<PAGE> 1
NATIONAL CONVENIENCE STORES INCORPORATED
100 WAUGH DRIVE
HOUSTON, TEXAS 77007
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed by National Convenience Stores
Incorporated (the "Company"), on or about December 1, 1995 to holders of record
as of November 29, 1995 of shares of the Company's common stock, par value $.01
per share ("Common Stock"), in connection with the designation by Diamond
Shamrock, Inc. ("Diamond Shamrock") of persons to be elected to the Board of
Directors of the Company (the "Board") other than at a meeting of the Company's
stockholders, in accordance with the Agreement and Plan of Merger, dated as of
November 8, 1995, among Diamond Shamrock, Diamond Shamrock's wholly owned
subsidiary, Shamrock Acquisition Corp. (the "Purchaser"), and the Company (the
"Merger Agreement").
This Information Statement is being provided pursuant to Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 thereunder. YOU ARE NOT REQUIRED TO TAKE ANY ACTION AT THIS TIME. HOWEVER,
YOU ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY.
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock is entitled to one vote in the election
of directors of the Company. As of November 29, 1995, (i) 6,090,390 shares of
Common Stock were outstanding, (ii) 775,000 shares of Common Stock were reserved
for issuance upon the exercise of options (the "Options") outstanding under the
Company's 1993 Non-Qualified Stock Option Plan (the "Option Plan"), and (iii)
1,349,610 shares of Common Stock were reserved for issuance upon the exercise of
outstanding warrants to purchase Common Stock (the "Warrants") issued pursuant
to the Warrant Agreement, dated March 9, 1993 (the "Warrant Agreement"), between
the Company and Boatmen's Trust Company, as Warrant Agent.
The information contained in this Information Statement concerning Diamond
Shamrock, the Purchaser and the Purchaser Designees (as defined below) has been
furnished to the Company by Diamond Shamrock and the Purchaser.
MERGER AGREEMENT
Pursuant to the Merger Agreement, on November 14, 1995, the Purchaser
commenced a cash tender offer (the "Offer") to acquire (i) all of the
outstanding shares of the Common Stock (together with the associated rights to
purchase preferred stock of the Company (the "Rights")) for $27.00 per share of
Common Stock (and the associated Right) and (ii) all outstanding Warrants for
$9.25 per Warrant, in each case, net to the seller (pre-tax) in cash, without
interest thereon. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration date of the Offer,
that number of shares of Common Stock and Warrants representing at least
two-thirds of the total number of outstanding shares of Common Stock on a fully
diluted basis.
The Merger Agreement provides that, after the completion of the Offer, and
subject to the terms and conditions of the Merger Agreement, the Purchaser will
be merged with and into the Company (the "Merger") and the Company will continue
as the surviving corporation. Each then-outstanding share of Common Stock (other
than shares of Common Stock owned by Diamond Shamrock, the Purchaser or any
other direct or indirect subsidiary of Diamond Shamrock or held in the treasury
of the Company, all of which will be cancelled, and shares of Common Stock held
by stockholders who comply with all of the relevant provisions of Article IX of
the Company's Restated Certificate of Incorporation (the "Company Charter") and
who perfect their appraisal rights under Section 262 of the General Corporation
Law of the State of Delaware) will be converted into the right to receive $27.00
per share of Common Stock, or any higher price per share of Common Stock paid
pursuant to the Offer, without interest thereon, net to the holder (pre-tax) in
<PAGE> 2
cash (the "Merger Consideration"). Pursuant to the terms of the Warrant
Agreement, each then-outstanding Warrant will remain outstanding and holders of
Warrants will have the right to obtain upon exercise of each Warrant and payment
of the exercise price therefor, 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.
The Merger Agreement also provides that, upon the Purchaser's acceptance
for payment of shares of Common Stock and Warrants tendered pursuant to the
Offer, the Purchaser will be entitled, subject to compliance with applicable law
and the Company 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 Purchaser 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 Purchaser, 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 persons designated by Diamond
Shamrock to be so elected, subject to Section 14(f) of the Exchange Act.
