7 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective from and after July 1, 1995 by and between the
Company and V.H. Van Horn (incorporated by reference from Exhibit 99.10 to
the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 8 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of May 18, 1993 by and between the Company and
A.J. Gallerano (incorporated by reference from Exhibit 99.11 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 9 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of May 18, 1993 by and between the Company and
Arnold Van Zanten (incorporated by reference from Exhibit 99.12 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 10 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of May 18, 1993 by and between the Company and
C.R. Wortham (incorporated by reference from Exhibit 99.13 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 11 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of May 18, 1993 by and between the Company and
Brian Fontana (incorporated by reference from Exhibit 99.14 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 12 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of October 31, 1994 by and between the Company and
Douglas B. Binford (incorporated by reference from Exhibit 99.15 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------
<C> <S>
Exhibit 13 Agreement Amending and Restating Employment Agreement executed as of August
31, 1995 but effective as of February 1, 1995 by and between the Company and
Janice E. Bryant (incorporated by reference from Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, as amended by Form 10-K/A dated October 5, 1995).
Exhibit 14 Form of Director Agreement effective as of August 31, 1995 by and between
the Company and each of Richard C. Steadman, Dunbar N. Chambers, Jr.,
Charles J. Luellen, Raymond W. Oeland, Jr., Lionel Sosa, Robert B. Stobaugh,
and William K. Wilde (incorporated by reference from Exhibit 99.9 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 15 Twenty-second Amendment to the Company's Profit Sharing Plan and Trust
effective as of July 1, 1995 (incorporated by reference from Exhibit 99.8 to
the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 16 Form of Indemnification Agreement for officers and directors of the Company
dated as of July 18, 1986 (incorporated by reference from Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1987
(Commission File No. 1-7936)).
Exhibit 17 The Company's 1993 Non-Qualified Stock Option Plan dated as of March 9, 1993
(incorporated by reference from Exhibit 10(b) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1993).
Exhibit 18** Letter to National Convenience Stores Incorporated stockholders and
warrantholders dated November 14, 1995.
Exhibit 19 Joint press release issued by Diamond Shamrock and the Company on November
8, 1995 (incorporated by reference from Exhibit 29 of the Company's
Amendment No. 1 to Solicitation/Recommendation Statement on Schedule 14D-9
dated November 8, 1995).
Exhibit 20** Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated November
7, 1995.
Exhibit 21 Class Action Complaint, Thomas J. McKula, Jr., on behalf of himself and all
others similarly situated v. William K. Wilde, et al., C.A. 14481 (Chancery
Court for the State of Delaware in and for New Castle County) (as filed
August 15, 1995) (incorporated by reference from Exhibit 99.3 to the
Company's Current Report on Form 8-K dated August 11, 1995).
Exhibit 22 Class Action Complaint, Crandon Capital Partners v. V.H. Van Horn, et al.,
C.A. 14489 (Chancery Court of the State of Delaware in and for New Castle
County) (as filed August 18, 1995) (incorporated by reference from Exhibit
99.1 to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 23 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 95-537 (U.S. District Court for the District of
Delaware) (as filed September 5, 1995) (incorporated by reference from
Exhibit 99.2 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 24 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 14518 (Chancery Court of the State of Delaware in
and for New Castle County) (as filed September 5, 1995) (incorporated by
reference from Exhibit 99.3 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 25 Rights Agreement dated as of August 31, 1995 between the Company and
Boatmen's Trust Company, as Rights Agent (incorporated by reference from
Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 31,
1995).
Exhibit 26 (a) Letter dated August 10, 1995 from The Circle K Corporation to Mr. A. J.
Gallerano (incorporated by reference from Exhibit 99.1(a) to the Company's
Current Report on Form 8-K dated August 11, 1995).
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------
<C> <S>
(b) Letter dated August 10, 1995 from Cede & Co., indirectly on behalf of
The Circle K Corporation to Mr. A. J. Gallerano, including the exhibits
thereto (incorporated by reference from Exhibit 99.1(b) to the Company's
Current Report on Form 8-K dated August 11, 1995).
Exhibit 27 (a) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to Mr.
V. H. Van Horn (incorporated by reference from Exhibit 99.2(a) to the
Company's Current Report on Form 8-K dated August 11, 1995).
(b) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to the
Company, including the exhibits (incorporated by reference from Exhibit
99.2(b) to the Company's Current Report on Form 8-K dated August 11,
1995).
Exhibit 28 The Company's Restated Certificate of Incorporation dated March 9, 1993
(incorporated by reference from Exhibit 2.1 to the Company's Current Report
on Form 8-K dated March 3, 1993).
Exhibit 29 Restated By-Laws of the Company dated March 9, 1993, as amended August 10,
1995 (incorporated by reference from Exhibit 3.1 to the Company's Current
Report on Form 8-K dated August 8, 1995).
Exhibit 30 Warrant Agreement dated as of March 9, 1993 between the Company and
Boatmen's Trust Company, as Warrant Agent (incorporated by reference from
Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 23,
1993).
Exhibit 31*** Letter to participants in the Company's Profit Sharing Plan and Trust and
its Employee Stock Ownership Plan, together with the related memoranda of
instructions and direction forms.
</TABLE>
- ---------------
* Filed herewith.
** Filed herewith and included in copy sent to holders of Common Stock and
Warrants and to participants in the Company's Profit Sharing Plan and Trust
and its Employee Stock Ownership Plan.
*** Filed herewith and included in copy sent to participants in the Company's
Profit Sharing Plan and Trust and its Employee Stock Ownership Plan.
17
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
NATIONAL CONVENIENCE STORES
INCORPORATED
By: /s/ V. H. VAN HORN
------------------------------------
V. H. Van Horn
President and Chief Executive
Officer
Dated: November 14, 1995
18
<PAGE> 19
ANNEX I
DESCRIPTION OF THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which has been filed as Exhibit 1
to this Schedule. Capitalized terms used in this Annex I and not otherwise
defined in this Schedule have the meanings ascribed to them in the Merger
Agreement.
The Diamond Shamrock Offer. The Merger Agreement provides for the
commencement by the Offeror of the Diamond Shamrock Offer. The Merger Agreement
specifies certain conditions for the Offer, including, among other things, there
being validly tendered and not withdrawn that number of shares of Common Stock
and Warrants representing at least two-thirds of the Common Stock on a fully
diluted basis (the "Minimum Condition"). Pursuant to the Merger Agreement, the
Offeror has expressly reserved the right to (i) waive any condition of the
Diamond Shamrock Offer (other than the Minimum Condition), (ii) increase the
cash consideration offered for the Common Stock or the Warrants, or (iii) extend
the Diamond Shamrock Offer if any condition thereto is not satisfied, but has
agreed that it will not, without the prior written consent of the Company (a)
decrease the cash consideration offered for the Common Stock or the Warrants,
(b) decrease the number of shares of Common Stock or Warrants sought to be
purchased pursuant to the Diamond Shamrock Offer, (c) change the form of
consideration to be paid pursuant to the Diamond Shamrock Offer, (d) add to or
change the conditions to the Diamond Shamrock Offer, (e) change or waive the
Minimum Condition, or (f) make any other change in the terms or conditions of
the Diamond Shamrock Offer which is materially adverse to holders of Common
Stock or Warrants. The Merger Agreement provides that if all conditions of the
Diamond Shamrock Offer have not been satisfied or waived prior to December 13,
1995, the initial expiration date, the Offeror will extend the Diamond Shamrock
Offer until the earlier of the consummation of the Offer and the 60th calendar
day after commencement of the Diamond Shamrock Offer.
Recommendation. The Board, based in part on the opinion of Merrill Lynch
that the proposed cash consideration to be paid in the Diamond Shamrock Offer
and the Merger is fair from a financial point of view to the holders of Common
Stock and Warrants, determined that the Diamond Shamrock Offer and the Merger
are in the best interests of the Company and its securityholders, approved the
Merger Agreement and the transactions contemplated thereby, and recommended that
holders of Common Stock and Warrants accept the Diamond Shamrock Offer and
tender their Common Stock and Warrants pursuant to the Diamond Shamrock Offer.
The Merger Agreement provides that if the Board, after consulting with its
outside counsel and financial advisor, determines in good faith, and based in
part on a written opinion of outside counsel, that its fiduciary duties require
that it withdraw, modify or amend in a manner adverse to Diamond Shamrock its
favorable recommendation of the Diamond Shamrock Offer or the Merger in order to
approve the execution of a definitive agreement with respect to an Acquisition
Transaction (as defined in the Merger Agreement) with another party which the
Board has determined in good faith is financially superior to the transactions
contemplated by the Merger Agreement, such withdrawal, modification or amendment
will not constitute a breach of the Merger Agreement but will entitle the
Offeror to receive a termination fee. See "Termination" below.
Board Representation. The Merger Agreement provides that, upon the
Offeror's acceptance for payment of Common Stock and Warrants pursuant to the
Diamond Shamrock Offer, the Offeror will be entitled, subject to compliance with
applicable law and the Charter, to designate at its option up to that number of
members, rounded up to the nearest whole number, of the Board as will make the
percentage of the Company's directors designated by the Offeror equal to the
percentage of outstanding shares of Common Stock held by Diamond Shamrock and
any of its wholly owned subsidiaries, and the Company has agreed that it will,
upon the request of the Offeror, promptly increase the size of the Board and/or
use its reasonable best efforts to secure the resignation of such number of
directors as is necessary to enable the Offeror's designees to be so elected and
will use its reasonable best efforts to cause the Offeror's designees to be so
elected, subject to Section 14(f) of the Exchange Act. However, prior to the
Effective Time (as defined below), the Company will use its reasonable best
efforts to assure that the Board has at least two members who are directors of
the
I-1
<PAGE> 20
Company as of November 8, 1995. At such times, the Company will use its
reasonable best efforts, subject to any limitations imposed by applicable laws
or rules of the New York Stock Exchange ("NYSE"), to cause persons designated by
Diamond Shamrock to constitute the same percentage as such persons represent on
the Board of (i) each committee of the Board, (ii) each board of directors or
board of management of each Subsidiary (as defined in the Merger Agreement) of
the Company, and (iii) each committee of each such board.
The Merger. The Merger Agreement provides that, on the terms and subject to
the conditions set forth in the Merger Agreement and in accordance with the
relevant provisions of the Delaware General Corporation Law (the "DGCL"), as
soon as practicable following the satisfaction or waiver, if permissible, of the
conditions described below under "Conditions to the Merger," at the Effective
Time, the Offeror will be merged with and into the Company, with the Company, as
the surviving corporation in the Merger (the "Surviving Corporation"), becoming
a wholly owned subsidiary of Diamond Shamrock. At the Effective Time, each share
of Common Stock issued and outstanding immediately prior to the Effective Time
(other than Common Stock owned by Diamond Shamrock, the Offeror or any other
direct or indirect subsidiary of Diamond Shamrock or held in the treasury of the
Company, all of which will be canceled, and Common Stock owned by stockholders
who have complied with all of the relevant provisions of Article IX of the
Charter and who perfected their appraisal rights under the DGCL) will be
converted into the right to receive the same per share price paid for shares of
Common Stock in the Diamond Shamrock Offer (the "Merger Consideration") net to
the holder (pre-tax) in cash, without any interest thereon, and each share of
common stock of the Offeror issued and outstanding immediately prior to the
Effective Time will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation. Pursuant to
the terms of the Warrant Agreement, each then-outstanding Warrant (other than
Warrants held in the treasury of the Company, which shall be canceled) will
remain outstanding and, from and after the Effective Time, each holder of
Warrants will have the right to obtain upon exercise of each Warrant and the
payment of the exercise price thereunder, in lieu of the one share of Common
Stock theretofore issuable upon exercise of such Warrant, the Merger
Consideration, without interest thereon, net to the holder (pre-tax) in cash.
Under the Merger Agreement and subject to the terms and conditions thereof, each
of Diamond Shamrock, the Offeror and the Company agreed to use its reasonable
best efforts to cause the Merger to occur within 90 calendar days after the
purchase of the shares of Common Stock and Warrants pursuant to the Diamond
Shamrock Offer. The Merger will become effective at the time of filing of a
certificate of merger, or certificate of ownership and merger, as required by
the DGCL (the "Effective Time").
Stockholder Meeting. The Merger Agreement provides that, if required by
applicable law in order to consummate the Merger, the Company will, subject to
its fiduciary duties under applicable law as advised in the written opinion of
outside counsel to the Company, duly call a special meeting of its stockholders
(the "Special Meeting") as soon as practicable following the acceptance for
payment of Securities in the Diamond Shamrock Offer to consider and vote upon
the adoption of the Merger and the Merger Agreement. Diamond Shamrock and the
Offeror have agreed to cause all shares of Common Stock then owned by Diamond
Shamrock, the Offeror or any other subsidiary of Diamond Shamrock to be voted at
the Special Meeting in favor of the adoption of the Merger Agreement. Diamond
Shamrock has also agreed that it or the Offeror will, prior to the record date
for the Special Meeting, exercise such number of Warrants as may be necessary to
assure that no affirmative vote of any holder of Common Stock other than Diamond
Shamrock or the Offeror is required for the adoption of the Merger Agreement. If
the Minimum Condition is satisfied and the Offeror purchases Common Stock and
Warrants pursuant to the Diamond Shamrock Offer, the Offeror will be able to
effect the adoption of the Merger Agreement at a meeting of the Company's
stockholders without the affirmative vote or consent of any other stockholder of
the Company. The Merger Agreement provides that in the event that the Offeror
acquires at least 90% of the outstanding Common Stock pursuant to the Diamond
Shamrock Offer or otherwise, Diamond Shamrock will, subject to its termination
rights under the Merger Agreement, take all necessary and appropriate action
(including the exercise of Warrants to the extent necessary to achieve the 90%
threshold) to cause the Merger to become effective as soon as practicable after
the acceptance for payment of Securities in the Diamond Shamrock Offer, but in
no event later than 10 business days (or such other time as the Company (acting
through the directors of the Company then in office
I-2
<PAGE> 21
who are directors of the Company on November 8, 1995) and Diamond Shamrock may
agree) thereafter in accordance with Section 253 of the DGCL.
Company Options. The Merger Agreement provides that all options ("Options")
outstanding under the Company's stock option plan (the "Option Plan"), whether
or not exercisable, will, subject to the prior written approval of the optionee,
be canceled and each optionee will be entitled to receive promptly after the
acceptance of shares of Common Stock and Warrants for payment in the Diamond
Shamrock Offer, in cancellation and settlement of such Option, a cash payment
from the Company in an amount equal to the difference between the price per
share paid in the Diamond Shamrock Offer and the per share exercise price of
such Option, multiplied by the number of shares of Common Stock covered by such
Option. Pursuant to the Merger Agreement, the Board has fixed the Effective Time
as the date on which Options granted under the Option Plan which are not
canceled as provided in the preceding sentence will terminate pursuant to the
Option Plan.
Representations and Warranties. The Merger Agreement contains
representations and warranties by the Company, relating to, among other things,
(i) the organization of the Company and its Subsidiaries and other corporate
matters, (ii) the capital structure of the Company, (iii) the authorization,
execution, delivery and consummation of the transactions contemplated by the
Merger Agreement, (iv) consents and approvals, (v) documents filed by the
Company with the Commission and the accuracy of the information contained
therein, (vi) the accuracy of the information contained in documents filed with
the Commission in connection with the Diamond Shamrock Offer and the Merger,
(vii) litigation, (viii) absence of changes, (ix) conflicts, (x) taxes and (xi)
receipt of an opinion of a financial advisor. In addition, the Merger Agreement
contains representations and warranties by Diamond Shamrock and the Offeror,
relating to, among other things, (a) the organization of Diamond Shamrock and
the Offeror and other corporate matters, (b) the authorization, execution,
delivery and consummation of the transactions contemplated by the Merger
Agreement, (c) the accuracy of information contained in documents filed with the
Commission in connection with the Diamond Shamrock Offer and the Merger, (d)
consents and approvals, (e) conflicts and (f) receipt of a financing commitment.
Redemption of Rights. The Merger Agreement provides that (i) the Company
will redeem the Rights immediately prior to the Offeror's acceptance for payment
of Common Stock and Warrants pursuant to the Diamond Shamrock Offer and will not
otherwise redeem the Rights, or amend or terminate the Rights Agreement, unless
required to do so by a court of competent jurisdiction and (ii) the Board will
take all action necessary to defer the Distribution Date to prevent the
occurrence of the Distribution Date as a result of the commencement of the
Diamond Shamrock Offer or the consummation of the transactions contemplated by
the Merger Agreement.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has agreed that, prior to the Effective Time, except as otherwise
provided in the Merger Agreement or with the prior written consent of Diamond
Shamrock, the Company will, and will cause each of its Subsidiaries to, conduct
its operations only in the ordinary and usual course of business consistent with
past practice. The Company has further agreed that it will use all reasonable
efforts, and will cause each of its Subsidiaries to use all reasonable efforts,
to (i) preserve intact the present business organization of the Company and its
Subsidiaries, (ii) keep available the services of the present officers and
employees of the Company and its Subsidiaries, and (iii) preserve the material
relationships of the Company and its Subsidiaries with licensors, licensees,
customers, suppliers, employees and any others having business dealings with the
Company or any of its Subsidiaries.
The Company has agreed that, except as expressly contemplated by the Merger
Agreement, the Company will not, and will not permit its Subsidiaries to, prior
to the Effective Time, (i) adopt any amendment to its certificate of
incorporation or by-laws or comparable organizational documents or the Rights
Agreement, (ii) declare or pay any dividends or other distributions, with
certain exceptions, (iii) incur, assume or pre-pay any long-term debt or incur
or assume any short-term debt, except that the Company and its Subsidiaries may
incur or pre-pay debt in the ordinary course of business consistent with past
practice under existing lines of credit, (iv) assume, guarantee, endorse or
otherwise become liable or responsible
I-3
<PAGE> 22
(whether directly, contingently or otherwise) for the obligations of any other
person or entity, except in the ordinary course of business consistent with past
practice, (v) make any loans, advances or capital contributions to, or
investments in, any other person or entity except for loans, advances, capital
contributions or investments between the Company and any of its wholly owned
Subsidiaries or between wholly owned Subsidiaries of the Company in the ordinary
course of business consistent with past practice, (vi) settle or compromise any
suit or claim or threatened suit or claim relating to the transactions
contemplated by the Merger Agreement, (vii) except for increases in salary,
wages or benefits of employees of the Company or its Subsidiaries (other than
officers and directors of the Company) in accordance with past practice, and
except for increases in salary, wages and benefits granted to employees of the
Company or its Subsidiaries (other than officers and directors of the Company)
in conjunction with promotions or other changes in job status consistent with
past practice or required under existing agreements, increase the compensation
or fringe benefits payable or to become payable to its directors, officers or
employees (whether from the Company or any of its Subsidiaries) or pay any
benefit not required by any existing plan or arrangement (including the granting
of, or waiver of performance or other vesting criteria under, stock options, or
grant any severance or termination pay to (except pursuant to existing
agreements or policies), or enter into any employment or severance agreement
with, any director, officer or other employee of the Company or any of its
Subsidiaries) or establish, adopt, enter into, terminate or amend any bonus,
profit sharing, thrift, compensation, stock option, pension, retirement,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any directors, officers or current or former employees
(except as may be necessary to comply with applicable law), (viii) acquire
(except as permitted by clause (x) below), sell, lease or dispose of or pledge,
mortgage or encumber any assets (including licenses, permits and other rights)
of the Company and its Subsidiaries other than in the ordinary course of
business consistent with past practice and in each case not exceeding $250,000,
or enter into any commitment or transaction outside the ordinary course of
business consistent with past practice other than transactions between a wholly
owned Subsidiary of the Company and the Company or between wholly owned
Subsidiaries of the Company, (ix) (a) modify, amend or terminate any contract,
license or permit, (b) waive, release, relinquish or assign any contract
(including any insurance policy) or other license, permit, right or claim, or
(c) cancel or forgive any indebtedness owed to the Company or its Subsidiaries,
other than in each case in a manner in the ordinary course of business
consistent with past practice and which is not material to the business of the
Company and its Subsidiaries, (x) authorize, commit to or make any capital
expenditures except pursuant to and in accordance with the Company's existing
capital budget, (xi) make any tax election not required by law or settle or
compromise any tax liability, in either case that is material to the Company and
its Subsidiaries, (xii) change any of the accounting principles or practices
used by it except as required by the Commission or the Financial Accounting
Standards Board, or (xiii) agree in writing or otherwise to take any of the
foregoing actions or any action which would make any representation or warranty
in the Merger Agreement untrue or incorrect in any material respect.
Access. Pursuant to the Merger Agreement, the Company has agreed that it
will (i) give Diamond Shamrock and its authorized representatives reasonable
access to all stores, offices, warehouses and other facilities and to all books
and records of the Company and its Subsidiaries, (ii) permit Diamond Shamrock to
make such inspections as it may reasonably require, and (iii) cause its officers
and those of its Subsidiaries to furnish Diamond Shamrock such financial and
operating data and other information with respect to the business and properties
of the Company and its Subsidiaries as Diamond Shamrock may from time to time
reasonably request. In this regard, Diamond Shamrock has agreed to comply with
the terms of the Confidentiality Agreement between Diamond Shamrock and the
Company, dated October 2, 1995, which provides generally that confidential
information furnished by or on behalf of the Company will be used solely for the
purpose of evaluating a possible investment in the Company and that the
recipient of such information will take appropriate measures to safeguard the
confidentiality thereof.
