UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
For the transition period from______________ to _______________
Commission file number: 1-9409
DIAMOND SHAMROCK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2456753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9830 Colonnade Boulevard, San Antonio, Texas 78230
(Address of principal executive offices) (Zip Code)
210-641-6800
(Registrant's telephone number, including area code
___________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. (X) YES ( )NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
( )YES ( )NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of Common Stock outstanding at October 31, 1996: 29,298,218
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DIAMOND SHAMROCK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(dollars in millions, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995(a) 1996 1995(a)
REVENUES
Sales and operating revenues $1,236.5 $ 941.7 $3,639.1 $2,769.3
Other revenues, net 7.1 4.6 21.6 13.0
1,243.6 946.3 3,660.7 2,782.3
COSTS AND EXPENSES
Cost of products sold 777.8 574.4 2,325.3 1,676.3
Operating expenses 164.4 106.3 460.2 304.7
Depreciation and amortization 26.5 19.4 78.2 57.5
Selling and administrative 23.3 21.9 71.3 61.5
Taxes other than income taxes 209.7 205.3 603.1 587.2
Interest 18.6 11.2 55.0 34.0
1,220.3 938.5 3,593.1 2,721.2
Income Before Tax Provision 23.3 7.8 67.6 61.1
Provision for Income Taxes 9.7 2.1 28.1 21.9
Net Income 13.6 5.7 39.5 39.2
Dividend Requirement
on Preferred Stock 1.1 1.1 3.2 3.2
Earnings Applicable to
Common Shares $ 12.5 $ 4.6 $ 36.3 $ 36.0
Primary Earnings
Per Share $ 0.43 $ 0.16 $ 1.23 $ 1.24
Fully Diluted Earnings
Per Share $ 0.42 $ 0.16 $ 1.21 $ 1.22
Cash Dividends Per Share
Common $ 0.14 $ 0.14 $ 0.42 $ 0.42
Preferred $ 0.625 $ 0.625 $ 1.875 $ 1.875
Weighted Average Common Shares
Outstanding (thousands of shares)
Primary 29,408 29,130 29,390 29,103
Fully Diluted 32,699 32,385 32,692 32,376
(a) Reclassified to conform to 1996 presentation, to include excise
taxes as a component of sales: Excise taxes for the three months ended
September 30, 1996-$197.3 million; 1995-$195.4 million, and for the nine
months ended September 30, 1996-$568.9 million; 1995-$556.6 million.
(See Note 2)
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DIAMOND SHAMROCK, INC.
CONSOLIDATED BALANCE SHEET
(dollars in millions, except per share data)
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 49.5 $ 48.6
Receivables, less doubtful receivables
of $7.2; $7.1 in 1995 222.4 213.0
Inventories
Finished products 196.8 204.1
Raw materials 95.8 137.4
Supplies 33.8 34.5
326.4 376.0
Prepaid expenses and other current assets 12.5 17.3
Total Current Assets 610.8 654.9
Properties and Equipment, less accumulated
depreciation of $748.2; $684.2 in 1995 1,405.8 1,357.1
Excess of Cost over Acquired Net Assets,
less accumulated amortization
of $6.0; $0.3 in 1995 154.1 160.1
Deferred Charges and Other Assets 70.1 73.3
$ 2,240.8 $ 2,245.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 4.5 $ 7.2
Accounts payable 179.9 274.3
Accrued taxes 73.9 71.0
Other accrued liabilities 123.5 137.0
Total Current Liabilities 381.8 489.5
Long-term Debt 1,014.2 957.5
Deferred Income Taxes 67.6 58.6
Other Liabilities and Deferred Credits 118.7 115.1
Stockholders' Equity
Preferred Stock, $.01 par value
Authorized shares - 25,000,000
Issued and Outstanding shares - 1,725,000;
1,725,000 in 1995 0.0 0.0
Common Stock, $.01 par value
Authorized shares - 75,000,000
Issued shares - 29,302,321; 29,035,853
in 1995
Outstanding shares - 29,302,321; 28,994,715
in 1995 0.3 0.3
Paid-in Capital 457.4 447.8
ESOP Stock and Stock Held in Treasury (34.4) (37.4)
Retained Earnings 235.2 214.0
Total Stockholders' Equity 658.5 624.7
$ 2,240.8 $ 2,245.4
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DIAMOND SHAMROCK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(dollars in millions)
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39.5 $ 39.2
Adjustments to arrive at net cash provided
by operating activities:
Depreciation and amortization 78.2 57.5
Deferred income taxes 12.2 4.0
Loss on sale of properties and equipment 0.2 1.0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (9.4) 29.0
Decrease (increase) in inventories 49.6 29.9
Decrease (increase) in prepaid expenses 4.8 (6.1)
Increase (decrease) in accounts payable (97.1) (56.2)
Increase (decrease) in taxes payable 4.6 (5.6)
Increase (decrease) in accrued liabilities (13.5) (14.7)
Other, net 4.7 14.1
NET CASH PROVIDED BY OPERATING ACTIVITIES 73.8 92.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties and equipment 21.0 0.7
Purchase of properties and equipment (135.8) (171.6)
Expenditures for investments (4.3) (2.1)
NET CASH (USED IN) INVESTING ACTIVITIES (119.1) (173.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increases in long-term debt 294.0 312.7
Repayments of long-term debt (237.3) (214.5)
Payments of long-term liability (2.1) (8.2)
Funds received from ESOP 2.1 2.8
Sale of Common Stock 6.1 0.2
Sale of Common Stock held in treasury 1.0 0.3
Dividends paid (15.5) (15.4)
Other, net (2.1) -
NET CASH PROVIDED BY FINANCING ACTIVITIES 46.2 77.9
Net increase (decrease) in cash and cash equivalents 0.9 (3.0)
Cash and cash equivalents at beginning of period 48.6 27.4
Cash and cash equivalents at end of period $ 49.5 $ 24.4
In January 1995, the Company acquired a portion of a crude oil
import and storage terminal in a non-cash transaction under an
installment purchase arrangement. The purchase price was $12.0
million.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DIAMOND SHAMROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The consolidated financial statements as of September 30, 1996 and
for the three months and nine months ended September 30, 1996 and
1995 are unaudited, but in the opinion of Diamond Shamrock, Inc.
(the "Company"), all adjustments (consisting only of normal
accruals) necessary for a fair presentation of consolidated results
of operations, consolidated financial position, and consolidated
cash flows at the date and for the periods indicated have been
included.
The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q. Accordingly,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's 1995 Annual Report on Form
10-K/A (filed on October 1, 1996, the "1995 Form 10K").
With respect to the unaudited consolidated financial information of
the Company as of September 30, 1996, and for the three months and
nine months ended September 30, 1996 and 1995, Price Waterhouse LLP
has made a review (based on procedures adopted by the American
Institute of Certified Public Accountants) and not an audit, as set
forth in their separate report appearing herein. Such a report is
not a "report" or "part of a Registration Statement" within the
meaning of Sections 7 and 11 of the Securities Act of 1933 and the
liability provisions of Section 11 of such Act do not apply.
2. Classification of Excise Taxes
Beginning in 1996, the Company includes federal excise taxes and
state motor fuel taxes in Sales and operating revenues and in Costs
and expenses for financial reporting purposes. The results of
operations for the three months and nine months ended September 30,
1995 have been reclassified to conform to the 1996 presentation.
The amount of such taxes for the three months ended September 30,
1996 and 1995, is $197.3 million and $195.4, respectively. The
amount of such taxes for the nine months ended September 30, 1996
and 1995, is $568.9 million and $556.6, respectively. Neither
operating profits nor net income are affected by the
reclassification of such taxes.
3. Acquisition
On December 14, 1995, the Company completed the acquisition of
National Convenience Stores Incorporated ("NCS") (see footnote 4 of
the 1995 Form 10-K). The acquisition was accounted for under the
purchase method. Consequently, the operating results of NCS are
included in the third quarter and first nine months Consolidated
Statement of Income and the Consolidated Statement of Cash Flows
for 1996, but not for 1995. The amount of NCS sales included in
the 1996 third quarter and first nine months Consolidated Statement
of Operations is $253.3 million and $643.3 million, respectively.
4. Inventories
Inventories are valued at the lower of cost or market with cost
determined primarily under the Last-in, First-out (LIFO) method.
At September 30, 1996, current costs exceeded the LIFO cost of
inventories by $12.6 million. At December 31, 1995 current costs
were lower than LIFO cost by $16.0 million. Costs of all other
inventories are determined on an average cost method.
5. Long-term Debt
The Company currently has outstanding $90.0 million of debt
designated as the 10.75% Senior Notes. As of May 1, 1996, $30.0
million of the long-term debt became payable within one year.
Since the Company intends to refinance the $30.0 million repayment
by the use of commercial paper or other credit facilities which
would be classified as long-term, and the Company has the ability
to do so, the current portion of the long-term debt payable on
April 30, 1997 has been classified as long-term debt.
6. Commitments and Contingencies
In connection with the 1987 Spin-off from Maxus Energy Corporation
("Maxus"), the Company agreed to assume a share of certain
liabilities of Maxus' businesses discontinued or disposed of prior
to the Spin-off date (see Note 17 of the 1995 Form 10-K). The
Company's total liability for such shared costs is limited to $85.0
million. The Company has reimbursed Maxus for a total of $82.2
million as of September 30, 1996, including $7.3 million paid
during the nine months ended September 30, 1996. See Note 3 of the
1995 Form 10-K for a discussion of the change in the method of
accounting for the liability.
