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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Diamond Shamrock, Inc.
9830 Colonnade Boulevard
San Antonio, Texas 78230
(210) 641-6800
--------------------------------------------------
(Name, address and telephone number of Registrant)
September 26, 1996
------------------
(Date of Report)
Delaware 1-9409 74-2456753
-------------- --------- --------------
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
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<PAGE>
Item 5. Other Events.
Diamond Shamrock, Inc., a Delaware corporation ("Diamond Shamrock"), and
Ultramar Corporation, a Delaware corporation ("Ultramar"), have entered into an
Agreement and Plan of Merger, dated as of September 22, 1996 (the "Merger
Agreement"). The Merger Agreement provides for the merger of Diamond Shamrock
with and into Ultramar (the "Merger"). The combined company will be named
"Ultramar Diamond Shamrock Corp." The Merger is expected to be (i) accounted
for under the pooling-of-interests method and (ii) a "reorganization" under the
Internal Revenue Code of 1986, as amended.
In the Merger, each share of Diamond Shamrock's Common Stock, other than
shares owned by Diamond Shamrock, Ultramar or any of their wholly owned
subsidiaries, issued and outstanding immediately prior to the effective time of
the Merger (the "Effective Time") will be converted into the right to receive
1.02 shares of Ultramar Common Stock. Also, in the Merger, each share of
Diamond Shamrock 5% Cumulative Convertible Preferred Stock, other than shares
owned by Ultramar, Diamond Shamrock or any of their wholly owned subsidiaries,
issued and outstanding immediately prior to the effective time of the Merger
will be converted into the right to receive one share of 5% Cumulative
Convertible Preferred Stock of Ultramar (the "Ultramar Convertible Preferred
Stock"), which Ultramar Convertible Preferred Stock will have terms that are
identical to the Diamond Shamrock Convertible Preferred Stock, except for
certain changes to reflect the Merger in accordance with the Merger Agreement
and the terms of the Diamond Shamrock Convertible Preferred Stock.
Consummation of the Merger is subject to a number of conditions, including
(i) receipt of the approval of the holders of a majority of the outstanding
shares of Diamond Shamrock Common Stock, (ii) receipt of the approval of the
holders of a majority of the outstanding shares of Ultramar Common Stock, and
(iii) termination of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
The Merger Agreement provides for the payment by either party to the other
of a termination fee of $45 million if the Merger Agreement is terminated in
certain circumstances. These circumstances generally involve the receipt of an
unsolicited takeover proposal, termination of the Merger Agreement and the
subject party agreeing to or consummating a takeover proposal within 18 months
following termination of the Merger Agreement.
As an inducement and condition to Ultramar's entering into the Merger
Agreement, Diamond Shamrock, as issuer, and Ultramar, as grantee, entered into a
Stock Option Agreement (the "Diamond Shamrock Stock Option Agreement"), whereby
Diamond Shamrock granted to Ultramar an option to purchase, at a price per share
equal to $27.55, subject to adjustment (the "Diamond Shamrock Option Exercise
Price"), 5,858,500 Shares of Diamond Shamrock Common Stock, representing
slightly less than 20% of the outstanding shares of Diamond Shamrock Common
Stock, but subject to a cap on such number of shares equal to $60 million
divided by the difference between the price of Diamond Shamrock Common Stock on
the date that notice is given of exercise and the Diamond Shamrock Option
Exercise Price. The same circumstances which give rise to the payment of the
termination fee also trigger Ultramar's right to exercise the Diamond Shamrock
Stock Option Agreement. Ultramar and Diamond Shamrock have also entered into a
substantially identical stock option agreement (the "Ultramar Stock Option
Agreement") pursuant to which Ultramar has granted to Diamond Shamrock an option
to purchase, at a price per share equal to $27.20, subject to adjustment,
8,927,500 shares, of Ultramar Common Stock, representing slightly less than 20%
of the
-2-
<PAGE>
outstanding shares of Diamond Shamrock Common Stock, but subject to a cap on
such number of shares substantially similar to the cap in the Diamond Shamrock
Stock Option Agreement. Each of the Diamond Shamrock Stock Option Agreement and
the Ultramar Stock Option Agreement provides (i) the grantee with the right to
require the issuer to register the Common Stock acquired by or issuable upon
exercise of the option under the Securities Act of 1933, as amended and (ii) the
grantee with the right to assign or transfer its rights or obligations under the
Stock Option Agreement once the option has been triggered.
In connection with the Merger Agreement, Diamond Shamrock has entered into
an amendment (the "Amendment to Rights Agreement") to its Rights Agreement,
dated as of March 6, 1990 (the "Diamond Shamrock Rights Agreement"), in order to
exclude Ultramar from the definition of "Acquiring Person" and the definition of
"Adverse Person" (each as defined in the Diamond Shamrock Rights Agreement) as a
result of Ultramar's beneficial ownership of Diamond Shamrock Common Stock
pursuant to the Merger Agreement, the Diamond Shamrock Stock Option Agreement or
the transactions contemplated thereby. Accordingly, the transaction
contemplated by the Merger Agreement and the Diamond Shamrock Stock Option
Agreement will not result in a "Distribution Date," "Share Acquisition Date," or
"Triggering Event" under the Diamond Shamrock Rights Agreement. Ultramar has
entered into a similar amendment to the Rights Agreement, dated as of June 25,
1992, as amended by First Amendment dated as of October 26, 1992, and Amendment
dated as of May 10, 1994 (the "Ultramar Rights Agreement"), in order to exclude
Diamond Shamrock from the definition of "Acquiring Person" (as defined in the
Ultramar Rights Agreement) as a result of Diamond Shamrock's acquisition of
Beneficial Ownership of Ultramar pursuant to the Ultramar Stock Option Agreement
or the Merger.
In connection with the Merger, Diamond Shamrock has also entered into an
Employment and Consulting Agreement, dated September 22, 1996 and effective as
of the effective time of the Merger, with Roger R. Hemminghaus (the "Hemminghaus
Employment Agreement").
The Merger Agreement, the Diamond Shamrock Stock Option Agreement, the
Ultramar Stock Option Agreement, the Amendment to Rights Agreement and Diamond
Shamrock's press release, dated September 23, 1996, regarding the Merger and the
Hemminghaus Employment Agreement appear as exhibits to this Report and are
incorporated herein by reference. The foregoing summary is qualified in its
entirety by reference to such documents, as well as the Diamond Shamrock Rights
Agreement.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(a)-(b) Not applicable.
(c) Exhibits Required by Item 601 of Regulation S-K.
Exhibit No. Description
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2 The Merger Agreement
4(a) Diamond Shamrock Rights Agreement (incorporated herein
by reference from Exhibit 2 to Diamond Shamrock's Form
8-K registration statement dated March 6, 1990, filed
under Commission File No. 1-9409).
4(b) Amendment to Rights Agreement
10(a) The Diamond Shamrock Stock Option Agreement
-3-
<PAGE>
10(b) The Ultramar Stock Option Agreement
10(c) Hemminghaus Employment Agreement
20 A Press Release of Diamond Shamrock, issued September
23, 1996, regarding the Merger
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Diamond Shamrock has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
DIAMOND SHAMROCK, INC.
By /s/ Timothy J. Fretthold
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Timothy J. Fretthold,
Senior Vice President and General Counsel
Date: September 26, 1996
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EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
between
ULTRAMAR CORPORATION
and
DIAMOND SHAMROCK, INC.
Dated as of September 22, 1996
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Merger
----------
SECTION 1.01. The Merger . . . . . . . . . . . . 2
SECTION 1.02. Closing . . . . . . . . . . . . . . 2
SECTION 1.03. Effective Time . . . . . . . . . . 3
SECTION 1.04. Effects of the Merger . . . . . . . 3
SECTION 1.05. Certificate of Incorporation and
By-laws . . . . . . . . . . . . . 3
SECTION 1.06. Boards, Committees and Officers . . 3
ARTICLE II
Effect of the Merger on the
---------------------------
Capital Stock of the Constituent
--------------------------------
Corporations; Exchange of Certificates
--------------------------------------
SECTION 2.01. Effect on Capital Stock . . . . . . 4
SECTION 2.02. Exchange of Certificates . . . . . 5
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Representations and Warranties of
DSI . . . . . . . . . . . . . . . 12
SECTION 3.02. Representations and Warranties of
UC . . . . . . . . . . . . . . . 25
ARTICLE IV
Covenants Relating to Conduct of Business
-----------------------------------------
SECTION 4.01. Conduct of Business . . . . . . . . 36
SECTION 4.02. No Solicitation by DSI . . . . . . 44
SECTION 4.03. No Solicitation by UC . . . . . . . 46
<PAGE>
2
Page
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ARTICLE V
Additional Agreements
---------------------
SECTION 5.01. Preparation of the Form S-4 and the
Joint Proxy Statement; Stock-
holders Meetings . . . . . . . . 49
SECTION 5.02. Letters of DSI's Accountants . . . 51
SECTION 5.03. Letters of UC's Accountants . . . . 51
SECTION 5.04. Access to Information;
Confidentiality . . . . . . . . . 51
SECTION 5.05. Reasonable Efforts . . . . . . . . 52
SECTION 5.06. Stock Options . . . . . . . . . . . 53
SECTION 5.07. Certain Employee Matters . . . . . 55
SECTION 5.08. Indemnification, Exculpation and
Insurance . . . . . . . . . . . . 55
SECTION 5.09. Fees and Expenses . . . . . . . . . 56
SECTION 5.10. Public Announcements . . . . . . . 58
SECTION 5.11. Affiliates . . . . . . . . . . . . 58
SECTION 5.12. NYSE Listing . . . . . . . . . . . 59
SECTION 5.13. Stockholder Litigation . . . . . . 59
SECTION 5.14. Tax Treatment . . . . . . . . . . . 59
SECTION 5.15. Pooling of Interests . . . . . . . 59
SECTION 5.16. DSI Rights Agreement . . . . . . . 60
SECTION 5.17. UC Rights Agreement . . . . . . . . 60
SECTION 5.18. Headquarters . . . . . . . . . . . 60
SECTION 5.19. UC Convertible Preferred Stock . . 60
SECTION 5.20. Indemnification Agreements . . . . 61
SECTION 5.21. Certain Tax Matters . . . . . . . . 61
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.01. Conditions to Each Party's
Obligation to Effect the Merger . 61
SECTION 6.02. Conditions to Obligations of UC . . 63
SECTION 6.03. Conditions to Obligation of DSI . . 64
SECTION 6.04. Frustration of Closing Conditions . 65
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
SECTION 7.01. Termination . . . . . . . . . . . . 65
SECTION 7.02. Effect of Termination . . . . . . . 68
<PAGE>
3
Page
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SECTION 7.03. Amendment . . . . . . . . . . . . . 68
SECTION 7.04. Extension; Waiver . . . . . . . . . 68
SECTION 7.05. Procedure for Termination,
Amendment, Extension or Waiver . 68
ARTICLE VIII
General Provisions
------------------
SECTION 8.01. Nonsurvival of Representations and
Warranties . . . . . . . . . . . 69
SECTION 8.02. Notices . . . . . . . . . . . . . . 69
SECTION 8.03. Definitions . . . . . . . . . . . . 70
SECTION 8.04. Interpretation . . . . . . . . . . 71
SECTION 8.05. Counterparts . . . . . . . . . . . 71
SECTION 8.06. Entire Agreement; No Third Party
Beneficiaries . . . . . . . . . . 72
SECTION 8.07. Governing Law . . . . . . . . . . . 72
SECTION 8.08. Assignment . . . . . . . . . . . . 72
SECTION 8.09. Enforcement . . . . . . . . . . . . 72
Exhibit A Amendments to Certificate of Incorporation and By-laws
Exhibit B Board, Committees and Officers
Exhibit C Affiliate Letter
Exhibit D UC Tax Representations
Exhibit E DSI Tax Representations
Exhibit F DSI Stockholder Tax Representations
Schedule 5.07 Certain Employee Matters
<PAGE>
4
AGREEMENT AND PLAN OF MERGER dated as of September 22, 1996,
between ULTRAMAR CORPORATION, a Delaware corporation ("UC"), and
DIAMOND SHAMROCK, INC., a Delaware corporation ("DSI").
WHEREAS, the respective Boards of Directors of UC and DSI have
approved the merger of DSI with and into UC (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, whereby (a) each issued
and outstanding share of common stock, par value $.01 per share, of DSI ("DSI
Common Stock"), other than shares owned by UC, DSI or any of their wholly owned
subsidiaries, will be converted into the right to receive the Merger
Consideration (as defined in Section 2.01(b)) and (b) each issued and
outstanding share of 5% Cumulative Convertible Preferred Stock, par value $.01
per share, of DSI (the "DSI Convertible Preferred Stock"), other than shares
owned by UC, DSI or any of their wholly owned subsidiaries, will be converted
into the right to receive one share of 5% Cumulative Convertible Preferred
Stock, par value $.01 per share, of UC (the "UC Convertible Preferred Stock");
WHEREAS, the respective Boards of Directors of UC and DSI have
each determined that the Merger and the other transactions contemplated hereby
are consistent with, and in furtherance of, their respective business strategies
and goals;
WHEREAS, UC and DSI desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that
the Merger will be accounted for as a pooling of interests transaction;
WHEREAS, immediately following the execution and delivery of this
Agreement, DSI and UC will
<PAGE>
5
enter into a stock option agreement (the "DSI Stock Option Agreement"), pursuant
to which DSI will grant UC the option (the "DSI Option") to purchase shares of
DSI Common Stock together with the associated DSI Rights (as defined in
Section 3.01(c)) upon the terms and subject to the conditions set forth therein;
and
WHEREAS, immediately following the execution and delivery of this
Agreement, UC and DSI will enter into a stock option agreement (the "UC Stock
Option Agreement", and, together with the DSI Stock Option Agreement, the
"Option Agreements"), pursuant to which UC will grant DSI the option (the "UC
Option") to purchase shares of common stock, par value $.01 per share, of UC
("UC Common Stock") together with the associated UC Rights (as defined in
Section 3.02(c)) upon the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I
The Merger
----------
SECTION 1.01. The Merger. Upon the terms and subject to the
-----------
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), DSI shall be merged with and into UC at
the Effective Time (as defined in Section 1.03). Following the Effective Time,
UC shall be the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of DSI in accordance with
the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the
--------
"Closing") will take place at 10:00 a.m. on a date to be specified by the
parties (the "Closing Date"), which (subject to satisfaction or waiver of the
conditions set forth in Sections 6.01, 6.02 and 6.03) shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Section 6.01, unless another time or date is agreed to by the parties hereto.
The Closing will be held at such location in the City of New York as is agreed
to by the parties hereto.
<PAGE>
6
SECTION 1.03. Effective Time. Subject to the provisions of this
---------------
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such subsequent date or time as UC and DSI shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the
----------------------
effects set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws.
-----------------------------------------
(a) The certificate of incorporation of UC, as in effect immediately prior to
the execution of this Agreement, shall be amended as of the Effective Time as
set forth in Exhibit A and, as so amended, such certificate of incorporation
shall be the certificate of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) The by-laws of UC, as in effect immediately prior to the
execution of this Agreement, shall be amended as of the Effective Time as set
forth in Exhibit A and, as so amended, such by-laws shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
SECTION 1.06. Boards, Committees and Officers. The Board of
--------------------------------
Directors (including classes thereof), committees of the Board of Directors,
composition of such committees (including chairmen thereof) and officers of the
Surviving Corporation shall be as set forth on Exhibit B hereto until the
earlier of the resignation or removal of any individual listed on or designated
in accordance with Exhibit B or until their respective successors are duly
elected and qualified, as the case may be, it being agreed that if any director
shall be unable to serve as a director (including as a member or chairman of any
committee) at the Effective Time the party which designated such individual as
indicated in Exhibit B shall
<PAGE>
7
designate another individual to serve in such individual's place. If any
officer listed on or appointed in accordance with Exhibit B ceases to be a full-
time employee of either DSI or UC, the parties will agree upon another person to
serve in such person's stead. The committees of the Board of Directors of UC
will have such authority as may, subject to applicable law, be delegated to them
by the Board of Directors.
ARTICLE II
Effect of the Merger on the Capital Stock of the
- ----------------------------------------------------------------
Constituent Corporations; Exchange of Certificates
- -----------------------------------------------------------------
SECTION 2.01. Effect on Capital Stock. As of the Effective
------------------------
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of DSI Common Stock, DSI Convertible Preferred Stock or UC Common
Stock:
(a) Cancelation of Treasury Stock and UC-Owned Stock. Each
-------------------------------------------------
share of DSI Common Stock and DSI Convertible Preferred Stock
that is owned by DSI or by any wholly owned subsidiary of DSI or
by UC or any wholly owned subsidiary of UC shall automatically be
canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of DSI Common Stock. Subject to
-------------------------------
Section 2.02(e), each issued and outstanding share of DSI Common
Stock (other than shares to be canceled in accordance with
Section 2.01(a)) shall be converted into the right to receive
1.02 fully paid and nonassessable shares of UC Common Stock (the
"Merger Consideration"). As of the Effective Time, all such
shares of DSI Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such
shares of DSI Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger
Consideration
<PAGE>
8
and any cash in lieu of fractional shares of UC Common Stock to
be issued or paid in consideration therefor upon surrender of
such certificate in accordance with Section 2.02, without
interest.
(c) Conversion of DSI Convertible Preferred Stock. Each
----------------------------------------------
issued and outstanding share of DSI Convertible Preferred Stock
(other than shares to be canceled in accordance with
Section 2.01(a) and shares held by persons who perfect their
appraisal rights under the DGCL) shall be converted into the
right to receive one fully paid and nonassessable share of UC
Convertible Preferred Stock, which UC Convertible Preferred Stock
(i) will have terms that are identical to the DSI Convertible
Preferred Stock (as a result of the Merger, (x) the issuer
thereof will be UC rather than DSI and (y) in accordance with the
terms of the DSI Preferred Stock, the UC Convertible Preferred
Stock will be convertible as of the Effective Time at the
conversion price necessary to make each share of UC Convertible
Preferred Stock convertible into the number of shares of UC
Common Stock receivable upon the Merger by a holder of the number
of shares of DSI Common Stock into which one share of DSI
Convertible Preferred Stock might have been converted immediately
prior to the Merger), and (ii) will be issued pursuant to action
taken by the Board of Directors of UC. As of the Effective Time,
all such shares of DSI Convertible Preferred Stock shall no
longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a
certificate representing any such shares of DSI Convertible
Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive one share of UC Convertible
Preferred Stock to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 2.02,
without interest.
<PAGE>
9
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent.
------------------------- ---------------
As of the Effective Time, UC shall enter into an agreement with such bank or
trust company as may be designated by UC and DSI (the "Exchange Agent"), which
shall provide that UC shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of DSI Common Stock and DSI
Convertible Preferred Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of UC Common
Stock and UC Convertible Preferred Stock (such shares of UC Common Stock and UC
Convertible Preferred Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, any Excess Shares
(as defined in Section 2.02(e)) and any cash (including cash proceeds from the
sale of the Excess Shares) payable in lieu of any fractional shares of UC Common
Stock being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.01 in exchange for outstanding shares of DSI Common Stock and DSI
Convertible Preferred Stock.
(b) Exchange Procedures. As soon as reasonably practicable
--------------------
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of DSI Common Stock or DSI Convertible Preferred
Stock (the "Certificates") whose shares were converted into the right to receive
the Merger Consideration or shares of UC Convertible Preferred Stock, as
applicable, pursuant to Section 2.01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as UC and DSI may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration or shares of UC
Convertible Preferred Stock, as applicable. Upon surrender of a Certificate for
cancelation to the Exchange Agent or to such other agent or agents as may be
appointed by UC, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of UC Common Stock or UC
Convertible Preferred Stock and, in the case of Certificates representing DSI
Common Stock, cash, if any,
<PAGE>
10
which such holder has the right to receive pursuant to the provisions of this
Article II, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of DSI Common Stock or DSI Convertible
Preferred Stock which is not registered in the transfer records of DSI, a
certificate representing the proper number of shares of UC Common Stock or UC
Convertible Preferred Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such issuance shall pay any transfer or other taxes required
by reason of the issuance of shares of UC Common Stock or UC Convertible
Preferred Stock to a person other than the registered holder of such Certificate
or establish to the satisfaction of UC that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.02, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration or shares
of UC Convertible Preferred Stock, as applicable, and, in the case of
Certificates representing DSI Common Stock, cash, if any, which the holder
thereof has the right to receive in respect of such Certificate pursuant to the
provisions of this Article II. No interest will be paid or will accrue on any
cash payable to holders of Certificates pursuant to the provisions of this
Article II.
(c) Distributions with Respect to Unexchanged Shares. No
-------------------------------------------------
dividends or other distributions with respect to UC Common Stock or UC
Convertible Preferred Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of UC Common Stock or UC Convertible Preferred Stock represented thereby, and,
in the case of Certificates representing DSI Common Stock, no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.02(e), and all such dividends, other distributions and cash in lieu of
fractional shares of UC Common Stock shall be paid by UC to the Exchange Agent
and shall be included in the Exchange Fund, in each case until the surrender of
such Certificate in accordance with this Article II. Subject to the effect of
applicable escheat or similar laws, following surrender of any such Certificate
there shall be paid to the holder of the certificate representing whole shares
of UC Common Stock or UC Convertible Preferred Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the
<PAGE>
11
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of UC Common
Stock or UC Convertible Preferred Stock, and, in the case of Certificates
representing DSI Common Stock, the amount of any cash payable in lieu of a
fractional share of UC Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of UC Common Stock or UC Convertible
Preferred Stock.
(d) No Further Ownership Rights in DSI Common Stock or DSI
------------------------------------------------------
Convertible Preferred Stock. All shares of UC Common Stock or UC Convertible
- ----------------------------
Preferred Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of DSI Common Stock or DSI
Convertible Preferred Stock, as applicable, theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to pay
------- -------
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by DSI on such shares of DSI
Common Stock or DSI Convertible Preferred Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of DSI Common
Stock or DSI Convertible Preferred Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip
---------------------
representing fractional shares of UC Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of UC shall
relate to such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
UC.
<PAGE>
12
(ii) As promptly as practicable following the Effective Time,
the Exchange Agent will determine the excess of (A) the number of whole shares
of UC Common Stock delivered to the Exchange Agent by UC pursuant to
Section 2.02(a) over (B) the aggregate number of whole shares of UC Common Stock
to be distributed to holders of DSI Common Stock pursuant to Section 2.02(b)
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent will sell the Excess Shares at then-prevailing prices
on the New York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in
Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will
be executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of DSI Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of DSI Common Stock (the
"Common Shares Trust"). The Surviving Corporation will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of DSI Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share
<PAGE>
13
interest to which such holder of DSI Common Stock is entitled (after taking into
account all shares of DSI Common Stock held at the Effective Time by such
holder) and the denominator of which is the aggregate amount of fractional share
interests to which all holders of DSI Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and
(iii), the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments hereinabove contemplated, to pay each holder of DSI Common Stock
an amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such holder (after taking into account all
shares of DSI Common Stock held at the Effective Time by such holder) would
otherwise be entitled by (B) the closing price for a share of UC Common Stock as
reported on the NYSE Composite Transaction Tape (as reported in the Wall Street
-----------
Journal, or, if not reported thereby, any other authoritative source) on the
- -------
Closing Date, and, in such case, all references herein to the cash proceeds of
the sale of the Excess Shares and similar references will be deemed to mean and
refer to the payments calculated as set forth in this Section 2.02(e)(iv).
(v) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of DSI Common Stock with respect
to any fractional share interests, the Exchange Agent will make available such
amounts to such holders of DSI Common Stock subject to and in accordance with
the terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the
-----------------------------
Exchange Fund which remains undistributed to the holders of the Certificates for
six months after the Effective Time shall be delivered to UC, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to UC for payment of their claim for
Merger Consideration or shares of UC Convertible Preferred Stock, any cash in
lieu of fractional shares of UC Common Stock and any dividends or distributions
with respect to UC Common Stock or UC Convertible Preferred Stock.
(g) No Liability. None of UC, DSI or the Exchange Agent
-------------
shall be liable to any person in respect of any shares of UC Common Stock or UC
Convertible Preferred Stock (or dividends or distributions with respect thereto)
or cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificate shall
not have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration or
shares of UC Convertible Preferred Stock, any cash payable to the holder of such
Certificate representing DSI Common Stock pursuant to this Article II or any
dividends or distributions payable to the holder of such Certificate would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.01(d)), any such Merger Consideration or shares of UC
Convertible Preferred Stock or cash, dividends or
<PAGE>
14
distributions in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall
----------------------------
invest any cash included in the Exchange Fund, as directed by UC, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to UC.
(i) Lost Certificates. If any Certificate shall have been
------------------
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration or shares of UC Convertible Preferred Stock
and, if applicable, any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of UC Common Stock or UC Convertible Preferred
Stock deliverable in respect thereof, pursuant to this Agreement.
(j) Dissenting Shares. Notwithstanding anything in this
------------------
Agreement to the contrary, no share of DSI Convertible Preferred Stock, the
holder of which shall have properly complied with the provisions of Section 262
of the DGCL as to appraisal rights (a "Dissenting Share"), will be deemed to be
converted into and to represent the right to receive one share of UC Convertible
Preferred Stock hereunder and the holders of Dissenting Shares, if any, will be
entitled to payment, solely from the Surviving Corporation, of the appraised
value of such Dissenting Shares to the extent permitted by and in accordance
with the provisions of Section 262 of the DGCL; provided, however, that (i) if
-------- -------
any holder of Dissenting Shares, under the circumstances permitted by the DGCL,
subsequently delivers a written withdrawal of his or her demand for appraisal of
such Dissenting Shares, (ii) if any holder fails to establish his or her
entitlement to rights to payment as provided in such
<PAGE>
15
Section 262, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of all Dissenting Shares within the time provided in such Section 262,
such holder will forfeit such right to payment for such Dissenting Shares
pursuant to such Section 262 and, as of the later of Effective Time or the
occurrence of such event, such holder's Certificate formerly representing shares
of DSI Convertible Preferred Stock shall automatically be converted into and
represent only the right to receive shares of UC Convertible Preferred Stock
pursuant to Section 2.01 hereof, without any interest thereon, upon surrender of
the Certificate or Certificates formerly representing such shares of DSI
Convertible Preferred Stock. DSI shall give UC (A) prompt notice of any written
demands for appraisal of any Dissenting Shares, attempted withdrawals of such
demands and any other instruments received by DSI relating to stockholders'
rights of appraisal and (B) the opportunity to participate in all negotiations
and proceedings with respect to demands for appraisal under the DGCL.
ARTICLE III
Representations and Warranties
- -------------------------------------------------------
SECTION 3.01. Representations and Warranties of DSI. Except
--------------------------------------
as disclosed in the DSI Filed SEC Documents (as such term is defined in
Section 3.01(g)) or as set forth on the Disclosure Schedule delivered by DSI to
UC prior to the execution of this Agreement (the "DSI Disclosure Schedule"), DSI
represents and warrants to UC as follows:
(a) Organization, Standing and Corporate Power. Each of DSI
-------------------------------------------
and its Significant Subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing
(with respect to jurisdictions which recognize such concept)
under the laws of the jurisdiction in which it is organized and
has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted.