Exclusivity. The Merger Agreement provides that until the earlier of the
termination of the Merger Agreement or the Effective Time, the Company will not,
and will cause its officers, directors, Subsidiaries, affiliates,
representatives or agents, directly or indirectly, not to, (i) negotiate,
undertake, authorize, propose or enter into, either as the proposed surviving,
merged, acquiring or acquired corporation, any transaction (other than the
Diamond Shamrock Offer and the Merger) involving any sale, transfer or other
disposition or other
I-4
<PAGE> 23
change of ownership (whether by tender or exchange offer or otherwise) of any
securities of the Company or any of its Subsidiaries, or any assets of the
Company or any of its direct or indirect Subsidiaries constituting 1% or more of
the consolidated assets of the Company or 1% or more of the consolidated
revenues of the Company, whether in a single transaction or series of related
transactions (an "Acquisition Transaction"), (ii) solicit or initiate the
submission of a proposal or offer in respect of, or engage in negotiations
concerning, an Acquisition Transaction, or (iii) furnish or cause to be
furnished to any corporation, partnership, person or other entity or group
(other than Diamond Shamrock, the Offeror and their representatives) any
non-public information concerning the business, operations, properties or assets
of the Company in connection with an Acquisition Transaction. The Merger
Agreement also provides that the Company will inform Diamond Shamrock promptly,
and in any event within one day, of its receipt of any proposal or bid in
respect of any Acquisition Transaction and provide Diamond Shamrock with copies
of any written proposal or bid. The Merger Agreement further provides that the
Company and its officers, directors, Subsidiaries, representatives and agents
may engage in discussions or negotiations with, and may furnish information to,
a third party or its representative who makes a written proposal with respect to
an Acquisition Transaction if (a) the Company's Board of Directors determines in
good faith after consultation with its financial advisors that such proposal may
reasonably be expected to result in a transaction that is financially superior
to the transactions contemplated in the Merger Agreement and (b) the Board
determines in good faith after receipt of a written opinion of outside counsel
that such actions are required by its fiduciary duties under applicable law.
Certain Other Agreements. Pursuant to the Merger Agreement and subject to
the terms and conditions thereof and to the fiduciary duties of their respective
Board of Directors under applicable laws as advised in the written opinion of
outside counsel, each of the Company, the Offeror and Diamond Shamrock has
agreed to use its reasonable best efforts to take, or cause to be taken, all
appropriate action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement, including all
action reasonably required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act").
Directors/Officers Indemnification and Insurance. The Merger Agreement
provides that the Company will defend, indemnify and hold harmless, and after
the Effective Time, the Surviving Corporation and Diamond Shamrock, jointly and
severally, will defend, indemnify and hold harmless, certain present and former
directors and officers of the Company as identified in the Merger Agreement to
the full extent required or permitted under (i) Delaware law, (ii) as provided
in the Charter and Restated By-Laws of the Company, and (iii) as otherwise
provided for or permitted pursuant to any agreement in effect on November 8,
1995 and identified therein. Pursuant to the Merger Agreement, such rights to be
defended, indemnified and held harmless will continue in full force and effect
without time limitation from and after the Effective Time and without amendment
or modification of the terms of any of the agreements referred to in clause
(iii) of the preceding sentence. Copies of the Charter and Restated By-Laws of
the Company are filed as Exhibits 28 and 29, respectively, hereto.
The Merger Agreement further provides that the Company, after consultation
in good faith with Diamond Shamrock, or Diamond Shamrock will purchase, as
promptly as practicable and in any event prior to the Effective Time and without
any lapse in coverage, policies of directors' and officers' "run-off" liability
insurance (or policies which contain terms and conditions that are no less
advantageous to the directors and officers and former directors and officers of
the Company as the directors' and officers' liability insurance policies that
are in effect at the Company on the date of the Merger Agreement), which
insurance will remain in effect for a period of not less than six years from and
after the Effective Time; provided, however, that in the event any claim or
claims are asserted or made within such six-year period, Diamond Shamrock and
the Surviving Corporation will cause such insurance to be continued in respect
of any such claim until final disposition of any and all such claims.
Employment Matters. The Merger Agreement provides generally that Diamond
Shamrock will honor, and will cause the Surviving Corporation and its
Subsidiaries to, honor, in accordance with the terms thereof, all contracts,
agreements, arrangements, policies, plans and commitments of the Company (or any
of its Subsidiaries) in effect as of November 8, 1995 that are applicable to any
officer or employee or former officer or employee or any director or former
director of the Company (or any of its Subsidiaries or former
I-5
<PAGE> 24
Subsidiaries) and identified in the Merger Agreement (collectively, the
"Agreements"). Assuming a "change of control" of the Company and the termination
of all officers and directors occur in mid-December 1995, the aggregate amounts
payable over time to the officers of the Company as a group and to its directors
(other than Mr. Van Horn) as a group pursuant to bonus plans, retirement plans,
severance pay plans and unused vacation plans, as the case may be (excluding any
consideration received for Common Stock and Warrants and any cash-out or
acceleration of Options but including any "gross-up" payments applicable to
"excess parachute payments" pursuant to Section 280G of the Internal Revenue
Code of 1986, as amended, with respect thereto), would be approximately $14.7
million and $3.3 million, respectively. The amounts actually payable depend on a
number of factors, including the effective date of the change of control, the
date of each person's termination, policy positions of the Internal Revenue
Service and other factors.
Pursuant to the Merger Agreement, Diamond Shamrock has agreed to perform
and pay, or cause the Surviving Corporation and its Subsidiaries to perform and
pay, when due any and all amounts payable pursuant to the terms of the
Agreements. The Merger Agreement also provides that for a period of one year
immediately following the Effective Time, the Parent will cause the Surviving
Corporation and its Subsidiaries to continue to maintain (except as required by
law) the employee benefit plans for employees and former employees of the
Company and its Subsidiaries described in the Merger Agreement or other plans
that, on a plan-by-plan basis, provide benefits that are no less favorable to
such employees than the benefits currently in effect with respect to such
employees under the plans described in the Merger Agreement; provided, however,
at Diamond Shamrock's election, the Surviving Corporation may (i) elect to
become a nonsubscriber under the Texas Worker's Compensation Act and implement
Diamond Shamrock's Work Injury Program and (ii) implement Diamond Shamrock's
Dialogue Dispute Resolution Program. The Merger Agreement also provides that if
any employee of the Company or any of its Subsidiaries becomes a participant in
any employee benefit plan, practice or policy of Diamond Shamrock or the
Surviving Corporation, such employee shall be given credit under such plan for
all service prior to the Effective Time with the Company and its Subsidiaries,
or any predecessor employer (to the extent such credit was given by the
Company), for purposes of eligibility and vesting (but not for benefit accrual
purposes) for which such service is either taken into account or recognized.
Post-Merger Treatment of Warrants. The Surviving Corporation will,
following the Effective Time and subject to the conditions of the Warrant
Agreement, make available, as necessary, sufficient funds to pay, and will pay,
to holders of Warrants, upon the exercise thereof, the amount of cash, without
interest to which such holders would have been entitled pursuant to the Merger
if such holders had exercised their Warrants and acquired Common Stock
immediately prior to the Effective Time.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver, where permissible, prior to the Effective Time of the following
conditions: (i) the Merger Agreement shall have been adopted by the requisite
vote of the stockholders of the Company in accordance with the Charter and
applicable law, if such vote is required, (ii) no United States or state
statute, rule, regulation, executive order, decree or injunction shall have been
enacted, entered, promulgated or enforced by any Governmental Entity (as defined
in the Merger Agreement) that is in effect and has the effect of making the
acquisition or ownership of the Common Stock or Warrants illegal or otherwise
prohibiting or materially restricting the consummation of the Diamond Shamrock
Offer or the Merger or that would make the acquisition or ownership by Diamond
Shamrock or its Subsidiaries of the common stock of the Surviving Corporation
illegal, and (iii) the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
The Merger Agreement also provides that the obligation of the Company to
effect the Merger is further subject to the satisfaction or waiver, where
permissible, at or prior to the Effective Time, of the following conditions: (i)
each of Diamond Shamrock and the Offeror shall have performed in all material
respects its respective covenants in the Merger Agreement, to the extent such
covenants are to be performed prior to the Effective Time and (ii) the
representations and warranties of Diamond Shamrock and the Offeror shall be true
and correct in all material respects at and as of the Effective Time as if made
as of the Effective Time. The Merger Agreement also provides that the
obligations of Diamond Shamrock and the Offeror to effect the Merger are further
subject to the satisfaction or waiver, where permissible, at or prior to the
Effective Time, of
I-6
<PAGE> 25
the following conditions: (a) the Offeror (or any permitted assignee) shall have
accepted for payment and paid for Shares and Warrants tendered pursuant to the
Offer, provided that this condition will be deemed satisfied if the Offeror (or
any permitted assignee) fails to accept for payment and pay for Shares and
Warrants tendered pursuant to the Offer in violation of the terms of the Offer
or the Merger Agreement and (b) the Company shall have performed in all material
respects the covenants in the Merger Agreement, to the extent such covenants are
to be performed prior to the Effective Time.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time (i) by mutual consent of Diamond Shamrock and the Company by
action of their respective Boards of Directors, (ii) by the Company if (a) the
Diamond Shamrock Offer expires or is terminated without any Common Stock or
Warrants being purchased thereunder or (b) the Offeror fails to purchase Common
Stock or Warrants validly tendered and not withdrawn in violation of the terms
and conditions of the Diamond Shamrock Offer or the Merger Agreement, (iii) by
either Diamond Shamrock or the Company if the Offeror (or any permitted
assignee) has not purchased the Common Stock or Warrants validly tendered and
not withdrawn pursuant to the Diamond Shamrock Offer in accordance with the
terms thereof within 120 calendar days after the commencement of the Diamond
Shamrock Offer; provided, however, that the party seeking to terminate the
Merger Agreement pursuant to this clause (iii) is not in material breach of the
Merger Agreement (including without limitation any representation, warranty or
covenant therein contained), (iv) by either Diamond Shamrock or the Company if
the Merger is not consummated before March 31, 1996, despite the reasonable good
faith effort of such party to effect such consummation; provided, however, that
the party seeking to terminate the Merger Agreement pursuant to this clause (iv)
is not in material breach of the Merger Agreement (including without limitation
any representation, warranty or covenant therein contained), (v) by either
Diamond Shamrock or the Company if any court of competent jurisdiction has
issued an injunction permanently restraining, enjoining or otherwise prohibiting
the consummation of the Diamond Shamrock Offer or the Merger, which injunction
has become final and nonappealable, (vi) by Diamond Shamrock if (a) the Board
shall have withdrawn, modified or amended in any respect adverse to Diamond
Shamrock its favorable recommendation of the Diamond Shamrock Offer or the
Merger or shall have resolved to do any of the foregoing, (b) prior to the
expiration of the Diamond Shamrock Offer, any of the representations and
warranties of the Company contained in the Merger Agreement were incorrect in
any material respect when made or have since become, and at the time of
termination remain, incorrect in any material respect, or (c) there has been a
material breach on the part of the Company in the covenants of the Company set
forth therein, or any failure on the part of the Company to comply with its
material obligations thereunder, including without limitation the obligation of
the Company to redeem the Rights, and (vii) by the Company, prior to the
expiration of the Diamond Shamrock Offer, if (a)(1) any of the representations
and warranties of Diamond Shamrock or the Offeror contained in the Merger
Agreement were incorrect in any material respect when made or have since become,
and at the time of termination remain, incorrect in any material respect or (2)
there has been a material breach on the part of Diamond Shamrock or the Offeror
in the covenants of Diamond Shamrock or the Offeror set forth therein, or any
failure on the part of Diamond Shamrock or the Offeror to comply with its
material obligations thereunder or (b) the Board, after consulting with its
outside counsel and financial advisor, determines in good faith, and based in
part on a written opinion of outside counsel, that its fiduciary duties require
that it withdraw, modify or amend in a manner adverse to Diamond Shamrock its
favorable recommendation of the Diamond Shamrock Offer or the Merger in order to
approve an Acquisition Transaction with another party which the Board of
Directors has determined in good faith is financially superior to the
transaction contemplated by the Merger Agreement; provided, however, that the
Company may not terminate the Merger Agreement pursuant to this clause (vii)
until the Company has paid to Diamond Shamrock in full the amount referred to in
clause (i) in the second paragraph under the caption "Fees and Expenses" below.
In the event of the termination of the Merger Agreement as described above, no
party thereto (or its directors or officers) will have any liability or further
obligation under the Merger Agreement to any other party to the Merger
Agreement, except as described under the caption "Fees and Expenses" below, and
except any liability resulting from the willful breach of any covenant or
agreement in the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that, except as described
in the following paragraph whether or not the Diamond Shamrock Offer or the
Merger is consummated, all costs and expenses
I-7
<PAGE> 26
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses.
Pursuant to the Merger Agreement, (i) prior to the termination of the
Merger Agreement by the Company as described in clause (vii) under the paragraph
under the caption "Termination" above, or within two business days after any
termination of the Merger Agreement by Diamond Shamrock or the Offeror as
described in clause (vi) of the paragraph under the caption "Termination" above,
the Company will pay to Diamond Shamrock $7,000,000 in cash and (ii) after such
termination (and in any event within two business days of receiving Diamond
Shamrock's or the Offeror's documented invoice) the Company will reimburse
Diamond Shamrock and the Offeror for the documented out-of-pocket costs and
expenses incurred by Diamond Shamrock or the Offeror in connection with the
Diamond Shamrock Offer and the other transactions contemplated by the Merger
Agreement, including without limitation the fees and expenses of the financial
advisors and counsel to Diamond Shamrock and the Offeror and fees incurred by
Diamond Shamrock or the Offeror to obtain financing commitments for the Diamond
Shamrock Offer and the Merger.
Amendment. The Merger Agreement may be amended at any time, but only by
action taken by the Boards of Directors of Diamond Shamrock, the Offeror and the
Company and, if required by applicable law, by the stockholders of the Company.
I-8
<PAGE> 27
ANNEX II
<TABLE>
<S> <C>
Investment Banking Group
One Houston Center
1221 McKinney
Suite 2700
Houston, Texas 77010
713 759 2500
FAX 713 759 2580
</TABLE>
[MERRILL LYNCH LOGO]
November 7, 1995
Board of Directors
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Gentlemen:
National Convenience Stores Incorporated (the "Company"), Diamond Shamrock,
Inc. (the "Acquiror") and Shamrock Acquisition Corporation, a wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), propose to enter into an
agreement (the "Agreement") pursuant to which the Acquiror and the Acquisition
Sub will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.01 per share (the "Shares"), at $27.00 per Share, net
to the seller in cash, and all outstanding warrants (the "Warrants" and,
together with the Shares, the "Securities") to purchase Shares issued pursuant
to the warrant agreement, dated as of March 9, 1993, between the Company and
Boatmen's Trust Company, as Warrant Agent (the "Warrant Agreement"), at $9.25
per Warrant, net to the seller in cash. The Agreement also provides that,
following consummation of the Offer, the Company will be merged with the
Acquisition Sub in a transaction (the "Merger") in which each remaining Share
will be converted into the right to receive $27.00 in cash. The Warrants will be
unaffected by the Merger and, upon their subsequent exercise, the holders
thereof will receive $27.00 per Warrant in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Securities in the Offer and the Merger is
fair to such security holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended June 30, 1995 and summary
financial information provided by the Company relating to the quarterly
period ended September 30, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with those of certain
companies which we deemed to be reasonably similar to the Company;
<PAGE> 28
[MERRILL LYNCH LOGO]
(6) Compared the proposed financial terms of the Offer and the Merger with
the financial terms of certain other mergers and acquisitions that we
deemed to be relevant;
(7) Reviewed the Warrant Agreement;
(8) Reviewed a draft dated November 7, 1995 of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and the Acquiror and have received fees for the rendering of such
services. In addition, in the ordinary course of business, we may actively trade
the securities of both the Company and the Acquiror for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in securities of the Company and the Acquiror.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Securities
pursuant to the Offer and the Merger is fair to such security holders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------
<C> <S> <C>
Exhibit 1* Agreement and Plan of Merger dated as of November 8, 1995, by and
among Diamond Shamrock, the Offeror and the Company.
Exhibit 2* Item 11. "Executive Compensation" of the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995, as amended
by Form 10-K/A dated October 5, 1995.
Exhibit 3 Amended and Restated National Convenience Stores Incorporated
Officers' Retirement Plan effective as of August 31, 1995
(incorporated by reference from Exhibit 99.4 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 4 Amended and Restated Trust under National Convenience Stores
Incorporated Officers' Retirement Plan effective as of August 31,
1995, by and between the Company and Bank One, Texas, N.A.
(incorporated by reference from Exhibit 99.5 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 5 Amended and Restated National Convenience Stores Incorporated
Directors' Retirement Plan effective as of August 31, 1995
(incorporated by reference from Exhibit 99.6 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 6 Amended and Restated Trust under National Convenience Stores
Incorporated Directors' Retirement Plan effective as of August
31, 1995, by and between the Company and Bank One, Texas, N.A.
(incorporated by reference from Exhibit 99.7 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 7 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective from and after July 1, 1995 by
and between the Company and V.H. Van Horn (incorporated by
reference from Exhibit 99.10 to the Company's Current Report on
Form 8-K filed on September 15, 1995).
Exhibit 8 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of May 18, 1993 by and
between the Company and A.J. Gallerano (incorporated by reference
from Exhibit 99.11 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 9 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of May 18, 1993 by and
between the Company and Arnold Van Zanten (incorporated by
reference from Exhibit 99.12 to the Company's Current Report on
Form 8-K filed on September 15, 1995).
Exhibit 10 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of May 18, 1993 by and
between the Company and C.R. Wortham (incorporated by reference
from Exhibit 99.13 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 11 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of May 18, 1993 by and
between the Company and Brian Fontana (incorporated by reference
from Exhibit 99.14 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------
<C> <S> <C>
Exhibit 12 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of October 31, 1994 by and
between the Company and Douglas B. Binford (incorporated by
reference from Exhibit 99.15 to the Company's Current Report on
Form 8-K filed on September 15, 1995).
Exhibit 13 Agreement Amending and Restating Employment Agreement executed as
of August 31, 1995 but effective as of February 1, 1995 by and
between the Company and Janice E. Bryant (incorporated by
reference from Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995, as amended by
Form 10-K/A dated October 5, 1995).
Exhibit 14 Form of Director Agreement effective as of August 31, 1995 by and
between the Company and each of Richard C. Steadman, Dunbar N.
Chambers, Jr., Charles J. Luellen, Raymond W. Oeland, Jr., Lionel
Sosa, Robert B. Stobaugh, and William K. Wilde (incorporated by
reference from Exhibit 99.9 to the Company's Current Report on
Form 8-K filed on September 15, 1995).
Exhibit 15 Twenty-second Amendment to the Company's Profit Sharing Plan and
Trust effective as of July 1, 1995 (incorporated by reference
from Exhibit 99.8 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 16 Form of Indemnification Agreement for officers and directors of
the Company dated as of July 18, 1986 (incorporated by reference
from Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1987 (Commission File No. 1-7936)).
Exhibit 17 The Company's 1993 Non-Qualified Stock Option Plan dated as of
March 9, 1993 (incorporated by reference from Exhibit 10(b) the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
Exhibit 18** Letter to National Convenience Stores Incorporated stockholders
and warrantholders dated November 14, 1995.
Exhibit 19 Joint press release issued by Diamond Shamrock and the Company on
November 8, 1995 (incorporated by reference from Exhibit 29 of
the Company's Amendment No. 1 to Solicitation/Recommendation
Statement on Schedule 14D-9 dated November 8, 1995).
Exhibit 20** Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
dated November 7, 1995.
Exhibit 21 Class Action Complaint, Thomas J. McKula, Jr., on behalf of
himself and all others similarly situated v. William K. Wilde, et
al., C.A. 14481 (Chancery Court for the State of Delaware in and
for New Castle County) (as filed August 15, 1995) (incorporated
by reference from Exhibit 99.3 to the Company's Current Report on
Form 8-K dated August 11, 1995).
Exhibit 22 Class Action Complaint, Crandon Capital Partners v. V.H. Van
Horn, et al., C.A. 14489 (Chancery Court of the State of Delaware
in and for New Castle County) (as filed August 18, 1995)
(incorporated by reference from Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 23 Complaint, The Circle K Corporation v. National Convenience
Stores Incorporated, et al., C.A. 95-537 (U.S. District Court for
the District of Delaware) (as filed September 5, 1995)
(incorporated by reference from Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------
<C> <S> <C>
Exhibit 24 Complaint, The Circle K Corporation v. National Convenience
Stores Incorporated, et al., C.A. 14518 (Chancery Court of the
State of Delaware in and for New Castle County) (as filed
September 5, 1995) (incorporated by reference from Exhibit 99.3
to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 25 Rights Agreement dated as of August 31, 1995 between the Company
and Boatmen's Trust Company, as Rights Agent (incorporated by
reference from Exhibit 4.1 to the Company's Current Report on
Form 8-K dated August 31, 1995).
Exhibit 26 (a) Letter dated August 10, 1995 from The Circle K Corporation to
Mr. A. J. Gallerano (incorporated by reference from Exhibit
99.1(a) to the Company's Current Report on Form 8-K dated
August 11, 1995).
(b) Letter dated August 10, 1995 from Cede & Co., indirectly on
behalf of The Circle K Corporation to Mr. A. J. Gallerano,
including the exhibits thereto (incorporated by reference
from Exhibit 99.1(b) to the Company's Current Report on Form
8-K dated August 11, 1995).
Exhibit 27 (a) Letter dated August 10, 1995 from Bedford Falls Investors,
L.P. to Mr. V. H. Van Horn (incorporated by reference from
Exhibit 99.2(a) to the Company's Current Report on Form 8-K
dated August 11, 1995).
