<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED +
+EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION. A FINAL PROSPECTUS +
+SUPPLEMENT AND ACCOMPANYING PROSPECTUS WILL BE DELIVERED TO PURCHASERS. THIS +
+PRELIMINARY PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June 18, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus
dated June 14,
1996)
$100,000,000
LOGO
DIAMOND SHAMROCK, INC.
% DEBENTURES DUE JUNE 30, 2026
---------
INTEREST PAYABLE JUNE 30 AND DECEMBER 31
---------
Interest on the % Debentures due June 30, 2026 (the "Debentures") will be
payable semiannually on June 30 and December 31 of each year, commencing
December 31, 1996. The Debentures may not be redeemed prior to maturity and are
not subject to any sinking fund. The Debentures will be represented by one or
more Global Securities (collectively the "Global Securities") registered in the
name of the nominee of The Depository Trust Company (the "Depositary").
Beneficial interests in the Global Securities will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary (in
respect of its participants) and by its participants. Except as described in
the Prospectus, Debentures will not be issued in definitive form. See
"Description of Debt Securities--Global Securities" in the Prospectus. The
Debentures will trade in the Depository's Same-Day Funds Settlement System
until maturity, and secondary market trading activity in the Debentures will
therefore settle in immediately available funds. See "Certain Terms of the
Debentures--Same-Day Settlement and Payment" in this Prospectus Supplement.
At the option of the holders thereof, the Debentures will be repayable on
June 30, 2006 at 100% of their principal amount, together with accrued interest
to June 30, 2006. See "Certain Terms of the Debentures--Repayment at Option of
Holder" in this Prospectus Supplement.
The Debentures will constitute unsecured and unsubordinated indebtedness of
the Company and will rank on a parity with the Company's other unsecured and
unsubordinated indebtedness.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture ................... % % %
- --------------------------------------------------------------------------------------------
Total ........................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from June , 1996 to date of delivery.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Act"). See "Underwriting" in this Prospectus
Supplement.
(3) Before deducting expenses payable by the Company estimated at $100,000.
---------
The Debentures offered by this Prospectus Supplement are offered by the
Underwriters, subject to prior sale, withdrawal, cancellation, or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further legal conditions. It is expected that delivery of the
Debentures will be made through the facilities of The Depository Trust Company
on or about June , 1996.
---------
LEHMAN BROTHERS
CHASE SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
June , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
The Company is the leading independent refiner and marketer of petroleum
products in the southwestern United States, and the largest convenience store
operator and retail marketer of gasoline in the state of Texas. Its principal
activities consist of crude oil refining, wholesale marketing of petroleum
products, and retail marketing of petroleum products and merchandise through
Company-operated retail outlets. In addition, the Company processes
petrochemicals and is engaged in the marketing, distribution, and storage of
natural gas liquids.
In December 1995, the Company completed the acquisition of all the
outstanding common shares of National Convenience Stores Incorporated ("NCS")
for $27 per share in cash. The total value of the transaction was
approximately $280.0 million, which included the purchase of outstanding
warrants for the spread between $27 per share and the exercise price of the
warrants, transaction costs, and the assumption of NCS's debt. The purchase
price exceeded the estimated fair value of net assets acquired by
approximately $160.5 million, which is included in the Company's consolidated
balance sheet at December 31, 1995 as excess of cost over acquired net assets,
net of amortization. This asset is being amortized over its estimated useful
life of 20 years. Financing for the transaction was arranged through Bank of
America National Trust and Savings Association.
At March 31, 1996, NCS operated 658 "Stop N Go" convenience stores located
in Texas cities where the Company currently operates its Corner Store retail
outlets. For the year ended December 31, 1995, NCS sold an average of
approximately 24,800 barrels of motor fuel per day through its retail outlets,
as compared to an average of approximately 64,000 barrels per day sold by the
Company through its Corner Store retail outlets. NCS also had an average of
approximately $1.4 million per day in merchandise sales at its retail outlets
for the year ended December 31, 1995 as compared to the Company's merchandise
sales of approximately $958,000 per day for the same period. At the time of
the acquisition, NCS operated 661 retail outlets, nearly 600 of which sold
gasoline. At that time, the Company operated approximately 845 Corner Store
retail outlets and sold motor fuel through approximately 1,200 additional
branded retail units operated by its jobbers.
USE OF PROCEEDS
The aggregate net proceeds from the sale of the Debentures, estimated to be
approximately $ million, will be added to the Company's funds and used for
general corporate purposes. Pending such use, it is anticipated that the net
proceeds will be used to repay outstanding borrowings under bank money market
facilities which bore a weighted average interest rate of 5.72% per annum as
of June 14, 1996. The Company's borrowings under such bank money market
facilities were $172.0 million as of such date. The proceeds of such
borrowings are presently used to finance crude oil and refined product
inventory and for other general working capital purposes.
S-2
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables summarize selected financial information and operating
data of the Company at and for each of the five years ended December 31, 1995,
1994, 1993, 1992, and 1991, and the three-month periods ended March 31, 1996
and 1995. Such information has been derived from the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and from the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, as
amended, and is qualified in its entirety by such reports. All data for the
three-month periods ended March 31, 1996 and 1995 and all operating data are
unaudited. See "Incorporation of Certain Documents by Reference" in the
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------------
1996(1) 1995 1995(1) 1994 1993 1992 1991
---------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales and Operating
Revenues.............. $1,171.2 $845.6 $2,936.8 $2,606.3 $2,555.3 $2,602.6 $2,575.9
Income from Continuing
Operations............ 7.2 5.4 47.3 75.8 32.6 26.4 37.1
Net Income............. 7.2 5.4 47.3 75.8 18.4(2) 8.7(3) 37.1
Per Share:
Primary Earnings:
Continuing operations. 0.21 0.15 1.48 2.45 1.04 0.92 1.39
Net income............ 0.21 0.15 1.48 2.45 0.55 0.30 1.39
Fully Diluted Earnings:
Continuing operations. 0.21 0.15 1.46 2.34 1.04 0.92 1.36
Net Income............ 0.21 0.15 1.46 2.34 0.55 0.30 1.36
Cash Dividends:
Common................ 0.14 0.14 0.56 0.53 0.52 0.52 0.52
Preferred............. 0.625 0.625 2.50 2.50 1.28 -- --
RATIO OF EARNINGS TO
FIXED CHARGES(4)....... 1.5 1.5 2.0 3.2 2.0 1.7 2.1
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- -----------------------------------------------------
1996(1) 1995 1995(1) 1994 1993 1992 1991
---------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........... $ 2,189.7 $1,558.7 $ 2,245.4 $ 1,620.8 $ 1,349.2 $ 1,297.5 $ 1,222.3
Long-term debt,
including portions
payable within one
year.................. 1,001.2 536.0 964.7 513.1 489.7 536.9 446.1
Stockholders' equity... 631.5 591.0 624.7 589.0 527.7 435.7 437.6
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------------
1996(1) 1995 1995(1) 1994 1993 1992 1991
---------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
(AVERAGES, EXCEPT AS
INDICATED)
Refinery crude oil
throughput (bbls/day). 206,370 191,041 204,938 195,663 180,229 164,684 160,003
Refining margin
($/bbl)(5)............ 4.15 2.73 3.49 4.40 3.76 3.21 3.79
Wholesale refined
product sales
(bbls/day)............ 262,046 226,484 238,146 225,697 212,037 199,193 188,609
Number of branded
retail outlets (at end
of period)............ 2,690 2,013 2,709 2,016 1,970 1,924 1,918
Number of Company-
operated retail
outlets
(at end of period).... 1,503 840 1,506 810 776 761 763
</TABLE>
- -------
(1) Reflects the acquisition of NCS on December 14, 1995. The acquisition has
been accounted for under the purchase method and, accordingly, the
operating results of NCS have been included in the Company's operating
results since the date of the acquisition. See "The Company."
(2) The Company's 1993 net income reflects $14.2 million (after tax) in non-
cash charges representing a change in the method of accounting for certain
environmental liabilities.