However, prior to the Effective Time (as defined in the Merger Agreement), the
Company will use its reasonable best efforts to assure that the Board has at
least two members who were directors of the 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,
Inc. (the "NYSE"), to cause the Purchaser's designees 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 Purchaser's ownership of 66 2/3% of the outstanding Common Stock would
entitle it to be represented by six of the eight members of the Board pursuant
to the above-described provision. Diamond Shamrock has designated six persons
(Roger R. Hemminghaus, W. Paul Eisman, Timothy J. Fretthold, William R. Klesse,
J. Robert Mehall and A.W. O'Donnell) (collectively, the "Purchaser Designees")
to be elected to the Board as promptly as practicable following the completion
of the Offer, but in any event, not prior to December 14, 1995 (the "Election
Date"). See "Information with Respect to Purchaser Designees." The Company has
advised Diamond Shamrock that it expects six current directors (Charles J.
Luellen, Raymond W. Oeland, Jr., Lionel Sosa, Richard C. Steadman, Robert B.
Stobaugh and William Key Wilde) (collectively, the "Resigning Directors") to
submit their resignations from the Board, effective as of the Election Date,
while V.H. Van Horn and Dunbar N. Chambers, Jr. are expected to continue to
serve on the Board (the "Continuing Directors"). See "The Board of Directors and
Executive Officers -- Directors of the Company." Effective upon the resignations
of the Resigning Directors, the Continuing Directors intend to elect the
Purchaser Designees to the Board to fill the vacancies created thereby. As a
result of the foregoing, on the Election Date, the Board will consist of the six
Purchaser Designees and the two Continuing Directors, and the Purchaser
Designees will constitute the quorum of the Board required by the Company's
Restated By-Laws (the "By-Laws").
THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL. The By-Laws provide that the number of directors shall be fixed by
the Board and shall be no more than eight. The Board is divided into three
classes and each director serves a term of three years and until his successor
is duly elected and qualified or until his earlier death, resignation or
removal. The Board currently consists of eight members and there are currently
no vacancies on the Board. There are four directors whose terms will expire at
the Company's Annual Meeting of Stockholders in 1995 (which meeting has been
postponed indefinitely by Board action on September 18, 1995), two directors
whose terms will expire at the Company's Annual Meeting of Stockholders in 1996
and two directors whose terms will expire at the Company's Annual Meeting of
Stockholders in 1997.
On August 11, 1995, the Company received from The Circle K Corporation
("Circle K"), which had previously made a proposal to acquire the Company, 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
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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., 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 next annual
meeting to five and to nominate a person for election to fill the additional
directorship.
DIRECTORS OF THE COMPANY. The following table sets forth certain
information with respect to each of the current directors of the Company. Unless
otherwise indicated, each such person has held the principal occupation listed
opposite his name for at least the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR MATERIAL
NAME AGE POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
V. H. Van Horn..................... 57 Mr. Van Horn is a director and President and
Chief Executive Officer of the Company. Mr. Van
Horn also serves as a director of Southdown,
Inc., a cement and ready-mixed concrete company
located in Houston, Texas. He has been a
director of the Company since 1975.
Dunbar N. Chambers, Jr.(1)......... 60 Mr. Chambers is Chairman of the Board of
Directors of Chambco, Inc., which, through its
subsidiaries and related investments, engages in
real estate investment, development and
management, ranching and other investments. He
has been a director of the Company since 1964.
Charles J. Luellen(1)(2)........... 65 Mr. Luellen served, until his retirement in
1992, as President and Chief Operating Officer
of Ashland Oil, Inc. in Ashland, Kentucky. Mr.
Luellen also serves as a director of Tosco
Corp., a refining corporation. He has been a
director of the Company since 1993.
Raymond W. Oeland, Jr.(3).......... 60 Mr. Oeland is a private investor. He has been a
director of the Company since 1959.
Lionel Sosa(3)..................... 56 Mr. Sosa has, since January 1994, served as
Chairman of D'Arcy, Masius, Benton & Bowles,
Inc., an advertising firm located in San
Antonio, Texas. Prior to January 1994, Mr. Sosa
served as Chairman and Chief Executive Officer
of Sosa, Bromley, Aguilar & Associates in San
Antonio, Texas for more than five years. Mr.
