<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
ULTRAMAR CORPORATION
TWO PICKWICK PLAZA, GREENWICH, CONNECTICUT 06830
(203) 622-7000
(Exact name, address and telephone number of registrant)
<TABLE>
<S> <C> <C>
DELAWARE 2911, 5171, 5541 13-3663331
(State of incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification Number)
Classification Code
Numbers)
</TABLE>
--------------------
PATRICK J. GUARINO, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ULTRAMAR CORPORATION
TWO PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
(203) 622-7000
(Name, address and telephone number of agent for service)
--------------------
COPIES TO:
<TABLE>
<S> <C> <C>
WILLIAM P. ROGERS, JR., TIMOTHY J. FRETTHOLD, ROBERT A. PROFUSEK, ESQ.
ESQ. ESQ. JONES, DAY, REAVIS &
CRAVATH, SWAINE & MOORE DIAMOND SHAMROCK, INC. POGUE
WORLDWIDE PLAZA, 825 9830 COLONNADE BOULEVARD 599 LEXINGTON AVENUE
EIGHTH AVENUE SAN ANTONIO, TEXAS 78230 NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (210) 641-6800 (212) 326-3939
(212) 474-1000
</TABLE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
--------------------
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (1)(2) PRICE (1)(2)
<S> <C> <C> <C>
Common Stock (4).......................................... 34,341,006 Shares N.A. $1,012,133,818
5% Cumulative Convertible Preferred Stock................. 1,725,000 Shares $50.00 $86,250,000
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE (2)(3)
<S> <C>
Common Stock (4).......................................... $306,707.22
5% Cumulative Convertible Preferred Stock................. $26,136.36
</TABLE>
(1) This Registration Statement relates to securities issuable to holders of
Common Stock ("Diamond Shamrock Common Stock") and holders of 5% Cumulative
Convertible Preferred Stock ("Diamond Shamrock Convertible Preferred Stock")
in each case of Diamond Shamrock, Inc. ("Diamond Shamrock") in the proposed
merger (the "Merger") of Diamond Shamrock and Ultramar Corporation
("Ultramar"). The amount of Ultramar Common Stock to be registered has been
determined on the basis of the conversion ratio in the Merger (1.02 shares
of Ultramar Common Stock for each share of Diamond Shamrock Common Stock)
and the maximum aggregate number of shares of Diamond Shamrock Common Stock
(33,667,653 shares) to be converted in the Merger into shares of Ultramar
Common Stock, assuming solely for the purpose of calculating the
registration fee that (i) all currently outstanding Diamond Shamrock stock
options are exercised prior to the effective time of the Merger (the
"Effective Time") and (ii) all presently outstanding shares of Diamond
Shamrock Convertible Preferred Stock are converted into shares of Diamond
Shamrock Common Stock in accordance with their terms prior to the Effective
Time (the "Maximum Number of Diamond Shamrock Common Shares"). The amount of
5% Cumulative Convertible Preferred Stock of Ultramar ("Ultramar Convertible
Preferred Stock") to be registered has been determined on the basis of the
maximum aggregate number of shares of Diamond Shamrock Convertible Preferred
Stock (1,725,000 shares) to be converted in the Merger into shares of
Ultramar Convertible Preferred Stock on an equal share-for-share basis (the
"Maximum Number of Diamond Shamrock Preferred Shares").
(2) The registration fee was calculated pursuant to Rule 457(f) as the sum of
(i) one thirty-third of one percent of $30.0625 (the average of the high and
low prices of Diamond Shamrock Common Stock on the New York Stock Exchange,
Inc. Composite Transaction Tape on October 21, 1996) multiplied by the
Maximum Number of Diamond Shamrock Common Shares and (ii) one thirty-third
of one percent of $50 (the liquidation preference of the Diamond Shamrock
Convertible Preferred Stock computed as of the latest practicable date prior
to the date of filing) multiplied by the Maximum Number of Diamond Shamrock
Preferred Shares.
(3) Pursuant to Rule 457(b) $225,147.76 of the registration fee was paid on
October 1, 1996 in connection with the filing of preliminary joint proxy
material.
(4) Includes associated rights to purchase Ultramar Common Stock exercisable
only upon the occurrence of certain events.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ULTRAMAR LETTERHEAD]
November , 1996
Dear Stockholder,
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of Ultramar Corporation to be held at 9:00 a.m. local time, on
December 3, 1996, at the St. Regis Hotel, 2 East 55th Street, New York, New York
10022.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger dated as of September
22, 1996 (the "Merger Agreement") between Ultramar and Diamond Shamrock, Inc.,
pursuant to which, among other things, (i) Diamond Shamrock will be merged (the
"Merger") with and into Ultramar, (ii) each issued and outstanding share of
Diamond Shamrock Common Stock will be converted into the right to receive 1.02
shares of Ultramar Common Stock, (iii) each issued and outstanding share of 5%
Cumulative Convertible Preferred Stock of Diamond Shamrock will be converted
into the right to receive one share of a newly established series of 5%
Cumulative Convertible Preferred Stock of Ultramar, and (iv) Ultramar's
certificate of incorporation will be amended to increase the authorized number
of shares of Ultramar Common Stock from 100,000,000 to 250,000,000 and to change
Ultramar's name to "Ultramar Diamond Shamrock Corporation." You will also be
asked to consider and vote upon the approval of the Ultramar Diamond Shamrock
Corporation 1996 Long Term Incentive Plan (the "Incentive Plan"), which will
supersede Ultramar's existing long-term incentive plan.
The Merger, the Merger Agreement, the amendments to Ultramar's certificate
of incorporation and the other terms and conditions of the transaction as well
as the terms of the Incentive Plan are more fully described in the accompanying
Joint Proxy Statement/Prospectus. We urge you to read this material carefully.
The Board of Directors of Ultramar has unanimously determined that the
Merger and the transactions contemplated by the Merger Agreement (including the
issuance of Ultramar Common Stock and Ultramar Convertible Preferred Stock in
the Merger and the amendment of Ultramar's certificate of incorporation) are
fair to and in the best interests of the stockholders of Ultramar, and has
approved the Merger Agreement and recommends that Ultramar stockholders vote
"FOR" adoption of the Merger Agreement. In addition, on October 22, 1996, the
Board of Directors of Ultramar approved the Incentive Plan and recommends that
Ultramar's stockholders vote "FOR" approval of the Incentive Plan.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of Ultramar Common Stock
outstanding on October 29, 1996, the record date for the Special Meeting. The
approval of the Incentive Plan requires the affirmative vote of the holders of a
majority of the shares of Ultramar Common Stock present or represented at the
Special Meeting and entitled to vote. The approval of the Incentive Plan is not
a condition to the effectiveness of the Merger. The consummation of the Merger
is a condition to the effectiveness of the Incentive Plan.
It is important that your shares of Ultramar Common Stock are represented at
the Special Meeting, regardless of the number of shares you hold. Whether or not
you plan to attend the Special Meeting, please sign, date and return your proxy
card in the enclosed postage paid envelope as soon as possible. If you later
decide to attend the Special Meeting and vote in person, or if you wish to
revoke your proxy for any reason prior to the vote at the Special Meeting, you
may do so and your proxy will have no further effect. If you attend the Special
Meeting, you may vote in person, if you wish, even though you previously mailed
your proxy.
As fellow stockholders, we are excited about the opportunities created by
the Merger. We believe that Ultramar Diamond Shamrock Corporation will be a
larger, more diverse company with increased earnings and cash flow stability
that will be well-positioned to capitalized on strategic and other
opportunities. We therefore urge you to return your proxy card promptly.
Very truly yours,
Jean Gaulin
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
<PAGE>
ULTRAMAR CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 3, 1996
To the Stockholders of Ultramar Corporation:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Ultramar Corporation ("Ultramar") will be held at 9:00 a.m. local
time, on December 3, 1996, at the St. Regis Hotel, 2 East 55th Street, New York,
New York 10022, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger dated as of September 22, 1996 (the "Merger Agreement") between
Ultramar and Diamond Shamrock, Inc. ("Diamond Shamrock"), pursuant to
which, among other things, (i) Diamond Shamrock will be merged with and
into Ultramar, (ii) each issued and outstanding share of Diamond Shamrock
Common Stock (other than shares held by Ultramar, Diamond Shamrock or any
of their wholly owned subsidiaries) will be converted into the right to
receive 1.02 shares of Ultramar Common Stock, (iii) each issued and
outstanding share of 5% Cumulative Convertible Preferred Stock of Diamond
Shamrock (other than shares held by Ultramar, Diamond Shamrock or any of
their wholly owned subsidiaries) will be converted into the right to
receive one share of a newly established series of 5% Cumulative
Convertible Preferred Stock of Ultramar, and (iv) Ultramar's certificate
of incorporation will be amended to increase the authorized number of
shares of Ultramar Common Stock from 100,000,000 to 250,000,000 and to
change Ultramar's name to "Ultramar Diamond Shamrock Corporation."
2. To consider and vote upon a proposal to approve the Ultramar Diamond
Shamrock Corporation 1996 Long Term Incentive Plan (the "Incentive
Plan"), which will supersede Ultramar's existing long-term incentive
plan.
3. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The approval of the Incentive Plan is not a condition to the effectiveness
of the Merger. The consummation of the Merger is a condition to the
effectiveness of the Incentive Plan.
A list of stockholders entitled to vote at the Special Meeting will be
available for inspection during ordinary business hours for the ten days prior
to the Special Meeting of the offices of Cravath, Swaine & Moore located at 825
Eighth Avenue, New York, New York 10019-7475.
Information regarding the matters to be acted upon at the Special Meeting is
contained in the Joint Proxy Statement/Prospectus accompanying this notice. A
copy of the Merger Agreement is attached as Appendix A thereto. The Joint Proxy
Statement/Prospectus and the Appendices thereto form a part of this Notice.
The Board of Directors of Ultramar has fixed the close of business on
October 29, 1996 as the record date for determining the holders of Ultramar
Common Stock entitled to receive notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of Ultramar Common Stock
outstanding on October 29, 1996, the record date for the Special Meeting. The
approval of the Incentive Plan requires the affirmative vote of the holders of a
majority of the shares of Ultramar Common Stock present or represented at the
Special Meeting and entitled to vote.
It is important that your shares of Ultramar Common Stock are represented at
the Special Meeting, regardless of the number of shares you hold. Whether or not
you plan to attend the Special Meeting, please sign, date and return your proxy
card in the enclosed postage paid envelope as soon as possible. If you later
decide to attend the Special Meeting and vote in person, or if you wish to
revoke your proxy for any reason prior to the vote at the Special Meeting, you
may do so and your proxy will have no further effect. If you attend the Special
Meeting, you may vote in person, if you wish, even though you previously mailed
your proxy.
By Order of the Board of Directors,
Greenwich, Connecticut
November , 1996
Patrick J. Guarino
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<PAGE>
[DIAMOND SHAMROCK LETTERHEAD]
November , 1996
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of Diamond Shamrock, Inc. to be held at 9:00 a.m. local time, on
December 3, 1996, at the St. Regis Hotel, 2 East 55th Street, New York, New York
10022.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger dated as of September
22, 1996 between Diamond Shamrock, Inc. and Ultramar Corporation ("Ultramar")
pursuant to which, among other things, (i) Diamond Shamrock and Ultramar will
merge, (ii) each share of Diamond Shamrock Common Stock will be converted into
the right to receive 1.02 shares of Ultramar Common Stock, and (iii) each issued
and outstanding share of 5% Cumulative Convertible Preferred Stock of Diamond
Shamrock will be converted into the right to receive one share of a newly
established series of 5% Cumulative Convertible Preferred Stock of Ultramar.
While the merger has been structured as a merger of Diamond Shamrock into
Ultramar, the transaction in substance is a "merger of equals." As such,
following the merger, the combined company will operate under the name "Ultramar
Diamond Shamrock Corporation," the Board of Directors of the combined company
will consist of six persons from each of Ultramar's and Diamond Shamrock's
existing Board of Directors, the senior managements of the two companies will
combine to form the new management team of the combined company and the
headquarters of the combined company will be Diamond Shamrock's current
headquarters in San Antonio, Texas.
The merger, the Merger Agreement and the terms and conditions of the
transaction are more fully described in the accompanying Joint Proxy
Statement/Prospectus. We urge you to review this material carefully.
The Board of Directors of Diamond Shamrock (with eight directors present and
one director absent) has unanimously determined that the merger and the
transactions contemplated by the Merger Agreement are fair to and in the best
interests of the stockholders of Diamond Shamrock, and has approved the Merger
Agreement and recommends that Diamond Shamrock stockholders vote "FOR" adoption
of the Merger Agreement.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of Diamond Shamrock Common Stock
outstanding on October 29, 1996, the record date for the Special Meeting.
It is important that your shares of Diamond Shamrock Common Stock are
represented at the Special Meeting, regardless of the number of shares you hold.
Whether or not you plan to attend the Special Meeting, please sign, date and
return your proxy card in the enclosed postage paid envelope as soon as
possible. If you later decide to attend the Special Meeting and vote in person,
or if you wish to revoke your proxy for any reason prior to the vote at the
Special Meeting, you may do so and your proxy will have no further effect. If
you attend the Special Meeting, you may vote in person, if you wish, even though
you previously mailed your proxy.
As fellow stockholders, we are excited about the opportunities created by
the merger. We believe that Ultramar Diamond Shamrock Corporation will be a
larger, more diverse company with increased earnings and cash flow stability
that will be well-positioned to capitalized on strategic and other
opportunities. We therefore urge you to return your proxy card promptly.
Very truly yours,
R. R. Hemminghaus
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
<PAGE>
DIAMOND SHAMROCK, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 3, 1996
To the Stockholders of Diamond Shamrock, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Diamond Shamrock, Inc. ("Diamond Shamrock") will be held at 9:00
a.m. local time, on December 3, 1996, at the St. Regis Hotel, 2 East 55th
Street, New York, New York 10022, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger dated as of September 22, 1996 (the "Merger Agreement") between
Diamond Shamrock and Ultramar Corporation ("Ultramar"), pursuant to
which, among other things, (i) Diamond Shamrock and Ultramar will merge,
(ii) each issued and outstanding share of Diamond Shamrock Common Stock
(other than shares held by Ultramar, Diamond Shamrock or any of their
wholly owned subsidiaries) will be converted into the right to receive
1.02 shares of Ultramar Common Stock, and (iii) each issued and
outstanding share of 5% Cumulative Convertible Preferred Stock of Diamond
Shamrock (other than shares held by Ultramar, Diamond Shamrock or any of
their wholly owned subsidiaries) will be converted into the right to
receive one share of a newly established series of 5% Cumulative
Convertible Preferred Stock of Ultramar.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Information regarding the matters to be acted upon at the Special Meeting is
contained in the Joint Proxy Statement/Prospectus accompanying this notice. A
copy of the Merger Agreement is attached as Appendix A thereto. The Joint Proxy
Statement/Prospectus and the Appendices thereto form a part of this Notice.
The Board of Directors of Diamond Shamrock has fixed the close of business
on October 29, 1996 as the record date for determining the holders of Diamond
Shamrock Common Stock entitled to receive notice of, and to vote at, the Special
Meeting and any adjournments or postponements thereof.
Only the holders of record of the Diamond Shamrock Common Stock as of the
record date are entitled to vote at the Special Meeting or any adjournments or
postponements thereof. As a result, if you hold only shares of Diamond Shamrock
Convertible Preferred Stock, no proxy card will accompany the Joint Proxy
Statement/ Prospectus. Although holders of Diamond Shamrock Convertible
Preferred Stock are not entitled to vote at the Special Meeting, if the Merger
is effected, holders of Diamond Shamrock Convertible Preferred Stock will be
entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law, a copy of which is set forth in Appendix D to the Joint Proxy
Statement/Prospectus. The failure by a holder of Diamond Shamrock Convertible
Preferred Stock to follow the procedures specified will result in the loss of
appraisal rights.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of Diamond Shamrock Common Stock
outstanding on October 29, 1996, the record date for the Special Meeting.
It is important that your shares of Diamond Shamrock Common Stock are
represented at the Special Meeting, regardless of the number of shares you hold.
Whether or not you plan to attend the Special Meeting, please sign, date and
return your proxy card in the enclosed postage paid envelope as soon as
possible. If you later decide to attend the Special Meeting and vote in person,
or if you wish to revoke your proxy for any reason prior to the vote at the
Special Meeting, you may do so and your proxy will have no further effect. If
you attend the Special Meeting, you may vote in person, if you wish, even though
you previously mailed your proxy.
By Order of the Board of Directors,
Harold D. Mallory
SECRETARY
San Antonio, Texas
November , 1996
<PAGE>
JOINT PROXY STATEMENT OF
ULTRAMAR CORPORATION
AND
DIAMOND SHAMROCK, INC.
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON DECEMBER 3, 1996
----------------
PROSPECTUS OF
ULTRAMAR CORPORATION
This Joint Proxy Statement/Prospectus ("Proxy Statement") is being furnished
to (i) all holders of common stock, par value $.01 per share ("Ultramar Common
Stock"), of Ultramar Corporation, a Delaware corporation ("Ultramar"), and (ii)
all holders of common stock, par value $.01 per share ("Diamond Shamrock Common
Stock"), of Diamond Shamrock, Inc., a Delaware corporation ("Diamond Shamrock"),
in connection with the solicitation of proxies by the respective Boards of
Directors of the two companies (the "Companies") for use at the respective
Special Meetings of Stockholders of Ultramar (including any adjournments or
postponements thereof, the "Ultramar Special Meeting") and of Diamond Shamrock
(including any adjournments or postponements thereof, the "Diamond Shamrock
Special Meeting," and, together with the Ultramar Special Meeting, the "Special
Meetings"), each to be held on December 3, 1996.
This Proxy Statement relates to the Agreement and Plan of Merger dated as of
September 22, 1996 (the "Merger Agreement") between Ultramar and Diamond
Shamrock pursuant to which, among other things, (i) Diamond Shamrock will be
merged with and into Ultramar (the "Merger"), (ii) each issued and outstanding
share of Diamond Shamrock Common Stock (other than shares held by Ultramar,
Diamond Shamrock or any of their wholly owned subsidiaries) will be converted
into the right to receive 1.02 (the "Exchange Ratio") shares of Ultramar Common
Stock, (iii) each issued and outstanding share of 5% Cumulative Convertible
Preferred Stock of Diamond Shamrock ("Diamond Shamrock Convertible Preferred
Stock") (other than shares held by Ultramar, Diamond Shamrock or any of their
wholly owned subsidiaries) will be converted into the right to receive one share
of a newly established series of 5% Cumulative Convertible Preferred Stock of
Ultramar ("Ultramar Convertible Preferred Stock"), and (iv) Ultramar's
certificate of incorporation (the "Ultramar Charter") will be amended to
increase the authorized number of shares of Ultramar Common Stock from
100,000,000 to 250,000,000, to change Ultramar's name to "Ultramar Diamond
Shamrock Corporation" and to make a minor technical amendment. Cash will be paid
in lieu of any fractional shares of Ultramar Common Stock. A copy of the Merger
Agreement is attached hereto as Appendix A.
At the Ultramar Special Meeting, holders of Ultramar Common Stock are being
asked to adopt the Merger Agreement and to approve the Ultramar Diamond Shamrock
Corporation 1996 Long Term Incentive Plan (the "Incentive Plan") for the
surviving corporation in the Merger (the "Combined Company"). The adoption of
the Merger Agreement requires the affirmative vote (the "Ultramar Approval") of
the holders of record of a majority of the shares of Ultramar Common Stock
outstanding on October 29, 1996, the record date for the Special Meetings (the
"Record Date"). The approval of the Incentive Plan requires the affirmative vote
of the holders of a majority of the shares of Ultramar Common Stock present in
person or represented at the Ultramar Special Meeting and entitled to vote. The
approval of the Incentive Plan is not a condition to the effectiveness of the
Merger. The consummation of the Merger is a condition to the effectiveness of
the Incentive Plan.
At the Diamond Shamrock Special Meeting, holders of Diamond Shamrock Common
Stock are being asked to adopt the Merger Agreement. The adoption of the Merger
Agreement requires the affirmative vote (the "Diamond Shamrock Approval," and,
together with the Ultramar Approval, the "Stockholder Approvals") of the holders
of record of a majority of the shares of Diamond Shamrock Common Stock
outstanding on the Record Date.
This Proxy Statement also constitutes the Prospectus of Ultramar filed as
part of a Registration Statement on Form S-4 (the "Registration Statement") with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the registration
of up to 34,341,006 shares of Ultramar Common Stock issuable to holders of
Diamond Shamrock Common Stock in connection with the Merger and up to 1,725,000
shares of Ultramar Convertible Preferred Stock issuable to the holders of
Diamond Shamrock Convertible Preferred Stock in connection with the Merger.
Under the Delaware General Corporation Law (the "DGCL"), holders of Diamond
Shamrock Convertible Preferred Stock are not entitled to vote at the Diamond
Shamrock Special Meeting. Holders of Diamond Shamrock Convertible Preferred
Stock are being mailed this Proxy Statement (without a proxy card) because it
serves as a prospectus relating to the issuance of Ultramar Convertible
Preferred Stock to such holders in connection with the Merger and as notice of
the appraisal rights such holders will have if the Merger is consummated. See
"Other Terms of the Merger and the Merger Agreement -- Appraisal and Dissenters'
Rights."
The Ultramar Common Stock is listed for trading on the New York Stock
Exchange, Inc. (the "NYSE"). On October , 1996, the last trading day prior to
the date of this Proxy Statement, (i) the closing sale price of Ultramar Common
Stock as reported on the NYSE Composite Transaction Tape was $ per share and
(ii) the closing sale price of Diamond Shamrock Common Stock as reported on the
NYSE Composite Transaction Tape was $ per share. The Ultramar Convertible
Preferred Stock will not be listed on any securities exchange.
This Proxy Statement and the accompanying forms of proxy are first being
mailed to stockholders of Ultramar and Diamond Shamrock on or about November ,
1996.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement is October , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
Certain Filings and Other Information.................................................................... 1
Certain Forward-Looking Statements....................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
SUMMARY.................................................................................................... 3
The Companies............................................................................................ 3
The Special Meetings..................................................................................... 4
The Merger............................................................................................... 5
Selected Consolidated Historical Financial Data of Ultramar.............................................. 11
Selected Consolidated Historical Financial Data of Diamond Shamrock...................................... 12
Recent Developments...................................................................................... 13
Selected Pro Forma Financial Data of The Combined Company................................................ 14
Comparative Stock Prices................................................................................. 15
Comparative Per Share Data............................................................................... 16
THE COMPANIES.............................................................................................. 17
Ultramar................................................................................................. 17
Diamond Shamrock......................................................................................... 17
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANY.......................................................... 17
Management of the Combined Company....................................................................... 17
Executive Officers....................................................................................... 18
The Combined Company..................................................................................... 19
Dividend Policy.......................................................................................... 20
THE SPECIAL MEETINGS....................................................................................... 21
Date, Time and Place..................................................................................... 21
Matters to be Considered at the Special Meetings......................................................... 21
Record Date; Stock Entitled to Vote; Quorum.............................................................. 21
Votes Required........................................................................................... 22
Share Ownership of Management............................................................................ 22
Voting of Proxies........................................................................................ 22
Revocability of Proxies.................................................................................. 23
Solicitation of Proxies.................................................................................. 23
THE MERGER................................................................................................. 24
General.................................................................................................. 24
Structure of the Merger.................................................................................. 24
Merger Consideration..................................................................................... 24
Effective Time........................................................................................... 25
Background of the Merger................................................................................. 25
Reasons for the Merger; Recommendations of the Boards of Directors....................................... 28
Opinions of Financial Advisors........................................................................... 30
Certain Federal Income Tax Consequences.................................................................. 39
Anticipated Accounting Treatment......................................................................... 40
Interests of Certain Persons in the Merger............................................................... 40
Certain Executive Compensation and Other Employee-Related Matters in Connection with the Merger.......... 41
Indemnification.......................................................................................... 45
OTHER TERMS OF THE MERGER AND THE MERGER AGREEMENT......................................................... 45
General.................................................................................................. 45
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares......................... 45
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Conditions to the Consummation of the Merger............................................................. 46
Termination.............................................................................................. 48
Termination Fees......................................................................................... 48
No Solicitation.......................................................................................... 49
Conduct of Business Pending Merger....................................................................... 49
Amendment and Waiver..................................................................................... 51
Expenses................................................................................................. 51
Representations and Warranties........................................................................... 51
Reciprocal Stock Option Agreements....................................................................... 52
Stock Exchange Listing................................................................................... 53
Dividend Coordination.................................................................................... 53
Required Regulatory Approvals............................................................................ 53
Amendments to Rights Agreements.......................................................................... 54
Resale of Ultramar Common Stock and Ultramar Convertible Preferred Stock................................. 54
Appraisal and Dissenters' Rights......................................................................... 54
Amendments to Ultramar Charter........................................................................... 56
Amendment to Ultramar By-laws............................................................................ 58
PRO FORMA CONDENSED FINANCIAL INFORMATION OF THE COMBINED COMPANY.......................................... 58
Pro Forma Condensed Balance Sheet -- June 30, 1996....................................................... 59
Pro Forma Condensed Statement of Income -- Six Months Ended June 30, 1996................................ 60
Pro Forma Condensed Statement of Income -- Six Months Ended June 30, 1995................................ 61
Pro Forma Condensed Statement of Income -- Year Ended December 31, 1995.................................. 62
Pro Forma Condensed Statement of Income -- Year Ended December 31, 1994.................................. 63
Pro Forma Condensed Statement of Income -- Year Ended December 31, 1993.................................. 64
Notes to Pro Forma Condensed Financial Information....................................................... 65
APPROVAL OF THE INCENTIVE PLAN............................................................................. 66
Introduction............................................................................................. 66
Vote Required............................................................................................ 66
Purpose.................................................................................................. 66
Eligibility.............................................................................................. 66
Shares Reserved.......................................................................................... 66
Types of Awards.......................................................................................... 66
Terms and Conditions of Stock Options.................................................................... 66
Terms and Conditions of Stock Appreciation Rights........................................................ 67
Terms and Conditions of Restricted Shares................................................................ 67
Performance Criteria..................................................................................... 68
Effective Date........................................................................................... 68
Amendment and Termination................................................................................ 68
New Plan Benefits........................................................................................ 68
Tax Treatment............................................................................................ 68
BOARDS OF DIRECTORS........................................................................................ 70
The Combined Company..................................................................................... 70
Ultramar................................................................................................. 70
Diamond Shamrock......................................................................................... 71
EXECUTIVE COMPENSATION..................................................................................... 73
BENEFICIAL OWNERSHIP OF SECURITIES......................................................................... 92
DESCRIPTION OF CAPITAL STOCK............................................................................... 97
Description of Ultramar Common Stock..................................................................... 97
Description of Ultramar Convertible Preferred Stock...................................................... 97
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 102
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Charter Provisions....................................................................................... 102
Special Meetings of Stockholders; Stockholder Action by Written Consent.................................. 104
Notice of Stockholder Nominations of Directors........................................................... 104
Stockholder Proposal Procedures.......................................................................... 105
Rights Plans............................................................................................. 105
EXPERTS.................................................................................................... 109
LEGAL MATTERS.............................................................................................. 109
STOCKHOLDER PROPOSALS...................................................................................... 110
APPENDICES
Agreement and Plan of Merger............................................................................. A-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................ B-1
Opinion of Wasserstein Perella & Co., Inc................................................................ C-1
Section 262 of the Delaware General Corporation Law...................................................... D-1
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ULTRAMAR OR DIAMOND SHAMROCK. THIS PROXY STATEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION OR TO ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ULTRAMAR OR DIAMOND SHAMROCK SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
CERTAIN FILINGS AND OTHER INFORMATION
Ultramar and Diamond Shamrock are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Commission. Ultramar has filed with the Commission the
Registration Statement under the Securities Act with respect to the Ultramar
Common Stock and Ultramar Convertible Preferred Stock to be issued to holders of
Diamond Shamrock Common Stock and Diamond Shamrock Convertible Preferred Stock,
respectively, in connection with the Merger. The Registration Statement and the
exhibits thereto, as well as the reports, proxy statements and other information
filed by Ultramar and Diamond Shamrock with the Commission, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Suite 1300, Seven World Trade Center, New
York, New York 10048, and at The Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy and information statements and other information may be found on
the Commission's Web site address, http: / / www.sec.gov. In addition, certain
securities of Ultramar and Diamond Shamrock are listed on the NYSE, and material
filed by Ultramar and Diamond Shamrock may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005. This Proxy Statement does not
contain all the information set forth in the Registration Statement and the
exhibits thereto, a portion of which has been omitted in accordance with the
rules and regulations of the Commission. Reference is made to the Registration
Statement and the exhibits thereto for further information.
Statements contained in this Proxy Statement, or in any document
incorporated in this Proxy Statement by reference, as to the provisions of any
contract or other document referred to herein or therein are qualified in all
respects by reference to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document incorporated herein
by reference.
CERTAIN FORWARD-LOOKING STATEMENTS
This Proxy Statement (including the documents incorporated by reference
herein) contains certain forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995) and information relating
to Ultramar, Diamond Shamrock and the Combined Company that are based on the
beliefs of the managements of Ultramar or Diamond Shamrock, as applicable, as
well as assumptions made by and information currently available to the
managements of Ultramar or Diamond Shamrock, as applicable. When used in this
Proxy Statement, the words "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to Ultramar, Diamond Shamrock,
the Combined Company or the managements of any of them, identify forward-looking
statements. Such statements reflect the current views of Ultramar or Diamond
Shamrock, as applicable, with respect to future events and are subject to
certain risks, uncertainties and assumptions relating to the operations and
results of operations of the Combined Company following the Merger, including as
a result of
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competitive factors and pricing pressures, shifts in market demand and general
economic conditions, and assumed cost savings and other synergistic benefits of
the Merger and other factors. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Ultramar (File No.