(3) The Company's 1992 net income reflects $17.7 million (after tax) in non-
cash charges for the cumulative effects of changes in accounting for post-
retirement employee benefits and income taxes.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and fixed charges. Fixed charges
consist of interest on outstanding debt, amortization of debt-issuance
expense, and one-third of rental payments on operating leases (such amount
having been deemed by the Company to represent the interest portion of
such payments).
(5) "Refining margin" is the difference between crude oil and other feedstock
costs and the prices of refined products sold, and is expressed in dollars
per refined product barrel.
S-3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FIRST QUARTER FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following are the Company's sales and operating revenues and operating
profit for the three months ended March 31, 1996 and 1995. Business segment
operating profit is sales and operating revenues less applicable segment
operating expense. In determining the operating profit of the three business
segments, neither interest expense nor administrative expenses are included.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Sales and Operating Revenues:
Refining and Wholesale............................... $ 519.3 $ 403.8(1)
Retail............................................... 562.2 337.3(1)
Allied Businesses.................................... 89.7 104.5
-------- --------
Total Sales and Operating Revenues.................... $1,171.2 $ 845.6
======== ========
Operating Profit:
Refining and Wholesale............................... $ 34.0 $ 8.4
Retail............................................... 7.5 15.1
Allied Businesses.................................... 10.3 13.1
-------- --------
Total Operating Profit................................ $ 51.8 $ 36.6
======== ========
</TABLE>
- --------
(1) Reclassified to conform to 1996 presentation, including excise taxes as a
component of sales.
Consolidated Results First Quarter 1996 vs 1995
Sales and operating revenues of $1,171.2 million for the first quarter of
1996 were 38.5% higher than in the same period of 1995, primarily due to the
acquisition of National Convenience Stores Incorporated ("NCS") in mid-
December 1995 which contributed $200.9 million in sales and operating
revenues. Excluding the impact of the NCS acquisition, sales and operating
revenues increased 14.7%, primarily due to a 15.7% and an 11.5% increase in
refined product sales volumes and prices, respectively, compared to the same
period a year ago.
During the first quarter of 1996, the Company had net income of $7.2 million
compared to net income of $5.4 million in the 1995 first quarter. The
Company's first quarter results were positively impacted by higher refinery
margins. Partially offsetting the increase in refining margins during the
first quarter of 1996 was a 23.0% decrease in retail fuel margins compared to
the first quarter of 1995, as the retail segment was unable to recoup the
rising cost of wholesale gasoline and diesel fuel resulting from higher crude
prices in the first quarter of 1996.
Inventories are valued at the lower of cost or market with cost determined
primarily under the Last-in, First-out (LIFO) method. At March 31, 1996,
inventories of crude oil and refined products of the Refining and Wholesale
segment were valued at market values (lower than LIFO cost). Motor fuel
products of the Retail segment and propylene products in the Allied Businesses
segment were recorded at their LIFO costs. All other inventories are
determined on an average cost method. Estimating the financial impact of
changes in the valuation of refinery inventories due to such inventories being
valued at market is difficult because of the number of variables that must be
considered. For operating purposes, management attempts to estimate the impact
of changes in valuation of refinery inventories on net income. The estimated
after tax change in inventory values was a positive $1.2 million and $1.8
million in the first quarters of 1996 and 1995, respectively.
S-4
<PAGE>
Segment Results First Quarter 1996 vs First Quarter 1995
During the first quarter of 1996 the Refining and Wholesale segment had
sales and operating revenues of $519.3 million compared to $403.8 million
during the first quarter of 1995. The increase in sales and operating revenues
was primarily due to a 15.7% and an 11.5% increase in refined product sales
volumes and prices, respectively. Operating profit in the first quarter of
1996 increased $25.6 million from the first quarter of 1995, primarily due to
a 52.0% increase in refinery margins from the same period a year ago. Refining
margins were weak early in the quarter but improved significantly in March.
Volatile and rising crude oil prices, low industry-wide inventory levels,
primarily as a consequence of an unusually harsh winter, and strong product
demand, had a significant impact on refining margins during the first quarter
of 1996.
The Retail segment in the first quarter of 1996 reflected a 66.6% increase
in sales and operating revenues, primarily due to the acquisition of NCS and
its 661 retail outlets in mid-December 1995. Operating profit in the first
quarter of 1996 was $7.5 million compared to $15.1 million in the first
quarter of 1995. The decrease in operating profit was primarily due to a 23.0%
and a 1.4% decrease in retail fuel and merchandise margins, respectively,
reflecting pricing competition. Retail was unable to recoup the rising cost of
wholesale gasoline and diesel fuel resulting from higher crude prices during
the first quarter of 1996.
During the first quarter of 1996, the Allied Businesses segment reflected a
decrease in sales and operating revenues of 14.2%, primarily due to a decrease
in prices in the Company's propylene business. Operating profits were $10.3
million for the first quarter of 1996 compared to $13.1 million in the first
quarter of 1995. Operating profits decreased primarily due to a $1.5 million
and a $1.4 million decrease in operating profit from the Company's
propane/propylene and Nitromite fertilizer businesses, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Working Capital
For the three months ended March 31, 1996, cash provided by operations was
$10.8 million, compared with $26.0 million in the same period of 1995.
Working capital at March 31, 1996 was up $23.6 million from December 31,
1995, and consisted of current assets of $583.6 million and current
liabilities of $394.6 million, or a current ratio of 1.5. At December 31,
1995, current assets were $654.9 million and current liabilities were $489.5
million, or a current ratio of 1.3. The increase in working capital was
primarily due to a 24.2% and a 21.5% decrease in accounts payable and accrued
liabilities, respectively. The decrease in current liabilities was partially
offset by a 26.1% decrease in inventories. The decrease in accounts payable
reflected the payment in the first quarter of 1996 for the additional crude
oil purchased in December 1995 and the return to lower inventory levels. In
addition, receivables increased primarily due to increased refined product
sales prices and an increase in the receivables associated with the open
positions of the Company's futures contracts at March 31, 1996.
Capital Expenditures
In recent years, capital expenditures have represented a variety of projects
designed to expand and maintain up-to-date refinery facilities, improve
terminal and distribution systems, modernize and expand retail outlets, comply
with environmental regulatory requirements, and pursue new ventures in related
businesses.
In January 1996, the Company announced the goal of strengthening the
Company's balance sheet and, within two years, bringing its debt to total
capital and interest coverage ratios back to the levels experienced prior to
the acquisition of NCS. The Company's capital expenditure budgets for the next
two years have been reduced so that revised capital spending plans are
approximately $160.0 million in 1996 and $140.0 million in 1997. In addition
to capital spending cuts the Company's goal is to pay down over $200.0 million
of debt in the next two years through cash flow generated from operations, and
the pruning of assets. The capital spending cuts include eliminating retail
store construction in most of Texas but allow for the integration of the NCS
stores into
S-5
<PAGE>
the Company's system. At April 30, 1996, the gasoline facilities at nearly 100
former NCS retail outlets had been branded Diamond Shamrock. This conversion
includes signage on the street and at the pump, and upgraded security,
computerization, and store interiors. The Company expects to complete branding
the NCS gasoline retail outlets at a rate of about 100 outlets per month. The
Company also intends to continue to construct additional retail stores in
Arizona.
Several refinery projects have been deferred from 1996; however, expansion
and upgrading projects begun in 1995 at the Company's Three Rivers refinery
will be completed in 1996. These projects will increase the capacity of the
refinery from 75,000 barrels per day to 85,000 barrels per day and will allow
heavy oils to be upgraded to higher value refined products. The projects are
scheduled for completion in the third quarter of 1996. In addition,
expenditures continue at Three Rivers on the previously announced benzene,
toluene, and xylene ("BTX") extraction unit, which will produce high value
petrochemical feedstocks. Once completed in 1997, the BTX project gives the
Company the flexibility to shift certain components out of the gasoline pool
into more attractive petrochemical markets. Finally, the 1996 capital budget
also includes construction of a second 730 million pound per year propylene
splitter at Mont Belvieu with completion scheduled for the third quarter of
1996.
The Company's capital and investment expenditures during the first three
months of 1996 were $44.7 million. The Company's capital expenditures were
$63.5 million during the first three months of 1995, including a non-cash
investment of $12.0 million for the Corpus Christi crude oil terminal acquired
under an installment purchase arrangement.