Sosa also serves as a director of Bank of
America, Texas, a subsidiary of Bank of America
National Trust and Savings Association, N.A. He
has been a director of the Company since 1993.
Richard C. Steadman(1)............. 63 Mr. Steadman serves as Chairman of the Company's
Board of Directors and is a private investor.
Mr. Steadman also serves as a director of
Storage Technology Corporation, a manufacturer
of storage devices for mainframe computers
located in Louisville, Colorado. He has been a
director of the Company since 1969.
</TABLE>
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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR MATERIAL
NAME AGE POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Robert B. Stobaugh(2)(3)........... 67 Mr. Stobaugh is a Professor of Business
Administration at the Harvard University
Graduate School of Business Administration. Mr.
Stobaugh is also a director of Ashland Oil, Inc.
in Ashland, Kentucky, as well as a Director of
American International Petroleum Corporation in
New York, New York. He has been a director of
the Company since 1973.
William Key Wilde(1)............... 62 Mr. Wilde is a partner in the law firm of
Bracewell & Patterson, L.L.P. in Houston, Texas.
He has been a director of the Company since
1959.
</TABLE>
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(1) Member of the Compensation Committee of the Board.
(2) Member of the Nominating Committee of the Board.
(3) Member of the Audit Committee of the Board.
EXECUTIVE OFFICERS OF THE COMPANY. The name, age, present principal
occupation or employment and the material occupation, positions, offices, or
employments for the past five years of each of the current executive officers of
the Company are set forth below.
<TABLE>
<CAPTION>
NAME AND POSITION AGE BUSINESS EXPERIENCE
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
V.H. Van Horn...................... 57 Mr. Van Horn has been a director and President
and Chief Executive Officer of the Company since
February 1975 and an employee of the Company
since March 1966. Mr. Van Horn also serves as a
director of Southdown, Inc., a cement and
concrete manufacturing company in Houston,
Texas.
A.J. Gallerano..................... 53 Mr. Gallerano has been Senior Vice President,
General Counsel and Secretary of the Company
since September 1989. Mr. Gallerano was Vice
President, General Counsel and Secretary of the
Company from October 1979 to August 1989.
Arnold Van Zanten.................. 53 Mr. Van Zanten has been Senior Vice President --
Administration of the Company since May 1992.
Mr. Van Zanten was Vice President -- Systems of
the Company from April 1989 to April 1992.
C.R. Wortham, Jr................... 56 Mr. Wortham has been Senior Vice
President -- Real Estate and Gasoline of the
Company since August 1989. Mr. Wortham was Vice
President -- Real Estate and Gasoline of the
Company from July 1988 to July 1989 and Vice
President -- Real Estate of the Company from
June 1985 to June 1988.
Brian Fontana...................... 37 Mr. Fontana has been Vice President -- Chief
Financial Officer of the Company since December
1993. Mr. Fontana was Vice President and
Treasurer of the Company from August 1993 to
November 1993, Treasurer of the Company from
February 1992 to July 1993 and Assistant
Treasurer of the Company from April 1990 to
February 1992.
</TABLE>
4
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<TABLE>
<CAPTION>
NAME AND POSITION AGE BUSINESS EXPERIENCE
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Douglas B. Binford................. 51 Mr. Binford has been Vice President -- Marketing
of the Company since November 1994. Mr. Binford
was Senior Vice President of Sales and
Merchandising for Red Food Stores Incorporated
(a grocery store chain) from July 1989 through
October 1994.
Janice E. Bryant................... 44 Ms. Bryant has been Vice President -- Controller
since February 1995. Ms. Bryant was Vice
President and Controller of Continental
Airlines, Inc. from August 1993 through January
1995 and served as Controller and in various
other positions with Continental Airlines
Holdings, Inc. (formerly Texas Air Corporation,
an airline holding company) from October 1981
through July 1993.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD. The Board conducted six meetings
during fiscal 1995, four of which were regular meetings and two of which were
special meetings of the Board. Each of the directors attended at least 75% of
the meetings of the Board and any Committee of the Board except Mr. Wilde who
attended 50% of the Board meetings. The Board has established the following
committees and retains the authority to establish additional committees from
time to time.