7. Merger
On September 23, 1996, the Company announced that it had entered
into a definitive merger agreement pursuant to which it would merge
with and into Ultramar Corporation. The agreement provides that,
upon closing, the holders of the Company's common stock will
receive 1.02 shares of Ultramar common stock for each share of the
Company's common stock held. The transaction is expected to be
recorded as a "pooling of interests" and the name of the combined
company will be Ultramar Diamond Shamrock Corporation. The merger
is is expected to occur on December 3, 1996.
REVIEW BY INDEPENDENT ACCOUNTANTS
With respect to the unaudited consolidated financial information of
the Company as of September 30, 1996 and the three months and nine
months ended September 30, 1996 and 1995, 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 November 13, 1996, appearing
below, states that they did not audit and 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 of 1933 for their report on the
unaudited consolidated financial information because that report is
not a "report" or "part of a Registration Statement" prepared or
certified by Price Waterhouse LLP within the meaning of Sections 7
and 11 of the Act.
<PAGE>
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Diamond Shamrock, Inc.
We have reviewed the consolidated interim financial information
included in the Report on Form 10-Q of Diamond Shamrock, Inc. (the
"Company") and its subsidiaries as of September 30, 1996 and for
the three months and nine months ended September 30, 1996 and 1995.
This financial information is the responsibility of the management
of Diamond Shamrock, Inc.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial information for
it to be in conformity with generally accepted accounting
principles.
We previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company
as of December 31, 1995, and the related consolidated statements of
operations and of cash flows for the year then ended (not presented
herein), and in our report dated February 23, 1996, except as to
the last paragraph of Note 2 (which describes the Company's
reclassification of excise and motor fuel taxes), for which our
report is dated as of September 27, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying
consolidated balance sheet information as of December 31, 1995, is
fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
November 13, 1996<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
On September 23, 1996, the Company announced that it had entered
into a definitive merger agreement pursuant to which it would merge
with and into Ultramar Corporation. The agreement provides that,
upon closing, the holders of the Company's common stock will
receive 1.02 shares of Ultramar common stock for each share of the
Company's common stock held. The transaction is expected to be
recorded as a "pooling of interests" and the name of the combined
company will be Ultramar Diamond Shamrock Corporation. The merger
is pending and is expected to occur on December 3, 1996.
Results of Operations
The following are the Company's sales and operating revenues and
operating profit for the three months and nine months ended
September 30, 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.
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
Sales and Operating Revenues:
Refining and Wholesale $ 503.6 $ 467.8(1) $ 1,511.9 $1,359.1(1)
Retail 619.9 389.9(1) 1,829.4 1,115.0(1)
Allied Businesses 113.0 84.0 297.8 295.2
Total Sales and
Operating Revenues $1,236.5 $ 941.7 $ 3,639.1 $2,769.3
Operating Profit:
Refining and Wholesale $ 38.4 $ 5.9 $ 109.6 $ 60.5
Retail 16.6 19.8 48.6 46.8
Allied Businesses 7.2 11.2 25.5 39.6
Total Operating Profit $ 62.2 $ 36.9 $ 183.7 $ 146.9
(1) Reclassified to conform to 1996 presentation, including excise taxes
as a component of sales.
Consolidated Results Third Quarter 1996 vs Third Quarter 1995
Sales and operating revenues of $1,236.5 million for the third
quarter of 1996 were 31.3% 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 $253.3
million in sales and operating revenues for the quarter. Excluding
the impact of the NCS acquisition, sales and operating revenues for
the third quarter of 1996 increased 4.4% primarily due to a 17.5%
and an 8.4% increase in refined product sales prices and volumes,
respectively, in the Refining and Wholesale segment. In addition,
sales and operating revenues increased 34.5% in the Allied
Businesses segment, primarily due to a 33.4% and a 13.6% increase
in natural gas liquids prices and volumes, respectively, and an
86.6% increase in polymer grade propylene sales volumes due to
increased demand.
During the third quarter of 1996, the Company had net income of
$13.6 million compared to net income of $5.7 million in the 1995
third quarter. The increase in net income is primarily due to a
25.2% increase in refining margins. An increase in the market
value of refinery inventories due primarily to crude oil price
increases in the third quarter of 1996 also had a positive impact
on net income. Fluctuations in the market value of refinery
inventories had the opposite impact on the third quarter 1995 net
income. Partially offsetting these increases were lower operating
profits in the Company's propane/propylene business.
Inventories are valued at the lower of cost or market with cost
determined primarily under the Last-in, First-out (LIFO) method.
At September 30, 1996, current costs exceeded the LIFO cost of
inventories by $12.6 million. At December 31, 1995 current costs
were lower than LIFO cost by $16.0 million. Costs of 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 $4.0 million and negative $6.8 million in the third
quarters of 1996 and 1995, respectively.
Consolidated Results First Nine Months 1996 vs First Nine Months
1995
Sales and operating revenues of $3,639.1 million for the first nine
months of 1996 were $869.8 million higher than for the same period
of 1995, primarily due to the acquisition of NCS in mid-December
1995 which contributed $643.3 million in sales and operating
revenues for the period. Excluding the impact of the NCS
acquisition, sales and operating revenues for the first nine months
of 1996 increased 8.2%, primarily due to a 13.6% and a 10.6%
increase in wholesale refined product sales prices and volumes,
respectively, in the Refining and Wholesale segment. Also
contributing to the increase in sales and operating revenues was a
4.9% and a 2.0% increase in retail gasoline sales prices and
volumes, respectively, from the Corner Store retail outlets.
During the first nine months of 1996, the Company had net income of
$39.5 million compared to net income of $39.2 million in the first
nine months of 1995. An increase in refinery margins during the
first nine months was offset by a decrease in demand for polymer
grade propylene and ammonia fertilizer in the Company's Allied
Businesses. An increase in the value of refinery inventories due
primarily to crude oil price increases in the first nine months of
1996 also had a positive impact on net income. The estimated after
tax impact of the change in inventory values was a positive $6.0
million and $2.9 million in the first nine months of 1996 and 1995,
respectively.
Segment Results Third Quarter 1996 vs Third Quarter 1995
During the third quarter of 1996, the Refining and Wholesale
segment had sales and operating revenues of $503.6 million compared
to $467.8 million during the third quarter of 1995. Sales and
operating revenues increased primarily due to an increase in
refined product prices and volumes. Operating profit in the third
quarter of 1996 increased $32.5 million from the third quarter of
1995, primarily due to a 25.2% increase in refinery margins from
the same period a year ago. An increase in the value of refinery
inventories due primarily to crude oil price increases in the third
quarter of 1996 also had a positive impact on net income.
The Retail segment in the third quarter of 1996 reflected a 59.0%
increase in sales and operating revenues over the third quarter of
1995, primarily due to the acquisition of NCS and its 661 retail
outlets in mid-December 1995. Excluding the impact of the NCS
acquisition, sales and operating revenues for the third quarter of
1996 increased 2.4%, primarily due to a 6.4% increase in retail
gasoline sales prices. Operating profit in the third quarter of
1996 was $16.6 million compared to $19.8 million in the third
quarter of 1995. The decrease in operating profit was primarily
due to an 10.7% decrease in retail fuel margins, partially offset
by a 2.3% increase in merchandise margins compared to the third
quarter of 1995.
During the third quarter of 1996, the Allied Businesses segment
reflected an increase in sales and operating revenues of 34.5% as
compared to the third quarter of 1995. This increase was primarily
due to a 51.5% increase in sales and operating revenues from the
Company's natural gas liquids marketing business, reflecting a
33.4% and a 13.6% increase in natural gas liquids sales prices and
volumes, respectively. Also contributing to this increase was a
62.0% increase in sales and operating revenues from the Company's
propane/propylene business, reflecting increased demand compared to
the third quarter of 1995. Operating profits were $7.2 million for
the third quarter of 1996 compared to $11.2 million in the third
quarter of 1995. Operating profits decreased primarily due to a
decrease in margins in the Company's propane/propylene business,
and decreased demand for ammonia fertilizer compared to the third
quarter of 1995.
Segment Results First Nine Months 1996 vs First Nine Months 1995
Sales and operating revenues from the Refining and Wholesale
segment were $1,511.9 million in the first nine months of 1996
compared to $1,359.1 million during the first nine months of 1995.
The increase in sales and operating revenues was primarily due to
a 13.6% and a 10.6% increase in wholesale refined product sales
prices and volumes, respectively. Operating profit in the first
nine months of 1996 was $109.6 million compared to $60.5 million in
the first nine months of 1995. The increase in operating profit
was primarily due to a 19.2% increase in refinery margins from the
same period a year ago. Refinery margins increased significantly
late in the first quarter of 1996, decreased somewhat in the second
quarter and increased again late in the third quarter, as volatile
and rising crude oil prices continued to have a significant impact
on refining margins during the first nine months of 1996.