The Company opened 4 retail outlets and closed 4 marginal retail outlets
during the quarter ended March 31, 1996. One of the newly opened outlets was
leased by the Company under a pre-existing long-term lease arrangement (the
"Brazos Lease"). The Brazos Lease has an initial lease term that will expire
in April 1999. Rent payable under the Brazos Lease is based upon the amounts
spent to acquire or construct the outlets and the lessor's cost of funds from
time to time. At March 31, 1996, approximately $10.2 million of the $190.0
million commitment remained available under the Brazos Lease to construct
retail outlets. After the non-cancelable lease term, the Brazos Lease may be
extended by agreement of the parties, or the Company may purchase or arrange
for the sale of the retail outlets. If the Company were unable to extend the
lease or arrange for the sale of the properties to a third party in 1999, the
amount necessary to purchase properties under the lease as of March 31, 1996
would be approximately $179.8 million.
Regulatory Matters
It is expected that rules and regulations implementing the federal, state,
and local laws relating to health and environmental quality will continue to
affect the operations of the Company. The Company cannot predict what health
or environmental legislation, rules, or regulations will be enacted in the
future or how existing or future laws, rules or regulations will be
administered or enforced with respect to products or activities of the
Company. However, compliance with more stringent laws or regulations, as well
as more expansive interpretation of existing laws and their more vigorous
enforcement by the regulatory agencies, could have an adverse effect on the
operations of the Company and could require substantial additional
expenditures by the Company, such as for the installation and operation of
pollution control systems and equipment.
S-6
<PAGE>
CERTAIN TERMS OF THE DEBENTURES
The following description of the particular terms of the % Debentures due
June 30, 2026 offered hereby (referred to herein as the "Debentures" and in
the Prospectus as the "Offered Debt Securities") supplements, and to the
extent inconsistent therewith replaces, the description of the general terms
and provisions of the Debt Securities set forth in the Prospectus, to which
description reference is hereby made.
GENERAL
The Debentures offered hereby will be issued under an Indenture (the
"Indenture") between the Company and The First National Bank of Chicago, as
trustee (the "Trustee"). Provisions of the Indenture are more fully described
under "Description of Debt Securities" in the Prospectus to which reference is
hereby made.
The Debentures will mature on June 30, 2026. Interest on the Debentures will
accrue from June , 1996 and will be payable semi-annually, on each June 30
and December 31, beginning December 31, 1996, and at maturity, to the persons
in whose names the Debentures are registered at the close of business on the
June 15 or December 15 prior to the payment date at the annual rate set forth
on the cover page of this Prospectus Supplement.
The Debentures will be issued only in book-entry form through the facilities
of the Depositary, and will be in denominations of $1,000 and integral
multiples thereof. Transfers or exchanges of beneficial interests in
Debentures in book-entry form may be effected only through a participating
member of the Depositary. As described in the Prospectus, under certain
limited circumstances Debentures may be issued in certificated form in
exchange for the Global Securities. See "Description of Debt Securities --
Global Securities" in the Prospectus. In the event that Debentures are issued
in certificated form, such Debentures may be transferred or exchanged at the
offices described in the immediately following paragraph.
Payments on Debentures issued in book-entry form will be made to the
Depositary. In the event Debentures are issued in certificated form, principal
and interest will be payable, the transfer of the Debentures will be
registrable and Debentures will be exchangeable for Debentures bearing
identical terms and provisions at the office of the Trustee in The City of New
York designated for such purpose, provided that payment of interest may be
made at the option of the Company by check mailed to the address of the person
entitled thereto as shown on the Securities Register.
The Debentures will not be listed on any securities exchange. The Debentures
will be a new issue of securities with no established trading markets. No
assurance can be given as to whether any market will develop, or as to the
liquidity of any trading market of the Debentures. If such markets were to
exist, the Debentures could trade at prices that may be higher or lower than
the initial issuance price depending on a number of factors, including
prevailing interest rates and the markets for similar securities.
Neither the Indenture nor the Debentures contain provisions permitting the
holders of the Debentures to require prepayment in the event of a change in
the management or control of the Company, or in the event the Company enters
into one or more highly leveraged transactions, nor are any such events deemed
to be events of default under the terms of the Indenture or the Debentures.
The terms of the Company's existing revolving credit facilities designate
certain changes in management or control of the Company as events of default.
$220.0 million was outstanding under such credit facilities as of March 31,
1996.
The defeasance provisions described under "Description of the Debt
Securities -- Defeasance" in the Prospectus will apply to the Debentures.
REPAYMENT AT OPTION OF HOLDER
The Debentures will be repayable on June 30, 2006, at the option of the
holders thereof, at 100% of their principal amount, together with accrued
interest to June 30, 2006. In order for a Debenture to be repaid, the
S-7
<PAGE>
Company must receive at the corporate trust office of The First National Bank
of Chicago, the Trustee, in the Borough of Manhattan, New York, during the
period from and including April 30, 2006 to and including the close of
business on May 31, 2006 (or if May 31, 2006 is not a business day, the next
succeeding business day): (i) a Debenture with the form entitled "Option to
Elect Repayment" on the reverse of the Debenture duly completed, or (ii) a
telegram, telex, facsimile transmission, or letter from a member of a national
securities exchange or the National Association of Securities Dealers, Inc. or
a commercial bank or a trust company in the United States of America setting
forth the name of the holder of the Debenture, the principal amount of the
Debenture, the amount of the Debenture to be repaid, a statement that the
option to elect repayment is being exercised thereby, and a guarantee that the
Debenture to be repaid (with the form entitled "Option to Elect Repayment" on
the reverse of the Debenture duly completed) will be received at the Trustee's
office in the Borough of Manhattan, New York, not later than five business
days after the date of such telegram, telex, facsimile transmission, or letter
and such Debenture and form duly completed are received at the Trustee's
office in the Borough of Manhattan, New York, by such fifth business day.
Effective exercise of the repayment option by the holder of any Debenture
shall be irrevocable. No transfer or exchange of any Debenture (or, in the
event that any Debenture is to be repaid in part, such portion of the
Debenture to be repaid) will be permitted after exercise of the repayment
option. The repayment option may be exercised by the holder of a Debenture for
less than the entire principal amount of the Debenture, provided the principal
amount which is to be repaid is equal to $1,000 or any integral multiple
thereof. All questions as to the validity, eligibility (including time of
receipt), and acceptance of any Debenture for repayment will be determined by
the Company, whose determination will be final, binding and non-appealable.
For purposes of this provision, "business day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in the City of New York, New York are authorized or obligated by
law to close.
As long as the Debentures are represented by the Global Securities, the
Depository or the Depository's nominee will be the registered holder of the
Debentures and therefore will be the only entity that can exercise a right to
repayment. See "-- Global Securities" below in this Prospectus Supplement.
GLOBAL SECURITIES
The Debentures will be issued in whole or in part in the form of one or more
Global Securities deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. Except under the
limited circumstances described in the Prospectus under "Description of Debt
Securities -- Global Securities," owners of beneficial interests in Global
Securities will not be entitled to physical delivery of Debentures in
certificated form. Global Securities may not be transferred except as a whole
by the Depositary to a nominee of the Depositary or by the Depositary or any
nominee to a successor of the Depositary or a nominee of such successor. A
further description of the Depositary's procedures with respect to Global
Securities representing the Debentures is set forth in the Prospectus under
"Description of Debt Securities -- Global Securities." The Depositary has
confirmed to the Company, the Underwriters, and the Trustee that it intends to
follow such procedures.
The Depositary has advised as follows: It is a limited-purpose trust company
which was created to hold securities for its participating organizations (the
"Participants") and to facilitate the clearance and settlement of securities
transactions between the Participants in such securities through electronic
book-entry changes in accounts of its Participants. Participants include
securities brokers and dealers (including Underwriters), banks and trust
companies, clearing corporations, and certain other organizations. Access to
the Depositary's system is also available to others such as banks, brokers,
dealers, and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by the Depositary only through Participants or Indirect
Participants.