Each of DSI and its Significant Subsidiaries is duly qualified or
licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership or leasing
of
<PAGE>
16
its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or
in the aggregate would not have a material adverse effect (as
defined in Section 8.03) on DSI. DSI has delivered to UC prior
to the execution of this Agreement complete and correct copies of
its certificate of incorporation and by-laws and has made
available to UC the certificates of incorporation and by-laws (or
comparable organizational documents) of its Significant
Subsidiaries, in each case as amended to date. As used in this
Agreement, a "Significant Subsidiary" means any subsidiary of DSI
or UC, as the case may be, that would constitute a "significant
subsidiary" of such party within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the
"SEC").
(b) Subsidiaries. Exhibit 21.1 to DSI's Annual Report on
-------------
Form 10-K for the fiscal year ended December 31, 1995 includes
all the subsidiaries of DSI which as of the date of this
Agreement are Significant Subsidiaries. All the outstanding
shares of capital stock of, or other equity interests in, each
such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly
by DSI, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of DSI
------------------
consists of 75,000,000 shares of DSI Common Stock and 25,000,000
shares of preferred stock, par value $.01 per share, of DSI ("DSI
Preferred Stock"). At the close of business on September 19,
1996, (i) 29,292,663 shares of DSI Common Stock were issued and
outstanding, (ii) 8,079
<PAGE>
17
shares of DSI Common Stock were held by DSI in its treasury,
(iii) not more than 1,725,000 shares of DSI Convertible Preferred
Stock were issued and outstanding, (iv) no shares of DSI
Preferred Stock were held by DSI in its treasury,
(v) 1,672,584 shares of DSI Common Stock were reserved for
issuance pursuant to the Diamond Shamrock, Inc. Long-Term
Incentive Plan, the Diamond Shamrock R & M, Inc. 1987 Long-Term
Incentive Plan, the Diamond Shamrock, Inc. Performance Incentive
Plan, the 1994 Restatement of the Diamond Shamrock, Inc. Employee
Stock Ownership Plan I and the 1994 Restatement of the Diamond
Shamrock, Inc. Employee Stock Ownership Plan II (such plans,
collectively, the "DSI Stock Plans"), (vi) not more than
3,254,716 shares of DSI Common Stock were reserved for issuance
upon conversion of the DSI Convertible Preferred Stock, (vii) no
shares of Series A Junior Participating Preferred Stock (the
"Junior Preferred Stock") of DSI were issued and outstanding, and
(viii) other than the DSI Convertible Preferred Stock, the Junior
Preferred Stock and the $2.00 Convertible Exchangeable Preferred
Stock of DSI (of which no shares remain outstanding)(the "DSI
$2.00 Preferred Stock"), no other shares of DSI Preferred Stock
have been designated or issued. Except as set forth above and
except for 5,858,500 shares of DSI Common Stock (with the
associated DSI Rights) reserved for issuance upon the exercise of
the DSI Option, at the close of business on September 19, 1996,
no shares of capital stock or other voting securities of DSI were
issued, reserved for issuance or outstanding. At the close of
business on September 19, 1996 there were no outstanding stock
appreciation rights or rights (other than employee stock options
or other rights ("DSI Employee Stock Options", which term shall
not include performance units granted under the Diamond Shamrock,
Inc. Long-Term Incentive Plan) to
<PAGE>
18
purchase or receive DSI Common Stock granted under the DSI Stock
Plans) to receive shares of DSI Common Stock on a deferred basis
granted under the DSI Stock Plans or otherwise. The DSI
Disclosure Schedule sets forth a complete and correct list, as of
September 19, 1996, of the number of shares of DSI Common Stock
subject to Employee Stock Options and the exercise prices
thereof. All outstanding shares of capital stock of DSI are, and
all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. As of the close of business on
September 19, 1996, there were no bonds, debentures, notes or
other indebtedness of DSI having the right to vote (or
convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of DSI may
vote. Except as set forth above or as contemplated by
Schedule 5.07, as of the close of business on September 19, 1996,
there were no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of
any kind to which DSI or any of its subsidiaries is a party or by
which any of them is bound obligating DSI or any of its
subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other
voting securities of DSI or of any of its subsidiaries or
obligating DSI or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except for
agreements entered into with respect to the DSI Stock Plans, as
of the close of business on September 19, 1996, there were no
outstanding contractual obligations of DSI or any of its
subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of DSI or any of its wholly owned
<PAGE>
19
subsidiaries. As of the close of business on September 19, 1996,
except for agreements with holders of equity securities of
subsidiaries that are not wholly owned subsidiaries of DSI or any
of its other wholly owned subsidiaries, there were no outstanding
contractual obligations of DSI to vote or to dispose of any
shares of the capital stock of any of its subsidiaries. DSI has
delivered to UC a complete and correct copy of the Rights
Agreement, dated as of March 6, 1990 (the "DSI Rights
Agreement"), as amended and supplemented to the date hereof
relating to rights ("DSI Rights") to purchase Junior Preferred
Stock.
(d) Authority; Noncontravention. DSI has all requisite
----------------------------
corporate power and authority to enter into this Agreement and,
subject to the DSI Stockholder Approval (as defined in
Section 3.01(m)), to consummate the transactions contemplated by
this Agreement. DSI has all requisite corporate power and
authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by DSI and
the consummation by DSI of the transactions contemplated by this
Agreement and the Option Agreements have been duly authorized by
all necessary corporate action on the part of DSI, subject, in
the case of the adoption of this Agreement, to DSI Stockholder
Approval. This Agreement and the Option Agreements have been
duly executed and delivered by DSI and constitute legal, valid
and binding obligations of DSI, enforceable against DSI in
accordance with their terms. The execution and delivery of this
Agreement and the Option Agreements do not, and the consummation
of the transactions contemplated by this Agreement and the Option
Agreements and compliance with the provisions of this Agreement
and the Option Agreements will not, conflict with, or
<PAGE>
20
result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation or
loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of DSI or any of
its Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of DSI or the comparable organizational
documents of any of its Significant Subsidiaries, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or
license applicable to DSI or any of its Significant Subsidiaries
or their respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to DSI or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not (x) have a
material adverse effect on DSI, (y) impair the ability of DSI to
perform its obligations under this Agreement or the Option
Agreements, or (z) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement or the
Option Agreements. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative
or regulatory agency or commission or other governmental
authority or agency (a "Governmental Entity") is required by or
with respect to DSI or any of its Significant Subsidiaries in
connection with the execution and delivery of this Agreement or
the Option Agreements by DSI or the consummation by DSI of the
<PAGE>
21
transactions contemplated by this Agreement or the Option
Agreements, except for (1) the filing of a premerger notification
and report form by DSI under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); (2) the
filing with the SEC of (A) a proxy statement relating to the DSI
Stockholders Meeting (as defined in Section 5.01(b)) (such proxy
statement, together with the proxy statement relating to the UC
Stockholders Meeting (as defined in Section 5.01(c)), in each
case as amended or supplemented from time to time, the "Joint
Proxy Statement"), and (B) such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection
with this Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements; (3) the
filing of the Certificate of Merger with the Delaware Secretary
of State and appropriate documents with the relevant authorities
of other states in which DSI is qualified to do business and such
filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) such
filings with and approvals of the NYSE to permit the shares of
DSI Common Stock that are to be issued pursuant to the DSI Stock
Option Agreement to be listed on the NYSE; (5) such other filings
and consents as may be required under any environmental, health
or safety law or regulation pertaining to any notification,
disclosure or required approval necessitated by the Merger or the
transactions contemplated by this Agreement and the Option
Agreements; and (6) such consents, approvals, orders or
authorizations the failure of which to be made or obtained would
not reasonably be expected to have a material adverse effect on
DSI.
<PAGE>
22
(e) SEC Documents; Undisclosed Liabilities. DSI has filed
---------------------------------------
all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 (the "DSI SEC
Documents"). As of their respective dates, the DSI SEC Documents
complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such DSI SEC
Documents, and none of the DSI SEC Documents when filed contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent
that information contained in any DSI SEC Document has been
revised or superseded by a later DSI Filed SEC Document, none of
the DSI SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of DSI included in the DSI
SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial
position of DSI and its consolidated subsidiaries as of the dates
thereof and the consolidated results of
<PAGE>
23
their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected
in such financial statements or in the notes thereto, (ii) as
contemplated hereunder or under the Option Agreements, (iii) for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby and (iv) for liabilities and
obligations incurred since July 1, 1996 in the ordinary course of
business consistent with past practice, neither DSI nor any of
its subsidiaries has any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise),
including liabilities arising under any laws relating to the
protection of health, safety or the environment ("Environmental
Laws"), required by generally accepted accounting principles to
be reflected in a consolidated balance sheet of DSI and its
consolidated subsidiaries and which, individually or in the
aggregate, could reasonably be expected to have a material
adverse effect on DSI.
(f) Information Supplied. None of the information supplied
---------------------
or to be supplied by DSI specifically for inclusion or
incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by UC in connection with the
issuance of UC Common Stock and UC Convertible Preferred Stock in
the Merger (the "Form S-4") will, at the time the Form S-4 is
filed with the SEC or at the time it becomes effective under the
Securities Act, contain any untrue
<PAGE>
24
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or (ii) the Joint Proxy Statement will, at
the date it is first mailed to DSI's stockholders or at the time
of the DSI Stockholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, except that no
representation or warranty is made by DSI with respect to
statements made or incorporated by reference therein based on
information supplied by UC specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as
-------------------------------------
disclosed in the DSI SEC Documents filed and publicly available
prior to the date of this Agreement (as amended to the date of
this Agreement, the "DSI Filed SEC Documents"), (ii) for the
transactions provided for herein or in the Option Agreements, and
(iii) for liabilities incurred in connection with or as a result
of this Agreement or the Option Agreements, since the date of the
most recent audited financial statements included in the DSI
Filed SEC Documents, DSI has conducted its business only in the
ordinary course, and there has not been (1) any material adverse
change in DSI, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of DSI's capital stock, other than
regular quarterly dividends of $.14 per share on the DSI Common
Stock and $.625 per share on the DSI Convertible Preferred Stock
in accordance with the terms thereof, (3) any split, combination
or reclassification of any of DSI's capital stock or any issuance
or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of DSI's
capital stock, except for issuances of DSI Common
<PAGE>
25
Stock upon conversion of DSI Convertible Preferred Stock,
(4) other than as permitted by Section 5.07, (A) any granting by
DSI or any of its Significant Subsidiaries to any director,
executive officer or other key employee of DSI of any increase in
compensation, except for normal increases in the ordinary course
of business consistent with past practice or as was required
under employment agreements in effect as of the date of the most
recent financial statements included in the DSI Filed SEC
Documents, (B) any granting by DSI or any of its Significant
Subsidiaries to any such director, executive officer or key
employee of any increase in severance or termination pay, except
as was required under any employment, severance or termination
agreements in effect as of the date of the most recent financial
statements included in the DSI Filed SEC Documents, or (C) any
entry by DSI or any of its subsidiaries into any employment,
severance or termination agreement with any such executive
officer or key employee, or (5) except insofar as may have been
disclosed in the DSI Filed SEC Documents or required by a change
in generally accepted accounting principles, any change in
accounting methods, principles or practices by DSI materially
affecting its assets, liabilities or business. For purposes of
this Agreement, "key employee" means any employee whose current
salary and targeted bonus exceeds $100,000 per annum.
(h) Litigation. As of the date of this Agreement, there was
-----------
no suit, action or proceeding pending or, to the knowledge of
DSI, threatened against or affecting DSI or any of its
subsidiaries that individually or in the aggregate could
reasonably be expected to (i) have a material adverse effect on
DSI or (ii) impair the ability of DSI to perform its obligations
under this Agreement or the Option Agreements in any material
respect, nor as of such date was there any judgment, order or
decree of any
<PAGE>
26
Governmental Entity or arbitrator outstanding against DSI or any
of its subsidiaries having, or which could reasonably be expected
to have, any effect referred to in clause (i) or (ii) above.
(i) Compliance with Applicable Laws. DSI and its
--------------------------------
subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
material to the operation of the businesses of DSI and its
subsidiaries, taken as a whole (the "DSI Permits"). DSI and its
subsidiaries are in compliance with the terms of the DSI Permits
and all applicable statutes, laws, ordinances, rules and
regulations, including Environmental Laws, except where the
failure so to comply, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on DSI.
The businesses of DSI and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any
Governmental Entity, including Environmental Laws, except for
possible violations which could not reasonably be expected to
have a material adverse effect on DSI. As of the date of this
Agreement, no action, demand, requirement or investigation by any
Governmental Entity with respect to DSI or any of its
subsidiaries is pending or, to the knowledge of DSI, threatened,
other than, in each case, those the outcome of which,
individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on DSI.
(j) Absence of Changes in Benefit Plans. Since the date of
------------------------------------
the most recent financial statements included in the DSI Filed
SEC Documents, there has not been any adoption or amendment in
any material respect by DSI or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock
<PAGE>
27
ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits
to any current or former employee, officer or director of DSI or
any of its wholly owned subsidiaries. Except as permitted by
Section 5.07, since the date of the most recent financial
statements included in the DSI Filed SEC Documents, neither DSI
nor any of its wholly owned subsidiaries has entered into any
employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings with any current or
former employee, officer or director of DSI or any of its wholly
owned subsidiaries.
(k) ERISA Compliance. (i) With respect to each employee
-----------------
benefit plan (including, without limitation, any "employee
benefit plan", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
(all the foregoing being herein called "Benefit Plans"),
maintained or contributed to by DSI or any subsidiary of DSI (the
"DSI Benefit Plans"), DSI has made available to UC a true and
correct copy of (A) the most recent annual report (Form 5500)
filed with the IRS, (B) such DSI Benefit Plans, (C) each trust
agreement relating to such DSI Benefit Plans, (D) the most recent
summary plan description for each DSI Benefit Plans for which a
summary plan description is required, (E) the most recent
actuarial report or valuation relating to DSI Benefit Plans
subject to Title IV of ERISA, and (F) the most recent
determination letter issued by the IRS with respect to any DSI
Benefit Plans qualified under Section 401(a) of the Code.
(ii) With respect to the DSI Benefit Plans, individually and
in the aggregate, no event has occurred and, to the knowledge
<PAGE>
28
of DSI, there exists no condition or set of circumstances, in
connection with which DSI or any of its subsidiaries could be
subject to any liability that is reasonably likely to have a
material adverse effect on DSI (except liability for benefits
claims and funding obligations payable in the ordinary course)
under ERISA, the Code or any other applicable law.
(iii) Each DSI Benefit Plan has been administered in accordance
with its terms except for any failures so to administer any DSI
Benefit Plan as would not individually or in the aggregate have a
material adverse effect on DSI. DSI, its subsidiaries and all
the DSI Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and
the terms of all applicable collective bargaining agreements,
except for any failures to be in such compliance as would not
individually or in the aggregate have a material adverse effect
on DSI.
(iv) No employee of DSI will be entitled to any additional
benefits or any acceleration of the time of payment or vesting of
any benefits under any DSI Benefit Plan as a result of the
transactions contemplated by this Agreement or the Option
Agreements.
(l) Taxes. (i) Each of DSI and its subsidiaries has filed
------
all tax returns and reports required to be filed by it or
requests for extensions to file such returns or reports have been
timely filed, granted and have not expired, except to the extent
that such failures to file or to have extensions granted that
remain in effect individually or in the aggregate would not have
a material adverse effect on DSI. DSI and each of its
subsidiaries has paid (or DSI has paid on its behalf) all taxes
shown as due on such returns, and the most recent financial
statements contained
<PAGE>
29
in the DSI Filed SEC Documents reflect an adequate reserve for
all taxes payable by DSI and its subsidiaries for all taxable
periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against DSI or any of its subsidiaries that
are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material
adverse effect on DSI. The federal income tax returns of DSI and
each of its subsidiaries consolidated in such returns have closed
by virtue of the applicable statute of limitations or remain open
for the periods described in the DSI Disclosure Schedule.
(iii) Neither DSI nor any of its subsidiaries has taken any
action that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all
federal, state and local income, property, sales, excise and
other taxes or similar governmental charges.
(m) Voting Requirements. The affirmative vote of the holders
--------------------
of a majority of the voting power of all outstanding shares of
DSI Common Stock, voting as a single class, at the DSI
Stockholders Meeting (the "DSI Stockholder Approval") to adopt
this Agreement is the only vote of the holders of any class or
series of DSI's capital stock necessary to approve and adopt this
Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) State Takeover Statutes. The Board of Directors of DSI
------------------------
has approved the terms of this Agreement and the Option
Agreements
<PAGE>
30
and the consummation of the Merger and the other transactions
contemplated by this Agreement and the Option Agreements and,
assuming the accuracy of UC's representation and warranty
contained in Section 3.02(n), such approval constitutes approval
of the Merger and the other transactions contemplated by this
Agreement and the Option Agreements by the DSI Board of Directors
under the provisions of Section 203 of the DGCL.
(o) Accounting Matters. Neither DSI nor any of its
-------------------
affiliates has taken or agreed to take any action that would
prevent the business combination to be effected by the Merger to
be accounted for as a pooling of interests.
(p) Brokers. No broker, investment banker, financial advisor
--------
or other person, other than Wasserstein Perella & Co., Inc., the
fees and expenses of which will be paid by DSI or, if the Merger
occurs, the Surviving Corporation, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this
Agreement and the Option Agreements based upon arrangements made
by or on behalf of DSI. DSI has furnished to UC true and
complete copies of all agreements under which any such fees or
expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are
payable.
(q) Opinion of Financial Advisor. DSI has received the
-----------------------------
opinion of Wasserstein Perella & Co., Inc., dated the date of
this Agreement, to the effect that, as of such date, the exchange
ratio for the conversion of DSI Common Stock into UC Common Stock
pursuant to the Merger is fair to DSI's stockholders from a
financial point of view, a signed copy of which opinion has been
delivered to UC.
<PAGE>
31
(r) Ownership of UC Common Stock. Other than pursuant to the
----------------------------
UC Stock Option Agreement and except for shares owned by DSI
Benefit Plans, as of the date hereof, neither DSI nor, to its
knowledge, any of its affiliates, (i) beneficially owns (as such
term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of UC.
(s) DSI Rights Agreement. The DSI Rights Agreement has been
---------------------
amended (the "DSI Rights Plan Amendment") to (i) render the DSI
Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither UC nor any of its
wholly owned subsidiaries nor any of its permitted assignees or
transferees under the DSI Stock Option Agreement is an Acquiring
Person or an Adverse Person (each as defined in the DSI Rights
Agreement) pursuant to the DSI Rights Agreement and (z) a Share
Acquisition Date, Distribution Date or Triggering Event (in each
case as defined in the DSI Rights Agreement) does not occur
solely by reason of the execution of this Agreement, and the
Option Agreements, the consummation of the Merger, or the
consummation of the other transactions contemplated by this
Agreement and the Option Agreements and such amendment may not be
further amended by DSI without the prior consent of UC in its
sole discretion. A copy of a form of the DSI Rights Plan
Amendment is attached to the DSI Disclosure Schedule.
SECTION 3.02. Representations and Warranties of UC. Except
-------------------------------------
as disclosed in the UC Filed SEC Documents (as such term is defined in
Section 3.02(g)) or as set forth on the Disclosure Schedule delivered by UC to
DSI
<PAGE>
32
prior to the execution of this Agreement (the "UC Disclosure Schedule"), UC
represents and warrants to DSI as follows:
(a) Organization, Standing and Corporate Power. Each of UC
-------------------------------------------
and its Significant Subsidiaries is a corporation or other legal
entity duly organized, validly existing and in good standing
(with respect to jurisdictions which recognize such concept)
under the laws of the jurisdiction in which it is organized and
has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted.
Each of UC and its Significant Subsidiaries is duly qualified or
licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to
be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material
adverse effect on UC. UC has delivered to DSI prior to the
execution of this Agreement complete and correct copies of its
certificate of incorporation and by-laws and has made available
to DSI the certificates of incorporation and by-laws (or
comparable organizational documents) of its Significant
Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Exhibit 21 to UC's Annual Report on
-------------
Form 10-K for the fiscal year ended December 31, 1995 includes
all the subsidiaries of UC which as of the date of this Agreement
are Significant Subsidiaries. All the outstanding shares of
capital stock of, or other equity interests in, each such
Significant Subsidiary have been validly issued and are fully
paid and nonassessable and are owned directly or indirectly by
UC, free and clear of all Liens.
<PAGE>
33
(c) Capital Structure. The authorized capital stock of UC
------------------
consists of 100,000,000 shares of UC Common Stock and 25,000,000
shares of preferred stock, par value $.01 per share, of UC ("UC
Preferred Stock"). At the close of business on September 19,
1996, (i) 44,637,958 shares of UC Common Stock were issued and
outstanding, (ii) no shares of UC Common Stock were held by UC in
its treasury, (iii) 6,137,103 shares of UC Common Stock were
reserved for issuance pursuant to the Ultramar Corporation Annual
Incentive Plan, the Ultramar Corporation Dividend Reinvestment,
the Ultramar Corporation Restricted Share Plan for Directors and
Employee Stock Purchase Plan and the Ultramar Corporation 1992
Long Term Incentive Plan (such plans, collectively, the "UC Stock
Plans"), and (iv) no shares of UC Preferred Stock have been
designated or issued. Except as set forth above and except for
8,927,500 shares of UC Common Stock (with the associated UC
Rights) reserved for issuance upon the exercise of the UC Option,
at the close of business on September 19, 1996, no shares of
capital stock or other voting securities of UC were issued,
reserved for issuance or outstanding. At the close of business
on September 19, 1996 there were no outstanding stock
appreciation rights or rights (other than employee stock options
or other rights ("UC Employee Stock Options") to purchase or
receive UC Common Stock granted under the UC Stock Plans) to
receive shares of UC Common Stock on a deferred basis granted
under the UC Stock Plans or otherwise. The UC Disclosure
Schedule sets forth a complete and correct list, as of
September 19, 1996, of the number of shares of UC Common Stock
subject to Employee Stock Options and the exercise prices
thereof. All outstanding shares of capital stock of UC are, and
all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not
<PAGE>
34
subject to preemptive rights. As of the close of business on
September 19, 1996, there were no bonds, debentures, notes or
other indebtedness of UC having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of UC may vote. Except as
set forth above or as contemplated by Schedule 5.07, as of the
close of business on September 19, 1996, there were no
outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind
to which UC or any of its subsidiaries is a party or by which any
of them is bound obligating UC or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of
UC or of any of its subsidiaries or obligating UC or any of its
subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except for agreements entered into
with respect to the UC Stock Plans, as of the close of business
on September 19, 1996, there were no outstanding contractual
obligations of UC or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of UC or
any of its wholly owned subsidiaries. As of the close of
business on September 19, 1996, except for agreements with
holders of equity securities of subsidiaries that are not wholly
owned subsidiaries of UC or any of its other wholly owned
subsidiaries, there were no outstanding contractual obligations
of UC to vote or to dispose of any shares of the capital stock of
any of its subsidiaries. UC has delivered to DSI a complete and
correct copy of the Rights Agreement dated as of June 25, 1992,
as amended as of May 10, 1994 (the "UC Rights Agreement") between
UC and Registrar and
<PAGE>
35
Transfer Company (as successor to First City, Texas-Houston,
National Association) relating to rights ("UC Rights") to
purchase UC Common Stock.
(d) Authority; Noncontravention. UC has all requisite
----------------------------
corporate power and authority to enter into this Agreement and,
subject to the UC Stockholder Approval (as defined in
Section 3.02(m)), to consummate the transactions contemplated by
this Agreement. UC has all requisite corporate power and
authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by UC and
the consummation by UC of the transactions contemplated by this
Agreement and the Option Agreements have been duly authorized by
all necessary corporate action on the part of UC, subject, in the
case of the adoption of this Agreement and the issuance of UC
Common Stock in connection with the Merger, to UC Stockholder
Approval. This Agreement and the Option Agreements have been
duly executed and delivered by UC and constitute legal, valid and
binding obligations of UC, enforceable against UC in accordance
with their terms. The execution and delivery of this Agreement
and the Option Agreements do not, and the consummation of the
transactions contemplated by this Agreement and the Option
Agreements and compliance with the provisions of this Agreement
and the Option Agreements will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien
upon any of the properties or assets of UC or any of its
Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of UC or the comparable organizational
documents of any
<PAGE>
36
of its Significant Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
applicable to UC or any of its Significant Subsidiaries or their
respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to UC or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not (x) have a
material adverse effect on UC, (y) impair the ability of UC to
perform its obligations under this Agreement or the Option
Agreements, or (z) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement or the
Option Agreements. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to UC or any of its
Significant Subsidiaries in connection with the execution and
delivery of this Agreement or the Option Agreements by UC or the
consummation by UC of the transactions contemplated by this
Agreement or the Option Agreements, except for (1) the filing of
a premerger notification and report form by UC under the HSR Act;
(2) the filing with the SEC of (A) the Joint Proxy Statement
relating to the UC Stockholders Meeting (as defined in
Section 5.01(c)), (B) the Form S-4 and (C) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may
be required in connection with this Agreement, the Option
Agreements and the transactions contemplated by this Agreement
and the Option Agreements; (3) the filing of the Certificate of
Merger and the
<PAGE>
37
Certificate of Designations with respect to the UC Convertible
Preferred Stock with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other
states in which UC is qualified to do business and such filings
with Governmental Entities to satisfy the applicable requirements
of state securities or "blue sky" laws; (4) such filings with and
approvals of the NYSE to permit the shares of UC Common Stock
that are to be issued in the Merger, under the DSI Stock Plans
and pursuant to the UC Stock Option Agreement to be listed on the
NYSE; (5) such other filings and consents as may be required
under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval
necessitated by the Merger or the transactions contemplated by
this Agreement and the Option Agreements; and (6) such consents,
approvals, orders or authorizations the failure of which to be
made or obtained would not reasonably be expected to have a
material adverse effect on UC.
(e) SEC Documents; Undisclosed Liabilities. UC has filed all
---------------------------------------
required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 (the "UC SEC
Documents"). As of their respective dates, the UC SEC Documents
complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder
applicable to such UC SEC Documents, and none of the UC SEC
Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in
any UC SEC Document has been revised or superseded by
<PAGE>
38
a later UC Filed SEC Document, none of the UC SEC Documents
contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The financial statements of UC included in the UC SEC Documents
comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated financial position of UC
and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal recurring year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto,
(ii) as contemplated hereunder or under the Option Agreements,
(iii) for liabilities incurred in connection with this Agreement
or the transactions contemplated hereby and (iv) for liabilities
and obligations incurred since July 1, 1996 in the ordinary
course of business consistent with past practice, neither UC nor
any of its subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent
or otherwise), including liabilities arising under any
Environmental Laws, required by generally accepted accounting
principles to be reflected in a consolidated balance sheet of UC
and its consolidated
<PAGE>
39
subsidiaries and which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on UC.