The Audit Committee, which met four times during fiscal 1995, reviews the
Company's financial statements periodically with the Company's independent
public accounts, determines the effectiveness of the audit effort through
meetings with the Company's independent public accountants, monitors the
effectiveness of the Company's internal controls and financial accounting
functions and reports to the Board on its activities and its recommendations.
The Compensation Committee evaluates on an annual basis the performance of
the Company's senior management, structures appropriate compensation
arrangements for senior management and makes reports to the Board as to its
findings and formulations of compensation arrangements for senior management.
During fiscal 1995, the full Board (excluding Mr. Van Horn) performed the
functions normally delegated to the Compensation Committee.
The Nominating Committee, which was formed in March 1993 pursuant to the
Company's Fourth Amended and Restated Joint Plan of Reorganization (the "Plan of
Reorganization") and operates pursuant to the provisions of the Plan of
Reorganization, nominates candidates for election to the Board. The Nominating
Committee met two times in fiscal 1995.
DIRECTORS' COMPENSATION. 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 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 (the "Directors' Retirement Plan"). 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 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 such
individual 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 Directors'
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Retirement Plan), 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 consummation of the
Offer will constitute a Change in Control for the purposes of the Directors'
Retirement Plan.
Pursuant to the Option Plan, each outside director of the Company who was
serving as such on the date 180 days after confirmation of the Plan of
Reorganization, received Options to purchase 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 became
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. The consummation of the Offer will
constitute a Change of Control for the purposes of the Option Plan.
The Merger Agreement provides that all Options outstanding under 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
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 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
provisions of the Option Plan, the Company has given notice to each holder of
Options, including the directors noted above, that such Options have become
currently exercisable and that, 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.
Effective August 31, 1995, the Company entered into agreements with each
non-employee director of the Company (the "Director Agreements"). 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Section 16(a) of the
Exchange Act requires the Company's directors, executive officers and any
persons holding more than 10% of the Common Stock to file reports of ownership
of the Common Stock and any subsequent changes in that ownership with the
Securities and Exchange Commission (the "Commission"). During fiscal 1995, Mr.
Steadman was late filing the Form 4 reporting (i) the acquisition of 79 shares
of Common Stock as a creditor under the Company's bankruptcy and (ii) the
acquisition of 4,800 Warrants to purchase Common Stock. Mr. Stobaugh was late
filing the Form 4 reporting the acquisition of 82 shares of Common Stock as a
creditor under the Company's bankruptcy. Mr. Chambers was late filing the Form 4
reporting the acquisition of 17 shares of Common Stock as a creditor under the
Company's bankruptcy. All other filings were satisfied on a timely basis during
fiscal 1995. In making these disclosures, the Company has relied solely on
written statements of its directors and executive officers and copies of the
reports filed with the Commission.
CERTAIN TRANSACTIONS AND RELATIONSHIPS. Mr. Wilde, a director of the
Company, is a partner of Bracewell & Patterson, L.L.P. a law firm in Houston,
Texas retained by the Company from time to time.
During fiscal 1994, the Company made two three-year unsecured loans in the
aggregate amount of $300,000 (the "Prior Loans") with interest payable at 8 1/2%
annually to Mr. Van Horn. On August 31, 1995, the Company and Mr. Van Horn
entered into a Promissory Note (the "Note") in renewal, replacement and
rearrangement of the Prior Loans. The Note was in the principal amount of
$194,717.70 (the balance of the Prior Loans as a result of payments by Mr. Van
Horn) and bore interest at 9% annually. Accrued interest was
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payable monthly beginning October 1, 1995 until August 31, 1996, when all then
unpaid principal and accrued interest would have been due and payable. Mr. Van
Horn paid the Note in full on September 25, 1995.
EXECUTIVE OFFICER COMPENSATION
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------ 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 Secretary 1993 182,000 103,980 (1) 60,000 0
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 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 "Benefit Plans -- Officers' Retirement Plan")
and (ii) the Company's 401(k) Profit Sharing Plan (see "Benefit
Plans -- Profit Sharing Plan").
OTHER COMPENSATION -- 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 Option Plan is administered by the Board. 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.
With respect to the treatment of the Options under the Merger Agreement and
certain related actions which result in all Options being currently exercisable,
see "The Board of Directors and Executive Officers -- Directors' Compensation."