Principal and interest payments on the Debentures registered in the name of
the Depositary's nominee will be made by the Trustee to the Depositary's
nominee as the registered owner of the appropriate Global Security. Under the
terms of the Indenture, the Company and the Trustee will treat the persons in
whose names the
S-8
<PAGE>
Debentures are registered as the owners of such Debentures for the purpose of
receiving payment of principal and interest on the Debentures and for all
other purposes whatsoever. Therefore, neither the Company, the Trustee nor any
Paying Agent has any direct responsibility or liability for the payment of
principal or interest on the Debentures to owners of beneficial interests in
the Global Securities. The Depositary has advised the Company and the Trustee
that its present practice is, upon receipt of any payment of principal or
interest, to immediately credit the accounts of the Participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Securities as shown on the
records of the Depositary.
UNSECURED NATURE OF THE DEBENTURES
The Debentures will constitute unsecured and unsubordinated indebtedness of
the Company and will rank on a parity with the Company's other unsecured and
unsubordinated indebtedness. At March 31, 1996, the Company's total debt
outstanding was approximately $1,001.2 million. The Company is primarily a
holding company and the Debentures will not be guaranteed by any of the
Company's subsidiaries. The Company's principal operating subsidiaries have
guaranteed certain of the Company's outstanding debt. The Indenture contains
certain limitations on the creation of additional secured indebtedness by the
Company. See "Description of Debt Securities -- Limitations on the Company and
Certain Subsidiaries" in the Prospectus.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Debentures will be made by the Underwriters in
immediately available funds. All payments of principal and interest will be
made by the Company in immediately available funds.
S-9
<PAGE>
UNDERWRITING
Lehman Brothers Inc., Chase Securities Inc., Morgan Stanley & Co.
Incorporated and NationsBanc Capital Markets, Inc. (the "Underwriters") have,
under the terms of and subject to the conditions contained in an Underwriting
Agreement dated as of June , 1996, agreed to purchase, and the Company has
agreed to sell to the Underwriters, the principal amount of Debentures set
forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF DEBENTURES
----------- ----------------
<S> <C>
Lehman Brothers Inc. ....................................... $
Chase Securities Inc........................................
Morgan Stanley & Co. Incorporated...........................
NationsBanc Capital Markets, Inc............................
------------
Total .................................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Debentures if any are purchased.
The Underwriters propose initially to offer the Debentures directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession
not in excess of % of the principal amount of the Debentures. The
Underwriters may allow, and dealers may reallow, a discount not in excess of
% of the principal amount of the Debentures to certain other dealers. After
the initial public offering, the public offering prices and concessions may be
changed.
The Debentures are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
intend to make a market in the Debentures as permitted by applicable laws and
regulations, but the Underwriters are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Debentures.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or contribute to payments the Underwriters may be required to make in respect
thereof.
Certain of the Underwriters and their respective affiliates have in the past
engaged, and may in the future engage, in investment banking business and
various financing and banking transactions with the Company in the ordinary
course of their respective businesses. In particular, Texas Commerce Bank and
Chase Manhattan Bank, N.A., affiliates of Chase Securities Inc., and
NationsBank of Texas, N.A., an affiliate of NationsBanc Capital Markets, Inc.,
are lenders under one or more of the Company's credit facilities.
S-10
<PAGE>
PROSPECTUS
$250,000,000
DIAMOND SHAMROCK, INC.
LOGO
DEBT SECURITIES PREFERRED STOCK
COMMON STOCK SECURITIES WARRANTS
Diamond Shamrock, Inc. (the "Company") may, from time to time, offer or
solicit offers to purchase its (i) secured or unsecured senior debt
securities, (the "Debt Securities"); (ii) warrants to purchase the Debt
Securities (the "Debt Warrants"); (iii) shares of preferred stock, par value
$0.01 per share (the "Preferred Stock"); (iv) warrants to purchase shares of
Preferred Stock ("Preferred Stock Warrants"); (v) shares of common stock, par
value $0.01 per share (the "Common Stock"); and (vi) warrants to purchase
shares of Common Stock ("Common Stock Warrants"), having an aggregate initial
public offering price not to exceed $250,000,000 or the equivalent thereof in
one or more foreign currencies or composite currencies, including European
Currency Units, on terms to be determined at the time of sale (the Debt
Warrants, Preferred Stock Warrants and Common Stock Warrants being referred to
herein collectively as the "Securities Warrants"). The Debt Securities,
Preferred Stock, Common Stock and Securities Warrants offered hereby
(collectively, the "Offered Securities") may be offered separately or as units
with other Offered Securities, in separate series, in amounts, at prices, and
on terms, to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, including, where applicable, (i) in the case of
Debt Securities, the specific designation, aggregate principal amount,
denominations, maturity, interest rate (which may be fixed or variable) and
time of payment of interest, if any, coin or currency in which principal,
premium, if any, and interest, if any, will be payable, any terms for
redemption, exchange, or conversion, any terms for sinking fund payments; (ii)
in the case of Preferred Stock, the specific title and stated value, number of
shares, the dividend, liquidation, exchange, redemption, conversion, voting,
and other rights, and the initial public offering price; (iii) in the case of
Common Stock, the number of shares and the initial public offering price; (iv)
in the case of Securities Warrants, the designation and the number of
securities issuable upon their exercise, the duration, offering price,
exercise price, number and detachability thereof; and (v) in the case of all
Offered Securities, whether such Offered Securities will be offered separately
or as a unit with other Offered Securities, will be set forth in the
accompanying Prospectus Supplement.
The Prospectus Supplement will also contain information, where applicable,
concerning certain United States federal income tax considerations relating
to, and any listing on a securities exchange of, the Offered Securities
covered by the Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The Offered Securities may be sold directly to purchasers or through
underwriters, dealers, or agents. If any underwriters, dealers, or agents are
involved in the sale of any Offered Securities, their names and any applicable
fee, commission, or discount arrangements will be set forth in the Prospectus
Supplement. The principal amount or number of shares of Offered Securities,
the purchase price thereof, and the net proceeds to the Company from sales of
Offered Securities will be set forth in the Prospectus Supplement. The net
proceeds to the Company of the sale of Offered Securities will be the purchase
price of such Offered Securities less attributable issuance expenses,
including underwriters', dealers', or agents' compensation arrangements. See
"Plan of Distribution" for indemnification arrangements for underwriters,
dealers, and agents.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
OFFERED SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JUNE 14, 1996
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT
DELIVERED HEREWITH AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, DEALER, OR AGENT. THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OFFERED SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH THE OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT AUTHORIZED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by the Company can be inspected and
copied at the Public Reference Room of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the public reference
facilities maintained by the Commission at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Documents filed
by the Company can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which exchange certain
of the Company's securities are listed.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the securities offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates into this Prospectus by reference the
Company's (i) Annual Report on Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K"), filed pursuant to the Exchange Act, which contains the
consolidated financial statements of the Company and the report thereon of
Price Waterhouse LLP, (ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, as amended, and (iii) Current Report on Form 8-K/A, dated
December 14, 1995 filed with the Commission on February 14, 1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14, or 15(d) of the Exchange Act, prior to the termination of the
offering made hereby, shall be deemed incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
<PAGE>
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests
should be directed to: Investor Relations, Diamond Shamrock, Inc., P.O. Box
696000, San Antonio, Texas 78269-6000 (telephone 210-641-6800).
THE COMPANY
Diamond Shamrock, Inc. is the leading independent refiner and marketer of
petroleum products in the southwestern United States, and the largest
convenience store operator and retail marketer of gasoline in the state of
Texas. Its principal activities consist of crude oil refining, wholesale
marketing of petroleum products, and retail marketing of petroleum products
and merchandise through Company-operated retail outlets. In addition, the
Company processes petrochemicals and is engaged in the marketing,
distribution, and storage of natural gas liquids.
The Company's principal executive offices are located at 9830 Colonnade
Boulevard, San Antonio, Texas 78230 (in person); P.O. Box 696000, San Antonio,
Texas 78269-6000 (by mail). Its telephone number is 210-641-6800.