(f) Information Supplied. None of the information supplied
---------------------
or to be supplied by UC specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or (ii) the Joint Proxy Statement will, at the date it
is first mailed to UC's stockholders or at the time of the UC
Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder, except that no
representation or warranty is made by UC with respect to
statements made or incorporated by reference therein based on
information supplied by DSI specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as
-------------------------------------
disclosed in the UC SEC Documents filed and publicly available
prior to the date of this Agreement (as amended to the date of
this Agreement, the "UC Filed SEC Documents"), (ii) for the
transactions provided for herein or in the Option Agreements, and
(iii) for liabilities incurred in connection with or as a result
of this Agreement or the Option Agreements, since the date of the
most recent financial statements included in the
<PAGE>
40
UC Filed SEC Documents, UC has conducted its business only in the
ordinary course, and there has not been (1) any material adverse
change in UC, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of UC's capital stock, other than
regular quarterly dividends of $.275 per share on the UC Common
Stock, (3) any split, combination or reclassification of any of
UC's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of UC's capital stock, (4) other than as
permitted by Section 5.07, (A) any granting by UC or any of its
Significant Subsidiaries to any director, executive officer or
other key employee of UC of any increase in compensation, except
for normal increases in the ordinary course of business
consistent with past practice or as was required under employment
agreements in effect as of the date of the most recent financial
statements included in the UC Filed SEC Documents, (B) any
granting by UC or any of its Significant Subsidiaries to any such
director, executive officer or key employee of any increase in
severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of
the date of the most recent financial statements included in the
UC Filed SEC Documents, or (C) any entry by UC or any of its
subsidiaries into any employment, severance or termination
agreement with any such executive officer or key employee or
(5) except insofar as may have been disclosed in the UC Filed SEC
Documents or required by a change in generally accepted
accounting principles, any change in accounting methods,
principles or practices by UC materially affecting its assets,
liabilities or business.
(h) Litigation. As of the date of this Agreement, there was
-----------
no suit, action or
<PAGE>
41
proceeding pending or, to the knowledge of UC, threatened against
or affecting UC or any of its subsidiaries that individually or
in the aggregate could reasonably be expected to (i) have a
material adverse effect on UC or (ii) impair the ability of UC to
perform its obligations under this Agreement or the Option
Agreements in any material respect, nor as of such date was there
any judgment, order or decree of any Governmental Entity or
arbitrator outstanding against UC or any of its subsidiaries
having, or which could reasonably be expected to have, any effect
referred to in clause (i) or (ii) above.
(i) Compliance with Applicable Laws. UC and its subsidiaries
--------------------------------
hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities which are material to the
operation of the businesses of UC and its subsidiaries, taken as
a whole (the "UC Permits"). UC and its subsidiaries are in
compliance with the terms of the UC Permits and all applicable
statutes, laws, ordinances, rules and regulations, including
Environmental Laws, except where the failure so to comply,
individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on UC. The businesses
of UC and its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity,
including Environmental Laws, except for possible violations
which could not reasonably be expected to have a material adverse
effect on UC. As of the date of this Agreement, no action,
demand, requirement or investigation by any Governmental Entity
with respect to UC or any of its subsidiaries is pending or, to
the knowledge of UC, threatened, other than, in each case, those
the outcome of which, individually or in the aggregate could not
reasonably be expected to have a material adverse effect on UC.
<PAGE>
42
(j) Absence of Changes in Benefit Plans. Since the date of
------------------------------------
the most recent financial statements included in the UC Filed SEC
Documents, there has not been any adoption or amendment in any
material respect by UC or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits
to any current or former employee, officer or director of UC or
any of its wholly owned subsidiaries. Except as permitted by
Section 5.07, since the date of the most recent financial
statements included in the UC Filed SEC Documents, neither UC nor
any of its wholly owned subsidiaries has entered into any
employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings with any current or
former employee, officer or director of UC or any of its wholly
owned subsidiaries.
(k) ERISA Compliance. (i) With respect to Benefit Plans
-----------------
maintained or contributed to by UC or any subsidiary of UC (the
"UC Benefit Plans"), UC has made available to DSI a true and
correct copy of (A) the most recent annual report (Form 5500)
filed with the IRS, (B) such UC Benefit Plans, (C) each trust
agreement relating to such UC Benefit Plans, (D) the most recent
summary plan description for each UC Benefit Plans for which a
summary plan description is required, (E) the most recent
actuarial report or valuation relating to UC Benefit Plans
subject to Title IV of ERISA, and (F) the most recent
determination letter issued by the IRS with respect to any UC
Benefit Plans qualified under Section 401(a) of the Code.
<PAGE>
43
(ii) With respect to the UC Benefit Plans, individually and in
the aggregate, no event has occurred and, to the knowledge of UC,
there exists no condition or set of circumstances, in connection
with which UC or any of its subsidiaries could be subject to any
liability that is reasonably likely to have a material adverse
effect on UC (except liability for benefits claims and funding
obligations payable in the ordinary course) under ERISA, the Code
or any other applicable law.
(iii) Each UC Benefit Plan has been administered in accordance
with its terms, except for any failures so to administer any UC
Benefit Plans as would not individually or in the aggregate have
a material adverse effect on UC. UC, its subsidiaries and all
the UC Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and
the terms of all applicable collective bargaining agreements,
except for any failures to be in such compliance as would not
individually or in the aggregate have a material adverse effect
on UC.
(iv) No employee of UC will be entitled to any additional
benefits or any acceleration of the time of payment or vesting of
any benefits under any UC Benefit Plan as a result of the
transactions contemplated by this Agreement or the Option
Agreements.
(l) Taxes. (i) Each of UC and its subsidiaries has filed
------
all tax returns and reports required to be filed by it or
requests for extensions to file such returns or reports have been
timely filed, granted and have not expired, except to the extent
that such failures to file or to have extensions granted that
remain in effect individually or in the aggregate would not have
a material adverse effect on UC. UC and each of its subsidiaries
has
<PAGE>
44
paid (or UC has paid on its behalf) all taxes shown as due on
such returns, and the most recent financial statements contained
in the UC Filed SEC Documents reflect an adequate reserve for all
taxes payable by UC and its subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against UC or any of its subsidiaries that
are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material
adverse effect on UC.
(iii) Neither UC nor any of its subsidiaries has taken any
action that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(m) Voting Requirements. The affirmative vote of the holders
--------------------
of a majority of the voting power of all outstanding shares of UC
Common Stock, voting as a single class, at the UC Stockholders
Meeting (the "UC Stockholder Approval") to adopt this Agreement
and to approve the issuance of UC Common Stock in connection with
the Merger is the only vote of the holders of any class or series
of UC's capital stock necessary to approve and adopt this
Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) State Takeover Statutes. The Board of Directors of UC
------------------------
has approved the terms of this Agreement and the Option
Agreements and the consummation of the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and, assuming the accuracy of DSI's representation and
warranty contained in Section 3.01(n), such approval constitutes
<PAGE>
45
approval of the Merger and the other transactions contemplated by
this Agreement and the Option Agreements by the UC Board of
Directors under the provisions of Section 203 of the DGCL.
(o) Accounting Matters. Neither UC nor any of its affiliates
-------------------
has taken or agreed to take any action that would prevent the
business combination to be effected by the Merger to be accounted
for as a pooling of interests.
(p) Brokers. No broker, investment banker, financial advisor
--------
or other person, other than Merrill Lynch & Co. and Tanner &
Co., Inc., the fees and expenses of which will be paid by UC or,
if the Merger occurs, the Surviving Corporation, is entitled to
any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by
this Agreement and the Option Agreements based upon arrangements
made by or on behalf of UC. UC has furnished to DSI true and
complete copies of all agreements under which any such fees or
expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are
payable.
(q) Opinion of Financial Advisor. UC has received the
-----------------------------
opinion of Merrill Lynch & Co., dated the date of this Agreement,
to the effect that, as of such date, the exchange ratio for the
conversion of DSI Common Stock into UC Common Stock pursuant to
the Merger is fair to UC and, accordingly, to UC's stockholders
from a financial point of view, a signed copy of which opinion
has been delivered to DSI.
(r) Ownership of DSI Common Stock. Other than pursuant to
-----------------------------
the DSI Stock Option Agreement and except for shares owned by UC
Benefit Plans, as of the date hereof, neither UC nor, to its
knowledge, any of
<PAGE>
46
its affiliates, (i) beneficially owns (as such term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, or
(ii) is party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of, in
each case, shares of capital stock of DSI.
(s) UC Rights Agreement. The UC Rights Agreement has been
--------------------
amended (the "UC Rights Plan Amendment") to (i) render the UC
Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither DSI nor any of its
wholly owned subsidiaries nor any of its permitted assignees or
transferees under the UC Stock Option Agreement is an Acquiring
Person (as defined in the UC Rights Agreement) pursuant to the UC
Rights Agreement and (z) a Distribution Date (as defined in the
UC Rights Agreement) does not occur solely by reason of the
execution of this Agreement and the Option Agreements, the
consummation of the Merger, or the consummation of the other
transactions contemplated by this Agreement and the Option
Agreements and such amendment may not be further amended by UC
without the prior consent of DSI in its sole discretion. A copy
of a form of the UC Rights Plan Amendment is attached to the UC
Disclosure Schedule.
ARTICLE IV
Covenants Relating to Conduct of Business
-----------------------------------------
SECTION 4.01. Conduct of Business. (a) Conduct of Business
-------------------- -------------------
by DSI. Except as set forth in Section 4.01 of the DSI Disclosure Schedule,
- -------
during the period from the date of this Agreement to the Effective Time, DSI
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course in substantially the same manner as
<PAGE>
47
heretofore conducted and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Except as set forth in
Section 4.01 of the DSI Disclosure Schedule, without limiting the generality of
the foregoing, during the period from the date of this Agreement to the
Effective Time, DSI shall not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions (including
liquidating distributions) by a direct or indirect wholly owned
subsidiary of DSI to its parent, or by a subsidiary that is
partially owned by DSI or any of its subsidiaries, provided that
DSI or any such subsidiary receives or is to receive its
proportionate share thereof, and other than the regular quarterly
dividends of $.14 per share with respect to the DSI Common Stock
and regular quarterly dividends of $.625 per share with respect
to the DSI Convertible Preferred Stock in accordance with its
terms, (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock,
(y) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock, or (z) purchase, redeem or otherwise acquire any
shares of capital stock of DSI or any of its Significant
Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities
<PAGE>
48
or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or
convertible securities (other than (x) the issuance of DSI Common
Stock upon the exercise of DSI Employee Stock Options outstanding
on the date of this Agreement and in accordance with their
present terms, (y) the issuance of DSI Common Stock upon
conversion of DSI Convertible Preferred Stock in accordance with
their present terms either at the option of the holders thereof
or at the option of DSI, and (z) the issuance of DSI Common Stock
pursuant to the DSI Stock Option Agreement);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association or
other business organization or division thereof, except for (x)
such acquisitions which do not in the aggregate exceed
$20,000,000 and (y) purchases of inventory, feedstock and other
items in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties
or assets, other than (x) in the ordinary course of business
consistent with past practice and (y) sales of assets which do
not individually or in the aggregate exceed $20,000,000;
(vi) (y) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt
securities or warrants or
<PAGE>
49
other rights to acquire any debt securities of DSI or any of its
subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course
of business consistent with past practice, or (z) make any loans,
advances or capital contributions to, or investments in, any
other person, other than to DSI or any direct or indirect
subsidiary of DSI or to officers and employees of DSI or any of
its subsidiaries for travel, business or relocation expenses in
the ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the
operating budget of DSI previously furnished to UC, the relevant
portions of which are set forth in Section 4.01(b)(vii) of the
DSI Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on DSI or settle or compromise any
material income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) of DSI included in the DSI
Filed SEC Documents, incurred since the date of such financial
statements in the
<PAGE>
50
ordinary course of business consistent with past practice or
which do not in the aggregate have a material adverse effect on
DSI;
(x) except in the ordinary course of business or except as
would not reasonably be expected to have a material adverse
effect on DSI, modify, amend or terminate any material contract
or agreement to which DSI or any subsidiary is a party or waive,
release or assign any material rights or claims thereunder;
(xi) make any material change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles;
(xii) except as required by law or contemplated hereby, enter
into, adopt or amend in any material respect or terminate any DSI
Benefit Plan or any other agreement, plan or policy involving DSI
or its subsidiaries and one or more of their directors, officers
or employees, or materially change any actuarial or other
assumption used to calculate funding obligations with respect to
any DSI pension plans, or change the manner in which
contributions to any DSI pension plans are made or the basis on
which such contributions are determined;
(xiii) except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do
not materially increase benefits or compensation expenses of DSI
or its subsidiaries, or as contemplated hereby or by the terms of
any contract the existence of which does not constitute a
violation of this Agreement, increase the compensation of any
director, executive officer or other key employee of DSI or pay
any benefit or amount not required by a plan or arrangement as in
effect on the date of this Agreement to any such person; or
<PAGE>
51
(xiv) authorize, or commit or agree to take, any of the
foregoing actions.
(b) Conduct of Business by UC. Except as set forth in
--------------------------
Section 4.01 of the UC Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, UC shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Except as set forth in Section 4.01 of the UC Disclosure
Schedule, without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, UC shall not, and shall
not permit any of its subsidiaries to:
(i) other than dividends and distributions (including
liquidating distributions) by a direct or indirect wholly owned
subsidiary of UC to its parent, or by a subsidiary that is
partially owned by UC or any of its subsidiaries, provided that
UC or any such subsidiary receives or is to receive its
proportionate share thereof, and other than the regular quarterly
dividends of $.275 per share with respect to the UC Common Stock,
(x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or
(z) purchase, redeem or otherwise acquire any shares of capital
stock of UC or any of its Significant Subsidiaries or any other
securities thereof or any rights, warrants or options
<PAGE>
52
to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities (other than (x) the issuance of UC Common Stock upon
the exercise of UC Employee Stock Options outstanding on the date
of this Agreement and in accordance with their present terms, and
(y) the issuance of UC Common Stock pursuant to the UC Stock
Option Agreement);
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational
documents;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association or
other business organization or division thereof, except for
(x) such acquisitions which do not in the aggregate exceed
$20,000,000 and (y) purchases of inventory, feedstock and other
items in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties
or assets, other than (x) in the ordinary course of business
consistent with past practice and (y) sales of assets which do
not individually or in the aggregate exceed $20,000,000;
(vi) (y) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or
<PAGE>
53
sell any debt securities or warrants or other rights to acquire
any debt securities of UC or any of its subsidiaries, guarantee
any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent
with past practice, or (z) make any loans, advances or capital
contributions to, or investments in, any other person, other than
to UC or any direct or indirect subsidiary of UC or to officers
and employees of UC or any of its subsidiaries for travel,
business or relocation expenses in the ordinary course of
business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the
operating budget of UC previously furnished to DSI, the relevant
portions of which are set forth in Section 4.01(b)(vii) of the UC
Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on UC or settle or compromise any
material income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) of UC included in the UC Filed
SEC Documents, incurred since the
<PAGE>
54
date of such financial statements in the ordinary course of
business consistent with past practice or which do not in the
aggregate have a material adverse effect on UC;
(x) except in the ordinary course of business or except as
would not reasonably be expected to have a material adverse
effect on UC, modify, amend or terminate any material contract or
agreement to which UC, any subsidiary is a party or waive,
release or assign any material rights or claims thereunder;
(xi) make any material change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles;
(xii) except as required by law or contemplated hereby, enter
into, adopt or amend in any material respect or terminate any UC
Benefit Plan or any other agreement, plan or policy involving UC
or its subsidiaries and one or more of their directors, officers
or employees, or materially change any actuarial or other
assumption used to calculate funding obligations with respect to
any UC pension plans, or change the manner in which contributions
to any UC pension plans are made or the basis on which such
contributions are determined;
(xiii) except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do
not materially increase benefits or compensation expenses of UC
or its subsidiaries, or as contemplated hereby or by the terms of
any contract the existence of which does not constitute a
violation of this Agreement, increase the compensation of any
director, executive officer or other key employee of UC or pay
any benefit or amount not required by a plan or
<PAGE>
55
arrangement as in effect on the date of this Agreement to any
such person; or
(xiv) authorize, or commit or agree to take, any of the
foregoing actions.
(c) Coordination of Dividends. Each of UC and DSI shall
-------------------------
coordinate with the other regarding the declaration and payment of dividends in
respect of the UC Common Stock and the DSI Common Stock and the record dates and
payment dates relating thereto, it being the intention of UC and DSI that any
holder of DSI Common Stock shall not receive two dividends, or fail to receive
one dividend, for any single calendar quarter with respect to its shares of DSI
Common Stock and/or any shares of UC Common Stock any such holder receives in
exchange therefor pursuant to the Merger.
(d) Other Actions. Except as required by law, DSI and UC
--------------
shall not, and shall not permit any of their respective subsidiaries to,
voluntarily take any action that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of such party set forth
in this Agreement or the Option Agreements that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect, or (iii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
(e) Advice of Changes. DSI and UC shall promptly advise the
------------------
other party orally and in writing of (i) any representation or warranty made by
it contained in this Agreement or the Option Agreements that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement or the
Option Agreements, or (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have, a material adverse
effect on such party or on the truth of their respective representations and
warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall affect the
-------- -------
representations, warranties,
<PAGE>
56
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement or the Option Agreements.
SECTION 4.02. No Solicitation by DSI. (a) DSI shall not,
-----------------------
nor shall it permit any of its subsidiaries to, nor shall it authorize or permit
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any DSI Takeover Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any DSI Takeover
Proposal; provided, however, that if, at any time prior to the adoption of this
-------- -------
Agreement by the holders of DSI Common Stock, the Board of Directors of DSI
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to DSI's
stockholders under applicable law, DSI may, in response to a DSI Takeover
Proposal which was not solicited by it or which did not otherwise result from a
breach of this Section 4.02(a), and subject to compliance with Section 4.02(c),
(x) furnish information with respect to DSI and its subsidiaries to any person
pursuant to a customary confidentiality agreement (as determined by DSI after
consultation with its outside counsel) and (y) participate in negotiations
regarding such DSI Takeover Proposal. For purposes of this Agreement, "DSI
Takeover Proposal" means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 20% or more of the assets
of DSI and its subsidiaries or 20% or more of any class of equity securities of
DSI or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of DSI or any of its subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving DSI or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.02,
neither the Board of Directors of DSI nor any committee thereof shall
(i) withdraw or modify, or
<PAGE>
57
propose publicly to withdraw or modify, in a manner adverse to UC, the approval
or recommendation by such Board of Directors or such committee of the Merger or
this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any DSI Takeover Proposal, or (iii) cause DSI to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "DSI Acquisition Agreement") related to any DSI Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
adoption of this Agreement by the holders of DSI Common Stock (x) the Board of
Directors of DSI determines in good faith, after it has received a DSI Superior
Proposal (as defined below) and after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to DSI's
stockholders under applicable law, the Board of Directors of DSI may (subject to
this and the following sentences) withdraw or modify its approval or
recommendation of the Merger or this Agreement, or (y) the Board of Directors of
DSI determines in good faith that there is not a substantial probability that
the adoption of this Agreement by holders of DSI Common Stock will be obtained
due to the existence of a DSI Superior Proposal, the Board of Directors of DSI
may (subject to this and the following sentences) approve or recommend such DSI
Superior Proposal or terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause DSI to enter into any DSI Acquisition
Agreement with respect to any DSI Superior Proposal), but in each of the cases
set forth in this clause (y), only at a time that is after the fifth business
day following UC's receipt of written notice advising UC that the Board of
Directors of DSI has received a DSI Superior Proposal, specifying the material
terms and conditions of such DSI Superior Proposal and identifying the person
making such DSI Superior Proposal. For purposes of this Agreement, a "DSI
Superior Proposal" means any proposal made by a third party to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of DSI Common Stock then
outstanding or all or substantially all the assets of DSI and otherwise on terms
which the Board of Directors of DSI determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation) to be
more favorable to DSI's stockholders than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith judgment of
the Board of Directors of DSI, is reasonably capable of being obtained by such
third party.
<PAGE>
58
(c) In addition to the obligations of DSI set forth in
paragraphs (a) and (b) of this Section 4.02, DSI shall immediately advise UC
orally and in writing of any request for information or of any DSI Takeover
Proposal, the material terms and conditions of such request or DSI Takeover
Proposal and the identity of the person making such request or DSI Takeover
Proposal. DSI will keep UC reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or DSI
Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit DSI
from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to DSI's stockholders if, in the good faith judgment of the Board of Directors
of DSI, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to DSI's stockholders under applicable
law; provided, however, that neither DSI nor its Board of Directors nor any
-------- -------
committee thereof shall, except as permitted by Section 4.02(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, a DSI Takeover Proposal.
SECTION 4.03. No Solicitation by UC. (a) UC shall not, nor
----------------------
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any UC Takeover Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any UC Takeover
Proposal; provided, however, that if, at any time prior to the adoption of this
-------- -------
Agreement by the holders of UC Common Stock, the Board of Directors of UC
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to UC's
stockholders under applicable law, UC may, in response to a UC Takeover Proposal
which was not solicited by it or which did not otherwise result from a breach of
this Section 4.03(a), and
<PAGE>
59
subject to compliance with Section 4.03(c), (x) furnish information with respect
to UC and its subsidiaries to any person pursuant to a customary confidentiality
agreement (as determined by UC after consultation with its outside counsel) and
(y) participate in negotiations regarding such UC Takeover Proposal. For
purposes of this Agreement, "UC Takeover Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of 20% or more of the assets of UC and its subsidiaries or 20% or more
of any class of equity securities of UC or any of its subsidiaries, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of UC or any
of its subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving UC
or any of its subsidiaries, other than the transactions contemplated by this
Agreement.
(b) Except as expressly permitted by this Section 4.03,
neither the Board of Directors of UC nor any committee thereof shall
(i) withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to DSI, the approval or recommendation by such Board of Directors or
such committee of the Merger, this Agreement or the issuance of UC Common Stock
and UC Convertible Preferred Stock in connection with the Merger, (ii) approve
or recommend, or propose publicly to approve or recommend, any UC Takeover
Proposal, or (iii) cause UC to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, a "UC
Acquisition Agreement") related to any UC Takeover Proposal. Notwithstanding
the foregoing, in the event that prior to the adoption of this Agreement by the
holders of UC Common Stock (x) the Board of Directors of UC determines in good
faith, after it has received a UC Superior Proposal (as defined below) and after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to UC's stockholders under applicable law, the
Board of Directors of UC may (subject to this and the following
<PAGE>
60
sentences) withdraw or modify its approval or recommendation of the Merger, this
Agreement or the issuance of UC Common Stock in connection with the Merger, or
(y) the Board of Directors of UC determines in good faith that there is not a
substantial probability that the adoption of this Agreement by holders of UC
Common Stock will be obtained due to the existence of a UC Superior Proposal,
the Board of Directors of UC may (subject to this and the following sentences)
approve or recommend such UC Superior Proposal or terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause UC to enter
into any UC Acquisition Agreement with respect to any UC Superior Proposal), but
in each of the cases set forth in this clause (y), only at a time that is after
the fifth business day following DSI's receipt of written notice advising DSI
that the Board of Directors of UC has received a UC Superior Proposal,
specifying the material terms and conditions of such UC Superior Proposal and
identifying the person making such UC Superior Proposal. For purposes of this
Agreement, a "UC Superior Proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of UC
Common Stock then outstanding or all or substantially all the assets of UC and
otherwise on terms which the Board of Directors of UC determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to UC's stockholders than the Merger
and for which financing, to the extent required, is then committed or which, in
the good faith judgment of the Board of Directors of UC, is reasonably capable
of being obtained by such third party.
(c) In addition to the obligations of UC set forth in
paragraphs (a) and (b) of this Section 4.03, UC shall immediately advise DSI
orally and in writing of any request for information or of any UC Takeover
Proposal, the material terms and conditions of such request or UC Takeover
Proposal and the identity of the person making such request or UC Takeover
Proposal. UC will keep DSI reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or UC Takeover
Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit UC
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
UC's stockholders if, in the good faith judgment of the Board of Directors of
UC, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to UC's stockholders under applicable
law; provided, however, that neither UC nor its Board of Directors nor any
-------- -------
committee thereof shall, except as permitted by Section 4.03(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with
<PAGE>
61
respect to this Agreement, the Merger, the issuance of UC Common Stock and UC
Convertible Preferred Stock in connection with the Merger, or approve or
recommend, or propose publicly to approve or recommend, a UC Takeover Proposal.
ARTICLE V
Additional Agreements
---------------------
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy
-----------------------------------------------
Statement; Stockholders Meetings. (a) As soon as practicable following the
- ---------------------------------
date of this Agreement, DSI and UC shall prepare and file with the SEC the Joint
Proxy Statement and UC shall prepare and file with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a prospectus. Each of DSI
and UC shall use all reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. DSI will
use all reasonable efforts to cause the Joint Proxy Statement to be mailed to
DSI's stockholders, and UC will use all reasonable efforts to cause the Joint
Proxy Statement to be mailed to UC's stockholders, in each case as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
UC shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a general consent to
service of process) required to be taken under any applicable state securities
laws in connection with the issuance of UC Common Stock and UC Convertible
Preferred Stock in the Merger and under the DSI Stock Plans and UC Stock Plans
and DSI shall furnish all information concerning DSI and the holders of DSI
Common Stock as may be reasonably requested in connection with any such action.
(b) DSI will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "DSI Stockholders Meeting") for the purpose of obtaining the
DSI Stockholder Approval. Without limiting the generality of the foregoing but
subject to Section 4.02(b), DSI agrees that its obligations pursuant to the
first sentence of this Section 5.01(b) shall not be affected by the
commencement, public proposal, public disclosure or communication to DSI of any
DSI Takeover Proposal. DSI will, through its Board of Directors, recommend to
its stockholders the approval and
<PAGE>
62
adoption of this Agreement, the Merger and the other transactions contemplated
hereby, except to the extent that the Board of Directors of DSI shall have
withdrawn or modified its approval or recommendation of this Agreement or the
Merger and terminated this Agreement in accordance with Section 4.02(b).
(c) UC will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "UC Stockholders Meeting") for the purpose of obtaining the UC
Stockholder Approval. Without limiting the generality of the foregoing but
subject to Section 4.03(b), UC agrees that its obligations pursuant to the first
sentence of this Section 5.01(c) shall not be affected by the commencement,
public proposal, public disclosure or commencement to UC of any UC Takeover
Proposal. UC will, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby, including the issuance of UC Common
Stock pursuant to the Merger, except to the extent that the Board of Directors
of UC shall have withdrawn or modified its recommendation and terminated this
Agreement in accordance with Section 4.03(b).
(d) UC and DSI will use reasonable efforts to hold the DSI
Stockholders Meeting and the UC Stockholders Meeting on the same date and as
soon as practicable after the date hereof.
SECTION 5.02. Letters of DSI's Accountants. (a) DSI shall
-----------------------------
use reasonable efforts to cause to be delivered to UC two letters from Price
Waterhouse LLP, DSI's independent accountants, one dated a date within two
business days before the date on which the Form S-4 shall become effective and
one dated a date within two business days before the Closing Date, each
addressed to UC, in form and substance reasonably satisfactory to UC and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) DSI shall use its reasonable efforts to cause to be
delivered to UC a letter from Price Waterhouse LLP addressed to UC and DSI,
dated as of the Closing Date, stating that the Merger will qualify as a pooling
of interests transaction under Opinion 16 of the
<PAGE>
63
Accounting Principles Board and applicable SEC rules and regulations.
SECTION 5.03. Letters of UC's Accountants. (a) UC shall use
----------------------------
reasonable efforts to cause to be delivered to DSI two letters from Ernst &
Young LLP, UC's independent accountants, one dated a date within two business
days before the date on which the Form S-4 shall become effective and one dated
a date within two business days before the Closing Date, each addressed to DSI,
in form and substance reasonably satisfactory to DSI and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(b) UC shall use its reasonable efforts to cause to be
delivered to DSI a letter from Ernst & Young LLP, addressed to DSI and UC, dated
as of the Closing Date, stating that the Merger will qualify as a pooling of
interests transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
SECTION 5.04. Access to Information; Confidentiality.