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The following table sets forth certain information concerning the exercise
in fiscal 1995 of Options by the named executive officers and the unexercised
Options held by such individuals at June 30, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT JUNE 30, 1995 JUNE 30, 1995(2)
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 Common Stock on the NYSE 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 November 30, 1995,
the closing price of the Common Stock on the NYSE was $26 7/8 per share. As
noted above, all of such Options are currently exercisable.
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., a law firm in
Houston, Texas retained by the Company from time to time. During fiscal 1995,
the full Board (with Mr. Van Horn, abstaining from voting on compensation
decisions) performed the functions normally delegated to the Compensation
Committee.
BENEFIT PLANS
OFFICERS' RETIREMENT PLAN. The Company maintains an Officers' Retirement
Plan which was amended and restated effective August 31, 1995 (the "Officers'
Retirement Plan"). 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>
YEARS OF SERVICE
AVERAGE --------------------------------------------------------------------
EARNINGS 5 10 15 20 25 30
- --------- -------- -------- -------- -------- -------- --------
<S> <C> <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 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
8
<PAGE> 9
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 amendment on August 31, 1995 the Officers' Retirement Plan
provided that a participant 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
in the Officers' Retirement Plan) a participant shall become fully vested in his
pension benefit and the Company 15% Bonus Contribution. 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, 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. The consummation of the Offer will constitute a Change in Control for
the purposes of the Officers Retirement Plan.
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 named
executive officers.
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 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 and 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 in the Employment Agreement) before or after a Change in Control (as
defined in the Employment Agreement), or if Mr. Van Horn terminates his
Employment Agreement without Good Reason (as defined in the Employment
Agreement) or without Good Reason-Change in Control (as defined in the
Employment Agreement), 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 (as defined in
the Employment Agreement) 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 (1) 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 (2) the average
bonus earned by Mr. Van
9
<PAGE> 10
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 consummation of the
Offer will constitute a Change in Control for purposes of Mr. Van Horn's
Employment Agreement.
Following the execution of the Merger Agreement, Mr. Hemminghaus informed
Mr. Van Horn 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 30,
1995, the specific terms of any such consulting arrangement had not been agreed
to by Diamond Shamrock and Mr. Van Horn.
The Company has entered into Employment Agreements with each of the other
named executive officers 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 in the Executive Employment Agreements) or if an Executive terminates an
Employment Agreement without Good Reason or without Good Reason-Change in
Control (each as defined in the Executive Employment Agreements), 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 (as defined in
the Executive Employment Agreements), the Company will be required to pay the
Executive within 30 days of the termination date a cash amount 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. The consummation of the Offer will
constitute a Change in Control for purposes of the Employment Agreements for the
Executives.
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 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.
Assuming a "change in 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
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<PAGE> 11
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 Code
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 in control, the date of each person's
termination, policy positions of the Internal Revenue Service and other factors.
PROFIT SHARING PLAN. The Company has a Section 401(k) profit sharing plan
available to all employees eligible under the Code (the "Profit Sharing Plan").
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 Profit Sharing 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,
Merrill Lynch Trust Company, as Trustee under the ESOP (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.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of November 29, 1995, by (i) all directors,
(ii) each of the named executive officers, and (iii) all directors and executive
officers of the Company as a group. Pursuant to the Plan of Reorganization, a
number of shares of Common Stock beneficially owned by certain of the Company's
creditors were issued to Boatmen's Trust Company ("Boatmen's"), as agent for the
beneficial owners of such shares, pending the determination of the number of
shares properly allocable to each such creditor (such shares issued to Boatmen's
as agent for such creditors referred to herein as the "Creditors' Shares"). As
of November 29, 1995, Boatmen's held 373,588 of the Creditor's Shares,
constituting approximately 6.1% of the outstanding Common Stock. All information
below with respect to beneficial ownership has been furnished to the Company by
the respective directors and executive officers.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
NAME OF BENEFICIAL OWNER OF COMMON STOCK(1) OF CLASS
-------------------------------------------------------- -------------------- --------
<S> <C> <C>
V. H. Van Horn.......................................... 155,318(2) 2.5
Dunbar N. Chambers, Jr.................................. 15,139(3) *
Charles J. Luellen...................................... 15,000(4) *
Raymond W. Oeland, Jr................................... 15,000(4) *
Lionel Sosa............................................. 15,000(4) *
Richard C. Steadman..................................... 66,622(5) 1.1
Robert B. Stobaugh...................................... 15,722(4) *
William Key Wilde....................................... 18,061(6) *
A. J. Gallerano......................................... 60,342(7) *
C. R. Wortham, Jr....................................... 60,086(8) *
Arnold Van Zanten....................................... 60,117(9) *
Brian Fontana........................................... 30,002(10) *
All directors and executive officers as a group (14
persons).............................................. 586,409 8.9
</TABLE>
- ---------------
* Less than 1%.