EARNINGS RATIOS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the three-month periods ended March 31, 1996 and 1995 and for each of the
years in the five-year period ended December 31, 1995. For purposes of
computing such ratios, earnings consist of income before income taxes and
fixed charges, and fixed charges consist of interest on outstanding debt,
amortization of debt issuance expense, and one-third of rental payments on
operating leases (such amount having been deemed by the Company to represent
the interest portion of such payments).
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
-------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges...... 1.5 1.5 2.0 3.2 2.0 1.7 2.1
Ratio of Earnings to Combined Fixed
Charges
and Preferred Stock Dividends.......... 1.4 1.4 1.9 2.9 1.8 1.7 2.1
</TABLE>
USE OF PROCEEDS
The Offered Securities may be offered by the Company from time to time when
market conditions are determined by the Company to be favorable. Unless
otherwise indicated in the applicable Prospectus Supplement, the net proceeds
from the sale of the Offered Securities will be added to the Company's funds
and used for general corporate purposes.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement (the "Offered Debt Securities") and the extent, if any,
to which such general provisions do not apply to the Offered Debt Securities
will be described in the Prospectus Supplement relating to such Offered Debt
Securities.
The Debt Securities to which this Prospectus relates will be issued under an
Indenture dated as of December 15, 1989 (the "Indenture"), between the Company
and The First National Bank of Chicago, as trustee (the "Trustee"), which is
filed as an exhibit to the Registration Statement. The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain
terms. Numerical references in parentheses below are to sections in the
Indenture. Whenever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series up to the aggregate principal amount
which may be authorized from time to time by the Company. All Debt Securities
will be unsecured and will rank pari passu with all other unsecured
unsubordinated indebtedness of the Company. The Company is primarily a holding
company and the Debt Securities will not be guaranteed by any of the Company's
Subsidiaries. As a result, the right of creditors of the Company upon its
liquidation, reorganization, or otherwise is necessarily subject to the claims
of creditors of the Company's Subsidiaries, except to the extent that claims
of the Company itself as a creditor of any of its Subsidiaries may be
recognized. Except as described below, the Indenture does not limit the amount
of other indebtedness or securities which may be issued by the Company.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms of
such series of Offered Debt Securities: (i) the designation, aggregate
principal amount, and authorized denominations of such Offered Debt
Securities; (ii) the purchase price of such Offered Debt Securities (expressed
as a percentage of the principal amount thereof); (iii) the date or dates on
which such Offered Debt Securities will mature; (iv) the rate or rates per
annum, if any (which may be fixed or variable), at which such Offered Debt
Securities will bear interest or the method by which such rate or rates will
be determined; (v) the dates on which such interest will be payable and the
record dates for payment of interest, if any; (vi) the coin or currency in
which payment of the principal of (and premium, if any) or interest, if any,
on such Offered Debt Securities will be payable; (vii) the terms of any
mandatory or optional redemption (including any sinking fund) or any
obligation of the Company to repurchase Offered Debt Securities; (viii)
whether such Offered Debt Securities are to be issued in whole or in part in
the form of one or more temporary or permanent global Debt Securities ("Global
Securities") and, if so, the identity of the depositary, if any, for such
Global Security or Securities; and (ix) any other additional provisions or
specific terms which may be applicable to that series of Offered Debt
Securities.
Principal, premium, if any, and interest, if any, will be payable, and the
Debt Securities will be transferable or exchangeable, at the office or agency
of the Company maintained for such purposes in the Borough of Manhattan, The
City of New York, provided that payment of interest on any Debt Securities
may, at the option of the Company, be made by check mailed to the registered
holders. Interest, if any, will be payable on any Interest Payment Date to the
persons in whose names the Debt Securities are registered at the close of
business on the record date with respect to such Interest Payment Date
(Sections 305, 307 and 1202).
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No
4
<PAGE>
service charge will be made for any registration of transfer or exchange of
the Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith
(Sections 302 and 305).
Some or all of the Debt Securities may be issued as discounted Debt
Securities (bearing no interest or interest at a rate which at the time of
issuance is below market rates) to be sold at a substantial discount below
their stated principal amount. Federal income tax consequences and other
special considerations applicable to any such discounted Debt Securities will
be described in the Prospectus Supplement relating thereto.
The Indenture does not contain provisions permitting the holders of the Debt
Securities to require prepayment in the event of a change in the management or
control of the Company, or in the event the Company enters into one or more
highly leveraged transactions, nor are any such events deemed to be events of
default under the terms of the Indenture. Should the terms of any note
representing any Offered Debt Securities contain such provisions, such
provisions will be described in the applicable Prospectus Supplement.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with or on behalf
of a depositary located in the United States (a "Depositary") identified in
the Prospectus Supplement relating to such series.
The specific terms of the depositary arrangements with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will
apply to all depositary arrangements.
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited
with or on behalf of a Depositary will be represented by a Global Security
registered in the name of such depositary or its nominee. Upon the issuance of
a Global Security in registered form, the Depositary for such Global Security
will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such
Depositary or its nominee ("participants"). The accounts to be credited shall
be designated by the underwriters or agents of such Debt Securities or by the
Company, if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Securities
will be shown on, and the transfer of that ownership interest will be effected
only through, records maintained by the Depositary or its nominee for such
Global Security. Ownership of beneficial interests in Global Securities by
persons that hold through participants will be shown on, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Global Security for all purposes
under the Indenture governing such Debt Securities. Except as set forth below,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in definitive form, and will not be
considered the owners or holders thereof under the Indenture.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security representing such Debt
Securities. None of the Company,
5
<PAGE>
the Trustee, any Paying Agent, or the Security Registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security for such Debt Securities or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium, or interest in respect of a
permanent Global Security, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners
of beneficial interests in such Global Security held through such participants
will be governed by standing instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants. However, the Company has no control over the practices of the
Depositary and/or the participants and there can be no assurance that these
practices will not be changed.
A Global Security may not be transferred except as a whole by the Depositary
for such Global Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor (Section 304). If a Depositary for Debt Securities
of a series is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the
Company will issue Debt Securities in definitive registered form in exchange
for the Global Security or Securities representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion determine not
to have any Debt Securities in registered form represented by one or more
Global Securities and, in such event, will issue Debt Securities in definitive
form in exchange for the Global Security or Securities representing such Debt
Securities. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Debt Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name.
LIMITATIONS ON THE COMPANY AND CERTAIN SUBSIDIARIES
Limitations on Mortgages. The Indenture provides that neither the Company
nor any Subsidiary of the Company will issue, assume, or guarantee any notes,
bonds, debentures, or other similar evidences of indebtedness for money
borrowed ("Debt") secured by any mortgages, liens, pledges, or other
encumbrances ("Mortgages") upon any asset or any interest it may have therein
or of or upon any stock or indebtedness of any Subsidiary, whether now owned
or hereafter acquired, without effectively providing that all Debt Securities
issued under the Indenture (together with, if the Company so determines, any
other indebtedness or obligation then existing or thereafter created ranking
equally with the Debt Securities) will be secured equally and ratably with (or
prior to) such Debt so long as such Debt will be so secured, except that this
restriction will not apply to: (i) Mortgages securing the purchase price or
cost of construction of property (or additions, substantial repairs,
alterations, or substantial improvements thereto if the amount of such Debt
does not exceed the cost thereof), provided such Debt and the Mortgages are
incurred within 18 months of the acquisition or completion of construction and
full operation, or the completion of such repairs, alterations, or
improvements, as the case may be; (ii) Mortgages existing on property at the
time of its acquisition by the Company or a Subsidiary or on the property of a
corporation at the time of the acquisition of such corporation by the Company
or a Subsidiary (including acquisitions through merger or consolidation);
(iii) Mortgages to secure Debt on which the interest payments are exempt from
federal income tax under Section 103 of the Internal Revenue Code of 1986, as
amended (the "Code"); (iv) in the case of a Subsidiary, Mortgages in favor of
the Company or a Subsidiary; (v)
Mortgages existing on the date of the Indenture; (vi) certain Mortgages
incurred in the ordinary course of business and Mortgages to governmental
entities; (vii) Mortgages incurred in connection with the borrowing of funds
if within 120 days such funds are used to repay Debt in the same principal
amount secured by other Mortgages on assets or receivables having a fair
market value (as determined by the chief financial officer of the
6
<PAGE>
Company) at least equal to the fair market value of the assets or receivables
which secure the new Mortgage; (viii) Mortgages incurred within 90 days (or
any longer period, not in excess of one year, as permitted by law) after
acquisition of the property or equipment subject to such Mortgage arising
solely in connection with the transfer of tax benefits in accordance with
Section 168(f)(8) of the Code (or any similar provision adopted hereafter);
(ix) Mortgages on accounts receivable of the Company or its Subsidiaries which
secure obligations not exceeding at any time the lesser of 90% of Consolidated
Receivables (as defined below) or $100,000,000, provided that the dollar
limitation of $100,000,000 will increase at a compounded rate of 10% each
April 1, with the first such increase effective on April 1, 1990 and
subsequent increases to be effective on and as of each succeeding April 1,
provided further, however, that in no event will such dollar limitation exceed
$300,000,000; and (x) any extension, renewal, or replacement of any Mortgage
referred to in the foregoing clauses (i) through (ix), provided the dollar
amount secured is not increased (Section 1205).