(b) Letter dated August 10, 1995 from Bedford Falls Investors,
L.P. to the Company, including the exhibits (incorporated by
reference from Exhibit 99.2(b) to the Company's Current
Report on Form 8-K dated August 11, 1995).
Exhibit 28 The Company's Restated Certificate of Incorporation dated March
9, 1993 (incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K dated March 3, 1993).
Exhibit 29 Restated By-Laws of the Company dated March 9, 1993, as amended
August 10, 1995 (incorporated by reference from Exhibit 3.1 to
the Company's Current Report on Form 8-K dated August 8, 1995).
Exhibit 30 Warrant Agreement dated as of March 9, 1993 between the Company
and Boatmen's Trust Company, as Warrant Agent (incorporated by
reference from Exhibit 10.1 to the Company's Current Report on
Form 8-K dated February 23, 1993).
Exhibit 31*** Letter to participants in the Company's Profit Sharing Plan and
Trust and its Employee Stock Ownership Plan, together with the
related memoranda of instructions and direction forms.
</TABLE>
- ---------------
* Filed herewith.
** Filed herewith and included in copy sent to holders of Common Stock and
Warrants and to participants in the Company's Profit Sharing Plan and Trust
and its Employee Stock Ownership Plan.
*** Filed herewith and included in copy sent to participants in the Company's
Profit Sharing Plan and Trust and its Employee Stock Ownership Plan.
<PAGE> 1
_________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 8, 1995
BY AND AMONG
DIAMOND SHAMROCK, INC.
SHAMROCK ACQUISITION CORP.
AND
NATIONAL CONVENIENCE STORES INCORPORATED
_______________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE TENDER OFFER
<TABLE>
<S> <C> <C>
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Consent and Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Dissemination of Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
THE MERGER
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Certificate of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Conversion of Sub Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10 Commit to Vote Shares in Favor of Merger; Exercise of Warrants . . . . . . . . . . . . . . . . . . . 7
2.11 Merger Without Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.12 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.13 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
DISSENTING SHARES; PAYMENT FOR SECURITIES
3.1 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Payment for Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Commission Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Information in Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 No Material Adverse Change; Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.11 Company Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 DGCL Section 203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT AND SUB
5.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Offer Documents; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Status as an Interested Stockholder or an Acquiring Person . . . . . . . . . . . . . . . . . . . . . 21
5.7 Interim Operations of the Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI
COVENANTS
6.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Certain Agreements, Employee Benefits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Post Merger Treatment of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
6.11 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . . . 29
7.2 Conditions to Obligations of the Company to Effect the Merger . . . . . . . . . . . . . . . . . . . . 29
7.3 Conditions to Obligations of the Parent and Sub to Effect the Merger . . . . . . . . . . . . . . . . 29
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Certain Termination Fees; Certain Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX
MISCELLANEOUS
9.1 Non-survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.10 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.11 Entire Agreement; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ANNEX I Conditions to the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
ANNEX II Amended and Restated Certificate of Incorporation of National Convenience Stores Incorporated... 40
</TABLE>
-iv-
<PAGE> 6
SCHEDULE OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Location
- ------------ --------
<S> <C>
Acquiring Person Section 5.6
Acquisition Transaction Section 6.9(a)
Agreement Preamble
Agreements Section 6.5(a)
Article IX Section 3.1
Certificates Section 3.2(b)
Claims Section 6.4
Closing Section 2.13
Code Section 4.8
Commission Section 1.1
Common Stock Preamble
Company Preamble
Confidentiality Agreement Section 6.2(b)
Continuing Directors Section 9.2
DGCL Section 2.1
Disclosure Schedule Section 4.1(a)
Dissenting Shares Section 3.1
Distribution Date Section 4.11
Effective Time Section 2.2
Environmental Laws Section 4.4(c)
Exchange Act Section 1.2
Governmental Entity Section 4.4(a)
HSR Act Section 4.4(a)
Indemnified Parties Section 6.4
Instrument of Merger Section 2.2
Interested Stockholder Section 5.6
IRS Section 4.9(a)
Merger Section 2.1
Merger Consideration Section 2.7(a)
Minimum Condition Annex I
NYSE Section 1.5
Offer Preamble
Offer Documents Section 1.2
Offer to Purchase Section 1.1
Option Plan Section 2.12
Options Section 2.12
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
Parent Preamble
Paying Agent Section 3.2(a)
Payment Fund Section 3.2(a)
Per Share Amount Preamble
Person Section 6.9(a)
Proxy Statement Section 4.6(b)
Rights Section 4.2
Rights Agreement Section 4.2
Schedule 14D-1 Section 1.2
Schedule 14D-9 Section 1.3
SEC Documents Section 4.5
Securities Act Section 4.5
Securities Preamble
Special Meeting Section 2.9(a)(i)
Sub Preamble
Subsidiary Section 4.1(a)
Surviving Corporation Section 2.1
Taxes Section 4.9(b)
Tax Returns Section 4.9(b)
Voting Debt Section 4.2
Warrant Agreement Preamble
Warrants Preamble
</TABLE>
-ii-
<PAGE> 8
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 8, 1995 (this
"Agreement"), by and among Diamond Shamrock, Inc., a Delaware corporation
("Parent"), Shamrock Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of the Parent ("Sub"), and National Convenience Stores
Incorporated, a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Parent and the Company
have determined that the acquisition of the Company by the Parent would be
advantageous and beneficial to their respective corporations and stockholders,
and that such transaction is consistent with and in furtherance of such
entities' respective long-term business strategies;
WHEREAS, in furtherance thereof, it is proposed that the Parent and the
Sub will make a cash tender offer to acquire (a) all of the outstanding shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
together with the attached Rights (as defined in Section 4.2), for $27.00 per
share of Common Stock (and attached Right) net to the seller (pre-tax) in cash
(such amount, or any greater amount per share of Common Stock (and attached
Right) pursuant to such cash tender offer, being hereinafter referred to as the
"Per Share Amount") and (b) all of the outstanding Warrants to Purchase Common
Stock (the "Warrants") issued pursuant to the Warrant Agreement dated as of
March 9, 1993, between the Company and Boatmen's Trust Company, as Warrant
Agent (the "Warrant Agreement"), for $9.25 per Warrant net to the seller
(pre-tax) in cash (such amount, or any greater amount per Warrant pursuant to
such cash tender offer, being hereinafter referred to as the "Per Warrant
Amount") (the Common Stock (and attached Rights) and the Warrants being
hereinafter collectively referred to as the "Securities"), in accordance with
the terms and subject to the conditions provided herein and in the Offer
Documents (as defined in Section 1.2) (the "Offer");
WHEREAS, it is proposed that, following consummation of the Offer, there
be a merger of the Sub with and into the Company with the Company surviving as
a subsidiary of the Parent;
WHEREAS, for convenience and simplicity, references to the "Parent" in
Article I of this Agreement shall be deemed to include the "Sub", unless the
context otherwise requires;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
<PAGE> 9
ARTICLE I
THE TENDER OFFER
1.1 The Offer. Provided that this Agreement has not been terminated
in accordance with Section 8.1, the Parent will commence the Offer as promptly
as practicable after the date hereof, but in no event later than November 14,
1995. The Offer will have an initial expiration date which is 20 business days
(as defined in the relevant rules of the Securities and Exchange Commission
(the "Commission")) after the commencement thereof. The obligation of the
Parent to accept for payment any Securities tendered pursuant to the Offer will
be subject only to the satisfaction of the conditions set forth in Annex I
hereto. The Parent expressly reserves the right to increase the Per Share
Amount and the Per Warrant Amount to be paid in the Offer or to extend the
Offer if any condition thereto is not satisfied. Without the prior written
consent of the Company, the Parent will not (a) decrease the Per Share Amount
or the Per Warrant Amount, (b) decrease the number of Securities to be
purchased in the Offer, (c) change the form of consideration payable in the
Offer, (d) add to or change the conditions to the Offer set forth in Annex I
hereto, (e) change or waive the Minimum Condition (as defined in Annex I
hereto) or (f) make any other change in the terms or conditions of the Offer
which is materially adverse to the holders of the Securities. The conditions
set forth in Annex I are for the benefit of the Parent, and may be asserted by
the Parent or, subject to the immediately preceding sentence, may be waived by
the Parent, in whole or in part, at any time and from time to time in its
discretion and regardless of the circumstances relating thereto. The Offer
will be made by means of an offer to purchase (the "Offer to Purchase")
containing the terms set forth in this Agreement and only the conditions set
forth in Annex I hereto. Subject to the terms of the Offer and this Agreement
and the satisfaction of all the conditions of the Offer set forth in Annex I
hereto as of any expiration date of the Offer, the Parent will accept for
payment and pay for all Securities validly tendered and not withdrawn pursuant
to the Offer as soon as practicable after such expiration date of the Offer.
Subject to Section 8.1, if the conditions set forth in Annex I hereto are not
satisfied or, to the extent permitted by this Agreement, waived by the Parent,
as of the date the Offer would otherwise have expired, the Parent will extend
the Offer from time to time until the earlier of the consummation of the Offer
or the date which is 60 days from the commencement of the Offer.
1.2 Offer Documents. On the date of commencement of the Offer, the
Parent will file with the Commission a Tender Offer Statement on Schedule 14D-1
(together with all amendments and supplements thereto, the "Schedule 14D-1")
with respect to the Offer pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Schedule 14D-1 will contain (including as an
exhibit) or will incorporate by reference the Offer to Purchase and forms of
the related letters of transmittal and summary advertisement (which Schedule
14D-1, Offer to Purchase and other documents, together with any supplements or
amendments
-2-
<PAGE> 10
thereto, are referred to herein collectively as the "Offer Documents"). The
Parent will disseminate the Offer to Purchase, related letters of transmittal
and other related Offer Documents to holders of the Securities. Each of the
Parent and the Company will promptly correct any information provided by it for
use in the Offer Documents that becomes false or misleading in any material
respect and the Parent will promptly take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the Commission and the other
Offer Documents as so corrected to be disseminated to holders of the
Securities, in each case as and to the extent required by applicable law. The
Parent will provide the Company and its counsel in writing with any comments
the Parent or its counsel may receive from the Commission or its staff with
respect to the Offer Documents promptly after the receipt of such comments. To
the extent reasonably practicable, the Parent and its counsel will provide the
Company and its counsel with a reasonable opportunity to participate in all
material communications with the Commission and its staff, including any
meetings and telephone conferences relating to the Offer Documents, the Offer,
the Merger (as defined in Section 2.1) or this Agreement.
1.3 Consent and Recommendation. The Company's Board of Directors
has determined that the Offer and the Merger are fair to, and are in the best
interests of, the holders of the Securities. Accordingly, the Company hereby
approves and consents to the Offer. The Company will file with the Commission,
as promptly as practicable after the filing by the Parent of the Schedule 14D-1
(but in any event on the same business day), a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") pursuant to the Exchange
Act, reflecting the recommendation of the Company's Board of Directors that
holders of Securities tender their Securities pursuant to the Offer and will
disseminate the Schedule 14D-9 as required by Rule 14d-9 promulgated under the
Exchange Act, all subject to the fiduciary duties of the Board of Directors of
the Company under applicable laws as advised in the written opinion of outside
counsel to the Company. Each of the Company and the Parent will promptly
correct any information provided by it for use in the Schedule 14D-9 that
becomes false or misleading in any material respect, and the Company will
promptly take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the Commission and disseminated to holders of the Securities,
in each case as and to the extent required by applicable law. The Company will
provide the Parent and its counsel in writing with any comments the Company or
its counsel may receive from the Commission or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments. To the extent
reasonably practicable, the Company and its counsel will provide the Parent and
its counsel with a reasonable opportunity to participate in all material
communications with the Commission and its staff, including any meetings and
telephone conferences relating to the Schedule 14D-9, the Merger or this
Agreement.
-3-
<PAGE> 11
1.4 Dissemination of Offer Documents.
(a) The Company will (i) promptly furnish the Parent with
mailing labels containing the names and addresses of all record holders of
Securities as of a recent date and of those persons becoming record holders
after such date, together with copies of all security position listings and
computer files and all other information in the Company's control regarding the
beneficial owners of Securities that the Parent may reasonably request and (ii)
furnish to the Parent such other assistance as the Parent or its agents may
reasonably request in communicating the Offer to holders of Securities.
(b) Subject to the requirements of law, and except for such
steps as are necessary to disseminate the Offer Documents, the Parent shall,
and shall cause each of its Subsidiaries (as defined in Section 4.1(a)) to,
hold in confidence the information contained in any of such labels and lists,
use such information only in connection with the Offer and, if this Agreement
is terminated, deliver to the Company all copies of, and extracts or summaries
from, such information then in their possession.
1.5 Directors. Effective upon the acceptance for payment by the
Parent of the Securities pursuant to the Offer, and from time to time
thereafter so long as the Parent and/or any of its wholly owned Subsidiaries
(as defined in Section 4.1(a)) (including the Sub) owns a majority of the
outstanding shares of Common Stock, the Parent will be entitled, subject to
compliance with applicable law, the Restated Certificate of Incorporation of
the Company and the provisions of the next sentence, to designate at its option
up to that number of directors, rounded up to the nearest whole number, of the
Company's Board of Directors as will make the percentage of the Company's
directors designated by the Parent equal to the percentage of outstanding
shares of Common Stock held by the Parent and any of its wholly owned
Subsidiaries (including the Sub), including shares of Common Stock accepted for
payment pursuant to the Offer. The Company will, upon the request of the
Parent, promptly increase the size of its Board of Directors and/or use its
reasonable best efforts to secure the resignation of such number of directors
as is necessary to enable the Parent's designees to be elected to the Company's
Board of Directors and will use its reasonable best efforts to cause the
Parent's designees to be so elected, subject in all cases to Section 14(f) of
the Exchange Act, it being understood that the Company agrees to comply with
such Section of the Exchange Act as promptly as practicable after the date
hereof, provided that, prior to the Effective Time (as defined in Section 2.2),
the Company will use its reasonable best efforts to assure that the Company's
Board of Directors always has at least two members who are directors of the
Company as of the date hereof. At such times, the Company will use its
reasonable best efforts, subject to any limitations imposed by applicable laws
or rules of the New York Stock Exchange, Inc. (the "NYSE"), to cause persons
designated by the Parent to constitute the same percentage as such persons
represent on the Company's Board of Directors of (a) each
-4-
<PAGE> 12
committee of the Board of Directors of the Company, (b) each board of directors
or board of management of each Subsidiary of the Company and (c) each committee
of each such board.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Delaware General
Corporation Law (the "DGCL"), the Sub shall be merged with and into the Company
(the "Merger") as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VII hereof. Subject to the
terms and conditions hereof (including the qualifications in Section 6.3), each
of the parties will use its reasonable best efforts to cause the Merger to
occur within 90 days after the purchase of the Securities pursuant to the
Offer. Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") under the name "National Convenience
Stores Incorporated" and shall continue its existence under the laws of
Delaware, and the separate corporate existence of the Sub shall cease.
2.2 Effective Time. The Merger shall be consummated by filing with
the Secretary of State of the State of Delaware a certificate of merger or a
certificate of ownership and merger, as appropriate (the "Instrument of
Merger"), in such form as is required by, and executed in accordance with, the
relevant provisions of, the DGCL (the time of such filing or such other time
specifically set forth therein being the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
2.4 Certificate of Incorporation and By-Laws.
(a) The Restated Certificate of Incorporation of the Company in
effect at the Effective Time will be amended in its entirety to read as set
forth in Annex II hereto, and, as such, will be the Restated Certificate of
Incorporation of the Surviving Corporation, until amended in accordance with
applicable law to the extent permitted by Section 2.4(c).
(b) The Restated By-Laws of the Company in effect at the
Effective Time will be the By-Laws of the Surviving Corporation until amended
in accordance with applicable law to the extent permitted by Section 2.4(c).
(c) The Company, the Parent and the Sub each agrees that, as
long as the Company, the Parent or the Surviving Corporation has any liability
pursuant to Section 6.4 to
-5-
<PAGE> 13
defend, indemnify and hold harmless any Indemnified Parties (as defined in
Section 6.4), it will not amend or permit the amendment of Article XI of the
Company's Restated Certificate of Incorporation or Article VII of the Company's
Restated By-Laws, in each case as in effect on the date of this Agreement.
2.5 Directors. The directors of the Sub at the Effective Time shall
be the directors of the Surviving Corporation until their successors are duly
elected and qualified or until their earlier death, resignation or removal in
accordance with the terms of Surviving Corporation's Certificate of
Incorporation and By-Laws and the DGCL.
2.6 Officers. The officers of the Company at the Effective Time
shall be the officers of the Surviving Corporation until their respective
successors are duly elected and qualified or until their earlier death,
resignation or removal in accordance with the terms of Surviving Corporation's
Certificate of Incorporation and By-Laws and the DGCL.
2.7 Conversion of Securities.
(a) Each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares owned by the Parent,
the Sub or any other direct or indirect Subsidiary of the Parent or held in the
treasury of the Company, all of which shall be cancelled, and Dissenting Shares
(as defined in Section 3.1)) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive the Per Share Amount without interest thereon, net (pre-tax) to the
holder in cash (sometimes, the "Merger Consideration") payable to the holder
thereof upon surrender of the certificate representing such share.
(b) Each Warrant issued and outstanding immediately prior to
the Effective Time (other than Warrants held in the treasury of the Company,
which shall be cancelled) shall remain outstanding following, and be unaffected
by, the Merger, except that, as provided in Section 10.1(a) of the Warrant
Agreement, from and after the Effective Time each holder of Warrants shall have
the right to obtain upon the exercise of each Warrant, in lieu of the one share
of Common Stock theretofore issuable upon exercise of such Warrant, the Per
Share Amount without interest thereon, net to the holder in cash.
2.8 Conversion of Sub Common Stock. Each share of common stock, par
value $0.01 per share, of the Sub issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into one share of common stock of the
Surviving Corporation.
-6-
<PAGE> 14
2.9 Stockholders' Meeting.
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in
accordance with applicable law and the Company's Restated Certificate of
Incorporation and Restated By-Laws:
(i) subject to its fiduciary duties under applicable
law as advised in the written opinion of outside counsel to the Company, duly
call, give notice of, convene and hold a special meeting (the "Special
Meeting") of the holders of Common Stock as soon as practicable following the
acceptance for payment of Securities in the Offer solely for the purpose of
considering and taking action on this Agreement and the transactions
contemplated hereby;
(ii) subject to its fiduciary duties under applicable
law as advised in the written opinion of outside counsel to the Company,
include in the Proxy Statement (as defined in Section 4.6(b)) the
recommendation of its Board of Directors that holders of Common Stock vote in
favor of the approval and adoption of this Agreement and the transactions
contemplated hereby; and
(iii) (x) as promptly as practicable after the date
hereof, obtain and furnish the information required to be included by it in the
Proxy Statement, and after consultation with the Parent, respond promptly to
any comments made by the Commission or its staff with respect to the Proxy
Statement and any preliminary version thereof, (y) cause the Proxy Statement to
be mailed to its stockholders at the earliest practicable time following the
acceptance for payment of Securities in the Offer, and (z) subject to the
fiduciary duties of the Board of Directors under applicable law as advised in
the written opinion of outside counsel to the Company, use its best efforts to
obtain the necessary approval of the Merger by its stockholders.
2.10 Commit to Vote Shares in Favor of Merger; Exercise of Warrants.
The Parent and the Sub each agrees that, at the Special Meeting, all of the
shares of Common Stock acquired directly or indirectly pursuant to the Offer or
otherwise by the Parent, the Sub or any other Subsidiary of the Parent will be
voted in favor of the approval and adoption of this Agreement and the Merger.
The Parent also agrees that it or the Sub will, prior to the record date for
the Special Meeting, exercise such number of Warrants as may be necessary to
assure that no affirmative vote of any holder of Common Stock other than the
Parent or the Sub is required for adoption of this Agreement.
-7-
<PAGE> 15
2.11 Merger Without Meeting of Stockholders. Notwithstanding the
matters set forth in Section 2.9, in the event that the Sub shall acquire at
least 90 percent of the outstanding shares of Common Stock pursuant to the
Offer or otherwise, the Parent agrees, subject to Sections 7.1 and 7.3, to take
all necessary and appropriate action (including the exercise of Warrants to the
extent necessary to achieve the 90 percent threshold) to cause the Merger to
become effective as soon as practicable after the acceptance for payment of
Securities in the Offer, but in no event later than 10 business days (or such
other time as the Company (acting through the Continuing Directors (as that
term is defined in Section 9.2)) and Parent may agree) thereafter in accordance
with Section 253 of the DGCL.
2.12 Stock Options. Each option ("Option") to acquire shares of
Common Stock that has been granted pursuant to the Company's 1993 Non-Qualified
Stock Option Plan dated as of March 9, 1993 (the "Option Plan") whether or not
otherwise exercisable, shall, subject to the prior written approval of each
optionee, be cancelled and each optionee shall be entitled to receive promptly
after the acceptance of Securities for payment in the Offer, in cancellation
and settlement of such Option, a cash payment from the Company in an amount
equal to the difference between the Per Share Amount and the per share exercise
price of such option, multiplied by the number of shares of Common Stock
covered by such Option. The Board of Directors has taken all necessary action
under the Option Plan to fix the Effective Time as the date on which Options
granted under the Option Plan which are not cancelled as provided in the
preceding sentence shall terminate pursuant to Section 10.2 of the Option Plan,
and the Company will give prompt notice thereof to the holders of such Options.