1-11154) and Diamond Shamrock (File No. 1-9409) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement:
1. Ultramar's Annual Report on Form 10-K for the year ended December 31,
1995;
2. Ultramar's Quarterly Reports on Form 10-Q for the quarter ended March
31, 1996 and Forms 10-Q and 10-Q/A for the quarter ended June 30, 1996;
3. Ultramar's Current Report on Form 8-K, dated September 25, 1996;
4. Diamond Shamrock's Annual Report on Form 10-K/A for the year ended
December 31, 1995;
5. Diamond Shamrock's Quarterly Reports on Form 10-Q/A for the quarter
ended March 31, 1996 and Form 10-Q for the quarter and six months ended
June 30, 1996; and
6. Diamond Shamrock's Current Reports on Form 8-K (or Form 8-K/A), dated
December 28, 1995, February 14, 1996, June 20, 1996, September 26, 1996,
and October 10, 1996.
All documents and reports filed by either Ultramar or Diamond Shamrock
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement and prior to the date of its respective Special Meeting
will be deemed to be incorporated by reference in this Proxy Statement and to be
a part hereof from the dates of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein will be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Copies of such documents (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information incorporated herein) are available, without
charge, to any person, including any beneficial owner of capital stock of
Ultramar or Diamond Shamrock, to whom this Proxy Statement is delivered, on
written or oral request, in the case of documents relating to Ultramar, to
Ultramar Corporation, Two Pickwick Plaza, Greenwich, Connecticut 06830
(telephone number (203) 622-7000, Attention: Investor Relations) or, in the case
of documents relating to Diamond Shamrock, to Diamond Shamrock, Inc., 9830
Colonnade Boulevard, San Antonio, Texas 78230 (telephone number (210) 641-6800,
Attention: Secretary). In order to ensure delivery of the documents prior to the
applicable Special Meeting, requests should be received by November 15, 1996.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND THE
APPENDICES HERETO. STOCKHOLDERS ARE URGED TO READ THIS PROXY STATEMENT AND THE
APPENDICES HERETO IN THEIR ENTIRETY.
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THE COMPANIES
Ultramar........................ Ultramar is a leading independent refiner and marketer of
petroleum products in California and eastern Canada. In
1995, Ultramar sold over 278,000 barrels per day ("BPD")
of petroleum products and had total revenues of $2.7
billion. Ultramar is the second largest independent
refining and marketing company in California in terms of
sales volume. Ultramar owns and operates a 100,000 BPD
refinery in Los Angeles County, California, and retails
petroleum products through a network of approximately 360
outlets located primarily in central and northern
California. Ultramar is also one of the largest
independent petroleum refining and marketing companies in
eastern Canada based on sales volume. Ultramar owns and
operates a 150,000 BPD refinery in St. Romuald, Quebec,
and markets petroleum products through approximately 1,340
retail outlets and approximately 80 cardlocks. Ultramar is
also among the largest retail home heating oil companies
in North America based on sales volume, selling heating
oil to over 180,000 eastern Canadian and New England
households. Ultramar's principal executive offices are
located at Two Pickwick Plaza, Greenwich, Connecticut
06830, and its telephone number is (203) 622-7000. See
"The Companies -- Ultramar."
Diamond Shamrock................ Diamond Shamrock is the leading independent refiner and
marketer of petroleum products in the southwestern United
States and the largest convenience store operator and
retail marketer of gasoline in Texas. In 1995, Diamond
Shamrock sold over 238,000 BPD of petroleum products and
had total revenues of $3.7 billion. As of September 30,
1996, company-operated retail outlets were located in
Texas (1,248), Colorado (127), New Mexico (44), Louisiana
(35) and Arizona (12). Also, as of that date, 137
independent jobbers supplied 1,161 "Diamond Shamrock"
branded retail outlets located in eight states, and
Diamond Shamrock had an interest in a joint venture which
had 10 franchise operations of its "Corner Store"
convenience stores in Mexico. Diamond Shamrock owns and
operates a 140,000 BPD refinery near Amarillo, Texas and
an 85,000 BPD refinery near San Antonio, Texas. In
addition, Diamond Shamrock processes petrochemicals and is
engaged in the marketing, distribution and storage of
natural gas liquids. Diamond Shamrock's principal
executive offices are located at 9830 Colonnade Boulevard,
San Antonio, Texas 78230, and its telephone number is
(210) 641-6800. See "The Companies -- Diamond Shamrock."
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THE SPECIAL MEETINGS
Date, Time and Place............ The Ultramar Special Meeting will be held at the St. Regis
Hotel, 2 East 55th Street, New York, New York 10022 at
9:00 a.m., local time, on December 3, 1996. The Diamond
Shamrock Special Meeting will be held at the St. Regis
Hotel, 2 East 55th Street, New York, New York 10022 at
9:00 a.m., local time, on December 3, 1996.
Matters to be Considered at the
Special Meetings............... At the Ultramar Special Meeting, holders of Ultramar
Common Stock are being asked to adopt the Merger Agreement
and to approve the Incentive Plan. See "The Merger,"
"Other Terms of the Merger and the Merger Agreement" and
"The Special Meetings -- Matters to be Considered at the
Special Meetings."
At the Diamond Shamrock Special Meeting, holders of
Diamond Shamrock Common Stock are being asked to adopt the
Merger Agreement. See "The Merger," "Other Terms of the
Merger and the Merger Agreement" and "The Special Meetings
-- Matters to be Considered at the Special Meetings."
Record Date..................... Only holders of record of Ultramar Common Stock and
Diamond Shamrock Common Stock at the close of business on
October 29, 1996 (the "Record Date") are entitled to
receive notice of and to vote at the Ultramar Special
Meeting or the Diamond Shamrock Special Meeting,
respectively. See "The Special Meetings -- Record Date;
Stock Entitled to Vote; Quorum."
Votes Required.................. The adoption of the Merger Agreement requires the
affirmative vote of the holders of record of a majority of
the shares of Ultramar Common Stock outstanding on the
Record Date. The approval of the Incentive Plan requires
the affirmative vote of the holders of a majority of the
shares of Ultramar Common Stock present in person or
represented at the Ultramar Special Meeting and entitled
to vote. The approval of the Incentive Plan is not a
condition to the effectiveness of the Merger. The
consummation of the Merger is a condition to the
effectiveness of the Incentive Plan. See "The Special
Meetings -- Votes Required."
The adoption of the Merger Agreement requires the
affirmative vote of the holders of record of a majority of
the shares of Diamond Shamrock Common Stock outstanding on
the Record Date. See "The Special Meetings -- Votes
Required." The adoption of the Merger Agreement does not
require the approval of the holders of Diamond Shamrock
Convertible Preferred Stock.
Holders of Ultramar Common Stock or Diamond Shamrock
Common Stock, as the case may be, as of the Record Date
are entitled to one vote per share on each matter to be
voted on at the applicable Special Meeting.
Security Ownership of Management
and Others..................... At the close of business on October 15, 1996, directors
and executive officers of Ultramar and their affiliates
beneficially
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owned 615,887 shares of Ultramar Common Stock, which
represented approximately 1.4% of the shares of Ultramar
Common Stock outstanding on such date, and were entitled
to vote 123,391 shares of Ultramar Common Stock, which
represented approximately 0.3% of the shares of Ultramar
Common Stock outstanding on such date. At the close of
business on October 15, 1996, directors and executive
officers of Diamond Shamrock and their affiliates
beneficially owned 578,863 shares of Diamond Shamrock
Common Stock, which represented approximately 2.0% of the
shares of Diamond Shamrock Common Stock outstanding on
such date, and were entitled to vote 340,514 shares of
Diamond Shamrock Common Stock, which represented
approximately 1.2% of the shares of Diamond Shamrock
Common Stock outstanding on such date. Each such director
and executive officer has indicated his or her present
intention to vote, or cause to be voted, the Ultramar
Common Stock or Diamond Shamrock Common Stock, as the case
may be, owned by him or her for adoption of the Merger
Agreement and, in the case of such holders of Ultramar
Common Stock, for approval of the Incentive Plan. See "The
Special Meetings -- Share Ownership of Management." No
Ultramar or Diamond Shamrock director or executive officer
owns any shares of Diamond Shamrock Convertible Preferred
Stock.
THE MERGER
The Merger...................... At the effective time of the Merger (the "Effective
Time"), Diamond Shamrock will merge with and into
Ultramar, with Ultramar as the surviving corporation in
the Merger. As of the Effective Time, the Ultramar Charter
will be amended to, among other things, change the name of
the Combined Company to "Ultramar Diamond Shamrock
Corporation."
The Merger will become effective at such time as the
Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such subsequent date or time as
Ultramar and Diamond Shamrock agree and specify in the
Certificate of Merger. The filing of the Certificate of
Merger will occur as soon as practicable but no later than
the second business day after satisfaction or waiver of
the conditions to the consummation of the Merger set forth
in the Merger Agreement unless another date is agreed to
in writing by Diamond Shamrock and Ultramar (the "Closing
Date").
Conversion of Shares............ At the Effective Time, (i) each outstanding share of
Diamond Shamrock Common Stock (other than shares owned by
Ultramar, Diamond Shamrock or any of their wholly owned
subsidiaries) will be converted into the right to receive
1.02 fully paid and nonassessable shares of Ultramar
Common Stock, except that cash will be paid in lieu of
fractional shares of Ultramar Common Stock, and (ii) each
outstanding share of Diamond Shamrock Convertible
Preferred Stock (other than shares owned by Ultramar,
Diamond Shamrock or any of their wholly owned
subsidiaries) will be converted into the right to receive
one fully paid and nonassessable share of Ultramar
Convertible Preferred
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Stock. The Ultramar Convertible Preferred Stock will have
terms substantially identical to the Diamond Shamrock
Convertible Preferred Stock except that as a result of the
Merger the issuer thereof will be Ultramar and, in
accordance with the terms of the Diamond Shamrock
Convertible Preferred Stock, the Ultramar Convertible
Preferred Stock will be convertible as of the Effective
Time at the conversion price necessary to make each share
of Ultramar Convertible Preferred Stock convertible into
the number of shares of Ultramar Common Stock receivable
upon the Merger by a holder of the number of shares of
Diamond Shamrock Common Stock into which one share of
Diamond Shamrock Convertible Preferred Stock might have
been converted immediately prior to the Merger. See "The
Merger -- Merger Consideration" and "Other Terms of the
Merger and the Merger Agreement -- Conversion of Shares;
Procedures for Exchange of Certificates; Fractional
Shares."
Recommendations of the Boards of
Directors...................... The Board of Directors of Ultramar (the "Ultramar Board")
has unanimously determined that the Merger and the
transactions contemplated by the Merger Agreement
(including the issuance of Ultramar Common Stock and
Ultramar Convertible Preferred Stock in the Merger and the
amendment of the Ultramar Charter described herein) are
fair to and in the best interests of the stockholders of
Ultramar, and has approved the Merger Agreement and
recommends that Ultramar stockholders vote "FOR" adoption
of the Merger Agreement. In addition, on October 22, 1996,
the Ultramar Board approved the Incentive Plan and
recommends that Ultramar's stockholders vote "FOR"
approval of the Incentive Plan.
The Board of Directors of Diamond Shamrock (the "Diamond
Shamrock Board") (with eight directors present and one
director absent) has unanimously determined that the
Merger and the transactions contemplated by the Merger
Agreement are fair to and in the best interests of the
stockholders of Diamond Shamrock, and has approved the
Merger Agreement and recommends that Diamond Shamrock
stockholders vote "FOR" adoption of the Merger Agreement.
See "The Merger -- Reasons for the Merger; Recommendations
of the Boards of Directors."
Opinions of Financial
Advisors....................... On September 22, 1996, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") rendered its written
opinion to the Ultramar Board that, as of such date, the
Exchange Ratio was fair from a financial point of view to
Ultramar and, accordingly, to the holders of Ultramar
Common Stock. Merrill Lynch subsequently delivered its
written opinion dated the date of this Proxy Statement
(the "Merrill Lynch Opinion") that, as of such date, the
Exchange Ratio was fair from a financial point of view to
Ultramar and, accordingly, to the holders of Ultramar
Common Stock. A copy of the Merrill Lynch Opinion, which
sets forth the assumptions and qualifications made,
matters considered and limitations on the review by
Merrill Lynch in rendering its opinion,
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is attached as Appendix B to this Proxy Statement, is
incorporated herein by reference and should be read
carefully in its entirety. Ultramar has agreed to pay fees
to Merrill Lynch for its services in connection with the
Merger, a substantial portion of which are contingent upon
consummation of the Merger. See "The Merger -- Opinions of
Financial Advisors."
Wasserstein Perella & Co., Inc. ("Wasserstein Perella")
has rendered its written opinions to the Diamond Shamrock
Board that, as of September 22, 1996 and as of the date of
this Proxy Statement, the Exchange Ratio was fair from a
financial point of view to the holders of Diamond Shamrock
Common Stock. A copy of the full text of the written
opinion of Wasserstein Perella dated as of the date of
this Proxy Statement, which sets forth a description of
the assumptions and qualifications made, matters
considered and limitations on the review undertaken by
Wasserstein Perella, is attached as Appendix C to this
Proxy Statement, is incorporated herein by reference and
should be read carefully in its entirety. Diamond Shamrock
has agreed to pay fees to Wasserstein Perella for its
services in connection with the Merger, substantially all
of which are contingent upon consummation of the Merger.
See "The Merger -- Opinions of Financial Advisors."
Certain Federal Income Tax
Consequences................... The Merger is intended to be a tax-free reorganization as
a result of which no gain or loss will be recognized by
Ultramar or Diamond Shamrock and no gain or loss will be
recognized by Diamond Shamrock stockholders, except in
respect of cash received by holders of Diamond Shamrock
Common Stock in lieu of fractional shares of Ultramar
Common Stock. It is a condition to the consummation of the
Merger that Ultramar and Diamond Shamrock receive an
opinion of their respective counsel to the effect that,
among other things, the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the
"Code"). See "The Merger -- Certain Federal Income Tax
Consequences" and "Other Terms of the Merger and the
Merger Agreement -- Conditions to the Consummation of the
Merger."
Anticipated Accounting
Treatment...................... The Merger is expected to be accounted for as a "pooling
of interests" in accordance with generally accepted
accounting principles. It is a condition to the
consummation of the Merger that Ultramar and Diamond
Shamrock receive letters from their respective independent
accountants, Ernst & Young LLP and Price Waterhouse LLP,
to the effect that the Merger will qualify for "pooling of
interests" accounting treatment. See "The Merger --
Anticipated Accounting Treatment."
Dividend Policy................. It is anticipated that the Combined Company will continue
Ultramar's existing dividend policy of paying quarterly
dividends in the amount of $.275 per share of Ultramar
Common Stock. After the consummation of the Merger, the
payment of dividends will be in the discretion of the
Board of Directors of the Combined Company and will be
subject to customary limitations thereon.
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Prior to the Merger, a significant portion of the cash
dividends paid by Ultramar to holders of Ultramar Common
Stock were treated as a return of capital for federal
income tax purposes because Ultramar's earnings and
profits were less than such dividends. Future
distributions by the Combined Company of cash or property
(other than stock or rights to acquire stock of the
Combined Company) made with respect to the stock of the
Combined Company will constitute dividends, taxable to
recipients at ordinary income rates, to the extent such
distributions do not exceed the current or accumulated
earnings and profits of the Combined Company. The Combined
Company will succeed in the Merger to the earnings and
profits of both Ultramar and Diamond Shamrock and it is
therefore expected that the Combined Company will have
sufficient earnings and profits to cause future
distributions with respect to the Combined Company's stock
to be treated as ordinary income dividends.
Interests of Certain Persons in
the Merger..................... Certain directors and executive officers of each of
Ultramar and Diamond Shamrock have interests in the Merger
that are different from, or in addition to, the interests
of stockholders of Ultramar or Diamond Shamrock, as
applicable, generally. Such interests relate to or arise
from, among other things, the terms of the Merger
Agreement providing for (i) the Board of Directors of the
Combined Company to consist of six members from the Board
of Directors of each of the Companies, (ii) the division
of senior management positions of the Combined Company
among the existing senior management of each of the
Companies, (iii) certain employment agreements for
executive officers of each of the Companies and provisions
for the treatment of certain employee benefits for which
executive officers of Diamond Shamrock are eligible, (iv)
the conversion of employee stock options and other rights
granted to employees of Diamond Shamrock, including
executive officers, and the fact that, under the terms
thereof, existing stock options, restricted stock and
other rights held by executive officers and directors of
Ultramar become fully vested by reason of the adoption of
the Merger Agreement by Ultramar stockholders, and (v) the
indemnification of existing directors and officers of
Ultramar and Diamond Shamrock. See "The Merger --
Interests of Certain Persons in the Merger," "-- Certain
Executive Compensation and Other Employee-Related Matters
in Connection with the Merger" and "Management and
Operations of the Combined Company."
Conditions to the Merger........ The obligations of Ultramar and Diamond Shamrock to
consummate the Merger are subject to various conditions,
including obtaining the requisite Stockholder Approvals;
obtaining requisite regulatory approvals from certain
governmental authorities; the absence of legal restraints
or prohibitions preventing the consummation of the Merger;
the absence of certain material litigation; the absence of
material adverse changes with respect to the other party;
the effectiveness of the Registration Statement of which
this Proxy Statement is a part; approval for listing on
the NYSE of the shares of Ultramar
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Common Stock to be issued pursuant to the Merger; the
representations and warranties of the other party
contained in the Merger Agreement being materially true;
the performance of the other party of all material
obligations contained in the Merger Agreement; the receipt
of opinions of counsel in respect of certain federal
income tax consequences of the Merger; and the receipt of
accountants' letters to the effect that the Merger
qualifies for "pooling of interests" accounting treatment.
See "Other Terms of the Merger and the Merger Agreement --
Conditions to the Consummation of the Merger" and "--
Required Regulatory Approvals."
Termination of the Merger
Agreement...................... Subject to certain limitations, the Merger Agreement is
subject to termination at the option of either Ultramar or
Diamond Shamrock if the Merger is not consummated on or
before February 28, 1997, and prior to such time upon the
occurrence of certain events. The Merger Agreement may
also be terminated by the mutual written consent of
Ultramar and Diamond Shamrock. Under certain
circumstances, Ultramar or Diamond Shamrock may be
required to pay to the other a fee in the amount of $45
million (the "Termination Fee") upon the termination of
the Merger Agreement. See "Other Terms of the Merger and
the Merger Agreement -- Termination" and "-- Termination
Fees." In certain cases, a party's expenses, not to exceed
$5 million, are reimbursable upon termination. See "Other
Terms of the Merger and the Merger Agreement -- Expenses."
Reciprocal Stock Option
Agreements..................... Immediately following the execution and delivery of the
Merger Agreement, Ultramar and Diamond Shamrock entered
into (i) a stock option agreement (the "Ultramar Stock
Option Agreement") pursuant to which Ultramar granted
Diamond Shamrock an option to purchase up to 8,927,500
shares of Ultramar Common Stock (or such greater number of
shares of Ultramar Common Stock as shall represent 19.9%
of the then outstanding Ultramar Common Stock) at a price
per share of $27.20 and (ii) a stock option agreement (the
"Diamond Shamrock Stock Option Agreement", and, together
with the Ultramar Stock Option Agreement, the "Stock
Option Agreements") pursuant to which Diamond Shamrock
granted Ultramar an option to purchase up to 5,858,500
shares of Diamond Shamrock Common Stock (or such greater
number of shares of Diamond Shamrock Common Stock as shall
represent 19.9% of the then outstanding Diamond Shamrock
Common Stock) at a price per share of $27.55. The options
are exercisable in whole but not in part and only after
the occurrence of an event as a result of which the party
desiring to exercise the option is entitled to receive the
Termination Fee. The number of shares issuable upon
exercise of each option is subject to a cap, the effect of
which is to limit the value of each option to no more than
$60.0 million. See "Other Terms of the Merger and the
Merger Agreement -- Termination Fees" and "-- Reciprocal
Stock Option Agreements."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Appraisal and Dissenters'
Rights......................... Under the DGCL, neither the holders of Ultramar Common
Stock nor of Diamond Shamrock Common Stock are entitled to
appraisal rights in connection with the adoption of the
Merger Agreement and the transactions contemplated
thereby. See "Other Terms of the Merger and the Merger
Agreement -- Appraisal and Dissenters' Rights."
Holders of Diamond Shamrock Convertible Preferred Stock
may demand an appraisal by the Delaware Court of Chancery
of the "fair value" of their Diamond Shamrock Convertible
Preferred Stock in lieu of accepting Ultramar Convertible
Preferred Stock. A holder of Diamond Shamrock Convertible
Preferred Stock electing to demand such an appraisal must
deliver to Diamond Shamrock, before the taking of the vote
on the Merger, a written demand for appraisal of such
holder's Diamond Shamrock Convertible Preferred Stock. See
"Other Terms of the Merger and the Merger Agreement --
Appraisal and Dissenters' Rights" and Appendix D to this
Proxy Statement.
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ULTRAMAR
(IN MILLIONS, EXCEPT PER SHARE AND RATIO DATA)
The following table sets forth certain consolidated historical financial
data of Ultramar and its consolidated subsidiaries, and is based on the
consolidated financial statements and selected financial data of Ultramar,
including the notes thereto, which are incorporated by reference in this Proxy
Statement, and should be read in conjunction therewith (see "Incorporation of
Certain Documents by Reference") and in conjunction with the information
appearing under "-- Recent Developments -- Ultramar Third Quarter Earnings." The
pro forma financial information for Ultramar for the years ended December 31,
1992 and 1991 has been derived from the predecessor financial statements of
Ultramar. Such pro forma financial information has been compiled as if Ultramar
were formed and had acquired its operating subsidiaries, Ultramar Inc. and
Canadian Ultramar Limited, on January 1, 1991 instead of as of July 6, 1992. The
pro forma results of operations have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations that would
actually have occurred had the acquisitions occurred as of January 1, 1991.
Interim unaudited data for the six months ended June 30, 1996 and 1995 reflect,
in the opinion of management of Ultramar, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of such data.
Results for the six months ended June 30, 1996 are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Sales and other revenues(1)....................... $ 1,613.9 $ 1,328.5 $ 2,714.4 $ 2,547.7 $ 2,512.2 $ 2,675.8 $ 2,839.8
Operating income.................................. 92.1 31.6 113.9 135.7 186.8 149.2 200.1
Income before cumulative effect of accounting
change(2)........................................ 43.2 6.2 47.6 61.0 86.5 56.3 84.9
Net income(2)..................................... 43.2 28.2 69.6 61.0 86.5 56.3 84.9
Income per common share
Income before cumulative effect of accounting
change(2)...................................... $ .96 $ .16 $ 1.18 $ 1.56 $ 2.23 $ 1.47 $ 2.22
Net income(2)................................... .96 .72 1.73 1.56 2.23 1.47 2.22
Cash dividends per common share................... .55 .55 1.10 1.10 1.10 .55
BALANCE SHEET DATA
Cash and cash equivalents......................... $ 265.3 $ 56.9 $ 126.9 $ 55.1 $ 97.4 $ 134.3
Working capital................................... 281.5 211.6 220.3 195.0 259.5 377.3
Total assets...................................... 2,107.6 1,810.8 1,971.3 1,763.6 1,724.7 1,792.4
Long-term debt.................................... 668.5 601.4 600.3 533.3 494.3 578.3
Stockholders' equity.............................. 725.8 553.8 703.4 533.9 541.6 513.6
OTHER FINANCIAL DATA
Ratio of earnings to fixed charges(3)............. 3.3 1.3 2.1 2.7 3.2 2.4 2.9
</TABLE>
- ------------------
(1) Sales and other revenues are reported net of excise and state motor fuel
taxes. Following the Merger, the Combined Company will include excise and
state motor fuel taxes in sales and other revenues. See "Pro Forma Condensed
Financial Information of the Combined Company" and "The Merger --
Anticipated Accounting Treatment."
(2) During the second quarter of 1995, Ultramar changed its method of accounting
for refinery maintenance turnaround costs from an accrual method to a
deferral method. The change resulted in a cumulative adjustment through
December 31, 1994 of $22.0 million (after income taxes of $13.4 million), or
$.55 per share, which is included in net income for the year ended December
31, 1995. The effect of the change on the six month period ended June 30,
1995 and the year ended December 31, 1995 was to increase income before
cumulative effect of accounting change by approximately $2.7 million ($.07
per share) and $3.5 million ($.09 per share), respectively, and net income
by $24.7 million ($.63 per share) and $25.5 million ($.64 per share),
respectively. Had the change in accounting for refinery maintenance
turnaround costs been in effect since the beginning of 1992, net income for
the years ended December 31, 1994, 1993 and 1992 would have been $67.7
million ($1.74 per share), $96.6 million ($2.49 per share) and $68.3 million
($1.79 per share), respectively. Adjusted net income and net income per
share amounts for 1991 are not available.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges (excluding
capitalized interest) and amortization of interest previously capitalized.
Fixed charges consist of interest (whether capitalized or expensed) and a
portion of rental expense representative of an interest factor.
11
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF DIAMOND SHAMROCK
(IN MILLIONS, EXCEPT PER SHARE AND RATIO DATA)
The following table sets forth certain consolidated historical financial
data of Diamond Shamrock and its consolidated subsidiaries, and is based on the
consolidated financial statements and selected financial data of Diamond
Shamrock, including the notes thereto, which are incorporated by reference in
this Proxy Statement, and should be read in conjunction therewith (see
"Incorporation of Certain Documents by Reference") and in conjunction with the
information appearing under the caption "-- Recent Developments -- Diamond
Shamrock Third Quarter Earnings." Interim unaudited data for the six months
ended June 30, 1996 and 1995 reflect, in the opinion of management of Diamond
Shamrock, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of such data. Results for the six months ended
June 30, 1996 are not necessarily indicative of results which may be expected
for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996(1) 1995 1995(1) 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Sales and other
revenues(2)...................................... $ 2,417.1 $ 1,836.0 $ 3,703.0 $ 3,312.1 $ 3,110.2 $ 3,070.8 $ 3,004.2
Operating income.................................. 80.7 76.1 121.1 169.1 98.1 84.5 95.4
Income before cumulative effect of accounting
changes(3)....................................... 25.9 33.4 47.3 75.8 32.6 26.4 37.1
Net income(3)..................................... 25.9 33.4 47.3 75.8 18.4 8.7 37.1
Dividend requirement on preferred stock........... 2.2 2.2 4.3 4.3 2.4
Earnings applicable to common shares.............. 23.7 31.2 43.0 71.5 16.0 8.7 37.1
Income per common share
Primary:
Income before cumulative effect of accounting
changes(3)................................... $ .81 $ 1.08 $ 1.48 $ 2.45 $ 1.04 $ .92 $ 1.39
Net income(3)................................. .81 1.08 1.48 2.45 .55 .30 1.39
Fully-diluted:
Income before cumulative effect of accounting
changes(3)................................... .79 1.03 1.46 2.34 1.04 .92 1.36
Net income(3)................................. .79 1.03 1.46 2.34 .55 .30 1.36
Cash dividends per
Common share.................................. .28 .28 .56 .53 .52 .52 .52
Preferred share............................... 1.25 1.25 2.50 2.50 1.28
BALANCE SHEET DATA
Cash and cash equivalents......................... $ 63.1 $ 16.7 $ 48.6 $ 27.4 $ 12.8 $ 17.5 $ 15.7
Working capital................................... 224.2 204.5 165.4 166.3 135.8 141.5 156.9
Total assets...................................... 2,251.1 1,672.2 2,245.4 1,620.8 1,349.2 1,297.5 1,222.3
Long-term debt.................................... 1,011.0 581.3 957.5 509.2 486.2 533.5 441.8
Stockholders' equity.............................. 649.8 616.7 624.7 589.0 527.7 435.7 437.6
OTHER FINANCIAL DATA
Ratio of earnings to fixed charges(4)............. 1.9 2.6 2.0 3.2 2.0 1.7 2.1
Ratio of earnings to fixed charges and preferred
stock dividends(4)............................... 1.8 2.4 1.9 2.9 1.8 1.7 2.1
</TABLE>
- ------------------
(1) On December 14, 1995, Diamond Shamrock acquired National Convenience Stores
Incorporated ("NCS"), which operated 661 specialty convenience stores, for
approximately $280 million. The acquisition (the "NCS Acquisition") was
accounted for using the purchase method of accounting and, accordingly, the
results of operations of NCS are included from the date of acquisition.
(2) During 1996, Diamond Shamrock changed its presentation of sales and other
revenues to include excise and state motor fuel taxes. The sales and other
revenues reported above for each of the years in the five-year period ending
December 31, 1995 reflect the reclassification of such taxes to conform to
the presentation used in 1996 and to be used by the Combined Company
following the Merger. Neither operating income nor net income is affected by
the reclassification.
(3) In 1993, Diamond Shamrock changed its method of accounting for certain
liabilities resulting from an agreement with its former parent. The change
resulted in a cumulative adjustment through December 31, 1992 of $14.2
million (after income tax benefit of $9.4 million), or $.49 per share, which
is reflected in net income for the year ended December 31, 1993. In 1992,
Diamond Shamrock changed its method of accounting for post-retirement
benefits other than pensions and its method of accounting for income taxes.
The aggregate cumulative effect of these changes as of January 1, 1992 of
$17.7 million (after income tax benefit of $10.3 million), or $.62 per
share, is included in net income for the year ended December 31, 1992.
(4) For purposes of computing the ratios of earnings to fixed charges and
earnings to fixed charges and preferred stock dividends, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest) and amortization of interest previously capitalized. Fixed charges
consist of interest (whether capitalized or expensed) and a portion of
rental expense representative of an interest factor. For purposes of
computing the ratio of earnings to fixed charges and preferred stock
dividends, the preferred stock dividend requirement has been increased to an
amount representing the pre-tax earnings which would be required to cover
such dividend requirement as preferred stock dividends are not deductible
for income tax purposes.