The Retail segment results for the first nine months of 1996
reflected a 64.1% increase in sales and operating revenues,
primarily due to the acquisition of NCS in mid-December 1995 which
has contributed $643.3 million in sales and operating revenues for
the period. Excluding the impact of the NCS acquisition, sales and
operating revenues for the first nine months of 1996 increased
6.4%, primarily due to a 4.9% and a 2.0% increase in retail
gasoline sales prices and volumes, respectively. Also contributing
to the increase in sales and operating revenues was a 4.8% increase
in Corner Store merchandise sales. Operating profit in the first
nine months of 1996 was $48.6 million compared to $46.8 million in
the first nine months of 1995. Operating profit increased
primarily due to increased retail gasoline sales volumes and
prices, and a 139.1% increase in merchandise sales, reflecting the
contributions from the NCS acquisition. Partially offsetting these
increases was an 11.4% decrease in retail fuel margins compared to
the first nine months of 1995 as the retail segment was unable to
completely recoup the rising wholesale fuel costs resulting from
higher crude prices compared to the same period a year ago.
The Allied Businesses segment results reflected an increase in
sales and operating revenues of 0.9% to $297.8 million in the first
nine months of 1996 as compared to the same period in 1995. This
increase was primarily due to a 19.7% increase in sales in the
Company's natural gas liquids business, reflecting a 20.0% increase
in natural gas liquids sales prices. Partially offsetting this
increase in sales and operating revenues was a 10.9% decrease in
sales and operating revenues for the Company's propane/propylene
business, reflecting decreased sales prices attributable to reduced
demand for polymer grade propylene. Operating profits were $25.5
million for the first nine months of 1996 compared to $39.6 million
in 1995. Operating profits decreased primarily due to a $9.3
million and a $3.9 million decrease in operating profit from the
Company's propane/propylene and ammonia fertilizer businesses,
respectively, reflecting decreased demand for polymer grade
propylene and ammonia fertilizer.
Outlook
Although refining margins were under pressure in the third quarter,
industry fundamentals remain strong. U.S. gasoline inventories
continue to trend downward and gasoline demand is expected to rise
with the growing economy.
U.S. distillate demand for 1996 is at historically high levels due
to both the cold winter and the increase in the use of on-highway
diesel. Distillate inventories usually build significantly during
the summer months, but this has not been the case in 1996. In
fact, distillate inventories are at historically low levels,
although recent reports have shown increases in domestic distillate
inventories.
Refinery utilization rates remain high. Conversion capacity is
expected to grow, but at a more moderate rate than the last several
years due to the decline in capital expenditures for the industry.
There is still concern about the volatility of crude prices. The
impact of Iraqi crude entering the market and the effect it will
have on the price of crude remains unclear at this time.
Liquidity and Capital Resources
Cash Flow and Working Capital
For the nine months ended September 30, 1996, cash provided by
operations was $73.8 million, compared with $92.1 million in the
same period of 1995.
Working capital at September 30, 1996 was up $63.6 million from
December 31, 1995, and consisted of current assets of $610.8
million and current liabilities of $381.8 million, or a current
ratio of 1.6. 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 34.4% and a 10.4% decrease in accounts payable and accrued
liabilities, respectively. The decrease in current liabilities was
partially offset by a 13.2% decrease in inventories. In addition,
receivables increased during the first nine months of 1996,
primarily due to increased refined product sales prices and
volumes.
Capital Expenditures
In recent years, capital expenditures have related to 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, acquire businesses, and pursue new ventures in
related businesses.
Although the Company intends to continue to pursue acquisitions and
other capital investment opportunities as those opportunities
arise, the Company's near-term objective is to reduce its total
debt to pre-NCS acquisition levels by year end 1997, primarily
through cash flow generated from operations and the sale of non-strategic
assets. In addition, the Company has reduced its capital
expenditure budget compared to recent years so that revised capital
spending plans are approximately $160.0 million in 1996 and $140.0
million in 1997 (1997 budget subject to final approval). Capital
spending plans include the rebranding and integration of the NCS
stores into the Company's systems as well as the construction of
additional retail stores, principally in Arizona. The Company has
completed the rebranding of the NCS gasoline retail outlets. This
rebranding and integration program included signage on the street
and at the pump, and upgraded security, computerization, and store
interiors.
Expansion and upgrading projects begun in 1995 at the Company's
Three Rivers refinery will be completed in 1996, and include the
recently completed heavy gas oil hydrotreater that was put on-stream in the
third quarter of 1996. These projects will increase
the capacity of the refinery from 75,000 to 85,000 barrels per day
and will allow heavy oils to be upgraded to higher value refined
products.
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 unit will give the
Company the flexibility to shift certain components out of the
gasoline pool into more attractively priced petrochemical
feedstocks. Finally, the 1996 capital budget also includes
construction of a second 730 million pound per year propylene
splitter at Mont Belvieu which was completed in August 1996.
The Company's capital and investment expenditures during the first
nine months of 1996 were $139.6 million. The Company's capital
expenditures were $183.6 million during the first nine 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 anticipates continued consolidation in the industries
in which it operates. The Company expects from time to time to
consider acquisition and other investment opportunities in the
Company's core refining and marketing businesses and in the
downstream petrochemicals area as opportunities may arise.
Although it is presently the Company's goal to reduce debt in 1996,
if its assumptions regarding operating results or capital
requirements change, the Company believes that it has adequate
financial flexibility through its bank credit, bank money market,
commercial paper facilities, and access to the capital markets to
refinance existing debt or otherwise meet its financial
requirements.
In June 1996, the Company issued $100.0 million in 7.65% debentures
due July 1, 2026. The proceeds from the issuance of the debentures
were used to re-pay outstanding short term debt.
In June, July and October 1996, the Company completed the sale of
7, 27, and 43 non-strategic retail outlets, respectively. In
addition, the Company opened 14 retail outlets and closed 17
marginal retail outlets during the first nine months of 1996.
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, while
the Company does not have any major capital programs underway
designed to satisfy these requirements, 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.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 21, 1996, the Texas Natural Resources Conservation
Commission approved an Agreed Order assessing a $995,000 penalty
with a remittance of $596,440 against the Company based on
completion of two Supplemental Environmental Projects by the
Company: one providing funding for the City of Dumas to repair and
upgrade its wastewater treatment plant with the Company
contributing $320,400 to the City for $320,442 in penalty
remittance, and the other replacing underground petroleum piping
with above ground piping at Three Rivers and McKee, with the
Company's pending $1,946,000 for $276,000 in penalty remittance.
Item 2. Changes in Securities
The Rights Agreement between the Company and Ameritrust
Company National Association was amended effective September 22,
1996, to make the Rights outstanding in connection with the
Company's common stock inapplicable to the Agreement and Plan of
Merger, dated as of September 22, 1996 between Ultramar Corporation
and the Company, and inapplicable to the stock option agreement
executed in connection with such merger agreement, pursuant to
which Ultramar Corporation was granted the right to purchase
5,858,500 shares of the Company's common stock, for the price and
under the conditions set out in such option agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment to Rights Agreement between the Company and Ameritrust
Company National Association, as described in the Company's
filing on Form 8-A/A, filed October 23, 1996 and incorporated
herein by reference.
10.1 Agreement and Plan of Merger, dated September 22, 1996, by and
among Ultramar Corporation and the Company, filed as Exhibit
to the Company's Report on Form 8-K filed on September 25,
1996 and incorporated herein by reference.
10.2 Supplemental Executive Retirement Plan, as amended through
July 22, 1996.
10.3 Performance Incentive Plan, as amended through July 22, 1996.
10.4 Form of Disability Benefit Agreement.
10.5 Form of Supplemental Death Benefit Agreement.
10.6 Excess Benefit Plan of the Company, as amended through
July 22, 1996.
10.7 Director s Retirement Plan of the Company, as amended through
July 22, 1996.
10.8 1987 Long Term Incentive Plan of the Company, as amended through
July 22, 1996.
10.9 Diamond Shamrock, Inc. Long-Term Incentive Plan, as amended through
August 15, 1996.
15.1 Independent Accountants Awareness Letter
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on, September 26, 1996
and October 10, 1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DIAMOND SHAMROCK, INC.
By: /s/ GARY E. JOHNSON
Gary E. Johnson
Vice President and Controller
(Principal Accounting Officer)
November 13, 1996
w3502.TW
Exhibit 10.2
THIRD AMENDMENT TO DIAMOND SHAMROCK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Diamond Shamrock, Inc., a Delaware corporation, pursuant to
authority granted by its Board of Directors, hereby adopts the
following amendment to its Supplemental Executive Retirement Plan
(the "Plan").
1. New Section 2 (c) is added as follows and the former Section 2(c) and
all subsequent subsections are re-lettered accordingly:
(c) "Benefit Review Committee" means the committee appointed
by the President, Chairman of the Board and Chief Executive
Officer of the Corporation pursuant to Section 12 (c) hereof
with power and authority to construe the Plan and determine
all questions of eligibility and interpretation under the Plan
pursuant to Section 12 (c) below.
2. New Section 2 (f) is added as follows and the former Section 2
(f) and all subsequent subsections are re-lettered accordingly:
(f) "Change in Control" will be deemed to have occurred when
(1) a report is filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term
"person" is used in Section 13 (d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act) of securities representing more than 10% of the combined
voting power of the then-outstanding voting securities of the
Corporation and such acquisition has not been authorized,
approved or recommended by majority vote of the Board of
Directors prior to the date of the filing of such report, or
(2) such other event has occurred which the Board of Directors
may, in its sole discretion, by majority vote determine to
constitute a change in control.
3. Effective December 5, 1995, Section 2 (m) "Early Retirement
Date" is amended by deleting the phrase "fifty-fifth (55)" and
substituting the phrase "fifty-seventh (57)" in its place.