2.13 Closing. Upon the terms and subject to the conditions hereof,
as soon as practicable after consummation of the Offer, and if required by law,
after the vote of the holders of the Common Stock in favor of the adoption of
this Agreement has been obtained, the Company and the Sub shall execute in the
manner required by the DGCL and deliver to the Secretary of State of the State
of Delaware a duly executed and verified Instrument of Merger, as required by
the DGCL, and the parties shall take all such other and further actions as may
be required by law to make the Merger effective. Prior to the filing referred
to in this Section 2.13, a closing (the "Closing") will be held at the office
of the Company, 100 Waugh Drive, Houston, Texas 77007 (or such other place as
the parties may agree) for the purpose of confirming all the foregoing.
ARTICLE III
DISSENTING SHARES; PAYMENT FOR SECURITIES
3.1 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock that are issued and outstanding
immediately prior to the Effective
-8-
<PAGE> 16
Time and that are held by holders of Common Stock who did not vote in favor of
the Merger, and owned of record by the holders who comply with all of the
relevant provisions of Article IX of the Company's Restated Certificate of
Incorporation ("Article IX") and Section 262 of the DGCL (the "Dissenting
Shares"), shall not be converted into the right to receive the Merger
Consideration for such shares, unless and until such holders shall have failed
to perfect or shall have effectively withdrawn or lost their rights to
appraisal under Article IX and the DGCL. If any such holder shall have failed
so to perfect or shall have effectively withdrawn or lost such right, such
holder's Dissenting Shares shall thereupon be deemed to have been converted
into the right to receive, as of the Effective Time, the Merger Consideration
for such Dissenting Shares without any interest thereon.
3.2 Payment for Securities.
(a) Prior to the Effective Time, the Parent shall designate
KeyCorp Shareholder Services, Inc. or a United States bank or trust company
reasonably satisfactory to the Company to act as paying agent in the Merger
(the "Paying Agent"). At the Effective Time, the Parent shall deposit in trust
with the Paying Agent cash in an aggregate amount necessary to make the
payments pursuant to Section 2.7(a) hereof to holders (other than the Parent or
the Sub or any of their respective Subsidiaries) of shares of Common Stock that
are issued and outstanding immediately prior to the Effective Time (such
amounts being hereinafter referred to as the "Payment Fund"), and will deposit
from time to time thereafter cash sufficient to make the appropriate cash
payments, if any, to holders of Dissenting Shares. Promptly following the date
which is six months after the Effective Time, the Paying Agent shall return to
the Surviving Corporation all cash in its possession that constitutes any
portion of the Payment Fund, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a Certificate (as defined in Section 3.2(b)) may
surrender such certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration, without interest, but shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under applicable law.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each record holder, as of
the Effective Time, of an outstanding certificate or certificates that
immediately prior to the Effective Time represented shares of Common Stock (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for use in effecting the surrender of the Certificate(s) and
payment therefor. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be paid in exchange therefor cash in an amount equal to the
product of the
-9-
<PAGE> 17
number of shares of Common Stock formerly represented by such Certificate
multiplied by the Merger Consideration, and such Certificate shall forthwith be
cancelled. No interest will be paid or accrued on the cash payable upon the
surrender of the Certificates. If payment is to be made to a person other than
the person in whose name the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 3.2(b), each
Certificate (other than Certificates representing shares of Common Stock owned
by the Parent, the Sub or any other Subsidiary of the Parent, and Dissenting
Shares) shall represent for all purposes the right to receive an amount in cash
equal to the Merger Consideration multiplied by the number of shares of Common
Stock formerly evidenced by such Certificate, without any interest thereon.
From and after the Effective Time, holders of Certificates immediately prior to
the Effective Time will have no right to vote or to receive any dividends or
other distributions with respect to any shares of Common Stock which were
theretofore represented by such Certificates, and will have no other rights
other than as provided herein or by applicable law.
(c) After the Effective Time, there shall be no transfers of
shares of Common Stock that were outstanding immediately prior to the Effective
Time on the stock transfer books of the Surviving Corporation. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be cancelled and exchanged for cash as provided in this Article III. At
the close of business on the day of the Effective Time, the stock ledger of the
Company with respect to Common Stock shall be closed.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents, warrants and covenants to the Parent and the Sub
as follows:
4.1 Organization.
(a) Each of the Company and its Subsidiaries (as defined in
this Section 4.1(a)) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing or in good standing or to have such
power and authority would not, individually or in the aggregate, have a
material adverse effect on the
-10-
<PAGE> 18
Company and its Subsidiaries. As used in this Agreement, the word "Subsidiary"
means, with respect to the Company or the Parent, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party
or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party, by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries. A list of all direct or indirect
Subsidiaries of the Company, including their jurisdiction of incorporation or
organization, capitalization and equity owners is set forth in Section 4.1(a)
of the Disclosure Schedule delivered by the Company to the Parent pursuant to
this Agreement (the "Disclosure Schedule"). Except as set forth in Section
4.1(a) of the Disclosure Schedule, the Company does not own, directly or
indirectly, or have any voting rights with respect to, any capital stock or
other securities of any corporation or any direct or indirect equity or other
ownership interest in any business. References to a wholly owned Subsidiary of
an entity include a Subsidiary all of the common equity of which is owned
directly or through "wholly owned" Subsidiaries by such entity. As used in
this Agreement, any reference to any event, change or effect being material or
having a material adverse effect on or with respect to an entity (or such
entity and its Subsidiaries) means such event, change or effect which is
materially adverse to the business, assets, prospects, results of operations or
financial condition of such entity (or, if with respect to such entity and its
Subsidiaries, such group of entities taken as a whole), but does not include
any adverse change or effect on the prospects of such entity or group of
entities resulting from general economic or industry conditions. Each of the
Company and its Subsidiaries is duly qualified or licensed to do business and
in good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries.
(b) The Company has heretofore provided to the Parent a
complete and correct copy of the charter and by-laws, each as amended to date,
of the Company and each of its Subsidiaries. Such charters and by-laws are in
full force and effect. Neither the Company nor any of its Subsidiaries is in
violation of any provision of its charter or by-laws, except for such
violations that would not, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries.
4.2 Capitalization. The authorized capital stock of the Company
consists of (i) 50,000,000 shares of Common Stock of which, as of November 6,
1995, 6,090,389 shares were
-11-
<PAGE> 19
issued and outstanding and no shares were held in the Company's treasury and
(ii) 1,000,000 shares of Preferred Stock, $1.00 par value, of which, as of
November 6, 1995, 100,000 shares had been designated as the Company's Series A
Junior Participating Preferred Stock, none of which was then issued and
outstanding but all of which had been reserved for issuance upon the exercise
of the Company's Rights to Purchase Preferred Stock (the "Rights") pursuant to
the Rights Agreement, dated as of August 31, 1995, between the Company and
Boatmen's Trust Company, as Rights Agent (the "Rights Agreement"). Also, as of
November 6, 1995, the Company had reserved for issuance (a) 1,349,611 shares of
Common Stock upon exercise of the Warrants, (b) 775,000 shares of Common Stock
upon exercise of then-outstanding Options under the Option Plan and (c) 35,000
shares of Common Stock in respect of future grants of Options pursuant to the
Option Plan. Since March 9, 1993, the Company has not issued any shares of its
capital stock, except for issuances of Common Stock upon the exercise of
Warrants or Options granted under the Option Plan, and has not repurchased,
redeemed or otherwise retired any shares of its capital stock. All the
outstanding shares of the Company's capital stock are, and all shares which may
be issued pursuant to the Warrant Agreement, the Rights Agreement and the
Option Plan will be, when issued and paid for in accordance with the respective
terms thereof, duly authorized, validly issued, fully paid and nonassessable
and not subject to any preemptive rights of third parties in respect thereto.
No bonds, debentures, notes or other indebtedness having the right to vote
under ordinary circumstances (or convertible into securities having such right
to vote) ("Voting Debt") of the Company or any of its Subsidiaries are issued
or outstanding. Except as set forth above, as disclosed in the SEC Documents
(as defined in Section 4.5) filed prior to November 1, 1995 or as set forth in
Section 4.2 of the Disclosure Schedule, there are no existing options,
warrants, calls, subscriptions, rights, commitments or other agreements of any
character obligating the Company or any of its Subsidiaries to issue, transfer
or sell or cause to be issued, transferred or sold any shares of capital stock,
Voting Debt or other interests of the Company or of any of its Subsidiaries or
securities convertible into or exchangeable for such shares or other securities
or interests or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription, right,
agreement or commitment. There are no outstanding contractual obligations of
the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its Subsidiaries.
Each of the outstanding shares of capital stock of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid, nonassessable and
free of any preemptive rights in respect thereto (and in the case of
partnership interests, not subject to current or future capital calls), and,
except as set forth in Section 4.2 of the Disclosure Schedule or as disclosed
in the SEC Documents filed prior to November 1, 1995, such shares and other
interests are owned by the Company or by a Subsidiary of the Company free and
clear of any lien, claim, option, charge, security interest, limitation on
voting or transfer rights and encumbrance of any kind, except which would not,
individually or in the aggregate, have a material adverse effect on the Company
and its Subsidiaries.
-12-
<PAGE> 20
4.3 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (other than any adoption of this Agreement by
the holders of such shares of Common Stock as may be required by applicable
law). The execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated, other than, with respect to the Merger, any
required stockholder action as noted above, and the filing and recordation of
the Instrument of Merger with the Secretary of State of the State of Delaware.
This Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of the
Parent and the Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
4.4 Consents and Approvals; No Violations.
(a) Except as set forth in Section 4.4(a) of the Disclosure
Schedule and except for filings, permits, authorizations, notices, consents and
approvals as may be required under, and other applicable requirements of, the
Exchange Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the filing and recordation of the Instrument of
Merger in accordance with the DGCL, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby and compliance by the Company
with any of the provisions hereof will (i) conflict with or result in any
breach of any provisions of the charter documents or by-laws of the Company or
any of its Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity") (except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not prevent consummation of the Offer or the Merger and would
not, individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries), (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, or result in the creation of any lien or other encumbrance on any
property or asset of the Company or any of its Subsidiaries pursuant to, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
-13-
<PAGE> 21
of its Subsidiaries is bound, except, in the case of clauses (iii) and (iv),
for violations, breaches, defaults or other occurrences which would not prevent
consummation of the Offer or the Merger and would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries.
(b) Except as disclosed in the SEC Documents filed prior to
November 1, 1995 or as set forth in Section 4.4(b) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is in default under or in
violation of (i) any order, writ, injunction, decree, statute, rule or
regulation of any Governmental Entity applicable to the Company or any of its
Subsidiaries or by which any of them or any of their properties or assets may
be bound or (ii) any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, except in each case for any such defaults or violations
which, individually or in the aggregate, would not have a material adverse
effect on the Company and its Subsidiaries.
(c) Except as disclosed in the SEC Documents filed prior
November 1, 1995 or as set forth in Section 4.4(c) of the Disclosure Schedule,
(i) the Company and its Subsidiaries are in compliance with all applicable
statutes, ordinances, rules and regulations of any Governmental Entity relating
to protection of the environment and human health including, without
limitation, with respect to air, surface water, ground water, land and
subsurface strata (collectively, "Environmental Laws") except for
non-compliance which, individually or in the aggregate, would not have a
material adverse effect on the Company and its Subsidiaries and (ii) neither
the Company nor any of its Subsidiaries has received written notice of, or is
the subject of, any action, cause of action, claim, investigation, demand or
notice by any person or entity alleging liability under or non-compliance by
the Company or any of its Subsidiaries with any Environmental Law which,
individually or in the aggregate, would have a material adverse effect on the
Company and its Subsidiaries.
(d) Skipper Beverage Company, Inc. is in compliance in all
material respects with the rules and regulations of the Texas Liquor Control
Board.
4.5 Commission Reports and Financial Statements. Since June 30,
1993, the Company has filed with the Commission all forms, reports and
documents required to be filed by it under the Exchange Act or the Securities
Act of 1933, as amended (the "Securities Act"), and has heretofore provided to
the Parent true and complete copies of all such forms, reports and documents
(as they have been amended since the time of their filing and prior to the date
hereof, collectively, the "SEC Documents"). The SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, and any forms, reports or other documents filed by the Company
with the Commission after the date of this
-14-
<PAGE> 22
Agreement, (i) did not at the time they were filed, or will not at the time
they are filed, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and (ii) complied or will be prepared in compliance,
in each case in all material respects, with the applicable requirements of the
Exchange Act or the Securities Act, as the case may be. The financial
statements of the Company included in the SEC Documents have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, to normal
audit adjustments) and fairly present (subject, in the case of the unaudited
statements, to normal audit adjustments) the consolidated financial position of
the Company and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Except as reflected, reserved against or otherwise disclosed in the
financial statements of the Company included in the SEC Documents or as
otherwise disclosed in the SEC Documents, in each case filed prior to November
1, 1995, or as set forth in Section 4.5 of the Disclosure Schedule, as of the
date hereof, neither the Company nor any of its Subsidiaries had any
liabilities or obligations (absolute, accrued, fixed, contingent or otherwise)
that would be required to be reflected on a balance sheet, or the notes
thereto, prepared in accordance with generally accepted accounting principles,
other than liabilities incurred in the ordinary course of business consistent
with past practice.
4.6 Information in Other Documents.
(a) Neither the Schedule 14D-9 nor any of the information
supplied by the Company and any of its affiliates specifically for inclusion in
the Offer Documents will, at the respective times the Schedule 14D-9 or the
Offer Documents are filed with the Commission or are first published, sent or
given to stockholders, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Schedule 14D-9 will comply as to form in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder.
(b) Any proxy or information statement used in connection
with the Special Meeting and the Merger (as it may be amended from time to
time, the "Proxy Statement") will not, at the date mailed to the Company's
stockholders and at the time of the Special Meeting, contain any statement,
which at the time and in the light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or which omits to
state any material fact necessary in order to make the statements therein not
false and misleading. The Proxy Statement will, when filed with the Commission
by the Company, comply as to form
-15-
<PAGE> 23
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
(c) Notwithstanding the foregoing, the Company makes no
representation with respect to statements made in any of the foregoing
documents based on information supplied by the Parent or the Sub specifically
for inclusion therein.
4.7 Litigation. Except as disclosed in the SEC Documents filed
prior to November 1, 1995 or in Section 4.7 of the Disclosure Schedule, there
is no suit, claim, action, proceeding or investigation pending or, to the best
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries which, individually or in the aggregate, would have a material
adverse effect on the Company and its Subsidiaries or affect adversely in any
material respect the ability of the Company to consummate the transactions
contemplated by this Agreement. Except as disclosed in the SEC Documents filed
prior to November 1, 1995 or in Section 4.7 of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries is subject to any outstanding order,
writ, injunction or decree which, individually or in the aggregate, would have
a material adverse effect on the Company and its Subsidiaries or affect
adversely in any material respect the ability of the Company to consummate the
transactions contemplated hereby.
4.8 No Material Adverse Change; Material Agreements. Except as
disclosed in the SEC Documents filed prior to November 1, 1995 or as set forth
in Section 4.8 of the Disclosure Schedule, (a) since June 30, 1995, there has
not been (i) any action which would be prohibited under Section 6.1 were it to
occur after the date of this Agreement nor (ii) any material adverse change in
the assets, business, prospects (other than changes in prospects arising from
general economic or industry conditions), results of operations or financial
condition of the Company and its Subsidiaries, and (b) neither the Company nor
any of its Subsidiaries has become a party to any agreement or amendment to an
existing agreement which would be required to be filed by the Company as an
exhibit to its next Annual Report on Form 10-K other than this Agreement.
Except as disclosed in the SEC Documents filed prior to November 1, 1995 or as
set forth in Section 4.8 of the Disclosure Schedule, the transactions
contemplated by this Agreement will not constitute a "change of control" under,
require the consent from or the giving of notice to a third party pursuant to,
or accelerate vesting or repurchase rights under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, lease, contract,
agreement or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of its properties or
assets may be bound, except where the adverse consequences resulting from such
change of control or where the failure to obtain such consents or provide such
notices would not, individually or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries; provided, however, that the
immediately preceding exception will not be
-16-
<PAGE> 24
applicable to any employment, compensation, termination or severance agreement,
or other instrument or obligation of the Company or any of its Subsidiaries.
Section 4.8 of the Disclosure Schedule sets forth a good faith estimate of the
total amounts payable to officers and directors of the Company as a result of
the transactions contemplated by this Agreement and/or any subsequent
employment termination (excluding any consideration received for Common Stock
and Warrants and any cash-out or acceleration of options but including any
"gross-up" payments applicable to "excess parachute payments" pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended ("Code"), with
respect thereto); and such amounts (x) are based on compensation data
applicable as of the date hereof, calculated assuming effective tax rates of
41.05%, and including, without limitation, amounts payable pursuant to
employment agreements, bonus plans and retirement plans and any "gross-up"
payments applicable to "excess parachute payments" pursuant to Section 280G of
the Code, and (y) will not exceed the amounts set forth in Section 4.8 of the
Disclosure Schedule, except to the extent noted therein.
4.9 Taxes.
(a) The Company and its Subsidiaries each has duly filed all
federal, state, local and foreign Tax Returns (as defined in Section 4.9(b))
required to be filed by it, and, except as set forth in Section 4.9 of the
Disclosure Schedule, the Company has duly paid or caused to be paid all Taxes
(as defined in Section 4.9(b)) shown to be due on such Tax Returns in respect
of the periods covered by such returns and has made adequate provision in the
Company's financial statements included in the SEC Documents for payment of all
Taxes anticipated to be payable in respect of all taxable periods or portions
thereof ending on or before the date hereof. Section 4.9 of the Disclosure
Schedule lists the periods through which the Tax Returns required to be filed
by the Company have been examined by the Internal Revenue Service (the "IRS")
or other appropriate taxing authority, or the period during which any
assessments may be made by the IRS or other appropriate taxing authority has
expired. Except as set forth in Section 4.9 of the Disclosure Schedule, all
material deficiencies and assessments asserted as a result of such examinations
or other audits by federal, state, local or foreign taxing authorities have
been paid, fully settled or adequately provided for in the Company's financial
statements included in the SEC Documents, and no issue or claim has been
asserted in writing for Taxes by any taxing authority for any prior period, the
adverse determination of which would result in a deficiency which, individually
or in the aggregate, would have a material adverse effect on the Company and
its Subsidiaries, other than those heretofore paid or provided for in the
Company's financial statements included in the SEC Documents filed prior to
November 1, 1995. Except as set forth in Section 4.9 of the Disclosure
Schedule, there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return of the Company or
its Subsidiaries. Neither the Company nor any of its Subsidiaries has made an
election, pursuant to Section 382(l)(5)(H)
-17-
<PAGE> 25
of the Code, not to have the provisions of Section 382(l)(5) apply. Since
March 9, 1993, an "ownership change" within the meaning of Section 382(g) of
the Code has not occurred with respect to the ownership of the stock of the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company or any of its Subsidiaries. Except as set forth in
Section 4.9 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code or any payment that
will not be deductible under Section 162(m) of the Code. Except as set forth
in Section 4.9 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries (i) has been a member of a group filing consolidated returns for
federal income tax purposes, or (ii) is a party to a tax sharing or tax
indemnity agreement or any other agreement of a similar nature that remains in
effect.
(b) For purposes of this Agreement, the term "Taxes" means
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, use, transfer,
license, payroll, withholding, capital stock, franchise, employment, severance,
stamp, custom duties, profits, withholding, social security (or similar)
unemployment, disability, alternative or minimum, estimated or other similar
obligation imposed by the United States or any state, local or foreign
government or subdivision or agency thereof, including any interest, penalties
or additions thereto. For purposes of this Agreement, the term "Tax Return"
means any report, return or other information or document required to be
supplied to a taxing authority in connection with Taxes.
4.10 Opinion of Financial Advisor. The Company has received the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, its financial
advisor, to the effect that, as of the date of such opinion, the cash
consideration to be received pursuant to the Offer and the Merger, as the case
may be, by the holders of the Securities is fair to such holders from a
financial point of view.
4.11 Company Rights Agreement. Assuming the accuracy of the Parent's
representation contained in Section 5.6 (without giving effect to the knowledge
qualification thereof) and the redemption of the Rights as provided in Section
6.6 hereof, none of the transactions contemplated in this Agreement will result
in a "Distribution Date" as defined in the Rights Agreement, nor shall the
Rights become exercisable as a result of the Offer, the Merger or any other
transactions contemplated by this Agreement.
4.12 DGCL Section 203. Assuming the accuracy of the Parent's
representation contained in Section 5.6 (without giving effect to the knowledge
qualification thereof), the
-18-
<PAGE> 26
Board of Directors of the Company has approved the transactions to be effected
in accordance with this Agreement pursuant to Section 203(a)(1) of the DGCL,
and determined that such approval satisfies the requirements of Section
203(a)(1) of the DGCL and, as a result, renders the other provisions of Section
203(a) of the DGCL inapplicable to the Offer, the Merger and this Agreement.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT AND SUB
The Parent and the Sub, jointly and severally, represent, warrant and
covenant to the Company as follows:
5.1 Organization and Qualification. Each of the Parent and the Sub
is a corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the requisite
corporate power to carry on its business as it is now being conducted.
5.2 Authority Relative to this Agreement. Each of the Parent and
the Sub has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
respective Boards of Directors of the Parent and the Sub, and by the Parent as
the sole stockholder of the Sub, and no other corporate proceedings on the part
of the Parent or the Sub are necessary to authorize this Agreement, to commence
the Offer or to consummate the transactions so contemplated by this Agreement
(including the Offer and the Merger). This Agreement has been duly and validly
executed and delivered by each of the Parent and the Sub and, assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of each of the Parent and
the Sub, enforceable against each of the Parent and the Sub in accordance with
its terms.