12
<PAGE>
RECENT DEVELOPMENTS
ULTRAMAR THIRD QUARTER EARNINGS
On October 23, 1996, Ultramar announced that its net income for the three
months ended September 30, 1996 was $0.4 million ($0.01 per share), compared to
net income of $20.4 million ($0.52 per share) in the comparable period of 1995
and $28.4 million ($0.63 per share) in the three months ended June 30, 1996.
Ultramar also announced that its net income for the nine months ended September
30, 1996 was $43.6 million ($0.97 per share), compared to net income before a
cumulative effect of accounting change of $26.6 million ($0.68 per share) for
the comparable period of 1995. Ultramar's revenues (including excise and state
motor vehicle fuel taxes) for the three and nine months ended September 30, 1996
were $1,182.0 million and $3,358.6 million, respectively, compared to $958.1
million and $2,787.2 million, respectively, for the comparable periods of 1995.
In its announcement of its earnings for the third quarter of 1996, Ultramar
indicated that such results were significantly affected by lower refining and
marketing margins, particularly in eastern Canada, due to higher crude oil
prices as a result of supply concerns and unrest in the Middle East. The effect
of these lower margins was partially offset by improved refinery operations and
higher retail marketing margins in Ultramar's California operations.
DIAMOND SHAMROCK THIRD QUARTER EARNINGS
On October 21, 1996, Diamond Shamrock announced that its earnings for the
three and nine months ended September 30, 1996 were $13.6 million ($0.43 per
share) and $39.5 million ($1.23 per share), respectively, compared to $5.7
million ($0.16 per share) and $39.2 million ($1.24 per share) for the comparable
periods in 1995. Diamond Shamrock's revenues for the three and nine months ended
September 30, 1996 were $1,236.5 million and $3,639.1 million, respectively,
compared to $941.7 million and $2,769.3 million, respectively, in the comparable
periods of 1995. In its announcement of its earnings for the third quarter of
1996, Diamond Shamrock stated that improved refining margins contributed to
stronger earnings for the quarter. In addition, Diamond Shamrock noted that
several recently completed capital projects, as well as the NCS Acquisition,
contributed to the quarter's results.
13
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA OF
THE COMBINED COMPANY
(IN MILLIONS, EXCEPT PER SHARE AND RATIO DATA)
The following table sets forth certain unaudited selected pro forma
financial data for the Combined Company, after giving effect to the Merger,
which is expected to be accounted for as a pooling of interests. For a
description of pooling of interests accounting with respect to the Merger and
certain other accounting matters, see "The Merger -- Anticipated Accounting
Treatment." The pro forma balance sheet gives effect to the Merger as if it had
occurred on June 30, 1996. The pro forma statements of income give effect to the
Merger as if it had occurred on January 1, 1993. The information set forth below
should be read in conjunction with (i) the historical consolidated financial
statements of Ultramar and Diamond Shamrock, including the notes thereto and
other financial information, which are incorporated by reference in this Proxy
Statement, (ii) the selected consolidated historical financial data of Ultramar
and Diamond Shamrock and the other pro forma financial information, including
the notes thereto, appearing elsewhere in this Proxy Statement (see
"Incorporation of Certain Documents by Reference" and "Pro Forma Condensed
Financial Information of the Combined Company"), and (iii) the information
appearing under the caption "-- Recent Developments." The pro forma condensed
balance sheet reflects an estimated $67 million charge for transaction and
integration costs (a total of $47 million, net of tax) expected to be incurred
in connection with the Merger; however, because these charges are nonrecurring,
they have not been reflected in the pro forma condensed statements of income.
The selected pro forma financial data do not give effect to the anticipated cost
savings expected to result from the Merger. See "Management and Operations of
the Combined Company -- The Combined Company." The pro forma financial data are
not necessarily indicative of the results that actually would have occurred had
the Merger been consummated on the dates indicated or that may be obtained in
the future.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Sales and other revenues................................ $ 4,577.2 $ 4,113.0 $ 8,340.8 $ 6,864.0 $ 6,497.7
Operating income........................................ 169.2 109.8 241.7 299.2 279.2
Income before cumulative effect of accounting change.... 69.1 34.4 88.2 136.8 119.1
Income per common share before cumulative effect of
accounting change
Primary:.............................................. $ .89 $ .47 $ 1.20 $ 1.93 $ 1.71
Fully-diluted:........................................ .88 .47 1.20 1.90 1.71
BALANCE SHEET DATA
Cash and cash equivalents............................... $ 328.4
Working capital......................................... 458.7
Total assets............................................ 4,375.6
Long-term debt.......................................... 1,679.5
Stockholders' equity.................................... 1,328.6
OTHER FINANCIAL DATA
Ratio of earnings to fixed charges (1).................. 2.4 1.7 1.8 3.0 2.6
Ratio of earnings to fixed charges and preferred stock
dividends (1).......................................... 2.3 1.6 1.8 2.8 2.5
</TABLE>
- ------------------
(1) For purposes of computing the pro forma ratios of earnings to fixed charges
and earnings to fixed charges and preferred stock dividends, earnings
consist of income before income taxes plus fixed charges (excluding
capitalized interest) and amortization of interest previously capitalized.
Fixed charges consist of interest (whether capitalized or expensed) and a
portion of rental expense representative of an interest factor. For purposes
of computing the ratio of earnings to fixed charges and preferred stock
dividends, the preferred stock dividend requirement has been increased to an
amount representing the pre-tax earnings which would be required to cover
such dividend requirement as preferred stock dividends are not deductible
for income tax purposes.
14
<PAGE>
COMPARATIVE STOCK PRICES
Ultramar Common Stock and Diamond Shamrock Common Stock are each listed on
the NYSE. The following table sets forth the high and low sale prices per share
of Ultramar Common Stock and Diamond Shamrock Common Stock as reported on the
NYSE Composite Transaction Tape for the periods indicated.
<TABLE>
<CAPTION>
DIAMOND SHAMROCK
ULTRAMAR
COMMON STOCK COMMON STOCK
-------------------- --------------------
CALENDAR QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1993
First Quarter....................................................... 21 1/2 17 21 7/8 17
Second Quarter...................................................... 23 1/4 19 1/4 22 1/8 19 1/4
Third Quarter....................................................... 25 1/8 21 3/8 26 1/8 18 7/8
Fourth Quarter...................................................... 28 1/2 23 1/2 27 3/8 23 3/4
1994
First Quarter....................................................... 31 1/2 25 30 24 1/8
Second Quarter...................................................... 28 3/4 23 1/2 28 1/4 23 3/8
Third Quarter....................................................... 27 5/8 24 1/2 28 1/2 23 7/8
Fourth Quarter...................................................... 26 22 29 1/8 23 5/8
1995
First Quarter....................................................... 26 3/4 22 1/2 26 1/2 23 1/8
Second Quarter...................................................... 28 5/8 23 7/8 28 7/8 25 1/2
Third Quarter....................................................... 27 1/2 23 1/4 27 3/8 23 3/4
Fourth Quarter...................................................... 26 5/8 22 1/2 26 7/8 23 3/8
1996
First Quarter....................................................... 29 1/4 25 3/8 32 7/8 25
Second Quarter...................................................... 32 7/8 28 3/4 34 7/8 28 1/2
Third Quarter....................................................... 30 1/2 25 31 7/8 26 1/4
Fourth Quarter (through October 23, 1996)........................... 30 5/8 28 31 1/8 29 7/8
</TABLE>
On September 20, 1996, the last trading day prior to the execution of the
Merger Agreement, the closing sale prices of Ultramar Common Stock and Diamond
Shamrock Common Stock, as reported on the NYSE Composite Transaction Tape, were
$28.50 per share and $30.25 per share, respectively. The pro forma equivalent
per share value of the Diamond Shamrock Common Stock on September 20, 1996, was
$29.07 per share. The pro forma equivalent per share value of Diamond Shamrock
Common Stock on any date equals the closing sale price of Ultramar Common Stock
on such date, as reported on the NYSE Composite Transaction Tape, multiplied by
the Exchange Ratio.
On October , 1996, the last trading day prior to the date of this Proxy
Statement, the closing sale prices of Ultramar Common Stock and Diamond Shamrock
Common Stock, as reported on the NYSE Composite Transaction Tape, were $ per
share and $ per share ($ on a pro forma equivalent per share basis),
respectively.
The Diamond Shamrock Convertible Preferred Stock is not listed on the NYSE
or traded on any other organized securities market and, accordingly, trading
prices therefor are not publicly available.
Stockholders are urged to obtain current quotations for the market prices of
Ultramar Common Stock and Diamond Shamrock Common Stock. No assurance can be
given as to the market price of Ultramar Common Stock or Diamond Shamrock Common
Stock at the Effective Time. Because the Exchange Ratio is fixed in the Merger
Agreement and neither Ultramar nor Diamond Shamrock has the right to terminate
the Merger Agreement based on changes in the market price of either party's
stock, the market value of the shares of Ultramar Common Stock that holders of
Diamond Shamrock Common Stock will receive in the Merger may vary significantly
from the prices shown above.
15
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Ultramar Common Stock and Diamond
Shamrock Common Stock certain historical, pro forma and pro forma equivalent per
share financial information for the six months ended June 30, 1996 and 1995 and
for each of the three years in the period ended December 31, 1995. The
information presented herein should be read in conjunction with the Pro Forma
Condensed Financial Information of the Combined Company, including the notes
thereto, appearing elsewhere in this Proxy Statement, the historical
consolidated financial statements of Ultramar and Diamond Shamrock, including
the notes thereto, and other financial information incorporated by reference
herein (see "Incorporation of Certain Documents by Reference"), and the
information appearing under the caption "-- Recent Developments."
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED AS OF AND FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ULTRAMAR COMMON STOCK:
Income before cumulative effect of accounting changes:
Primary:
Historical............................................. $ .96 $ .16 $ 1.18 $ 1.56 $ 2.23
Pro forma combined..................................... .89 .47 1.20 1.93 1.71
Assuming full dilution:
Historical............................................. .96 .16 1.18 1.56 2.23
Pro forma combined..................................... .88 .47 1.20 1.90 1.71
Cash dividends per common share:
Historical............................................. .55 .55 1.10 1.10 1.10
Pro forma combined (1)................................. .55 .55 1.10 1.10 1.10
Book value per share at period end:
Historical............................................. 16.28 -- 15.84 -- --
Pro forma combined..................................... 16.97 -- -- -- --
DIAMOND SHAMROCK COMMON STOCK:
Income before cumulative effect of accounting changes:
Primary:
Historical............................................. .81 1.08 1.48 2.45 1.04
Pro forma equivalent (2)............................... .91 .48 1.22 1.97 1.74
Assuming full dilution:
Historical............................................. .79 1.03 1.46 2.34 1.04
Pro forma equivalent (2)............................... .90 .48 1.22 1.94 1.74
Cash dividends per common share:
Historical............................................. .28 .28 .56 .53 .52
Pro forma equivalent (2)............................... .56 .56 1.12 1.12 1.12
Book value per share at period end:
Historical............................................. 20.07 -- 19.47 -- --
Pro forma equivalent (2)............................... 17.31 -- -- -- --
</TABLE>
- ------------------
(1) The Ultramar pro forma combined cash dividends per common share amounts
represent historical dividends per share.
(2) The Diamond Shamrock pro forma equivalent per share amounts are calculated
by multiplying the Ultramar pro forma combined per share amounts by the
Exchange Ratio of 1.02 shares of Ultramar Common Stock for each share of
Diamond Shamrock Common Stock to be received in connection with the Merger.
16
<PAGE>
THE COMPANIES
ULTRAMAR
Ultramar is a leading independent refiner and marketer of petroleum products
in California and eastern Canada. In 1995, Ultramar sold over 278,000 BPD of
petroleum products and had total revenues of $2.7 billion. Ultramar is the
second largest independent refining and marketing company in California in terms
of sales volume. Ultramar owns and operates a 100,000 BPD refinery in Los
Angeles County, California, and retails petroleum products through a network of
approximately 360 outlets located primarily in central and northern California.
Ultramar is also one of the largest independent petroleum refining and marketing
companies in eastern Canada based on sales volume. Ultramar owns and operates a
150,000 BPD refinery in St. Romuald, Quebec, and markets petroleum products
through approximately 1,340 retail outlets and approximately 80 cardlocks.
Ultramar is also among the largest retail home heating oil companies in North
America based on sales volume, selling heating oil to over 180,000 eastern
Canadian and New England households.
DIAMOND SHAMROCK
Diamond Shamrock is the leading independent refiner and marketer of
petroleum products in the southwestern United States and the largest retail
marketer of gasoline in Texas. In 1995, Diamond Shamrock sold over 238,000 BPD
of petroleum products and had total revenues of $3.7 billion. Diamond Shamrock's
McKee Refinery, located near Amarillo, Texas, and Three Rivers Refinery, located
near San Antonio, Texas, are strategically located near Diamond Shamrock's key
markets and have an aggregate refining capacity of approximately 140,000 and
85,000 BPD, respectively. Diamond Shamrock sells gasoline and merchandise
through Company-operated retail outlets, and distributes gasoline through
independently owned Diamond Shamrock branded outlets in Texas and nearby states.
As of September 30, 1996, company-operated retail outlets were located in Texas
(1,248), Colorado (127), New Mexico (44), Louisiana (35), and Arizona (12).
Also, as of that date, 137 independent jobbers supplied 1,161 "Diamond Shamrock"
branded retail outlets located in eight states, and Diamond Shamrock had an
interest in a joint venture which had 10 franchise operations of its "Corner
Store" convenience stores in Mexico. Diamond Shamrock also stores and markets
natural gas liquids, manufactures and markets anhydrous ammonia and
polymer-grade propylene, and operates certain other related businesses. In
addition to gasoline, Diamond Shamrock also markets an average of 52,484 BPD of
diesel fuel and 18,705 BPD of high quality jet fuel. Diamond Shamrock has a
proprietary credit card program, which had approximately 890,000 valid accounts
at the end of 1995.
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANY
MANAGEMENT OF THE COMBINED COMPANY
The Board of Directors of the Combined Company will consist of 12 persons,
six of whom will be designated by each of Ultramar and Diamond Shamrock from
their respective current Boards of Directors. Ultramar's designees to the Board
of Directors of the Combined Company are Jean Gaulin (Vice Chairman), Byron
Allumbaugh, H. Frederick Christie, Russel H. Herman, Madeleine Saint-Jacques and
C. Barry Schaefer. Diamond Shamrock's designees to the Board of Directors of the
Combined Company are Roger R. Hemminghaus (Chairman), E. Glenn Biggs, W. E.
Bradford, W. H. Clark, Bob Marbut and Katherine D. Ortega. See "Board of
Directors" for certain information regarding the companies' designees. Under the
Merger Agreement, if any designee to the Board of Directors of the Combined
Company becomes unable or unwilling to serve as such prior to the Effective
Time, the Company designating such person will appoint another person from such
Company's Board of Directors to serve on the Board of Directors of the Combined
Company.
17
<PAGE>
The Committees of the Board of Directors of the Combined Company are
expected to be as follows:
<TABLE>
<CAPTION>
Finance and Public
Audit Review Compensation Planning Responsibility
Committee Committee Committee Committee
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Bob Marbut, C. Barry Schaefer Russel H. Herman E. Glenn Biggs,
Chairman Chairman Chairman Chairman
Katherine D. Ortega W.E. Bradford E. Glenn Biggs Katherine D. Ortega
H. Frederick Christie W.H. Clark Bob Marbut Byron Allumbaugh
C. Barry Schaefer Byron Allumbaugh H. Frederick Christie Madeleine Saint-Jacques
</TABLE>
The designees to the Board of Directors of the Combined Company will be in
the classes of directors whose terms expire at the annual meetings of the
stockholders of the Combined Company in the years indicated: 1997: E. Glenn
Biggs, Katherine D. Ortega, Byron Allumbaugh and Madeleine Saint-Jacques; 1998:
R.R. Hemminghaus, W.E. Bradford, Russel H. Herman and C. Barry Schaefer; and
1999: Bob Marbut, W.H. Clark, Jean Gaulin and H. Frederick Christie.
EXECUTIVE OFFICERS
The Merger Agreement contemplates that Roger R. Hemminghaus, presently the
Chairman, Chief Executive Officer and President of Diamond Shamrock, will become
the Chairman and Chief Executive Officer of the Combined Company until December
31, 1998, after which he will resign his position as Chief Executive Officer and
remain Chairman of the Board of the Combined Company until no later than
December 31, 2001. The Merger Agreement also contemplates that Jean Gaulin, the
Chairman and Chief Executive Officer of Ultramar, will become the Vice Chairman,
President and Chief Operating Officer of the Combined Company until December 31,
1998, after which he will become the Vice Chairman, President and Chief
Executive Officer of the Combined Company. The principal executive offices of
the Combined Company will be located at Diamond Shamrock's current principal
executive offices in San Antonio, Texas.
In addition to Messrs. Hemminghaus and Gaulin, the Merger Agreement
contemplates that the following executive officers of Ultramar or Diamond
Shamrock will become executive officers of the Combined Company:
<TABLE>
<CAPTION>
NAME OF POSITION WITH
EXECUTIVE OFFICER CURRENT POSITION (1) COMBINED COMPANY
- ----------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C>
Paul Eisman Vice President, Refining, and Group Senior Vice President - Refining Southwest
Age: 41 Executive of Diamond Shamrock
Alain Ferland President of Ultramar Ltee. Senior Vice President - Refining, Product
Age: 43 Supply and Logistics Northeast
Timothy J. Fretthold Senior Vice President/Group Executive and Executive Vice President and Chief
Age: 47 General Counsel of Diamond Shamrock Administrative Officer
Patrick J. Guarino Senior Vice President, General Counsel and Executive Vice President, General Counsel
Age: 54 Secretary of Ultramar and Secretary
Christopher Havens President of Ultramar Energy Inc. Senior Vice President - Marketing Northeast
Age: 42
William R. Klesse Executive Vice President of Diamond Executive Vice President, Refining, Product
Age: 50 Shamrock Supply and Logistics Southwest
J. Robert Mehall Executive Vice President of Diamond Executive Vice President, Crude Oil Supply
Age: 54 Shamrock and Corporate Development
A.W. O'Donnell President, Marketing and Senior Vice Senior Vice President-Marketing Southwest
Age: 64 President/Group Executive of Diamond
Shamrock
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NAME OF POSITION WITH
EXECUTIVE OFFICER CURRENT POSITION (1) COMBINED COMPANY
- ----------------------- ------------------------------------------- -------------------------------------------
H. Pete Smith Senior Vice President and Chief Financial Executive Vice President and Chief
Age: 54 Officer of Ultramar Financial Officer
</TABLE>
- --------------
(1) Each executive officer has held his current position or a substantially
comparable position for more than five years, other than Mr. Eisman, who
prior to assuming his current position with Diamond Shamrock in 1995 was
Diamond Shamrock's Director-Crude Oil Supply.
For a discussion of employment agreements expected to be entered into
between the Combined Company and Roger R. Hemminghaus, Jean Gaulin and each of
the executive officers set forth in the table above, see "The Merger -- Certain
Executive Compensation and Other Employee-Related Matters in Connection with the
Merger."
THE COMBINED COMPANY
As a larger entity with more assets and greater geographic and product line
diversity, the Combined Company's earnings and cash flow are expected to be more
stable than either of the Companies' earnings and cash flows would be on a
stand-alone basis. The respective managements of the Companies believe that
increased earnings and cash flow stability will provide the Combined Company
with increased financial flexibility and will also provide a better platform
from which to take advantage of acquisition and other strategic opportunities
expected to arise as the petroleum refining and marketing and convenience store
industries continue to consolidate.
Substantial cost savings and other synergies are expected to be created by
the Merger. Although no assurance can be given that any specific level of cost
savings or synergistic operational benefits will be achieved or as to the timing
thereof, the respective managements of the Companies believe that potential
annual pre-tax cost savings and pre-tax financial benefits from eliminating
redundant costs will total $25 million in 1997 and $75 million in each year
thereafter. The synergistic operational benefits, which include the coordination
of product purchases, including crude oil, refinery feedstocks and convenience
store items, are expected to enable the Combined Company to lower unit costs
through economies of scale and increased bargaining power and to contribute to
more efficient inventory management resulting in annual pre-tax cash flow
improvement.
In connection with the Merger, one-time transaction costs, which are
expected to be recorded in 1996, are estimated at $17 million and one-time
integration costs, most of which are expected to be recorded in 1996, are
estimated at $50 million. In addition, in connection with the preparation of the
pro forma information included elsewhere in this Proxy Statement, management of
Ultramar and Diamond Shamrock have conformed certain differences in accounting
practices (see "Pro Forma Condensed Financial Information of the Combined
Company"). Following the Merger, management of the Combined Company will conduct
a complete review of the accounting policies employed by Ultramar and Diamond
Shamrock, including the methods used to apply such policies, in order to
identify the appropriate accounting practices to be applied by the Combined
Company; additionally, management of the Combined Company will review, and when
appropriate conform, the methods employed to develop and assess information used
to make accounting estimates. Any adjustments or changes that may result from
such reviews are expected to be recorded during the accounting period in which
the Effective Time occurs, and may have a material effect on the results
reported during such period.
The respective managements of the Companies believe that the Combined
Company will be able to eliminate or reduce certain capital expenditures that
Ultramar and Diamond Shamrock were otherwise planning to make as separate
companies. These decreases in capital expenditures are expected to free up
capital for capital investments having higher expected rates of return or
increasing the Combined Company's financial flexibility.
For a discussion of the background of the Merger and the recommendations of
the respective Boards of Directors of the Companies relating thereto, see "The
Merger -- Background of the Merger" and "-- Reasons for the Merger;
Recommendations of the Boards of Directors."
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<PAGE>
DIVIDEND POLICY
It is anticipated that the Combined Company will continue Ultramar's
existing dividend policy of paying quarterly dividends in the amount of $.275
per share of Ultramar Common Stock. After the consummation of the Merger the
payment of dividends will be in the discretion of the Board of Directors of the
Combined Company and will be subject to customary limitations thereon.
Prior to the Merger, a significant portion of the cash dividends paid by
Ultramar to holders of Ultramar Common Stock were treated as a return of capital
for federal income tax purposes because Ultramar's earnings and profits were
less than such dividends. Future distributions by the Combined Company of cash
or property (other than stock or rights to acquire stock of the Combined
Company) made with respect to the stock of the Combined Company will constitute
dividends, taxable to recipients at ordinary income rates, to the extent such
distributions do not exceed the current or accumulated earnings and profits of
the Combined Company. The Combined Company will succeed in the Merger to the
earnings and profits of both Ultramar and Diamond Shamrock and it is therefore
expected that the Combined Company will have sufficient earnings and profits to
cause future distributions with respect to the Combined Company's stock to be
treated as ordinary income dividends.
20
<PAGE>
THE SPECIAL MEETINGS
DATE, TIME AND PLACE
ULTRAMAR. The Ultramar Special Meeting will be held at the St. Regis Hotel,
2 East 55th Street, New York, New York 10022 at 9:00 a.m. local time on December
3, 1996.
DIAMOND SHAMROCK. The Diamond Shamrock Special Meeting will be held at the
St. Regis Hotel, 2 East 55th Street, New York, New York, 10022 at 9:00 a.m.
local time on December 3, 1996.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
ULTRAMAR. At the Ultramar Special Meeting, holders of Ultramar Common Stock
are being asked to adopt the Merger Agreement and to approve the Incentive Plan.
See "The Merger," "Other Terms of the Merger and the Merger Agreement" and
"Approval of the Incentive Plan." THE ULTRAMAR BOARD HAS UNANIMOUSLY DETERMINED
THAT THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT
(INCLUDING THE ISSUANCE OF ULTRAMAR COMMON STOCK AND ULTRAMAR CONVERTIBLE
PREFERRED STOCK IN THE MERGER AND THE AMENDMENT OF THE ULTRAMAR CHARTER
DESCRIBED HEREIN) ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
ULTRAMAR, AND HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT ULTRAMAR
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, ON
OCTOBER 22, 1996, THE ULTRAMAR BOARD APPROVED THE INCENTIVE PLAN AND RECOMMENDS
THAT ULTRAMAR'S STOCKHOLDERS VOTE "FOR" SUCH APPROVAL OF THE INCENTIVE PLAN.
DIAMOND SHAMROCK. At the Diamond Shamrock Special Meeting, holders of
Diamond Shamrock Common Stock are being asked to adopt the Merger Agreement. See
"The Merger" and "Other Terms of the Merger and the Merger Agreement." As
described below, holders of Diamond Shamrock Convertible Preferred Stock are not
entitled to vote at the Diamond Shamrock Special Meeting. THE DIAMOND SHAMROCK
BOARD (WITH EIGHT DIRECTORS PRESENT AND ONE DIRECTOR ABSENT) HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF DIAMOND
SHAMROCK, AND HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT DIAMOND
SHAMROCK STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
ULTRAMAR. Only holders of record of Ultramar Common Stock at the close of
business on the Record Date are entitled to receive notice of and to vote at the
Ultramar Special Meeting. On the Record Date, shares of Ultramar Common
Stock were issued and outstanding and held by approximately holders of
record. A majority of the shares of Ultramar Common Stock issued and outstanding
and entitled to vote on the Record Date must be represented in person or by
proxy at the Ultramar Special Meeting in order for a quorum to be present for
purposes of voting on the adoption of the Merger Agreement and approval of the
Incentive Plan. In the event that a quorum is not present at the Ultramar
Special Meeting, it is expected that such meeting will be adjourned or postponed
to solicit additional proxies. Holders of record of Ultramar Common Stock on the
Record Date are each entitled to one vote per share on each matter to be voted
on at the Ultramar Special Meeting.
DIAMOND SHAMROCK. Only holders of record of Diamond Shamrock Common Stock
at the close of business on the Record Date are entitled to notice of and to
vote at the Diamond Shamrock Special Meeting. On the Record Date, shares
of Diamond Shamrock Common Stock were issued and outstanding and held by
approximately holders of record. A majority of the shares of Diamond
Shamrock Common Stock issued and outstanding and entitled to vote on the Record
Date must be represented in person or by proxy at the Diamond Shamrock Special
Meeting in order for a quorum to be present for purposes of voting on the
adoption of the Merger Agreement. In the event that a quorum is not present at
the Diamond Shamrock Special Meeting, it is expected that such meeting will be
adjourned or postponed to solicit additional proxies. Holders of record of
Diamond Shamrock Common Stock on the Record Date are each entitled to one vote
per share on each matter to be considered at the Diamond Shamrock Special
Meeting. Holders of Diamond Shamrock Convertible Preferred Stock are not
entitled to vote on the proposal to adopt the Merger Agreement.
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<PAGE>
VOTES REQUIRED
ULTRAMAR. The adoption of the Merger Agreement requires the affirmative
vote of the holders of record of a majority of the shares of Ultramar Common
Stock outstanding on the Record Date. The approval of the Incentive Plan
requires the affirmative vote of the holders of a majority of the shares of
Ultramar Common Stock present in person or represented by proxy at the Ultramar
Special Meeting and entitled to vote. The approval of the Incentive Plan is not
a condition to the effectiveness of the Merger. The consummation of the Merger
is a condition to the effectiveness of the Incentive Plan.
DIAMOND SHAMROCK. The adoption of the Merger Agreement requires the
affirmative vote of the holders of record of a majority of the shares of Diamond
Shamrock Common Stock outstanding on the Record Date.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on October 15, 1996, directors and executive
officers of Ultramar and their affiliates beneficially owned 615,887 shares of
Ultramar Common Stock, which represented approximately 1.4% of the shares of
Ultramar Common Stock outstanding on such date, and were entitled to vote
123,391 shares of Ultramar Common Stock, which represented approximately 0.3% of
the shares of Ultramar Common Stock outstanding on such date. Each such director
and executive officer has indicated his or her present intention to vote, or
cause to be voted, the Ultramar Common Stock owned by him or her for adoption of
the Merger Agreement and for approval of the Incentive Plan. None of Diamond
Shamrock's directors or executive officers beneficially owned any shares of
Ultramar Common Stock as of October 15, 1996.
At the close of business on October 15, 1996, directors and executive
officers of Diamond Shamrock and their affiliates beneficially owned 578,863
shares of Diamond Shamrock Common Stock, which represented approximately 2.0% of
the shares of Diamond Shamrock Common Stock outstanding on such date, and were
entitled to vote 340,514 shares of Diamond Shamrock Common Stock, which
represented approximately 1.2% of the shares of Diamond Shamrock Common Stock
outstanding on such date. Each such director and executive officer has indicated
his or her present intention to vote, or cause to be voted, the Diamond Shamrock
Common Stock owned by him or her for adoption of the Merger Agreement. None of
Ultramar's directors or executive officers beneficially owned any shares of
Diamond Shamrock Common Stock as of October 15, 1996.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Special Meetings will be voted at such Special Meetings in the manner specified
by the holders thereof. Properly executed proxies that do not contain voting
instructions will be voted in favor of adoption of the Merger Agreement and,
with respect to proxies to vote shares of Ultramar Common Stock, the approval of
the Incentive Plan.
Shares of Ultramar Common Stock or Diamond Shamrock Common Stock represented
at the applicable Special Meeting but not voting, including shares of Ultramar
Common Stock or Diamond Shamrock Common Stock, as the case may be, for which
proxies have been received, but with respect to which holders of shares have
abstained on any matter, will be treated as present at the applicable Special
Meeting for purposes of determining the presence or absence of a quorum for the
transaction of all business.