4. Effective December 5, 1995, Section 5 (b) is amended by deleting
the phrase "fifty-five (55)" and substituting the phrase "fifty-seven (57)"
in its place.
5. Section 6(a) is amended by the addition of the following
paragraph:
In the event of a Change in Control, the fraction
described in clause (iii), above, will not be multiplied
by the excess of (i) over (ii); clause (iii) will be
eliminated from the formula for calculating the Normal
Retirement Benefit.
6. Effective December 5, 1995, new Section 6(d) is added as
follows:
(d) Notwithstanding anything contained in Subsection (c)
above to the contrary, the Normal Retirement Benefit may
be paid in any of the following optional forms, at the
discretion of the Compensation Committee: a life annuity;
a number of equal annual installments not exceeding ten
(10); a lump sum; or any other actuarially equivalent
form of payment.
7. New Section 6 (e)is added as follows:
(e) In the event a Participant's employment is terminated
following a Change in Control, the Participant's accrued
benefit shall be distributed in the form of a lump sum to the
Participant within sixty (60) days of such termination.
8. Section 7(a) is amended by the addition of the following phrase
to the end of clause (i):
provided, however, upon a Change in Control, this clause
(i) shall not apply.
9. New Section 7(c) is added to read as follows:
(c) Notwithstanding anything contained herein to the
contrary, in the event of a Change in Control, the right
of a Participant to receive or to continue to receive any
benefits hereunder shall at all times be fully vested and
nonforfeitable.
10. The first sentence of the fourth paragraph of Section 12(a) is
amended by deleting the phrase "Compensation Committee" and
replacing it with "Benefit Review Committee."
11. Section 12(b) is amended by deleting the phrase "Compensation
Committee" from each place in which it appears in the Section and
replacing it with "Benefit Review Committee."
12. Section 12 is further amended by adding new subsections (c)
and (d) as follows:
(c) The President, Chairman of the Board and Chief Executive
Officer of the Corporation shall appoint a Benefit Review
Committee consisting of not less than three nor more than five
persons, having the administrative responsibilities and
discretionary authority described in this Section 12. The
Benefit Review Committee has full power and authority to
construe the Plan and determine all questions of eligibility
and interpretation under the Plan. The determinations of the
Benefit Review Committee shall be final and binding, subject
only to Subsection (d), below.
(d) The Plan and any claims arising from the Plan or in any
way related to the Plan, are subject to and governed by the
Diamond Shamrock, Inc. Dialogue Dispute Resolution Program
("Dialogue"). If a claim has been appealed from the Claims
Coordinator to the Benefit Review Committee and the claimant
desires to appeal the decision of the Benefit Review
Committee, such appeal must be conducted solely within the
limitations and procedures of Dialogue.
The following amendments shall be effective December 5, 1995,
and shall apply only to any Participant in the Plan who is
designated a Participant on or after December 5, 1995:
13. Section 2(a) "Average Monthly Compensation" is amended to read
in its entirety as follows:
(a) "Average Monthly Compensation" means the result
obtained by dividing the sum of the total Basic
Compensation paid to a Participant during a considered
period plus the total Incentive Compensation earned by a
Participant with respect to such considered period by the
number of months in the considered period. The
considered period shall be the three (3) complete
consecutive calendar years within the ten (10)
consecutive calendar year period ending prior to the
Participant's date of termination or disability, which
yield the highest Average Monthly compensation, or in the
event the Participant was employed for fewer than three
(3) calendar years within such ten-year period, the
considered period shall be all complete calendar months
of Service with the Corporation. For purposes of
determining whether Basic Compensation or Incentive
Compensation was paid to or earned by, respectively, a
Participant, no reduction shall be made for any amount
deferred therefrom or for any pre-tax contribution made
therefrom to any Qualified Plan.
14. Section 2(b) is amended to read in its entirety as follows:
(b) "Basic Compensation" means the paid base salary,
paid sick days, paid vacation days taken for a calendar
year, and payment for unused vacation time made to a
Participant upon his termination of employment, but
excluding Incentive Compensation, any amount previously
deferred from Basic Compensation or Incentive
Compensation, moving expenses, severance pay, payments
under long-term disability insurance, income resulting
from the exercise of stock appreciation rights, employee
stock options, restricted stock awards and dividends
thereon, performance units, and any other right granted
under the Diamond Shamrock, Inc. 1987 Long Term Incentive
Plan and the Diamond Shamrock, Inc. Long Term Incentive
Plan, and the value of any perquisites, welfare benefits
and fringe benefits such as life, medical, disability, or
hospitalization insurance premiums and contributions made
by the Corporation allocated to a Participant under any
Qualified Plan.
15. Section 6(a) is amended to read in its entirety as follows:
(a) The monthly Normal Retirement Benefit of a
Participant shall be equal to the amount calculated by
subtracting (iii) from the product of (i) multiplied by
(ii), as follows:
(i) sixty percent (60%) of his Average Monthly
Compensation, multiplied by
(ii) a fraction, the numerator of which is the
Participant's number of complete years of Plan
Participation (but not greater than ten (10)) and the
denominator of which is ten (10) minus
(iii) the sum of his Other Retirement Benefits;
provided, however, that for purposes of this Section 6 (a), the
Compensation Committee may credit a Participant with additional
complete years of Plan Participation, and may provide that a
Participant's Normal Retirement Benefit shall in no event be less
than the product obtained by multiplying the fraction prescribed by
clause (ii), above, by an amount specified by the Committee. In
the event of a Change in Control, the benefit described in clause
(i), above, will not be multiplied by the fraction described in
clause (ii); clause (ii) will be eliminated from the formula for
calculating the Normal Retirement Benefit.
16. Section 6(b) is amended to read in its entirety as follows:
(b) The monthly Early Retirement Benefit of a Participant
shall be equal to the amount calculated by subtracting
(iv) from the product of (i) multiplied by (ii) and
(iii), as follows:
(i) sixty percent (60%) of his Average Monthly
Compensation, multiplied by
(ii) a fraction, the numerator of which is the
Participant's number of complete years of Plan
Participation (but not greater than ten (10)) and the
denominator of which is ten (10), multiplied by
(iii) the percentage obtained by multiplying five
percent (5%) by the number of years and/or partial year,
rounded to the nearest month, that the Early Retirement
Date precedes the earlier of his sixty-second (62nd)
birthday or his Normal Retirement Date, minus
(iv) the sum of his Other Retirement Benefits;
provided, however, that for purposes of this Section 6 (b), the
Compensation Committee may credit a Participant with additional
complete years of Plan Participation, and may provide that a
Participant's Normal Retirement Benefit shall in no event be less
than the product obtained by multiplying the fraction prescribed by
clause (ii), above, by an amount specified by the Committee. In
the event of a Change in Control, the benefit described in clause
(i), above, will not be multiplied by the fraction described in
clause (ii); clause (ii) will be eliminated from the formula for
calculating the Early Retirement Benefit.
Except as stated otherwise herein, the foregoing amendments
shall be effective as of May 7, 1996. Except as amended herein,
by that First Amendment date June 2, 1988, and by that Second Amendment
dated January 17, 1990, the terms and provisions of said Plan shall remain
in full force and effect.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W2803.LW
Exhibit 10.3
AMENDMENT TO DIAMOND SHAMROCK, INC.
PERFORMANCE INCENTIVE PLAN
Diamond Shamrock, Inc., a Delaware corporation, pursuant to
authority granted by its Board of Directors, hereby adopts the
following amendment to its Performance Incentive Plan (the "Plan").
1. Section III is amended by the addition of the definition of
"Change in Control" as follows:
"Change in Control" will be deemed to have occurred when (1)
a report is filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term
"person" is used in Section 13 (d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange
Act) of securities representing more than 25% of the combined
voting power of the then-outstanding voting securities of the
Corporation and such acquisition has not been authorized,
approved or recommended by majority vote of the Board of
Directors prior to the date of the filing of such report, or
(2) such other event has occurred which the Board of Directors
may, in its sole discretion, by majority vote determine to
constitute a change in control.
2. New Section VIII is added as follows:
VIII. CHANGE IN CONTROL
Notwithstanding anything contained herein to the
contrary, in the event of a Change in Control, a prorated
portion of each participant's Performance Incentive Award
will vest, based on the number of months or portion of a
month completed at the time of the Change in Control.
[Upon a Change in Control, the award will be calculated
based on performance at target level,] and the award will
be paid entirely in cash within thirty (30) days of the
Change in Control.
3. New Section IX is added as follows:
IX. DIALOGUE
The Plan and any claims arising from the Plan or in any way
related to the Plan, are subject to and governed by the
Diamond Shamrock, Inc. Dialogue Dispute Resolution Program
("Dialogue"). Any such claims or appeals of claim decisions
must be conducted solely within the limitations and procedures
of Dialogue.
The foregoing amendments shall be effective as of May 7, 1996.
Except as amended herein, the terms and provisions of said Plan
shall remain in full force and effect.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W3132.LW
Exhibit 10.4
AMENDMENT TO DIAMOND SHAMROCK, INC.
DISABILITY BENEFIT AGREEMENT
Diamond Shamrock, Inc., a Delaware corporation, pursuant to
authority granted by its Board of Directors, hereby adopts the
following amendment to its Disability Benefit Agreement (the
"Agreement").