5.3 Offer Documents; Proxy Statement. (a) None of the Offer
Documents nor any of the information supplied by the Parent, the Sub or any of
the Parent's other Subsidiaries specifically for inclusion in the Schedule
14D-9 will, at the respective times the Offer Documents (including any
amendments or supplements thereto) or the Schedule 14D-9 are filed with the
Commission or are first published, sent or given to stockholders, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements included therein, in
the light of the circumstances under which they were made, not misleading. The
Offer Documents and the Offer will comply as to form
-19-
<PAGE> 27
in all material respects with the applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder.
(b) The information supplied by the Parent and its affiliates
specifically for inclusion or incorporation by reference in the Proxy
Statement, if required, will not, at the time the Proxy Statement is mailed to
the Company's stockholders and at the time of the Special Meeting, contain any
statement, which at the time and in the light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false and misleading.
(c) Notwithstanding the foregoing, the Parent and the Sub
make no representation with respect to statements made in any of the foregoing
documents based on information supplied by the Company specifically for
inclusion therein.
5.4 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by the Parent and the Sub nor the consummation of
the transactions contemplated hereby will (a) conflict with or result in any
breach of any provision of the respective certificates of incorporation or
by-laws of the Parent or the Sub or any of the Parent's other Subsidiaries; (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) in
connection with the HSR Act, (ii) pursuant to the Exchange Act, (iii) the
filing of the Instrument of Merger pursuant to the DGCL or (iv) where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not (x) prevent the consummation of the
Offer or the Merger, (y) have a material adverse effect on the terms of the
Offer or the Merger or (z) individually or in the aggregate have a material
adverse effect on the financial condition, business or results of operations of
the Parent and its Subsidiaries; (c) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument or
obligation to which the Parent, the Sub or the Parent's other Subsidiaries is a
party or by which the Parent, the Sub or the Parent's other Subsidiaries, or
any of their respective assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained or that would not (x) prevent the
consummation of the Offer or the Merger, (y) have a material adverse effect on
the terms of the Offer or the Merger or (z) individually or in the aggregate
have a material adverse effect on the financial condition, business or results
of operations of the Parent and its Subsidiaries; or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Parent,
the Sub and the Parent's other Subsidiaries or any of their respective assets,
except for violations that would not (x) prevent the consummation of the Offer
or the Merger, (y) have a material adverse effect on the terms of the Offer or
the Merger or (z) individually or in the
-20-
<PAGE> 28
aggregate have a material adverse effect on the financial condition, business
or results of operations of the Parent and its Subsidiaries.
5.5 Financing. The Parent has received a firm written commitment
from a financially responsible third party to obtain the funds necessary to
consummate the Offer and the Merger, and to pay related fees and expenses.
5.6 Status as an Interested Stockholder or an Acquiring Person. As
of the date of this Agreement, neither the Parent nor the Sub nor, to the best
knowledge of the Parent, any of the Parent's affiliates is an "Interested
Stockholder" as such term is defined in Section 203 of the DGCL, or an
"Acquiring Person" as such term is defined in the Rights Agreement.
5.7 Interim Operations of the Sub. The Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
ARTICLE VI
COVENANTS
6.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or with the prior written consent of the Parent, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause each of its Subsidiaries to, conduct its operations only in the
ordinary and usual course of business consistent with past practice and will
use all reasonable efforts, and will cause each of its Subsidiaries to use all
reasonable efforts, to preserve intact its present business organization, keep
available the services of its present officers and employees and preserve its
material relationships with licensors, licensees, customers, suppliers,
employees and any others having business dealings with it. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement, without the prior written consent of the Parent, the Company
will not, and will not permit any of its Subsidiaries to, prior to the
Effective Time:
(a) adopt any amendment to its certificate of incorporation
or by-laws or comparable organizational documents or to the Rights Agreement;
(b) issue, reissue, sell or pledge or authorize or propose
the issuance, reissuance, sale or pledge of any shares of capital stock of any
class, or securities convertible into capital stock of any class, or any
rights, warrants or options to acquire any convertible securities or capital
stock, other than the issuance of shares of Common Stock (and attached Rights)
upon the exercise of Warrants and Options issued pursuant to the Option Plan
outstanding on the
-21-
<PAGE> 29
date of this Agreement and identified in Section 6.1(b) of the Disclosure
Schedule, in each case in accordance with their present terms;
(c) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock, except that
any wholly owned Subsidiary of the Company may pay dividends and make
distributions to the Company or any of the Company's wholly owned Subsidiaries;
(d) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of its capital stock, except that the Company may redeem
the Rights in accordance with Section 6.6;
(e) (i) incur, assume or pre-pay any long-term debt or incur
or assume any short-term debt, except that the Company and its Subsidiaries may
incur or pre-pay debt in the ordinary course of business consistent with past
practice under existing lines of credit, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity except in the
ordinary course of business consistent with past practice, or (iii) make any
loans, advances or capital contributions to, or investments in, any other
person or entity except for loans, advances, capital contributions or
investments between the Company and any of its wholly owned Subsidiaries or
between wholly owned Subsidiaries of the Company in the ordinary course of
business consistent with past practice;
(f) settle or compromise any suit or claim or threatened suit
or claim relating to the transactions contemplated hereby;
(g) except for (i) increases in salary, wages and benefits of
employees of the Company or its Subsidiaries (other than officers and directors
of the Company) in accordance with past practice and (ii) increases in salary,
wages and benefits granted to employees of the Company or its Subsidiaries
(other than officers and directors of the Company) in conjunction with
promotions or other changes in job status consistent with past practice or
required under existing agreements, increase the compensation or fringe
benefits payable or to become payable to its directors, officers or employees
(whether from the Company or any of its Subsidiaries), or pay any benefit not
required by any existing plan or arrangement (including, the granting of, or
waiver of performance or other vesting criteria under, stock options, or grant
any severance or termination pay to (except pursuant to existing agreements or
policies), or enter into any employment or severance agreement with, any
director, officer or employee of the Company or any of its Subsidiaries) or
establish, adopt, enter into, terminate or amend any bonus, profit sharing,
thrift, compensation, stock option, pension, retirement, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement,
-22-
<PAGE> 30
trust, fund, policy or arrangement for the benefit or welfare of any directors,
officers or current or former employees, except to the extent such termination
or amendment is required by applicable law; provided, however, that nothing
herein will be deemed to prohibit the payment of benefits as they become
payable under existing plans, agreements, trusts, funds, policies or
arrangements in accordance with their terms;
(h) acquire (except as otherwise permitted by clause (j)
below), sell, lease, or dispose of or pledge, mortgage or encumber any assets
(including licenses, permits and other rights) of the Company and its
Subsidiaries other than in the ordinary course of business consistent with past
practice and in each case not exceeding $250,000, or enter into any commitment
or transaction outside the ordinary course of business consistent with past
practice other than transactions between a wholly owned Subsidiary of the
Company and the Company or between wholly owned Subsidiaries of the Company;
(i) (i) modify, amend or terminate any contract, license or
permit, (ii) waive, release, relinquish or assign any contract (including any
insurance policy) or other license, permit, right or claim, or (iii) cancel or
forgive any indebtedness owed to the Company or its Subsidiaries, other than in
each case in a manner in the ordinary course of business consistent with past
practice and which is not material to the business of the Company and its
Subsidiaries;
(j) authorize, commit to or make any capital expenditures
except pursuant to and in accordance with the capital budget previously
provided to the Parent;
(k) make any tax election not required by law or settle or
compromise any tax liability, in either case that is material to the Company
and its Subsidiaries;
(l) change any of the accounting principles or practices used
by it except as required by the Commission or the Financial Accounting
Standards Board; or
(m) agree in writing or otherwise to take any of the
foregoing actions or any action which would make any representation or warranty
in this Agreement untrue or incorrect in any material respect.
6.2 Access.
(a) Between the date of this Agreement and the Effective
Time, the Company will (i) give the Parent and its authorized representatives
reasonable access during regular business hours upon reasonable notice to all
stores, offices, warehouses and other facilities and to all books and records
of the Company and its Subsidiaries, (ii) permit the Parent to make
-23-
<PAGE> 31
such inspections as it may reasonably require and (iii) cause its officers and
those of its Subsidiaries to furnish the Parent with such financial and
operating data and other information with respect to the business and
properties of the Company and its Subsidiaries as the Parent may from time to
time reasonably request, provided that no investigation pursuant to this
Section 6.2 or otherwise will affect or be deemed to modify any of the
representations and warranties made by the Company in this Agreement.
(b) Information obtained by the Parent pursuant to this
Section 6.2 shall be subject to the provisions of the Confidentiality Agreement
between the Parent and the Company dated October 2, 1995 (the "Confidentiality
Agreement"), which Confidentiality Agreement remains in full force and effect;
provided, however, that (i) the Company will not request that the Parent return
the Evaluation Materials (as that term is defined in the Confidentiality
Agreement) prior to 30 calendar days after the date that this Agreement is
terminated in accordance with Section 8.1 and (ii) effective as of the date
hereof, the Confidentiality Agreement is hereby amended to delete Sections 4, 6
and 8 thereof in their entirety.
6.3 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, and to the fiduciary duties of their respective Boards of
Directors under applicable laws as advised in the written opinion of their
outside counsel, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all appropriate action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including taking all action reasonably required
under the HSR Act. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take
all such necessary action. Notwithstanding the foregoing, neither the Company,
the Parent nor the Sub shall be obligated to waive any of its rights under this
Agreement, including without limitation those specified in Article VII of this
Agreement or in Annex I hereto. All actions, judgments and determinations of
the parties hereto required or permitted hereby or by the Offer Documents or
otherwise contemplated by this Agreement shall be made in good faith.
6.4 Indemnification and Insurance. It is understood and agreed that
the Company shall defend, indemnify and hold harmless, and after the Effective
Time, the Surviving Corporation and the Parent shall, jointly and severally,
defend, indemnify and hold harmless, each person listed under "Indemnity
Agreements" in Section 6.5(a) of the Disclosure Schedule (the "Indemnified
Parties") to the full extent required or permitted under (a) Delaware law, (b)
as provided in the Restated Certificate of Incorporation and Restated By-Laws
of the Company and (c) as otherwise provided for or permitted pursuant to any
agreement in effect at the date hereof listed in Section 6.5(a) of the
Disclosure Schedule. The rights to be defended,
-24-
<PAGE> 32
indemnified and held harmless pursuant to this Section 6.4 shall survive the
Merger and shall continue in full force and effect without time limitation from
and after the Effective Time and without amendment or modification of the terms
of any of the agreements referred to in clause (c) above. Without limiting the
foregoing, the Company, and after the Effective Time the Surviving Corporation
and the Parent, will periodically advance expenses as incurred with respect to
the foregoing, to the fullest extent permitted by applicable law; provided the
person to whom the expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification. The Company, after consultation in good faith with the Parent
so as to minimize the cost thereof, or the Parent shall purchase, as promptly
as practicable and in any event prior to the Effective Time and without any
lapse in coverage, policies of directors' and officers' "run-off" liability
insurance (or policies which contain terms and conditions that are no less
advantageous to the directors and officers and former directors and officers of
the Company as the directors' and officers' liability insurance policies that
are in effect at the Company on the date hereof), which insurance shall remain
in effect for a period of not less than six years from and after the Effective
Time; provided that, in the event that any claim or claims (a "Claim" or
"Claims") are asserted or made within such six-year period, the Parent and the
Surviving Corporation shall cause such insurance to be continued in respect of
any such Claim or Claims until final disposition of any and all such Claims.
6.5 Certain Agreements, Employee Benefits, etc..
(a) The Parent hereby agrees to honor, and to cause the
Surviving Corporation and its Subsidiaries to honor (in accordance with the
terms thereof), all contracts, agreements, arrangements, policies, plans and
commitments of the Company (or any of its Subsidiaries) in effect as of the
date hereof that are applicable to any officer or employee or former officer or
employee or any director or former director of the Company (or any of its
Subsidiaries or former Subsidiaries) (collectively, the "Agreements"). A list
of all Agreements is set forth in Section 6.5(a) of the Disclosure Schedule.
Without limiting the generality of the foregoing, the Parent hereby
unconditionally agrees to perform and pay, or cause the Surviving Corporation
and its Subsidiaries to perform and pay, when due any and all amounts payable
pursuant to the terms of the Agreements.
(b) The Parent hereby agrees that for a period of one year
immediately following the Effective Time, it shall cause the Surviving
Corporation and its Subsidiaries to continue to maintain (except as required by
law) the employee benefit plans for employees and former employees of the
Company and its Subsidiaries listed under Section 6.5(b) of the Disclosure
Schedule, or other plans that, on a plan-by-plan basis, provide benefits that
are no less favorable to such employees than the benefits currently in effect
with respect to such employees under the plans listed under Section 6.5(b) of
the Disclosure Schedule.
-25-
<PAGE> 33
Notwithstanding anything contained in this Agreement to the contrary, at the
Parent's election, the Surviving Corporation (i) may elect to become a
nonsubscriber under the Texas Workers' Compensation Act and implement the
Parent's Work Injury Program, and (ii) implement the Parent's Dialogue Dispute
Resolution Program.
(c) If any employee of the Company or any of its Subsidiaries
becomes a participant in any employee benefit plan, practice or policy of the
Parent or the Surviving Corporation, such employee shall be given credit under
such plan for all service prior to the Effective Time with the Company and its
Subsidiaries, or any predecessor employer (to the extent such credit was given
by the Company), for purposes of eligibility and vesting (but not for benefit
accrual purposes) for which such service is either taken into account or
recognized.
(d) Notwithstanding anything to the contrary contained
herein, from and after the Effective Time, the Surviving Corporation shall have
sole discretion over the hiring, promotion, retention, firing and other terms
and conditions of the employment of officers and employees of the Surviving
Corporation.
6.6 Rights Agreement. The Board of Directors of the Company shall
take all action necessary to defer the Distribution Date (as that term is
defined in the Rights Agreement) to prevent the occurrence of the Distribution
Date as a result of the commencement of the Offer, this Agreement or the
consummation of the transactions contemplated hereby (including the Offer and
the Merger). The Company will redeem the Rights effective immediately prior to
the Parent's acceptance for payment of Securities pursuant to the Offer and
will not otherwise redeem the Rights, or amend or terminate the Rights
Agreement unless required to do so by a court of competent jurisdiction. The
record date for determining holders of record of Common Stock entitled to
receive the redemption price for the Rights shall be established in accordance
with the regulations of the NYSE.
6.7 Public Announcements. The initial press release announcing this
Agreement will be a joint press release and thereafter the Parent, the Sub and
the Company will use reasonable efforts to consult with each other before
issuing any press release or similar public announcement with respect to the
Offer, the Merger or the other transactions contemplated hereby and in
connection with making any filings with the Commission or any other
Governmental Entity or the NYSE and shall not issue any such press release or
make any such public announcement or filing prior to such consultation without
providing the other party with notice and a reasonable opportunity to comment
thereon, except as may be required by law or by obligations pursuant to any
listing agreement with any national securities exchange.
6.8 Post Merger Treatment of Warrants. Following the Effective Time
and subject to the terms and conditions of the Warrant Agreement, the Parent
will cause the Surviving
-26-
<PAGE> 34
Corporation to make available, as necessary, sufficient funds to pay, and will
pay, to holders of Warrants, upon the exercise thereof, the amount of cash,
without interest, to which such holders would have been entitled pursuant to
the Merger if such holders had exercised their Warrants and acquired shares of
Common Stock immediately prior to the Effective Time.
6.9 Exclusivity.
(a) Except as provided in Section 6.9(b), until the earlier
of the termination of this Agreement pursuant to Section 8.1 or the Effective
Time, the Company will not, and will cause its officers, directors,
Subsidiaries, affiliates, representatives or agents, directly or indirectly,
not to, do any of the following: (i) negotiate, undertake, authorize, propose
or enter into, either as the proposed surviving, merged, acquiring or acquired
corporation, any transaction (other than the Offer and the Merger) involving
any sale, transfer or other disposition or other change of ownership (whether
by tender or exchange offer or otherwise) of any securities of the Company or
any of its Subsidiaries, or any assets of the Company or any of its direct or
indirect Subsidiaries constituting one percent or more of the consolidated
assets of the Company or one percent or more of the consolidated revenues of
the Company, whether in a single transaction or series of related transactions
(an "Acquisition Transaction"); (ii) solicit or initiate the submission of a
proposal or offer in respect of, or engage in negotiations concerning, an
Acquisition Transaction; or (iii) furnish or cause to be furnished to any
corporation, partnership, person or other entity or group (other than the
Parent, the Sub and their representatives) (a "Person") any non-public
information concerning the business, operations, properties or assets of the
Company in connection with an Acquisition Transaction; provided nothing herein
will prohibit the Company's Board of Directors from taking and disclosing to
the Company's securityholders a position with respect to a tender offer
pursuant to Rule 14d-9 promulgated under the Exchange Act. The Company will
inform the Parent by telephone (confirmed in writing) promptly, and in any
event within one day of its receipt of any proposal or bid in respect of any
Acquisition Transaction and provide the Parent with copies of any written
proposals or bids. Nothing in this Section 6.9(a) will (i) permit the Company
to enter into any agreement with respect to an Acquisition Transaction for so
long as this Agreement remains in effect (it being agreed that for as long as
this Agreement remains in effect, the Company will not enter into any agreement
with any Person that provides for, or in any way facilitates, an Acquisition
Transaction), or (ii) affect any other obligation of the Company under this
Agreement.
(b) Notwithstanding anything else contained in this Section
6.9, the Company and its officers, directors, Subsidiaries, representatives and
agents may engage in discussions or negotiations with, and may furnish
information to, a third party or its representative who makes a written
proposal with respect to an Acquisition Transaction if (i) the Company's Board
of Directors determines in good faith after consultation with its financial
advisors that such
-27-
<PAGE> 35
proposal may reasonably be expected to result in a transaction that is
financially superior to the transactions contemplated by this Agreement, and
(ii) the Board of Directors of the Company determines in good faith after
receipt of a written opinion of outside counsel that such actions are required
by its fiduciary duties under applicable law.
6.10 Fees and Expenses. Except as provided in Section 8.3, whether
or not the Offer or the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby will
be paid by the party incurring such expenses.
6.11 Brokers or Finders. Each of the Parent and the Company
represents and warrants, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement except Merrill Lynch, Pierce, Fenner & Smith
Incorporated, whose fees and expenses will be paid by the Company in accordance
with the Company's agreement with such firm, a copy of which has been provided
to the Parent, and Wasserstein Perella & Co. Inc., whose fees and expenses will
be paid by the Parent in accordance with the Parent's agreement with such firm,
a copy of which has been provided to the Company.
6.12 Notification of Certain Matters. The Company will give prompt
notice to the Parent and the Parent will give prompt notice to the Company of
(a) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which would be likely to cause (i) any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect or (ii) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied in any material respect, (b) any
failure of the Company or the Parent or the Sub, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder in any material respect, (c) any written notice or
other written communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement and (d) any written notice or other written
communication from the Commission or any other Governmental Entity in
connection with the transactions contemplated by this Agreement; provided,
however, that the delivery of any notice pursuant to this Section 6.12 will not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
-28-
<PAGE> 36
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) this Agreement shall have been adopted by the affirmative
vote of the stockholders of the Company by the requisite vote in accordance
with the Company's Restated Certificate of Incorporation and applicable law, if
such vote is required;
(b) no United States or state statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that is in effect and has
the effect of making the acquisition or ownership of the Securities illegal or
otherwise prohibiting or materially restricting the consummation of the Offer
or the Merger or that would make the acquisition or ownership by the Parent or
its Subsidiaries of the common stock of the Surviving Corporation illegal; and
(c) the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.2 Conditions to Obligations of the Company to Effect the Merger.
The obligation of the Company to effect the Merger is further subject to the
satisfaction or waiver, where permissible, at or prior to the Effective Time,
of the following conditions:
(a) each of the Parent and the Sub shall have performed in
all material respects its respective covenants in this Agreement, to the extent
such covenants are to be performed prior to the Effective Time; and
(b) the representations and warranties of the Parent and the
Sub shall be true and correct in all material respects at and as of the
Effective Time as if made as of the Effective Time.