For voting purposes at the Special Meetings, only shares affirmatively voted
in favor of a proposal (including properly executed proxies not containing
voting instructions) will be counted as favorable votes for such proposal. With
respect to the proposal to adopt the Merger Agreement, the failure to submit a
proxy (or to vote in person) or the abstention from voting will have the same
effect as a vote against such proposal. In addition, under the applicable rules
of the NYSE, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote such
customers' shares with respect to the proposal to adopt the Merger Agreement or
the
22
<PAGE>
proposal to approve the Incentive Plan in the absence of specific instructions
from such customers ("broker nonvotes"). Accordingly, with respect to the
proposal to adopt the Merger Agreement, broker nonvotes will also have the same
effect as votes against such proposal.
The persons named as proxies by an Ultramar or Diamond Shamrock stockholder
may propose and vote for one or more adjournments or postponements of the
applicable Special Meeting, including, without limitation, adjournments to
permit further solicitations of proxies in favor of any proposal; provided,
however, that no proxy that is voted against the proposal to adopt the Merger
Agreement will be voted in favor of any such adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Ultramar or Diamond Shamrock form of
proxy does not preclude a stockholder from voting in person. A stockholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
Ultramar (in the case of an Ultramar stockholder) or the Secretary of Diamond
Shamrock (in the case of a Diamond Shamrock stockholder) a duly executed
revocation of proxy, by submitting a duly executed proxy bearing a later date or
by appearing at the applicable Special Meeting and voting in person at such
Special Meeting. Attendance at the relevant Special Meeting will not, in and of
itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Each of Ultramar and Diamond Shamrock will bear the cost of the solicitation
of proxies from its own stockholders, except that Ultramar and Diamond Shamrock
will share equally the cost of printing this Proxy Statement and the applicable
fees associated with the filing of this Proxy Statement with the Commission. In
addition to solicitation by mail, the directors, officers and employees of each
Company and its subsidiaries may solicit proxies from stockholders of such
Company by telephone or telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and Ultramar and Diamond Shamrock will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
Corporate Investor Communications, Inc. will assist in the solicitation
of proxies by Ultramar and Georgeson and Company, Inc. will assist in the
solicitation of proxies by Diamond Shamrock. Each such firm will receive
customary fees for its services.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
23
<PAGE>
THE MERGER
GENERAL
The Boards of Directors of Ultramar and Diamond Shamrock have approved the
Merger Agreement, which provides for the Merger to occur at the Effective Time,
with Ultramar continuing as the surviving corporation. This section of the Proxy
Statement describes certain aspects of the proposed Merger and the Merger
Agreement. The description of the Merger and the Merger Agreement contained in
this Proxy Statement does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A and which is incorporated herein by reference. All
stockholders of Ultramar and Diamond Shamrock are urged to read carefully the
Merger Agreement in its entirety.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the DGCL, at the Effective Time Diamond Shamrock will merge with
and into Ultramar. Ultramar will be the surviving corporation in the Merger, and
will continue its corporate existence under Delaware law under the name
"Ultramar Diamond Shamrock Corporation." The Ultramar Charter, as in effect
immediately prior to the Effective Time (and as amended as described herein),
will be the Certificate of Incorporation of the Combined Company, and the
Ultramar By-laws, as in effect immediately prior to the Effective Time (and as
amended as described herein), will be the By-laws of the Combined Company.
MERGER CONSIDERATION
Upon consummation of the Merger, (i) each outstanding share of Diamond
Shamrock Common Stock, other than shares owned by Ultramar or Diamond Shamrock
or any wholly owned subsidiary of Ultramar or Diamond Shamrock, will be
converted into the right to receive 1.02 fully paid and nonassessable shares of
Ultramar Common Stock (except that cash will be paid in lieu of fractional
shares as described under "Other Terms of the Merger and the Merger Agreement --
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares" below) and (ii) each outstanding share of Diamond Shamrock Convertible
Preferred Stock, other than shares owned by Ultramar or Diamond Shamrock or any
wholly-owned subsidiary of Ultramar or Diamond Shamrock and shares owned by
persons who perfect their appraisal rights under the DGCL, will be converted
into the right to receive one fully paid and nonassessable share of a newly
established series of Ultramar Convertible Preferred Stock having substantially
the same terms as the share of Diamond Shamrock Convertible Preferred Stock
being so converted, except that (a) the issuer thereof will be Ultramar and (b)
the Ultramar Convertible Preferred Stock will be convertible as of the Effective
Time at the conversion price necessary to make each share of Ultramar
Convertible Preferred Stock convertible into the number of shares of Ultramar
Common Stock receivable upon the Merger by a holder of the number of shares of
Diamond Shamrock Common Stock into which one share of Diamond Shamrock
Convertible Preferred Stock could have been converted immediately prior to the
Merger. As of the Effective Time, all such shares of Diamond Shamrock Common
Stock and Diamond Shamrock Convertible Preferred Stock, as the case may be,
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist and each holder of a certificate representing any
shares of Diamond Shamrock Common Stock or Diamond Shamrock Convertible
Preferred Stock, as the case may be, shall cease to have any rights in respect
thereto. See "Other Terms of the Merger and the Merger Agreement -- Conversion
of Shares; Procedures for Exchange of Certificates; Fractional Shares." The
Exchange Ratio was determined through arm's-length negotiations between Ultramar
and Diamond Shamrock.
Any shares of Diamond Shamrock Common Stock or Diamond Shamrock Convertible
Preferred Stock owned immediately prior to the Effective Time by Ultramar,
Diamond Shamrock or any of their wholly owned subsidiaries will be cancelled.
The terms of the Ultramar Convertible Preferred Stock are more fully
described under "Description of Capital Stock -- Description of Ultramar
Convertible Preferred Stock."
24
<PAGE>
EFFECTIVE TIME
The Effective Time will be the time of the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or such later time as is
agreed upon by Ultramar and Diamond Shamrock and specified in such Certificate
of Merger. The filing of the Certificate of Merger will occur as soon as
practicable but no later than the second business day after satisfaction or
waiver of the conditions to the consummation of the Merger set forth in the
Merger Agreement unless another date is agreed to in writing by Diamond Shamrock
and Ultramar. See "Other Terms of the Merger and the Merger Agreement --
Conditions to the Consummation of the Merger."
BACKGROUND OF THE MERGER
Commencing in March 1994, from time to time representatives of the
managements of the Companies conducted facility reviews and exchanges of
information designed to permit each Company to improve the efficiency of its
operations in areas such as refining technology, benefit programs and finance.
These so-called "benchmarking" activities included visits by Roger R.
Hemminghaus, Chairman, Chief Executive Officer and President of Diamond
Shamrock, and certain other senior executives of Diamond Shamrock to certain of
Ultramar's Canadian facilities in October 1994, and visits by Jean Gaulin,
Chairman of the Board and Chief Executive Officer of Ultramar, and certain other
senior executives of Ultramar to Diamond Shamrock's principal executive offices
in San Antonio, Texas and Diamond Shamrock's McKee refinery near San Antonio,
Texas in January 1995. During these visits, Messrs. Hemminghaus and Gaulin
discussed on a preliminary basis mutual areas of interest which the Companies
could pursue on a joint basis.
On May 14, 1996, Messrs. Hemminghaus and Gaulin met, at Mr. Hemminghaus'
suggestion, to explore a possible strategic combination of the two Companies.
Messrs. Hemminghaus and Gaulin reviewed, among other things, the businesses and
strategies of their respective Companies and discussed, on a preliminary basis,
various cost-saving opportunities and operational and strategic synergies that
could result from a strategic combination. While Messrs. Hemminghaus and Gaulin
explored on a preliminary basis a number of possible alternatives in these and
subsequent discussions, including the possible acquisition of one Company by the
other, in light of, among other factors, the similarities of the two Companies
and the fact that both Companies were pursuing similar strategies, albeit in
different geographic areas in North America, the primary focus of the
discussions between Messrs. Hemminghaus and Gaulin was based upon the concept of
a "merger of equals" -- I.E., a strategic combination of two similarly sized
companies in which neither is acquiring the other and each has an approximately
equal voice in the management of the combined company. In addition, in all of
the discussions, each of Messrs. Hemminghaus and Gaulin expressed to the other
that he believed a sale of his respective Company would not be in the best
interests of that Company or its stockholders. On this basis, at their May 14,
1996 meeting, Messrs. Hemminghaus and Gaulin agreed that it would be appropriate
to continue their preliminary discussions.
To obtain advice and assistance in considering, on a preliminary basis,
possible strategic benefits that could result from a merger of equals
transaction and the issues that would be required to be considered if such a
transaction were to be pursued, Diamond Shamrock requested the assistance of
Wasserstein Perella, which firm had acted as Diamond Shamrock's financial
advisor in the NCS Acquisition, and Jones Day, Diamond Shamrock's regular
outside counsel in respect of transactional and finance matters. Ultramar
requested the assistance of Merrill Lynch and of Tanner & Co., Inc. ("Tanner"),
which firms had from time to time provided financial advisory assistance to
Ultramar, and of Cravath, Ultramar's regular outside counsel in respect of
transactional and finance matters.
On July 29, 1996 and August 7, 1996, Messrs. Hemminghaus and Gaulin met to
continue their preliminary discussions of a possible business combination
transaction. The topics discussed at the two meetings were similar to those
discussed at the May 14, 1996 meeting. In addition, at the August 7, 1996
meeting, Messrs. Hemminghaus and Gaulin discussed the comparative business and
financial characteristics of the two Companies, the potential impact of a
combination on the stockholders of each Company, potential synergies from a
business combination, the composition of the management and the board of
directors of a combined company, the corporate cultures of the two Companies and
25
<PAGE>
strategic activities and projects being pursued by the two Companies. At the
conclusion of the August 7, 1996 meeting, it was determined that it would be
appropriate for the parties to amend the confidentiality agreement entered into
in connection with the exchanges of information beginning in 1994 to cover a
possible business combination transaction (which amendment was signed on
September 3, 1996).
On August 21, 1996, Mr. Gaulin and Mr. Hemminghaus spoke by telephone and
agreed to meet with each other's senior management teams on September 3-4, 1996
to exchange information and explore the possibility of a business combination
transaction. The senior executive officers of the two Companies, including
Messrs. Gaulin and Hemminghaus, met on September 3-4, 1996. At these meetings,
representatives of the Companies exchanged information regarding their
respective businesses, operations, financial matters, strategies, prospects and
personnel and agreed upon a timetable designed to permit the two Companies to
exchange due diligence materials and take other actions so that a decision could
be made as to whether to pursue the possible business combination over the
succeeding three weeks. Messrs. Hemminghaus and Gaulin also met separately on
several occasions on September 3-4, 1996, during which they reached a
preliminary consensus on various issues, including the composition of the senior
management team for the combined company, all within the context of
consideration of a possible merger of equals transaction.
During the ensuing three-week period, financial, legal, accounting and
management representatives of the two Companies and their legal and financial
advisors met on various occasions to carry out due diligence reviews of the two
Companies, to discuss the financial, structural, legal and other terms of a
possible merger of equals transaction and to negotiate the terms of the Merger
Agreement, the Stock Option Agreements and certain other matters, including
employee benefits arrangements. On September 11, 1996, Ultramar retained Merrill
Lynch to act as a financial advisor with respect to a potential strategic
transaction with Diamond Shamrock. The discussions were conducted on a
substantially continuous basis over such three-week period, culminating in an
agreement on the terms of a possible transaction over the weekend of September
21-22, 1996.
During the period preceding and including the week of September 16, 1996,
each Company held various formal and informal meetings with its respective Board
of Directors (and, in the case of Ultramar, Committees thereof) to review the
possible business combination transaction or specific aspects thereof, including
(i) in Ultramar's case, meetings of (a) Ultramar's Board of Directors on July
25, 1996 and September 5 and 22, 1996, (b) Ultramar's Finance and Planning
Committee on July 24, 1996 and September 16, 1996 and (c) Ultramar's
Compensation Committee on September 16, 18 and 21, 1996 and (ii) in Diamond
Shamrock's case, meetings of the Diamond Shamrock Board of Directors on June 4,
1996, August 6, 1996 and September 19 and 22, 1996. In addition, during the week
of September 16, 1996, the parties continued their respective due diligence
reviews and conducted negotiations relating to financial and other terms of a
possible business combination, and exchanged drafts of the Merger Agreement and
the Stock Option Agreements.
A special meeting of the Diamond Shamrock Board was held on September 19,
1996, at which the possible business combination with Ultramar was reviewed with
the Diamond Shamrock Board by Diamond Shamrock's senior management, with the
assistance of Jones Day and Wasserstein Perella. The presentations to and
discussions by the Diamond Shamrock Board were wide ranging and detailed, and
included, among other things, (i) a presentation by Jones Day regarding the
duties of directors in considering a possible business combination, (ii) a
review by senior management of the discussions conducted to date with
representatives of Ultramar, (iii) a review by senior management of Ultramar's
business, operations, financial condition, results of operations, strategies,
prospects and personnel, (iv) a review by senior management of management's
views as to Diamond Shamrock's business, financial condition and prospects as an
independent company and its existing strategic plan, (v) a review by senior
management of strategic alternatives available to Diamond Shamrock separately
and if it were to combine with Ultramar, (vi) a review by senior management as
to how a merger of equals transaction could be implemented, including the
expected composition of the board of directors and senior management of the
combined company, and (vii) a presentation by Wasserstein Perella of its views
of the possible financial benefits to Diamond Shamrock of, and likely stock
market reactions to, a possible
26
<PAGE>
business combination involving Diamond Shamrock and Ultramar, together with a
review of the transaction from the perspective of Diamond Shamrock's
stockholders based upon alternative assumptions as to exchange ratios. In
addition, Diamond Shamrock's Board considered in detail the principal terms of
possible employment contracts for Messrs. Hemminghaus and Gaulin and other
senior executives of the Combined Company which, were the transaction to
proceed, would replace their existing employment/ severance agreements with
Diamond Shamrock or Ultramar, as the case may be.
The discussions among representatives of the parties substantially concluded
on September 21, 1996. On September 21, 1996, Mr. Hemminghaus attended a dinner
meeting of the members of the Ultramar Board at which Mr. Hemminghaus reviewed
various matters relating to the business, operations, prospects and management
of Diamond Shamrock and Mr. Hemminghaus' views as to the possible business
combination.
A special meeting of the Ultramar Board was held on September 22, 1996, with
all members present, at which the possible business combination with Diamond
Shamrock was reviewed with the Ultramar Board by Ultramar's senior management,
with the assistance of Cravath, Merrill Lynch and Tanner. At this meeting, (i)
the Ultramar Board received presentations regarding and discussed the merits of
the potential business combination and (ii) recommendations with respect to
executive compensation and employment agreements were made to the Ultramar Board
by the Compensation Committee (which recommendations were approved by the
Ultramar Board). Representatives of Cravath reviewed the terms of the proposed
Merger Agreement and the Stock Option Agreements and the other terms of the
transaction, as well as certain other matters. Representatives of Merrill Lynch
then presented such firm's financial analysis of the possible business
combination and delivered its written opinion to the Ultramar Board that, as of
such date, the Exchange Ratio was fair from a financial point of view to
Ultramar and, accordingly, to its stockholders. Merrill Lynch subsequently
confirmed its opinion dated September 22, 1996 by delivery of its written
opinion dated the date of this Proxy Statement. See "--Opinions of Financial
Advisors -- Ultramar." Following discussion, the Ultramar Board, by unanimous
vote, approved the Merger Agreement, the Stock Option Agreements and the
transactions contemplated thereby, including the amendment to Ultramar's Rights
Plan and the employment agreements for Mr. Gaulin and certain other senior
executives of Ultramar. See "-- Certain Executive Compensation and Other
Employee -- Related Matters in connection with the Merger."
A special meeting of the Diamond Shamrock Board was also held on September
22, 1996, at which the possible business combination was reviewed with the
Diamond Shamrock Board by Diamond Shamrock's senior management, with the
assistance of Jones Day and Wasserstein Perella. All of the members of Diamond
Shamrock's Board were present at the meeting, except for one director who was
travelling in Europe and not available for the meeting. At the meeting, the
Diamond Shamrock Board had presentations regarding and discussed various
matters, including, among other things, the following: (i) a review by senior
management of the course of the discussions with Ultramar and the financial
terms of the possible transaction, (ii) a review by Jones Day of the other terms
of the possible transaction, including the termination provisions of the draft
Merger Agreement and the terms of the Stock Option Agreements, and (iii) a
detailed presentation by senior management and Jones Day regarding the employee
compensation and benefits provisions of the draft Merger Agreement as well as
the proposed employment contracts for Messrs. Hemminghaus and Gaulin and certain
other senior executives to replace their existing employment/severance
agreements. Representatives of Wasserstein Perella then presented such firm's
financial analysis of the possible business combination and orally informed the
Diamond Shamrock Board, which oral advice was subsequently confirmed in writing,
that, as of the date of such opinion, in the opinion of Wasserstein Perella, the
Exchange Ratio was fair to the holders of Diamond Shamrock Common Stock from a
financial point of view. Wasserstein Perella subsequently confirmed its opinion
dated September 22, 1996 by delivery of its written opinion dated as of the date
of this Proxy Statement. See "-- Opinions of Financial Advisors -- Diamond
Shamrock." Following discussion, the Diamond Shamrock Board, by unanimous vote
of all directors present, approved the Merger Agreement, the Stock Option
Agreements and the transactions contemplated thereby, including the
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amendment to Diamond Shamrock's Rights Plan and the employment agreements for
Mr. Hemminghaus and certain other senior executives of Diamond Shamrock. See
"Certain Executive Compensation and Other Employee -- Related Matters in
connection with the Merger."
Following the Diamond Shamrock Board meeting on September 22, 1996,
representatives of Diamond Shamrock and Ultramar executed the Merger Agreement
and, on September 23, 1996, the parties jointly announced the transaction.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
RECOMMENDATIONS OF THE ULTRAMAR BOARD. THE BOARD OF DIRECTORS OF ULTRAMAR
HAS UNANIMOUSLY DETERMINED THAT THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT (INCLUDING THE ISSUANCE OF ULTRAMAR COMMON STOCK AND
ULTRAMAR CONVERTIBLE PREFERRED STOCK IN THE MERGER AND THE AMENDMENT OF THE
ULTRAMAR CHARTER) ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
ULTRAMAR, AND HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT ULTRAMAR
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, ON
OCTOBER 22, 1996, THE ULTRAMAR BOARD APPROVED THE INCENTIVE PLAN AND RECOMMENDS
THAT ULTRAMAR'S STOCKHOLDERS VOTE "FOR" APPROVAL OF THE INCENTIVE PLAN.
The decision of the Ultramar Board to approve the Merger Agreement and
recommend the adoption thereof by holders of Ultramar Common Stock was based
upon various factors, including, in addition to the factors mentioned in
"Management and Operations of the Combined Company -- The Combined Company" and
"-- Background of the Merger," the following:
(i) the Ultramar Board's understanding of the conditions in the
refining and marketing industry in North America, the strategic options
available to Ultramar, the likelihood of future consolidation in the
refining and marketing industry in North America and the limitations placed
on Ultramar's ability to take advantage of such opportunities due to its
present size;
(ii) the Ultramar Board's consideration of Ultramar's strategic plan as
an independent company and the belief that Ultramar's ability to pursue its
plan would be enhanced by the Merger;
(iii) the Ultramar Board's consideration of the business, operations,
financial position, prospects and personnel of Ultramar and Diamond
Shamrock;
(iv) the Ultramar Board's consideration of information regarding the
business and financial prospects of Ultramar and Diamond Shamrock, including
potential synergies;
(v) the Ultramar Board's consideration of the fit between the respective
businesses of Ultramar and Diamond Shamrock and the potential to expand the
Combined Company's operations in the southwestern United States, and the
belief that the results of operations of the Combined Company would be less
volatile due to its geographic and product diversity;
(vi) the Ultramar Board's consideration of the commitment of Roger
Hemminghaus, Diamond Shamrock's Chairman and Chief Executive Officer, to
continue with the Combined Company and the compatibility and strength of the
senior management teams of the two Companies;
(vii) the Ultramar Board's consideration of the expectation that, based
on the Exchange Ratio, the Merger would be accretive to holders of Ultramar
Common Stock on both an earnings and cash flow basis;
(viii) the Ultramar Board's belief that the transaction would be
accomplished on a tax-free basis for federal income tax purposes (other than
cash received in lieu of fractional shares) and accounted for as a "pooling
of interests" transaction;
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(ix) the Ultramar Board's consideration of presentations by, and
discussions with, senior executives of Ultramar and representatives of
Cravath regarding the terms of the Merger Agreement, Stock Option
Agreements, the amendment to Ultramar's Rights Plan and the employment
contracts with Messrs. Gaulin, Hemminghaus and other senior executives, and
the results of the management's due diligence review; and
(x) the Ultramar Board's receipt of Merrill Lynch's opinions described
below that, as of September 22, 1996 and as of the date of this Proxy
Statement, the Exchange Ratio was fair from a financial point of view to
Ultramar and, accordingly, to the holders of Ultramar Common Stock.
The foregoing discussion of the information and factors considered and given
weight by the Ultramar Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Ultramar Board did not find it practicable to and did not attempt to rank or
assign relative weights to the foregoing factors. In addition, individual
members of the Ultramar Board may have given different weights to different
factors.
RECOMMENDATION OF THE DIAMOND SHAMROCK BOARD. THE BOARD OF DIRECTORS OF
DIAMOND SHAMROCK (WITH EIGHT DIRECTORS PRESENT AND ONE DIRECTOR ABSENT) HAS
UNANIMOUSLY DETERMINED THAT THE MERGER AND OTHER TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS
OF DIAMOND SHAMROCK, AND HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
DIAMOND SHAMROCK STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
The decision of the Diamond Shamrock Board to approve the Merger Agreement
and recommend the adoption thereof by holders of Diamond Shamrock Common Stock
was based upon various factors, including, in addition to the factors mentioned
in "Management and Operations of the Combined Company -- The Combined Company"
and " -- Background of the Merger," the following:
(i) the Diamond Shamrock Board's understanding of the conditions in the
refining and marketing industry in North America, the strategic options
available to Diamond Shamrock, the likelihood of future consolidation in the
refining and marketing industry in North America and the limitations placed
on Diamond Shamrock's ability to take advantage of such opportunities due to
its present size and level of leverage following the NCS Acquisition;
(ii) the Diamond Shamrock Board's consideration of Diamond Shamrock's
strategic plan as an independent company and the belief that Diamond
Shamrock's ability to pursue its plan would be enhanced by the Merger;
(iii) the Diamond Shamrock Board's consideration of the business,
operations, financial position, prospects and personnel of Diamond Shamrock
and Ultramar;
(iv) the Diamond Shamrock Board's consideration of information regarding
the business and financial prospects of Diamond Shamrock and Ultramar,
including potential synergies;
(v) the Diamond Shamrock Board's consideration of the fit between the
respective businesses of Diamond Shamrock and Ultramar and the potential to
expand the Combined Company's operations in the southwestern United States,
and the belief that the results of operations the Combined Company would be
less volatile due to its geographic and product diversity;
(vi) the Diamond Shamrock Board's consideration of the commitment of
Jean Gaulin, Ultramar's Chairman and Chief Executive Officer, to continue
with the Combined Company and the compatibility and strength of the senior
management teams of the two Companies;
(vii) the Diamond Shamrock Board's consideration of the expectation that,
based on the Exchange Ratio, the Merger would be accretive to holders of
Diamond Shamrock Common Stock on both an earnings and cash flow basis, and
that holders of Diamond Shamrock Common Stock would receive a higher
dividend pay-out per share after the Merger;
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(viii) the Diamond Shamrock Board's consideration that the transaction
was structured as a merger of equals and not a sale of Diamond Shamrock;
(ix) the Diamond Shamrock Board's belief that the transaction would be
accomplished on a tax-free basis for federal income tax purposes (other than
cash received in lieu of fractional shares) and accounted for as a "pooling
of interests" transaction;
(x) the Diamond Shamrock Board's consideration of presentations, and
discussions with senior executives of Diamond Shamrock and representatives
of Jones Day and Wasserstein Perella, regarding the terms of the Merger
Agreement, Stock Option Agreements, the Diamond Shamrock Rights Plan
Amendment and the employment contracts with Messrs. Hemminghaus, Gaulin and
other senior executives, and the results of the management's due diligence
review; and
(xi) the Diamond Shamrock Board's receipt of Wasserstein Perella's
opinion that, as of the date of the September 22, 1996 Board meeting (which
opinion has been reissued as of the date of this Proxy Statement), the
Exchange Ratio is fair to the holders of Diamond Shamrock Common Stock from
a financial point of view.
The foregoing discussion of the information and factors considered and given
weight by the Diamond Shamrock Board is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Diamond Shamrock Board did not find it practicable to and did not
attempt to rank or assign relative weights to the foregoing factors. In
addition, individual members of the Diamond Shamrock Board may have given
different weights to different factors.
OPINIONS OF FINANCIAL ADVISORS
ULTRAMAR. Ultramar retained Merrill Lynch to act as a financial advisor in
connection with the Merger. On September 22, 1996, Merrill Lynch rendered to the
Ultramar Board its written opinion that, as of such date and based upon and
subject to the factors and assumptions set forth in such written opinion, the
Exchange Ratio was fair from a financial point of view to Ultramar and,
accordingly, to the holders of Ultramar Common Stock. Merrill Lynch subsequently
delivered its written opinion dated the date of this Proxy Statement (the
"Merrill Lynch Opinion") that, as of such date and based upon and subject to the
factors and assumptions set forth in such written opinion, the Exchange Ratio
was fair from a financial point of view to Ultramar and, accordingly, to the
holders of Ultramar Common Stock. The full text of the Merrill Lynch Opinion,
which sets forth the assumptions made, matters considered, qualifications and
limitations on the review undertaken by Merrill Lynch, is attached as Appendix B
to this Proxy Statement and is incorporated herein by reference. The summary of
the Merrill Lynch Opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such opinion. No limitations were
imposed by the Ultramar Board upon Merrill Lynch with respect to investigations
made or procedures followed by Merrill Lynch in rendering the Merrill Lynch
Opinion.
The Merrill Lynch Opinion was provided to the Ultramar Board for its
information and is directed only to the fairness from a financial point of view
of the Exchange Ratio to Ultramar and, accordingly, to the holders of Ultramar
Common Stock and does not constitute a recommendation to any Ultramar
stockholder as to how such stockholder should vote at the Ultramar Special
Meeting. The Exchange Ratio was determined through negotiations between Ultramar
and Diamond Shamrock and was approved by the Ultramar Board. The Merrill Lynch
Opinion is based upon market, economic, financial and other conditions as they
existed and could be evaluated as of the date of the Merrill Lynch Opinion.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Ultramar Board. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the
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significance and relevance of each analysis and factor. Accordingly, Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Ultramar or Diamond Shamrock. Any estimates contained in the analyses performed
by Merrill Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the value of businesses or securities
do not purport to be appraisals or to reflect the prices at which such
businesses or securities might actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. In addition, as
described above, the opinion of Merrill Lynch delivered to the Ultramar Board on
September 22, 1996 and Merrill Lynch's presentation to the Ultramar Board were
among several factors taken into consideration by the Ultramar Board in making
its determination to approve the Merger Agreement. Consequently, the Merrill
Lynch analyses described below should not be viewed as determinative of the
decision of the Ultramar Board to approve the Merger.
In arriving at its opinion, Merrill Lynch, among other things, reviewed
certain publicly available business and financial information relating to each
of Ultramar and Diamond Shamrock, as well as the Merger Agreement and the Stock
Option Agreements. Merrill Lynch also reviewed certain other information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities, prospects and margins of Diamond Shamrock and Ultramar, as
well as the cost savings and related expenses, synergies and other merger
benefits expected to result from the Merger, in each case furnished to it by
Diamond Shamrock and Ultramar. Merrill Lynch also met with members of senior
management of Diamond Shamrock and Ultramar concerning their respective
businesses, prospects and the cost savings and related expenses, synergies and
other merger benefits expected to result from the Merger.
Merrill Lynch reviewed the historical market prices and trading activity for
the Diamond Shamrock Common Stock and the Ultramar Common Stock and compared
them with those of certain publicly traded companies that it deemed to be
reasonably similar to Diamond Shamrock and Ultramar, respectively. Merrill Lynch
also compared the historical and projected results of operations of Diamond
Shamrock and Ultramar with those of certain companies that it deemed to be
reasonably similar to Diamond Shamrock and Ultramar, respectively. In addition,
Merrill Lynch reviewed the financial terms of certain other business
combinations that it deemed relevant. Merrill Lynch reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as it deemed necessary, including its assessment
of general economic, market and monetary conditions.
In connection with its review, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to Merrill
Lynch by Diamond Shamrock and Ultramar, and Merrill Lynch did not independently
verify such information or undertake an independent appraisal of the assets or
liabilities of Diamond Shamrock or Ultramar. With respect to the financial
forecasts, including the projected margins, and the information related to the
cost savings and related expenses, synergies and other merger benefits expected
to result from the Merger furnished by Diamond Shamrock and Ultramar, Merrill
Lynch assumed that such forecasts and information were reasonably prepared and
reflected the best currently available estimates and judgments of the management
of Diamond Shamrock or Ultramar as to the expected future financial performance
of Diamond Shamrock or Ultramar, as the case may be, as well as such savings,
expenses, synergies and other benefits. In addition, Merrill Lynch assumed that
the Merger will qualify for pooling-of-interests accounting treatment in
accordance with generally accepted accounting principles and as a tax-free
reorganization for United States federal income tax purposes. The Merrill Lynch
Opinion is necessarily based upon market, economic, financial and other
conditions as they existed and could be evaluated as of the date of such
opinion.
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The following is a summary of the analyses performed by Merrill Lynch in
connection with the preparation of the opinion dated September 22, 1996 of
Merrill Lynch and presented to the Ultramar Board on that date.