(footnotes on following page)
11
<PAGE> 12
(1) Except as otherwise indicated, all such shares of Common Stock are owned
with sole voting power and sole investment power. Information with respect
to beneficial ownership is based on information furnished to the Company by
the individuals named or included in the group, and includes shares of
Common Stock that such persons have or within 60 days after November 29,
1995 will have, the right to acquire pursuant to stock options or
otherwise.
(2) Includes (i) 64 shares of Common Stock held by the ESOP Trustee, (ii) 1,292
shares of Common Stock held by Merrill Lynch Trust Company as trustee under
the Company's Profit Sharing Plan (the "Profit Sharing Trustee") for Mr.
Van Horn's account and as to which he has sole voting power, (iii) seven
shares of Common Stock owned by Mr. Van Horn's family members, as to which
beneficial ownership is disclaimed, (iv) an aggregate of 833 Warrants, of
which 107 Warrants are held by the ESOP Trustee, 507 Warrants are held by
the Profit Sharing Trustee and 14 Warrants are held by members of Mr. Van
Horn's family, as to which beneficial ownership is disclaimed, and (v)
exercisable Options to acquire 150,000 shares of Common Stock at an
exercise price of $10.50 per share.
(3) Includes six Warrants and exercisable Options to acquire 15,000 shares of
Common Stock at an exercise price of $10.50 per share.
(4) Includes exercisable Options to acquire 15,000 shares of Common Stock at an
exercise price of $10.50 per share.
(5) Includes (i) 168 shares of Common Stock and 281 Warrants held by Mr.
Steadman's wife, as to which beneficial ownership is disclaimed, (ii)
30,308 Warrants held by Mr. Steadman, (iii) 10,009 shares of Common Stock
and 16 Warrants held by Oystercatcher Development, which is wholly owned by
Mr. Steadman and his wife, and (iv) exercisable Options to acquire 15,000
shares of Common Stock at an exercise price of $10.50 per share.
(6) Includes 1,147 shares of Common Stock and 1,914 Warrants held by Graystone
Investments, a partnership in which Mr. Wilde is a partner, and exercisable
Options to acquire 15,000 shares of Common Stock at an exercise price of
$10.50 per share.
(7) Includes (i) 33 shares of Common Stock held by the ESOP Trustee, (ii) 183
shares of Common Stock held by the Profit Sharing Plan Trustee, (iii) an
aggregate of 120 Warrants, of which 55 Warrants are held by the ESOP
Trustee and 55 Warrants are held by the Profit Sharing Trustee, and (iv)
exercisable Options to acquire 60,000 shares of Common Stock at an exercise
price of $10.50 per share.
(8) Includes (i) 27 shares of Common Stock held by the ESOP Trustee, (ii) 11
shares of Common Stock held by the Profit Sharing Trustee, (iii) an
aggregate of 48 Warrants, of which 44 Warrants are held by the ESOP Trustee
and four Warrants are held by the Profit Sharing Trustee, and (iv)
exercisable Options to acquire 60,000 shares of Common Stock at an exercise
price of $10.50 per share.
(9) Includes (i) seven shares of Common Stock held by the ESOP Trustee, (ii) 54
shares of Common Stock held by the Profit Sharing Trustee, (iii) an
aggregate of 41 Warrants, of which 11 Warrants are held by the ESOP Trustee
and five Warrants are held by the Profit Sharing Trustee, and (iv)
exercisable Options to acquire 60,000 shares of Common Stock at an exercise
price of $10.50 per share.