Limitations on Sale and Lease-Back Transactions. The Indenture provides that
neither the Company nor any Subsidiary will enter into any Sale and Lease-Back
Transaction with respect to any asset owned by it with any person (other than
the Company or a Subsidiary) unless either (i) the Company or such Subsidiary
would be entitled, pursuant to the provisions described in clauses (i) through
(x) under "Limitations on Mortgages" above, to incur Debt secured by a
Mortgage on the asset to be leased without equally and ratably securing the
Debt Securities, or (ii) the Company during or immediately after the
expiration of 120 days after the effective date of such transaction applies to
the voluntary retirement of its Funded Debt an amount equal to the greater of
the net proceeds of the sale of the property leased in such transaction or the
fair market value (as determined by the chief financial officer of the
Company) of the leased property at the time such transaction was entered into,
in each case net of the principal amount of all Debt Securities delivered
under the Indenture (Section 1206).
Exempted Transactions. Notwithstanding the foregoing, the Company and any
one or more Subsidiaries may, without securing the Debt Securities, issue,
assume, or guarantee Debt secured by Mortgages and enter into Sale and Lease-
Back Transactions which would otherwise be subject to the foregoing
restrictions in an aggregate principal amount which, together with all other
such Debt of the Company and its Subsidiaries secured by Mortgages (not
including Debt permitted to be secured pursuant to clauses (i) through (x)
under "Limitations on Mortgages" above) and the aggregate Attributable Debt
(as defined below) in respect of Sale and Lease-Back Transactions (not
including those permitted as described under "Limitations on Sale and Lease-
Back Transactions" above), does not exceed 15% of Consolidated Net Tangible
Assets (as defined below) of the Company and its consolidated Subsidiaries
(Section 1207).
Certain Definitions. The term "Consolidated Net Tangible Assets" at any date
means the total assets shown on a consolidated balance sheet of the Company
and its Subsidiaries, prepared in accordance with generally accepted
accounting principles, less (i) all current liabilities, and (ii) goodwill and
like intangibles included on such balance sheet. The term "Attributable Debt"
means (a) as to any capitalized lease obligations, the Debt carried on the
balance sheet in accordance with generally accepted accounting principles, and
(b) as to any operating leases, the total net amount of rent required to be
paid under such leases during the remaining term thereof discounted at the
rate of 1% per annum over the weighted average yield to maturity of all Debt
Securities issued and outstanding under the Indenture, including any
outstanding Debt Securities, compounded semi-annually. The term "Consolidated
Receivables" at any date means the aggregate amount of all accounts receivable
of the Company and its Subsidiaries at the end of the most recent fiscal
quarter, as shown on the consolidated balance sheet of the Company and its
Subsidiaries in respect of such quarter, or in respect of the fiscal year in
the case of the fourth quarter (Section 101).
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture with respect to
Debt Securities of any series: (i) failure to pay principal of or any premium
on any Debt Security of that series when due; (ii) failure to pay any interest
on any Debt Security of that series when due, and the continuation of such
failure for 30 days; (iii) failure to deposit any sinking fund payment in
respect of any Debt Security of that series when due; (iv) failure
7
<PAGE>
to perform any other covenant of the Company in the Indenture (other than a
covenant included in the Indenture solely for the benefit of a series of Debt
Securities other than the series), continued for 60 days after written notice
as provided in the Indenture; (v) certain events in bankruptcy, insolvency, or
reorganization; (vi) indebtedness for borrowed money of the Company or any
Subsidiary in excess of $10,000,000 (whether such indebtedness now exists or
is hereafter created) is not paid at final maturity or becomes or is declared
due and payable prior to the date or dates on which such indebtedness would
otherwise have become due and payable as a result of the occurrence of one or
more events of default as defined in any mortgages, indentures, or instruments
under which such indebtedness may have been issued or by which such
indebtedness may have been secured, and such failure to pay shall not be cured
or such acceleration or accelerations, as the case may be, shall not be
rescinded, annulled, or cured, in any case prior to the expiration of 30 days
after the date such failure to pay or acceleration or accelerations occurred;
and (vii) any other Event of Default provided with respect to Debt Securities
of that series (Section 501). If any Event of Default with respect to Debt
Securities of any series at any time outstanding occurs and is continuing,
either the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Debt Securities of that series to be due and
payable immediately. At any time after a declaration of acceleration with
respect to Debt Securities of any series has been made, but before a judgment
or decree based on acceleration has been obtained, the Holders of a majority
in aggregate principal amount of outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration (Section
502).
The Indenture provides that, subject to the duty of the Trustee during the
continuance of an Event of Default to act with the required standard of care,
the Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the Holders,
unless such Holders have offered to the Trustee reasonable indemnity (Section
603). Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in aggregate principal amount of the outstanding Debt
Securities of any series will have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Debt Securities of that series (Section 512).
The Company is required to furnish the Trustee annually with a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance (Section 1208).
MODIFICATION AND WAIVER
Modifications of and amendments to the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than two-thirds in
aggregate principal amount of the outstanding Debt Securities of each series
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Debt Security affected thereby, (i) change the Stated Maturity of
the principal of, or any installment of interest, if any, on, any Debt
Security, (ii) reduce the principal amount of, or any premium or interest on,
any Debt Security, (iii) reduce the amount of principal of Discount Securities
payable upon acceleration of the stated maturity thereof, (iv) change the
currency of payment of principal of, or any premium or interest on, any Debt
Security, (v) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, or (vi) reduce the percentage
in principal amount of outstanding Debt Securities of any series, the consent
of whose Holders is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults (Section 1102).
The Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all Holders of Debt
Securities of that series, waive any past default under the Indenture with
respect to Debt Securities of that series, except a default in the payment of
principal or any premium or interest
8
<PAGE>
or a covenant or provision that cannot be modified or amended without the
consent of the Holders of each outstanding Debt Security affected thereby
(Section 513).
CONSOLIDATION, MERGER, SALE, OR LEASE OF ASSETS
The Company, without the consent of the Holders of any of the outstanding
Debt Securities under the Indenture, may consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, any corporation
organized under laws of any domestic jurisdiction, provided that the successor
corporation assumes the Company's obligations on the Debt Securities and that
under the Indenture, after giving effect to the transactions, no Event of
Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have occurred and be continuing, and that certain
other conditions are met (Section 1001).
DEFEASANCE
The Indenture provides that the Company, at its option, (i) will be
discharged from any and all obligations in respect of any series of Debt
Securities (except for certain obligations to register the transfer or
exchange of the Debt Securities; replace stolen, lost, or mutilated Debt
Securities; maintain paying agencies; and hold money for payment in trust), or
(ii) will not be subject to provisions of the Indenture concerning limitations
upon Mortgages; Sale and Lease-Back Transactions; and consolidation, merger,
and sale of assets, in each case if the Company deposits with the Trustee, in
trust, money or U.S. Government Obligations which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay all principal, premium, if any,
and interest on the Debt Securities of such series on the dates such payments
are due in accordance with the terms of such Debt Securities. To exercise any
such option, the Company is required, among other things, to deliver an
opinion of counsel to the Trustee to the effect that (a) the Company has
received from or there has been published by the Internal Revenue Service a
ruling to the effect that the deposit and related defeasance would not cause
the Holders of such series of Debt Securities to recognize income, gain, or
loss for United States federal income tax purposes and (b) if such series of
Debt Securities are then listed on any national securities exchange, such Debt
Securities would not be delisted from such exchange as a result of the
exercise of such option (Article Fifteen).