COMPARABLE COMPANY ANALYSIS. Merrill Lynch performed a comparable company
analysis in which it compared certain publicly available historical financial
and operating data, estimates of future financial performance (reflecting
Merrill Lynch research and First Call Corporation estimates) and market
statistics (calculated based upon closing stock prices on September 19, 1996) of
publicly traded refining and marketing companies that Merrill Lynch deemed to be
reasonably similar to Ultramar and Diamond Shamrock. The comparable companies
were Ashland, Inc., Sun Company, Inc., Tosco Corporation and Total Petroleum
(North America) Ltd. (together with Ultramar and Diamond Shamrock, the "Peer
Group"). Merrill Lynch compared the market value and Adjusted Market Value of
each of the Peer Group companies. For purposes of this analysis, Merrill Lynch
defined "Adjusted Market Value" as market value plus total debt, minority
interest and preferred equity less cash and long-term investments. Merrill Lynch
compared Adjusted Market Value as a multiple of each of (i) latest 12 months
("LTM") revenues, (ii) LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"), (iii) estimated 1996 EBITDA, (iv) estimated 1997
EBITDA, (v) LTM earnings before interest and taxes ("EBIT") and (vi) total
assets. The following multiples resulted from such calculation: (i) for LTM
revenues, 0.56x for Ultramar, 0.55x for Diamond Shamrock and a range of 0.26x to
0.56x for the Peer Group, (ii) for LTM EBITDA, 7.5x for Ultramar, 10.1x for
Diamond Shamrock and a range of 6.1x to 10.1x (with an average of 7.9x) for the
Peer Group, (iii) for estimated 1996 EBITDA, 6.9x for each of Ultramar and
Diamond Shamrock and a range of 5.1x to 7.4x (with an average of 6.5x) for the
Peer Group, (iv) for estimated 1997 EBITDA, 5.0x for Ultramar, 5.6x for Diamond
Shamrock and a range of 4.2x to 6.2x (with an average of 5.3x) for the Peer
Group, (v) for LTM EBIT, 10.6x for Ultramar, 19.4x for Diamond Shamrock and a
range of 10.6x to 27.8x (with an average of 17.8x) for the Peer Group, and (vi)
for total assets, 0.79x for Ultramar, 0.86x for Diamond Shamrock and a range of
0.53x to 1.00x for the Peer Group.
Merrill Lynch also compared market value as a multiple of each of (i) LTM
net income, (ii) estimated 1996 net income, (iii) estimated 1997 net income,
(iv) 1996 estimated cash flow from operations ("CFFO"), (v) 1997 estimated CFFO,
and (vi) book equity value. The following multiples resulted from such
calculation: (i) for LTM net income, 17.4x for Ultramar, 27.6x for Diamond
Shamrock and a range of 16.0x to 34.3x (with an average of 22.9x) for the Peer
Group, (ii) for estimated 1996 net income, 17.2x for Ultramar, 16.7x for Diamond
Shamrock and a range of 14.4x to 38.9x (with an average of 21.9x) for the Peer
Group, (iii) for 1997 estimated net income, 10.5x for each of Ultramar and
Diamond Shamrock and a range of 10.5x to 17.2x (with an average of 12.8x) for
the Peer Group, (iv) for estimated 1996 CFFO, 6.5x for Ultramar, 5.4x for
Diamond Shamrock and a range of 5.1x to 6.5x (with an average of 5.6x) for the
Peer Group, (v) for 1997 estimated CFFO, 5.3x for Ultramar, 4.4x for Diamond
Shamrock and a range of 4.2x to 5.6x (with an average of 4.8x) for the Peer
Group, and (vi) for book equity value, 1.74x for Ultramar, 1.50x for Diamond
Shamrock and a range of 1.04x to 2.26x for the Peer Group.
No company utilized in the comparable company analysis was identical to
Diamond Shamrock or Ultramar. Accordingly, an analysis of the results of such a
comparison is not purely mathematical but instead it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
COMPARABLE ACQUISITION ANALYSIS.
SELECTED REFINERY ACQUISITIONS. Merrill Lynch reviewed certain publicly
available information regarding 48 North American refinery acquisitions
completed during the eight-year period beginning in 1988 and ending in 1995 (the
"Refinery Comparables"). For each of the Refinery Comparables, Merrill Lynch
compared (i) the purchase price as a multiple of operating cash flow and of net
property, plant and equipment ("PP&E"), (ii) the refinery assets value (which,
for purposes of this analysis, Merrill Lynch defined as total deal value less
value attributed to non-refinery assets) divided by barrels per day of refining
capacity to yield a price paid per barrel of daily capacity, and (iii) price
paid per barrel of daily
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capacity, as described above, adjusted for the Nelson Complexity Index to yield
a price paid per complexity barrel of daily capacity. Nelson complexities for
1994 and 1995 were estimated by Merrill Lynch based on OIL & GAS JOURNAL process
breakdowns. Nelson complexities prior to 1994 were provided by Purvin & Gertz
Inc. and PETROLEUM INTELLIGENCE WEEKLY. In addition, Merrill Lynch calculated
the average of each such category for the Refinery Comparables completed during
each of the eight years reviewed, as well as the average of each such annual
average. Such calculation yielded the following averages of each of the annual
averages: total deal value as a multiple of operating cash flow of 7.0x, total
deal value as a multiple of net PP&E of 1.2x, price paid per barrel of daily
capacity of $1,844 and price paid per complexity barrel of daily capacity of
$296.1.
SELECTED RETAIL STATION ACQUISITIONS. Merrill Lynch also reviewed certain
publicly available information regarding 23 North American retail station
acquisitions announced between March 1991 and March 1996 (the "Retail Station
Comparables"). For each of the Retail Station Comparables, Merrill Lynch (i)
compared the acquisition price per store and acquisition price per gallon
(annual) and (ii) calculated the average value of both for each year from 1991
through 1996. The analysis indicated that for the years 1993 through 1996, (i)
the averages for the acquisition price per store were $239,278, $728,729,
$317,526 and $441,000, respectively, and (ii) the averages for the acquisition
price per gallon (annual) were $0.12, $0.41, $0.31 and $0.60, respectively. Such
data was not available for the transactions completed in 1991 and 1992.
Merrill Lynch noted that, although numerous asset acquisitions have recently
been completed in the refining and marketing industry, there have been few
recent business combinations involving public companies. Accordingly, Merrill
Lynch advised the Ultramar Board that it had disregarded the comparable
acquisition analysis for purposes of assessing the fairness of the Exchange
Ratio.
HISTORICAL IMPLIED EXCHANGE RATIO BASED ON HISTORICAL STOCK PRICES. Merrill
Lynch calculated the historical implied exchange ratios for various intervals in
the one-year period ended September 20, 1996 (calculated based upon closing
stock prices). Such analysis indicated the following implied exchange ratio
ranges: (i) 0.9410 to 1.1838, with an average of 1.0512, for the year ended
September 20, 1996, (ii) 0.9410 to 1.1656, with an average of 1.0536, for the
six months ended September 20, 1996, (iii) 0.9686 to 1.1656, with an average of
1.0486, for the 50 trading days ended September 20, 1996, (iv) 0.9686 to 1.1150,
with an average of 1.0167, for the 20 trading days ended September 20, 1996, (v)
0.9726 to 1.1150, with an average of 1.0327, for the ten trading days ended
September 20, 1996, (vi) 1.0179 to 1.1150, with an average of 1.0548, for the
five trading days ended September 20, 1996, and (vii) 1.0614 (calculated on the
basis of closing stock prices on September 20, 1996), compared in each case to
the Exchange Ratio.
COMPARATIVE DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed a
discounted cash flow analysis of Ultramar, on a stand-alone basis, based upon
estimates of projected financial performance prepared by the management of
Ultramar (the "Ultramar Management Case"). Merrill Lynch also performed
discounted cash flow analyses of Diamond Shamrock, on a stand-alone basis, based
upon (i) estimates of projected financial performance prepared by the management
of Diamond Shamrock (the "Diamond Shamrock Management Case") and (ii) estimates
of projected financial performance incorporating adjustments to the Diamond
Shamrock Management Case made by the management of Ultramar (the "Diamond
Shamrock Adjusted Management Case"). For each of the cases described above,
Merrill Lynch discounted the unlevered after-tax cash flows for the period
beginning in 1997 and ending in 2001 using discount rates of 10% and 11%. These
discount rates were based on the weighted average cost of capital for certain
companies in the refinery and marketing industry. Merrill Lynch added to the
present value of the cash flows the terminal value in the year 2001, discounted
back at the same discount rates. The terminal value was calculated by
multiplying the 2001 EBITDA by terminal multiples of 5.5x and 6.0x. Merrill
Lynch then compared the resulting per share equity value of Diamond Shamrock
with that of Ultramar to arrive at a range of implied exchange ratios. For
purposes of this analysis, Merrill Lynch analyzed two scenarios with respect to
synergies resulting from the Merger as projected by the managements of Ultramar
and Diamond Shamrock. First, Merrill Lynch attributed no synergies to the
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cash flows and thus to the value of either Ultramar or Diamond Shamrock in
calculating the implied exchange ratios. Second, Merrill Lynch attributed 50% of
the synergies to the cash flows and thus to the value of Diamond Shamrock in
calculating the implied exchange ratios.
Based on the Diamond Shamrock Management Case and assuming no attribution of
synergies, Merrill Lynch calculated an implied exchange ratio of 1.16 to 1.19.
Based on the Diamond Shamrock Adjusted Management Case and assuming no
attribution of synergies, Merrill Lynch calculated an implied exchange ratio of
1.00 to 1.04. Based upon the Diamond Shamrock Management Case and assuming that
50% of the projected synergies would be attributed to the value of Diamond
Shamrock, Merrill Lynch calculated an implied exchange ratio of 1.32 to 1.34.
Based upon the Diamond Shamrock Adjusted Management Case and assuming that 50%
of the projected synergies would be attributed to the value of Diamond Shamrock,
Merrill Lynch calculated an implied exchange ratios of 1.15 to 1.19.
Merrill Lynch also analyzed the sensitivity of its comparative discounted
cash flow valuation to changes in fuel and refining margins. Using a base case
(the "Base Case") in which Merrill Lynch applied a discount rate of 11% and a
terminal value EBITDA multiple of 6.0x to derive an implied exchange ratio of
1.023, Merrill Lynch analyzed the impact of 5% and 10% increases and decreases
in such margins for both Ultramar and Diamond Shamrock. Its analysis indicated
that (i) a 10% increase for both Ultramar and Diamond Shamrock would reduce the
implied exchange ratio to 1.018, a variance from the Base Case of (0.5%); (ii) a
5% increase for both Ultramar and Diamond Shamrock would reduce the implied
exchange ratio to 1.020, a variance from the Base Case of (0.3%); (iii) a 5%
decrease for both Ultramar and Diamond Shamrock would increase the implied
exchange ratio to 1.028, a variance from the Base Case of 0.5%; and (iv) a 10%
decrease for both Ultramar and Diamond Shamrock would increase the implied
exchange ratio to 1.034, a variance from the Base Case of 1.1%.
CONTRIBUTION ANALYSIS.
MANAGEMENT CASES. Merrill Lynch compared the pro forma relative equity
ownership of the stockholders of Ultramar and Diamond Shamrock in the Combined
Company of 57.9% and 42.1%, respectively, to the pro forma relative
contributions of each of Ultramar and Diamond Shamrock to the actual and
estimated, as applicable, EBITDA, cash flow from operations and net income of
the Combined Company for 1995, the eight months ended August 31, 1996 ("LEM")
and the years 1996 through 1999, based on both the Diamond Shamrock Management
Case and the Diamond Shamrock Adjusted Management Case. In all cases, Merrill
Lynch excluded synergies resulting from the Merger as projected by the
managements of Ultramar and Diamond Shamrock from the stand-alone financials and
the Combined Company financials. The analysis indicated that, under both cases,
Ultramar would have contributed (i) in 1995, 46.5% of actual EBITDA, 50.5% of
actual cash flow from operations and 50.2% of actual net income and (ii) in LEM,
46.1% of actual EBITDA, 49.0% of actual cash flow from operations and 59.6% of
actual net income. Under the Diamond Shamrock Management Case, Ultramar would
contribute (i) to estimated EBITDA, 47.5% in 1996, 47.7% in 1997, 49.4% in 1998
and 50.4% in 1999; (ii) to estimated cash flow from operations, 50.6% in 1996,
49.7% in 1997, 51.2% in 1998 and 51.6% in 1999; and (iii) to estimated net
income, 57.0% in 1996, 50.1% in 1997, 51.3% in 1998 and 52.2% in 1999. Under the
Diamond Shamrock Adjusted Management Case, Ultramar would contribute (i) to
estimated EBITDA, 48.7% in 1996, 51.2% in 1997, 52.9% in 1998 and 53.1% in 1999;
(ii) to estimated cash flow from operations, 51.6% in 1996, 52.7% in 1997, 54.5%
in 1998 and 54.3% in 1999; and (iii) to estimated net income, 60.0% in 1996,
56.6% in 1997, 57.4% in 1998 and 57.1% in 1999.
WALL STREET CASE. Merrill Lynch also compared the pro forma relative equity
ownership of the stockholders of Ultramar and Diamond Shamrock in the Combined
Company of 57.9% and 42.1%, respectively, to the pro forma relative
contributions of each of Ultramar and Diamond Shamrock to the estimated EBITDA,
cash flow from operations and net income of the Combined Company for 1996 and
1997, based on the median First Call Corporation earnings per share ("EPS")
estimates as of September 19, 1996 and Merrill Lynch research estimates for
interest, taxes, depreciation and amortization. In all cases, Merrill Lynch
excluded synergies resulting from the Merger as projected by the managements of
Ultramar and Diamond Shamrock from the stand-alone financials and the Combined
Company financials. Such analysis indicated that Ultramar would contribute (i)
in 1996, 48.8% of estimated
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EBITDA, 51.4% of estimated cash flow from operations and 61.1% of estimated net
income, and (ii) in 1997, 49.3% of estimated EBITDA, 50.3% of estimated cash
flow from operations and 57.5% of estimated net income.
PRO FORMA MERGER CONSEQUENCES ANALYSIS. Merrill Lynch analyzed the pro
forma effect of the Merger (based on the Exchange Ratio) on Ultramar's estimated
EPS and cash flow from operations per share ("CFPS") under the Diamond Shamrock
Management Case and the Diamond Shamrock Adjusted Management Case for the years
1997, 1998 and 1999 and, in each case, assuming both no attribution of synergies
and attribution of 100% of the synergies projected by the managements of
Ultramar and Diamond Shamrock to result from the Merger. The analysis indicated
that, in all cases other than the Diamond Shamrock Adjusted Management Case in
which no synergies are attributed (in which case the Merger would be slightly
dilutive to EPS in 1998 and 1999), the Merger would be accretive to both EPS and
CFPS in 1997, 1998 and 1999.
Pursuant to a letter agreement dated September 11, 1996, Ultramar agreed to
pay Merrill Lynch $250,000 on the date of such letter agreement, $1,000,000 upon
execution of the Merger Agreement and $3,350,000 (less any fees previously
payable) upon the closing of the Merger. Ultramar also agreed to reimburse
Merrill Lynch for all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its legal counsel, and to indemnify Merrill
Lynch and certain related persons and entities for certain liabilities,
including liabilities under securities laws, related to or arising out of its
engagement.
Ultramar retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of its
business, Merrill Lynch and its affiliates may actively trade the securities of
Ultramar and Diamond Shamrock for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Ultramar retained Tanner to act as a financial advisor in connection with
the Merger. Pursuant to a letter agreement dated September 20, 1996, Ultramar
agreed to pay Tanner $55,970 on the date of such letter agreement, $223,880 upon
execution of the Merger Agreement and $750,000 (less any fees above previously
payable) upon the closing of the Merger. Ultramar also agreed to reimburse
Tanner for all reasonable out-of-pocket expenses, including the fees and
expenses of its legal counsel, and to indemnify Tanner and certain related
persons and entities for certain liabilities related to or arising out of its
engagement.
DIAMOND SHAMROCK. Diamond Shamrock retained Wasserstein Perella to act as
its financial advisor in connection with the Merger. On September 22, 1996,
Wasserstein Perella delivered its oral opinion to the Diamond Shamrock Board
that, as of such date, the Exchange Ratio was fair from a financial point of
view to the holders of Diamond Shamrock Common Stock. Wasserstein Perella
delivered to the Diamond Shamrock Board a written opinion, dated September 22,
1996, confirming its oral opinion. Wasserstein Perella also delivered to the
Diamond Shamrock Board a written opinion, which is substantially identical to
the September 22, 1996 written and oral opinions, to the effect that, as of the
date of this Proxy Statement, the Exchange Ratio was fair from a financial point
of view to the holders of Diamond Shamrock Common Stock.
The full text of the written opinion of Wasserstein Perella, dated as of the
date of this Proxy Statement, which sets forth the assumptions made, matters
considered and limits of the review undertaken in connection with the opinion,
is attached as Appendix C and is incorporated herein by reference. Holders of
shares of Diamond Shamrock Common Stock are urged to read this opinion in its
entirety. Wasserstein Perella's opinion does not constitute a recommendation to
any holder of Diamond Shamrock Common Stock as to how to vote at the Diamond
Shamrock Special Meeting. The summary of the opinion of Wasserstein Perella set
forth herein is qualified in its entirety by reference to the full text of the
opinion attached as Appendix C hereto.
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In connection with rendering its opinion, Wasserstein Perella, among other
things: (i) reviewed the Merger Agreement, (ii) reviewed and analyzed certain
publicly available business and financial information relating to Ultramar and
Diamond Shamrock for recent years and interim periods to date as well as certain
internal financial and operating information, including financial forecasts,
prepared by or on behalf of Ultramar and Diamond Shamrock, (iii) met with
management of Ultramar and Diamond Shamrock to review and discuss such
information and, among other matters, the business, operations, assets,
financial condition and future prospects of Ultramar and Diamond Shamrock, (iv)
reviewed and considered certain financial and stock market data relating to
Ultramar and Diamond Shamrock and compared that data with similar data for
certain other relevant or comparable companies, the securities of which are
publicly traded, (v) reviewed and considered the financial terms of certain
recent reasonably comparable acquisitions and business combinations, and (vi)
performed such other studies, analyses and investigations and reviewed such
other information as Wasserstein Perella considered appropriate.
In its review and analysis and in formulating its opinion, Wasserstein
Perella assumed that the Merger will be accounted for as a pooling of interests
and assumed and relied on the accuracy and completeness of the financial and
other information provided to or discussed with it or made publicly available
without assuming any responsibility for independent verification of any of such
information. With respect to the financial forecasts, Wasserstein Perella
assumed that they were reasonably prepared in good faith on bases reflecting the
best currently available estimates and judgments of the managements of Ultramar
and Diamond Shamrock. Wasserstein Perella did not review any of the books and
records of Ultramar or Diamond Shamrock or assume any responsibility for
conducting a physical inspection of the properties or facilities of Ultramar or
Diamond Shamrock or for making or obtaining an independent valuation or
appraisal of the assets or liabilities of Ultramar or Diamond Shamrock.
Wasserstein Perella's opinion was based on economic and market conditions and
other circumstances as they existed and could be evaluated by it as of the date
of its opinion.
The following is a summary of the report presented by Wasserstein Perella to
the Diamond Shamrock Board on September 22, 1996 in connection with its opinion.
STOCK PRICE ANALYSIS. Wasserstein Perella reviewed the ratio of weekly
trading prices of Diamond Shamrock Common Stock to Ultramar Common Stock between
June 26, 1992 and September 13, 1996. This ratio ranged from approximately 1.21
to 0.84 times and averaged 1.02 over that period. As of September 17, 1996, the
common stock of Diamond Shamrock and Ultramar closed at $28.50 per share and
$28.00 per share respectively. Wasserstein Perella reviewed and compared Diamond
Shamrock's and Ultramar's dividend yield and average payout ratio as a
percentage of after-tax cash flow of Diamond Shamrock and Ultramar for the years
1993 to 1995 and compared such yield and ratio to those of other market
participants including Tosco Corporation, Valero Energy Corporation, Ashland,
Inc. and Sun Company, Inc. (collectively, the "Comparable Companies").
COMPARABLE COMPANY ANALYSIS. As part of its analysis, Wasserstein Perella
compared certain financial information of Ultramar and Diamond Shamrock with
that of a group of similar companies, including the Comparable Companies. Such
financial information was used to calculate multiples including price to
earnings, price to after-tax cash flow, enterprise value (the sum of the equity
value plus the book value of minority interests and non-convertible preferred
stock plus net debt (short and long term debt less cash)) to EBITDA and
enterprise value to EBIT. In particular, such analyses indicated that as of
September 13, 1996, based on First Call Corporation and Value Line estimates,
(i) Diamond Shamrock and Ultramar traded at 16.4 and 14.1 times, respectively,
forecasted earnings for the calendar year 1996, as compared to a range of 13.9
to 27.1 times for the Comparable Companies, and 10.8 and 10.5 times,
respectively, forecasted earnings for the calendar year 1997, as compared to a
range of 12.0 to 16.5 times for the Comparable Companies, (ii) Diamond Shamrock
and Ultramar traded at 5.5 and 7.9 times, respectively, forecasted after-tax
cash flow for calendar year 1996, as compared to a range of 4.3 to 6.8 times for
the Comparable Companies, and 4.5 and 6.5 times, respectively, forecasted
after-tax cash flow for calendar year 1997, as compared to a range of 3.4 to 5.6
times for the Comparable Companies, (iii) Diamond Shamrock and Ultramar traded
at 6.7 and 6.4 times, respectively, forecasted EBITDA for calendar year 1996, as
compared to a range of 6.0 to 6.8 times for the Comparable
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Companies, and 5.7 and 5.3 times, respectively, forecasted EBITDA for calendar
year 1997, as compared to a range of 4.7 to 5.8 times for the Comparable
Companies, and (iv) Diamond Shamrock and Ultramar traded at 12.0 and 8.8 times,
respectively, forecasted EBIT for calendar year 1996, as compared to a range of
9.9 to 18.2 times for the Comparable Companies, and 9.2 and 6.9 times,
respectively, forecasted EBIT for calendar year 1997, as compared to a range of
8.4 to 10.1 times for the Comparable Companies.
DISCOUNTED CASH FLOW ANALYSIS. Wasserstein Perella also performed a
discounted cash flow analysis of Ultramar and Diamond Shamrock based on certain
financial projections for the fiscal years ended 1997 through 2001. Wasserstein
Perella, using forecasts prepared by the managements of Diamond Shamrock and
Ultramar, respectively, discounted the unlevered free cash flows of each Company
(unlevered net income, plus depreciation and amortization, deferred taxes and
other cash flows, less changes in working capital and capital expenditures) over
the forecast period using a range of risk adjusted discount rates between 10%
and 12% (representing a range of risk adjusted costs of capital for Ultramar and
Diamond Shamrock). The sum of the present values of such free cash flows for
each Company was then added to the present value of each Company's terminal
value in calendar year 2001. The terminal value was calculated by multiplying
the EBITDA for calendar year 2001 by multiples of 5.0 to 6.0 times. Based on
this analysis, Wasserstein Perella calculated the ratio of values of Diamond
Shamrock Common Stock to Ultramar Common Stock of 1.06 to 1.12 times.
CONTRIBUTION ANALYSIS. Wasserstein Perella estimated the pro forma
contribution of Diamond Shamrock and Ultramar to the Combined Company, including
contributions of net income, after-tax cash flow, EBIT and EBITDA. Such
analysis, which was based upon First Call Corporation and Value Line estimates,
showed that Diamond Shamrock's and Ultramar's contributions would be
approximately 38.9% and 61.1%, respectively, of net income in calendar year 1996
and 42.1% and 57.9%, respectively, of forecasted calendar year 1997 net income.
In addition, Diamond Shamrock and Ultramar would contribute to the Combined
Company approximately 53.0% and 47.0%, respectively, of forecasted after-tax
cash flow in calendar year 1996 and 51.5% and 48.5%, respectively, of forecasted
calendar year 1997 after-tax cash flow. Diamond Shamrock and Ultramar would
contribute to the Combined Company approximately 45.6% and 54.4%, respectively,
of forecasted EBIT in calendar year 1996 and 46.0% and 54.0%, respectively, of
forecasted calendar year 1997 EBIT. In addition, Diamond Shamrock and Ultramar
would contribute to the Combined Company approximately 52.1% and 47.9%,
respectively, of forecasted EBITDA in calendar year 1996 and 51.3% and 48.7%,
respectively, of forecasted calendar year 1997 EBITDA. Wasserstein Perella
estimated that the Exchange Ratio would result in an allocation between the
holders of Diamond Shamrock Common Stock and Ultramar Common Stock of pro forma
ownership of the Combined Company equal to 42.6% and 57.4%, respectively.
Wasserstein Perella also estimated that the Exchange Ratio would result in
Diamond Shamrock and Ultramar representing 54.6% and 45.4%, respectively, of the
pro forma combined enterprise value.
MERGER CONSEQUENCES. Wasserstein Perella analyzed the pro forma impact of
the Merger on the holders of Diamond Shamrock Common Stock, for the two-year
period ending December 31, 1997, based upon First Call Corporation and Value
Line estimates. This analysis showed that, after giving effect to the Merger,
before the impact of one-time Merger-related charges and without considering any
amount of cost savings, current holders of Diamond Shamrock Common Stock would
realize increases in fully diluted earnings per share of approximately 10.4% in
calendar year 1996 and approximately 1.7% in calendar year 1997, in each case as
compared to Diamond Shamrock on a stand-alone basis. However, when giving effect
to the estimated $75 million of pre-tax annual cost savings, current holders of
Diamond Shamrock Common Stock would realize increases in fully diluted earnings
per share of approximately 45.4% in calendar year 1996 and approximately 25.6%
in calendar year 1997, in each case as compared to Diamond Shamrock on a
stand-alone basis. Wasserstein Perella also analyzed the PRO FORMA impact of the
Merger with respect to dividend yield and interest coverage ratios. These
analyses showed that the annual dividend to holders of Diamond Shamrock Common
Stock would increase by approximately 87.0% in calendar year 1997, and that the
EBITDA to interest coverage ratio in calendar year 1997 would increase from 5.8
to 6.0 times with no cost savings included and 5.8 to 7.1 times with $75 million
of pre-tax annual cost savings included.
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The future pre-tax cost savings from the Merger as provided by the
managements of Diamond Shamrock and Ultramar, were that the Combined Company
would realize pre-tax cost savings of at least $25 million in calendar year 1996
following the Merger and $75 million in each year thereafter.
COMPARABLE ACQUISITIONS. Wasserstein Perella reviewed eight proposed or
completed comparable mergers-of-equals transactions announced since mid-1995:
the mergers of NorAm Energy Corp. with Houston Industries Incorporated, NYNEX
Corporation with Bell Atlantic Corporation, First National Bancorp with Regions
Financial Corporation, Birmingham, NexGen, Inc. with Advanced Micro Devices,
Inc., The Chase Manhattan Corporation with Chemical Banking Corporation, Scott
Paper Limited with Kimberly-Clark Corporation, First Chicago Corporation with
NBD Bancorp, Inc. and Enterra Corporation with Weatherford International
Incorporated. These transactions showed the following ranges of premiums to the
stock price of the entity whose common equity was exchanged in the transaction:
- -6.9% to 9.7% over the closing stock price on the day before the announcement;
- -1.8% to 14.7% over the closing stock price one week prior to the announcement;
and -5.7% to 19.0% over the closing stock price four weeks prior to the
announcement. Wasserstein Perella also reviewed five proposed or completed
acquisitions announced since mid-1995: the acquisition of Uniroyal Chemical
Corporation by Cromptron & Knowles Corporation, Circle K Corporation by Tosco
Corporation, The Vigoro Corporation by IMC Global Operations, Inc., Federal
Paper Board Company, Inc. by International Paper Company and CBI Industries,
Inc. by Praxair Inc. These transactions showed the following ranges of premiums
to the stock price of the entity whose common equity was exchanged in the
transaction: 20.9% to 69.2% over the closing stock price on the day before the
announcement; 35.7% to 49.2% over the closing stock price one week prior to the
announcement; and 34.2% to 68.8% over the closing stock price four weeks prior
to the announcement.
No transaction used in the comparable acquisitions analysis is identical to
the Merger and no company used in the Comparable Companies analysis is identical
to Diamond Shamrock. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the acquisition value or the
public trading value of the companies to which they are being compared.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description.
Wasserstein Perella believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering the analyses taken
as whole, would create an incomplete view of the process underlying the analyses
set forth in its opinions. In addition, Wasserstein Perella considered the
results of all such analyses and did not assign relative weights to any of the
analyses, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Wasserstein Perella's view of
the actual value of Ultramar, Diamond Shamrock or the Combined Company.
In performing its analyses, Wasserstein Perella made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Ultramar or Diamond
Shamrock. The analyses performed by Wasserstein Perella are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part of
Wasserstein Perella's opinion. The analyses do not purport to be appraisals or
to reflect intrinsic values. Wasserstein Perella expressed no opinion as to the
prices at which any securities of Ultramar or Diamond Shamrock may trade
following the Merger.
The Diamond Shamrock Board retained Wasserstein Perella based upon its
experience and expertise. Wasserstein Perella is an internationally recognized
investment banking and advisory firm. Wasserstein Perella, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the course of its market making and other trading
activities, Wasserstein Perella may, from time to time, have a long or short
position in, and may buy and
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sell, securities of Ultramar and Diamond Shamrock. In the past, Wasserstein
Perella has provided advisory services to Diamond Shamrock and has received
customary fees for the rendering of these services.