1. New Section 7 is added as follows and the former Section 7 is
re-numbered Section 8:
7. BENEFIT REVIEW COMMITTEE; DIALOGUE.
(a) The President, Chairman of the Board and Chief Executive
Officer of the Company shall appoint a Benefit Review
Committee consisting of not less than three nor more than five
persons, having the administrative responsibilities and
discretionary authority described in this Section 7. The
Benefit Review Committee has full power and authority to
construe the Plan and determine all questions of eligibility
and interpretation under the Plan. The determinations of the
Benefit Review Committee shall be final and binding, subject
only to Subsection (b), below.
(b) The Plan and any claims arising from the Plan or in any
way related to the Plan, are subject to and governed by the
Diamond Shamrock, Inc. Dialogue Dispute Resolution Program
("Dialogue"). If a claim has been has been appealed from the
administrator to the Benefit Review Committee and the claimant
desires to appeal the decision of the Benefit Review
Committee, such appeal must be conducted solely within the
limitations and procedures of Dialogue.
The foregoing amendments shall be effective as of May 7, 1996.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W3135.LW
Exhibit 10.5
AMENDMENT TO DIAMOND SHAMROCK, INC.
SUPPLEMENTAL DEATH BENEFIT AGREEMENT
Diamond Shamrock, Inc., a Delaware corporation, pursuant to
authority granted by its Board of Directors, hereby adopts the
following amendment to its Supplemental Death Benefit Agreement
(the "Agreement").
1. New Section 7 is added as follows and the former Section 7 is
re-numbered Section 8:
7. BENEFIT REVIEW COMMITTEE; DIALOGUE.
(a) The President, Chairman of the Board and Chief Executive
Officer of the Company shall appoint a Benefit Review
Committee consisting of not less than three nor more than five
persons, having the administrative responsibilities and
discretionary authority described in this Section 7. The
Benefit Review Committee has full power and authority to
construe the Plan and determine all questions of eligibility
and interpretation under the Plan. The determinations of the
Benefit Review Committee shall be final and binding, subject
only to Subsection (b), below.
(b) The Plan and any claims arising from the Plan or in any
way related to the Plan, are subject to and governed by the
Diamond Shamrock, Inc. Dialogue Dispute Resolution Program
("Dialogue"). If a claim has been has been appealed from the
administrator to the Benefit Review Committee and the claimant
desires to appeal the decision of the Benefit Review
Committee, such appeal must be conducted solely within the
limitations and procedures of Dialogue.
The foregoing amendments shall be effective as of May 7, 1996.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W3136.LW
Exhibit 10.6
AMENDMENT TO DIAMOND SHAMROCK, INC.
EXCESS BENEFITS PLAN
Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority
granted by its Board of Directors, hereby adopts the following amendment to
its Excess Benefits Plan (the "Plan").
1. New Section 2 (a) is added as follows and the former Section 2 (a) and
all subsequent subsections are re-lettered accordingly:
(a) "Benefit Review Committee" means the committee appointed by the
President, Chairman of the Board and Chief Executive Officer of the
Corporation pursuant to Section 14 (c) hereof with power and authority
to construe the Plan and determine all questions of eligibility and
interpretation under the Plan pursuant to Section 14 (c) below.
2. New Section 2 (d) is added as follows and the former Section 2 (d) and
all subsequent subsections are re-lettered accordingly:
(d) "Change in Control" will be deemed to have occurred when (1) a
report is filed on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13
(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of securities representing more than 25% of the combined voting
power of the then-outstanding voting securities of the Corporation and
such acquisition has not been authorized, approved or recommended by
majority vote of the Board of Directors prior to the date of the filing
of such report, or (2) such other event has occurred which the Board of
Directors may, in its sole discretion, by majority vote determine to
constitute a change in control.
3. Effective January 1, 1996, Section 2 (e) "CODA" is amended by the addition
of the following phrase at the end of such section:
"provided, however; that the Diamond Shamrock, Inc. 401(k)
Retirement Savings Plan is specifically excluded from the
definition of "CODA."
4. Effective January 1, 1994, Section 8 is amended to read as follows:
(a) Subject to the rights of general creditors as set forth in
Section 12 and the right of the Corporation to discontinue the Plan
as provided in Section 15(c), a Participant shall have a vested and
nonforfeitable interest in the benefits payable under Sections 4,
6, and 7 to the same extent and in the same manner as the
Participant's benefits are vested under the CARIP, the ESIP, and
the CODA, respectively.
(b) Subject to the rights of general creditors as set forth in
Section 12 and the right of the Corporation to discontinue the Plan
as provided in Section 15(c), a Participant shall have a vested and
nonforfeitable interest in the ESOP benefits payable under Section
5 at the time the ESOP benefit is allocated to the Participant's
ESOP account.
5. Section 9 is amended by the addition of the following sentence at the end
of such section:
In the event a Participant's employment is terminated following a
Change in Control, the Participant's accrued benefit shall be
distributed in the form of a lump sum to the Participant within
sixty (60) days of such termination.
6. The first sentence of the fourth paragraph of Section 14(a) is amended by
deleting the phrase "Compensation Committee" and replacing it with "Benefit
Review Committee."
7. Section 14(b) is amended by deleting the phrase "Compensation Committee"
from each place in which it appears in the Section and replacing it with
"Benefit Review Committee."
8. Section 14 is further amended by adding new subsections (c) and (d) as
follows:
(c) The President, Chairman of the Board and Chief Executive Officer of
the Corporation shall appoint a Benefit Review Committee consisting of
not less than three nor more than five persons, having the
administrative responsibilities and discretionary authority described in
this Section 14. The Benefit Review Committee has full power and
authority to construe the Plan and determine all questions of
eligibility and interpretation under the Plan. The determinations of
the Benefit Review Committee shall be final and binding, subject only to
Subsection (d), below.
(d) The Plan and any claims arising from the Plan or in any way related
to the Plan, are subject to and governed by the Diamond Shamrock, Inc.
Dialogue Dispute Resolution Program ("Dialogue"). If a claim has been
appealed from the Claims Coordinator to the Benefit Review Committee and
the claimant desires to appeal the decision of the Benefit Review
Committee, such appeal must be conducted solely within the limitations
and procedures of Dialogue.
Except as provided otherwise, the foregoing amendments shall be
effective as of May 7, 1996. Except as amended herein, the terms and
provisions of said Plan restated effective December 1, 1992, shall remain in
full force and effect.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W3133.LW
Exhibit 10.7
AMENDMENT TO DIAMOND SHAMROCK, INC.
RETIREMENT PLAN FOR DIRECTORS
Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority
granted by its Board of Directors, hereby adopts the following amendment to
its Retirement Plan for Directors (the "Plan").
1. New Sections 4 and 5 are added as follows and the former Sections 4
and 5 and all subsequent sections are re-numbered accordingly:
4. No Further Accrual of Benefits
Effective May 7, 1996, no further Benefits shall accrue to any
Non-Employee Director under this Plan and all Benefits accrued
to date are frozen.
5. Lump Sum Distribution upon a Change in Control
In the event a Non-Employee Director's services as a director of the
Corporation are terminated following a Change in Control, the Non-
Employee Director's Benefit shall be distributed in the form of a
lump sum to the Non-Employee Director within sixty (60) days of such
termination.
"Change in Control" will be deemed to have occurred when (1) a report is
filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form
or report), each as promulgated pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), disclosing that any person (as
the term "person" is used in Section 13 (d)(3) or Section 14(d)(2) of
the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities
representing more than 25% of the combined voting power of the
then-outstanding voting securities of the Corporation and such acquisition
has not been authorized, approved or recommended by majority vote of the
Board of Directors prior to the date of the filing of such report, or
(2) such other event has occurred which the Board of Directors may, in
its sole discretion, by majority vote determine to constitute a change
in control.
The foregoing amendment shall be effective as of May 7, 1996 and except
as amended herein, the terms and provisions of said Plan shall remain in full
force and effect.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W2802.LW
Exhibit 10.8
AMENDMENT TO DIAMOND SHAMROCK, INC.
1987 LONG TERM INCENTIVE PLAN
Diamond Shamrock, Inc., a Delaware corporation, pursuant to
authority granted by its Board of Directors, hereby adopts the
following amendment to its Excess Benefits Plan (the "Plan").
1. New Section 11 is added as follows:
The Plan and any claims of all Participants, with the
sole exception of non-employee Directors, arising from
the Plan or in any way related to the Plan, are subject
to and governed by the Diamond Shamrock, Inc. Dialogue
Dispute Resolution Program ("Dialogue"). If a claim of
a Participant (other than a non-employee Director) has
been filed with the Committee, the Committee has
responded to the claim, and the claimant desires to
appeal the decision of the Committee, such appeal must be
conducted solely within the limitations and procedures of
Dialogue.
The foregoing amendment shall be effective as of May 7, 1996.
Except as amended herein and by that amendment dated June 2, 1987,
the terms and provisions of said Plan shall remain in full force
and effect.
Executed this 22nd day of July, 1996.
DIAMOND SHAMROCK, INC.
By: /s/ WILLIAM R. KLESSE
William R. Klesse
Executive Vice President
W3143.LW
DIAMOND SHAMROCK, INC.