---------------------------------------
Subject to the Confidentiality Agreement (as defined below), each of DSI and UC
shall, and shall cause each of its respective subsidiaries to, afford to the
other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of DSI and UC shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. Each of DSI and UC will
hold, and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement dated April 27, 1994, as amended as of September 3, 1996, between UC
and DSI (as amended pursuant to the following sentence, the "Confidentiality
Agreement"). UC and DSI agree that the
<PAGE>
64
Confidentiality Agreement is hereby amended to delete paragraph 5 thereof.
SECTION 5.05. Reasonable Efforts. (a) Upon the terms and
-------------------
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement and the Option Agreements,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, such as those referred to in Sections 3.01(d)(1)-(5) and
3.02(d)(1)-(5)) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Option Agreements or the consummation of the transactions contemplated by
this Agreement or the Option Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Option Agreements.
Nothing set forth in this Section 5.05(a) will limit or affect actions permitted
to be taken pursuant to Sections 4.02 and 4.03.
(b) In connection with and without limiting the foregoing,
DSI and UC shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement, the Option Agreements or any of the other transactions
contemplated by this Agreement or the Option Agreements and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to the
Merger, this Agreement, the Option Agreements or any other transaction
contemplated by this Agreement or the Option Agreements, take all action
necessary to ensure that the Merger and the other transactions contemplated by
this
<PAGE>
65
Agreement and the Option Agreements may be consummated as promptly as
practicable on the terms contemplated by this Agreement and the Option
Agreements and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement and the
Option Agreements.
SECTION 5.06. Stock Options. (a) As soon as practicable
--------------
following the date of this Agreement, the Board of Directors of DSI (or, if
appropriate, any committee administering the DSI Stock Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding DSI Employee Stock
Options granted under DSI Stock Plans, whether vested or
unvested, as necessary to provide that, at the Effective Time,
each DSI Employee Stock Option outstanding immediately prior to
the Effective Time shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable
under such DSI Employee Stock Option, including vesting, the same
number of shares of UC Common Stock as the holder of such DSI
Employee Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such DSI
Employee Stock Option in full immediately prior to the Effective
Time, at a price per share of UC Common Stock equal to (A) the
aggregate exercise price for the shares of DSI Common Stock
otherwise purchasable pursuant to such DSI Employee Stock Option
divided by (B) the aggregate number of shares of UC Common Stock
deemed purchasable pursuant to such DSI Employee Stock Option
(each, as so adjusted, an "Adjusted Option"); provided, however,
-------- -------
that in the case of any option to which Section 421 of the Code
applies by reason of its qualification under any of Sections 422
through 424 of the Code ("qualified stock options"), the option
price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall
<PAGE>
66
be determined in order to comply with Section 424 of the Code;
and
(ii) make such other changes to the DSI Stock Plans as DSI and
UC may agree are appropriate to give effect to the Merger.
(b) As soon as practicable after the Effective Time, UC shall
deliver to the holders of DSI Employee Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective DSI Stock Plans and the
agreements evidencing the grants of such DSI Employee Stock Options and that
such DSI Employee Stock Options and agreements shall be assumed by UC and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 5.06 after giving effect to the Merger). UC shall
comply with the terms of the DSI Stock Plans and ensure, to the extent required
by, and subject to the provisions of, such DSI Stock Plans, that the DSI
Employee Stock Options which qualified as qualified stock options prior to the
Effective Time continue to qualify as qualified stock options after the
Effective Time.
(c) UC shall take such actions as are reasonably necessary
for the assumption of the DSI Stock Plans pursuant to Section 5.06(a), including
the reservation, issuance and listing of UC Common Stock as is necessary to
effectuate the transactions contemplated by Section 5.06(a). As soon as
reasonably practicable after the Effective Time, UC shall prepare and file with
the SEC a registration statement on Form S-8 or other appropriate form with
respect to shares of UC Common Stock subject to DSI Employee Stock Options
issued under such DSI Stock Plans and shall use all reasonable efforts to
maintain the effectiveness of a registration statement or registration
statements covering such DSI Employee Stock Options (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
DSI Employee Stock Options remain outstanding. With respect to those
individuals, if any, who subsequent to the Effective Time will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, UC shall use all reasonable efforts to administer the DSI Stock
Plans assumed pursuant to Section 5.06(b) in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act to the extent the applicable DSI
Stock Plan complied with such rule prior to the Merger.
<PAGE>
67
(d) A holder of an Adjusted Option may exercise such Adjusted
Option in whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to UC, together with the consideration therefor and
the federal withholding tax information, if any, required in accordance with the
related DSI Stock Plan.
(e) Except as otherwise contemplated by this Section 5.06,
all restrictions or limitations on transfer and vesting with respect to DSI
Employee Stock Options awarded under the DSI Stock Plans or any other plan,
program or arrangement of DSI or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by UC as set forth above.
SECTION 5.07. Certain Employee Matters. Each of DSI and UC
-------------------------
will take the actions indicated to be taken by it in Schedule 5.07 at or prior
to the times specified therein. Following the Effective Time, UC, as the
Surviving Corporation in the Merger, will honor all obligations under employment
agreements of DSI or UC the existence of which does not constitute a violation
of this Agreement in accordance with the terms thereof.
SECTION 5.08. Indemnification, Exculpation and Insurance.
-------------------------------------------
(a) UC agrees that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former directors or officers of DSI and
its subsidiaries as provided in their respective certificates of incorporation
or by-laws (or comparable organizational documents) and any indemnification
agreements of DSI, the existence of which does not constitute a breach of this
Agreement, shall be assumed by UC, as the Surviving Corporation in the Merger,
without further action, as of the Effective Time and shall survive the Merger
and shall continue in full force and effect in accordance with their terms. In
addition, from and after the Effective Time, directors and officers of DSI who
become directors or officers of UC will be entitled to the same indemnity rights
and protections as are afforded to other directors and officers of UC.
(b) In the event that UC or any of its successors or assigns
(i) consolidates with or merges into any other person and is not the continuing
or surviving
<PAGE>
68
corporation or entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision will be made so that the
successors and assigns of UC assume the obligations set forth in this Section.
(c) The provisions of this Section 5.08 (i) are intended to
be for the benefit of, and will be enforceable by, each indemnified party, his
or her heirs and his or her representatives and (ii) are in addition to, and not
in substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
SECTION 5.09. Fees and Expenses. (a) Except as set forth in
------------------
this Section 5.09, all fees and expenses incurred in connection with the Merger,
this Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that each of
UC and DSI shall bear and pay one-half of the costs and expenses incurred in
connection with (i) the filing, printing and mailing of the Form S-4 and the
Joint Proxy Statement (including SEC filing fees) and (ii) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees).
(b) In the event that (i) a DSI Takeover Proposal shall have
been made known to DSI or any of its subsidiaries or has been made directly to
its stockholders generally or any person shall have publicly announced an
intention (whether or not conditional) to make a DSI Takeover Proposal and
thereafter this Agreement is terminated by either UC or DSI pursuant to Section
7.01(b)(i) or (ii), or (ii) this Agreement is terminated (x) by DSI pursuant to
Section 7.01(h) or (y) by UC pursuant to Section 7.01(e) or (f), then DSI shall
promptly, but in no event later than two days after the date of such
termination, pay UC a fee equal to $45 million (the "Termination Fee"), payable
by wire transfer of same day funds; provided, however, that no Termination Fee
-------- -------
shall be payable to UC pursuant to clause (i) of this paragraph (b) or pursuant
to a termination by UC pursuant to Section 7.01(e) or (f) unless and until
within 18 months of such termination DSI or any of its subsidiaries enters into
any DSI Acquisition Agreement or consummates any DSI
<PAGE>
69
Takeover Proposal (for the purposes of the foregoing proviso the terms "DSI
Acquisition Agreement" and "DSI Takeover Proposal" shall have the meanings
assigned to such terms in Section 4.02 except that the references to "20%" in
the definition of "DSI Takeover Proposal" in Section 4.02(a) shall be deemed to
be references to "35%"). DSI acknowledges that the agreements contained in this
Section 5.09(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, UC would not enter into this
Agreement; accordingly, if DSI fails promptly to pay the amount due pursuant to
this Section 5.09(b), and, in order to obtain such payment, UC commences a suit
which results in a judgment against DSI for the fee set forth in this
Section 5.09(b), DSI shall pay to UC its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made. In the event of a termination
by UC pursuant to Section 7.01(e) or (f), DSI shall promptly pay upon UC's
request all out-of-pocket expenses incurred by UC in connection with this
Agreement, the Option Agreements and the transactions contemplated hereby and
thereby in an amount not to exceed $5 million, which payments shall be credited
against any Termination Fee that may subsequently become payable.
(c) In the event that (i) a UC Takeover Proposal shall have
been made known to UC or any of its subsidiaries or has been made directly to
its stockholders generally or any person shall have publicly announced an
intention (whether or not conditional) to make a UC Takeover Proposal and
thereafter this Agreement is terminated by either UC or DSI pursuant to
Section 7.01(b)(i) or (iii), or (ii) this Agreement is terminated (x) by UC
pursuant to Section 7.01(d) or (y) by DSI pursuant to Section 7.01(i) or (j),
then UC shall promptly, but in no event later than two days after the date of
such termination, pay DSI the Termination Fee, payable by wire transfer of same
day funds; provided, however, that no Termination Fee shall be payable to DSI
-------- -------
pursuant to clause (i) of this paragraph (c) or pursuant to a termination by DSI
pursuant to Section 7.01(i) or (j) unless and until within 18 months of such
termination UC or any of its subsidiaries enters into any UC Acquisition
Agreement or consummates any UC Takeover Proposal (for the purposes of the
foregoing proviso the terms "UC Acquisition Agreement" and "UC Takeover
Proposal" shall have the meanings assigned to such terms in Section 4.03 except
that
<PAGE>
70
the references to "20%" in the definition of "UC Takeover Proposal" in
Section 4.03(a) shall be deemed to be references to "35%"). UC acknowledges
that the agreements contained in this Section 5.09(c) are an integral part of
the transactions contemplated by this Agreement, and that, without these
agreements, DSI would not enter into this Agreement; accordingly, if UC fails
promptly to pay the amount due pursuant to this Section 5.09(c), and, in order
to obtain such payment, DSI commences a suit which results in a judgment against
UC for the fee set forth in this Section 5.09(c), UC shall pay to DSI its costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made. In
the event of a termination by DSI pursuant to Section 7.01(i) or (j), UC shall
promptly pay upon DSI's request all out-of-pocket expenses incurred by DSI in
connection with this Agreement, the Option Agreements and the transactions
contemplated hereby and thereby in an amount not to exceed $5 million, which
payments shall be credited against any Termination Fee that may subsequently
become payable.
SECTION 5.10. Public Announcements. UC and DSI will consult
---------------------
with each other before issuing, and provide each other the opportunity to
review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and the Option Agreements, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement and the
Option Agreements shall be in the form heretofore agreed to by the parties.
SECTION 5.11. Affiliates. Prior to the Closing Date, DSI
-----------
shall deliver to UC a letter identifying all persons who are, at the time this
Agreement is submitted for adoption by to the stockholders of DSI, "affiliates"
of DSI for purposes of Rule 145 under the Securities Act or for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations. DSI shall use all reasonable efforts to cause each such
<PAGE>
71
person to deliver to UC on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit C hereto. UC shall use reasonable
efforts to cause all persons who are "affiliates" of UC for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations to comply with the fourth paragraph of Exhibit C hereto.
SECTION 5.12. NYSE Listing. UC shall use reasonable efforts
-------------
to cause the shares of UC Common Stock to be issued in the Merger, under the DSI
Stock Plans and pursuant to the UC Stock Option Agreement to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. DSI shall use reasonable efforts to cause the shares of DSI
Common Stock to be issued pursuant to the DSI Stock Option Agreement to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.13. Stockholder Litigation. Each of DSI and UC
-----------------------
shall give the other the reasonable opportunity to participate in the defense of
any stockholder litigation against DSI or UC, as applicable, and its directors
relating to the transactions contemplated by this Agreement.
SECTION 5.14. Tax Treatment. Each of UC and DSI shall use
--------------
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code and to obtain the opinions of counsel
referred to in Sections 6.02 and 6.03.
SECTION 5.15. Pooling of Interests. Each of DSI and UC will
---------------------
use reasonable efforts to cause the transactions contemplated by this Agreement,
including the Merger, and the Option Agreements to be accounted for as a pooling
of interests under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations, and such accounting treatment to be accepted by each
of DSI's and UC's independent certified public accountants, and by the SEC,
respectively, and each of DSI and UC agrees that it will voluntarily take no
action that would cause such accounting treatment not to be obtained.
SECTION 5.16. DSI Rights Agreement. The Board of Directors
---------------------
of DSI shall take all further action (in addition to that referred to in Section
3.01(s)) reasonably
<PAGE>
72
requested in writing by UC (including redeeming the DSI Rights immediately prior
to the Effective Time or amending the DSI Rights Agreement) in order to render
the DSI Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement and the Option Agreements to the extent provided
herein and in the DSI Rights Plan Amendment. Except as provided above with
respect to the Merger and the other transactions contemplated by this Agreement
and the Option Agreements, the Board of Directors of DSI shall not (a) amend the
DSI Rights Agreement or (b) take any action with respect to, or make any
determination under, the DSI Rights Agreement, including a redemption of the DSI
Rights or any action to facilitate a DSI Takeover Proposal.
SECTION 5.17. UC Rights Agreement. The Board of Directors of
--------------------
UC shall take all further action (in addition to that referred to in Section
3.02(s)) reasonably requested in writing by DSI (including redeeming the UC
Rights immediately prior to the Effective Time or amending the UC Rights
Agreement) in order to render the UC Rights inapplicable to the Merger and the
other transactions contemplated by this Agreement and the Option Agreements to
the extent provided herein and in the UC Rights Plan Amendment. Except as
provided above with respect to the Merger and the other transactions
contemplated by this Agreement and the Option Agreements, the Board of Directors
of UC shall not (a) amend the UC Rights Agreement or (b) take any action with
respect to, or make any determination under, the UC Rights Agreement, including
a redemption of the UC Rights or any action to facilitate a UC Takeover
Proposal.
SECTION 5.18. Headquarters. UC and DSI each agree that
-------------
following the consummation of the Merger the corporate headquarters of UC shall
be located in San Antonio, Texas, and each agrees to take all necessary action
to effect the relocation of UC's corporate headquarters.
SECTION 5.19. UC Convertible Preferred Stock. Prior to the
-------------------------------
Effective Time, the Board of Directors of UC will take all necessary action to
establish the terms of the UC Convertible Preferred Stock as contemplated by
this Agreement and file a certificate of designations (the "Certificate of
Designations") with respect to the UC Convertible Preferred Stock with the
Delaware Secretary of State, all in accordance with the applicable provisions of
the DGCL. The Certificate of Designations will in all
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73
respects be identical to the existing certificate of designations for the DSI
Convertible Preferred Stock except (a) as set forth in Section 2.01(c)(i), and
(b) that the Certificate of Designations will state that UC's obligations to pay
dividends will commence on March 15, June 15, September 15 or December 15,
whichever first occurs following the Effective Time.
SECTION 5.20. Indemnification Agreements. UC and DSI agree
---------------------------
that as soon as practicable after the Effective Time the Surviving Corporation
will enter into indemnification agreements with the directors and officers of
the Surviving Corporation providing for indemnification on the terms set forth
in the by-laws of the Surviving Corporation, as amended pursuant to
Section 1.05.
SECTION 5.21. Certain Tax Matters. UC and DSI agree that
--------------------
they will not treat the Merger as a change in the ownership or effective control
of UC or a change in the ownership of a substantial portion of the assets of UC,
each within the meaning of Section 280G of the Code, unless otherwise required
by a determination (as defined in Section 1313 of the Code).
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.01. Conditions to Each Party's Obligation To Effect
-----------------------------------------------
the Merger. The respective obligation of each party to effect the Merger is
- -----------
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. Each of the DSI Stockholder
----------------------
Approval and the UC Stockholder Approval shall have been
obtained.
(b) HSR Act. The waiting period (and any extension thereof)
--------
applicable to the Merger under the HSR Act shall have been
terminated or shall have expired.
(c) No Injunctions or Restraints. No judgment, order,
-----------------------------
decree, statute, law, ordinance, rule, regulation, temporary
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74
restraining order, preliminary or permanent injunction or other
order enacted, entered, promulgated, enforced or issued by any
court of competent jurisdiction or other Governmental Entity or
other legal restraint or prohibition (collectively, "Restraints")
preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used
-------- -------
reasonable efforts to prevent the entry of any such Restraints
and to appeal as promptly as possible any such Restraints that
may be entered.
(d) No Litigation. There shall not be pending any suit,
--------------
action or proceeding, in each case brought by any Governmental
Entity and (i) seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by
this Agreement or the Option Agreements or seeking to obtain from
either of DSI or UC any damages that are material in relation to
DSI and its subsidiaries taken as a whole or UC and its
subsidiaries taken as a whole, as applicable, (ii) seeking to
prohibit or limit the ownership or operation by DSI, UC or any of
their respective subsidiaries of any material portion of the
business or assets of DSI, UC or any of their respective
subsidiaries, or to compel DSI, UC or any of their respective
subsidiaries to dispose of or hold separate any material portion
of the business or assets of DSI, UC or any of their respective
subsidiaries, as a result of the Merger or any of the other
transactions contemplated by this Agreement or the Option
Agreements or (iii) which otherwise could reasonably be expected
to have a material adverse effect on DSI or UC, as applicable.
In addition, there shall not be any Restraint enacted, entered,
enforced or promulgated that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in
clauses (ii) or (iii) above.
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75
(e) Form S-4. The Form S-4 shall have become effective under
---------
the Securities Act and shall not be the subject of any stop order
or proceedings seeking a stop order.
(f) NYSE Listing. The shares of UC Common Stock issuable to
-------------
DSI's stockholders pursuant to this Agreement and under the DSI
Stock Plans shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(g) Pooling Letters. UC and DSI shall have received letters
----------------
from each of Price Waterhouse LLP and Ernst & Young LLP, dated as
of the Closing Date, addressed to UC and DSI, stating in
substance that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board
and applicable SEC rules and regulations.
SECTION 6.02. Conditions to Obligations of UC. The
--------------------------------
obligation of UC to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and
-------------------------------
warranties of DSI set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the
representations and warranties of DSI set forth in this Agreement
that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date (in which case as
of such date), and UC shall have received a certificate signed on
behalf of DSI by the chief executive officer and the chief
financial officer of DSI to such effect.
(b) Performance of Obligations of DSI. DSI shall have
----------------------------------
performed in all material
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76
respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and UC shall have
received a certificate signed on behalf of DSI by the chief
executive officer and the chief financial officer of DSI to such
effect.
(c) Tax Opinions. UC shall have received from Cravath,
-------------
Swaine & Moore, counsel to UC, on the date of the Joint Proxy
Statement and on the Closing Date, opinions, in each case dated
as of such respective dates and stating that the Merger will be
treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that UC and
DSI will each be a party to that reorganization within the
meaning of Section 368(b) of the Code and that no gain or loss
will be recognized by the shareholders of DSI upon their exchange
of DSI stock for UC stock under Section 354 of the Code (except
to the extent such a shareholder receives cash in lieu of
fractional shares). In rendering such opinions, counsel for UC
shall be entitled to rely upon representations of officers of UC,
DSI and stockholders of DSI substantially in the form of
Exhibits D, E and F hereto.
(d) No Material Adverse Change. At any time after the date
---------------------------
of this Agreement there shall not have occurred any material
adverse change relating to DSI.
SECTION 6.03. Conditions to Obligation of DSI. The
--------------------------------
obligation of DSI to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and
-------------------------------
warranties of UC set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the
representations and warranties of UC set forth in this
<PAGE>
77
Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of
the Closing Date, except to the extent such representations
expressly relate to an earlier date (in which case as of such
date), and DSI shall have received a certificate signed on behalf
of UC by the chief executive officer and the chief financial
officer of UC to such effect.
(b) Performance of Obligations of UC. UC shall have
---------------------------------
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date, and DSI shall have received a certificate signed on behalf
of UC by the chief executive officer and the chief financial
officer of UC to such effect.
(c) Tax Opinions. DSI shall have received from Jones, Day,
-------------
Reavis & Pogue, counsel to DSI, on the date of the Joint Proxy
Statement and on the Closing Date, opinions, in each case dated
as of such respective dates and stating that the Merger will be
treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that UC and
DSI will each be a party to that reorganization within the
meaning of Section 368(b) of the Code and that no gain or loss
will be recognized by the shareholders of DSI upon their exchange
of DSI stock for UC stock under Section 354 of the Code (except
to the extent such a shareholder receives cash in lieu of
fractional shares). In rendering such opinions, counsel for DSI
shall be entitled to rely upon representations of officers of UC,
DSI and stockholders of DSI substantially in the form of
Exhibits D, E and F hereto.
<PAGE>
78
(d) No Material Adverse Change. At any time after the date
---------------------------
of this Agreement there shall not have occurred any material
adverse change relating to UC.
SECTION 6.04. Frustration of Closing Conditions. Neither UC
----------------------------------
nor DSI may rely on the failure of any condition set forth in Section 6.01, 6.02
or 6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.05.
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
SECTION 7.01. Termination. This Agreement may be terminated
------------
at any time prior to the Effective Time, whether before or after the DSI
Stockholder Approval or the UC Stockholder Approval:
(a) by mutual written consent of UC and DSI;
(b) by either UC or DSI:
(i) if the Merger shall not have been consummated by
February 28, 1997; provided, however, that the right to
-------- -------
terminate this Agreement pursuant to this Section 7.01(b)(i)
shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the DSI Stockholder Approval shall not have been
obtained at a DSI Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof;
(iii) if the UC Stockholder Approval shall not have been
obtained at a UC Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof; or
<PAGE>
79
(iv) if any Governmental Entity shall have issued a
Restraint or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the
Merger or any of the other transactions contemplated by this
Agreement and the Option Agreements and such Restraint or
other action shall have become final and nonappealable;
(c) by UC, if DSI shall have breached or failed to perform in
any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to the failure
of a condition set forth in Section 6.02(a) or (b), and
(B) cannot be or has not been cured within 30 days after the
giving of written notice to DSI of such breach (a "DSI Material
Breach") (provided that UC is not then in UC Material Breach (as
defined in Section 7.01(g)) of any representation, warranty,
covenant or other agreement contained in this Agreement);
(d) by UC in accordance with Section 4.03(b); provided that it
--------
has complied with all provisions thereof, including the notice
provisions therein, and that it complies with applicable
requirements of Section 5.09;
(e) by UC if (i) the Board of Directors of DSI or any
committee thereof shall have withdrawn or modified in a manner
adverse to UC its approval or recommendation of the Merger or
this Agreement or failed to reconfirm its recommendation within
15 business days after a written request to do so, or approved or
recommended any DSI Takeover Proposal or (ii) the Board of
Directors of DSI or any committee thereof shall have resolved to
take any of the foregoing actions;
(f) by UC, if DSI or any of its officers, directors,
employees, representatives or agents shall take any of the
actions that
<PAGE>
80
would be proscribed by Section 4.02 but for the exceptions
therein allowing certain actions to be taken pursuant to the
proviso in the first sentence of Section 4.02(a) or the second
sentence of Section 4.02(b);
(g) by DSI, if UC shall have breached or failed to perform in
any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to the failure
of a condition set forth in Section 6.03(a) or (b), and
(B) cannot be or has not been cured within 30 days after the
giving of written notice to UC of such breach (a "UC Material
Breach") (provided that DSI is not then in DSI Material Breach of
any representation, warranty, covenant or other agreement
contained in this Agreement);
(h) by DSI in accordance with Section 4.02(b); provided that
--------
it has complied with all provisions thereof, including the notice
provisions therein, and that it complies with applicable
requirements of Section 5.09;
(i) by DSI if (i) the Board of Directors of UC or any
committee thereof shall have withdrawn or modified in a manner
adverse to DSI its approval or recommendation of the Merger, this
Agreement or the issuance of UC Common Stock in connection with
the Merger, or failed to reconfirm its recommendation within
15 business days after a written request to do so, or approved or
recommended any UC Takeover Proposal or (ii) the Board of
Directors of UC or any committee thereof shall have resolved to
take any of the foregoing actions; or
(j) by DSI, if UC or any of its officers, directors,
employees, representatives or agents shall take any of the
actions that would be proscribed by Section 4.03 but for the
exceptions therein allowing certain
<PAGE>
81
actions to be taken pursuant to the proviso in the first sentence
of Section 4.03(a) or the second sentence of Section 4.03(b).
SECTION 7.02. Effect of Termination. In the event of
----------------------
termination of this Agreement by either DSI or UC as provided in Section 7.01,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of UC or DSI, other than the provisions of
Section 3.01(p), Section 3.02(p), the last sentence of Section 5.04,
Section 5.09, this Section 7.02 and Article VIII and except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by
----------
the parties at any time before or after the DSI Stockholder Approval or the UC
Stockholder Approval; provided, however, that after any such approval, there
-------- -------
shall not be made any amendment that by law requires further approval by the
stockholders of DSI or UC without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the
------------------
Effective Time, a party may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 7.03, waive compliance by the other party with any of
the agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension
-----------------------------------------------
or Waiver. A termination of this Agreement pursuant to Section 7.01, an
- ----------
amendment of this Agreement pursuant to Section 7.03 or an extension or waiver
pursuant to Section 7.04 shall, in order to be effective, require, in the case
of UC or DSI, action by its Board of
<PAGE>
82
Directors or, with respect to any amendment to this Agreement, the duly
authorized committee of its Board of Directors.
ARTICLE VIII
General Provisions
------------------
SECTION 8.01. Nonsurvival of Representations and Warranties.
----------------------------------------------
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims,
--------
demands and other communications under this Agreement shall be in writing and
shall be deemed given if delivered personally, telecopied (which is confirmed)
or sent by overnight courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to UC, to
Ultramar Corporation
Two Pickwick Plaza, Suite 300
Greenwich, Connecticut 06830
Telecopy No.: (203) 622-7007
Attention: Patrick J. Guarino, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: William P. Rogers, Jr.; and
<PAGE>
83
(b) if to DSI, to
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Telecopy No.: (210) 641-8885
Attention: Timothy J. Fretthold, Esq.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 30th Floor
New York, New York 10022
Telecopy No.: (212) 755-7306
Attention: Robert A. Profusek, Esq.
SECTION 8.03. Definitions. For purposes of this Agreement:
------------
(a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such
first person;
(b) "material adverse change" or "material adverse effect"
means, when used in connection with DSI or UC, any change,
effect, event or occurrence that is materially adverse to the
business, financial condition or results of operations of such
party and its subsidiaries taken as a whole other than any
change, effect, event or occurrence relating to the United States
economy in general or to the petroleum refining and marketing
industry in general, and not specifically relating to DSI or UC
or their respective subsidiaries, and the terms "material" and
"materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership,
limited liability
<PAGE>
84
company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or,
if there are no such voting interests, 50% or more of the equity
interests of which) is owned directly or indirectly by such first
person; and
(e) "knowledge" of any person which is not an individual means
the knowledge of such person's executive officers after
reasonable inquiry.