Pursuant to a letter agreement dated August 22, 1996, Diamond Shamrock
agreed to pay Wasserstein Perella $100,000 upon the execution of such letter
agreement and $3,750,000 (less any fees previously paid) upon the consummation
of the Merger. Diamond Shamrock also agreed to reimburse Wasserstein Perella for
all reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of legal counsel retained by Wasserstein Perella, and to indemnify
Wasserstein Perella and certain related persons for certain liabilities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following describes the principal federal income tax consequences of the
Merger under the Code, assuming that the Merger is consummated as contemplated
herein. This discussion is based on current laws and interpretations thereof,
which are subject to change. The discussion assumes that the Diamond Shamrock
Common Stock and Diamond Shamrock Convertible Preferred Stock converted in the
Merger is held as a capital asset and does not take account of rules that may
apply to holders thereof that are subject to special treatment under the Code
(including insurance companies, dealers in securities, certain retirement plans,
financial institutions, tax exempt organizations, stockholders who acquired
shares pursuant to the exercise of an employee stock option or otherwise as
compensation of foreign persons). Also, the discussion does not address state,
local or foreign tax consequences. Consequently, each holder of Diamond Shamrock
Common Stock and Diamond Shamrock Convertible Preferred Stock should consult its
own tax advisor as to the specific tax consequences of the Merger to that
holder. For a discussion of the taxability of dividends of the Combined Company
to the persons receiving such dividends, see "Management and Operations of the
Combined Company -- Dividend Policy." Neither Ultramar nor Diamond Shamrock has
requested or will request an advance ruling from the Internal Revenue Service as
to the tax consequences of the Merger.
REORGANIZATION TREATMENT. Based on certain customary representations made
by Ultramar and Diamond Shamrock (i) the Merger will be treated for federal
income tax purposes as a "reorganization" within the meaning of Section 368(a)
of the Code, (ii) Ultramar and Diamond Shamrock will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, (iii) no
income, gain or loss will be recognized for federal income tax purposes by
either Diamond Shamrock or Ultramar as a result of the consummation of the
Merger, and (iv) no income, gain or loss will be recognized for federal income
tax purposes by holders of Diamond Shamrock Common Stock and Diamond Shamrock
Convertible Preferred Stock upon the conversion in the Merger of Diamond
Shamrock Common Stock and Diamond Shamrock Convertible Preferred Stock into
shares of Ultramar Common Stock or Ultramar Convertible Preferred Stock (except
to the extent of any cash received in lieu of fractional shares). Consummation
of the Merger is conditioned upon the receipt by Ultramar and Diamond Shamrock
of the opinions described below, dated as of the Closing Date.
TAX BASIS AND HOLDING PERIOD OF ULTRAMAR STOCK. The tax basis of the shares
of Ultramar Common Stock and Ultramar Convertible Preferred Stock received by
holders of Diamond Shamrock Common Stock and Diamond Shamrock Convertible
Preferred Stock will be the same as the tax basis of their Diamond Shamrock
Common Stock and Diamond Shamrock Convertible Preferred Stock converted in the
Merger (reduced by any amount allocable to a fractional share interest for which
cash is received). The holding period of the Ultramar Common Stock or Ultramar
Convertible Preferred Stock in the hands of holders of Diamond Shamrock Common
Stock and Diamond Shamrock Convertible Preferred Stock will include the holding
period of their Diamond Shamrock Common Stock and Diamond Shamrock Convertible
Preferred Stock converted in the Merger, provided such Diamond Shamrock Common
Stock and Diamond Shamrock Convertible Preferred Stock is held as a capital
asset at the Effective Time.
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CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. A holder of Diamond Shamrock
Common Stock who receives cash in the Merger in lieu of a fractional share
interest in Ultramar Common Stock will be treated for federal income tax
purposes as receiving such fractional share interest and then redeeming it for
cash. Such a holder of Diamond Shamrock Common Stock will recognize gain or loss
as of the Effective Time in an amount equal to the difference between the amount
of cash received and the portion of the stockholder's adjusted tax basis in the
shares of Diamond Shamrock Common Stock allocable to the fractional share
interest. Any gain or loss will be capital gain or loss if the stockholder holds
the Diamond Shamrock Common Stock as a capital asset at the Effective Time and
will be long-term capital gain or loss if the holding period for the fractional
share interest deemed to be received and then redeemed is more than one year. As
discussed above, the holding period for a fractional share interest includes the
holding period for a holder's Diamond Shamrock Common Stock converted into a
fractional share interest.
TAX OPINIONS. The obligations of Ultramar and of Diamond Shamrock to
consummate the Merger are subject to the receipt of the opinions of tax counsel
outlined in "Other Terms of the Merger and the Merger Agreement -- Conditions to
the Consummation of the Merger," unless such condition is waived.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles. Under this method of
accounting, the recorded assets and liabilities of Ultramar and Diamond Shamrock
will be carried forward to the Combined Company at their recorded amounts after
addressing any conformity issues; income of the Combined Company will include
income of Ultramar and Diamond Shamrock for the entire fiscal year in which the
combination occurs after addressing any conformity issues; and the reported
income of the separate companies for prior periods will be combined and restated
as income of the Combined Company after addressing any conformity issues. The
Merger Agreement provides that a condition to the consummation of the Merger is
the receipt of letters from Ernst & Young LLP and Price Waterhouse LLP (the
independent accountants of Ultramar and Diamond Shamrock, respectively) to the
effect that the Merger qualifies for "pooling of interests" accounting
treatment.
In connection with the Merger, one-time transaction costs, which are
expected to be recorded in 1996, are estimated at $17 million and one-time
integration costs, most of which are expected to be recorded in 1996, are
estimated at $50 million. See "Management and Operations of the Combined Company
- -- The Combined Company." In addition, in connection with the preparation of the
pro forma information included elsewhere in this Proxy Statement, management of
Ultramar and Diamond Shamrock have conformed certain differences in accounting
practice (see "Pro Forma Condensed Financial Information of the Combined
Company"). Following the Merger, management of the Combined Company will conduct
a complete review of the accounting policies employed by Ultramar and Diamond
Shamrock, including the methods used to apply such policies, in order to
identify the appropriate accounting practices to be applied by the Combined
Company; additionally, management of the Combined Company will review, and when
appropriate conform, the methods employed to develop and assess information used
to make accounting estimates. Any adjustments or changes that may result from
such reviews are expected to be recorded during the accounting period in which
the Effective Time occurs, and may have a material effect on the results
reported during such period.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Boards of Directors and management of Ultramar and
Diamond Shamrock have certain interests in the Merger that are different from,
or in addition to, the interests of stockholders of Ultramar or Diamond
Shamrock, as applicable, generally. Such interests relate to or arise from,
among other things, the terms of the Merger Agreement providing for (i) the
Board of Directors of the Combined Company to consist of six members from the
Board of Directors of each of the Companies, (ii) the division of senior
management positions of the Combined Company among the existing senior
management of each of the Companies, (iii) certain employment agreements for
executive officers of each of the Companies and provisions for the treatment of
certain employee benefits for which executive officers of Diamond Shamrock are
eligible, (iv) the conversion of employee stock options and other
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rights granted to employees of Diamond Shamrock, including executive officers,
and the fact that, under the terms thereof, existing stock options, restricted
stock and other rights held by executive officers and directors of Ultramar
become fully vested by reason of the adoption of the Merger Agreement by
Ultramar stockholders, and (v) the indemnification of existing directors and
officers of Diamond Shamrock and Ultramar. All such additional interests are
described below, to the extent material, and except as described below such
persons have, to the knowledge of Ultramar and Diamond Shamrock, no material
interest in the Merger apart from those of stockholders generally. The Ultramar
Board and the Diamond Shamrock Board were each aware of these interests of their
respective directors and officers and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby. See
"-- Certain Executive Compensation and Other Employee-Related Matters in
Connection with the Merger" and "-- Indemnification."
COMBINED COMPANY BOARD OF DIRECTORS. As of the Effective Time, the Board of
Directors of the Combined Company will consist of Roger R. Hemminghaus, Jean
Gaulin and ten other directors, five of whom will be designated by Ultramar and
five of whom will be designated by Diamond Shamrock. See "Management and
Operations of the Combined Company -- Management of the Combined Company" and
"Board of Directors" for information pertaining to the designees to the Board of
Directors of the Combined Company.
The Certificate of Incorporation of the Combined Company will provide for
its Board of Directors to be divided into three classes. Each class will
consist, as nearly as possible, of four directors, of which two will be
designated by each of Ultramar and Diamond Shamrock with the term of one class
expiring each year at the Combined Company's annual meeting of stockholders. In
that regard, Jean Gaulin will be deemed designated by Ultramar and Roger R.
Hemminghaus will be deemed designated by Diamond Shamrock. Each class of
directors elected at an annual meeting of stockholders will be elected for a
three-year term. See "Management and Operations of the Combined
Company -- Management of the Combined Company" with respect to the expected
composition of the classes of directors of the Combined Company.
The Board of Directors will initially have four committees: the Finance and
Planning Committee, the Compensation Committee, the Audit Review Committee and
the Public Responsibility Committee. Each committee will be comprised of four
directors, of which two will be designated by each of Ultramar and Diamond
Shamrock. See "Management and Operations of the Combined Company -- Management
of the Combined Company" for information pertaining to the expected composition
of the committees of the Board of Directors of the Combined Company.
COMBINED COMPANY MANAGEMENT. See "Management and Operations of the Combined
Company -- Executive Officers" for a discussion of the expected composition of
the senior management of the Combined Company.
CERTAIN EMPLOYEE-RELATED MATTERS, INCENTIVE PLAN AND INDEMNIFICATION. For a
discussion of various employment agreements being entered into in connection
with the Merger, the Incentive Plan and the effect of the Merger on employee
benefit and stock plans, see "-- Certain Executive Compensation and Other
Employee-Related Matters in Connection with the Merger" and "Approval of the
Incentive Plan." For a discussion of indemnification and exculpation matters
applicable to directors and officers of Diamond Shamrock and Ultramar in
connection with the Merger, see "-- Indemnification."
CERTAIN EXECUTIVE COMPENSATION AND OTHER
EMPLOYEE-RELATED MATTERS IN CONNECTION WITH THE MERGER
EMPLOYMENT AGREEMENTS. Prior to the execution of the Merger Agreement, the
Companies and each of their respective executive officers were parties to
existing employment/severance agreements which provided for, among other things,
the payment of severance amounts and benefits upon certain terminations of
employment. The Merger Agreement provides that each of the Companies will enter
into new employment agreements with certain of their respective executive
officers which become effective as to the Combined Company at the Effective Time
in replacement of the existing agreements. If the
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Merger Agreement is terminated prior to the Effective Time, none of the new
employment agreements will take effect, and the corresponding existing
employment agreements will continue in effect. Set forth below are descriptions
of the new agreements. For a discussion of the existing employment agreements
and related executive compensation matters, see "Executive Compensation."
CHIEF EXECUTIVE OFFICER. The new employment agreement of Roger R.
Hemminghaus (the "CEO Agreement"), presently the Chairman of the Board,
President and Chief Executive Officer of Diamond Shamrock, provides that, as of
the Effective Time, Mr. Hemminghaus will become Chairman of the Board and Chief
Executive Officer of the Combined Company. The CEO Agreement provides for a
minimum annual base salary of $725,000 for a term beginning at the Effective
Time and terminating on December 31, 1998 (the "CEO Employment Term").
Mr. Hemminghaus' annual incentive compensation for 1996 will be determined
in accordance with Diamond Shamrock's existing annual incentive compensation
plan, subject to equitable adjustment determined to be necessary by the Diamond
Shamrock Board (or its Compensation Committee) to reflect the Merger. His annual
incentive compensation for 1997 will be within the discretion of the Board of
Directors of the Combined Company (or the Compensation Committee thereof). If
Mr. Hemminghaus is involuntarily terminated without "cause," or if he
voluntarily terminates for "good reason," his termination benefits will include
(i) a lump sum payment equal to three times the sum of (a) his highest annual
base salary during the three years prior to termination and (b) his highest
annual incentive compensation amount during the same three-year period, (ii) a
lump sum payment equal to the aggregate fees which would have been payable for
the Consulting Term (as described below), (iii) welfare benefit continuation for
one year, and (iv) a lump sum payment equal to the value of the additional
benefit, if any, under the applicable qualified defined benefit retirement plan
he would have received had he participated in that plan until he attained age
62. In addition, if Mr. Hemminghaus is terminated prior to the end of the CEO
Employment Term, other than for cause or voluntary termination (other than for
death or disability), he will be credited with additional years of age and
service under the Combined Company's supplemental executive retirement plan as
if he remained employed until December 31, 2001.
The CEO Agreement defines "cause" as a finding by the Board of Directors of
the Combined Company that Mr. Hemminghaus (i) committed an illegal act intended
to and which did defraud the Combined Company, (ii) engaged in gross negligence
or gross misconduct in carrying out his duties or (iii) breached certain
noncompete, nonsolicitation and confidentiality covenants. The CEO Agreement
defines "good reason" as (a) a breach by the Combined Company of a material
provision of the employment agreement, (b) a successor to the Combined Company
failing to assume any liabilities under the agreement, (c) certain material
reductions of Mr. Hemminghaus' aggregate benefits, and (d) the failure to elect
Mr. Hemminghaus to, or the removal of Mr. Hemminghaus from, the position of
Chief Executive Officer of the Combined Company prior to December 31, 1998.
Upon a "change in control" (as defined in the CEO Agreement) of the Combined
Company, (i) all cash benefits under the CEO Agreement will be secured by a
grantor trust, (ii) if Mr. Hemminghaus is subsequently involuntarily terminated
without cause (including a voluntary termination with good reason), certain
non-competition and post-termination assistance covenants contained in the CEO
Agreement will no longer apply and the confidentiality covenant will expire on
the third anniversary of the termination of employment (the non-solicitation
covenant expires on the first anniversary of termination irrespective of whether
there has been a change in control), and (iii) "good reason" also would include
certain changes in duties or responsibilities and the relocation of the Combined
Company's principal offices. The CEO Agreement also provides that Mr.
Hemminghaus will receive a "gross-up" payment to reimburse him on an after-tax
basis for excise taxes that may be imposed upon him under Section 4999 of the
Code on account of the payment of any "excess parachute payments," as defined in
Section 280G of the Code.
Following the expiration of Mr. Hemminghaus' employment with the Combined
Company, unless Mr. Hemminghaus' employment with the Combined Company has
terminated prior to such date other than on account of a voluntary termination,
he will become a consultant to the Combined Company for a three-year "Consulting
Term." Mr. Hemminghaus will be paid a consulting fee during the Consulting
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Term equal to one-half of his highest annual base salary during the CEO
Employment Term. If the consulting arrangement is terminated during the
Consulting Term for any reason other than a voluntary termination by Mr.
Hemminghaus, he will be entitled to a lump sum payment equal to the unpaid
consulting fees for the remainder of the Consulting Term. For this purpose, a
voluntary termination will not include termination on account of death,
disability, failure of the Combined Company to elect Mr. Hemminghaus as the
Chairman of the Board or his removal from that position, a change in control or,
under certain circumstances, relocation of the Combined Company's principal
executive offices.
CHIEF OPERATING OFFICER. The new employment agreement of Jean Gaulin (the
"COO Agreement"), presently the Chairman of the Board and Chief Executive
Officer of Ultramar, provides that, as of the Effective Time, Mr. Gaulin will
become the Vice-Chairman of the Board, President and Chief Operating Officer of
the Combined Company. Upon expiration of Mr. Hemminghaus' CEO Employment Term,
the COO Agreement provides that Mr. Gaulin will become Chief Executive Officer
of the Combined Company. The initial term of the COO Agreement is five years and
it will be automatically renewed, subject to any prior termination, for
successive one-year periods on the fifth anniversary of the Effective Time and
each anniversary thereafter unless either party gives at least three months'
prior notice of non-renewal. The other terms of the COO Agreement, including
base salary and severance benefits, are substantially the same as those in the
CEO Agreement except that the COO Agreement (i) does not provide for continuing
consulting services following termination, (ii) provides for enhanced retirement
benefits under the Combined Company's nonqualified and qualified retirement
plans only upon an involuntary termination of employment without cause
(including a voluntary termination with good reason), (iii) "good reason," in
the absence of a change in control, includes non-renewal of the COO Agreement by
the Combined Company, a significant reduction in Mr. Gaulin's duties, any
addition of inconsistent duties, failure to elect Mr. Gaulin as Chief Executive
Officer of the Combined Company by January 1, 1999, and failure to elect Mr.
Gaulin as Chairman of the Board of the Combined Company by January 1, 2002, and
(iv) if Mr. Gaulin's employment is terminated within two years after the
Effective Time, Mr. Gaulin also will be entitled to payment of expenses to
relocate from San Antonio to any other location in the continental United
States.
OTHER EXECUTIVE OFFICERS. In addition to Messrs. Hemminghaus and Gaulin,
the Merger Agreement contemplates that the following executive officers of
Ultramar or Diamond Shamrock will become executive officers of the Combined
Company in the following capacities and base salary levels: Timothy J. Fretthold
(currently of Diamond Shamrock): Executive Vice President and Chief
Administrative Officer -- $335,000; Patrick J. Guarino (currently of Ultramar):
Executive Vice President, General Counsel and Secretary - $335,000; William R.
Klesse (currently of Diamond Shamrock): Executive Vice President, Refining,
Product Supply and Logistics Southwest -- $335,000; J. Robert Mehall (currently
of Diamond Shamrock): Executive Vice President, Crude Oil Supply and Corporate
Development -- $335,000; H. Pete Smith (currently of Ultramar): Executive Vice
President and Chief Financial Officer -- $335,000; Paul Eisman (currently of
Diamond Shamrock): Senior Vice President, Refining Southwest -- $265,000; Alain
Ferland (currently of Ultramar): Senior Vice President -- Refining, Product
Supply and Logistics Northeast -- $265,000; Christopher Havens (currently of
Ultramar): Senior Vice President -- Marketing Northeast -- $265,000; and A.W.
O'Donnell (currently of Diamond Shamrock): Senior Vice President -- Marketing
Southwest -- $265,000 (collectively referred to as "Senior Executives"). See
"Management and Operations of the Combined Company -- Executive Officers."
The new employment agreement for each of the Senior Executives
(collectively, the "Senior Executive Employment Agreements") will be
substantially the same as the COO Agreement, except that (i) the initial term
will be three years (other than the term of Mr. O'Donnell's agreement, which
will expire on May 31, 1997, Mr. O'Donnell's expected date of retirement); (ii)
each Senior Executive Employment Agreement provides a minimum guaranteed annual
bonus of 40% of annual base salary for the 1996 and 1997 fiscal years; (iii)
"good reason" excludes the failure to be appointed to a particular position or
to the Board; and (iv) following a change in control, "good reason" will include
termination of employment for any reason during the 13th month following the
change. For the former Ultramar executives, good reason will also include, if
such executive has relocated to the Combined Company's principal place of
business prior to Mr. Gaulin becoming Chief Executive Officer, termination by
the executive for any
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reason within 120 days after the termination of Mr. Gaulin's employment prior to
January 1, 1999, without Mr. Gaulin becoming Chief Executive Officer, if such
termination entitles Mr. Gaulin to termination benefits, or January 1, 1999, if
Mr. Gaulin has not become Chief Executive Officer by such date. For Messrs.
Guarino and Smith only, good reason also will include termination for any reason
within the 30-day period after the 18th month following the Effective Time if
the executive gives notice of termination during the 30-day period after the
15th month following the Effective Time. In addition, Mr. O'Donnell's Senior
Executive Employment Agreement contains different provisions attributable to the
fact that he is expected to retire in 1997. Finally, relocation benefits will
not apply to the former Diamond Shamrock executives.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT AND STOCK PLANS. In addition to
the provisions relating to employment agreements described above, the Merger
Agreement contemplates that certain additional actions will be taken in respect
of employee benefit and stock plans in which executive officers of the Companies
or the Combined Company are eligible to participate. Those actions are
summarized below.
Except as may be specified in an applicable employment agreement, annual
bonuses for employees of the Companies for the 1996 calendar year will be
payable in accordance with the terms of the respective bonus plans for each
Company currently in effect, subject to any equitable adjustment determined by
the relevant Company's Board of Directors (or, if applicable, an authorized
committee thereof) to be necessary in light of the Merger. Except as may be
specified in any such employment agreement, bonuses for subsequent years will be
within the discretion of the Board of Directors of the Combined Company (or, if
applicable, an authorized committee thereof).
The Merger Agreement provides that Diamond Shamrock has determined that
performance units issued and outstanding under Diamond Shamrock's 1987 Long-Term
Incentive Plan and 1990 Long-Term Incentive Plan applicable to Diamond Shamrock
employees will be settled and paid by Diamond Shamrock at the rate of $1.00 per
unit in cash or stock, as applicable under the terms of such grants. Subject to
the completion of the Merger, such payments will be made as promptly as
practicable after January 1, 1997 or such earlier date as may be determined by
the Diamond Shamrock Board (or an authorized committee thereof). The amounts so
payable are estimated to be as follows: Mr. Hemminghaus: $822,000; Mr. Eisman:
$124,000; Mr. Fretthold: $225,000; Mr. Klesse: $281,000; Mr. Mehall: $281,000;
Mr. O'Donnell: $225,000; all executive officers as a group: $2,158,000; all
employees as a group: $6,053,000.
The Merger Agreement provides that Diamond Shamrock has determined that the
Success Sharing Plan applicable to Diamond Shamrock employees will be terminated
by Diamond Shamrock before the Effective Time and awards thereunder will be paid
out by Diamond Shamrock at the threshold level. Such payments will be made as
promptly as practicable after January 1, 1997 or such earlier date as may be
determined by the Diamond Shamrock Board (or an authorized committee thereof).
The amounts so payable are estimated to be as follows: Mr. Hemminghaus: $4,420;
Mr. Eisman: $1,240; Mr. Fretthold: $1,745; Mr. Klesse: $1,970; Mr. Mehall:
$1,970; Mr. O'Donnell: $1,745; all executive officers as a group: $15,494; all
employees as a group: $850,000.
The Merger Agreement provides that, as soon as practicable, amendments to
Ultramar's supplemental executive retirement plan (the "Ultramar Supplemental
Executive Retirement Plan") will be implemented by the Combined Company to
assume Diamond Shamrock's rights and obligations under Diamond Shamrock's
supplemental executive retirement plan for the benefit of certain senior
executives of Diamond Shamrock.
Pursuant to the terms of Ultramar's existing Long Term Incentive Plan,
options outstanding as of the Effective Time will become immediately exercisable
and the vesting periods previously applicable to such options will cease to be
applicable. The number of shares subject to such options as to which such
vesting periods will lapse are as follows: Mr. Gaulin: 248,550 shares; Mr.
Ferland: 49,200 shares; Mr. Guarino: 70,800 shares; Mr. Havens: 47,450 shares;
Mr. Mascitelli: 56,750 shares; Mr. Smith: 54,950
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shares; all executive officers as a group: 527,700 shares; all employees as a
group: 1,004,937 shares. All options, including options which were vested as a
result of the Merger, will continue to exist after the Effective Time and will
otherwise be unaffected by the Merger.
In accordance with the Merger Agreement and the terms of the outstanding
employee stock options granted under Diamond Shamrock's stock option plans, as
of the Effective Time, all such options will be deemed to constitute an option
to acquire (on the same terms and conditions as were applicable under such
option, including vesting) the same number of shares of Ultramar Common Stock as
the holder of such option would have been entitled to receive pursuant to the
Merger Agreement had such holder exercised such option in full immediately prior
to the Effective Time, at a price per share of Ultramar Common Stock equal to
(i) the aggregate exercise price for the shares of Diamond Shamrock Common Stock
otherwise purchasable pursuant to such Diamond Shamrock option, divided by (ii)
the aggregate number of shares of Ultramar Common Stock deemed purchasable
pursuant to such option.
INCENTIVE PLAN. In the Merger Agreement, Diamond Shamrock and Ultramar
agreed to develop a long-term incentive plan for the Surviving Corporation,
based on and intended to supersede Ultramar's existing long-term incentive plan,
that may include awards such as stock options, stock appreciation rights,
restricted shares, performance awards and securities awards and pursuant to
which 6 million shares (approximately 8% of the total outstanding shares of the
Combined Company) would be expected to be reserved for issuance. Following the
execution and delivery of the Merger Agreement, representatives of Ultramar and
Diamond Shamrock reviewed the matter with representatives of the compensation
committees of the Boards of Directors of the two companies. On October 22, 1996,
the Ultramar Board approved the Incentive Plan. See "Approval of the Incentive
Plan."
INDEMNIFICATION
The Merger Agreement provides that all rights of indemnification and
exculpation from liabilities existing in favor of the current and former
directors and officers of Diamond Shamrock and its subsidiaries as provided in
their respective charters and bylaws and existing indemnification agreements and
employment agreements will continue in full force and effect in accordance with
their terms and directors and officers of Diamond Shamrock who become directors
and officers of Ultramar will be entitled to the same indemnification rights as
are afforded to other directors and officers of Ultramar. In addition, the
Merger Agreement provides for the Ultramar By-laws to be amended to provide for
the Combined Company to indemnify directors and officers of the Combined Company
to the fullest extent permitted or required by the DGCL. See "Other Terms of the
Merger and the Merger Agreement -- Amendments to Ultramar By-laws." The Merger
Agreement also requires the Combined Company to enter into indemnification
agreements with its directors and officers providing for indemnification on the
terms set forth in the By-laws of the Combined Company.
OTHER TERMS OF THE MERGER AND THE MERGER AGREEMENT
GENERAL
The Ultramar Board and the Diamond Shamrock Board have approved the Merger
Agreement, which provides for the Merger to occur at the Effective Time, with
Ultramar continuing as the surviving corporation. This section of the Proxy
Statement describes certain aspects of the proposed Merger, including the
certain terms of the Merger Agreement and the Stock Option Agreements. The
description of the Merger and the Merger Agreement contained in this Proxy
Statement does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached hereto as
Appendix A and which is incorporated herein by reference. All stockholders of
Ultramar and Diamond Shamrock are urged to carefully read the Merger Agreement
in its entirety.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Diamond Shamrock Common Stock into the right to receive
Ultramar Common Stock and Diamond Shamrock Convertible Preferred Stock into the
right to receive Ultramar Convertible Preferred Stock will occur automatically
at the Effective Time. As soon as practicable after the Effective Time,
Registrar and Transfer Company, or another bank or trust company mutually
designated by
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Ultramar and Diamond Shamrock, in its capacity as Exchange Agent (the "Exchange
Agent"), will send a transmittal letter to each former Diamond Shamrock
stockholder. The transmittal letter will contain instructions with respect to
the surrender of certificates previously representing Diamond Shamrock Common
Stock or Diamond Shamrock Convertible Preferred Stock to be exchanged for
Ultramar Common Stock or Ultramar Convertible Preferred Stock, as the case may
be.
DIAMOND SHAMROCK STOCKHOLDERS SHOULD NOT FORWARD DIAMOND SHAMROCK STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS.
DIAMOND SHAMROCK STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
After the Effective Time, each certificate that previously represented
shares of Diamond Shamrock Common Stock or Diamond Shamrock Convertible
Preferred Stock will represent only the right to receive the Ultramar Common
Stock or Ultramar Convertible Preferred Stock into which such shares were
converted in the Merger and the right to receive cash in lieu of fractional
shares of Ultramar Common Stock as described below.
Holders of certificates previously representing Diamond Shamrock Common
Stock or Diamond Shamrock Convertible Preferred Stock will not be paid dividends
or distributions on the Ultramar Common Stock or the Ultramar Convertible
Preferred Stock into which such shares have been converted with a record date
after the Effective Time, and will not be paid cash in lieu of fractional shares
of Ultramar Common Stock, until such certificates are surrendered to the
Exchange Agent for exchange. When such certificates are surrendered, any unpaid
dividends and any cash in lieu of fractional shares of Ultramar Common Stock
payable as described below will be paid without interest.
In the event of a transfer of ownership of Diamond Shamrock Common Stock or
Diamond Shamrock Convertible Preferred Stock which is not registered in the
transfer records of Diamond Shamrock, a certificate representing the proper
number of shares of Ultramar Common Stock or Ultramar Convertible Preferred
Stock may be issued to a person other than the person in whose name the
certificate so surrendered is registered if such certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of Ultramar Common Stock or Ultramar Convertible Preferred
Stock to a person other than the registered holder of such certificate or
establish to the satisfaction of Ultramar that such tax has been paid or is not
applicable.
All shares of Ultramar Common Stock or Ultramar Convertible Preferred Stock
issued upon conversion of shares of Diamond Shamrock Common Stock or Diamond
Shamrock Convertible Preferred Stock, as the case may be (including any cash
paid in lieu of any fractional shares of Ultramar Common Stock), will be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Diamond Shamrock Common Stock or Diamond Shamrock Convertible Preferred
Stock, subject, however, to Ultramar's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time that may
have been declared or made by Diamond Shamrock on such shares of Diamond
Shamrock Common Stock or Diamond Shamrock Convertible Preferred Stock in
accordance with the Merger Agreement on or prior to the Effective Time and which
remain unpaid at the Effective Time.
No fractional shares of Ultramar Common Stock will be issued to any Diamond
Shamrock stockholder upon surrender of certificates previously representing
Diamond Shamrock Common Stock. For each fractional share that would otherwise be
issued, Ultramar will make available to such stockholders an amount in cash
equal to the product obtained by multiplying the fractional share interest to
which such holder would otherwise be entitled by the closing price for a share
of Ultramar Common Stock on the NYSE Composite Transaction Tape on the Closing
Date.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:
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(i) the Stockholder Approvals shall have been obtained;
(ii) the waiting period with respect to the Merger under the Hart-Scott
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall
have expired or been terminated;
(iii) no judgment, order, decree, statute, law, ordinance, rule,
regulation, temporary restraining order, injunction or other order enacted,
entered, promulgated, enforced or issued by any court or other governmental
entity or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect;
(iv) there shall not be pending any suit, action or proceeding brought
by any governmental entity (a) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
the Merger Agreement or the Stock Option Agreements or seeking to obtain any
material damages, (b) seeking to prohibit or limit the ownership or
operation by Diamond Shamrock, Ultramar or any of their respective
subsidiaries of any material portion of the businesses or assets of Diamond
Shamrock, Ultramar or any of their respective subsidiaries or to compel
Diamond Shamrock, Ultramar or any of their respective subsidiaries to
dispose of or hold separate any material portion of their businesses or
assets or (c) which otherwise could reasonably be expected to have a
material adverse effect on Diamond Shamrock or Ultramar;
(v) the Registration Statement of which this Proxy Statement is a part
shall have become effective and shall not be the subject of any stop order
or proceedings seeking a stop order;
(vi) the shares of Ultramar Common Stock issuable to Diamond Shamrock's
stockholders in connection with the Merger and under certain Diamond
Shamrock stock plans shall be approved for listing on the NYSE, subject to
official notice of issuance; and
(vii) Ultramar and Diamond Shamrock shall each have received letters
dated as of the Closing Date from Ernst & Young LLP and Price Waterhouse LLP
(the independent accountants of Ultramar and Diamond Shamrock, respectively)
to the effect that the Merger qualifies for "pooling of interests"
accounting treatment.