NOTICES
Notices to Holders will be given by mail to the addresses of such Holders as
they appear in the Security Register (Sections 101, 105).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York (Section 111).
CONCERNING THE TRUSTEE
The Trustee has normal banking relationships with the Company.
9
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is subject to the
detailed provisions of the Company's Certificate of Incorporation (the
"Certificate"). These statements do not purport to be complete and are
qualified in their entity by reference to the terms of the Certificate, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Under the Certificate, the Company has the authority to issue 25,000,000
shares of Preferred Stock, $.01 par value, and 75,000,000 shares of Common
Stock, $.01 par value. As of May 31, 1996, 1,725,000 shares of the Company's
5% Cumulative Convertible Preferred Stock and 29,290,718 shares of Common
Stock were issued, and no shares of Common Stock were held in treasury. The
outstanding shares of Common Stock and Preferred Stock are fully paid and
nonassessable. As of such date, 1,336,029 shares of Common Stock were reserved
for issuance pursuant to the Company's 1987 and 1990 Long-Term Incentive
Plans, and 750,000 shares of the Company's Series A Junior Participating
Preferred Stock, $.01 par value, were reserved for issuance pursuant to the
Rights Agreement (the "Rights Agreement"), dated March 6, 1990, between the
Company and Society National Bank, as Rights Agent. See "--Preferred Stock --
Preferred Stock Purchase Rights." An additional 3,254,716 shares of Common
Stock are reserved for issuance upon conversion of the Company's outstanding
5% Cumulative Convertible Preferred Stock. See "--5% Cumulative Convertible
Preferred Stock."
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of Preferred Stock. The description set
forth below is subject to and qualified in its entirety by reference to the
Certificate and the form of Certificate of Designations (the "Designation")
establishing a particular series of Preferred Stock which will be filed with
the Commission in connection with the offering of such series of Preferred
Stock.
General. Under the Certificate, the Board of Directors of the Company (the
"Board of Directors") is authorized, without further shareholder action, to
provide for the issuance of up to 25,000,000 shares of Preferred Stock, in one
or more series, and to fix the designations, terms, and relative rights and
preferences, including the dividend rate, voting rights, conversion rights,
redemption and sinking fund provisions and liquidation values of each such
series. The Company may amend the Certificate from time to time to increase
the number of authorized shares of Preferred Stock. Any such amendment would
require the approval of the holders of a majority of the outstanding shares of
all series of Preferred Stock voting together as a single class without regard
to series. As of the date of this Prospectus, the Company has one series of
Preferred Stock outstanding.
The Preferred Stock will have the dividend, liquidation, redemption,
conversion, and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular
series of the Preferred Stock offered thereby for specific terms, including,
(i) the title and liquidation preference per share of such Preferred Stock and
the number of shares offered; (ii) the price at which such Preferred Stock
will be issued; (iii) the dividend rate (or method of calculation), the dates
on which dividends shall be payable and the dates from which dividends shall
commence to accumulate; (iv) any redemption or sinking fund provisions of such
Preferred Stock; (v) any conversion or exchange provisions of such Preferred
Stock; (vi) the voting rights, if any, of such Preferred Stock; and (vii) any
additional dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations, and restrictions of such Preferred
Stock. The Preferred Stock will, when issued, be fully paid and nonassessable.
Dividend Rights. The Preferred Stock will be preferred over the Common Stock
as to payment of dividends. Before any dividends or distributions on the
Common Stock shall be declared and set apart for payment or paid, the holders
or shares of each series of Preferred Stock shall be entitled to receive
dividends (either in cash, shares
10
<PAGE>
of Common Stock or Preferred Stock, or otherwise) when, as, and if declared by
the Board of Directors, at the rate and on the date or dates as set forth in
the Prospectus Supplement. With respect to each series of Preferred Stock, the
dividends on each share of such series with respect to which dividends are
cumulative shall be cumulative from the date of issue of such share unless
some other date is set forth in the Prospectus Supplement relating to any such
series. Accruals of dividends shall not bear interest.
Rights Upon Liquidation. The Preferred Stock shall be preferred over the
Common Stock as to assets so that the holders of each series of Preferred
Stock shall be entitled to be paid, upon the voluntary or involuntary
liquidation, dissolution, or winding up of the Company, and before any
distribution is made to the holders of Common Stock, the amount set forth in
the Prospectus Supplement relating to any such series, but in such case the
holders of such series of Preferred Stock shall not be entitled to any other
or further payment. If upon any such liquidation, dissolution, or winding up
of the Company its net assets shall be insufficient to permit the payment in
full of the respective amounts to which the holders of all outstanding
Preferred Stock are entitled, the entire remaining net assets of the Company
shall be distributed among the holders of each series of Preferred Stock in
amounts proportionate to the full amounts to which the holders of each such
series are respectively so entitled.
Redemption and Conversion. All shares of any series of Preferred Stock shall
be redeemable to the extent set forth in the Prospectus Supplement relating to
any such series. All shares of any series of Preferred Stock shall be
convertible into shares of Common Stock or into shares of any other series of
Preferred Stock to the extent set forth in the Prospectus Supplement relating
to any such series.
Voting Rights. All shares of any series of Preferred Stock shall have the
voting rights set forth in the prospectus supplement relating to any such
series.
5% Cumulative Convertible Preferred Stock. In June 1993, the Company issued
1,725,000 shares of 5% Cumulative Convertible Preferred Stock, $.01 par value
per share (the "5% Preferred Stock"). Each share of 5% Preferred Stock has a
liquidation preference of $50.00 per share, plus accrued and unpaid dividends
thereon. Cash dividends on the 5% Preferred Stock are cumulative from the date
of original issue at an annual rate of $2.50 per share and are payable
quarterly in arrears. Shares of 5% Preferred Stock are convertible at any time
at the option of the holder into shares of Common Stock of the Company at a
conversion price of $26.50 per share of Common Stock, which is equivalent to a
conversion rate of approximately 1.8868 shares of Common Stock for each share
of 5% Preferred Stock, subject to adjustment in certain circumstances.
The shares of 5% Preferred Stock are not redeemable prior to June 15, 1996.
On and after such date and from time to time until June 14, 2000, the 5%
Preferred Stock will be redeemable, in whole or in part, at the option of the
Company, for such number of shares of Common Stock as are issuable at the
conversion price for each share of 5% Preferred Stock. The Company may
exercise this option only if, for 20 trading days within any period of 30
consecutive trading days, including the last trading day of such 30 trading-
day period, the closing price of the Company's Common Stock on the New York
Stock Exchange exceeds $34.45, subject to adjustment in certain circumstances.
On and after June 15, 2000, the 5% Preferred Stock will be redeemable for cash
at a redemption price equivalent to $50 per share, plus accrued and unpaid
dividends. Shares of 5% Preferred Stock are not be entitled to the benefit of
any sinking fund.
Preferred Stock Purchase Rights. 750,000 shares of Series A Junior
Participating Preferred Stock, $.01 par value ("Junior Preferred Stock"), are
reserved for issuance pursuant to the Rights Agreement. Pursuant to the Rights
Agreement, one right (a "Right") to purchase 1/100th of a share of Junior
Preferred Stock (structured so as to be substantially the equivalent of Common
Stock) is attached to each issued and outstanding share of Common Stock. The
Rights are not exercisable and are attached to, and may not trade separately
from, the Common Stock unless certain change of control events occur.