LONG-TERM INCENTIVE PLAN
As Amended and Restated as of August 15, 1996
The purpose of this Diamond Shamrock, Inc. Long-Term Incentive Plan (the
"Plan") is to promote the long-term success of Diamond Shamrock, Inc. (the
"Company") by providing the directors, officers, and other salaried
employees of the Company, its subsidiaries, and its affiliates (the
"Participants") with incentives to create excellent performance and to
continue their association with the Company, its subsidiaries, and its
affiliates. In addition, the Plan operates to encourage Participants to
become stockholders of the Company and by providing actual share ownership
through Plan awards, it is also intended that Participants will view the
Company from a stockholder's perspective.
1. Aggregate Limitations on Shares Available Under the Plan. The total
number of shares of common stock, $.01 par value ("Common Shares"), of the
Company which are issued or transferred under the Plan shall not in the
aggregate exceed 3,500,000 Common Shares, subject to the adjustments
authorized by Section 5; provided, however, that the number of Common
Shares issued or transferred as restricted shares that become
nonforfeitable solely contingent upon the participant attaining a certain
length of service with the Company shall not in the aggregate exceed
314,000 Common Shares, subject to adjustment as provided in Section 5 of
this Plan. For the purposes of this Section 1:
(a) Upon payment in cash of the award provided by any SAR, Performance
Award, or Securities Award (as hereinafter defined) (together with an
Option, a "Right") granted under this Plan, any Common Shares that were
covered by that Right, shall again be available for issuance or transfer
hereunder.
(b) Upon the full or partial payment of the price of any Right by the
transfer to the Company of Common Shares or upon satisfaction of tax
withholding obligations in connection with any such exercise or any other
payment made or benefit realized under this Plan by the transfer or
relinquishment of Common Shares, there shall be deemed to have been issued
or transferred under this Plan only the net number of Common Shares
actually issued or transferred by the Company determined by subtracting the
number of Common Shares so transferred or relinquished.
If any Securities Awards (as hereinafter defined) are issued or
transferred that pertain to Company stock other than Common Shares, there
will be deemed to have been issued a number of Common Shares equal to the
number of shares of such other stock so issued or transferred.
In the event that such other stock is convertible into Common Shares,
there will be deemed to have been issued a number of Common Shares equal to
the number of Common Shares into which such other stock is convertible.
2. Administration. The Plan will be administered by the Compensation
Committee (or any successor committee) of the Company's Board of Directors
(the "Committee") consisting of not fewer than two directors each of whom
shall be a "non-employee director" within the meaning of Rule 16b-3 or any
successor rule promulgated pursuant to the Securities Exchange Act of 1934
(the "Exchange Act") and an "outside director" within the meaning of
section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") .
The Committee, subject to the Company's By-Laws, will from time to time
establish rules for the calling and conduct of its meetings and the taking
of action thereat or otherwise. In addition to the authority prescribed
elsewhere herein, the Committee will have the authority in its sole
discretion from time to time (i) subject to Section 3, to prescribe such
limitations, restrictions, conditions upon, provisions for vesting and
acceleration of, provisions prescribing the nature and amount of legal
consideration to be received upon the award or exercise of any Right and
all other terms and conditions of any award of any Right as the Committee
deems appropriate, provided that none of the foregoing conflicts with any
of the express terms of the Plan and that the foregoing are set forth in
the instrument granting any Right or in the regulations referred to
elsewhere in this Section 2, (ii) to interpret the Plan and to adopt, amend
and rescind rules and regulations for implementing and administering the
Plan, and (iii) to make all other determinations and take all other actions
that the Committee deems necessary or advisable for the implementation and
administration of the Plan. All such actions will be final, conclusive, and
binding. No member of the Committee will be liable for any grant or award
or action taken or decision made in good faith relating to the Plan or any
grant or award thereunder.
3. Rights. The Committee may from time to time, and upon such terms and
conditions as it determines in its discretion, authorize the granting of
Rights to officers (including officers who are directors) and other
salaried employees of the Company or any of its majority-owned subsidiaries
who, in the judgment of the Committee based upon information furnished to
it, individually or by classification are expected to contribute to the
Company's long term business and prospects. Such Rights may include, as the
Committee may determine in its discretion, any of the following Rights or
any combination thereof:
(a) options ("Options") to purchase Common Shares, which may be either
incentive stock Options intended to qualify for treatment under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO's") or
non-qualified Options which are not intended to so qualify;
(b) stock appreciation rights ("SARs") to receive in respect of Common
Shares subject to Options granted under the Plan:
(i) whole Common Shares having an aggregate Fair Market Value (as
hereinafter defined) equal to a percentage (up to 100%) of the aggregate
appreciation in value of the Common Shares in respect of which the SAR is
exercised, measured by the difference between the aggregate Option price
for such Common Shares and their aggregate Fair Market Value (as
hereinafter defined);
(ii) cash in an amount equivalent to that percentage appreciation
determined under clause (a); or
(iii) any combination of cash and whole Common Shares having a Fair
Market Value (as hereinafter defined), in the aggregate, equal to the
percentage appreciation determined under clause (a);
(c) rights ("Performance Awards") to receive, with respect to or
unrelated to Common Shares subject to Options or SARs granted under the
Plan, a predetermined amount, payable in cash or Common Shares, on such
terms and subject to such conditions including performance targets as may
be determined by the Committee, in its discretion. Performance Awards may
be payable over a specific period, and may be vested in whole or in part on
the date of award thereof, as determined from time to time by the Committee
in its discretion; and
(d) awards ("Securities Awards") of Common Shares, of other shares of
capital stock, or of other securities of the Company, which awards may be
absolute or contingent upon continuation of employment or achievement of
one or more performance targets, may provide for payment by the recipient
of cash or deferred consideration that is less than the Fair Market Value
of such securities or for no such consideration, and may provide for
repurchase of such securities by the Company in specific circumstances, all
on such terms and subject to such conditions as may be determined by the
Committee in its discretion. Securities Awards may be payable over a
specific period, and may be vested in whole or in part on the date of the
award thereof, as determined from time to time by the Committee in its
discretion.
Rights, when so determined by the Committee, will be subject to such
financial or non-financial performance or other criteria as may be adopted
from time-to-time by the Committee in its discretion. The performance
criteria ("Performance Criteria") applicable to any award to a Participant
who is, or is determined by the Committee, to be likely to become, a
"covered employee" within the meaning of Section 162(m) of the Code (or any
successor provision) shall be limited to growth, improvement or attainment
of certain levels of:
(i) return on capital, equity, or operating assets;
(ii) margins;
(iii) total stockholder return or market value relative to other
companies selected by the Committee;
(iv) operating profit or net income;
(v) sales, throughput, or product volumes; or
(vi) costs or expenses.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the
management performance objectives to be unsuitable, the Committee may
modify such Performance Criteria or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable; provided, however, that no such modification shall be made in
the case of any award to a Participant who is, or is determined by the
Committee to be likely to become, a covered employee if the effect would be
to cause the award to fail to qualify for the performance-based exception
to Section 162(m) of the Code (or any successor provision). In addition, at
the time the Right is awarded and performance goals established, the
Committee is authorized to determine the manner in which the Performance
Criteria will be calculated or measured to take into account certain
factors over which Participants have no or limited control including market
related changes in inventory value, changes in industry margins, changes in
accounting principles, and extraordinary charges to income.
Subject to adjustment as provided in Section 5 of this Plan, no
Participant shall be granted under this Plan in any fiscal year:
(i) Options and SARs, in the aggregate, for more than 200,000
Common Shares;
(ii) Performance Awards and Securities Awards, in the aggregate, for
more than 200,000 Common Shares; and
(iii) Performance Awards, in the aggregate, for more than $1,000,000.
Each of the foregoing Rights will contain and be subject to such other
terms and conditions as the Committee from time to time determines pursuant
to Sections 1 or 2 or otherwise. Payment for any Right may be made by the
delivery of cash, Common Shares, any combination thereof, or other
consideration, as determined from time to time by the Committee in its
discretion. Any grant may provide for deferred payment of the Option price
from the proceeds of sale through a broker of some or all of the Common
Shares to which the exercise relates. The Committee shall not, without the
further approval of the stockholders of the Company, authorize the
amendment of any outstanding Option to reduce the Option price or authorize
the amendment of any outstanding SAR to reduce the base price. Furthermore,
no Option or SAR shall be canceled and replaced with awards having a lower
Option price or base price without the further approval of the stockholders
of the Company. Further, the Committee may in its discretion prohibit a
terminated employee from exercising a previously granted Option or
otherwise receiving the benefit of any previously granted Right if such
terminated employee has an outstanding loan from the Company, any parent or
any majority-owned subsidiary or any predecessor of any such corporations.
Notwithstanding any of the foregoing, the Company retains the right to
convert any previously granted ISO's to non-qualified Options.
The Committee may provide for the grant, to any optionee except to a
non-employee director, of additional Options ("Reload Options") upon the
exercise of Options, including Reload Options, through the delivery of
Common Shares; provided, however, that (i) Reload Options may be granted
only with respect to the same number of Common Shares as were surrendered
to exercise the Options and (ii) the exercise price of the Reload Options
will be the Fair Market Value (as hereinafter defined).
4. Transferability. No Option or other derivative security (as that term
is used in Rule 16b-3 of the Exchange Act) granted under this Plan may be
transferred by a Participant except by will or the laws of descent and
distribution. Options and SARs granted under this Plan may not be
exercised during a Participant's lifetime except by the Participant or, in
the event of the Participant's legal incapacity, by his guardian or legal
representative, acting in a fiduciary capacity on behalf of the Participant
under state law and court supervision. Notwithstanding the foregoing, the
Committee, in its sole discretion, may provide for the transferability of
particular awards under this Plan so long as such provisions will not
disqualify the exemption of other awards under Rule 16b-3 of the Exchange
Act.