SECTION 8.04. Interpretation. When a reference is made in
---------------
this Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall 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 shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein.
<PAGE>
85
References to a person are also to its permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be executed
-------------
in one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries.
-----------------------------------------------
This Agreement (including the documents and instruments referred to herein), the
Option Agreements and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Article II, Section 5.06 and Section 5.08,
are not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. Governing Law. This Agreement shall be
--------------
governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of
-----------
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by either of the parties
hereto without the prior written consent of the other party. Any assignment in
violation of the preceding sentence shall be void. 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.
SECTION 8.09. Enforcement. The parties agree that
------------
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in
<PAGE>
86
Delaware state court, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the personal jurisdiction of any federal court
located in the State of
<PAGE>
87
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court sitting
in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, UC and DSI have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
ULTRAMAR CORPORATION,
by
----------------------------
Name: Jean Gaulin
Title: Chairman of the
Board and Chief
Executive Officer
DIAMOND SHAMROCK, INC.,
by
----------------------------
Name: Roger R. Hemminghaus
Title: Chairman of the
Board, Chief
Executive Officer
and President
<PAGE>
EXHIBIT A
TO THE MERGER AGREEMENT
Amendments to UC Certificate
----------------------------
of Incorporation and By-laws
- ------------------------------------------------------
The certificate of incorporation of UC shall be amended as of the
Effective Time so that (i) it reads in its entirety as it exists on the date of
the Agreement and as otherwise set forth herein, (ii) Article FIRST of such
certificate of incorporation reads in its entirety as follows: "The name of the
Corporation is Ultramar Diamond Shamrock Corp. (hereinafter the
"Corporation").", (iii) Section 1 of Article FOURTH of such certificate of
incorporation reads in its entirety as follows: "The total number of shares
which the Corporation shall have authority to issue is 275,000,000 shares,
consisting of (a) 250,000,000 shares of common stock, par value $.01 per share
(the "Common Stock"), and (ii) 25,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock").", and (iv) there shall be added an
Article Eleventh which reads in its entirety as follows: "ELEVENTH: With
respect to any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting, unless required by law or
determined by the chairman of the meeting to be advisable, the vote on any
matter, including the election of directors, need not be by written ballot."
The by-laws of UC shall be amended as of the Effective Time so that
they read in their entirety as they exist on the date of the Agreement except
that:
(i) Section 1 of Article IV of such by-laws reads in its entirety as
follows:
"SECTION 1. General. The officers of the Corporation shall be chosen
--------
by the Board of Directors and shall be a Chairman of the Board of Directors
(who must be a director), a Vice Chairman of the Board of Directors (who
also must be a director), a Chief Executive Officer, a President and Chief
Operating Officer, a Secretary and a Treasurer. The Board of Directors, in
its discretion, may also choose one or more Vice Presidents (including,
without limitation, Assistant, Executive, Senior and Group), Assistant
Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law,
the Certificate of Incorporation or these By-laws. The officers of the
Corporation need not be stockholders of the Corporation
<PAGE>
2
nor, except in the case of the Chairman of the Board of Directors and the
Vice Chairman of the Board of Directors, need such officers be directors of
the Corporation.";
(ii) Sections 4, 5 and 6 of Article IV of such by-laws read in their
entirety as follows:
"SECTION 4. Chairman and Vice Chairman of the Board of Directors.
-----------------------------------------------------
The Chairman of the Board of Directors shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the
signature of the Chief Executive Officer or the President and Chief
Operating Officer is required, the Chairman of the Board of Directors shall
possess the same power as the Chief Executive Officer or the President and
Chief Operating Officer to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the Chief Executive Officer
or President and Chief Operating Officer, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
Chief Executive Officer or President and Chief Operating Officer, as
applicable. The Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these By-laws or by the Board of Directors. The Vice
Chairman of the Board of Directors shall, during the absence or disability
of the Chairman of the Board of Directors, have the powers and perform the
duties of the Chairman of the Board of Directors and shall also perform
such other duties and may exercise such other powers as from time to time
may be assigned to him by the Board of Directors. Notwithstanding anything
in these By-laws to the contrary, the Chairman of the Board of Directors
and the Vice Chairman of the Board of Directors may only be removed from
such offices (but not as directors) by an affirmative vote of the majority
of the entire Board of Directors.
"SECTION 5. Chief Executive Officer and President and Chief Operating
---------------------------------------------------------
Officer. The Chief Executive Officer shall, subject to the control of the
--------
Board of Directors and the Chairman of the Board of Directors (or during
his absence or disability, the Vice Chairman of the Board of Directors),
have general supervision of
<PAGE>
3
the business and affairs of the Corporation and shall see that all orders
and resolutions of the Board of Directors are carried into effect. He
shall possess the power to execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be otherwise
signed and executed and except that the other officers of the Corporation
may sign and execute documents when so authorized by these By-laws, the
Board of Directors or the Chief Executive Officer. In the absence or
disability of both the Chairman of the Board of Directors and the Vice
Chairman of the Board of Directors, the Chief Executive Officer shall
preside at all meetings of the stockholders and the Board of Directors.
The Chief Executive Officer shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by
these By-laws or by the Board of Directors. The President and Chief
Operating Officer (hereinafter sometimes referred to only as the
"President") shall, subject to the direction and control of the Board of
Directors, and the supervision of the Chairman of the Board of Directors
(or during his absence or disability, the Vice Chairman of the Board of
Directors) and the Chief Executive Officer, have general supervision of the
business operations of the Corporation. The President and Chief Operating
Officer shall, during the absence or disability of the Chief Executive
Officer, have the powers and perform the duties of the Chief Executive
Officer and shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these By-laws
or the Board of Directors. Notwithstanding anything in these By-laws to
the contrary, the Chief Executive Officer and the President and Chief
Operating Officer may only be removed from such offices by an affirmative
vote of the majority of the entire Board of Directors.
"SECTION 6. Vice Presidents. At the request of the Chief Executive
----------------
Officer or in his absence or in the event of his inability or refusal to
act (and if there be no Chairman of the Board of Directors, Vice Chairman
of the Board of Directors or President and Chief Operating Officer), the
Vice President or the Vice Presidents if there is more than one (in the
order designated by the Board of Directors) shall perform the
<PAGE>
4
duties of the Chief Executive Officer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Chief
Executive Officer. Each Vice President shall perform such other duties and
have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors, no Vice
Chairman of the Board of Directors, no President and Chief Operating
Officer and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the Chief Executive
Officer or in the event of the inability or refusal of the Chief Executive
Officer to act, shall perform the duties of the Chief Executive Officer,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer."; and
(iii) Article VIII of such by-laws reads in its entirety as follows:
"ARTICLE VIII
"Indemnification
---------------
"SECTION 1. Right to Indemnification. Each person who was or is made
------------------------
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or investi-
gative (hereinafter a "proceeding"), by reason of the fact that he or she is or
was a director or an officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
or required by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA
<PAGE>
5
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this Article VIII with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation.
"SECTION 2. Right to Advancement of Expenses. The right to
---------------------------------
indemnification conferred in Section 1 of this Article VIII shall include the
right to be paid by the Corporation the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law so requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 2 or otherwise. The rights to indemnification
and to the advancement of expenses conferred in Sections 1 and 2 of this Article
VIII shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
"SECTION 3. Right of Indemnitee to Bring Suit. If a claim under
---------------------------------
Section 1 or 2 of this Article VIII is not paid in full by the Corporation
within 60 calendar days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 calendar days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of
<PAGE>
6
an undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
to have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article VIII or
otherwise shall be on the Corporation.
"SECTION 4. Non-Exclusivity of Rights. The rights to indemnification
-------------------------
and to the advancement of expenses conferred in this Article VIII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation, By-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
"SECTION 5. Insurance. The Corporation may maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to
<PAGE>
7
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
"SECTION 6. Indemnification of Employees and Agents of the
----------------------------------------------
Corporation. The Corporation may, to the extent authorized from time to time by
- ------------
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation."
<PAGE>
EXHIBIT B
TO THE MERGER AGREEMENT
Board of Directors
- ------------------
The Board of Directors of the Surviving Corporation will consist of
Roger R. Hemminghaus, Jean Gaulin and ten other members, five of whom shall be
designated by each of UC and DSI. Roger R. Hemminghaus will serve as Chairman
of the Board of Directors and Jean Gaulin will serve as Vice Chairman of the
Board of Directors, and in such capacities each shall be considered officers of
the Surving Corporation for the purposes of this Agreement, including this
Exhibit B and Section 1.06. Each class of the Board of Directors will be
comprised of four directors, of which two shall be designated by each of UC and
DSI. For the purposes of this Exhibit B and Section 1.06, Jean Gaulin shall be
deemed designated by UC and Roger R. Hemminghaus shall be deemed designated by
DSI.
Committees of the Board of Directors and Chairmen of Committees
- ---------------------------------------------------------------
The Board of Directors shall initially have four committees, the
finance and planning committee, the compensation committee, the audit review
committee and the public responsibility committee . Each committee will be
comprised of four directors, of which two shall be designated by each of UC and
DSI. UC will designate the chairman of the finance and planning committee and
the compensation committee and DSI will designate the chairman of the audit
review committee and the public responsibility committee.
Officers
- --------
Roger R. Hemminghaus Chairman of the Board of
Directors and Chief Executive
Officer
Jean Gaulin Vice Chairman of the Board of
Directors, President and Chief
Operating Officer
T. J. Fretthold Executive Vice President and
Chief Administrative Officer
Patrick J. Guarino Executive Vice President,
<PAGE>
2
General Counsel and Secretary
W. R. Klesse Executive Vice President
Logistics and Supply
J. Robert Mehall Executive Vice President
Corporate Development
H. Pete Smith Executive Vice President and
Chief Financial Officer
Joel Mascitelli Senior Vice President Refining
West Coast
Paul Eisman Senior Vice President Refining
Southwest
Alain Ferland President Ultramar Limited
Christopher Havens President Ultramar Energy
A. W. O'Donnell President Marketing
Southwest and West Coast
<PAGE>
EXHIBIT C
TO THE MERGER AGREEMENT
Form of Affiliate Letter
------------------------
Dear Sirs:
The undersigned, a holder of shares of common stock, par value $.01
per share ("DSI Common Stock"), of Diamond Shamrock, Inc., a Delaware
corporation ("DSI"), or of shares of 5% Cumulative Convertible Preferred Stock,
par value $.01 per share ("DSI Convertible Preferred Stock"), of DSI, is
entitled to receive in connection with the merger (the "Merger") of DSI with and
into Ultramar Corporation, a Delaware corporation ("UC"), securities (the "UC
Securities") of UC. The undersigned acknowledges that the undersigned may be
deemed an "affiliate" of DSI within the meaning of Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
by the Securities and Exchange Commission (the "SEC") and may be deemed an
"affiliate" of DSI for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations, although nothing contained
herein should be construed as an admission of either such fact.
If in fact the undersigned were an affiliate under the Securities Act,
the undersigned's ability to sell, assign or transfer the UC Securities received
by the undersigned in exchange for any shares of DSI Common Stock or DSI
Convertible Preferred Stock in connection with the Merger may be restricted
unless such transaction is registered under the Securities Act or an exemption
from such registration is available. The undersigned understands that such
exemptions are limited and the undersigned has obtained or will obtain advice of
counsel as to the nature and conditions of such exemptions, including
information with respect to the applicability to the sale of such securities of
Rules 144 and 145(d) promulgated under the Securities Act. The undersigned
understands that UC will not be required to maintain the effectiveness of any
registration statement under the Securities Act for the purposes of resale of UC
Securities by the undersigned.
The undersigned hereby represents to and covenants with UC that the
undersigned will not sell, assign or transfer any of the UC Securities received
by the undersigned in exchange for shares of DSI Common Stock or DSI Convertible
Preferred Stock in connection with the Merger except (i) pursuant to an
effective registration
<PAGE>
2
statement under the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (iii) in a transaction which, in the opinion of the
general counsel of UC or other counsel reasonably satisfactory to UC or as
described in a "no-action" or interpretive letter from the Staff of the SEC
specifically issued with respect to a transaction to be engaged in by the
undersigned, is not required to be registered under the Securities Act;
provided, however, that in any such case, such sale, assignment or transfer
- -------- -------
shall only be permitted if, in the opinion of counsel of UC, such transaction
would not have, directly or indirectly, any adverse consequences for UC with
respect to the treatment of the Merger for tax purposes.
The undersigned hereby further represents to and covenants with UC
that the undersigned has not, within the preceding 30 days, sold, transferred or
otherwise disposed of any shares of DSI Common Stock or DSI Convertible
Preferred Stock held by the undersigned and that the undersigned will not sell,
transfer or otherwise dispose of any UC Securities received by the undersigned
in connection with the Merger until after such time as results covering at least
30 days of combined operations of DSI and UC have been published by UC, in the
form of a quarterly earnings report, an effective registration statement filed
with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public
filing or announcement which includes such combined results of operations.
In the event of a sale or other disposition by the undersigned of UC
Securities pursuant to Rule 145, the undersigned will supply UC with evidence of
compliance with such Rule, in the form of a letter in the form of Annex I hereto
and the opinion of counsel or no-action letter referred to above. The
undersigned understands that UC may instruct its transfer agent to withhold the
transfer of any UC Securities disposed of by the undersigned, but that (provided
such transfer is not prohibited by any other provision of this letter agreement)
upon receipt of such evidence of compliance, UC shall cause the transfer agent
to effectuate the transfer of the UC Securities sold as indicated in such
letter.
UC covenants that it will take all such actions as may be reasonably
available to it to permit the sale or other disposition of UC Securities by the
undersigned under Rule 145 in accordance with the terms thereof.
<PAGE>
3
The undersigned acknowledges and agrees that the legends set forth
below will be placed on certificates representing UC Securities received by the
undersigned in connection with the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates upon receipt of
an opinion in form and substance reasonably satisfactory to UC from independent
counsel reasonably satisfactory to UC to the effect that such legends are no
longer required for purposes of the Securities Act.
There will be placed on the certificates for UC Securities issued to
the undersigned, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is being accounted for as a pooling of
interests, in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have not been acquired by the
holder with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933. The shares may
not be sold, pledged or otherwise transferred (i) until such time as
Ultramar Diamond Shamrock Corp. shall have published financial results
covering at least 30 days of combined operations after the Effective Time
and (ii) except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
The undersigned acknowledges that (i) the undersigned has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of UC
Securities and (ii) the receipt by UC of this letter is an inducement to UC's
obligations to consummate the Merger.
Very truly yours,
Dated:
<PAGE>
ANNEX I
TO EXHIBIT C
[Name] [Date]
On , the undersigned sold the securities of
Ultramar Diamond Shamrock Corp., formerly named Ultramar Corporation ("UC"),
described below in the space provided for that purpose (the "Securities"). The
Securities were received by the undersigned in connection with the merger of
Diamond Shamrock, Inc., a Delaware corporation, with and into UC.
Based upon the most recent report or statement filed by UC with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Securities Act
or in transactions directly with a "market maker" as that term is defined in
Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not solicited or
arranged for the solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the offer or sale of the
Securities to any person other than to the broker who executed the order in
respect of such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
<PAGE>
EXHIBIT D
TO THE MERGER AGREEMENT
[Letterhead of]
[Ultramar Corporation]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of September 22,
1996, between Ultramar Corporation, a Delaware corporation ("UC"), and Diamond
Shamrock, Inc., a Delaware corporation ("DSI"), I certify, as of the date
hereof, to my knowledge and belief, after due inquiry, as follows:
1. The facts relating to the contemplated merger (the "Merger") of
DSI with and into UC pursuant to the Merger Agreement, as described in the
Merger Agreement, the documents described in Section 8.06 of the Merger
Agreement and the joint proxy statement/prospectus prepared by UC and DSI, are,
insofar as such facts pertain to UC, true, correct and complete in all material
respects.
2. Except in the Merger, neither UC nor any subsidiary of UC has
acquired or will acquire, or has owned in the past five years, any shares of
common stock, par value $0.01, per share, of DSI ("DSI Common Stock"),
5% Cumulative Convertible Preferred Stock of DSI, par value $.01 per share, or
$2.00 Convertible Exchangeable Preferred Stock of DSI, par value $.01 per share.
<PAGE>
2
3. Cash payments to be made to stockholders of DSI in lieu of
fractional shares of Common Stock, par value $0.01 per share, of UC ("UC Common
Stock") that would otherwise be issued to such stockholders in the Merger will
be made for the purpose of saving UC the expense and inconvenience of issuing
and transferring fractional shares of UC Common Stock, and do not represent
separately bargained for consideration.
4. UC has no plan or intention, following the Merger, to reacquire
any of the UC Common Stock issued in the Merger.
5. UC has no plan or intention, following the Merger, to sell or
otherwise dispose of any of the assets held by DSI at the time of the Merger,
except for dispositions of such assets in the ordinary course of business;
provided, however, that UC may transfer assets of DSI in a manner that is
- -------- -------
consistent with Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as
amended (the "Code").
6. UC, DSI and the stockholders of DSI will each pay their respective
expenses, if any, incurred in connection with the Merger.
7. Following the Merger, UC will continue the historic business of
DSI or use a significant portion of DSI's historic business assets in a
business.
8. UC is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
9. UC will not take any position on any federal, state or local
income or franchise tax return, or take any other action or reporting position,
that is inconsistent with the treatment of the Merger as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code or with the representations made
in this letter, unless otherwise required by a "determination" (as defined in
Section 1313(a)(1) of the Code).
10. None of the compensation received by any stockholder-employee of
DSI represents separate consideration for, or is allocable to, any of their DSI
Common Stock. None of the UC Common Stock that will be received by DSI
stockholder-employees in the Merger represents separately bargained for
consideration which is
<PAGE>
3
allocable to any employment agreement or arrangement. The compensation paid to
any shareholder-employees will be for services actually rendered and will be
determined by bargaining at arm's-length.
11. There is no intercorporate indebtedness existing between UC and
DSI that was issued or acquired, or will be settled, at a discount.
12. The Merger Agreement and the documents described in Section 8.06
of the Merger Agreement represent the entire understanding of DSI and UC with
respect to the Merger.
13. References in this letter to DSI, UC or any subsidiary thereof
shall not be considered to refer to any DSI Benefit Plan or UC Benefit Plan
(each as defined in the Merger Agreement).
Ultramar Corporation,
By:
--------------------------
<PAGE>
EXHIBIT E
TO THE MERGER AGREEMENT
[Letterhead of]
[Diamond Shamrock, Inc.]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of September 22,
1996, between Ultramar Corporation, a Delaware corporation ("UC"), and Diamond
Shamrock, Inc., a Delaware corporation ("DSI"), I certify, as of the date
hereof, to my knowledge and belief, after due inquiry, as follows:
1. The facts relating to the contemplated merger (the "Merger") of
DSI with and into UC pursuant to the Merger Agreement, as described in the
Merger Agreement, the documents described in Section 8.06 of the Merger
Agreement and the joint proxy statement/prospectus prepared by UC and DSI, are,
insofar as such facts pertain to DSI, true, correct and complete in all material
respects.
2. Neither DSI nor any of its subsidiaries has issued or acquired any
shares of Common Stock, par value $.01 of DSI ("DSI Common Stock"), 5%
Cumulative Convertible Preferred Stock of DSI, par value $.01 per share ("DSI
Convertible Preferred Stock") or $2.00 Convertible Exchangeable Preferred Stock
of DSI, par value $.01 per
<PAGE>
2
share, in contemplation of the Merger, or otherwise as part of a plan of which
the Merger is a part.
3. There is no present plan or intention on the part of the
stockholders of DSI that own 5% or more of the DSI Common Stock (or holders of
DSI Convertible Preferred Stock that would, upon conversion, own 5% or more of
the DSI Common Stock) ("DSI 5% Stockholders"), and DSI knows of no present plan
or intention on the part of the remaining holders of DSI Common Stock or DSI
Convertible Preferred Stock, to sell, exchange or otherwise dispose of, reduce
the risk of loss (by short sale or otherwise) of the holding of, enter into any
contract or other arrangement with respect to, or consent to the sale, exchange
or other disposition of (each of the foregoing, a "disposition"), any interest
in the shares of stock of UC ("UC Stock") received in the Merger in exchange for
such DSI Common Stock (other than by the conversion of 5% Cumulative Convertible
Preferred Stock of UC, par value $.01 per share, into shares of common stock of
UC, par value $.01 per share ("UC Common Stock")) that would reduce the
ownership of UC Stock by former holders of DSI Common Stock and DSI Preferred
Stock to a number of shares having a value, as of immediately prior to the
Merger, of less than 50% of the value of all of the outstanding shares of DSI
Stock as of such date. For purposes of this representation, any "disposition"
(as defined above) of UC Stock will be treated as a reduction in ownership
thereof. In addition, for purposes of this representation, shares of DSI Stock
exchanged by holders of DSI Stock for cash in lieu of fractional shares of UC
Stock will be treated as outstanding DSI Stock immediately prior to the Merger.
Moreover, for purposes of this representation, shares of DSI Stock and shares of
UC Stock received in the Merger and sold, redeemed or disposed of prior to or
subsequent to the Merger, in contemplation thereof or as part of a plan
therewith, will be considered in making this representation. For purposes of
this representation we have assumed that each DSI 5% Stockholder has a plan or
intention to sell for cash all the UC Stock that it will receive in the Merger
unless we have received from such DSI 5% Stockholder a letter substantially in
the form of Exhibit F to the Merger Agreement with respect to such UC Stock.
The aggregate amount of DSI Common Stock owned by DSI 5% Stockholders (or that
would be so owned if each such DSI 5% Stockholder were to convert all the shares
of DSI Convertible Preferred Stock owned by it) does not exceed 40% of the
amount of DSI Common Stock actually outstanding on the date hereof (or that
would be so
<PAGE>
3
outstanding if any such DSI 5% Stockholder were to convert all the shares of DSI
Convertible Preferred Stock owned by it).
4. DSI has no plan or intention to issue additional shares of DSI
Stock, except pursuant to the exercise of employee stock options described in
Section 3.01(c) of the Merger Agreement ("Employee Stock Options") or the
conversion of shares of the DSI Convertible Preferred Stock.
5. DSI, UC and the stockholders of DSI and UC will each pay their
respective expenses, if any, incurred in connection with the Merger.
6. Immediately prior to the Merger, DSI will not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any person could acquire stock of DSI, other than the Employee Stock
Options and the DSI Convertible Preferred Stock.
7. DSI is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. DSI will not take, and DSI is not aware of any plan or intention
of DSI stockholders to take, any position on any Federal, state or local income
or franchise tax return, or take any other action or reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code or with the representations made in
this letter, unless otherwise required pursuant to a "determination" (as defined
in Section 1313(a)(1) of the Code).
9. None of the compensation received by any stockholder-employee of
DSI represents separate consideration for, or is allocable to, any of their DSI
Common Stock. None of the UC Common Stock that will be received by DSI
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
The compensation paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's-length.
<PAGE>
4
10. There is no intercorporate indebtedness existing between UC and
DSI that was issued or acquired, or will be settled, at a discount.
11. DSI is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
12. The Merger Agreement and the documents described in Section 8.06
of the Merger Agreement represent the entire understanding of DSI and UC with
respect to the Merger.
13. References in this letter to DSI, UC or any subsidiary thereof
shall not be considered to refer to any DSI Benefit Plan or UC Benefit Plan
(each as defined in the Merger Agreement).
Diamond Shamrock, Inc.
By:
--------------------------
<PAGE>
EXHIBIT F
TO THE MERGER AGREEMENT
[Letterhead of]
[5% DIAMOND SHAMROCK, INC. STOCKHOLDERS]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of September 22,
1996, between Ultramar Corporation, a Delaware corporation ("UC"), and Diamond
Shamrock, Inc., a Delaware corporation ("DSI" or the "Company"), I certify, as
of the date hereof, to my knowledge and belief, after due inquiry, as follows:
1. There is no present plan or intention on the part of the
undersigned or any trust or other entity established or controlled by or for the
benefit of the undersigned, or any entity holding assets on behalf of the
undersigned, to sell, exchange or otherwise dispose of, reduce the risk of loss
(by short sale or otherwise) of the holding of, enter into any contract or other
arrangement with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any interest in the
shares of stock of UC ("UC Stock") received in the merger contemplated by the
Merger Agreement (the "Merger") that would reduce the ownership of UC Stock by
the undersigned to a number of shares having a value, as of
<PAGE>
2
immediately prior to the Merger, of less than 50% of the value of all of the
shares of common stock, par value $0.01 per share, of DSI ("DSI Common Stock")
and 5% Cumulative Convertible Preferred Stock, par value $0.01 per share, of DSI
("DSI Convertible Preferred Stock") held by the undersigned in the aggregate as
of such date. For purposes of this representation, any "disposition" (as
defined above) of UC Stock will be treated as a reduction in ownership thereof.
For purposes of this representation, shares of DSI Common Stock, shares of DSI
Convertible Preferred Stock and shares of UC Common Stock received in the Merger
and sold, redeemed or disposed of prior to or subsequent to the Merger, in
contemplation thereof or as part of a plan therewith, will be considered in
making this representation.
2. Neither the undersigned nor any entity referred to in paragraph 1
above will take any position on any Federal, state or local income tax return,
or take any other action or reporting position, that is inconsistent with the
treatment of the Merger as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), or
with the representations made in this letter, unless otherwise required pursuant
to a "determination" (as defined in Section 1313(a)(1) of the Code).
[DSI STOCKHOLDER]
--------------------------
EXHIBIT 4.(b)
AMENDMENT TO RIGHTS AGREEMENT
-----------------------------
THIS AMENDMENT TO RIGHTS AGREEMENT, dated as of September 22, 1996
(this "Amendment"), is made and entered into by Diamond Shamrock, Inc., a
Delaware corporation (the "Company").
RECITALS
--------
WHEREAS, the Board of Directors of the Company (the "Board") has
approved an Agreement and Plan of Merger, to be dated as of the date hereof (as
the same may be amended from time to time, the "Merger Agreement"), between the
Company and Ultramar Corporation, a Delaware corporation ("Ultramar"), providing
for the Merger of the Company with and into Ultramar with Ultramar as the
surviving corporation (the "Merger");
WHEREAS, the Board has approved a Stock Option Agreement, to be dated
as of the date hereof (as the same may be amended from time to time, the
"Company Option"), between the Company and Ultramar pursuant to which the
Company has granted Ultramar the option, on the terms and conditions stated
therein, to purchase shares of the Company's outstanding common stock, par value
$.01 per share;
WHEREAS, the Board has approved a Stock Option Agreement, to be dated
as of the date hereof (as the same may be amended from time to time, the
"Ultramar Option"), between Ultramar and the Company pursuant to which Ultramar
has granted the Company the option to purchase shares of Ultramar's common stock
on substantially the same terms as the Company Option;
WHEREAS, the Company is a party to a Rights Agreement, dated as of
March 6, 1990 (the "Rights Agreement");
WHEREAS, as a condition and inducement of Ultramar's willingness to
enter into the Merger Agreement and the Ultramar Option, Ultramar has requested
that the Company agree, and the Company has agreed, to execute and deliver this
Amendment in order to permit execution and delivery of the Merger Agreement and
the Company Option and the consummation of the transactions contemplated thereby
without causing the Rights (as defined in the Rights Agreement) to become
exercisable; and
WHEREAS, as a condition and inducement to Company's willingness to
enter into the Merger Agreement and the Company Option, the Company has
requested that Ultramar agree, and Ultramar has agreed, to enter into the
Amendment, to be dated as of the date of this Amendment, to a Rights Agreement,
dated as of June 25, 1992, as amended by First Amendment, dated as of
<PAGE>
October 26, 1992, and Amendment, dated as of May 10, 1994, between Ultramar and
Registrar and Transfer Company (as successor to First City, Texas-Houston,
National Association), as Rights Agent (the "Ultramar Rights Agreement"), in
order to permit execution and delivery of the Merger Agreement and the Ultramar
Option and the consummation of the transactions contemplated thereby without
causing the rights issued under the Ultramar Rights Agreement to become
exercisable;
NOW, THEREFORE, in accordance with Section 26 of the Rights Agreement,
the Company hereby amends the Rights Agreement as follows:
1. Certain Definitions. (a) Capitalized terms used in the Rights
-------------------
Agreement, as amended by this Amendment, which are defined in this Amendment
shall have the meanings set forth in this Amendment, and such defined terms are
incorporated into the Rights Agreement, as amended by this Amendment.