7.3 Conditions to Obligations of the Parent and Sub to Effect the
Merger. The obligations of the Parent and the Sub to effect the Merger are
further subject to the satisfaction or waiver, where permissible, at or prior
to the Effective Time, of the following conditions:
-29-
<PAGE> 37
(a) the Sub (or any permitted assignee) shall have accepted
for payment and paid for Securities tendered pursuant to the Offer, provided
that this condition will be deemed satisfied if the Sub (or any permitted
assignee) fails to accept for payment and pay for Securities tendered pursuant
to the Offer in violation of the terms hereof or thereof; and
(b) the Company shall have performed in all material respects
the covenants in this Agreement, to the extent such covenants are to be
performed prior to the Effective Time.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any required adoption of this
Agreement by the stockholders of the Company:
(a) by mutual consent of the Parent and the Company by action
of their respective Boards of Directors;
(b) by the Company if (i) the Parent and the Sub fail to
commence the Offer as provided in Section 1.1, (ii) the Offer expires or is
terminated without any Securities being purchased thereunder, or (iii) the Sub
(or any permitted assignee) fails to purchase Securities validly tendered and
not withdrawn in violation of the terms and conditions of the Offer or this
Agreement;
(c) by either the Parent or the Company if the Sub (or any
permitted assignee) has not purchased the shares of Common Stock validly
tendered and not withdrawn pursuant to the Offer in accordance with the terms
hereof within 120 calendar days after the commencement of the Offer; provided
however, that the party (in the case of the Parent, together with the Sub)
seeking to terminate this Agreement pursuant to this Section 8.1(c) is not in
material breach of this Agreement (including without limitation any
representation, warranty or covenant herein contained);
(d) by either the Parent or the Company if the Merger is not
consummated before March 31, 1996, despite the reasonable good faith effort of
such party to effect such consummation; provided, however, that the party (in
the case of the Parent, together with the Sub) seeking to terminate this
Agreement pursuant to this Section 8.1(d) is not in material breach of this
Agreement (including without limitation any representation, warranty or
covenant herein contained);
-30-
<PAGE> 38
(e) by either the Parent or the Company if any court of
competent jurisdiction has issued an injunction permanently restraining,
enjoining or otherwise prohibiting the consummation of the Offer or the Merger,
which injunction has become final and non-appealable;
(f) by the Parent if (i) the Board of Directors of the
Company shall have withdrawn, modified or amended in any respect adverse to the
Parent its favorable recommendation of the Offer or the Merger or shall have
resolved to do any of the foregoing, (ii) prior to the expiration of the Offer,
any of the representations and warranties of the Company contained in this
Agreement were incorrect in any material respect when made or have since
become, and at the time of termination remain, incorrect in any material
respect or (iii) there has been a material breach on the part of the Company in
the covenants of the Company set forth herein, or any failure on the part of
the Company to comply with its material obligations hereunder, including
without limitation the obligation under Section 6.6 to redeem the Rights; or
(g) by the Company, prior to the expiration of the Offer, if
(i) (x) any of the representations and warranties of the Parent or the Sub
contained in this Agreement were incorrect in any material respect when made or
have since become, and at the time of termination remain, incorrect in any
material respect, or (y) there has been a material breach on the part of the
Parent or the Sub in the covenants of the Parent or the Sub set forth herein,
or any failure on the part of the Parent or the Sub to comply with its material
obligations hereunder, or (ii) the Board of Directors of the Company, after
consulting with its outside counsel and financial advisor, determines in good
faith, and based in part on a written opinion of outside counsel, that its
fiduciary duties require that it withdraw, modify or amend in a manner adverse
to the Parent its favorable recommendation of the Offer or the Merger in order
to approve the execution of a definitive agreement with respect to an
Acquisition Transaction with another party which the Board of Directors has
determined in good faith is financially superior to the transactions
contemplated by this Agreement; provided, however, that the Company may not
terminate this Agreement pursuant to this Section 8.1(g)(ii) until the Company
has paid to the Parent in full the amount referred to in Section 8.3(a).
8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or the Parent in accordance with Section 8.1,
no party hereto (or its directors or officers) will have any liability or
further obligation to any other party to this Agreement, except for obligations
pursuant to Sections 6.2(b) and 8.3 and any liability resulting from the
willful breach of any other covenant or agreement set forth herein.
8.3 Certain Termination Fees; Certain Costs and Expenses. (a) Prior
to any termination of this Agreement by the Company pursuant to Section
8.1(g)(ii) or within two
-31-
<PAGE> 39
business days after any termination of this Agreement by the Parent or the Sub
pursuant to Section 8.1(f)(i), the Company will pay to the Parent $7,000,000 in
cash and (b) after such termination (and in any event within two business days
of receiving the Parent or the Sub's documented invoice) the Company will
reimburse the Parent and the Sub for the documented out-of-pocket costs and
expenses incurred by the Parent or the Sub in connection with the Offer and the
other transactions contemplated by this Agreement, including without limitation
the fees and expenses of the financial advisors and counsel to the Parent and
the Sub and fees incurred by the Parent or the Sub to obtain financing
commitments for the Offer and the Merger.
ARTICLE IX
MISCELLANEOUS
9.1 Non-survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. The covenants and
agreements herein will survive termination of this Agreement and the Effective
Time.
9.2 Amendment. This Agreement may be amended by the parties hereto
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of the Company, but, after any such approval, no
amendment will be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. Notwithstanding anything contained in this Agreement to the contrary,
any action by the Company (a) to terminate this Agreement, (b) to waive or
amend any provision of this Agreement and (c) to extend the time for the
performance of any obligation under this Agreement, in each case following
consummation of the Offer will require the approval of a majority of the
directors of the Company then in office who are directors of the Company on the
date hereof (the "Continuing Directors").
9.3 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto and (c) waive compliance with any of the agreements of the other parties
hereto or conditions to their own obligations contained herein, other than
satisfaction of the Minimum Condition. Any
-32-
<PAGE> 40
agreement on the part of a party hereto to any such extension or waiver will be
valid only if set forth in a written instrument signed on behalf of such party.
9.4 Notices. All notices and other communications hereunder will be
in writing and will be deemed given if delivered personally, telecopied (which
is confirmed) or mailed by registered or certified (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as is specified by like notice):
<TABLE>
<S> <C>
(a) if to the Parent or the Sub:
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Attention: Chairman and Chief Executive Officer
Telecopy No.: 210/641-8885
with a copy to:
Timothy J. Fretthold, Esq.
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Telecopy No.: 210/641-8885
and
Robert A. Profusek, Esq.
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Telecopy No.: 212/755-7306
</TABLE>
-33-
<PAGE> 41
<TABLE>
<S> <C>
and
(b) if to the Company, to:
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Attention: Chief Executive Officer
Telecopy No.: 713/880-0579
with a copy to:
A. J. Gallerano
Senior Vice President, General Counsel and Secretary
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Telecopy No.: 713/880-0579
and
Edgar J. Marston III
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana
Houston, Texas 77002-2871
Telecopy No.: 713/221-1212
</TABLE>
9.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes," or
"including" are used in this Agreement they will be deemed to be followed by
the words "without limitation." The phrases "the date of this Agreement," "the
date hereof" and terms of similar import, unless the context otherwise
requires, will be deemed to refer to November 8, 1995.
9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
will become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
-34-
<PAGE> 42
9.7 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware regardless of the laws
that might otherwise govern under principles of conflict of laws applicable
thereto.
9.8 Specific Performance. The parties hereto agree that if any
provision of this Agreement is not performed in accordance with its specific
terms or is otherwise breached, irreparable damage would occur, no adequate
remedy at law would exist and damages would be difficult to determine, and
that, subject to the provisions of Article VIII, the parties will be entitled
to specific performance of the terms hereof, in addition to any other remedy at
law or equity.
9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties, except that the Sub may assign, in its sole discretion, any
or all rights, interests and obligations hereunder to the Parent or any direct
or indirect wholly owned Subsidiary of the Parent incorporated under the laws
of the State of Delaware. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
9.10 Validity. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforcement of any other
provisions hereof, which will remain in full force and effect. If any term or
other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other terms and provisions of
this Agreement will nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner that is adverse to any party which is entitled to the
benefit thereof and which has not been waived by such party. Upon any such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible.
9.11 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the Disclosure Schedules, the Annexes and the other documents and
the instruments referred to herein), and the Confidentiality Agreement (as
hereby amended pursuant to Section 6.2(b)) (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matters hereof, and (b) other
than Sections 6.4 and 6.5 of this Agreement are not intended to confer upon any
person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder. The
-35-
<PAGE> 43
covenants of the Parent and the Sub in Sections 6.4 and 6.5 of this Agreement
may be enforced after the Effective Time by any of the Indemnified Parties.
IN WITNESS WHEREOF, the Parent, the Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
DIAMOND SHAMROCK, INC.
By: /s/ A. W. O'DONNELL
_____________________________________
A. W. O'Donnell
Senior Vice President
SHAMROCK ACQUISITION CORP.
By: /s/ A.W. O'DONNELL
_____________________________________
A.W. O'Donnell
President
NATIONAL CONVENIENCE STORES
INCORPORATED
By: /s/ V.H. VAN HORN III
_____________________________________
V.H. Van Horn III
President and Chief Executive Officer
-36-
<PAGE> 44
ANNEX I
Conditions to the Offer
Notwithstanding any other provision of the Offer, neither the Parent nor
the Sub will be required to accept for payment, purchase or, subject to
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act, to pay for any Securities tendered pursuant to the
Offer, and may, subject to the provisions of Section 1.1 of this Agreement,
amend, extend or terminate the Offer or postpone the expiration date, the
acceptance for payment of and/or the purchase or (subject to the applicable
rules and regulations aforesaid) payment for Securities tendered, if as of the
expiration of the Offer (as the Offer may have been extended pursuant to
Section 1.1 of this Agreement) (i) at least two-thirds of the shares of the
Common Stock on a fully-diluted basis (after giving effect to the exercise of
all Warrants validly tendered pursuant to the Offer and not withdrawn) have not
been validly tendered pursuant to the Offer and not withdrawn (the "Minimum
Condition"), (ii) the waiting periods under the HSR Act applicable to the Offer
and the Merger have not expired or been terminated or (iii) at any time on or
after the date of this Agreement and at or prior to the time of payment for the
Securities (whether or not any Securities have been accepted for payment or
paid for pursuant to the Offer) any one or more of the events listed in the
paragraphs below have occurred and are continuing;
(a) there has been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, enacted, entered or
deemed applicable to the Offer or the Merger, by any Governmental Entity
that in the sole judgment of the Parent (i) makes the acceptance for
payment of or payment for Securities illegal, challenges the acquisition
by the Parent or the Sub of the Securities or otherwise seeks to restrain
or prohibit the consummation of the Offer or the Merger, (ii) renders the
Parent unable to accept for payment, pay for or purchase the Securities,
(iii) seeks to impose or imposes limitations on the ability of the Parent
to acquire or hold, transfer or dispose of, or effectively to exercise any
of its rights of ownership of, the Securities, including, without
limitation, the right to vote the shares of Common Stock purchased by it
on all matters properly presented to the stockholders of the Company, (iv)
as a result of the Offer or the Merger, seeks to require or requires the
Parent, the Company, or any of their respective Subsidiaries or affiliates
to dispose of or hold separate or otherwise limits or affects the exercise
of ordinary ownership or control rights in respect of all or any
significant portion of the Company's or the Parent's respective
businesses, assets or properties, each taken as a whole, or imposing any
limitations on the ability of any such entities to conduct their
respective businesses and own such assets and properties, or (v) seeks to
impose or imposes any limitations on the ability of the Parent or any of
its Subsidiaries effectively
-37-
<PAGE> 45
to control the business or operations of the Company or any of its
Subsidiaries as a result of the Offer or the Merger; or
(b) there has been instituted or pending any action,
proceeding, claim or counterclaim by or before any Governmental Entity, or
any other person or entity seeking to restrain or prohibit the making of
the Offer or the Merger, seeking to obtain any significant damages from
the Parent or its Subsidiaries, or the Company or its Subsidiaries or from
any other person or entity to whom or to which any of the foregoing has an
indemnity obligation arising from the Offer or the Merger or seeking to
prohibit the ownership by the Parent or any of its Subsidiaries of the
Securities or of any significant portion of their businesses or assets,
taken as a whole or any significant portion of the business or assets of
the Company and its Subsidiaries taken as a whole, or to compel the
Parent, the Company or any of their affiliates to dispose of or hold
separate all or a significant portion of any of their business or assets,
taken as a whole, in each case as a result of the Offer or the Merger; or
(c) there has occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE or the
over-the-counter market, (ii) a decline of at least 20% in either the Dow
Jones Average of Industrial Stocks or the Standard & Poor's 500 Index from
the date of this Agreement, (iii) the declaration of a banking moratorium
or any limitation or suspension of payments in respect of the extension of
credit by banks or other lending institutions in the United States, (iv)
any limitation by any Governmental Entity on, or any other event which in
the sole judgment of the Parent may have a material adverse effect on the
extension of credit by banks or other lending institutions, (v) a
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or (vi) in the
case of any of the foregoing which exists at the time of the commencement
of the Offer, a material acceleration or worsening thereof; or
(d) any material adverse change has occurred since September
30, 1995 in the business, assets, results of operations, or financial
condition or prospects (not including a change in prospects arising from
general economic or industry conditions) of the Company and its
Subsidiaries taken as a whole; or
(e) the Company has breached or failed to perform in any
material respect any of its obligations under this Agreement, including
without limitation a failure to cause the Rights to be redeemed as
provided for therein; or
-38-
<PAGE> 46
(f) any of the representations and warranties of the Company
contained in this Agreement shall not have been true and correct when made
or have since ceased to be true and correct and remain incorrect at the
expiration date of the Offer; or
(g) it shall have been publicly disclosed or the Parent shall
have learned that any person or entity shall have entered into a
definitive agreement or an agreement in principle with the Company with
respect to a tender offer or exchange offer for any shares of capital
stock of the Company (including without limitation the shares of Common
Stock) or a merger, consolidation or other business combination or any
acquisition or disposition of any material assets or any comparable event
with or involving the Company or any of its Subsidiaries; or
(h) the Company's Board of Directors shall have failed to
recommend and approve, or shall no longer recommend and approve, the Offer
or the adoption of this Agreement, or shall modify or amend its
recommendation and approval with respect thereto, or shall have resolved
to do any of the foregoing; or
(i) this Agreement has terminated in accordance with its
terms; or
(j) the Parent and the Company agree that the Parent will
amend or terminate the Offer;
which, in the sole judgment of the Parent, and in each case regardless of the
circumstances (including without limitation any inaction by the Parent or its
affiliates other than a material breach by the Parent or its affiliates of this
Agreement), with respect to each and every matter referred to above makes it
inadvisable to proceed with the Offer or with such acceptance for payment or
purchase of or such payment for the Securities.
The foregoing conditions (i) may be asserted by the Parent or the Sub
regardless of the circumstances (including any action or inaction by the Parent
or any of its affiliates other than a material breach by the Parent or the Sub
of this Agreement) giving rise to such condition and (ii) other than the
Minimum Condition, are for the sole benefit of the Parent and its affiliates.
The foregoing conditions, except or as otherwise provided in this Agreement,
may be waived by the Parent in whole or in part at any time and from time to
time in its sole discretion. The failure by the Parent at any time to exercise
any of the foregoing rights will not be deemed a waiver of any right and each
right will be deemed an ongoing right which may be asserted by the Parent at
any time and from time to time. Any determination by the Parent concerning the
events described in this Section will be final and binding upon all parties.
-39-
<PAGE> 47
ANNEX II
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NATIONAL CONVENIENCE STORES INCORPORATED
National Convenience Stores Incorporated, a Delaware corporation (the
"Corporation"), does hereby certify that this Amended and Restated Certificate
of Incorporation of National Convenience Stores Incorporated was duly adopted
in accordance with Section 245 of the General Corporation Law of the State of
Delaware; the Corporation was originally incorporated under the name of NCS
Merging Corporation; and the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State on June 21, 1979.
The text of the Corporation's Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of the Corporation (the "Corporation") is
National Convenience Stores Incorporated.
SECOND: The address of the Corporation's registered
office in the State of Delaware is 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation
shall have authority to issue is 10,000,000 shares of Common Stock, par value
$.01 per share.
FIFTH: Elections of directors need not be by written
ballot except and to the extent provided in the by-laws of the Corporation.
<PAGE> 48
SIXTH: (1) Notwithstanding any contrary provision of
Section 262(b) of the General Corporation Law of the State of Delaware, as in
effect on August 1, 1983, any stockholder of the Corporation who complies with
the requirements of Section 262 of the General Corporation Law of the State of
Delaware, as in effect on August 1, 1983 ("Section 262"), shall be entitled to
an appraisal by the Court of Chancery of the fair value of his shares of Common
Stock (as hereinafter defined) and Preferred Stock (as hereinafter defined)
under each of the circumstances described in subparagraphs (a), (b) and (c)
below (an "Article Sixth Transaction"), all upon the terms and conditions set
forth in this Article Sixth and in Section 262:
(a) the merger or consolidation of the Corporation
with (1) any Interested Stockholder (as hereinafter defined) or
(2) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
(b) the sale, lease or exchange of all or
substantially all of the property and assets of the Corporation
(in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(c) any amendment of the Certificate of
Incorporation of the Corporation which effects a
reclassification of securities (including any reverse stock
split) or a recapitalization of the Corporation, which has the
effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of Voting Stock (as
hereinafter defined) which is beneficially owned (as hereinafter
defined) by any Interested Stockholder or any Affiliate of any
Interested Stockholder.
(2) For the purposes of this Article Sixth:
(a) The term "person" shall mean any individual, firm,
corporation, partnership or other entity.
(b) The term "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any profit
sharing, employee stock ownership or other employee benefit plan of the
Corporation or any Subsidiary or any trustee of or fiduciary with respect to
any such plan when acting in such capacity) who or which:
(1) is the beneficial owner (as hereinafter defined)
of 15 percent or more of the Voting Stock; or
-41-
<PAGE> 49
(2) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to an
Announcement Date (as hereinafter defined) was the beneficial
owner of 15 percent or more of the Voting Stock; or
(3) is the assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to an Announcement Date
beneficially owned by an Interested Stockholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as
amended.
(c) A specified person shall be a "beneficial owner" of and
shall be deemed to "beneficially own" any Voting Stock:
(1) which such specified person or any of its
Affiliates or Associates (as hereinafter defined), directly or indirectly,
through contract, arrangement, understanding, relationship or otherwise
has or shares (A) voting power, which includes the power to vote, or to
direct the voting of, such stock and/or (B) investment power, which
includes the power to dispose of, or to direct the disposition of, such
stock; or
(2) which such specified person or any of its
Affiliates or Associates has, directly or indirectly, the right to acquire
(whether such right is then exercisable or becomes exercisable at some
future time by the passage of time or upon the occurrence of a specified
event) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, options or
otherwise; or
(3) which is subject to the exercise, directly or
indirectly, of sole or shared voting and/or investment power as described
in clause (1) above by any other person with which such specified person
or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing
of any shares of Voting Stock.
(d) For the purpose of determining whether a specified person
is an Interested Stockholder pursuant to subparagraph (b) of this paragraph 2,
the number of shares of Voting Stock deemed to be outstanding shall include
unissued or issued but not outstanding shares deemed beneficially owned by such
specified person through application of subparagraph (c) of this paragraph 2
but shall not include any other unissued or issued but not outstanding shares
of Voting Stock which may be issuable or deliverable pursuant to any agreement,
-42-
<PAGE> 50
arrangement or upon exercise of conversion rights, exchange rights, warrants,
options or otherwise.
(e) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations, as in effect on August 1, 1983, promulgated by the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
(f) The term "Subsidiary" shall mean any corporation of which
all the shares of each class of capital stock are beneficially owned, directly
or indirectly, by the Corporation.
(g) The term "Fair Market Value" shall mean (1) in the case
of stock, the highest closing sale price during the 30-day period immediately
preceding and including a Determination Date of a share of such stock on the
Composite Tape for New York Stock Exchange - Listed Stock, or, if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended, on
which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period immediately preceding and including a
Determination Date on the National Association of Securities Dealers, Inc.
Automated Quotation System or any system then in use, or, if no such quotations
exist or are otherwise available, the fair market value on a Determination Date
of a share of such stock as determined in good faith by an investment banking
firm of national reputation retained by the Corporation following such firm's
selection by a committee of at least three stockholders of the Corporation
(other than the Interested Stockholder and any of its Affiliates and
Associates) who shall beneficially own in the aggregate at least 5% of the then
outstanding Common Stock and who shall be appointed by the Board of Directors
of the Corporation ("Independent Advisor") and (2) in the case of property
other than stock or cash, the fair market value of such property on a
Determination Date as determined in good faith by an Independent Advisor.
(h) The term "Voting Stock" shall include (1) each then
outstanding share of Common Stock and (2) each then outstanding share of
Preferred Stock which is entitled to vote in the election of the directors of
the Corporation.
(i) The term "Common Stock" shall mean any stock of any class
of the Corporation which is entitled to vote in the election of directors of
the Corporation, which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and which is not subject to redemption by the
Corporation.
-43-
<PAGE> 51
(j) The term "Preferred Stock" shall mean any class of
capital stock of the Corporation (other than Common Stock) which may be from
time to time authorized in or by the Certificate of Incorporation of the
Corporation.
(k) The term "Corporation" shall refer to the corporation
created pursuant to this Certificate of Incorporation and any successor by
merger, consolidation or otherwise.
(l) The term "Determination Date" shall mean the date as of
which a determination is made pursuant to subparagraph (g) of paragraph 2 of
this Article Sixth concerning the Fair Market Value of any stock or other
property.
(3) (a) If within 115 days after the effective date of an Article
Sixth Transaction no stockholder of the Corporation, who has complied with the
provisions of Section 262 and is otherwise entitled to appraisal rights, shall
have filed a petition in the Court of Chancery demanding a determination of the
fair value of the Common Stock and/or Preferred Stock owned by all stockholders
similarly situated, the Corporation shall promptly, and in any event within 120
days after the effective date of an Article Sixth Transaction, file such a
petition. In any appraisal proceeding initiated by a stockholder or by the
Corporation pursuant to Section 262 relating to an Article Sixth Transaction,
the Corporation shall file appropriate pleadings which confirm and at all
stages of the proceeding vigorously assert (1) that the fair value of each
share of Common Stock subject to such proceeding, exclusive of interest, if
any, is not less than the highest amount determined pursuant to subparagraph
(b) below ("Minimum Fair Value Per Share of the Common Stock") and (2) that the
fair value of each share of each class or series of Preferred Stock subject to
such proceeding, exclusive of interest, if any, is not less than the highest
amount determined pursuant to subparagraph (c) below for the shares of each
such class of series ("Minimum Fair Value Per Share of Each Class or Series of
Preferred Stock").
(b) The Minimum Fair Value Per Share of the Common Stock
shall be equal to the higher amount determined under clauses (1) and (2) below:
(1) (if applicable) the highest per share price
(including brokerage commissions, placement agent fees, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder for any share
of Common Stock acquired by it (A) within the two-year period immediately
prior to the first public announcement of the proposed Article Sixth
Transaction ("Announcement Date") or (B) in the transaction in which it
became an Interested Stockholder, whichever is higher; and
-44-
<PAGE> 52
(2) the Fair Market Value per share of Common Stock
(A) as of the Announcement Date or (B) as of the date on which the
Interested Stockholder became an Interested Stockholder ("Inception
Date"), whichever is higher.