5. Exercise Price; Adjustments. The exercise price of any Option may not
be less than the fair market value of the Common Shares covered thereby as
determined by the Committee from time-to-time ("Fair Market Value") .
The Committee may, but will not be required to, make or provide for such
adjustments (eliminating fractions) in the originally specified price or in
the number or kind of Common Shares covered by outstanding Rights or in
other consideration which has been previously granted or is available for
issuance under the Plan (including shares of another issuer) as the
Committee may determine is equitably required to prevent dilution,
enlargement or any other change of or in the rights of recipients that
otherwise would result from any merger, spin-off or other distribution of
assets to shareholders, consolidation, reorganization, assumption, and
conversion of outstanding grants due to an acquisition, or other business
combination transaction, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise,
from the date that any Right is granted or awarded by the Committee.
Moreover, the Committee may on or after the date of grant provide in the
agreement evidencing any award under this Plan that the holder of the award
may elect to receive an equivalent award in respect of securities of the
surviving entity of any merger, consolidation or other transaction
or event having a similar effect, or the Committee may provide that the
holder will automatically be entitled to receive such an equivalent award.
The Committee may also make or provide for such adjustments in the maximum
number of Common Shares specified in Sections 1 and 3 of this Plan as the
Committee may in good faith determine to be appropriate in order to reflect
any transaction or event described in this Section 5.
6. Incentive Options. No ISO shall be granted after the ten (10) year
period following the adoption of the Plan and no ISO shall be exercisable
after the expiration of ten (10) years from the date of grant.
Notwithstanding the provisions of Section 1 to the contrary, any Common
Shares subject to an SAR which has been granted in tandem with an ISO will
not be available for issuance under the Plan upon exercise of such SAR.
Notwithstanding the provisions of Section 5 to the contrary, no adjustment
shall be made with respect to any Option intended to qualify as an ISO if
such an adjustment would prevent such Option from so qualifying.
7. Foreign Participants. Subject to the provisions of Section 12, the
Committee may, in order to fulfill the Plan purposes and without amending
the Plan, modify previously granted Rights to employees who are foreign
nationals or employed outside the United States to recognize differences in
local law, tax policy or custom.
8. Non-Employee Directors: Restricted Shares. Each non-employee director
will be granted Common Shares that are forfeitable and nontransferable
except as provided in this Section 8 ("Restricted Shares") in lieu of 100%
of his or her annual retainer on the terms and conditions set forth in this
Section 8.
Prior to August 15, 1996, a non-employee director elected to the Board
was awarded, on the day of election, Restricted Shares with respect to
one-third (1/3) of the amount of his annual retainer payable for the next
five years. In addition, a non-employee director could elect to receive
Restricted Shares in lieu of the remainder of his annual retainer. Any
amount not converted to Restricted Shares was payable in cash in the year
in which it was earned.
To coincide with the Company's desire to foster a greater ownership
interest by the non-employee directors of the Company, the Plan has been
amended and restated. The Plan currently provides that a non-employee
director will receive Restricted Shares in lieu of 100% of his annual
retainer payable for the five year period following election to the Board
of Directors.
Non-employee directors who were appointed to the Board on or before
August 6, 1996 will receive an additional grant of Restricted Shares
representing the amount of annual retainer for the period remaining in any
current Retainer Grant that the non-employee director elected to receive in
cash (as described below).
(a) Non-employee Directors Appointed On or Before August 6, 1996.
(i) Wraparound Grant. Non-employee directors serving on August 6,
1996 will receive an additional grant of Restricted Shares on September 1,
1996 in lieu of any amounts payable in cash that are attributable to the
period of time remaining in a non-employee director's Retainer Grant (as
defined below) (the "Wraparound Grant").
The total number of Restricted Shares included in each Wraparound Grant
will be equal to the amount of the non-employee director's remaining annual
retainer as provided in this Section 8(a), divided by the closing sale
price per share of the Common Shares as reported in the New York Stock
Exchange Composite Transactions Report (or any other consolidated
transactions reporting system which subsequently may replace such
Composite Transactions Report) for the New York Stock Exchange trading day
immediately preceding such Wraparound Grant, or if there are no sales on
such date, on the next preceding day on which there were sales, and rounded
up to the next whole Restricted Share.
(ii) Restrictions and Conditions on Wraparound Grant. The Restricted
Shares subject to a Wraparound Grant will become transferable and
nonforfeitable on a pro-rata basis on the first Tuesday in May (the
"Anniversary Date") during the remaining term of the Retainer Grants in a
manner similar to the non-employee director's outstanding Retainer Grant;
provided, however, the number of Restricted Shares that will become
transferable and nonforfeitable on the Anniversary Date which immediately
follows the date of grant will be determined in a manner reflecting service
from September 1, 1996 through May 6, 1997.
(b) Non-employee Directors Appointed After August 6, 1996. Non-employee
directors first elected to the Company's Board of Directors after August
6, 1996 will be granted Restricted Shares on the date of election to the
Board of Directors. The amount of the non-employee director's annual
retainer used to determine the amount of the Retainer Grant attributable to
the first partial year of service of any new non-employee director elected
to the Board of Directors in a month other than May will be pro-rated to
the Anniversary Date which follows election to the Board of Directors.
(c) Renewal Grants. Each non-employee director will be granted
additional Restricted Shares on the fifth Anniversary Date that follows the
initial date of grant of Restricted Shares pursuant to Section 8(b) of the
Plan or former Section 8(a) of the Plan, and on each succeeding fifth
Anniversary Date thereafter.
(d) Price and Number of Restricted Shares Awarded. Each non-employee
director will receive 100% of the value of his annual retainer to which he
would otherwise be entitled during the five (5) years following the date of
grant in the form of Restricted Shares (the "Retainer Grant") .
Retainer Grants will be made on the date of grant provided in Section
8(b) or Section 8(c), as the case may be. The total number of Restricted
Shares included in each such Retainer Grant will be equal to the amount of
the non-employee director's annual retainer as provided in Section 8(b) or
this Section 8(d) of the Plan, as the case may be, divided by the closing
sale price per share of the Common Shares as reported in the New York Stock
Exchange Composite Transactions Report (or any other consolidated
transactions reporting system which subsequently may replace such Composite
Transactions Report) for the New York Stock Exchange trading day
immediately preceding such Retainer Grant, or if there are no sales on
such date, on the next preceding day on which there were sales, and rounded
up to the next whole Restricted Share.
(e) Vesting of Restricted Shares.
(i) In General. Twenty percent (20%) of the Restricted Shares
subject to a Retainer Grant will become transferable and nonforfeitable one
year after the Anniversary Date on which the Retainer Grant was made. An
additional twenty percent (20%) will become transferable and nonforfeitable
two, three, four, and five years after the Anniversary Date on which the
Retainer Grant was made. The foregoing percentages will not apply,
however, to any non-employee director who is first elected to the
Company's Board of Directors after August 6, 1996 and in a month other
than May.
(ii) Non-employee Directors Appointed After August 6, 1996 and for
Less that a Complete First Year. The number of Restricted Shares awarded
to any non-employee director appointed after August 6, 1996 and in a month
other than May that becomes transferable and nonforfeitable on the
Anniversary Date which immediately follows the date of such election will
equal 20% of the total number of Restricted Shares that would have been
awarded to the director had he or she first become a non-employee director
as of the Anniversary Date immediately prior to election to the Board of
Directors (the "Full Term Share Amount") multiplied by a fraction, the
numerator of which is the amount of the annual retainer paid to such
non-employee director for service as a director for the period ending on
the Anniversary Date which immediately follows the date of election and the
denominator of which is the total annual retainer payable to such
non-employee director as if he or she had been a non-employee director as
of the Anniversary Date immediately prior to election to the Board of
Directors. An additional 20% of the Full Term Share Amount will become
transferable and nonforfeitable on the Anniversary Dates which are one,
two, three, and four years after the Anniversary Date which immediately
follows the date of election to the Board of Directors.
(f) Termination of Non-employee Director's Board Membership. If a
non-employee director's services as a board member are terminated for any
reason at any time before completion of the non-employee director's
annual term of service, the portion of the Restricted Shares that would
have become nonforfeitable and transferable at the end of such complete
annual term will become nonforfeitable and transferable pursuant to this
Section 8(f), and Section 8(e) shall not apply. The number of whole
Restricted Shares that will become transferable and nonforfeitable will be
determined by multiplying the number of Restricted Shares by a fraction,
the numerator of which will equal the number of complete three-month
periods during which at all times such non-employee director was serving
as a non-employee director within the twelve-month period in which the
non-employee director's service terminates (such twelve-month period to
commence on the first day of May and such three-month periods to commence
on August 1, November 1 and February 1) and the denominator of which is
four (4).
(g) Increase of Retainer Fees. Any increase in retainer fees paid to
non-employee directors by the Company occurring after September 1, 1996,
will be reflected in an additional wraparound grant for the period of time
remaining in each such non-employee director's outstanding Retainer Grant
made pursuant to this Section 8. The number of Restricted Shares to be
included in such grant and the vesting of such Restricted Shares shall be
determined in a manner consistent with the provisions of Section 8(a).