(b) The definition of "Acquiring Person" in Section 1(a) of the
Rights Agreement is amended by adding the following clause after the word
"Person" and before the period at the end of such definition:
"provided, further, however, that (x) neither Ultramar nor any wholly
-------- ------- -------
owned subsidiary of Ultramar shall be deemed to be or to have become
an Acquiring Person (I) solely as a result of the execution and
delivery of the Merger Agreement and the Company Option or the
consummation of the transactions contemplated thereby, or (II) solely
as a result of Ultramar or any wholly owned subsidiary of Ultramar
being or becoming the Beneficial Owner of not more than two percent of
the Common Shares then outstanding (in addition to the Common Shares
that Ultramar has become the Beneficial Owner of as the result of its
execution and delivery of the Company Option), excluding, however, for
purposes of determining whether such two percent limitation has been
exceeded, Common Shares that Ultramar would be deemed the Beneficial
Owner of because any UC Benefit Plan (as that term is defined in the
Merger Agreement) is the Beneficial Owner of such Common Shares as of
the date of the Amendment, and (y) a Person shall not be deemed to be
or to have become an Acquiring Person (I) solely as a result of taking
an assignment or transfer of Ultramar's rights under the Company
Option, in accordance with the terms thereof, or the consummation of
the transactions contemplated thereby following any such assignment or
transfer, or (II) solely as a result of such Person being or becoming
the Beneficial Owner of not more than two percent of the Common Shares
then outstanding (in addition to the Common Shares that such Person
has become the Beneficial Owner of as a result of the assignment of
the Company Option in accordance
2
<PAGE>
with its terms), excluding, however, for purposes of determining whether
such two percent limitation has been exceeded, Common Shares that such
Person would be deemed the Beneficial Owner of because any employee benefit
plan of such Person is the Beneficial Owner of such Common Shares as of the
date of such assignment or transfer"
(c) The definition of "Adverse Person" in Section 1(b) of the Rights
Agreement is amended by adding the following after a word "outstanding" and
before the period at the end of the first sentence thereof:
"; and provided, further, however, that (x) neither Ultramar nor any
-------- ------- -------
wholly owned subsidiary of Ultramar shall be deemed to be or to have
become an Adverse Person (I) solely as a result of the execution and
delivery of the Merger Agreement and the Company Option or the
consummation of the transactions contemplated thereby, or (II) solely
as a result of Ultramar or any wholly owned subsidiary of Ultramar
being or becoming the Beneficial Owner of not more than two percent of
the Common Shares then outstanding (in addition to the Common Shares
that Ultramar has become the Beneficial Owner of as the result of its
execution and delivery of the Company Option), excluding, however, for
purposes of determining whether such two percent limitation has been
exceeded, Common Shares that Ultramar would be deemed the Beneficial
Owner of because any UC Benefit Plan (as that term is defined in the
Merger Agreement) is the Beneficial Owner of such Common Shares as of
the date of the Amendment, and (y) a Person shall not be deemed to be
or to have become an Adverse Person (I) solely as a result of taking
an assignment or transfer of Ultramar's rights under the Company
Option, in accordance with the terms thereof, or the consummation of
the transactions contemplated thereby following any such assignment or
transfer, or (II) solely as a result of such Person being or becoming
the Beneficial Owner of not more than two percent of the Common Shares
then outstanding (in addition to the Common Shares that such Person
has become the Beneficial Owner of as a result of the assignment or
transfer of the Company Option in accordance with its terms),
excluding, however, for purposes of determining whether such two
percent limitation has been exceeded, Common Shares that such Person
would be deemed the Beneficial Owner of because any employee benefit
plan of such Person is the Beneficial Owner of such Common Shares as
of the date of such assignment or transfer"
(d) The definition of "Expiration Date" in Section 1(k) of the Rights
Agreement is amended by deleting the word
3
<PAGE>
"and" prior to "(iii)" and by adding the following after the word "hereof" and
before the period at the end thereof:
", and (iv) immediately prior to the Effective Time (as that term is
defined in the Merger Agreement)"
2. Amendment of Flip-in Event. Section 11(a)(ii)(A) of the Rights
--------------------------
Agreement is amended by adding the following after the semicolon and before the
word "or" at the end thereof:
"provided, further, however, that notwithstanding the foregoing, no
-------- ------- -------
Flip-in Event shall be deemed to have occurred (x) solely as the
result of the execution and delivery of the Merger Agreement and the
Company Option or the consummation of the transactions contemplated
thereby, (y) solely as a result of Ultramar or any of its wholly owned
subsidiaries being or becoming the Beneficial Owner of not more than
two percent of the Common Shares then outstanding (in addition to the
Common Shares that Ultramar has become the Beneficial Owner of as the
result of its execution and delivery of the Company Option),
excluding, however, for purposes of determining whether such two
percent limitation has been exceeded, Common Shares that Ultramar
would be deemed the Beneficial Owner of because any UC Benefit Plan
(as that term is defined in the Merger Agreement) is the Beneficial
Owner of as of the date of the Amendment, or (z) solely as a result of
(I) a Person taking an assignment or transfer of Ultramar's rights
under the Company Option, in accordance with the terms thereof, or the
consummation of the transactions contemplated thereby following any
such assignment or transfer, or (II) such Person being or becoming the
Beneficial Owner of not more than two percent of the Common Shares
then outstanding (in addition to the Common Shares that such Person
has become the Beneficial Owner of as a result of the assignment or
transfer of the Company Option in accordance with its terms),
excluding, however, for purposes of determining whether such two
percent limitation has been exceeded, Common Shares that such Person
would be deemed the Beneficial Owner of because any employee benefit
plan of such Person is the Beneficial Owner of such Common Shares as
of the date of such assignment or transfer;"
3. Amendment of Flip-over Event. Section 13(a)(i) of the Rights
----------------------------
Agreement is amended by adding the phrase "(other than Ultramar pursuant to the
Merger Agreement)" after the word "Person" and before the word "and".
4. Effective Time. This Amendment shall be effective immediately prior
--------------
to the execution and delivery of the Merger Agreement and the Company Option.
4
<PAGE>
5. Full Force. Except as expressly amended hereby, the Rights Agreement
----------
shall continue in full force and effect in accordance with the provisions
thereof on the date hereof.
6. Governing Law and Document. This Amendment shall be deemed to be a
--------------------------
contract made under the internal substantive laws of the State of Delaware and
for all purposes shall be governed by and construed in accordance with the
internal substantive laws of such State applicable to contracts to be made and
performed entirely within such State. This Amendment is an amendment to the
Rights Agreement pursuant to Section 26 of the Rights Agreement.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed as of the day and year first above written.
DIAMOND SHAMROCK, INC.
By:
--------------------------------------------
Name: Roger R. Hemminghaus
Title: Chairman and
Chief Executive Officer
Attest:
By:
-------------------------------------------
Name: Timothy J. Fretthold
Title: Senior Vice President and
General Counsel
5
<PAGE>
AGREED TO AND ACCEPTED.
KEYBANK NATIONAL ASSOCIATION
By:
----------------------
Name:
--------------------
Title:
-------------------
Date:
--------------------
Attest:
By:
----------------------
Name:
--------------------
Title:
-------------------
6
EXHIBIT 10.(a)
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 22, 1996 (the
"Agreement"), by and between Diamond Shamrock, Inc., a Delaware corporation
("Issuer"), and Ultramar Corporation, a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement," capitalized terms
not defined herein will have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Issuer with and into Grantee
with Grantee as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the UC Stock Option Agreement, Grantee has
requested that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as defined below); and
C. As a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 5,858,500 (as adjusted as set forth herein) shares (the "Option
Shares") of Common Stock, par value $0.01 per share ("Issuer Common Stock"), of
Issuer at a purchase price of $27.55 (as adjusted as set forth herein) per
Option Share (the "Purchase Price"); provided, however, that notwithstanding
-----------------
anything herein to the contrary the number of Option Shares may not exceed the
whole number of shares (rounded down) equal to (a) $60,000,000 divided by (b)
the difference between (i) the closing price on the NYSE trading day immediately
preceding the Notice Date (as defined below) per
<PAGE>
share of Issuer Common Stock as reported on the NYSE Composite Transaction Tape
(or, if not listed on the NYSE, as reported on any other national securities
exchange or national securities quotation system on which the Issuer Common
Stock is listed or quoted, as reported in the Wall Street Journal (Northeast
-------------------
edition), or, if not reported thereby, any other authoritative source) and (ii)
the Purchase Price.
2. Exercise of Option. (a) Grantee may exercise the Option, in
------------------
whole but not in part, at any one time after the occurrence of any event as a
result of which the Grantee is entitled to receive the Termination Fee pursuant
to Section 5.09(b) of the Merger Agreement (a "Purchase Event"); provided,
--------
however, that (i) except as provided in the last sentence of this Section 2(a),
- -------
the Option will terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) 18 months after the first
occurrence of a Purchase Event, and (C) termination of the Merger Agreement in
accordance with its terms prior to the occurrence of a Purchase Event, unless
the Grantee has the right to receive a Termination Fee following such
termination upon the occurrence of certain events, in which case the Option will
not terminate until the later of (x) six months following the time such
Termination Fee becomes payable and (y) the expiration of the period in which
the Grantee has such right to receive a Termination fee, and (ii) any purchase
of Option Shares upon exercise of the Option will be subject to compliance with
the HSR Act. Notwithstanding the termination of the Option, Grantee will be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and the
termination of the Option will not affect any rights hereunder which by their
terms do not terminate or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will
send to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") to that effect which notice also specifies a date not earlier
than three business days nor later than 20 business days from the Notice Date
for the closing of such purchase (the "Option Closing Date"); provided, however,
-------- -------
that (i) if the closing of the purchase and sale pursuant to the Option (the
"Option Closing") cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that otherwise would run
pursuant to this sentence will run instead from the date on which such
restriction on consummation has expired or been terminated and (ii) without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Grantee and Issuer will
promptly file the required notice or application
2
<PAGE>
for approval and will cooperate in the expeditious filing of such notice or
application, and the period of time that otherwise would run pursuant to this
sentence will run instead from the date on which, as the case may be, (A) any
required notification period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite waiting period
has expired or been terminated. The place of the Option Closing will be at the
offices of Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York,
and the time of the Option Closing will be 10:00 a.m. (Eastern Time) on the
Option Closing Date.
3. Payment and Delivery of Certificates. (a) At the Option Closing,
------------------------------------
Grantee will pay to Issuer in immediately available funds by wire transfer to a
bank account designated in writing by Issuer an amount equal to the Purchase
Price multiplied by the number of Option Shares.
(b) At the Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will deliver to
Grantee a certificate or certificates representing the Option Shares to be
purchased at the Option Closing, which Option Shares will be free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever. If at the
time of issuance of the Option Shares pursuant to the exercise of the Option
hereunder, Issuer shall not have redeemed the DSI Rights, or shall have issued
any similar securities, then each Option Share issued pursuant to such exercise
will also represent a corresponding DSI Right or new rights with terms
substantially the same as and at least as favorable to Grantee as are provided
under the DSI Rights Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at the Option
Closing will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF SEPTEMBER 22, 1996, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF DIAMOND SHAMROCK, INC. AT ITS PRINCIPAL
EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend
3
<PAGE>
will be removed by delivery of substitute certificate(s) without such reference
if Grantee has delivered to Issuer a copy of a letter from the staff of the SEC,
or an opinion of counsel in form and substance reasonably satisfactory to Issuer
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
4. Representations and Warranties of Issuer. Issuer hereby
----------------------------------------
represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power
-----------------
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Issuer and the consummation by Issuer of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly executed and
delivered by Issuer and constitutes a legal, valid, and binding obligation
of Issuer, enforceable against Issuer in accordance with its terms.
(b) Authorized Stock. Issuer's representations and warranties
----------------
in Section 3.01(c) of the Merger Agreement are incorporated herein by
reference. Without limiting the generality or effect of the foregoing,
Issuer has taken all necessary corporate and other action to authorize and
reserve and, subject to the expiration or termination of any required
waiting period under the HSR Act, to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Option Shares upon the
exercise of the Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary for Grantee
to exercise the Option, and Issuer will take all necessary corporate action
to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 6
upon exercise of the Option. The shares of Issuer Common Stock to be
issued upon due exercise of the Option, including all additional shares of
Issuer Common Stock or other securities which may be issuable upon exercise
of the Option or any Substitute Option pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and
4
<PAGE>
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, including without limitation any preemptive rights of any
stockholder of Issuer.
(c) No Conflicts. The execution and delivery of this Agreement
------------
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Issuer or any of its Significant Subsidiaries
under, (i) the certificate of incorporation or by-laws of Issuer or the
comparable organizational documents of any Significant Subsidiary of
Issuer, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise, or
license applicable to Issuer or any Significant Subsidiary of Issuer or
their respective properties or assets, or (iii) subject to the expiration
or termination of any required waiting period under the HSR Act, any
judgment, order, decree, statute, law, ordinance, rule, or regulation
applicable to Issuer or any of its Significant Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights, losses, or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on Issuer, (y) impair the ability of Issuer to perform its
obligations under this Agreement or (z) prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(d) State Takeover Statutes. The Board of Directors of Issuer
-----------------------
has approved the terms of this Agreement and the consummation of the
transactions contemplated by this Agreement for the purposes of Section 203
of the DGCL.
(e) DSI Rights Amendment. The DSI Rights Agreement has been
--------------------
amended as set forth in Section 3.01(s) of the Merger Agreement.
5. Representations and Warranties of Grantee. Grantee hereby
-----------------------------------------
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate
-----------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Grantee and the
5
<PAGE>
consummation by Grantee of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee and
constitutes a legal, valid, and binding obligation of Grantee, enforceable
against Grantee in accordance with its terms.
(b) No Conflicts. The execution and delivery of this Agreement
------------
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement hereby will
not, conflict with or result in any violation of, or default (with or
without notice or lapse of time or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Grantee or any of its Significant Subsidiaries
under, (i) the certificate of incorporation or by-laws of Grantee or the
comparable organizational documents of any Significant Subsidiary of
Grantee, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, or license applicable to Grantee or any Significant Subsidiary
of Grantee or their respective properties or assets, or (iii) subject to
the expiration or termination of any required waiting period under the HSR
Act, any judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Grantee or any of its Significant Subsidiaries or
their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses,
or Liens that individually or in the aggregate would not (x) have a
material adverse effect on Grantee, (y) impair the ability of Grantee to
perform its obligations under this Agreement or (z) prevent or materially
delay the consummation of any of the transactions contemplated by this
Agreement.
(c) Purchase Not for Distribution. Any Option Shares or other
-----------------------------
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event
-----------------------------------------------
of any change in Issuer Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, will be adjusted appropriately, and
6
<PAGE>
proper provision will be made in the agreements governing such transaction, so
that Grantee will receive upon exercise of the Option the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such event or the record date therefor, as applicable. Subject to
Section 1, and without limiting the parties' relative rights and obligations
under the Merger Agreement, if any additional shares of Issuer Common Stock are
issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 6(a)), the number of shares of
Issuer Common Stock subject to the Option will be adjusted so that, after such
issuance, it equals 19.9% of the number of shares of Issuer Common Stock then
issued and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the consummation
of such merger will be changed into or exchanged for stock or other securities
of Issuer or any other person or cash or any other property, or the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction will make proper provision so that the Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor, as
applicable.
(c) If, prior to the termination of the Option in accordance with
Section 2 or the Notice Date, Issuer enters into any agreement pursuant to which
all outstanding shares of Issuer Common Stock are to be purchased for, or
converted into the right to receive, cash (a "Transaction"), Issuer covenants
that proper
7
<PAGE>
provision will be made in such agreement to provide that, if the Option shall
not theretofore have been exercised, then upon the closing of the Transaction
(which in the case of a Transaction involving a tender offer will be when shares
of Issuer Common Stock are accepted for payment), Grantee will receive in
exchange for the cancellation of the Option an amount in cash equal to the Cash
Consideration. For purposes of this Agreement, the term "Cash Consideration"
means the lesser of (i) $60,000,000 and (ii) the number of Option Shares
multiplied by the difference between (A) the amount of cash per share of Issuer
Common Stock to be received by a holder of Issuer Common Stock in such
Transaction and (B) the Purchase Price.
7. Registration Rights. Issuer will, if requested by Grantee at any
-------------------
time and from time to time within three years of the exercise of the Option, as
expeditiously as possible prepare and file up to three registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have been
acquired by or are issuable to Grantee upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Grantee,
including a "shelf" registration statement under Rule 415 under the Securities
Act or any successor provision, and Issuer will use its best efforts to qualify
such shares or other securities under any applicable state securities laws.
Grantee agrees to use reasonable efforts to cause, and to cause any underwriters
of any sale or other disposition to cause, any sale or other disposition
pursuant to such registration statement to be effected on a widely distributed
basis so that upon consummation thereof no purchaser or transferee will own
beneficially more than 4.9% of the then-outstanding voting power of Issuer.
Issuer will use reasonable efforts to cause each such registration statement to
become effective, to obtain all consents or waivers of other parties which are
required therefor, and to keep such registration statement effective for such
period not in excess of 180 calendar days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sale or other disposition. The obligations of Issuer hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
one or more periods of time not exceeding 60 calendar days in the aggregate if
the Board of Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and adversely affect
Issuer. Any registration statement prepared and filed under this Section 7, and
any sale covered thereby, will be at Issuer's expense except for underwriting
discounts or commission, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto. Grantee will provide all
8
<PAGE>
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time periods referred to in the
first sentence of this Section 7, Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it will allow Grantee the right to participate in such registration, and
such participation will not affect the obligation of Issuer to effect demand
registration statements for Grantee under this Section 7; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
will include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 7, Issuer and Grantee will provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification, and contribution in connection with such
registration.
8. Transfers. The Option Shares may not be sold, assigned,
---------
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of the Grantee after reasonable inquiry,
beneficially owned more than 4.9% of the then-outstanding voting power of the
Issuer. Nothing herein will limit or affect the right of the Grantee to
transfer or assign this Agreement as provided in Section 11(g).
9. Listing. If Issuer Common Stock or any other securities to be
-------
acquired upon exercise of the Option are then listed on the NYSE (or any other
national securities exchange or national securities quotation system), Issuer,
upon the request of Grantee, will promptly file an application to list the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the NYSE (and any such other national securities exchange or
national securities quotation system) and will use reasonable efforts to obtain
approval of such listing as promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence
------------------
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered will constitute
an additional contractual
9
<PAGE>
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed, or mutilated shall at any time be enforceable by anyone.
11. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided in the Merger Agreement,
--------
each of the parties hereto will bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an
---------
instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
-----------------
any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement,
----------------------------------------------
the Merger Agreement (including the documents and instruments referred to
therein) and the Confidentiality Agreement (i) constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 8.06 of the Merger Agreement, are not
intended to confer upon any person other than the parties any rights or
remedies.
(e) Governing Law. This Agreement will be governed by, and construed
-------------
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims, demands, and other
-------
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed), or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
10
<PAGE>
If to Issuer to:
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Attention: Timothy J. Fretthold, Esq.
Fax: (210) 641-8885
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Fax: (212) 755-7306
If to Grantee to:
Ultramar Corporation
Two Pickwick Plaza
Suite 300
Greenwich, Connecticut 06830
Attention: Patrick Guarino, Esq.
Fax: (203) 622-7007
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr., Esq.
Fax: (212) 474-3700
(g) Assignment. Subject to the third sentence of this Section 11(g),
----------
neither this Agreement nor any of the rights, interests, or obligations under
this Agreement may be assigned or delegated, in whole or in part, by operation
of law or otherwise, by Issuer or Grantee without the prior written consent of
the other. Any assignment or delegation in violation of the preceding sentence
will be void. Notwithstanding the foregoing, at any time after the Option
becomes exercisable, this Agreement, together with any rights, interests, or
obligations of Grantee hereunder, may be transferred or assigned in its entirety
by Grantee without the consent of or any action by Issuer upon notice by Grantee
to Issuer as herein provided. Subject to the
11
<PAGE>
first and second sentences of this Section 11(g), this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option
------------------
by Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other Section that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would
-----------
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, the foregoing being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (ii) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) agrees that it will not bring
any action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court.
12
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
DIAMOND SHAMROCK, INC.
By: _________________________
Roger R. Hemminghaus
Chairman of the Board,
Chief Executive Officer and President
ULTRAMAR CORPORATION
By: ______________________________
Jean Gaulin
Chairman of the Board and
Chief Executive Officer
13
EXHIBIT 10.(b)
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 22, 1996 (the "Agreement"),
by and between Ultramar Corporation, a Delaware corporation ("Issuer"), and
Diamond Shamrock, Inc., a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement," capitalized terms
not defined herein will have the meanings set forth in the Merger Agreement),
providing for, among other things, the merger of Grantee with and into Issuer
with Issuer as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's willingness to enter
into the Merger Agreement and the DSI Stock Option Agreement, Grantee has
requested that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as defined below); and
C. As a condition and inducement to Issuer's willingness to enter
into the Merger Agreement and this Agreement, Issuer has requested that Grantee
agree, and Grantee has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the Option;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein Issuer
and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 8,927,500 (as adjusted as set forth herein) shares (the "Option
Shares") of Common Stock, par value $0.01 per share ("Issuer Common Stock"), of
Issuer at a purchase price of $27.20 (as adjusted as set forth herein) per
Option Share (the "Purchase Price"); provided, however, that notwithstanding
-----------------
anything herein to the contrary the number of Option Shares may not exceed the
whole number of shares (rounded down) equal to (a) $60,000,000 divided by (b)
the difference between (i) the closing price on the NYSE trading day immediately
preceding the Notice Date (as defined below) per share of Issuer Common Stock as
reported on the NYSE Composite Transaction Tape (or, if not listed on the NYSE,
as reported on any other national securities exchange or national securities
quotation system on which the Issuer Common Stock is listed or quoted, as
reported in the Wall Street Journal (Northeast
-------------------
<PAGE>
edition), or, if not reported thereby, any other authoritative source) and (ii)
the Purchase Price.
2. Exercise of Option. (a) Grantee may exercise the Option, in
------------------
whole but not in part, at any one time after the occurrence of any event as a
result of which the Grantee is entitled to receive the Termination Fee pursuant
to Section 5.09(c) of the Merger Agreement (a "Purchase Event"); provided,
--------
however, that (i) except as provided in the last sentence of this Section 2(a),
- -------
the Option will terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) 18 months after the first
occurrence of a Purchase Event, and (C) termination of the Merger Agreement in
accordance with its terms prior to the occurrence of a Purchase Event, unless
the Grantee has the right to receive a Termination Fee following such
termination upon the occurrence of certain events, in which case the Option will
not terminate until the later of (x) six months following the time such
Termination Fee becomes payable and (y) the expiration of the period in which
the Grantee has such right to receive a Termination fee, and (ii) any purchase
of Option Shares upon exercise of the Option will be subject to compliance with
the HSR Act. Notwithstanding the termination of the Option, Grantee will be
entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and the
termination of the Option will not affect any rights hereunder which by their
terms do not terminate or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option, it will
send to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") to that effect which notice also specifies a date not earlier
than three business days nor later than 20 business days from the Notice Date
for the closing of such purchase (the "Option Closing Date"); provided, however,
-------- -------
that (i) if the closing of the purchase and sale pursuant to the Option (the
"Option Closing") cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that otherwise would run
pursuant to this sentence will run instead from the date on which such
restriction on consummation has expired or been terminated and (ii) without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Grantee and Issuer will
promptly file the required notice or application for approval and will cooperate
in the expeditious filing of such notice or application, and the period of time
that otherwise would run pursuant to this sentence will run instead from the
date on which, as the case may be, (A) any required notification period has
expired or been terminated or (B) any required approval has been obtained, and
in either event, any requisite waiting period has expired or been terminated.
The place of the Option Closing will be at the offices of Cravath, Swaine &
Moore, 825 Eighth Avenue, New York, New York, and the time of the Option
2
<PAGE>
Closing will be 10:00 a.m. (Eastern Time) on the Option Closing Date.
3. Payment and Delivery of Certificates. (a) At the Option Closing,
------------------------------------
Grantee will pay to Issuer in immediately available funds by wire transfer to a
bank account designated in writing by Issuer an amount equal to the Purchase
Price multiplied by the number of Option Shares.
(b) At the Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will deliver to
Grantee a certificate or certificates representing the Option Shares to be
purchased at the Option Closing, which Option Shares will be free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever. If at the
time of issuance of the Option Shares pursuant to the exercise of the Option
hereunder, Issuer shall not have redeemed the UC Rights, or shall have issued
any similar securities, then each Option Share issued pursuant to such exercise
will also represent a corresponding UC Right or new rights with terms
substantially the same as and at least as favorable to Grantee as are provided
under the UC Rights Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at the Option
Closing will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF SEPTEMBER 22, 1996, A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF ULTRAMAR CORPORATION AT ITS PRINCIPAL
EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if Grantee has delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Issuer and its counsel, to the effect that
such legend is not required for purposes of the Securities Act and (ii) the
reference to restrictions pursuant to this Agreement in the above legend will be
removed by delivery of substitute certificate(s) without such reference if the
Option Shares evidenced by certificate(s) containing such reference have been
sold or transferred in compliance with the provisions of this Agreement under
circumstances that do not require the retention of such reference.
3
<PAGE>
4. Representations and Warranties of Issuer. Issuer hereby
----------------------------------------
represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate power
-----------------
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Issuer and the consummation by Issuer of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly executed and
delivered by Issuer and constitutes a legal, valid, and binding obligation
of Issuer, enforceable against Issuer in accordance with its terms.
(b) Authorized Stock. Issuer's representations and warranties
----------------
in Section 3.02(c) of the Merger Agreement are incorporated herein by
reference. Without limiting the generality or effect of the foregoing,
Issuer has taken all necessary corporate and other action to authorize and
reserve and, subject to the expiration or termination of any required
waiting period under the HSR Act, to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Option Shares upon the
exercise of the Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary for Grantee
to exercise the Option, and Issuer will take all necessary corporate action
to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 6
upon exercise of the Option. The shares of Issuer Common Stock to be
issued upon due exercise of the Option, including all additional shares of
Issuer Common Stock or other securities which may be issuable upon exercise
of the Option or any Substitute Option pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including
without limitation any preemptive rights of any stockholder of Issuer.