(c) The Minimum Fair Value Per Share of Each Class or Series
of Preferred Stock shall be equal to the higher amount determined under
clauses (1) and (2) below:
(1) (if applicable) the highest per share price
(including brokerage commissions, placement agent fees, transfer taxes,
and soliciting dealers' fees) paid by an Interested Stockholder for any
shares of such class or series of Preferred Stock acquired by it (A)
within the two-year period immediately prior to the Announcement Date or
(B) in the transaction in which it became an Interested Stockholder,
whichever is higher; and
(2) the Fair Market Value per share of such class or
series of Preferred Stock as of the (A) Announcement Date or (B) Inception
Date, whichever is higher.
(d) If the Court of Chancery determines in any appraisal
proceeding relating to an Article Sixth Transaction that the fair value,
exclusive of interest, if any, of any share of Common Stock or Preferred
Stock is less than the Minimum Fair Value Per Share of the Common Stock or
the Minimum Fair Value Per Share of Each Class or Series of Preferred
Stock, respectively, the Corporation shall nevertheless pay to
stockholders who are entitled to receive the fair value of their shares in
such appraisal proceeding an amount per share, before giving effect to any
interest awarded by the Court of Chancery, equal to the Minimum Fair Value
Per Share of the Common Stock or the Minimum Fair Value Per Share of Each
Class or Series of Preferred Stock, as the case may be.
(e) All per share amounts determined pursuant to this
paragraph 3 shall be appropriately adjusted to reflect all stock
dividends, property distributions, stock splits and combinations, and
subdivisions and reclassifications of the outstanding capital stock of the
Corporation.
(4) The Corporation hereby acknowledges that it is equitable in the
circumstances, and accordingly the Corporation shall pay all costs and expenses
(including the reasonable fees and expenses of attorneys, the reasonable fees
and expenses of experts and the costs of the proceeding) incurred by any
stockholder of the Corporation in any appraisal proceeding involving an Article
Sixth Transaction wherein the Fair Market Value of the per share consideration
offered to stockholders of the Corporation in the Article Sixth Transaction is,
in the opinion of the Court of Chancery, less than the Minimum Fair Value Per
Share of the Common Stock or the Minimum Fair Value Per Share of Each Class or
Series of Preferred Stock, as the case may be.
-45-
<PAGE> 53
(5) Notwithstanding any other provisions of this Certificate of
Incorporation or the by-laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the by-laws of the Corporation), the affirmative vote of the
holders of 66-2/3 percent or more of the shares of stock of the Corporation
otherwise entitled to vote thereon and not beneficially owned by any Interested
Stockholder or any of its Affiliates and Associates, voting as a class, shall
be required to amend or repeal, or adopt any provisions inconsistent with, this
Article Sixth.
SEVENTH: No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that the foregoing clause
shall not apply to any liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of the law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. This Article Seventh shall not eliminate or limit
the personal liability of a director for any act or omission occurring prior to
the date this Article Seventh becomes effective.
EIGHTH: In furtherance and not in limitation of the rights,
powers, privileges, and discretionary authority granted or conferred by the
General Corporation Law of the State of Delaware or other statutes or laws of
the State of Delaware, the Board of Directors is expressly authorized to make,
alter, amend or repeal the by-laws of the Corporation, without any action on
the part of the stockholders, but the stockholders may make additional by-laws
and may alter, amend or repeal any by-law whether adopted by them or otherwise.
The Corporation may in its by-laws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
NINTH: The Corporation reserves the right at any time and from
time to time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate
of Incorporation in its present form or as hereafter amended are granted
subject to this reservation.
-46-
<PAGE> 54
IN WITNESS WHEREOF, I the undersigned, being a duly authorized
officer of the Corporation, do hereby execute this Amended and Restated
Certificate of Incorporation this _____ day of _________________, 1995.
_______________________________________________
-47-
<PAGE> 1
EXHIBIT 2
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning all compensation for
services rendered in all capacities to the Company during the fiscal years
indicated for the chief executive officer and the four other most highly
compensated executive officers of the Company who were serving as such on June
30, 1995 (the "named executive officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------- ------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation Options(2) Compensation(3)
- ------------------ ---- --------- -------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
V.H. Van Horn . . . . . 1995 $418,461 $504,000 (1) 0 $75,600
President and Chief 1994 400,000 133,000 (1) 0 20,578
Executive Officer 1993 400,000 200,000 (1) 150,000 0
A.J. Gallerano . . . . 1995 $190,400 $194,922 (1) 0 $29,238
Senior Vice President, 1994 182,000 67,760 (1) 0 5,759
General Counsel and 1993 182,000 103,980 (1) 60,000 0
Secretary
C.R. Wortham, Jr. . . . 1995 $183,077 $187,425 (1) 0 $28,114
Senior Vice President - 1994 175,000 81,500 (1) 0 7,500
Real Estate and Gasoline 1993 172,405 99,750 (1) 60,000 0
Arnold Van Zanten . . . 1995 $162,154 $166,005 (1) 0 $24,901
Senior Vice President - 1994 155,000 102,900 (1) 0 11,685
Administration 1993 155,000 88,350 (1) 60,000 0
Brian Fontana . . . . . 1995 $130,769 $111,563 (1) 0 $16,734
Vice President - Chief 1994 115,519 86,200 (1) 0 10,763
Financial Officer 1993 89,234 16,200 (1) 30,000 0
</TABLE>
__________
(1) The officers receive certain perquisites such as car allowances and
insurance benefits; however, the value of such perquisites did not exceed the
lesser of $50,000 or 10% of the officer's salary and bonus.
(2) All options granted during fiscal 1993 were granted pursuant to the
Company's 1993 Non-Qualified Option Plan, which was implemented pursuant to
the Plan of Reorganization.
(3) The amounts presented as All Other Compensation include the amounts the
Company contributed or accrued for the accounts of the executive officers in
connection with (i) the defined contribution feature of the Company's
Officers' Retirement Plan (see "Officers' Retirement Plan"), and (ii) the
Company's 401(k) Profit Sharing Plan (see "Profit Sharing Plan").
OTHER COMPENSATION -- 1993 OPTION PLAN
The Company maintains the National Convenience Stores Incorporated
1993 Non-Qualified Stock Option Plan (the "Option Plan"). The Option Plan
provides for the issuance of options to purchase up to a maximum of 900,000
shares of Common Stock to directors, management employees (including officers)
and other key employees of the Company. The Plan is administered by the Board
of Directors. Pursuant to the Company's Plan of Reorganization and the Option
Plan, options covering a total of 865,000 shares of Common Stock had been
granted to employees and directors of the Company as of June 30, 1995, each of
which grants was subject to a three-year vesting schedule. Any such options not
already vested will vest upon a change of control (as defined in the Option
Plan) of the Company. No options were granted to any of the named executive
officers during fiscal 1995.
1
<PAGE> 2
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise in
fiscal 1995 of options to purchase Common Stock by the named executive officers
and the unexercised options to purchase Common Stock held by such individuals
at June 30, 1995.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Number of Unexercised Options at
Acquired Options at June 30, 1995 June 30, 1995 (2)
on Value ------------------- -----------------
Name Exercise(1) Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
V. H. Van Horn . . 0 $0 100,000/50,000 $212,500/$106,250
A. J. Gallerano . . 0 $0 40,000/20,000 $85,000/$42,500
C. R. Wortham, Jr. 0 $0 40,000/20,000 $85,000/$42,500
Arnold Van Zanten . 0 $0 40,000/20,000 $85,000/$42,500
Brian Fontana . . . 0 $0 20,000/10,000 $42,500/$21,250
- ----------
</TABLE>
(1) Exercise price for each option is $10.50.
(2) The value of options at June 30, 1995 has been calculated based on the
closing price of the Company's Common Stock on The New York Stock Exchange
on June 30, 1995 as reported in The Wall Street Journal ($12-5/8) less the
relevant exercise price per share, multiplied by the relevant number of
shares. On October 2, 1995 the closing price of the Common Stock was $23-3/4
per share.
DEFINED BENEFIT PLAN -- OFFICERS' RETIREMENT PLAN
The Company maintains an Officers' Retirement Plan which was amended and
restated effective August 31, 1995. Participation in the Officers' Retirement
Plan is limited to management personnel who have a significant impact upon the
formulation of the Company's policies and its profitability. Pension benefits
under the Officers' Retirement Plan are determined primarily by the average of
the highest three of the last five years compensation and credited years of
service, up to a maximum of 30 years. The following table shows estimated
annual pension benefits payable upon retirement in specified compensation and
years of service classifications, assuming retirement at age 65.
<TABLE>
<CAPTION>
Average Earnings Years of Service
- ---------------- ---------------------------------------------------------------------
5 10 15 20 25 30
- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 . . . . . $ 20,000 $ 40,000 $ 60,000 $ 80,000 $100,000 $120,000
400,000 . . . . . 40,000 80,000 120,000 160,000 200,000 240,000
600,000 . . . . . 60,000 120,000 180,000 240,000 300,000 360,000
800,000 . . . . . 80,000 160,000 240,000 320,000 400,000 480,000
1,000,000 . . . . . 100,000 200,000 300,000 400,000 500,000 600,000
1,200,000 . . . . . 120,000 240,000 360,000 480,000 600,000 720,000
</TABLE>
The compensation covered by the Officers' Retirement Plan is the officer's
salary plus any bonuses as reported in the Summary Compensation Table. The
estimated credited years of service for each of the named executive officers are
as follows: Mr. Van Horn: 30 years; Mr. Gallerano: 16
2
<PAGE> 3
years; Mr. Wortham: 17 years; Mr. Van Zanten: 14 years; and Mr. Fontana: 5
years. The basis on which pension benefits are computed at a participant's
retirement at age 65 is joint-life annuity amounts for married participants and
single-life annuity amounts for single participants. The pension benefits
shown in the table are not subject to any reduction for Social Security or
other offset amounts. The Officers' Retirement Plan permits participants to
elect, in advance, to receive a lump sum distribution, or three equal annual
installments, at retirement in lieu of the pension benefits otherwise payable
over a period of time to such participant.
Prior to the amendment on August 31, 1995, the Officers' Retirement Plan
included a defined contribution feature pursuant to which the Company
committed, through June 30, 1995, to contribute an annual amount for the
benefit of each participant equal to 15% of such participant's annual bonus, if
any (the "Company 15% Bonus Contribution"). For the year ended June 30, 1995,
the amounts which the Company contributed for the named executive officers were
as follows: Mr. Van Horn -- $75,600; Mr. Gallerano -- $29,238; Mr. Wortham --
$28,114; Mr. Van Zanten -- $24,901; and Mr. Fontana -- $16,734.
Prior to the Officers' Retirement Plan being amended effective August 31, 1995,
a participant in the Officers' Retirement Plan became fully vested in his
pension benefit upon the later to occur of (i) December 15, 1998, or (ii) the
participant attaining five years of credited service. Effective August 31, 1995,
the Officers' Retirement Plan was amended to provide that participants become
fully vested in their pension benefits after five years of credited service. A
participant becomes fully vested in the Company 15% Bonus Contribution upon the
participant remaining an employee for three years after such contribution is
credited to the participant. In addition, upon the occurrence of a Change in
Control (as defined below) a participant shall become fully vested in his
pension benefit and the Company 15% Bonus Contribution. The definition of the
term "Change in Control" was amended effective August 31, 1995 to include
additional events; and, as so amended, means the occurrence with respect to the
Company of any of the following events:
(i) a report on Schedule 13D is filed with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries) or any employee benefit plan sponsored by
the Company (or one of its subsidiaries), is the beneficial owner (as
such term is defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of 20 percent or more of the outstanding
shares of common stock of the Company or the combined voting power of
the then-outstanding securities of the Company;
(ii) a report is filed by the Company disclosing a response to
either Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Exchange Act, or to Item 1 of Form 8-K promulgated under the
Exchange Act, or to any similar reporting requirement subsequently
promulgated by the SEC;
(iii) any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries) or any employee benefit plan sponsored by
the Company (or one of its subsidiaries), shall purchase securities
pursuant to a tender offer or exchange offer to acquire any common
stock of the Company (or securities convertible into common stock) for
cash, securities or any other consideration, provided that after
consummation of the offer, the person, entity or group in question is
the beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of 20
percent or more of the combined voting power of the then-outstanding
securities of the Company (as determined under paragraph (d) of Rule
13d-3 promulgated under the Exchange Act, in the case of rights to
acquire common stock);
3
<PAGE> 4
(iv) the stockholders of the Company shall approve:
(A) any merger, consolidation, or reorganization of the
Company:
(1) in which the Company is not the continuing or
surviving corporation,
(2) pursuant to which shares of common stock of the
Company would be converted into cash, securities or other
property,
(3) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of
the combined voting power of the then-outstanding securities
of the Company, or
(4) in which the Company will not survive as an
independent, publicly-owned corporation;
(B) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Company; or
(C) any liquidation or dissolution of the Company;
(v) the stockholders of the Company shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer,
purchase of assets or other transaction after the consummation of
which any person, entity or group (as defined in accordance with
Section 13(d) or 14(d) of the Exchange Act) would own beneficially in
excess of 50% of the outstanding shares of common stock of the Company
or in excess of 50% of the combined voting power of the
then-outstanding securities of the Company;
(vi) the Company's common stock ceases to be listed on the New
York Stock Exchange;
(vii) the existence of a Distribution Date as defined in the
Rights Agreement of the Company dated August 31, 1995; or
(viii) during any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board
of Directors of the Company cease for any reason to constitute a
majority of the Board of Directors of the Company, unless the election
or nomination for election by the Company's stockholders of each new
director during any such two-year period was approved by the vote of
two-thirds of the directors then still in office who were directors at
the beginning of such two-year period.
To fund the benefits payable under the Officers' Retirement Plan, the Company
has established an irrevocable trust for the benefit of the officers
participating in such plan. Immediately prior to a Change in Control (as
defined above), the Company is required to contribute to the irrevocable trust
an amount sufficient to pay all benefits under the Officers' Retirement Plan
calculated as of the day prior to the Change in Control.
COMPENSATION OF DIRECTORS
The Company pays each outside director of the Company an annual fee of $36,300.
An additional fee of $42,350 is paid to the Chairman of the Board. Fees payable
to directors serving less than the entire fiscal year are prorated. The Company
also reimburses travel and related expenses incurred by directors in attending
meetings of the Board. No director receives additional
4
<PAGE> 5
compensation for serving on committees of the Board or for attending meetings
of the Board or such committees.
The Company maintains a Directors' Retirement Plan, which was amended and
restated effective August 31, 1995. Prior to the amendment, non-employee
directors were generally entitled to be paid an annual retirement benefit equal
to two-thirds of the annual fee paid by the Company to its directors for
serving on the Company's Board. The August 31, 1995 amendment increased the
retirement benefit for non-employee directors to 100% of the current amount of
the Company's directors' annual fees and eliminated a provision that, in
general, had prevented directors from collecting retirement benefits prior to
attaining 70 years of age. Benefits under the Directors' Retirement Plan
commence on the director's retirement from service on the Board, and continue,
in general, for a period of time equal to the period of time he served as a
director of the Company. To fund the benefits payable under the Directors'
Retirement Plan, the Company has established an irrevocable trust for the
benefit of the non-employee directors participating in such plan. Immediately
prior to a Change in Control (as defined in the Officers' Retirement Plan, as
described above), the Company is required to contribute to the irrevocable
trust an amount sufficient to pay all benefits under the Directors' Retirement
Plan calculated as of the day prior to the Change in Control. The definition of
the term "Change in Control" was amended by the August 31, 1995 amendments to
include additional Change in Control events.
The Option Plan provided that each outside director of the Company who was
serving as such on the date 180 days after confirmation of the Company's Plan
of Reorganization was to receive options covering 15,000 shares of Common Stock
at an exercise price of $10.50 per share, and such options were granted to such
persons on August 25, 1993. Two-thirds of such options were vested and
exercisable as of August 25, 1995, and the remainder will vest and become
exercisable on August 25, 1996 or upon an earlier change of control (as defined
in the Option Plan) of the Company.
Effective August 31, 1995, the Company entered into a Director Agreement with
each non-employee director of the Company. Each Director Agreement, in general,
provides that in the event any payment or distribution by the Company or any of
its affiliates to or for the benefit of the director is subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company will pay to the director an additional payment or
payments in an amount sufficient to make such director whole for any such tax
and for any excise and other tax imposed on any such additional payment or
payments.
The directors and executive officers of the Company have entered into
indemnification agreements whereby the Company has agreed to indemnify such
persons and advance expenses as provided in such agreements to the fullest
extent permitted by applicable law.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an Agreement Amending and Restating Employment
Agreement (the "Employment Agreements") with each of the individuals named
in the Summary Compensation Table.
The Company's Employment Agreement with Mr. Van Horn relates to his service as
President and Chief Executive Officer of the Company, and provides that the
Company will pay Mr. Van Horn a minimum salary of $420,000 annually. Mr. Van
Horn's Employment Agreement provides for an annual bonus opportunity of not
less than $200,000, the amount of which is based on percentages of Mr. Van
Horn's annual salary if the Company satisfies certain corresponding earnings
levels as determined by the Board for each fiscal year. Additionally, pursuant
to his Employment Agreement, Mr. Van Horn is entitled to reimbursement of
expenses and to participate in any other bonus plan, profit sharing plan,
stock option plan, vacation, retirement benefit, medical
5
<PAGE> 6
and dental benefits, individual or group life insurance plans and other plans,
programs, arrangements and policies as are or may be normally and customarily
provided by the Company.
Mr. Van Horn's Employment Agreement expires on June 30, 2000. The Employment
Agreement may also be terminated by the Company or by Mr. Van Horn on
30 days' written notice. If the Company terminates Mr. Van Horn's Employment
Agreement with "Cause" (as defined below in this paragraph) before or after a
Change in Control, or if Mr. Van Horn terminates his Employment Agreement
without "Good Reason" (as defined below in this paragraph) or without "Good
Reason-Change in Control" (as defined below), the Company will be required to
pay Mr. Van Horn in cash in one lump sum within 30 days of the termination date
the amount of annual salary earned through such termination date plus all other
benefits earned through such date, excluding any bonus. If Mr. Van Horn
terminates his Employment Agreement with Good Reason before a Change in Control
or if the Company terminates his Employment Agreement without Cause before a
Change in Control, or if Mr. Van Horn terminates his Employment Agreement with
Good Reason-Change in Control, the Company will be required to (i) pay Mr. Van
Horn cash within 30 days of the termination date equal to the aggregate amount
of the salary and other benefits earned through the termination date, and (ii)
continue to pay Mr. Van Horn through June 30, 2000 (A) an annual salary of the
greater of $420,000 or Mr. Van Horn's salary on his termination date, and (B)
an annual bonus equal to the greater of either (a) the average bonus earned by
Mr. Van Horn for the two entire annual periods ended on June 30 immediately
preceding Mr. Van Horn's termination date or (b) the average bonus earned by
Mr. Van Horn for the two fiscal years of the Company immediately preceding the
fiscal year in which a Change in Control occurs. If there is a Change in
Control, the Company will be required to pay Mr. Van Horn, in addition to the
amounts described above, an amount of bonus calculated in accordance with the
Employment Agreement in cash within 30 days of a Change in Control. The term
"Cause" as defined in Mr. Van Horn's Employment Agreement means Mr. Van Horn's
gross or willful neglect of his duties which is not cured within 30 days after
notice from the Company. The term "Good Reason" as defined in Mr. Van Horn's
Employment Agreement means the Company breaches any material provision of his
Employment Agreement which is not cured within 30 days after notice from Mr.
Van Horn, or the Company removes Mr. Van Horn from his position as President
and Chief Executive Officer, or otherwise relieves him of his responsibilities
for any reason, but does not include any breach that occurs after the
occurrence of a Change in Control.
The Company has entered into Employment Agreements with each of the executive
officers named in the Summary Compensation Table other than Mr. Van Horn (the
"Executives"). Pursuant to such Employment Agreements, the Company employs Mr.
Gallerano as Senior Vice President, General Counsel and Secretary at an annual
salary commencing July 1, 1995 of $200,000, Mr. Wortham as Senior Vice
President-Real Estate and Gasoline at an annual salary commencing July 1, 1995
of $183,750, Mr. Van Zanten as Senior Vice President-Administration at an
annual salary commencing July 1, 1995 of $170,000, and Mr. Fontana as Vice
President-Chief Financial Officer at an annual salary commencing July 1, 1995
of $150,000.
The Employment Agreements for the Executives provide for a bonus to be paid to
each Executive based on certain percentages of each Executive's annual salary
if the Company satisfies certain corresponding earnings levels as determined by
the Board for each fiscal year. Additionally, pursuant to the Employment
Agreements, each Executive is entitled to reimbursement of expenses and to
participate in any other bonus plan, profit sharing plan, stock option plan,
vacation, retirement benefit, medical and dental benefits, individual or group
life insurance plans and other plans, programs, arrangements and policies
as are or may be normally and customarily provided by the Company.
The Employment Agreements for the Executives each expire on August 31, 1998,
but may also be terminated by the Company or by the Executive on 30 days'
written notice. If the Company terminates an Employment Agreement with Cause,
as defined below, or if an Executive terminates
6
<PAGE> 7
an Employment Agreement without Good Reason or Good Reason-Change in Control,
each as defined below, the Company will be required to pay the Executive in
cash within 30 days of the termination date the amount of annual salary earned
through such termination date plus all other benefits earned through such date.