(h) Written Agreement. Each non-employee director will enter into an
agreement with the Company which will set forth the terms of the Wraparound
Grant and the Retainer Grant, in such form as the Committee determines is
consistent with the provisions of the Plan. In the event of any
inconsistency between the provisions of the Plan and any such agreement
entered into hereunder, the provisions of the Plan will govern.
9. Non-Employee Directors: Options.
(a) Grant of Options. Each non-employee director shall be granted, as
of the close of business on each Anniversary Date, an Option to purchase
1,500 Common Shares. Each such grant shall be evidenced by an agreement in
such form as attached to this Plan as Appendix A or such other form as the
Committee determines is consistent with the provisions of the Plan,
and shall be subject to the additional terms and conditions set forth in
this Section 9.
(b) Terms and Exercise of Options.
(i) Except as provided in subsection (iii) below, 100% of the
Option shall become exercisable three years from the date the Option is
granted.
(ii) An Option shall expire ten years from the date the Option is
granted and shall be subject to earlier termination as hereinafter
provided. Once an Option becomes exercisable, it may thereafter be
exercised, wholly or in part, at any time prior to its expiration or
termination. In the event of termination of service on the Company's Board
of Directors, other than as provided in subsection (iii) below, an
outstanding Option may be exercised only to the extent it was exercisable
on the date of such termination and shall expire three years after such
termination, or on its stated expiration date, whichever occurs first.
(iii) Upon the occurrence of any of the following events prior
to the expiration of an Option, the Option shall become immediately and
fully exercisable:
(1) death of the Director;
(2) disability of the Director;
(3) the Director ceases to be a director of the Company and is
eligible to participate in the Diamond Shamrock, Inc. Retirement Plan for
Directors; or
(4) change in control of the Company which will be deemed to have
occurred when a report is filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13 (d)(3) or Section 14 (d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of securities representing more than 25% of the combined voting
power of the then-outstanding voting securities of the Company.
(c) Exercise Price. The exercise price of any Option granted to a
Non-Employee Director shall be equal to the closing sale price per share of
the Common Shares as reported in the New York Stock Exchange Composite
Transactions Report (or any other consolidated transactions reporting
system which subsequently may replace such Composite Transactions Report)
for the New York Stock Exchange trading day immediately preceding such
grant, or if there are no sales on such date, on the next preceding day on
which there were sales.
(d) Payment. An Option may be exercised by a Non-Employee Director only
upon payment to the Company in full of the Option price of the Common
Shares to be delivered. Such payment shall be made in cash or in Common
Shares previously owned by the optionee for more than six months, or in a
combination of cash and such Common Shares.
10. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under
this Plan, and the amounts available to the Company for the withholding
are insufficient, it shall be a condition to the receipt of any such
payment or the realization of any such benefit that the Participant or such
other person make arrangements satisfactory to the Company for payment of
the balance of any taxes required to be withheld. At the discretion of
the Committee, any such arrangements may without limitation include
relinquishment of a portion of any such payment or benefit or the surrender
of outstanding Common Shares. The Company and any Participant or such other
person may also make similar arrangements with respect to the payment of
any taxes with respect to which withholding is not required.
11. Effective Date. The Plan is effective as of May 1, 1990; the
amendments to the Plan approved by the Company's Board of Directors on
August 6, 1996 will become effective on August 15, 1996. All awards made
prior to any amendment are subject to the terms of the Plan in effect
as of the date of the grant.
12. Amendment.
(a) This Plan may be amended from time-to-time by the Committee;
provided, however, except as expressly authorized by this Plan, no such
amendment shall increase the maximum number of Common Shares specified in
Sections 1 and 3 hereof, or otherwise cause this Plan to cease to satisfy
any applicable condition of Rule 16b-3 of the Exchange Act without the
further approval of the stockholders of the Company.
(b) Any Right that may be granted pursuant to an amendment to this
Plan that shall have been adopted without the approval of the stockholders
of the Company shall be null and void if it is subsequently determined that
such approval was required in order for this Plan to continue to satisfy the
applicable conditions of Rule 16b-3 of the Exchange Act or New York Stock
Exchange Rule 312.03.
13. Termination. If the Plan is terminated, the terms of the Plan will,
notwithstanding such termination, continue to apply to awards of Rights
made prior to termination, and no suspension, termination, modification or
amendment of the Plan or any Right may, without the consent of the
recipient to whom an award of Rights theretofore has been granted,
adversely affect the rights of such recipient under such award.
14. Governing Law. This Plan shall be governed by the laws of the State
of Delaware and applicable federal law.
15. Dialogue. This Plan and any claims of all Participants, with the sole
exception of non-employee Directors, arising from the Plan or in any way
related to the Plan, are subject to and governed by the Diamond Shamrock,
Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim of a
Participant (other than a non-employee Director) has been filed with the
Committee, the Committee has responded to the claim, and the claimant
desires to appeal the decision of the Committee, such appeal must be
conducted solely within the limitations and procedures of Dialogue.
16. Rule 16b-3. Effective August 15, 1996, this Plan is intended to
comply with and be subject to Rule 16b-3 of the Exchange Act as effective
on such date.
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APPENDIX "A" TO THE LONG-TERM INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
1. Grant: Diamond Shamrock, Inc. ("DS") hereby grants to
(the "Director") an option the "Option") to purchase at a price of $ per
share (the "Price") all or part of 1,500 shares ("Option Shares") of Common
Stock, $.01 par value, of DS ("Common Stock") pursuant to the
Diamond Shamrock, Inc. Long-Term Incentive Plan (the "Plan"). Capitalized
terms used in this agreement that are not otherwise defined herein will
have the meaning assigned to such terms in the Plan. Subject to the terms
hereof, the Option shall expire on the tenth anniversary of May (the "Grant
Date") and shall become exercisable to the extent of 100 percent of the
Option Shares covered thereby on the third anniversary of the Grant Date.
The Option will not be transferable other than by will or the applicable
laws of descent and distribution. The Option may not be exercised during
the Director's lifetime except by the Director or, in the event of the
Director's legal incapacity, by the Director's guardian or legal
representative, acting in a fiduciary capacity on behalf of the Director
under state law and court supervision.
2. Exercise of Option: Subject to the provisions of Paragraphs 1, 2, and 4
hereof, the Option may be exercised by the Director (or the Director's
executor or administrator) in whole or in part from time to time by written
notice to the Secretary of DS at DS's corporate headquarters. Upon
the full or partial exercise of the Option and the payment of the Price
therefor by the Director (which may be paid in cash, shares of Common Stock
previously owned by the Director for more than six months, or a combination
thereof), DS will deliver to the Director certificates representing the
Option Shares.
3. Effect of Termination of Employment: If the Director ceases to be a
director of either DS or any of its majority-owned subsidiaries at any time
during the duration of the Option, other than for one of the reasons
provided below, the Option may be exercised only to the extent it was
exercisable on the date of such termination and shall expire three years
after such termination, or on its stated expiration date, whichever occurs
first. Upon the occurrence of any of the following events prior to the
expiration of an Option, the Option shall become immediately and
fully exercisable: (a) death of the Director; (b) disability of the
Director; (c) Director ceases to be director of DS and is eligible to
participate in the Diamond Shamrock, Inc., Retirement Plan for Directors;
or (d) upon a Change in Control. A "Change in Control" will be deemed to
have occurred when a report is filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to
the Exchange Act, disclosing that any person (as the term "person" is used
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing more than 25% of the combined
voting power of the then-outstanding voting securities of DS.
Notwithstanding anything to the contrary contained in this Paragraph, in no
event will the Option be exercisable beyond ten years from the Grant Date.
4. Severability: Any provision of this agreement which is finally held to
be invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability without invalidating the remaining
provisions hereof, and this agreement shall be construed as if such
invalid or unenforceable provision had not been contained herein.
5. Incorporation by Reference: The Option is granted pursuant and subject
to the Plan; and the Plan, together with all resolutions, requirements or
guidelines previously or hereafter adopted by the Committee in accordance
with the Plan, are hereby incorporated herein by reference.
6. Amendments: Any amendment to the Plan shall be deemed to be an
amendment to this agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the
rights of the Director hereunder without the Director's consent.
7. Governing Law: This agreement is made under, and shall be construed in
accordance with, the internal substantive laws of the State of Delaware.
DATED as of May , .
Diamond Shamrock, Inc.
By:
Chairman and Chief Executive Officer
The undersigned hereby accepts the foregoing according to its terms.
Director
W2744.lwp
EXHIBIT 15.1
INDEPENDENT ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Diamond Shamrock, Inc. has included our report dated
November 13, 1996 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectuses constituting part of its
Registration Statements on Form S-3 (Nos. 33-67166, 33-59451, and
333-4157) filed on August 9, 1993, May 19, 1995, and May 20, 1996
respectively, and on Form S-8 (Nos. 33-15268, 33-34306, 33-47761, 33-50573,
33-59025 and 33-64645) filed on June 22, 1987, April 13, 1990, May 6, 1992,
October 6, 1993, May 2, 1995 and November 30, 1995, respectively. We are
also aware that Ultramar Corporation has included our report referred to
above in the Prospectus constituting part of its Registration Statement on
Form S-4 (No. 333-14807) filed on October 29, 1996. We are also aware of
our responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
November 13, 1996
W3198.TW
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