(c) No Conflicts. The execution and delivery of this Agreement
------------
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Issuer or any of its Significant Subsidiaries
under, (i) the certificate of incorporation or by-laws of Issuer or the
comparable organizational documents of any Significant Subsidiary of
Issuer, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or
4
<PAGE>
other agreement, instrument, permit, concession, franchise, or license
applicable to Issuer or any Significant Subsidiary of Issuer or their
respective properties or assets, or (iii) subject to the expiration or
termination of any required waiting period under the HSR Act, any judgment,
order, decree, statute, law, ordinance, rule, or regulation applicable to
Issuer or any of its Significant Subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses, or Liens that
individually or in the aggregate would not (x) have a material adverse
effect on Issuer, (y) impair the ability of Issuer to perform its
obligations under this Agreement or (z) prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement.
(d) State Takeover Statutes. The Board of Directors of Issuer
-----------------------
has approved the terms of this Agreement and the consummation of the
transactions contemplated by this Agreement for the purposes of Section 203
of the DGCL.
(e) UC Rights Amendment. The UC Rights Agreement has been
-------------------
amended as set forth in Section 3.02(s) of the Merger Agreement.
5. Representations and Warranties of Grantee. Grantee hereby
-----------------------------------------
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate
-----------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by Grantee and the consummation by Grantee of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee and constitutes a legal, valid, and binding obligation
of Grantee, enforceable against Grantee in accordance with its terms.
(b) No Conflicts. The execution and delivery of this Agreement
------------
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement hereby will
not, conflict with or result in any violation of, or default (with or
without notice or lapse of time or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Grantee or any of its Significant Subsidiaries
under, (i) the certificate of incorporation or by-laws of Grantee or the
comparable organizational documents of any Significant Subsidiary of
Grantee, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
5
<PAGE>
franchise, or license applicable to Grantee or any Significant Subsidiary
of Grantee or their respective properties or assets, or (iii) subject to
the expiration or termination of any required waiting period under the HSR
Act, any judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Grantee or any of its Significant Subsidiaries or
their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses,
or Liens that individually or in the aggregate would not (x) have a
material adverse effect on Grantee, (y) impair the ability of Grantee to
perform its obligations under this Agreement or (z) prevent or materially
delay the consummation of any of the transactions contemplated by this
Agreement.
(c) Purchase Not for Distribution. Any Option Shares or other
-----------------------------
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event
-----------------------------------------------
of any change in Issuer Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, will be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that
Grantee will receive upon exercise of the Option the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable. Subject to Section 1, and
without limiting the parties' relative rights and obligations under the Merger
Agreement, if any additional shares of Issuer Common Stock are issued after the
date of this Agreement (other than pursuant to an event described in the first
sentence of this Section 6(a)), the number of shares of Issuer Common Stock
subject to the Option will be adjusted so that, after such issuance, it equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock
6
<PAGE>
outstanding immediately prior to the consummation of such merger will be changed
into or exchanged for stock or other securities of Issuer or any other person or
cash or any other property, or the shares of Issuer Common Stock outstanding
immediately prior to the consummation of such merger will, after such merger,
represent less than 50% of the outstanding voting securities of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction will make proper
provision so that the Option will, upon the consummation of any such transaction
and upon the terms and conditions set forth herein, be converted into, or
exchanged for, an option with identical terms appropriately adjusted to acquire
the number and class of shares or other securities or property that Grantee
would have received in respect of Issuer Common Stock if the Option had been
exercised immediately prior to such consolidation, merger, sale, or transfer, or
the record date therefor, as applicable.
(c) If, prior to the termination of the Option in accordance with
Section 2 or the Notice Date, Issuer enters into any agreement pursuant to which
all outstanding shares of Issuer Common Stock are to be purchased for, or
converted into the right to receive, cash (a "Transaction"), Issuer covenants
that proper provision will be made in such agreement to provide that, if the
Option shall not theretofore have been exercised, then upon the closing of the
Transaction (which in the case of a Transaction involving a tender offer will be
when shares of Issuer Common Stock are accepted for payment), Grantee will
receive in exchange for the cancellation of the Option an amount in cash equal
to the Cash Consideration. For purposes of this Agreement, the term "Cash
Consideration" means the lesser of (i) $60,000,000 and (ii) the number of Option
Shares multiplied by the difference between (A) the amount of cash per share of
Issuer Common Stock to be received by a holder of Issuer Common Stock in such
Transaction and (B) the Purchase Price.
7. Registration Rights. Issuer will, if requested by Grantee at any
-------------------
time and from time to time within three years of the exercise of the Option, as
expeditiously as possible prepare and file up to three registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have been
acquired by or are issuable to Grantee upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Grantee,
including a "shelf" registration statement under Rule 415 under the Securities
Act or any successor provision, and Issuer will use its best efforts to qualify
such shares or other securities under any applicable state securities laws.
Grantee agrees to use reasonable efforts to cause, and to cause any underwriters
of any sale or other disposition to cause, any sale or other disposition
pursuant to such registration statement to be effected on a widely distributed
basis so that upon consummation thereof no purchaser
7
<PAGE>
or transferee will own beneficially more than 4.9% of the then-outstanding
voting power of Issuer. Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all consents or waivers of
other parties which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from the
day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. The obligations of Issuer
hereunder to file a registration statement and to maintain its effectiveness may
be suspended for one or more periods of time not exceeding 60 calendar days in
the aggregate if the Board of Directors of Issuer shall have determined that the
filing of such registration statement or the maintenance of its effectiveness
would require disclosure of nonpublic information that would materially and
adversely affect Issuer. Any registration statement prepared and filed under
this Section 7, and any sale covered thereby, will be at Issuer's expense except
for underwriting discounts or commission, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto. Grantee will provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time periods referred to in the
first sentence of this Section 7, Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
form), it will allow Grantee the right to participate in such registration, and
such participation will not affect the obligation of Issuer to effect demand
registration statements for Grantee under this Section 7; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested to be included in
such registration exceeds the number which can be sold in such offering, Issuer
will include the shares requested to be included therein by Grantee pro rata
with the shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 7, Issuer and Grantee will provide
each other and any underwriter of the offering with customary representations,
warranties, covenants, indemnification, and contribution in connection with such
registration.
8. Transfers. The Option Shares may not be sold, assigned,
---------
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of the Grantee after reasonable inquiry,
beneficially owned more than 4.9% of the then-outstanding voting power of the
Issuer. Nothing herein will limit or affect the right of the Grantee to
transfer or assign this Agreement as provided in Section 11(g).
9. Listing. If Issuer Common Stock or any other securities to be
-------
acquired upon exercise of the Option are then listed on the NYSE (or any other
national securities exchange or
8
<PAGE>
national securities quotation system), Issuer, upon the request of Grantee, will
promptly file an application to list the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on the NYSE (and any such
other national securities exchange or national securities quotation system) and
will use reasonable efforts to obtain approval of such listing as promptly as
practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence
------------------
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered will constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided in the Merger Agreement,
--------
each of the parties hereto will bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended, except by an
---------
instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
-----------------
any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement,
----------------------------------------------
the Merger Agreement (including the documents and instruments referred to
therein) and the Confidentiality Agreement (i) constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 8.06 of the Merger Agreement, are not
intended to confer upon any person other than the parties any rights or
remedies.
(e) Governing Law. This Agreement will be governed by, and construed
-------------
in accordance with, the laws of the State of
9
<PAGE>
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof.
(f) Notices. All notices, requests, claims, demands, and other
-------
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed), or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Issuer to:
Ultramar Corporation
Two Pickwick Plaza
Suite 300
Greenwich, Connecticut 06830
Attention: Patrick Guarino, Esq.
Fax: (203) 622-7007
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr., Esq.
Fax: (212) 474-3700
If to Grantee to:
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Attention: Timothy J. Fretthold, Esq.
Fax: (210) 641-8885
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Fax: (212) 755-7306
(g) Assignment. Subject to the third sentence of this Section 11(g),
----------
neither this Agreement nor any of the rights, interests, or obligations under
this Agreement may be assigned or delegated, in whole or in part, by operation
of law or otherwise, by Issuer or Grantee without the prior written consent of
the
10
<PAGE>
other. Any assignment or delegation in violation of the preceding sentence will
be void. Notwithstanding the foregoing, at any time after the Option becomes
exercisable, this Agreement, together with any rights, interests, or obligations
of Grantee hereunder, may be transferred or assigned in its entirety by Grantee
without the consent of or any action by Issuer upon notice by Grantee to Issuer
as herein provided. Subject to the first and second sentences of this Section
11(g), this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
(h) Further Assurances. In the event of any exercise of the Option
------------------
by Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other Section that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would
-----------
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, the foregoing being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (ii) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) agrees that it will not bring
any action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court.
11
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
ULTRAMAR CORPORATION
By: ______________________________
Jean Gaulin
Chairman of the Board and
Chief Executive Officer
DIAMOND SHAMROCK, INC.
By: _________________________
Roger R. Hemminghaus
Chairman of the Board,
Chief Executive Officer and
President
12
EXHIBIT 10.(c)
EMPLOYMENT AND CONSULTING AGREEMENT
This EMPLOYMENT AND CONSULTING AGREEMENT (the "Agreement"), dated as
of September 22, 1996, but effective as provided herein, is made and entered
into by and between Diamond Shamrock, Inc., a Delaware corporation (the
"Company" or "Diamond Shamrock, Inc.", as the context requires), and Roger R.
Hemminghaus (the "Executive").
WHEREAS, the Executive has been serving as the Chairman of the Board,
Chief Executive Officer and President of Diamond Shamrock, Inc.;
WHEREAS, the Executive is a party to an Employment Agreement with
Diamond Shamrock, Inc., dated as of February 6, 1996 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger between Ultramar
Corporation, a Delaware corporation ("Ultramar Corporation") and Diamond
Shamrock, Inc., dated as of September 22, 1996 (the "Merger Agreement"), as of
the effective time of the Merger (the "Effective Date"), Diamond Shamrock, Inc.
will be merged with and into Ultramar Corporation, with Ultramar Corporation as
the surviving entity (the "Merger");
WHEREAS, pursuant to the Merger Agreement it is contemplated that
Executive will execute this Agreement upon the signing of the Merger Agreement
and upon the Effective Date, Executive will serve as the Chairman of the Board
and Chief Executive Officer of the Company;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined herein)
exists;
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Merger and in the event of a
Change in Control subsequent to the Merger;
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to render services, both on the terms and subject to the conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
<PAGE>
1. Employment and Consulting.
-------------------------
1.1 The Company hereby agrees to employ the Executive and to
subsequently retain the Executive as a consultant, and the Executive hereby
agrees to undertake employment with, and provide consulting services to, the
Company, upon the terms and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective Date
and, subject to earlier expiration upon the Executive's termination under
Section 5, expiring on December 31, 1998 (the "Employment Term"). Consulting
services will be provided during the "Consulting Term" (as defined in Section
11.1(ii)).
2. Positions and Duties.
--------------------
2.1 Positions and Duties. During the Employment Term, the Executive
--------------------
will serve in the positions of Chairman of the Company's Board of Directors (the
"Board") and Chief Executive Officer of the Company and will have such duties,
functions, responsibilities and authority as are (i) consistent with the
Executive's position as the Company's most senior executive officer; or
(ii) assigned to his office in the Company's bylaws; or (iii) reasonably
assigned to him by the Board. The Executive will report directly to the Board.
The Company will use its best efforts to cause the Executive to be elected as a
member of the Board (initially, with a term that expires in 1997) and as
Chairman of the Board throughout the Employment Term and will use its best
efforts to cause him to be included in the management slate for election as a
director at every stockholders' meeting at which his term as a director would
otherwise expire.
2.2 Commitment. During the Employment Term, the Executive will be
----------
the Company's full-time employee and, except as may otherwise be approved in
advance in writing by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, the Executive will devote substantially all of his business time and
attention to the performance of his duties to the Company. Notwithstanding the
foregoing, the Executive may, (i) subject to the approval of the Board, serve as
a director of a company which is not engaged in "Competition" (as defined in
Section 9.1) with the Company, (ii) serve as an officer, director or otherwise
participate in purely educational, welfare, social, religious and civic
organizations, (iii) serve as an officer, director or trustee of, or otherwise
participate in, any organizations and activities with respect to which the
Executive's participation was disclosed in the last Proxy Statement prepared by
the Company prior to the date hereof, and (iv) manage personal and family
investments.
3. Place of Performance. In connection with his employment during the
--------------------
Employment Term, unless otherwise agreed by
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<PAGE>
the Executive, the Executive will be based at the Company's principal executive
offices. The Executive will undertake normal business travel on behalf of the
Company.
4. Compensation and Related Matters.
--------------------------------
4.1 Compensation and Benefits.
-------------------------
(i) Annual Base Salary. During the Employment Term, the Company
will pay to the Executive an annual base salary of not less than $725,000, which
annual base salary may be increased (but not decreased) from time to time by the
Board (or the Compensation Committee thereof) in its sole discretion, payable at
the times and in the manner consistent with the Company's general policies
regarding compensation of executive employees. The Board may from time to time
authorize such additional compensation to the Executive, in cash or in property,
as the Board may determine in its sole discretion to be appropriate.
(ii) Annual Incentive Compensation. If the Board (or the
Compensation Committee thereof) authorizes any cash incentive compensation or
approves any other management incentive program or arrangement, the Executive
will be eligible to participate in such plan, program or arrangement under the
general terms and conditions applicable to executive and management employees.
The annual cash incentive compensation paid to the Executive for calendar year
1996 will be paid in accordance with Diamond Shamrock, Inc.'s annual incentive
compensation plan, subject to any equitable adjustment determined by the Board
(or the Compensation Committee thereof) to be necessary in light of the Merger.
Nothing in this Section 4.1(ii) will guarantee to the Executive any specific
amount of incentive compensation, or prevent the Board (or the Compensation
Committee thereof) from establishing performance goals and compensation targets
applicable only to the Executive.
(iii) Retirement Benefits. Upon the expiration of the Employment
Term for any reason other than the termination of the Executive's employment for
Cause or voluntary termination other than for death or Disability (as those
terms are defined herein), the Executive will be credited with additional years
of age and service under any supplemental executive retirement plan or other
nonqualified retirement plan of the Company at the time of such Executive's
retirement (as defined under such plan) as may be required to provide a
retirement benefit at least equal to the benefit such Executive would have
received if the Executive had continued in the active employment of Diamond
Shamrock, Inc. or, as successor, Ultramar Diamond Shamrock Corp., until
December 31, 2001.
4.2 Executive Benefits. In addition to the compensation described in
------------------
Section 4.1, the Company will make available to the Executive and his eligible
dependents, subject
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<PAGE>
to the terms and conditions of the applicable plans, including without
limitation the eligibility rules, participation in all Company-sponsored
employee benefit plans including all employee retirement income and welfare
benefit policies, plans, programs or arrangements in which senior executives of
the Company participate, including any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement or other
retirement income or welfare benefit, disability, salary continuation, and any
other deferred compensation, incentive compensation, group and/or executive
life, health, medical/hospital or other insurance (whether funded by actual
insurance or self-insured by the Company), expense reimbursement or other
employee benefit policies, plans, programs or arrangements or any equivalent
successor policies, plans, programs or arrangements that may now exist or be
adopted hereafter by the Company.
4.3 Expenses. The Company will promptly reimburse the Executive for
--------
all travel and other business expenses the Executive incurs in order to perform
his duties to the Company under this Agreement in a manner commensurate with the
Executive's position and level of responsibility with the Company, and in
accordance with the Company's policy regarding substantiation of expenses.
5. Termination. Notwithstanding the Employment Term specified in Section
-----------
1.2, the termination of the Executive's employment hereunder will be governed by
the following provisions:
5.1 Death. In the event of the Executive's death during the
-----
Employment Term, the Company will pay to the Executive's beneficiaries or
estate, as appropriate, promptly after the Executive's death, (i) the unpaid
annual base salary to which the Executive is entitled, pursuant to Section 4.1,
through the date of the Executive's death, and (ii) for any accrued but unused
vacation days, to the extent and in the amounts, if any, provided under the
Company's usual policies and arrangements. This Section 5.1 will not limit the
entitlement of the Executive's estate or beneficiaries to any death or other
benefits then available to the Executive under any life insurance, stock
ownership, stock options, or other benefit plan or policy that is maintained by
the Company for the Executive's benefit.
5.2 Disability.
----------
(i) If the Company determines in good faith that the Executive
has incurred a Disability (as defined below) during the Employment Term, the
Company may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company will terminate effective on the 30th day after receipt of such notice by
the Executive, provided that within the 30 days after such
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<PAGE>
receipt, the Executive will not have returned to full-time performance of his
duties. The Executive will continue to receive his annual base salary and
benefits until the date of termination. In the event of the Executive's
Disability, the Company will pay the Executive, promptly after the Executive's
termination, (a) the unpaid annual base salary to which he is entitled, pursuant
to Section 4.1, through the date of the Executive's termination, (b) for any
accrued but unused vacation days, to the extent and in the amounts, if any,
provided under the Company's usual policies and arrangements, and (c) a lump sum
in cash in an amount equal to 50% of his annual base salary at the time of
termination. This Section 5.2 will not limit the entitlement of the Executive,
the Executive's estate or beneficiaries to any disability or other benefits then
available to the Executive under any disability insurance or other benefit plan
or policy that is maintained by the Company for the Executive's benefit.
(ii) For purposes of this Agreement, "Disability" will mean the
Executive's incapacity due to physical or mental illness substantially to
perform his duties on a full-time basis for six consecutive months and within 30
days after a notice of termination is thereafter given by the Company the
Executive will not have returned to the full-time performance of the Executive's
duties; provided, however, if the Executive disagrees with a determination to
terminate him because of Disability, the question of the Executive's disability
will be subject to the certification of a qualified medical doctor agreed to by
the Company and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the absence of
agreement between the Company and the Executive, each party will nominate a
qualified medical doctor and the two doctors will select a third doctor, who
will make the determination as to Disability. In order to facilitate such
determination, the Executive will, as reasonably requested by the Company,
(a) make himself available for medical examinations by a doctor in accordance
with this Section 5.2(ii), and (b) grant the Company and any such doctor access
to all relevant medical information concerning him, arrange to furnish copies of
medical records to such doctor and use his best efforts to cause his own doctor
to be available to discuss his health with such doctor.
5.3 Cause.
-----
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below). In the event of the Executive's
termination for Cause, the Company will promptly pay to the Executive (or his
representative) the unpaid annual base salary to which he is entitled, pursuant
to Section 4.1, through the date the Executive is terminated and the Executive
will be entitled to no other compensation, except as otherwise due to him under
applicable law.
-5-
<PAGE>
(ii) For purposes of this Agreement, the Company will have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that (a) the Executive committed an illegal act or acts that were intended
to and did defraud the Company, (b) the Executive engaged in gross negligence or
gross misconduct against the Company or another employee, or in carrying out his
duties and responsibilities, or (c) the Executive materially breached any of the
express covenants set forth in Section 9.1, 9.2 or 9.3. The Company will not
have Cause unless and until the Company provides the Executive with written
notice that the Company intends to terminate his employment for Cause. Such
written notice will specify the particular act or acts, or failure to act, that
is or are the basis for the decision to so terminate the Executive's employment
for Cause. The Employee will be given the opportunity within 30 calendar days
of the receipt of such notice to meet with the Board to defend such act or acts,
or failure to act. The Executive's employment by the Company automatically will
be terminated under this Section 5.3 for Cause as of the receipt of the written
notice from the Company or, if later, the date specified in such notice. A
notice given under this Section 5.3 must set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment for Cause, and if the termination date is other than the
date of receipt of such notice, specify the date on which the Executive's
employment is to be terminated (which date will not be earlier than the date on
which such notice is given in accordance with Section 13.5). Such notice must
be given no later than 180 business days after a director of the Company
(excluding the Executive, if applicable) first has actual knowledge of the
events justifying the purported termination.
5.4 Termination.
-----------
(i) Involuntary Termination. The Executive's employment
hereunder may be terminated by the Company for any reason by written notice as
provided in Section 13.5. The Executive will be treated for purposes of this
Agreement as having been involuntarily terminated by the Company other than for
Cause if the Executive terminates his employment with the Company for any of the
following reasons (each, a "Good Reason"): (a) the Company has breached any
material provision of this Agreement and within 30 days after notice thereof
from the Executive, the Company fails to cure such breach; (b) a successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company fails to assume liability under the Agreement; (c) a material reduction
in the aggregate benefits described by Section 4.2 (other than stock-based
compensation) provided to the Executive, unless such decrease is required by law
or is applicable to all employees of the Company eligible to participate in any
employee benefit arrangement affected by such reduction; (d) the Executive is
not elected to or is removed from the Board; or (e) the Board fails to appoint
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<PAGE>
the Executive as Chief Executive Officer or to elect the Executive as Chairman
of the Board, or the Executive is removed from either position.
(ii) Voluntary Termination. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 13.5. The Executive's death or Disability (as defined in Section
5.2(ii)) during the term of the Agreement will constitute a voluntary
termination of employment for purposes of eligibility for termination payments
and benefits as provided in Section 5.5, but for no other purpose.
5.5 Termination Payments and Benefits.
---------------------------------
(i) Form and Amount. Upon the Executive's involuntary
termination other than for Cause, (a) subject to Section 5.5(iii), the Company
will pay or provide to the Executive (1) his annual base salary and benefits
until the date of termination, (2) within five business days after termination
of his employment, a lump sum cash payment equal in amount to (A) three times
the sum of (x) the Executive's highest annual base salary in effect during the
three years prior to his date of termination, and (y) the highest annual
incentive compensation earned by the Executive during the same three-year
period, plus (B) the aggregate fees that would have been due under Section
11.2(i)(a) if the Executive had rendered services for the entire Consulting Term
(as defined in Section 11), based upon Executive's highest annual base salary
during the three-year period prior to termination of employment, (3) additional
years of age and service credit as are required to permit the Executive to
retire under the qualified defined benefit retirement plans of the Company in
which the Executive participates at the time of termination as though he had
attained age 62 and such years of service required to receive an actuarially
unreduced retirement benefit; provided, however, that in such case, the present
value of the additional benefit the Executive would have accrued if he had been
credited for all purposes with the additional years of age and service under
such plan as of the Executive's date of termination with the Company will be
paid in a lump sum in cash within five business days after termination of the
Executive's employment, and (4) for a period of one year after termination of
his employment, the continuation of the employee welfare benefits set forth in
Section 4.2 except as offset by benefits paid or provided by other sources as
set forth in Section 8, or as prohibited by law or as a condition of maintaining
the tax-favored status of any such benefits to the Company or its employees; and
(b) the Executive's benefit under the applicable supplemental executive
retirement plan will be not less than the benefit the Executive would have
received under the terms of the corresponding plan (including any individual
modifications thereof) applicable to the Executive as in effect immediately
prior to the Effective Date determined as if the Executive had continued
employment under the terms of such corresponding plan (and modifications) until
his actual termination of employment.
-7-
<PAGE>
For purposes of Section 5.5(i)(a)(2), the three-year period will include
employment with Diamond Shamrock, Inc. or any of its affiliates.
(ii) Maintenance of Benefits. During the period set forth in
Section 5.5(i)(a)(4), the Company will use its best efforts to maintain in full
force and effect for the continued benefit of the Executive all referenced
benefits or will arrange to make available to the Executive benefits
substantially similar to those that the Executive would otherwise have been
entitled to receive if his employment had not been terminated. Such benefits
will be provided to the Executive on the same terms and conditions (including
employee contributions toward the premium payments) under which the Executive
was entitled to participate immediately prior to his termination.
(iii) Release. No benefit will be paid or made available under
Section 5.5(i) (a) unless the Executive first executes a release in the form
attached as an exhibit to this Agreement, and (b) to the extent any portion of
such release is subject to the seven-day revocation period prescribed by the Age
Discrimination in Employment Act of 1967, as amended, or to any similar
revocation period in effect on the date of termination of Executive's
employment, such revocation period has expired.
6. Change in Control Provisions.
----------------------------
6.1 Impact of Change in Control. In the event of a "Change in
---------------------------
Control" of the Company, as defined in Section 6.2, (i) the Company will cause
all cash benefits due under this Agreement to be secured by an irrevocable trust
for the benefit of the Executive, the assets of which will be subject to the
claims of the Company's creditors, and will transfer to such trust cash and
other property adequate to satisfy all of the expenses of the trust for at least
five years after the Change in Control and any of the Company's actual and
potential cash obligations under this Agreement, (ii) if the Executive's
employment is involuntarily terminated without Cause after the Change in
Control, (A) the covenants of Sections 9.1 and 10 will be inapplicable to the
Executive, and (B) the covenant of Section 9.2 will expire on the third
anniversary of the date of termination of the Executive's employment, and (iii)
the definition of Good Reason, as set forth in Section 5.4(i) above, will be
expanded to include the following:
(a) Without the Executive's written consent, a significant
reduction in the Executive's duties or the addition of duties, which in either
case are materially inconsistent with the Executive's title or position;
(b) A good faith determination by the Executive that, as a result
of the Change in Control and a change in circumstances thereafter significantly
affecting his positions, including a change in the scope of business or other
activities
-8-
<PAGE>
for which he was responsible, he has been rendered substantially unable to carry
out, has been substantially hindered in the performance of, or has suffered a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to any of the Executive's positions; the
Executive's determination will be presumed to have been made in good faith
unless otherwise shown by the Company by clear and convincing evidence; or
(c) The relocation of the Company's principal executive offices,
or requirement that the Executive have as his principal location of work any
location that is, in excess of 50 miles from the location thereof immediately
preceding the Change in Control or to travel away from his home or office
significantly more often that required immediately prior to the Change in
Control.
6.2 Definition of Change in Control. For purposes of this Agreement,
-------------------------------
a "Change in Control" will be deemed to occur if at any time during the term of
the Agreement any of the following events will occur:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization, less than 50% of the combined voting power of
the then-outstanding securities of such corporation or person immediately after
such transaction are held in the aggregate by the holders of Voting Stock (as
that term is hereafter defined) of the Company immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and as a result of such sale or transfer, less than 50% of the combined voting
power of the then-outstanding voting securities of such corporation or person
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of the combined voting
power of the then-outstanding securities of the Company entitled to vote
generally in the election of Directors of the Company ("Voting Stock");
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the
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<PAGE>
Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a change in control of
the Company has or may have occurred or will or may occur in the future pursuant
to any then-existing contract or transaction; or
(v) If during the period of two consecutive years individuals who
at the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders, of each
Director of the Company first elected during such period was approved by a vote
of at least two-thirds of the Directors of the Company then still in office who
were Directors of the Company at the beginning of any such period (excluding for
this purpose the election of any new Director in connection with an actual or
threatened election or proxy contest).
Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof,
unless otherwise determined in a specific case by majority vote of the Board (or
the Compensation Committee thereof), a "Change in Control" will not be deemed to
have occurred for purposes of this Agreement solely because the Company, an
entity in which the Company directly or beneficially owns 50% or more of the
voting securities of such entity, any Company-sponsored employee stock ownership
plan or any other employee benefit plan of the Company either files or becomes
obligated to file a report or a proxy statement under or in response to Schedule
13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of voting securities of the Company, whether in excess
of 20% or otherwise, or because the Company reports that a change in control of
the Company has or may have occurred or will or may occur in the future by
reason of such beneficial ownership. Notwithstanding the foregoing provisions
of Section 6.2, the Merger will not constitute a Change in Control.