In addition, each party's obligation to effect the Merger is subject to the
following additional conditions (any of which may be waived by such party):
(i) the representations and warranties of the other party to the Merger
Agreement set forth in the Merger Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of such other party set forth in the Merger Agreement that are
not so qualified shall be true and correct in all material respects, in each
case as of the date of the Merger Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case as of such date);
(ii) the other party to the Merger Agreement shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date;
(iii) such party shall have received from its counsel, on the date of
this Proxy Statement and on the Closing Date, opinions, in each case dated
as of such respective dates and stating that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, that Ultramar and Diamond Shamrock will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code and that no gain or loss will be recognized by the stockholders of
Diamond Shamrock upon their exchange of Diamond Shamrock Common Stock or
Diamond Shamrock Convertible Preferred Stock into Ultramar Common Stock or
Ultramar Convertible Preferred Stock, as the case may be, under Section 354
of the Code (except to the extent such stockholders receive cash in lieu of
fractional shares) (see "The Merger -- Certain Federal Income Tax
Consequences"); and
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(iv) at any time after the date of the Merger Agreement there shall not
have occurred any material adverse change relating to the other party.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Ultramar and
Diamond Shamrock: (i) by mutual written consent of Ultramar and Diamond
Shamrock; (ii) by either party thereto, if the Merger has not been consummated
by February 28, 1997; PROVIDED, HOWEVER, that such right to terminate the Merger
Agreement will not be available to either party whose failure to perform any of
its obligations under the Merger Agreement has resulted in the failure of the
Merger to be consummated by that date; (iii) by either party thereto, if any
Stockholder Approval has not been obtained at a Special Meeting; (iv) by either
party thereto, if any judgment, order, decree, statute, law, ordinance, rule,
regulation, temporary restraining order, preliminary or permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any court of
competent jurisdiction or other governmental entity or other legal restraint or
prohibition (collectively, "Restraints") preventing the consummation of the
Merger shall be in effect or if any governmental entity has taken any other
action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger or any of the transactions contemplated by the Merger
Agreement or the Stock Option Agreements and such Restraint or other action
shall have become final and nonappealable; (v) by either Ultramar, on the one
hand, or Diamond Shamrock, on the other hand (a) if the other party has breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in the Merger Agreement,
which breach or failure to perform would give rise to the failure of a condition
and cannot or has not been cured within 30 days after written notice of such
breach (provided that the terminating party is not then in breach), or (b) if
the board of directors of the other party or any committee thereof (1) has
withdrawn or modified in any manner adverse to such party its approval or
recommendation of the Merger Agreement or the Merger, (2) has failed to
reconfirm such recommendation within 15 business days of such party's request,
(3) has approved or recommended any Takeover Proposal (as defined below) or (4)
has resolved to take any of the actions specified in clause (1), (2) or (3),
(vi) by either Ultramar, on the one hand, or Diamond Shamrock, on the other
hand, if, prior to the adoption of the Merger Agreement by the holders of its
Common Stock, its board of directors determines in good faith that there is not
a substantial probability that the adoption of the Merger Agreement will be
obtained due to the existence of a Superior Proposal (as defined below) (as
described under " -- No Solicitation"); or (vii) by either Ultramar, on the one
hand, or Diamond Shamrock, on the other hand, if the other party or any of its
officers, directors, employees, representatives or agents has taken any of the
actions that would be proscribed by the covenant described under " -- No
Solicitation" below but for the exceptions therein allowing certain actions to
be taken pursuant to the proviso in the first sentence of the first paragraph
thereof or the second sentence of the second paragraph therof. A "Takeover
Proposal" is a proposal relating to an acquisition of 20% or more of a party's
and its subsidiaries' assets or 20% or more of any class of equity securities of
such party or any of its subsidiaries, any tender offer or exchange offer that
if consummated would result in any person owning 20% or more of any class of
equity securities of such party or any of its subsidiaries or any merger,
consolidation, liquidation or similar transaction involving such party or any of
its subsidiaries. A "Superior Proposal" is a proposal made by a third party to
acquire, for consideration consisting of cash and/or securities, more than 50%
of the combined voting power of the shares of a party or all or substantially
all of the assets of a party, on terms that the Board of Directors of the party
subject to the proposal determines in good faith to be more favorable to its
stockholders than the Merger and for which financing, to the extent required, is
then committed or is reasonably capable of being obtained.
TERMINATION FEES
The Merger Agreement provides that if a Takeover Proposal is made known to
any party or any of its subsidiaries or has been made directly to its
stockholders generally or any person shall have publicly announced an intention
to make a Takeover Proposal and thereafter the Merger Agreement is terminated
pursuant to the provisions described in clause (ii) or (iii) under "--
Termination" above, then, if within 18 months of the termination the Company
that was the subject of the Takeover Proposal consummates, or enters into an
agreement to consummate, a Takeover Proposal in which at least 35%
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of the Company's assets or equity securities are to be acquired, the Company
that was the subject of the Takeover Proposal must pay the other party the
Termination Fee of $45 million. If the Merger Agreement is terminated pursuant
to the provisions described in clause (v)(b) or (vii) under "-- Termination"
above, then if within 18 months the nonterminating party consummates, or enters
into an agreement to consummate, a transaction pursuant to a Takeover Proposal
in which at least 35% of such Company's assets or equity securities are
acquired, the nonterminating party must pay the terminating party the
Termination Fee. If the Merger Agreement is terminated pursuant to the
provisions described in clause (vi) under "-- Termination," then the terminating
party must pay the nonterminating party the Termination Fee.
The Merger Agreement further provides that if one party should fail to pay
any Termination Fee due, the defaulting party must pay the costs and expenses in
connection with any action taken to collect payment, together with interest on
the amount of the Termination Fee.
NO SOLICITATION
The Merger Agreement provides that Ultramar and Diamond Shamrock shall not,
nor shall they permit any of their respective subsidiaries to, nor shall they
authorize or permit any of their respective officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by them or any of their respective subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any Takeover Proposal or
(ii) participate in any discussions or negotiations regarding any Takeover
Proposal; PROVIDED, HOWEVER, that if, at any time prior to the adoption of the
Merger Agreement by the holders of common stock of either Ultramar or Diamond
Shamrock, the board of directors of such party determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to its stockholders under applicable law, such
party may, in response to a Takeover Proposal which was not solicited by it, (x)
furnish information with respect to it and its subsidiaries to any person
pursuant to a customary confidentiality agreement and (y) participate in
negotiations regarding such Takeover Proposal.
Except as expressly permitted by the Merger Agreement, neither the Ultramar
Board nor the Diamond Shamrock Board, nor any committee thereof, shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to the other party, the approval or recommendation by such board of
directors or such committee of the Merger or the Merger Agreement, (ii) approve
or recommend, or propose publicly to approve or recommend, any Takeover Proposal
or (iii) cause such party to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Takeover Proposal. Notwithstanding the foregoing, in the event that prior to the
adoption of the Merger Agreement by the holders of common stock of such party
(x) the board of directors of such party determines in good faith, after it has
received a Superior Proposal and after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to its
stockholders under applicable law, the board of directors of such party may
withdraw or modify its approval or recommendation of the Merger or the Merger
Agreement, or (y) the board of directors of such party determines in good faith
that there is not a substantial probability that the adoption of the Merger
Agreement by holders of the common stock of such party will be obtained due to
the existence of a Superior Proposal, the board of directors of such party may
approve or recommend such Superior Proposal or terminate the Merger Agreement,
but in each of the cases set forth in this clause (y) only at a time that is
after the fifth business day following the other party's receipt of written
notice advising the other party that the board of directors of such party has
received a Superior Proprosal. See "Other Terms of the Merger and the Merger
Agreement -- Termination."
CONDUCT OF BUSINESS PENDING MERGER
Pursuant to the Merger Agreement, Ultramar and Diamond Shamrock have each
agreed to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner
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as conducted prior to the execution of the Merger Agreement. In addition,
Ultramar and Diamond Shamrock have each agreed that, among other things and
subject to certain exceptions, neither it nor any of its subsidiaries may:
(i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any capital stock, other than certain dividends
and distributions by a subsidiary and other than the regular quarterly
dividends with respect to the Ultramar Common Stock, the Diamond Shamrock
Common Stock and the Diamond Shamrock Convertible Preferred Stock, in the
latter case in accordance with its terms, or split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or purchase, redeem or otherwise acquire any shares of its
capital stock or its significant subsidiaries' capital stock or any rights,
warrants or options to acquire any such securities;
(ii) issue any shares of capital stock or any securities convertible
into or any rights, warrants or options to acquire any such shares, other
than pursuant to existing employee stock options, the issuance of Diamond
Shamrock Common Stock upon conversion of Diamond Shamrock Convertible
Preferred Stock and issuances pursuant to the Stock Option Agreements;
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents (other than the amendments to the
Ultramar Charter and By-laws described herein);
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, any business or business
organization (except for acquisitions not exceeding $20 million and
purchases of inventory, feedstock and other items in the ordinary course of
business);
(v) sell, lease, license, mortgage or otherwise encumber or otherwise
dispose of any properties or assets, other than (A) in the ordinary course
of business or (B) sales of assets that in the aggregate do not exceed $20
million;
(vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, or sell or issue any debt securities except
for short-term borrowings incurred in the ordinary course of business, or
make any loans, advances or capital contributions to, or investments in, any
other person, other than to subsidiaries or to officers and to employees for
travel, business or relocation expenses in the ordinary course of business;
(vii) make or agree to make any new capital expenditure other than as set
forth in existing operating budgets;
(viii) make any tax election that could reasonably be expected to have a
material adverse effect or settle or compromise any material income tax
liability;
(ix) pay any material claims, liabilities or obligations other than in
the ordinary course of business;
(x) except in the ordinary course of business or except as would not
reasonably be expected to have a material adverse effect, modify, amend or
terminate any material contract or agreement;
(xi) make any material change to accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(xii) except as required by law or contemplated by the Merger Agreement,
enter into, adopt or amend in any material respect or terminate any employee
benefit plan or any other employee or director agreement; or
(xiii) except for normal increases in the ordinary course of business
that, in the aggregate, do not materially increase benefit or compensation
expenses, increase the compensation of any director, executive officer or
other key employee.
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AMENDMENT AND WAIVER
Subject to applicable law: (i) the Merger Agreement may be amended by an
instrument in writing signed on behalf of each party at any time (except that
after the Merger Agreement shall have been approved and adopted by the
stockholders of either Ultramar or Diamond Shamrock, no amendment may be entered
into which requires further approval by such stockholders unless such further
approval is obtained) and (ii) at any time prior to the Effective Time, the
parties may, by written instrument signed on behalf of each party, (a) extend
the time for performance of the obligations of the other party to the Merger
Agreement, (b) waive inaccuracies in representations and warranties contained in
the Merger Agreement or in any document delivered pursuant thereto and (c) waive
(subject to the parenthetical in clause (i)) compliance with any agreements or
conditions for their respective benefit contained in the Merger Agreement.
Pursuant to Section 251(d) of the DGCL, no amendment to the Merger Agreement
made subsequent to the adoption of the Merger Agreement by the stockholders of
Ultramar or Diamond Shamrock may alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received by such stockholders in
the Merger, alter or change any term of the Certificate of Incorporation of the
Combined Company to be effected by the Merger or alter or change any terms and
conditions of the Merger Agreement if such alteration or change would adversely
affect the holders of any class or series of stock of Ultramar or Diamond
Shamrock, respectively.
EXPENSES
Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement, the Stock Option Agreements and the
transactions contemplated thereby shall be paid by the party incurring such fees
or expenses, except as otherwise provided in the Merger Agreement and the Stock
Option Agreements and except that (i) if the Merger Agreement is terminated
pursuant to the provisions described in clause (v)(b) or (vii) of "--
Termination" above, all out-of-pocket expenses (subject to a cap of $5 million)
incurred by the terminating party in connection with the Merger Agreement, the
Stock Option Agreements and the transactions contemplated thereby shall be paid
by the other party, (ii) if a suit is filed which results in a judgment for any
Termination Fee due under the Merger Agreement, the costs and expenses relating
to the suit of the party that obtained the judgment must be paid by the other
party, and (iii) Ultramar and Diamond Shamrock will share equally the expenses
incurred in connection with filing, printing and mailing this Proxy Statement
and with the filings of the premerger notification and report forms under the
HSR Act (including filing fees).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of Diamond Shamrock and Ultramar; (iv) authorization, execution, delivery,
performance and enforceability of, and required consents, approvals, orders and
authorizations of governmental authorities relating to, the Merger Agreement and
related matters; (v) documents filed by each of Ultramar and Diamond Shamrock
with the Commission, the accuracy of information contained therein and the
absence of undisclosed liabilities of each of Ultramar and Diamond Shamrock;
(vi) the accuracy of information supplied by each of Ultramar and Diamond
Shamrock in connection with the Registration Statement and this Proxy Statement;
(vii) absence of material changes or events with respect to each of Diamond
Shamrock and Ultramar; (viii) the absence of material litigation; (ix)
compliance with applicable laws; (x) retirement and other employee plans and
matters relating to the Employees Retirement Income Security Act of 1974, as
amended; (xi) filing of tax returns and payment of taxes; (xii) required
stockholder votes; (xiii) the satisfaction of certain state takeover statutes
requirements; (xiv) the absence of actions that would prevent using the "pooling
of interests" method to account for the Merger; (xv) engagement and payment of
fees of brokers, investment bankers, finders and financial advisors; (xvi)
receipt of fairness opinions; (xvii) ownership by Diamond Shamrock of Ultramar
Common Stock and by Ultramar of Diamond Shamrock Common Stock or Diamond
Shamrock
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Convertible Preferred Stock; and (xviii) the inapplicability of the Ultramar
Rights Agreement and the Diamond Shamrock Rights Agreement (each as defined in
"Comparison of Stockholder Rights -- Rights Plans") to the Merger Agreement and
certain related agreements and transactions.
RECIPROCAL STOCK OPTION AGREEMENTS
GENERAL. Immediately following the execution and delivery of the Merger
Agreement, Ultramar and Diamond Shamrock entered into (i) the Ultramar Stock
Option Agreement pursuant to which Ultramar granted Diamond Shamrock an option
to purchase up to 8,927,500 shares of Ultramar Common Stock (or such greater
number of shares of Ultramar Common Stock as represents 19.9% of the then-
outstanding Ultramar Common Stock) at a price per share of $27.20 and (ii) the
Diamond Shamrock Stock Option Agreement pursuant to which Diamond Shamrock
granted Ultramar an option to purchase up to 5,858,500 shares of Diamond
Shamrock Common Stock (or such greater number of shares of Diamond Shamrock
Common Stock as represents 19.9% of the then-outstanding Diamond Shamrock Common
Stock) at a price per share of $27.55. Notwithstanding the foregoing, however,
the number of shares subject to either Stock Option Agreement cannot exceed
$60,000,000 divided by the difference between (a) the closing price per share of
the shares as reported on the NYSE Composite Transaction Tape on the NYSE
trading day immediately preceding the date the grantee under the Stock Option
Agreement (the "Grantee") gives its notice to exercise the option and (b) the
per share purchase price under the option.
The following is a summary of certain provisions of the Ultramar Stock
Option Agreement and the Diamond Shamrock Stock Option Agreement. The terms of
the Stock Option Agreements are identical in all material respects other than
with respect to the shares that may be purchased pursuant thereto and the
exercise prices thereof.
EXERCISE OF THE OPTIONS. The options are exercisable in whole but not in
part and only after the Merger Agreement is terminated under circumstances (a
"Purchase Event") entitling the party desiring to exercise the option to receive
the Termination Fee pursuant to the Merger Agreement. See
"-- Termination Fees." The right to purchase shares under each Stock Option
Agreement will expire upon the earliest to occur of (i) the Effective Time, (ii)
18 months after the first occurrence of a Purchase Event and (iii) termination
of the Merger Agreement prior to the occurrence of a Purchase Event (unless the
Grantee has the right to receive a Termination Fee following such termination
upon the occurrence of certain events, in which case the Stock Option Agreement
will not terminate until the later of (a) six months following the time such
Termination Fee becomes payable and (b) the expiration of the period in which
the Grantee has such right to receive a Termination Fee). Exercise of an option
is subject to compliance with the HSR Act.
ADJUSTMENTS TO NUMBER AND TYPE OF SHARES. The number and type of securities
subject to the options and the purchase price therefor will be adjusted for any
change in the common stock of the issuer under the Stock Option Agreement (the
"Issuer") by reason of a stock dividend, split-up, merger, recapitalization,
combination, exchange of shares or similar transaction, such that the Grantee
will receive (upon exercise of the option) the number and type of securities
that the Grantee would have received if the option had been exercised
immediately prior to the occurrence of such event (or the record date therefor).
The number of shares of common stock subject to each option will also be
adjusted in the event the Issuer issues additional shares of common stock, such
that the number of shares of common stock subject to the option represents 19.9%
of the Issuer's common stock then outstanding, without giving effect to shares
subject to or issued pursuant to the option. In the event that the Issuer enters
into an agreement to consolidate with or merge into any person other than the
Grantee, to permit any person other than the Grantee to merge into the Issuer,
or to sell or otherwise transfer all or substantially all of its assets to any
person other than the Grantee, then such transaction will provide that the
option will, upon the consummation of such transaction, be converted into an
option to acquire the number and class of shares or other securities or property
the Grantee would have received in respect of Issuer common stock if the option
had been exercised immediately prior to such consolidation, merger or sale.
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CASH PAYMENT IN RESPECT OF THE OPTION. If prior to the termination of a
Stock Option Agreement or the exercise of the option the Issuer enters into an
agreement pursuant to which all of the Issuer's common stock then outstanding
will be purchased for or converted into the right to receive cash, then upon the
closing of such transaction the Grantee's Stock Option Agreement will be
terminated and the Grantee will receive cash in an amount equal to the lesser of
(i) $60,000,000 and (ii) the number of shares of common stock subject to the
Stock Option Agreement multiplied by the difference between (a) the amount of
cash per share to be paid in the transaction and (b) the per share purchase
price under the Stock Option Agreement.
REGISTRATION RIGHTS AND LISTING. The Grantee has certain rights to require
registration by the Issuer of any shares purchased pursuant to the option under
the securities laws if necessary for the Grantee to be able to sell such shares
and to require the listing of such shares on the NYSE or other national
securities exchange.
ASSIGNABILITY. Each Stock Option Agreement is fully assignable and
delegatable by the Grantee after it becomes exercisable. Prior to such time each
Stock Option Agreement may only be assigned by the Grantee upon the written
consent of the Issuer.
EFFECT OF STOCK OPTION AGREEMENTS. The Stock Option Agreements are intended
to increase the likelihood that the Merger will be consummated on the terms set
forth in the Merger Agreement. Consequently, certain aspects of the Stock Option
Agreements may have the effect of discouraging persons who might now or prior to
the Effective Time be interested in acquiring all of or a significant interest
in either Ultramar or Diamond Shamrock from considering or proposing such an
acquisition, even if such persons were prepared to offer higher consideration
per share for Diamond Shamrock Common Stock than that implicit in the Exchange
Ratio or a higher price per share for Ultramar Common Stock than the market
price.
STOCK EXCHANGE LISTING
It is a condition to the Merger that the shares of Ultramar Common Stock to
be issued in the Merger and under certain Diamond Shamrock stock plans be
approved for listing on the NYSE, subject to official notice of issuance. The
Ultramar Convertible Preferred Stock will not be listed on any stock exchange.
DIVIDEND COORDINATION
Each of Ultramar and Diamond Shamrock expects to continue to declare until
the Effective Time their respective regularly scheduled dividends. The Merger
Agreement requires each of Ultramar and Diamond Shamrock to coordinate with the
other the payment of dividends, and the designation of record and payment dates,
relating to Ultramar Common Stock and Diamond Shamrock Common Stock with the
intent that holders of Diamond Shamrock Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter as a
result of the Merger.
REQUIRED REGULATORY APPROVALS
The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions (including the Merger) may not be consummated until
certain information has been submitted to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. On September 25, 1996, Ultramar and Diamond Shamrock filed all
appropriate notification and report forms with the Antitrust Division and the
FTC with respect to the Merger, as required by the HSR Act, and on October ,
1996 the waiting period under the HSR Act expired. The expiration of the HSR Act
waiting period does not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. Neither Ultramar nor Diamond
Shamrock believes that the Merger will violate federal antitrust laws.
AMENDMENTS TO RIGHTS AGREEMENTS
Ultramar has amended the Ultramar Rights Agreement (as defined under
"Comparison of Stockholder Rights -- Rights Plans") to provide that neither the
approval, execution or delivery of the Merger
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Agreement or the Ultramar Stock Option Agreement nor the consummation of the
transactions contemplated by the Merger Agreement or the Ultramar Stock Option
Agreement will cause the rights issued thereunder to become exercisable. Diamond
Shamrock has similarly amended the Diamond Shamrock Rights Agreement (as defined
under "Comparison of Stockholder Rights -- Rights Plans"). See "Comparison of
Stockholder Rights -- Rights Plans."
RESALE OF ULTRAMAR COMMON STOCK AND ULTRAMAR CONVERTIBLE PREFERRED STOCK
The Ultramar Common Stock and Ultramar Convertible Preferred Stock issued
pursuant to the Merger will not be subject to any restrictions on transfer
arising under the Securities Act, except for shares issued to any Diamond
Shamrock stockholder who may be deemed to be an "affiliate" of Ultramar or
Diamond Shamrock for purposes of Rule 145 under the Securities Act or for
purposes of qualifying the Merger for pooling of interests accounting treatment.
It is expected that each such affiliate will enter into an agreement with
Ultramar providing that such affiliate will not transfer any Ultramar Common
Stock or Ultramar Convertible Preferred Stock received in the Merger except in
compliance with the Securities Act and will make no disposition of any Ultramar
Common Stock or Ultramar Convertible Preferred Stock (or any interest therein)
received in connection with the Merger unless, in the opinion of counsel to
Ultramar, the transaction will not have any adverse consequences for Ultramar
with respect to the treatment of the Merger for tax purposes. In addition, it is
expected that each such affiliate will agree not to make any such disposition
until after such time as financial results covering at least 30 days of combined
operations of Ultramar and Diamond Shamrock after the Merger have been
published. This Proxy Statement does not cover resales of Ultramar Common Stock
or Ultramar Convertible Preferred Stock received by any person who may be deemed
to be such an affiliate of Ultramar or Diamond Shamrock.
APPRAISAL AND DISSENTERS' RIGHTS
Under the DGCL, holders of Diamond Shamrock Common Stock are not entitled to
appraisal or dissenters' rights in connection with the Merger because the
Diamond Shamrock Common Stock is listed on a national securities exchange and
the consideration which such holders will be entitled to receive in the Merger
will consist solely of Ultramar Common Stock which will also be listed on a
national securities exchange and cash in lieu of fractional shares.
Holders of record of Diamond Shamrock Convertible Preferred Stock who comply
with the applicable statutory procedures summarized herein will be entitled to
appraisal rights under Section 262 of the DGCL ("Section 262"). A person having
a beneficial interest in shares of Diamond Shamrock Convertible Preferred Stock
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX D TO THIS
PROXY STATEMENT. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A
"STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF DIAMOND
SHAMROCK CONVERTIBLE PREFERRED STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Diamond Shamrock Convertible Preferred
Stock ("Appraisal Shares") who follow the procedures set forth in Section 262
will be entitled to have their Appraisal Shares appraised by the Delaware
Chancery Court and to receive payment in cash of the "fair value" of such
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
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This Proxy Statement constitutes such notice to the holders of Appraisal
Shares and the applicable statutory provisions of the DGCL are attached to this
Proxy Statement as Appendix D. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his right to do so should review the
following discussion and Appendix D carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS MUST DELIVER TO DIAMOND SHAMROCK PRIOR TO THE VOTE ON THE MERGER
AGREEMENT AT THE DIAMOND SHAMROCK SPECIAL MEETING, A WRITTEN DEMAND FOR
APPRAISAL OF SUCH HOLDER'S APPRAISAL SHARES. A HOLDER OF APPRAISAL SHARES
WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD HOLDER OF
SUCH APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND
MUST CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD THROUGH THE EFFECTIVE DATE
OF THE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES WHO IS THE RECORD
HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE,
BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO THE CONSUMMATION OF
THE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF SUCH APPRAISAL
SHARES.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Appraisal
Shares as nominee for several beneficial owners may exercise appraisal rights
with respect to the Appraisal Shares held for one or more beneficial owners
while not exercising such rights with respect to the Appraisal Shares held for
other beneficial owners; in such case, the written demand should set forth the
number of Appraisal Shares as to which appraisal is sought. When no number of
Appraisal Shares is expressly mentioned the demand will be presumed to cover all
Appraisal Shares held in the name of the record owner. If a stockholder holds
Appraisal Shares through a broker who in turn holds the shares through a central
securities depositary nominee, such as Cede & Co., a demand for appraisal of
shares must be made by or on behalf of the depositary nominee and must identify
the depositary nominee as record holder. Stockholders who hold their Appraisal
Shares in brokerage accounts or other nominee forms and who wish to exercise
appraisal rights are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for appraisal by such a
nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO DIAMOND
SHAMROCK, INC. AT 9830 COLONNADE BOULEVARD, SAN ANTONIO, TEXAS 78230, ATTENTION:
SECRETARY.
Within 10 days after the consummation of the Merger, the Combined Company
will notify each stockholder who has properly asserted appraisal rights under
Section 262 of the date the Merger became effective.
Within 120 days after the consummation of the Merger, but not thereafter,
the Combined Company or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery Court
demanding a determination of the fair value of the Appraisal Shares. The
Combined Company is under no obligation to and has no present intention to file
a petition with respect to the appraisal of the fair value of the Appraisal
Shares. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed in
Section 262.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Combined Company a statement
setting forth the aggregate number of Appraisal Shares with respect to
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which demands for appraisal have been received and the aggregate number of
holders of such Appraisal Shares. Such statements must be mailed within ten days
after a written request therefor has been received by the Combined Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Stockholders considering
seeking appraisal should be aware that the fair value of their Appraisal Shares
as determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings. If any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of the all of the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment or dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his right
to appraisal, as provided in the DGCL the Appraisal Shares of such stockholder
will be converted in the right to receive the consideration receivable with
respect to such Appraisal Shares in accordance with the Merger Agreement. A
stockholder will fail to perfect, or effectively lose or withdraw, his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the effective date of the Merger, or if the stockholder withdraws his
demand for appraisal. Any withdrawal attempted more than 60 days after such
effective date will require the written approval of the Combined Company.
Notwithstanding the foregoing, no appraisal proceeding pending in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and any such approval may be conditioned upon such terms as the Court
deems just.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER WILL
BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH
APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT).
AMENDMENTS TO ULTRAMAR CHARTER
In connection with the Merger, as of the Effective Time the Ultramar Charter
will be amended to change the name of Ultramar to "Ultramar Diamond Shamrock
Corporation," to increase the number of
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authorized shares of Ultramar Common Stock from 100,000,000 to 250,000,000 and
to make a minor technical change described below. No change will be made with
respect to the number of authorized shares of preferred stock.
The Ultramar Charter currently authorizes the issuance of 100,000,000 shares
of Ultramar Common Stock and 25,000,000 shares of Ultramar Convertible Preferred
Stock. On the Record Date, shares of Ultramar Common Stock were either
issued and outstanding or reserved for issuance. Ultramar expects to issue
approximately 29,884,578 shares of Ultramar Common Stock to holders of Diamond
Shamrock Common Stock in the Merger, to reserve an additional approximately
1,136,576 shares for issuance upon exercise of options granted pursuant to the
Diamond Shamrock, Inc. Long-Term Incentive Plan and the Diamond Shamrock R&M,
Inc. 1987 Long-Term Incentive Plan and 3,319,861 shares for issuance on
conversion of the Ultramar Convertible Preferred Stock. After taking into
account the shares of Ultramar Common Stock either issued or reserved for
issuance, including those reserved for the foregoing stock plans, the Combined
Company would have approximately 20,878,477 remaining shares authorized for
issuance if the Ultramar Charter were not amended. The Ultramar Board and
Diamond Shamrock Board believe it is desirable to authorize additional shares of
Combined Company Common Stock so that there will be sufficient shares available
for issuance after the Merger for purposes that the Board of Directors may
hereafter determine to be in the best interests of the Combined Company and its
stockholders. Such purposes could include the offer of shares for cash,
acquisitions, employee benefit programs and other general corporate purposes. In
many situations, prompt action may be required which would not permit seeking
stockholder approval to authorize additional shares for the specific transaction
on a timely basis. The Ultramar Board and Diamond Shamrock Board believe the
Combined Company's Board of Directors should have the flexibility to act
promptly in the best interests of stockholders. The terms of any future issuance
of shares of Common Stock will be dependent largely on market and financial
conditions and other factors existing at the time of issuance. For the foregoing
reasons, the Merger Agreement provides that the authorized shares of Ultramar
Common Stock will be increased to 250,000,000 shares in order to have a
sufficient number of shares for issuance from time to time after the Merger.