(10) Includes (i) one share of Common Stock held by the ESOP Trustee, (ii) one
Warrant held by the ESOP Trustee, and (iii) exercisable Options to acquire
30,000 shares of Common Stock at an exercise price of $10.50 per share.
To the knowledge of the Company, none of the Purchaser Designees
beneficially owns any Common Stock.
12
<PAGE> 13
The following table sets forth information concerning the ownership of
Common Stock by each person known to the Company to be the beneficial owner of
more than 5% of the Common Stock, based on public filings made with the
Commission as of November 29, 1995 and certain information supplied to the
Company by the persons listed below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF
OF BENEFICIAL OWNER OF COMMON STOCK(1) CLASS
- ------------------------------------------------------------ ----------------------- ----------
<S> <C> <C>
Merrill Lynch & Co., Inc.................................... 351,215(2) 5.7%
Merrill Lynch Phoenix Fund, Inc.
250 Vesey Street
New York, New York 10281
Quaker Capital Management Corporation....................... 355,762(3) 5.8%
The Arrott Building
401 Wood Street, Suite 1300
Pittsburgh, Pennsylvania 15222-1824
</TABLE>
- ---------------
(1) Based upon its review of the facts and circumstances, the Company believes
that neither of these positions is subject to the limitations set forth in
Article V of the Company Charter.
(2) Includes 261,215 shares of Common Stock and 90,000 Warrants held by Merrill
Lynch Phoenix Fund, Inc. (the "Phoenix Fund"), a registered investment
company. An indirect wholly owned subsidiary of Merrill Lynch & Co., Inc.,
acts as the general partner of Fund Asset Management, L.P., 800 Scudders
Mill Road, Plainsboro, New Jersey, the investment advisor to the Phoenix
Fund ("FAM"). Voting and dispositive power with respect to such securities
are shared, and the Phoenix Fund, its general partner, FAM and Merrill Lynch
& Co., Inc. and its subsidiary, through which such general partner is owned,
disclaim beneficial ownership of such securities.
(3) Includes 7,500 shares of Common Stock for which Quaker Capital Management
Corporation ("Quaker") has sole voting power and dispositive power. Also
includes 348,262 shares of Common Stock owned by various investment advisory
clients of Quaker and over which Quaker has discretionary authority and
shared voting and dispositive power. Quaker disclaims beneficial ownership
of the 348,262 shares of Common Stock which are owned by its clients.
13
<PAGE> 14
INFORMATION WITH RESPECT TO PURCHASER DESIGNEES
The name, age, present principal occupation or employment and the material
occupations, positions, offices or employments for the past five years of each
Purchaser Designee are set forth below. Unless otherwise indicated, each such
person has held the principal occupation or employment listed opposite his name
for at least the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR MATERIAL
NAME AGE POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Roger R. Hemminghaus............... 59 Mr. Hemminghaus is Chairman of the Board,
President and Chief Executive Officer of Diamond
Shamrock. He served as President of the refining
and marketing unit of Diamond Shamrock's
predecessor from March 1985 until April 1987.
Mr. Hemminghaus is a director of Luby's
Cafeterias, Inc. and Southwestern Public Service
Co. and is the Deputy Chairman of the board of
directors of the Federal Reserve Bank of Dallas.
W. Paul Eisman..................... 40 Mr. Eisman became Vice President and Group
Executive -- Manufacturing of Diamond Shamrock
in June 1995. During the five years prior to
that time, Mr. Eisman served in various
positions with Diamond Shamrock, including
Director -- Crude Oil Supply, Assistant to the
Chairman and Plant Manager of the McKee
Refinery.
Timothy J. Fretthold............... 46 Mr. Fretthold is Senior Vice President and
General Counsel of Diamond Shamrock. He served
as a Group Vice President and General Counsel of
Diamond Shamrock from April 1987 to June 1989
and as Senior Vice President/Group Executive and
General Counsel from June 1989 through February
1995.