7. Certain Additional Payments by the Company:
------------------------------------------
(i) Anything in this Agreement to the contrary notwithstanding, if it
is determined (as hereafter provided) that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan, program
or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being "contingent on a
change in ownership or control" of Diamond Shamrock, Inc. or the Company, within
the meaning of Section 280G
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<PAGE>
of the Code (or any successor provision thereto) or to any similar tax imposed
by state or local law, or any interest or penalties with respect to such excise
tax (such tax or taxes, together with any such interest and penalties, are
hereafter collectively referred to as the "Excise Tax"), then the Executive will
be entitled to receive an additional payment or payments (a "Gross-Up Payment")
in an amount such that, after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. No
Gross-Up Payment will be made with respect to the Excise Tax, if any,
attributable to (a) any incentive stock option, as defined by Section 422 of the
Code ("ISO") granted prior to the execution of this Agreement (unless a
comparable Gross-Up Payment has theretofore been made available with respect to
such option), or (b) any stock appreciation or similar right, whether or not
limited, granted in tandem with any ISO described in clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the Executive in his sole discretion. The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within 15
calendar days after the Termination Date, if applicable, and any other such time
or times as may be requested by the Company or the Executive. If the Accounting
Firm determines that any Excise Tax is payable by the Executive, the Company
will pay the required Gross-Up Payment to the Executive within five business
days after receipt of such determination and calculations. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it will, at the
same time as it makes such determination, furnish the Executive with an opinion
that he has substantial authority not to report any Excise Tax on his federal,
state, local income or other tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment will be binding upon the Company
and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local tax law
at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 7(vi) hereof and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive will
direct the Accounting Firm to determine the amount of the
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<PAGE>
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment will be promptly paid by the Company to, or for
the benefit of, the Executive within five business days after receipt of such
determination and calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax returns,
if relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially paid by the Executive, the Company will reimburse the
Executive the full amount of such fees and expenses within five business days
after receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will further
apprise the Company of the nature of such claim and the date on which such claim
is requested to be paid (in each case, to the extent known by the Executive).
The Executive will not pay such claim prior to the earlier of (a) the expiration
of the 30-calendar-day period following the date on which he gives such notice
to the Company and (b) the date that any payment of amount with respect to such
claim is due. If the
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<PAGE>
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive will:
(1) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(2) take such action in connection with contesting such claim as
the Company will reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(3) cooperate with the Company in good faith in order effectively
to contest such claim; and
(4) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 7(vi) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at his
own cost and expense) and may, at its option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company will determine; provided, however,
that if the Company directs the Executive to pay the tax claimed and sue for a
refund, the Company will advance the amount of such payment to the Executive on
an interest-free basis and will indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested
claim will be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive will be
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<PAGE>
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive receives
any refund with respect to such claim, the Executive will (subject to the
Company's complying with the requirements of Section 7(vi) hereof) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 7(vi)
hereof, a determination is made that the Executive will not be entitled to any
refund with respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance will
be forgiven and will not be required to be repaid and the amount of such advance
will offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid pursuant to this Section 7.
8. Mitigation and Offset. The Executive is under no obligation to
---------------------
mitigate damages or the amount of any payment or benefit provided for hereunder
by seeking other employment or otherwise; provided, however, that the
Executive's coverage under the Company's welfare benefit plans will be reduced
to the extent that the Executive becomes covered under any comparable employee
benefit plan made available by another employer and covering the same type of
benefits. The Executive will report to the Company any such benefits actually
received by him.
9. Competition; Confidentiality; Nonsolicitation
---------------------------------------------
9.1 (i) Subject to Section 6.1(ii), the Executive hereby covenants
and agrees that during the Employment Term and for one year following the
Employment Term he will not, without the prior written consent of the Company,
engage in Competition (as defined below) with the Company. For purposes of this
Agreement, if the Executive takes any of the following actions he will be
engaged in "Competition": engaging in or carrying on, directly or indirectly,
any enterprise, whether as an advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant to any person,
partnership, corporation or any other business entity, that is principally
engaged in the business of refining and/or marketing oil or related products in
States in which the Company has significant operations; provided, however, that
"Competition" will not include (a) the mere ownership of securities in any
enterprise and exercise of rights appurtenant thereto or (b) participation in
management of any enterprise or business operation thereof other than in
connection with the competitive operation of such enterprise.
-14-
<PAGE>
(ii) Subject to Section 6.1(ii), the Executive hereby covenants
and agrees that during the Employment Term and for three years following the
Employment Term he will not assist a third party in preparing or making an
unsolicited bid for the Company, engaging in a proxy contest with the Company,
or engaging in any other similar activity.
9.2 During the Employment Term, the Company agrees that it will
disclose to Executive its confidential or proprietary information (as defined in
this Section 9.2) to the extent necessary for Executive to carry out his
obligations under this Agreement. Subject to Section 6.1(ii), the Executive
hereby covenants and agrees that he will not, without the prior written consent
of the Company, during the Employment Term or thereafter disclose to any person
not employed by the Company, or use in connection with engaging in Competition
with the Company, any confidential or proprietary information of the Company.
For purposes of this Agreement, the term "confidential or proprietary
information" will include all information of any nature and in any form that is
owned by the Company and that is not publicly available or generally known to
persons engaged in businesses similar or related to those of the Company.
Confidential information will include, without limitation, the Company's
financial matters, customers, employees, industry contracts, and all other
secrets and all other information of a confidential or proprietary nature. The
foregoing obligations imposed by this Section 9.2 will cease if such
confidential or proprietary information will have become, through no fault of
the Executive, generally known to the public or the Executive is required by law
to make disclosure (after giving the Company notice and an opportunity to
contest such requirement).
9.3 Subject to Section 6.1(ii), the Executive hereby covenants and
agrees that during the Employment Term and for one year thereafter he will not
attempt to influence, persuade or induce, or assist any other person in so
persuading or inducing, any employee of the Company to give up, or to not
commence, employment or a business relationship with the Company.
9.4 Executive acknowledges and agrees that the remedy at law
available to the Company for breach of any of his post-termination obligations
under Sections 9.1, 9.2 and 9.3 would be inadequate and that damages flowing
from such a breach may not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any such
provision of this Agreement, the Company will be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened or
further breach, without the necessity of proof of actual damage.
10. Post-termination Assistance. Subject to Section
---------------------------
-15-
<PAGE>
6.1(ii), the Executive agrees that after his employment with the Company has
terminated he will provide, upon reasonable notice, such information and
assistance to the Company as may reasonably be requested by the Company in
connection with any litigation in which it or any of its affiliates is or may
become a party; provided, however, that the Company agrees to reimburse the
Executive for any related out-of-pocket expenses, including travel expenses.
11. Consulting Services Agreement.
-----------------------------
11.1 Services.
--------
(i) During the Consulting Term (as defined in Section 11.1(ii)),
the Company will retain the Executive to perform consulting and advisory
services (as the "Consultant") to the Company as such services may be needed
from time to time and as the President and Chief Executive Officer of the
Company and his designees may request. The Consultant agrees that, during the
Consulting Term, he will be available in person and by telephone in and around
the geographic areas of the Company's operations and at such other designated
areas of assignment as may from time to time be requested by the President and
Chief Executive Officer of the Company and his designees. The Company will
furnish the Consultant with secretarial assistance to the extent necessary for
the Consultant to perform services under this Agreement and an office that is
located in the executive area of the Company's corporate offices and that is
comparable to offices provided to senior executive officers of the Company. In
addition, the Company agrees that it is intended that during the Consulting
Term, the Executive will retain the position of Chairman of the Board and will
be a member of the Board. The Company will use its best efforts to cause the
Executive to be elected as a member of the Board and as Chairman of the Board
during such period. The Consultant may also serve as a director of any
corporation that is not engaged in "Competition" (as defined in Section 9.1)
with the Company.
(ii) The "Consulting Term" will commence upon the day after the
expiration of the Employment Term, as set forth in Section 1.2 and will
terminate at the end of the third year thereafter; provided, however, if this
Agreement has been terminated pursuant Section 5 or Section 6 prior to the
original expiration date of the Employment Term (other than in the case of a
voluntary termination), this Section 11 will not become operative and the
Executive will have no obligation to render consulting services to the Company.
(iii) The Company and the Consultant agree that the Consultant
will perform services pursuant to this Section 11 as an independent contractor
and not as an employee, agent, partner, or joint venturer of the Company. The
Consultant acknowledges that as an independent contractor he is not eligible to
participate in employee benefit plans of the Company and will
-16-
<PAGE>
not be entitled to employee benefits except as he may be otherwise entitled to
such benefits as a result of his prior service to the Company as an employee,
subject to the provisions of the applicable employee benefit plans.
11.2 Consulting Fee and Expenses.
---------------------------
(i) In consideration of the Consultant's willingness to be
available during the Consulting Term to provide the services contemplated by
Section 11.1, the Company will pay to the Consultant a fixed consulting fee per
year equal to one-half of the Consultant's highest annual base salary in effect
during the Employment Term, payable in equal monthly installments on the last
day of each calendar month during the Consulting Term (with the amount of such
payment to be prorated with respect to any partial calendar month included in
the Consulting Term); and
(ii) If, in the performance of the Consultant's obligations
under this Agreement, the Consultant is required to travel more than 50 miles
from his principal residence, wherever that might be, the Company will reimburse
the Consultant for reasonable expenses (supported by receipts satisfactory to
the Company) incurred as a result of such travel, including without limitation
reasonable expenses for travel to and from the Consultant's principal residence
and food and lodging while away from his principal residence. Further, if the
Consultant is required to incur any other actual out-of-pocket expenses in
connection with the performance of his obligations under this Agreement, the
Company will reimburse the Consultant for such expenses, provided such expenses
are approved in advance by the Company and the Consultant furnishes the Company
with receipts for such expenses satisfactory to the Company.
11.3 Termination of Consulting Services. If the services of the
----------------------------------
Consultant are terminated during the Consulting Term for any reason (including
the death or disability of the Consultant) other than a voluntary termination by
the Consultant, the Consultant will be entitled to a lump sum payment in an
amount equal to the sum of the fixed monthly payments described in Section
11.1(i)(a) that would otherwise have been paid during the Consulting Term. For
purposes of this Section 11.3, a voluntary termination will not include
termination by the Consultant after any of the following events: (a) the Board
fails to elect Consultant as Chairman of the Board or the Consultant is removed
from such position; (b) a Change in Control of the Company, or (c) the Company
relocates its principal executive offices in excess of 50 miles from the
location thereof at the commencement of the Consulting Term; provided, however,
that before clause (c), above, will be applicable, Consultant must first resign
as Chairman of the Board and tender his resignation as a member of the Board.
11.4 Confidential Information. The Consultant recognizes and
------------------------
acknowledges that in the course of his employment
-17-
<PAGE>
with the Company he has obtained, and during the Consulting Term may obtain,
private or confidential information and proprietary data relating to the
Company, whether specifically designated as such or not (the "Confidential
Information"), and the Consultant agrees that he will maintain in confidence any
Confidential Information obtained by or from the Company and will not, during
the Consulting Term or any time thereafter, either directly or indirectly,
disclose or use Confidential Information except with the prior written consent
of the President and Chief Executive Officer of the Company or until such
Confidential Information will be in the public domain (other than as a result of
an unauthorized disclosure by the Consultant).
11.5 Director Status. While serving as a director of the Company
---------------
during the Consulting Term, the Consultant will be treated in the same manner as
other directors of the Company for all outside director compensation purposes.
12. Survival. The expiration or termination of the Employment Term or the
--------
Consulting Term will not impair the rights or obligations of any party hereto
that accrue hereunder prior to such expiration or termination, except to the
extent specifically stated herein. In addition to the foregoing, the
Executive's covenants contained in Sections 9.1, 9.2, 9.3 and 10 and the
Company's obligations under Sections 5, 7 and 13.1 will survive the expiration
or termination of Executive's employment.
13. Miscellaneous Provisions.
------------------------
13.1 Legal Fees and Expenses. Without regard to whether the Executive
-----------------------
prevails, in whole or in part, in connection therewith, the Company will pay and
be financially responsible for 100% of any and all attorneys' and related fees
and expenses incurred by the Executive in connection with any dispute associated
with the interpretation, enforcement or defense of the Executive's rights under
this Agreement by litigation or otherwise; provided that, in regard to such
dispute, the Executive has not acted in bad faith or with no colorable claim of
success. All such fees and expenses will be paid by the Company as incurred by
the Executive on a monthly basis upon an undertaking by the Executive to repay
such advanced amounts if a court determines, in a decision against which no
appeal may be taken or with respect to which the time period to appeal has
expired, that he acted in bad faith or with no colorable claim of success.
13.2 Binding on Successors. This Agreement will be binding upon and
---------------------
inure to the benefit of the Company, the Executive and each of their respective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13.3 Governing Law. This Agreement will be governed, construed,
-------------
interpreted and enforced in accordance with the
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<PAGE>
substantive laws of the State of Delaware, without regard to conflicts of law
principles.
13.4 Severability. Any provision of this Agreement that is deemed
------------
invalid, illegal or unenforceable in any jurisdiction will, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant will be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable.
13.5 Notices. For all purposes of this Agreement, all communications,
-------
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to the Executive at his
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address will be effective only upon receipt.
(i) To The Company. If to the Company, addressed to the
--------------
attention of General Counsel at 9830 Colonnade Boulevard, San Antonio, Texas
78230.
(ii) To the Executive. If to the Executive, to him care of the
----------------
Company at the above address.
13.6 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
13.7 Entire Agreement. The terms of this Agreement are intended by
----------------
the parties to be the final expression of their agreement with respect to the
Executive's employment by the Company and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Agreement will constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding to vary the terms of this Agreement.
-19-
<PAGE>
13.8 Amendments; Waivers. This Agreement may not be modified,
--------------------
amended, or terminated except by an instrument in writing, approved by the
Company and signed by the Executive and the Company. Failure on the part of
either party to complain of any action or omission, breach or default on the
part of the other party, no matter how long the same may continue, will never be
deemed to be a waiver of any rights or remedies hereunder, at law or in equity.
The Executive or the Company may waive compliance by the other party with any
provision of this Agreement that such other party was or is obligated to comply
with or perform only through an executed writing; provided, however, that such
waiver will not operate as a waiver of, or estoppel with respect to, any other
or subsequent failure.
13.9 No Inconsistent Actions. The parties will not voluntarily
------------------------
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
13.10 Headings and Section References. The headings used in this
-------------------------------
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
14. Effectiveness, Prior Agreement and Consent. This Agreement will
------------------------------------------
become effective upon and the Prior Agreement will terminate immediately prior
to, the Effective Date, whereupon all references to the "Company" herein will be
treated as references to Ultramar Corporation. By executing this Agreement,
Executive hereby consents to the assumption of this Agreement by Ultramar
Corporation upon the Effective Date. Notwithstanding any other provision of
this Agreement, if the Merger Agreement is terminated prior to the Effective
Date, this Agreement will have no further force or effect, and the Prior
Agreement will continue in effect as though this Agreement had not been entered
into.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written, but effective as provided in Section 14.
-----------------------------------
Roger R. Hemminghaus
DIAMOND SHAMROCK, INC.,
a Delaware corporation
By:
------------------------------
Name:
-----------------------
Title:
-----------------------
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<PAGE>
Exhibit
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and between _____________________ ("Executive") and Ultramar Diamond Shamrock
Corp. (including its subsidiaries) (collectively the "Company") effective as of
__________________.
In consideration of the promises set forth in the employment agreement
between Executive and the Company, dated September ___, 1996, as amended as of
the effective date hereof (the "Employment Agreement"), as well as any promises
set forth in this Agreement, Executive and the Company agree as follows:
(1) Employment Agreement Entitlements
---------------------------------
The Company will provide Executive the post-termination payments and
benefits to which he is entitled under the Employment Agreement.
(2) Return of Property
------------------
All Company files, access keys, desk keys, ID badges and credit cards, and
such other property of the Company as the Company may reasonably request,
in Executive's possession must be returned no later than the date of
Executive's termination from the Company (the "Termination Date").
(3) General Release and Waiver of Claims
------------------------------------
Except as provided in the last sentence of this paragraph (3), Executive
hereby unconditionally and forever releases, discharges and waives any and
all claims of any nature whatsoever, whether legal, equitable or otherwise,
which Executive may have against the Company arising at any time on or
before the Termination Date, other than with respect to the obligations of
the Company to the Executive under the Employment Agreement. This release
of claims extends to any and all claims of any nature whatsoever, other
than with respect to the obligations of the Company to the Executive under
the Employment Agreement, whether known, unknown or capable or incapable of
being known as of the Termination Date of thereafter. This Agreement is a
release of all claims of any nature whatsoever by Executive against the
Company, other than with respect to the obligations of the Company to the
Executive under the Employment Agreement, and includes, other than as
herein provided, any and all claims, demands, causes of action, liabilities
whether known or unknown including those caused by, arising from or related
to Executive's employment relationship with the Company including, but
without limitation, any and all alleged discrimination or acts of
discrimination which occurred or
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<PAGE>
may have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 7 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act ("ERISA"); or any other federal, state or local laws or
regulations regarding employment discrimination or termination of
employment. This also includes claims for wrongful discharge, fraud, or
misrepresentation under any statute, rule, regulation or under the common
law.
The Executive agrees and understands and knowingly agrees to this release
because it is his intent in executing this Agreement to forever discharge
the Company from any and all present, future, foreseen or unforeseen causes
of action except for the obligations of the Company set forth in the
Employment Agreement.
Notwithstanding the foregoing, Executive does not release, discharge or
waive any rights to indemnification that he may have under the By-Laws of
the Company, the laws of the State of Delaware, any indemnification
agreement between the Executive and the Company or any insurance coverage
maintained by or on behalf of the Company.
(4) Release and Waiver of Claims Under the Age of Discrimination in Employment
--------------------------------------------------------------------------
Act
---
Executive acknowledges that the Company encouraged him to consult with an
attorney of his choosing, and through this Agreement encourages him to
consult with his attorney with respect to possible claims under the Age
Discrimination in Employment Act of 1967, as amended ("ADEA") and that
Executive acknowledges that he understands that the ADEA is a federal
statute that prohibits discrimination, on the basis of age, in employment,
benefits, and benefit plans. Executive wishes to waive any and all claims
under the ADEA that he may have, as of the Termination Date, against the
Company, its shareholders, employees, or successors and hereby waives such
claims. Executive further understands that by signing this Agreement he is
in fact waiving, releasing and forever giving up any claim under the ADEA
that may have existed on or prior to the Termination Date. Executive
acknowledges that the Company has informed him that he has at his option,
twenty-one (21) days in which to sign the waiver of this claim under ADEA,
and he does hereby knowingly and voluntarily waive said twenty-one (21) day
period. Executive also understands that he has seven (7) days following
the Termination Date within which to revoke the release contained in this
paragraph by providing a
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<PAGE>
written notice of his revocation of the release and waiver contained in
this paragraph to the Company. Executive further understands that this
right to revoke the release contained in this paragraph relates only to
this paragraph and does not act as a revocation of any other term of this
Agreement.
(5) Proceedings
-----------
Executive has not filed, and agrees not to initiate or cause to be
initiated on his behalf, any complaint, charge, claim or proceeding against
the Company before any local, state or federal agency, court or other body
relating to his employment or the termination of his employment (each
individually, a "Proceeding"), and agrees not to voluntarily participate in
any Proceeding. Executive waives any right he may have to benefit in any
manner from any relief (whether monetary or otherwise) arising out of any
Proceeding.
(6) Remedies
--------
In the event Executive initiates or voluntarily participates in any
Proceeding, or if he fails to abide by any of the terms of this Agreement
or his post-termination obligations contained in the Employment Agreement,
or if he revokes the ADEA release contained in Paragraph 4 of this
Agreement within the seven-day period provided under Paragraph 4, the
Company may, in addition to any other remedies it may have, reclaim any
amounts paid to him under the termination provisions of the Employment
Agreement or terminate any benefits or payments that are subsequently due
under the Employment Agreement, without waiving the release granted herein.
Executive acknowledges and agrees that the remedy at law available to the
Company for breach of any of his post-termination obligations under the
Employment Agreement or his obligations under Paragraphs 3, 4, and 5 of
this Agreement would be inadequate and that damages flowing from such a
breach may not readily be susceptible to being measured in monetary terms.
Accordingly, Executive acknowledges, consents and agrees that, in addition
to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any
such provision of this Agreement, the Company shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
Executive understands that by entering into this Agreement he will be
limiting the availability of certain remedies that he may have against the
Company and limiting also his ability to pursue certain claims against the
Company.
(7) Severability Clause
-------------------
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<PAGE>
In the event any provision or part of this Agreement is found to be invalid
or unenforceable, only that particular provision or part so found, and not
the entire agreement, will be inoperative.
(8) Non-Admission
-------------
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Company.
(9) Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State; and the parties agree to the jurisdiction of the
U.S. District Court for the District of Delaware, and agree to appear in
any action in such courts by service of process by certified mail, return
receipt requested, at the following addresses:
To Company: ULTRAMAR DIAMOND SHAMROCK CORP.
9830 Colonnade Boulevard
San Antonio, Texas 78230
and
To Executive:
------------------------------------------------
------------------------------------------------
------------------------------------------------
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the date
first set forth above.
-----------------------------------
Roger R. Hemminghaus
ULTRAMAR DIAMOND SHAMROCK CORP.,
a Delaware corporation
By:
------------------------------
Timothy J. Fretthold
Executive Vice President and
Chief Administrative Officer
-25-
EXHIBIT 20
FOR IMMEDIATE RELEASE
- ---------------------
Contacts Ultramar Diamond Shamrock
- -------- -------- ----------------
:
Media and Investors: Media: Katherine Hughes
Steven Blank (203) 622- (210) 641-8846
7019 Investors: Mary Hartman
For 9/23 & 9/24: (212) (210) 641-8840
953-2550 For 9/23 & 9/24: (212) 953-
2550
ULTRAMAR AND DIAMOND SHAMROCK TO MERGE
--------------------------------------
Merger of Equals Will Create One of the Largest North American Petroleum
Refiner/Marketers;
Transaction Expected to be Accretive to Earnings
______________________________________________
GREENWICH, Conn. and SAN ANTONIO, Tex. (September 23, 1996) -- Ultramar
Corporation (NYSE:ULR) and Diamond Shamrock, Inc. (NYSE:DRM), petroleum refining
and marketing companies with strong presences in different regions of North
America, announced today that they have agreed to merge. In the merger of
equals, each share of Diamond Shamrock will be converted into 1.02 shares of
Ultramar common stock. The new company will have combined revenues of more than
$8 billion and a combined equity market value of over $2.3 billion. The
transaction will be accounted for on a pooling of interests basis and is
expected to be accretive to earnings. The combined company will be named
Ultramar Diamond Shamrock Corp. and will be headquartered in San Antonio, Texas.
Roger Hemminghaus, chairman, chief executive officer and president of
Diamond Shamrock, will become chairman and chief executive officer of Ultramar
Diamond Shamrock. Jean Gaulin, chairman, chief executive officer and president
of Ultramar, will become the new company's vice chairman, president and chief
operating officer. Mr. Gaulin
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<PAGE>
- 2 -
will become Ultramar Diamond Shamrock's CEO by the end of 1998 and will become
chairman within three years thereafter. The Board of Directors will be
comprised of twelve individuals, with six each coming from the boards of
Ultramar and Diamond Shamrock.
Ultramar Diamond Shamrock expects to pay an annual dividend of $1.10 per
share of common stock, which is Ultramar's current dividend rate.
"This is truly a merger of equals between two strong companies that fit
together remarkably well," said Mr. Hemminghaus. "By joining together, we will
leverage both our companies' considerable strength in petroleum refining and
marketing and create new opportunities for cost savings and strategic expansion.
The merger will position the new company for greater penetration of attractive
western U.S. markets, including Arizona, California and Nevada."
"This is a combination of two companies which have high quality assets and
management. We will be building a new company with the best management and
business opportunities from both sides. Our corporate cultures are
complementary and we are all looking forward to working together,"
Mr. Hemminghaus said.
"Ultramar and Diamond Shamrock are ideal partners," said Mr. Gaulin.
"Diamond Shamrock's large retail network and significant presence in the
U.S. Southwest strongly complement Ultramar's refining and marketing operations
in California and Canada. With such strong regional anchors, our new company
has tremendous potential to expand into new markets and improve performance in
existing ones."
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<PAGE>
- 3 -
"This merger creates exciting opportunities for the shareholders of both
companies," Mr. Gaulin said. "The transaction is expected to be accretive to
earnings. Ultramar Diamond Shamrock will benefit from enhanced earnings growth
prospects, less earnings volatility, increased geographic diversity of revenues,
and significant merger savings."
Cost savings related to the merger are projected to be at least $75 million
annually, based primarily on the realization of operating synergies and
reduction of overhead and administrative costs, with $25 million estimated to be
realized in 1997 and the full $75 million to be realized each year thereafter.
One-time transaction costs are estimated at $17 million, which will be booked in
1996. In addition there are approximately $50 million in transition costs, most
of which will be booked in 1996. It is anticipated that approximately
200 positions will be eliminated as a result of the merger, out of a combined
workforce of about 17,000 employees.
The Boards of Directors of both Ultramar and Diamond Shamrock have approved
the merger. The transaction is subject to approval by the shareholders of both
companies, and to customary regulatory approvals. The parties expect the
transaction to close at the end of this year.
Wasserstein Perella & Co., Inc. acted as financial adviser to Diamond
Shamrock and provided a fairness opinion. Merrill Lynch & Co. acted as
principal financial adviser to Ultramar and provided a fairness opinion.
Ultramar Corporation, headquartered in Greenwich, Connecticut, is a
petroleum refining and marketing company which operates in California, Eastern
Canada and the northeast United States. Ultramar employs approximately
4,000 people. Ultramar operates
- more -
<PAGE>
- 4 -
two refineries, in Wilmington, California, and in Quebec Province, with a
combined capacity of 250,000 barrels per day. In California, it markets
gasoline through 360 locations (150 owned and operated by the company) under the
Ultramar and Beacon brands. Ultramar's Eastern Canadian retail network includes
1,400 locations (of which approximately 630 are company-owned or controlled
under long-term lease). In Eastern Canada, Ultramar markets gasoline under the
Ultramar and Sergaz brands. Within this network, Ultramar owns and operates
110 convenience stores and plans to grow this number significantly over the next
several years. Ultramar is one of the largest home heating oil companies in
North America and sells heating oil to over 175,000 households in Eastern Canada
and New England.
Diamond Shamrock, Inc., headquartered in San Antonio, is a leading refiner
and marketer of petroleum products in the Southwest, with a growing mix of
related businesses. Diamond Shamrock has two Texas refineries with a combined
capacity of 225,000 barrels per day, and markets gasoline and convenience store
items through approximately 2,700 Corner Store, Stop N Go and Diamond Shamrock
locations (1,500 owned and operated by the company) in nine states. Diamond
Shamrock markets the largest-selling gasoline brand in Texas and the second
largest in Colorado and New Mexico. Its revenue from convenience store
merchandise approaches $1 billion annually. Diamond Shamrock also produces
petrochemical feedstocks and operates the world's largest commercial natural gas
liquids storage facility, serving the refining and petrochemicals industries in
the Texas Gulf Coast area. Diamond Shamrock has more than 13,000 employees.
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