11
<PAGE>
COMMON STOCK
The holders of the Company's Common Stock are entitled to one vote per share
on all matters voted on by the stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Board of Directors of the Company with respect to any series of
Preferred Stock, the holders of such shares will exclusively possess all
voting power. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. No holder of
Common Stock has any preemptive right to subscribe to any securities of the
Company of any kind or class. The Company's Common Stock is listed on the New
York Stock Exchange and prices are reported by the New York Stock Exchange
Composite Tape under the symbol DRM. The Transfer Agent and Registrar of the
Company's Common Stock is KeyCorp Shareholder Services, Inc., Cleveland, Ohio.
CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
The Certificate and By-laws of the Company contain certain provisions which
may have the effect of delaying, deferring, or preventing a change of control
of the Company. The Certificate provides that the Board shall be divided into
three classes, with directors serving three-year terms, and limits the ability
of stockholders to change the number of directors. Special meetings of the
Company's stockholders may only be called by the Board of Directors or the
Chairman of the Board, and any action required or permitted to be taken by the
stockholders of the Company must be effected at an annual or special meeting
of stockholders of the Company and may not be effected by any consent in
writing of such stockholders. In addition, the Board has generally the
authority, without further action by stockholders, to fix the relative powers,
preferences, and rights of the unissued shares of Preferred Stock. Provisions
which could discourage an unsolicited tender offer or takeover proposal, such
as extraordinary voting, dividend, redemption, or conversion rights, could be
included in such Preferred Stock. See "--Preferred Stock."
Under the Certificate, holders of Common Stock are entitled to cumulative
voting rights in certain limited circumstances in which the Company becomes
aware that a stockholder of the Company (other than the Company or a
subsidiary of the Company) has become the beneficial owner, directly or
indirectly, of 30% or more of the outstanding capital stock of the Company
entitled to vote generally in the election of Company directors. Holders of
Common Stock are not otherwise entitled to cumulative voting rights. Under
cumulative voting, a stockholder may multiply the number of shares owned by
the number of directors to be elected, and cast that total number of votes in
any proportion among as many nominees as the stockholder desires.
The By-laws of the Company contain certain requirements concerning advance
notice of (i) nominations by stockholders of persons for election to the
Board, and (ii) other matters introduced by stockholders at annual meetings.
12
<PAGE>
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Stock, or Common Stock. Securities Warrants may be
issued independently or together with Debt Securities, Preferred Stock, or
Common Stock offered by any Prospectus Supplement and may be attached to or
separate from any such Offered Securities. Each series of Securities Warrants
will be issued under a separate warrant agreement (a "Securities Warrant
Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Securities Warrant Agent"), all as set forth
in the Prospectus Supplement relating to the particular issue of Securities
Warrants. The Securities Warrant Agent will act solely as an agent of the
Company in connection with the Securities Warrants and will not assume any
obligation or relationship of agency or trust for or with any holders of
Securities Warrants or beneficial owners of Securities Warrants. The following
summary of certain provisions of the Securities Warrants does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all provisions of the Securities Warrant Agreements.
Reference is made to the Prospectus Supplement relating to the particular
issue of Securities Warrants offered thereby for the terms of such Securities
Warrants, including, where applicable: (i) the designation, aggregate
principal amount, currencies, denominations, and terms of the series of Debt
Securities purchasable upon exercise of Debt Warrants and the price at which
such Debt Securities may be purchased upon such exercise; (ii) the
designation, number of shares, stated value, and terms (including, without
limitation, liquidation, dividend, conversion, and voting rights) of the
series of Preferred Stock purchasable upon exercise of Preferred Stock
Warrants and the price at which such number of shares of Preferred Stock of
such series may be purchased upon such exercise; (iii) the number of shares of
Common Stock purchasable upon the exercise of Common Stock Warrants and the
price at which such number of shares of Common Stock may be purchased upon
such exercise; (iv) the date on which the right to exercise such Securities
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (v) United States federal income tax consequences
applicable to such Securities Warrants; and (vi) any other terms of such
Securities Warrants. Preferred Stock Warrants and Common Stock Warrants will
be offered and exercisable for U.S. dollars only. Securities Warrants will be
issued in registered form only. The exercise price for Securities Warrants
will be subject to adjustment in accordance with the applicable Prospectus
Supplement.
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or such number of shares of Preferred
Stock or Common Stock at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the
Securities Warrants, which exercise price may be subject to adjustment upon
the occurrence of certain events as set forth in such Prospectus Supplement.
After the close of business on the Expiration Date (or such later date to
which such Expiration Date may be extended by the Company), unexercised
Securities Warrants will become void. The place or places where, and the
manner in which, Securities Warrants may be exercised shall be specified in
the Prospectus Supplement relating to such Securities Warrants.
Prior to the exercise of any Securities Warrants to purchase Debt
Securities, Preferred Stock, or Common Stock, holders of such Securities
Warrants will not have any of the rights of holders of the Debt Securities,
Preferred Stock, or Common Stock, as the case may be, purchasable upon such
exercise, including the right to receive payments of principal of, premium, if
any, or interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable Indenture, or to receive
payments of dividends, if any, on the Preferred Stock or Common Stock
purchasable upon such exercise, or to exercise any applicable right to vote.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to which this Prospectus relates
to or for resale to the public through one or more underwriters, acting alone
or in underwriting syndicates led by one or more managing underwriters, and
also may sell such Offered Securities directly to other purchasers or dealers
or through agents.
The distribution of Offered Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed from
time to time, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices. Each
Prospectus Supplement will describe the method of distribution of the Offered
Securities.
In connection with the sale of Offered Securities, such underwriters,
dealers, and agents may receive compensation from the Company, or from
purchasers of Offered Securities for whom they may act as agents, in the form
of discounts, concessions, or commissions. Underwriters, dealers, and agents
that participate in the distribution of Offered Securities and, in certain
cases, direct purchasers from the Company, may be deemed to be "underwriters"
and any discounts or commissions received by them and any profit on the resale
of Offered Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriters, dealers, or
agents will be identified and any such compensation will be described in the
applicable Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of Offered Securities
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. The place and time of delivery
for Offered Debt Securities in respect of which this Prospectus is delivered
will be set forth in the applicable Prospectus Supplement.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Timothy J. Fretthold, Esq., Senior Vice President/Group Executive and
General Counsel of the Company, and for the underwriters, dealers, or other
agents by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. As of May 31, 1996, Mr.
Fretthold beneficially owned 55,851 shares of Common Stock of the Company,
including 29,464 shares which he had the right to acquire within 60 days
through the exercise of employee stock options.
14
<PAGE>
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
1995 Form 10-K have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of the
Company for the three-month periods ended March 31, 1996 and 1995,
incorporated by reference in this Prospectus, Price Waterhouse LLP reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
dated May 10, 1996, incorporated by reference herein, states that they do not
express an opinion on that unaudited consolidated financial information. Price
Waterhouse LLP has not carried out any significant or additional audit tests
beyond those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse LLP is not subject to the liability
provisions of Section 11 of the Securities Act for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Securities
Act.
The consolidated financial statements of National Convenience Stores
Incorporated for the year ended June 30, 1995 incorporated by reference in
this Prospectus from the Company's Current Report on Form 8-K/A (dated
December 14, 1995 and filed with the Commission on February 14, 1996) have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report dated September 19, 1995 (insofar as it relates to the
consolidated financial statements of National Convenience Stores Incorporated
for the year ended June 30, 1995), which is incorporated herein by reference,
and such consolidated financial statements have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
15
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NO DEALER, SALESMAN, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................................................... S-2
Use of Proceeds........................................................... S-2
Selected Consolidated Financial and Operating Data........................ S-3
Management's Discussion and Analysis of First Quarter Financial Condition
and Results of Operations................................................ S-4
Certain Terms of the Debentures........................................... S-7
Underwriting ............................................................. S-10
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Earnings Ratios........................................................... 3
Use of Proceeds........................................................... 3
Description of Debt Securities............................................ 4
Description of Capital Stock.............................................. 10
Description of Securities Warrants........................................ 13
Plan of Distribution...................................................... 14
Legal Matters............................................................. 14
Experts................................................................... 15
</TABLE>
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$100,000,000
LOGO
DIAMOND
SHAMROCK, INC.
% DEBENTURES
DUE JUNE 30, 2026
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PROSPECTUS SUPPLEMENT
June , 1996
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LEHMAN BROTHERS
CHASE SECURITIES INC.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
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