William R. Klesse.................. 49 Mr. Klesse is Executive Vice President of
Diamond Shamrock. He served as Group Vice
President -- Development and New Ventures of
Diamond Shamrock from May 1988 to June 1989 and
as Senior Vice President/Group Executive from
that date until February 1995. Mr. Klesse served
as Group Vice President -- Planning and Public
Affairs of Diamond Shamrock from April 1987
through May 1988.
J. Robert Mehall................... 53 Mr. Mehall is Executive Vice President of
Diamond Shamrock. He served as Group Vice
President -- Supply of Diamond Shamrock from
April 1987 to June 1989 and as Senior Vice
President/Group Executive from that date until
February 1995.
A.W. O'Donnell..................... 63 Mr. O'Donnell is President/Marketing and Senior
Vice President of Diamond Shamrock. He served as
Group Vice President -- Marketing of Diamond
Shamrock from April 1987 to June 1989 and as
Senior Vice President/Group Executive of Diamond
Shamrock from that date until February 1995.
</TABLE>
14
<PAGE> 15
CHANGE IN CONTROL
Following the consummation of the Offer, Diamond Shamrock will beneficially
own a controlling equity interest in the Company. Following the election of the
Purchaser Designees to the Board pursuant to the terms of the Merger Agreement,
Diamond Shamrock may be deemed to control the Company. Set forth below is a
discussion of the source and amount of consideration to be used by Diamond
Shamrock to acquire a controlling equity interest in the Company.
The total amount of funds required by the Purchaser to acquire the entire
equity interest in the Company, including the purchase of all Common Stock and
Warrants pursuant to the Offer, and to pay related fees and expenses is
estimated to be approximately $205 million. Diamond Shamrock intends to obtain
the funds from loans to be provided by Bank of America National Trust and
Savings Association ("BofA"). BofA has entered into a commitment letter with
Diamond Shamrock, dated November 2, 1995 (the "Commitment"), pursuant to which
BofA has committed to provide up to $340 million in borrowings under an
unsecured senior credit facility (the "Credit Facility") to finance the Offer,
to pay related fees and expenses and to refinance up to approximately $100
million of the Company's existing indebtedness. It is anticipated that BofA will
syndicate the Credit Facility to a group of commercial banks.
BofA's obligations under the Commitment are subject to the following
conditions, among others: (i) the negotiation and execution of a definitive loan
agreement and other appropriate documentation relating to the Credit Facility
and (ii) there being no material adverse change in the financial condition,
business, operations, properties or prospects of Diamond Shamrock, its
subsidiaries and the Company, taken as a whole, since the date of the most
recent audited financial statements relating to those entities provided to BofA
prior to the date of the Commitment.
The Credit Facility is a revolving term facility, the amount of which is to
be reduced semi-annually by 25% of the amount of the Commitment, beginning in
June 1999. Its repayment will be guaranteed by certain significant subsidiaries
of Diamond Shamrock. A commitment fee is payable quarterly in arrears on
unadvanced portions of the Commitment at rates ranging from 0.1% to 0.25% per
annum, based on the ratings assigned to Diamond Shamrock's unsecured senior
long-term debt (the "Senior Debt Rating") by Standard & Poor's Corporation and
by Moody's Investors Service, Inc. Amounts advanced under the Commitment will
bear interest, at Diamond Shamrock's option, (i) at a variable rate equal to the
higher of BofA's reference rate or 0.5% over the rate obtainable by BofA in the
Federal Funds market or (ii) at a variable rate equal to the rate offered by
BofA as its London Interbank Offered Rate to major banks in the London Interbank
market for one-, two-, three- or six-month dollar deposits, adjusted for the
cost of reserves and rounded to the nearest 1/16th percent, plus a margin of
between 0.30% and 0.75% per annum, based upon Diamond Shamrock's Senior Debt
Rating.
It is anticipated that the indebtedness incurred by Diamond Shamrock under
the Credit Facility will be repaid from funds generated internally by Diamond
Shamrock and its subsidiaries (including, after the Merger, if consummated,
funds generated by the Company and its subsidiaries), with the proceeds of
borrowings, capital markets transactions or through a combination of such
sources. No final decisions have been made concerning the method Diamond
Shamrock will employ to repay such indebtedness. Such decisions, when made, will
be based on Diamond Shamrock's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions.
15