If an Executive terminates his Employment Agreement with Good Reason or if the
Company terminates his Employment Agreement without Cause, before a Change in
Control, the Company will be required to pay the Executive cash within 30 days
of the termination date equal to the aggregate of the full amount of all salary
that otherwise would have been paid to the Executive for the remaining term of
the Employment Agreement, plus all other benefits earned through the
termination date. If an Executive terminates his Employment Agreement with Good
Reason-Change in Control, or if the Company terminates his Employment
Agreement without Cause on or after the occurrence of a Change in Control, the
Company will be required to pay the Executive the amounts described in the
preceding sentence as well as a bonus calculated as provided in the Employment
Agreements.
As used above, the term "Cause" means willful misconduct by the Executive,
gross neglect by the Executive of his duties which continues for more than
30 days after notice from the Company, the commission by the Executive of a
felony or the commission by the Executive of an act not in good faith, which
is directly detrimental to the Company and exposes the Company to material
liability. As used herein, the term "Change in Control" shall have the same
meaning as defined under "Officers' Retirement Plan." The term "Good Reason"
means a breach of any material provision of an Employment Agreement which is
not cured within 30 days after the Executive gives written notice thereof to
the Company but does not include any breach that occurs after a Change in
Control. The term "Good Reason-Change in Control" means a determination,
after the occurrence of a Change in Control, by Mr. Van Horn or an Executive,
as the case may be, that any one or more specified events has occurred,
including among other things, any change in the Executive's responsibilities
and any reduction in the Executive's compensation or benefits.
The Employment Agreements provide that neither Mr. Van Horn nor the Executives
will be liable for any damages resulting from their respective actions if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the Company. The Employment Agreements for
Mr. Van Horn and the Executives also provide that if and to the extent that
any payment or distribution by the Company or any of its affiliates to or for
the benefit of such officer would be subject to any excise tax imposed under
Section 4999 of the Code, such officer will receive an additional payment or
payments in an amount sufficient to make such officer whole for any such tax
and for any excise and other tax imposed on any such payment or payments.
Mr. Binford and Ms. Bryant have one year employment agreements in
substantially the same form as the Employment Agreements with the Executives
referred to above.
PROFIT SHARING PLAN
The Company has a Section 401(k) profit sharing plan available to all
employees eligible under the Code. During 1995, the Company made matching
contributions at a level equal to 100% of employees' before-tax contributions,
up to 3% of salary. The executive officers did not participate in the plan
during fiscal 1995.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1985 the Company established an Employee Stock Ownership Plan (the "ESOP").
Pursuant to the Plan of Reorganization, the ESOP Trustee received 9,706 shares
of Common Stock and 16,179 Warrants. The Company intends to terminate the ESOP
and has filed for a ruling from the Internal Revenue Service regarding the tax
consequences of the proposed termination. The Company has not yet received
such a ruling.
7
<PAGE> 8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the year ended June 30, 1995
were Messrs. Chambers, Luellen, Steadman and Wilde, none of whom is an
employee of the Company. Mr. Wilde is a member of Bracewell & Patterson, L.L.P.,
Houston, Texas, a law firm retained by the Company from time to time. During
fiscal 1995, the full Board (with Mr. Van Horn, who serves as President and
Chief Executive Officer of the Company, abstaining from voting on compensation
decisions) performed the functions normally delegated to the Compensation
Committee.
8
<PAGE> 1
[NCS LOGO]
National Convenience Stores Incorporated----------------------------------------
November 14, 1995
Dear Securityholder:
On November 8, 1995, National Convenience Stores Incorporated ("NCS")
entered into a merger agreement with Diamond Shamrock, Inc. ("Diamond Shamrock")
and one of its subsidiaries that provides for the acquisition of NCS by Diamond
Shamrock at a price of $27 per share. Under the terms of the merger agreement, a
Diamond Shamrock subsidiary has commenced a tender offer for all outstanding
shares of NCS common stock at $27 per share and all outstanding warrants to
purchase NCS common stock at $9.25 per warrant.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DIAMOND SHAMROCK OFFER
AND THE MERGER AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF NCS' SECURITYHOLDERS. ACCORDINGLY, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL NCS SECURITYHOLDERS ACCEPT
THE DIAMOND SHAMROCK OFFER AND TENDER THEIR COMMON STOCK AND WARRANTS TO DIAMOND
SHAMROCK.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors. These factors included, among other
things, the opinion dated November 7, 1995 of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, financial advisor to NCS, that the cash consideration to be
received by the NCS stockholders and warrantholders pursuant to the Diamond
Shamrock offer and the merger is fair to such securityholders from a financial
point of view.
Following the successful completion of the tender offer, the Diamond
Shamrock subsidiary will be merged into NCS, and all shares not purchased in the
tender offer will be converted into the right to receive $27 per share in cash
without interest. Warrants not tendered in the tender offer or exercised prior
to the completion of the merger will remain outstanding, but upon exercise and
payment of the $17.75 exercise price will represent only the right to receive
$27 in cash rather than one share of common stock.
Attached to this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is the
offer to purchase of Diamond Shamrock's subsidiary, together with related
materials. These documents set forth the terms and conditions of the Diamond
Shamrock offer and other important information. We encourage you to read the
enclosed materials carefully.
On behalf of myself, the other members of management and the directors of
NCS, I want to thank you for the support you have given the Company.
Sincerely,
/s/ V. H. VAN HORN
V. H. Van Horn
President and Chief Executive Officer
P.O. Box 758 Houston, Texas 77001-0758
100 Waugh Drive Houston, Texas 77007-5827
713-863-2200
<PAGE> 1
<TABLE>
<S> <C>
Investment Banking Group
One Houston Center
1221 McKinney
Suite 2700
Houston, Texas 77010
713 759 2500
FAX 713 759 2580
</TABLE>
[MERRILL LYNCH LOGO]
November 7, 1995
Board of Directors
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Gentlemen:
National Convenience Stores Incorporated (the "Company"), Diamond Shamrock,
Inc. (the "Acquiror") and Shamrock Acquisition Corporation, a wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), propose to enter into an
agreement (the "Agreement") pursuant to which the Acquiror and the Acquisition
Sub will make a tender offer (the "Offer") for all shares of the Company's
common stock, par value $.01 per share (the "Shares"), at $27.00 per Share, net
to the seller in cash, and all outstanding warrants (the "Warrants" and,
together with the Shares, the "Securities") to purchase Shares issued pursuant
to the warrant agreement, dated as of March 9, 1993, between the Company and
Boatmen's Trust Company, as Warrant Agent (the "Warrant Agreement"), at $9.25
per Warrant, net to the seller in cash. The Agreement also provides that,
following consummation of the Offer, the Company will be merged with the
Acquisition Sub in a transaction (the "Merger") in which each remaining Share
will be converted into the right to receive $27.00 in cash. The Warrants will be
unaffected by the Merger and, upon their subsequent exercise, the holders
thereof will receive $27.00 per Warrant in cash.
You have asked us whether, in our opinion, the proposed cash consideration
to be received by the holders of the Securities in the Offer and the Merger is
fair to such security holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended June 30, 1995 and summary
financial information provided by the Company relating to the quarterly
period ended September 30, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with those of certain
companies which we deemed to be reasonably similar to the Company;
<PAGE> 2
[MERRILL LYNCH LOGO]
(6) Compared the proposed financial terms of the Offer and the Merger with
the financial terms of certain other mergers and acquisitions that we
deemed to be relevant;
(7) Reviewed the Warrant Agreement;
(8) Reviewed a draft dated November 7, 1995 of the Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and the Acquiror and have received fees for the rendering of such
services. In addition, in the ordinary course of business, we may actively trade
the securities of both the Company and the Acquiror for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in securities of the Company and the Acquiror.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Securities
pursuant to the Offer and the Merger is fair to such security holders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE> 1
[NCS LOGO]
National Convenience Stores Incorporated----------------------------------------
November 14, 1995
Dear Fellow Participant in the
NCS Employee Stock Ownership Plan
and Profit Sharing Plan and Trust:
On November 8, 1995, National Convenience Stores Incorporated ("NCS")
entered into a merger agreement with Diamond Shamrock, Inc. ("Diamond Shamrock")
and one of its subsidiaries that provides for the acquisition of NCS by Diamond
Shamrock at a price of $27 per share. Under the terms of the merger agreement, a
Diamond Shamrock subsidiary has commenced a tender offer for all outstanding
shares of NCS common stock at $27 per share and all outstanding warrants to
purchase NCS common stock at $9.25 per warrant.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DIAMOND SHAMROCK OFFER
AND THE MERGER AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF NCS' SECURITYHOLDERS. ACCORDINGLY, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL NCS SECURITYHOLDERS ACCEPT
THE DIAMOND SHAMROCK OFFER AND TENDER THEIR COMMON STOCK AND WARRANTS TO DIAMOND
SHAMROCK.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors. These factors included, among other
things, the opinion dated November 7, 1995 of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, financial advisor to NCS, that the cash consideration to be
received by the NCS stockholders and warrantholders pursuant to the Diamond
Shamrock offer and the merger is fair to such securityholders from a financial
point of view.
Following the successful completion of the tender offer, the Diamond
Shamrock subsidiary will be merged into NCS, and all shares not purchased in the
tender offer will be converted into the right to receive $27 per share in cash
without interest. Warrants not tendered in the tender offer or exercised prior
to the completion of the merger will remain outstanding, but upon exercise and
payment of the $17.75 exercise price will represent only the right to receive
$27 in cash rather than one share of common stock.
Enclosed with this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, a copy of the Offer to
Purchase of Diamond Shamrock's subsidiary and related materials which set forth
important information. Also enclosed is a form for you to elect whether
securities in your ESOP and Profit Sharing Plan accounts will be tendered in the
Diamond Shamrock offer and related instructions. We encourage you to read all of
the enclosed materials carefully.
On behalf of myself, the other members of management and the directors of
NCS, I want to thank you for the support you have given the Company.
Sincerely,
/s/ V. H. VAN HORN
V. H. Van Horn
President and Chief Executive Officer
P.O. Box 758 Houston, Texas 77001-0758
100 Waugh Drive Houston, Texas 77007-5827
713-863-2200
<PAGE> 2
PROFIT SHARING PLAN
MEMORANDUM
TO: Participants in the National Convenience Stores Incorporated Profit
Sharing Plan ("Plan")
FROM: A.J. Gallerano, Senior Vice President, General Counsel and Secretary
DATE: November 14, 1995
This Memorandum is being sent to each Participant in the Plan on behalf of
National Convenience Stores Incorporated ("Company").
In general, Section 13.14(b) of the Plan, which is enclosed, provides that
Participants in the Plan whose account holds shares of the Company's stock or
holds the Company's warrants may direct the Trustee of the Plan, Merrill Lynch
Trust Company of Texas, with respect to its response to tender or exchange
offers.
Accordingly, enclosed is the information that the Company is sending to
holders of the Company's common stock and warrants about the tender offer made
for the Company by Shamrock Acquisition Corp., a wholly owned subsidiary of
Diamond Shamrock, Inc. These materials include sample letters of transmittal (on
green and blue paper) for reference only.
Also enclosed is a Direction Form, printed on beige paper, on which you may
indicate the manner in which you wish the Trustee to respond to the tender offer
with respect to the shares of the Company's stock and the Company's warrants
allocated to your account in the Plan. Your Direction Form should be completed,
signed, dated and returned in the enclosed envelope addressed to Boatmen's Trust
Company. Your Direction Form must be received no later than December 11, 1995.
Pursuant to Section 13.14(b)(vi) of the Plan, if a completed Direction Form
is not received from a Participant in the Plan, it shall be deemed that such
Participant is rejecting the tender or exchange offer.
Should you have any questions with respect to the Direction Form, please
contact Boatmen's Trust Company at 800-456-9852
CONFIDENTIALITY: THE COMPANY WILL ESTABLISH PROCEDURES DESIGNED TO ENSURE
THAT EITHER YOUR DECISION, AS REFLECTED ON YOUR DIRECTION FORM, OR YOUR DECISION
NOT TO RETURN THE DIRECTION FORM, WILL REMAIN CONFIDENTIAL. YOUR DECISION WILL
NOT BE DISCLOSED TO MANAGEMENT OR DIRECTORS OF THE COMPANY, ANY AFFILIATE OF THE
COMPANY, DIAMOND SHAMROCK, INC. OR ANY AFFILIATE OF DIAMOND SHAMROCK, INC.
<PAGE> 3
PROFIT SHARING PLAN
13.14 VOTING AND EXCHANGE OFFERINGS WITH RESPECT TO EMPLOYER STOCK
(b)(i) Each Participant, with respect to Employer Stock allocated or
attributable to his Account, shall have the right and shall be afforded the
opportunity to direct the Trustee as to the manner in which to respond to any
tender or exchange offer, or any matter relating to such an offer, in regard to
shares of Employer Stock (an "Offer").
(ii) The Trustee shall as soon as practicable distribute or cause to be
distributed to each Participant such information relating to any Offer the
Trustee receives as a stockholder of record of the Company.
(iii) All directions by a Participant shall be given to the Trustee in
writing and in such form and manner as the Committee shall prescribe. A
Participant shall be permitted to revoke or change any directions given,
provided such revocation or change is received in such form and manner as
prescribed herein for giving direction regarding an Offer. Any such directions
shall remain in the strict confidence of the Trustee.
(iv) Direction may be given to the Trustee to take such actions as may be
necessary to: (i) to accept the Offer with respect to the Employer Stock as to
which a Participant has the right to give such direction, or (ii) to reject the
Offer with respect to the Employer Stock as to which a Participant has the right
to give such direction.
(v) To the extent the Trustee has duly received direction from a
Participant, the Trustee shall comply therewith.
(vi) To the extent direction has not been duly received from a Participant,
it shall be deemed that each such Participant has duly directed the Trustee to
reject the Offer (with respect to the Employer Stock as to which such
Participant has the right to give such direction). The Trustee shall respond to
the Offer with respect to any unallocated Employer Stock in the same proportion
as participants accept or reject the Offer with respect to allocated Employer
Stock.
(vii) The Trustee shall accept or reject such Offer with respect to
Employer Stock in accordance with the foregoing on the last day permitted
pursuant to such Offer for such action to be taken without the loss of any
benefit under the Offer. To be considered duly received by the Trustee, all
directions must be received by the Trustee within a reasonable period of time,
as determined by the Trustee, prior to such last day so that the Trustee may act
in accordance with such written directions.
<PAGE> 4
PROFIT SHARING PLAN
DIRECTION FORM
To: Boatmen's Trust Company
510 Locust Street, 2nd Floor
St. Louis, Missouri 63101
Pursuant to Section 13.14(b) of the National Convenience Stores Incorporated
Profit Sharing Plan ("Plan"), I hereby direct Merrill Lynch Trust Company of
Texas to tender the shares and warrants of National Convenience Stores
Incorporated allocated to my account in the Plan to Shamrock Acquisition Corp.,
a wholly owned subsidiary of Diamond Shamrock, Inc. as follows ("x" the
appropriate blanks, and complete, if appropriate):
<TABLE>
<S> <C>
1. _____ Tender all of such shares.
2. _____ Tender all of such warrants.
3. _____ Tender _______________ of such shares only, and do not tender the remaining shares.
[insert number]
4. _____ Tender _______________ of such warrants only, and do not tender the remaining warrants.
[insert number]
5. _____ Do not tender any of such shares or warrants.
</TABLE>
THIS DIRECTION FORM SHOULD BE RETURNED IN THE ENCLOSED ENVELOPE ADDRESSED TO
BOATMEN'S TRUST COMPANY.
I hereby acknowledge that I am a Participant in the Plan and that I have
received a copy of the Offer to Purchase and tender offer materials dated
November 14, 1995.
Date: _____________________ Signed: ______________________
Plan Participant (or Beneficiary) Name, Social Security Number, Number of
Shares, Number of Warrants and Address:
[LABEL]
CONFIDENTIAL
<PAGE> 5
EMPLOYEE STOCK OWNERSHIP PLAN
MEMORANDUM
<TABLE>
<S> <C>
TO: Participants in the National Convenience Stores Incorporated Employee Stock
Ownership Plan ("ESOP")
FROM: A.J. Gallerano, Senior Vice President, General Counsel and Secretary
DATE: November 14, 1995
</TABLE>
This Memorandum is being sent to each Participant in the ESOP on behalf of
National Convenience Stores Incorporated ("Company").
In general, Section 8(b) of the ESOP, which is enclosed, provides that
Participants in the ESOP whose account holds shares of the Company's stock or
holds the Company's warrants may direct the Trustee of the ESOP, Merrill Lynch
Trust Company of Texas, with respect to its response to tender or exchange
offers.
Accordingly, enclosed is the information that the Company is sending to
holders of the Company's common stock and warrants about the tender offer made
for the Company by Shamrock Acquisition Corp., a wholly owned subsidiary of
Diamond Shamrock, Inc. These materials include sample letters of transmittal (on
green and blue paper) for reference only.
Also enclosed is a Direction Form, printed on pink paper, on which you may
indicate the manner in which you wish the Trustee to respond to the tender offer
with respect to the shares of the Company's stock and the Company's warrants
allocated to your account in the ESOP. Your Direction Form should be completed,
signed, dated and returned in the enclosed envelope addressed to Boatmen's Trust
Company. Your Direction Form must be received no later than December 11, 1995.
Pursuant to Section 8(b)(6) of the ESOP, if a completed Direction Form is
not received from a Participant in the ESOP, it shall be deemed that such
Participant is rejecting the tender or exchange offer.
Should you have any questions with respect to the Direction Form, please
contact Boatmen's Trust Company at 800-456-9852.
CONFIDENTIALITY: THE COMPANY WILL ESTABLISH PROCEDURES DESIGNED TO ENSURE
THAT EITHER YOUR DECISION, AS REFLECTED ON YOUR DIRECTION FORM, OR YOUR DECISION
NOT TO RETURN THE DIRECTION FORM, WILL REMAIN CONFIDENTIAL. YOUR DECISION WILL
NOT BE DISCLOSED TO MANAGEMENT OR DIRECTORS OF THE COMPANY, ANY AFFILIATE OF THE
COMPANY, DIAMOND SHAMROCK, INC. OR ANY AFFILIATE OF DIAMOND SHAMROCK, INC.
<PAGE> 6
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 8. VOTING OF COMMON STOCK
(b)(1) Each Participant, with respect to Company Stock allocated to his
Company Stock Account, shall have the right and shall be afforded the
opportunity to direct the Trustee as to the manner in which to respond to any
tender or exchange offer, or any matter relating thereto, in regard to shares of
Company Stock (an "Offer").
(2) The Trustee shall reasonably endeavor to promptly distribute or cause
to be distributed to each Participant such information relating to any Offer the
Trustee receives as a stockholder of record of NCS.
(3) All directions by a Participant shall be given to the Trustee in
writing and in such form and manner as the Committee shall prescribe. A
Participant shall be permitted to revoke or change any directions given,
provided such revocation or change is received in such form and manner as
prescribed herein for giving direction regarding an Offer. Any such directions
shall remain in the strict confidence of the Trustee.
(4) Direction may be given to the Trustee to take such actions as may be
necessary (i) to accept ("Accept") the Offer with respect to the Company Stock
as to which a Participant has the right to give such direction, or (ii) to
reject ("Reject") the Offer with respect to the Company Stock as to which a
Participant has the right to give such direction.
(5) To the extent the Trustee has duly received direction from a
Participant, the Trustee shall comply therewith.
(6) To the extent direction has not been duly received from a Participant,
it shall be deemed that each such Participant has duly directed the Trustee to
Reject the Offer (with respect to the Company Stock as to which such Participant
has the right to give such direction). The Trustee shall respond to the offer
with respect to any unallocated Company Stock in the same proportion as
Participants Accept or Reject the Offer with respect to allocated Company Stock.
(7) The Trustee shall Accept or Reject such Offer with respect to Company
Stock in accordance with the foregoing on the last day permitted pursuant to
such Offer for such action to be taken without the loss of any benefit under the
Offer. To be considered duly received by the Trustee, all directions must be
received by the Trustee within a reasonable period of time, as determined by the
Trustee, prior to such last day so that the Trustee may act in accordance with
such written directions.
<PAGE> 7
EMPLOYEE STOCK OWNERSHIP PLAN
DIRECTION FORM
To: Boatmen's Trust Company
510 Locust Street, 2nd Floor
St. Louis, Missouri 63101
Pursuant to Section 8(b) of the National Convenience Stores Incorporated
Employee Stock Ownership Plan ("ESOP"), I hereby direct Merrill Lynch Trust
Company of Texas to tender the shares and warrants of National Convenience
Stores Incorporated allocated to my account in the ESOP to Shamrock Acquisition
Corp., a wholly owned subsidiary of Diamond Shamrock, Inc. as follows ("x" the
appropriate blanks, and complete, if appropriate):
<TABLE>
<S> <C>
1. _____ Tender all of such shares.
2. _____ Tender all of such warrants.
3. _____ Tender _______________ of such shares only, and do not tender the remaining shares.
[insert number]
4. _____ Tender _______________ of such warrants only, and do not tender the remaining warrants.
[insert number]
5. _____ Do not tender any of such shares or warrants.
</TABLE>
THIS DIRECTION FORM SHOULD BE RETURNED IN THE ENCLOSED ENVELOPE ADDRESSED TO
BOATMEN'S TRUST COMPANY.
I hereby acknowledge that I am a Participant in the ESOP and that I have
received a copy of the Offer to Purchase and tender offer materials dated
November 14, 1995.
Date: ______________________ Signed: _______________
Plan Participant (or Beneficiary) Name, Social Security Number, Number of
Shares, Number of Warrants and Address:
[LABEL]
CONFIDENTIAL