Ultramar currently has no plans, understandings, agreements or arrangements
concerning the issuance of additional shares of Ultramar Common Stock, except
for the shares to be issued in the Merger and shares reserved or to be reserved
for issuance by Ultramar as described herein. If any plans, understandings,
arrangements or agreements are made concerning the issuance of any such shares,
holders of the then outstanding shares of Ultramar's capital stock may or may
not be given the opportunity to vote thereon, depending upon the nature of any
such transaction, the law applicable thereto, the policy of the NYSE and the
judgment of Ultramar's Board of Directors regarding the submission thereof to
Ultramar's stockholders. The current rules of the NYSE, however, would require
stockholder approval if the number of shares of Ultramar Common Stock to be
issued would equal or exceed 20% of the number of such shares of Ultramar Common
Stock outstanding immediately prior to the such issuance.
It is not presently contemplated that such additional shares of Ultramar
Common Stock would be issued for the purpose of making the acquisition by an
unwanted suitor of a controlling interest in Ultramar more difficult,
time-consuming or costly. However, it should be noted that shares of Ultramar
Common Stock could be issued for that purpose and to that effect, and the Board
of Directors reserves its right (if consistent with its fiduciary
responsibilities) to issue Ultramar Common Stock for such purposes. For a
description of certain antitakeover effects of the Ultramar Rights which are
attached to the existing Ultramar Common Stock and will be attached to any
additional shares of Ultramar Common Stock when issued, see "Comparison of
Stockholder Rights -- Rights Plans -- Ultramar Rights Plan."
The Merger Agreement provides that the Certificate of Incorporation of the
Combined Company will be the Ultramar Charter and that the name of the Combined
Company will be "Ultramar Diamond Shamrock Corporation." The Ultramar Charter
also is proposed to be amended in the Merger by adding a provision stating that
votes taken by the stockholders at annual or special meetings need not, unless
required by law or deemed advisable by the chairman of the meeting, be by
written ballot.
57
<PAGE>
AMENDMENTS TO ULTRAMAR BY-LAWS
The Merger Agreement provides for amendments to Ultramar's By-laws to
provide for additional officers and to broaden the rights of certain
individuals, including directors and officers of the Combined Company, to
indemnification in the event of personal liability or expenses incurred by them
as a result of, and advancement of expenses with respect to, certain litigation
against them so that such individuals have the maximum of such rights permitted
by the DGCL. For the text of these amendments, see Exhibit "A" to the Merger
Agreement, which is set forth in Appendix A to this Proxy Statement and is
incorporated herein for reference.
PRO FORMA CONDENSED FINANCIAL INFORMATION
OF THE COMBINED COMPANY
The following pro forma condensed financial information gives effect to the
Merger, which is expected to be accounted for as a pooling of interests. For a
description of pooling of interests accounting with respect to the Merger and
other accounting matters, see "The Merger -- Anticipated Accounting Treatment."
The pro forma condensed balance sheet gives effect to the Merger as if it had
occurred on June 30, 1996. The pro forma condensed statements of income give
effect to the Merger as if it had occurred on January 1, 1993. In combining the
financial information of Ultramar and Diamond Shamrock to reflect the Merger and
the accounting policies that will be used by the Combined Company, certain
reclassifications of historical financial data have been made. The historical
consolidated statements of income of Diamond Shamrock for the year ended
December 31, 1995 and for the six months ended June 30, 1995 have also been
adjusted to give pro forma effect to Diamond Shamrock's NCS Acquisition, as if
it had occurred on January 1, 1995 (see Note (6) of Notes to Pro Forma Condensed
Financial Information).
The following pro forma condensed financial information should be read in
conjunction with the historical consolidated financial statements of Ultramar
and Diamond Shamrock, including the respective notes thereto, which are
incorporated by reference in this Proxy Statement, in conjunction with the
selected consolidated historical and pro forma financial data, including the
notes thereto, appearing elsewhere in this Proxy Statement (see "Incorporation
of Certain Documents by Reference"), and in conjunction with the information
appearing under "Summary -- Recent Developments."
The pro forma condensed balance sheet reflects an estimated $67 million
charge for the transaction and integration costs (a total of $47 million net of
tax) expected to be incurred in connection with the Merger; however, because
these charges are nonrecurring, they have not been reflected in the pro forma
condensed statements of income. The pro forma financial information does not
give effect to the anticipated cost savings expected to result from the Merger.
See "Management and Operations of the Combined Company -- The Combined Company."
The pro forma financial information is not necessarily indicative of the results
that actually would have occurred had the Merger been consummated on the dates
indicated or that may be obtained in the future.
58
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DIAMOND INCREASE PRO FORMA
ULTRAMAR SHAMROCK (DECREASE) COMBINED
---------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 265.3 $ 63.1 $ 328.4
Accounts and notes receivables, net....................... 200.2 238.4 438.6
Inventories............................................... 237.1 316.7 553.8
Prepaid expenses and other current assets................. 42.6 16.1 $ 16.9(1) 75.6
---------- ---------- ------ -----------
Total current assets.................................. 745.2 634.3 16.9 1,396.4
Other assets, net........................................... 76.4 223.3 299.7
Properties and equipment, net............................... 1,286.0 1,393.5 2,679.5
---------- ---------- ------ -----------
Total assets.......................................... $ 2,107.6 $ 2,251.1 $ 16.9 $ 4,375.6
---------- ---------- ------ -----------
---------- ---------- ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt....... $ .2 $ 6.3 $ 6.5
Accounts payable.......................................... 201.4 221.6 423.0
Accrued liabilities....................................... 101.3 109.7 $ 67.0(1) 278.0
Accrued taxes............................................. 160.8 72.5 (3.1)(1) 230.2
---------- ---------- ------ -----------
Total current liabilities............................. 463.7 410.1 63.9 937.7
Long-term debt, less current portion........................ 668.5 1,011.0 1,679.5
Other long-term liabilities................................. 178.0 115.3 293.3
Deferred income taxes....................................... 71.6 64.9 136.5
Stockholders' equity
Preferred stock, $.01 par value........................... .0 .0 .0
Common stock, $.01 par value.............................. .4 .3 .7
Additional paid-in capital................................ 673.4 457.2 1,130.6
ESOP stock and stock held in treasury..................... (34.4) (34.4)
Unamortized restricted stock awards....................... (.2) (.2)
Retained earnings......................................... 107.5 226.7 (47.0)(1) 287.2
Foreign currency translation adjustment................... (55.3) (55.3)
---------- ---------- ------ -----------
Total stockholders' equity............................ 725.8 649.8 (47.0) 1,328.6
---------- ---------- ------ -----------
Total liabilities and stockholders' equity............ $ 2,107.6 $ 2,251.1 $ 16.9 $ 4,375.6
---------- ---------- ------ -----------
---------- ---------- ------ -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
59
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DIAMOND INCREASE PRO FORMA
ULTRAMAR SHAMROCK (DECREASE) COMBINED
---------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Sales and other revenues............................... $ 1,613.9 $ 2,417.1 $ 546.2 (2)(4 $ 4,577.2
Operating costs and expenses
Cost of products sold................................ 1,241.9 1,547.5 2,789.4
Operating expenses................................... 145.0 295.8 (8.6)(3) 432.2
Selling, general and administrative expenses......... 100.3 48.0 (5.9)(3) 142.4
Taxes other than income taxes........................ 393.4 564.3 (2)(3 957.7
Depreciation and amortization........................ 34.6 51.7 86.3
---------- ------------- ------- -----------
Total operating costs and expenses............... 1,521.8 2,336.4 549.8 4,408.0
---------- ------------- ------- -----------
Operating income....................................... 92.1 80.7 (3.6) 169.2
Interest income........................................ 4.5 3.6(4) 8.1
Interest expense....................................... (24.8) (36.4) (61.2)
---------- ------------- ------- -----------
Income before income taxes............................. 71.8 44.3 116.1
Provision for income taxes............................. 28.6 18.4 47.0
---------- ------------- ------- -----------
Net income............................................. 43.2 25.9 69.1
Dividend requirement on preferred stock................ 2.2 2.2
---------- ------------- ------- -----------
Earnings applicable to common shares................... $ 43.2 $ 23.7 $ -- $ 66.9
---------- ------------- ------- -----------
---------- ------------- ------- -----------
Income per common and common equivalent share (5)
Primary.............................................. $ .96 $ .81 $ .89
Fully diluted........................................ .96 .79 .88
Weighted average number of common and common equivalent
shares used in
computation (5)
Primary.............................................. 45.1 29.4 75.1
Fully diluted........................................ 45.2 32.7 78.5
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
60
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED, IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DIAMOND ADJUSTMENTS
SHAMROCK INCREASE PRO FORMA
ULTRAMAR PRO FORMA (6) (DECREASE) COMBINED
---------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Sales and other revenues............................... $ 1,328.5 $ 2,287.1 $ 497.4 (2)(4 $ 4,113.0
Operating costs and expenses
Cost of products sold................................ 1,024.9 1,371.7 2,396.6
Operating expenses................................... 148.8 276.9 (8.7)(3) 417.0
Selling, general and administrative expenses......... 95.7 58.9 (4.9)(3) 149.7
Taxes other than income taxes........................ 453.8 514.3 (2)(3 968.1
Depreciation and amortization........................ 27.5 44.3 71.8
---------- -------------- ------- -----------
Total operating costs and expenses................. 1,296.9 2,205.6 500.7 4,003.2
---------- -------------- ------- -----------
Operating income....................................... 31.6 81.5 (3.3) 109.8
Interest income........................................ 2.0 3.3(4) 5.3
Interest expense....................................... (23.3) (33.8) (57.1)
---------- -------------- ------- -----------
Income before income taxes and cumulative effect of
accounting change..................................... 10.3 47.7 58.0
Provision for income taxes............................. 4.1 19.5 23.6
---------- -------------- ------- -----------
Income before cumulative effect of accounting change... 6.2 28.2 34.4
Dividend requirement on preferred stock................ 2.2 2.2
---------- -------------- ------- -----------
Earnings applicable to common shares before cumulative
effect of accounting change........................... $ 6.2 $ 26.0 $ -- $ 32.2
---------- -------------- ------- -----------
---------- -------------- ------- -----------
Income per common and common equivalent share before
cumulative effect of accounting change (5)
Primary.............................................. $ .16 $ .89 $ .47
Fully diluted........................................ .16 .87 .47
Weighted average number of common and common equivalent
shares used in computation (5)
Primary.............................................. 39.0 29.1 68.7
Fully diluted........................................ 39.1 32.4 72.1
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
61
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DIAMOND ADJUSTMENTS
SHAMROCK INCREASE PRO FORMA
ULTRAMAR PRO FORMA (6) (DECREASE) COMBINED
---------- -------------- ----------------- -----------
<S> <C> <C> <C> <C>
Sales and other revenues............................. $ 2,714.4 $ 4,566.1 $ 1,060.3 (2)(4 $ 8,340.8
Operating costs and expenses
Cost of products sold.............................. 2,072.8 2,749.6 4,822.4
Operating expenses................................. 285.9 548.0 (17.0)(3) 816.9
Selling, general and administrative expenses....... 183.2 120.2 (9.8)(3) 293.6
Taxes other than income taxes...................... 922.8 1,095.3 (2)(3 2,018.1
Depreciation and amortization...................... 58.6 89.5 148.1
---------- -------------- -------- -----------
Total operating costs and expenses............... 2,600.5 4,430.1 1,068.5 8,099.1
---------- -------------- -------- -----------
Operating income..................................... 113.9 136.0 (8.2) 241.7
Interest income...................................... 5.1 8.2(4) 13.3
Interest expense..................................... (45.7) (68.2) (113.9)
---------- -------------- -------- -----------
Income before income taxes and cumulative effect of
accounting change................................... 73.3 67.8 141.1
Provision for income taxes......................... 25.7 27.2 52.9
---------- -------------- -------- -----------
Income before cumulative effect of accounting
change............................................ 47.6 40.6 88.2
Dividend requirement on preferred stock.............. 4.3 4.3
---------- -------------- -------- -----------
Earnings applicable to common shares before
cumulative effect of accounting change.............. $ 47.6 $ 36.3 $ -- $ 83.9
---------- -------------- -------- -----------
---------- -------------- -------- -----------
Income per common and common equivalent share before
cumulative effect of accounting change (5)
Primary............................................ $ 1.18 $ 1.25 $ 1.20
Fully diluted...................................... 1.18 1.25 1.20
Weighted average number of common and common
equivalent shares used in computation (5)
Primary............................................ 40.3 29.1 70.0
Fully diluted...................................... 40.4 32.4 73.4
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
62
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DIAMOND INCREASE PRO FORMA
ULTRAMAR SHAMROCK (DECREASE) COMBINED
---------- -------------- ----------------- -----------
<S> <C> <C> <C> <C>
Sales and other revenues............................. $ 2,547.7 $ 3,312.1 $ 1,004.2 (2)(4 $ 6,864.0
Operating costs and expenses
Cost of products sold.............................. 1,835.3 1,880.7 3,716.0
Operating expenses................................. 319.1 388.8 (16.9)(3) 691.0
Selling, general and administrative expenses....... 216.5 71.7 (9.3)(3) 278.9
Taxes other than income taxes...................... 730.9 1,036.0 (2)(3 1,766.9
Depreciation and amortization...................... 41.1 70.9 112.0
---------- -------------- -------- -----------
Total operating costs and expenses............... 2,412.0 3,143.0 1,009.8 6,564.8
---------- -------------- -------- -----------
Operating income..................................... 135.7 169.1 (5.6) 299.2
Interest income...................................... 3.0 5.6(4) 8.6
Interest expense..................................... (43.8) (43.3) (87.1)
---------- -------------- -------- -----------
Income before income taxes........................... 94.9 125.8 220.7
Provision for income taxes........................... 33.9 50.0 83.9
---------- -------------- -------- -----------
Net income........................................... 61.0 75.8 136.8
Dividend requirement on preferred stock.............. 4.3 4.3
---------- -------------- -------- -----------
Earnings applicable to common shares................. $ 61.0 $ 71.5 $ -- $ 132.5
---------- -------------- -------- -----------
---------- -------------- -------- -----------
Income per common and common equivalent share (5)
Primary............................................ $ 1.56 $ 2.45 $ 1.93
Fully diluted...................................... 1.56 2.34 1.90
Weighted average number of common and common
equivalent shares used in computation (5)
Primary............................................ 39.0 29.1 68.7
Fully diluted...................................... 39.0 32.4 72.0
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
63
<PAGE>
THE COMBINED COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
DIAMOND INCREASE PRO FORMA
ULTRAMAR SHAMROCK (DECREASE) COMBINED
---------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Sales and other revenues............................... $ 2,512.2 $ 3,110.2 $ 875.3 (2)(4 $ 6,497.7
Operating costs and expenses
Cost of products sold................................ 1,735.7 1,965.5 3,701.2
Operating expenses................................... 306.3 340.0 (17.8)(3) 628.5
Selling, general and administrative expenses......... 244.7 60.9 (9.6)(3) 296.0
Taxes other than income taxes........................ 581.4 908.4 (2)(3 1,489.8
Depreciation and amortization........................ 38.7 64.3 103.0
---------- -------------- ------- -----------
Total operating costs and expenses................. 2,325.4 3,012.1 881.0 6,218.5
---------- -------------- ------- -----------
Operating income....................................... 186.8 98.1 (5.7) 279.2
Interest income........................................ 5.5 5.7(4) 11.2
Interest expense....................................... (52.5) (40.6) (93.1)
---------- -------------- ------- -----------
Income before income taxes and cumulative effect of
accounting change..................................... 139.8 57.5 197.3
Provision for income taxes............................. 53.3 24.9 78.2
---------- -------------- ------- -----------
Income before cumulative effect of accounting change... 86.5 32.6 119.1
Dividend requirement applicable to preferred stock..... 2.4 2.4
---------- -------------- ------- -----------
Earnings applicable to common shares................... $ 86.5 $ 30.2 $ -- $ 116.7
---------- -------------- ------- -----------
---------- -------------- ------- -----------
Income per common and common equivalent share before
cumulative effect of accounting change (5)
Primary.............................................. $ 2.23 $ 1.04 $ 1.71
Fully diluted........................................ 2.23 1.04 1.71
Weighted average number of common and common equivalent
shares used in computation (5)
Primary.............................................. 38.7 28.9 68.2
Fully diluted........................................ 38.8 29.0 68.4
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
64
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
1. A liability of $67.0 million has been recorded in the pro forma condensed
balance sheet to reflect management's estimate of anticipated transaction
and integration costs related to the Merger. The tax benefits associated
with these costs are reflected as adjustments to accrued taxes of $3.1
million and prepaid expenses and other current assets of $16.9 million. The
net effect of these adjustments has been reflected as a reduction in
retained earnings of $47.0 million.
2. Excise and state motor fuel taxes will be presented by the Combined Company
as revenues with a corresponding charge to expense for taxes other than
income taxes. Consequently, Ultramar's excise and state motor fuel taxes
have been reclassified to conform to this method of presentation.
3. Ultramar property, payroll and other taxes have been reclassified from
operating and selling, general and administrative expenses to taxes other
than income taxes to conform to the financial presentation of the Combined
Company,
4. Diamond Shamrock interest income has been reclassified from sales and other
revenues to interest income to conform to the financial presentation of the
Combined Company.
5. Income per common and common equivalent share for the Combined Company is
based on the historical weighted average number of common and common
equivalent shares outstanding for each Company during the respective period
adjusted to reflect the Exchange Ratio of 1.02 shares of Ultramar Common
Stock for each share of Diamond Shamrock Common Stock or common stock
equivalent.
6. The historical statements of income for the six months ended June 30, 1995
and the year ended December 31, 1995 of Diamond Shamrock have been adjusted
to give pro forma effect to the NCS Acquisition as if the transaction had
occured on January 1, 1995. The principal pro forma adjustments to Diamond
Shamrock's historical statements of income for the six months ended June 30,
1995 and the year ended December 31, 1995 related to the NCS Acquisition are
(i) an increase in amortization expense of $3.5 million and $6.9 million,
respectively, to reflect amortization of purchase price in excess of the
fair value of the acquired net assets, (ii) an increase in interest expense
of $6.5 million and $12.9 million, respectively, related to the net
additional debt incurred to finance the acquisition, and (iii) an additional
income tax benefit of $2.3 million and $4.5 million, respectively, to
reflect the income tax effect of the additional interest expense incurred.
65
<PAGE>
APPROVAL OF THE INCENTIVE PLAN
INTRODUCTION
Pursuant to the Merger Agreement, Diamond Shamrock and Ultramar agreed to
develop a long-term incentive plan for the Combined Company that will include
awards such as stock options, stock appreciation rights and restricted shares
and that would be based on Ultramar's existing long term incentive plan.
Following the execution and delivery of the Merger Agreement, representatives of
Ultramar and Diamond Shamrock reviewed the matter with representatives of the
Compensation Committees of the Boards of Directors of the two companies and, on
October 22, 1996, the Ultramar Board approved the Incentive Plan, subject to
approval by Ultramar's stockholders at the Ultramar Special Meeting and the
consummation of the Merger, as the Ultramar Diamond Shamrock Corporation 1996
Long-Term Incentive Plan. The following summary of the Incentive Plan is
qualified in its entirety by reference to the text of the Incentive Plan, a copy
of which as been filed with the Commission. As of October , 1996, the closing
price on the NYSE of a share of Ultramar Common Stock (the security underlying
awards granted under the Incentive Plan) was $ .
VOTE REQUIRED
The approval of the Incentive Plan requires the affirmative vote of the
holders of a majority of the shares of Ultramar Common Stock present or
represented by proxy and entitled to vote at the Ultramar Special Meeting. The
consummation of the Merger is a condition to the effectiveness of the Incentive
Plan. Stockholder approval of the adoption of the Incentive Plan is not,
however, a condition to the consummation of the Merger. Stockholder approval of
the Incentive Plan is required to comply with the conditions for the qualified
performance-based compensation exception from Section 162(m) of the Code, which
in certain circumstances limits annual deductible compensation to senior
executive officers to $1 million, to meet NYSE requirements and to meet the
requirements for incentive stock options contained in Section 422 of the Code.
THE ULTRAMAR BOARD RECOMMENDS THAT ULTRAMAR STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE INCENTIVE PLAN.
PURPOSE
The principal purpose of the Incentive Plan is to further the growth,
development and financial success of the Combined Company by providing
incentives to those officers and other key employees who have the capacity for
contributing in substantial measure toward the growth and profitability of the
Combined Company and to assist the Combined Company in attracting and retaining
employees with the ability to make such contributions.
ELIGIBILITY
The persons eligible to participate in the Incentive Plan are officers of
the Combined Company and employees of the Combined Company or any of its
subsidiaries who are designated by the Compensation Committee as key employees.
SHARES RESERVED
Subject to certain exceptions set forth in the Incentive Plan relating to
stock splits, recapitalizations and similar transactions, a total of 6.0 million
shares of Ultramar Common Stock have been reserved for issuance pursuant to the
Incentive Plan.
TYPES OF AWARDS
The Compensation Committee may grant awards under the Incentive Plan in the
form of stock options, restricted shares and/or stock appreciation rights. Stock
options may be granted as "incentive stock options" (as defined under Section
422 of the Code) or as nonqualified stock options.
TERMS AND CONDITIONS OF STOCK OPTIONS
The purchase price of Ultramar Common Stock issuable upon the exercise of
stock options (the "exercise price") will be determined by the Compensation
Committee of the Combined Company, provided that the exercise price may not be
less than 100% of the fair market value of a share of Ultramar Common Stock on
the date of grant. Options will be granted for such term not exceeding ten years
from the date of grant as the Compensation Committee may determine and may not,
when aggregated with any award of stock appreciation rights, exceed 600,000
shares of Ultramar Common Stock per year
66
<PAGE>
granted to any single individual. Options become exercisable in such
installments and at such times as may be determined by the Compensation
Committee and may be exercised in whole or in part at any time after becoming
exercisable and before expiration. The exercise price for any shares of Ultramar
Common Stock purchased pursuant to exercise of an option will be paid in full
upon such exercise in cash, by check or, at the discretion of the Compensation
Committee, by transferring to the Combined Company shares of Ultramar Common
Stock held for at least six months, having shares of Ultramar Common Stock
withheld from the shares otherwise issuable upon exercise, or exercising
pursuant to a "cashless exercise" procedure. The Compensation Committee may
provide for the grant to an optionee of additional stock options as "reload
options" upon the exercise by the optionee of outstanding stock options
(including reload options) through the surrender of shares of Ultramar Common
Stock. Reload options granted are limited to the number of shares of Ultramar
Common Stock equal to the number of shares of Ultramar Common Stock surrendered.
The exercise price of any reload options granted may not be less than 100% of
the fair market value of a share of Ultramar Common Stock on the date of grant
of the reload option. In addition, the term of a reload option cannot exceed the
term of the option whose exercise resulted in the grant of the reload option.
TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
A "stock appreciation right" is the right to receive an amount equal to the
excess of the fair market value of a share of Ultramar Common Stock on the date
of exercise over the strike price of the stock appreciation right. A stock
appreciation right may be granted independently of any related stock option or
in "tandem" with a stock option, either at the time of grant (in the case of an
incentive stock option) or at any time during the term of a stock option (in the
case of a nonqualified stock option).
The exercise of a stock appreciation right granted in "tandem" with a stock
option will result in the cancellation of the stock option to which it relates
with respect to the same number of shares of Ultramar Common Stock as to which
the stock appreciation right was exercised. The "strike price" of a stock
appreciation right will be determined by the Compensation Committee, provided
that the strike price may not be less than 100% of the fair market value of a
share of Ultramar Common Stock on the date of grant. Upon exercise of the stock
appreciation right, a holder will be entitled to receive an amount in cash
and/or shares of Ultramar Common Stock equal in value to the excess of the fair
market value of a share of Ultramar Common Stock on the date of exercise over
the strike price, multiplied by the number of shares in respect of which the
stock appreciation right is being exercised. Stock appreciation rights will be
granted for such term not exceeding ten years from the date of grant as the
Compensation Committee may determine, and may not, when aggregated with any
award of stock options, exceed 600,000 shares of Ultramar Common Stock per year
granted to any single individual. Stock appreciation rights are exercisable in
such installments and at such times as may be determined by the Compensation
Committee and may be exercised in whole or in part at any time after becoming
exercisable and before their expiration.
TERMS AND CONDITIONS OF RESTRICTED SHARES
A "restricted share award" is the grant of shares of Ultramar Common Stock
at a price determined by the Compensation Committee, which may be zero. The
grant or vesting of restricted shares may be conditioned on the attainment of
performance goals or other factors, in the discretion of the Compensation
Committee. Any restriction based upon attainment of a certain length of service
with the Combined Company will not exceed five years of service after the date
of grant of the restricted shares and any period within which specified
performance goals (other than the attainment of a certain length of service)
must be attained will not exceed ten years after the date of grant of the
restricted shares. The number of shares of Ultramar Common Stock that may become
nonforfeitable solely upon an individual's attainment of a certain length of
service with the Combined Company may not, in the aggregate, exceed 400,000, and
the maximum number of restricted shares that may be granted to any single
individual cannot exceed 200,000 shares per year. The Compensation Committee
may, in its discretion, provide for the lapse of restrictions imposed on an
award in installments, and may retain in the award agreement the authority to
waive such restrictions in whole or in part. Holders of restricted shares will
have, with respect to the restricted shares granted, all of the rights of a
stockholder of Ultramar, including the right to vote and to receive dividends.
67
<PAGE>
PERFORMANCE CRITERIA
The Compensation Committee may, in its discretion, subject stock options,
stock appreciation rights and restricted shares to performance criteria adopted
by the Compensation Committee. (For this purpose "performance criteria" will not
include solely the attainment of a certain length of service with the Combined
Company). The performance criteria applicable to any award to a participant who
is, or is determined by the Compensation Committee to be likely to become, a
"covered employee" within the meaning of Section 162(m) of the Code will be
limited to growth, improvement or attainment of certain levels of: (i) return on
capital, equity or operating assets; (ii) economic value added; (iii) margins;
(iv) total stockholder return or market value; (v) operating profit or net
income; (vi) cash flow, earnings before interest and taxes, earnings before
interest, taxes and depreciation or earnings before interest, taxes,
depreciation and amortization; (vii) sales, throughput or product volumes; or
(viii) costs or expenses. The foregoing performance criteria may be expressed
either on an absolute basis or relative to other companies selected by the
Compensation Committee. If the Compensation Committee determines that a change
in the business, operations, corporate structure or capital structure of the
Combined Company, or the manner in which it conducts its business, or other
events or circumstances, render performance criteria to be unsuitable, the
Compensation Committee may modify such performance criteria, or the related
minimum acceptable level of achievement, in whole or in part, as the
Compensation Committee deems appropriate and equitable. In the case of an award
to a participant who is, or is determined by the Compensation Committee to be
likely to become, a "covered employee," however, no such modification will be
made if the effect would be to cause the award to fail to satisfy the qualified
performance-based compensation exception to Section 162(m) of the Code. In
addition, at the time the award subject to performance criteria is made and
performance goals established, the Compensation 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.
EFFECTIVE DATE
If approved by stockholders, the Incentive Plan will be effective as of
October 22, 1996, and remain effective until October 22, 2006, subject to the
consummation of the Merger.
AMENDMENT AND TERMINATION
The Compensation Committee may amend, suspend or terminate the Incentive
Plan at any time, provided that no such amendment will, without the approval of
stockholders of Ultramar, (i) increase the total number of shares of Ultramar
Common Stock reserved for the purposes of the Incentive Plan or (ii) make any
other change that requires stockholder approval either under the rules of any
exchange on which Ultramar Common Stock is traded or in order for awards granted
under the Incentive Plan to qualify for an exception from Section 162(m) of the
Code.
NEW PLAN BENEFITS
Because awards under the Incentive Plan will be granted at the sole
discretion of the Compensation Committee, benefits under the Incentive Plan are
not determinable.
TAX TREATMENT
U.S. RESIDENTS. Under present U.S. federal income tax law, upon the grant
of any type of stock option or stock appreciation right, generally no taxable
income will result to the holder of such stock option or stock appreciation
right, and there will be no tax effect on Ultramar. The holder will not
recognize taxable income at the time an award of restricted stock is granted
unless he elects otherwise pursuant to Section 83(b) of the Code. Upon exercise
of a nonqualified stock option, the holder generally realizes as ordinary income
for federal income tax purposes an amount equal to the excess of the fair market
value of the shares purchased on the exercise date over the exercise price. Upon
exercise of a stock appreciation right, the holder realizes as ordinary income
the fair market value on the date of exercise of any shares received and any
cash received. On the date a restricted stock award becomes transferable or not
subject to a substantial risk of forfeiture, the award holder realizes as
ordinary income an amount equivalent to excess of the fair market value of the
shares on that date over the amount paid
68
<PAGE>
for the award, unless the award holder has elected to be taxed at the date of
the grant. Generally, the holder's income derived from the award is subject to
withholding tax and Ultramar is entitled to a deduction in the amount of the
holder's income from the award. Special rules apply with respect to exercise of
options and stock appreciation rights, the receipt of restricted stock awards,
and the disposition of shares received by officers and directors who are subject
to Section 16(b) of the Exchange Act. In a subsequent taxable disposition of
shares received upon exercise of a nonqualified option, a stock appreciation
right or a restricted stock award, the original basis of the shares is their
fair market value at the time income is realized by the holder, and any capital
gain or loss is determined by that basis.
In contrast, upon exercise of an incentive stock option, the option holder
does not realize taxable income at the time of exercise. However, the amount by
which the fair market value on the exercise date of the shares purchased exceeds
the exercise price will be included in alternative minimum taxable income that
may be subject to the alternative minimum tax. At the time of the sale of the
option shares, the excess of the sales price over the exercise price is taxable
as a capital gain, if the option holder complies with the requirements of the
Code as to holding periods. If an option holder satisfies the conditions for
capital gains treatment, Ultramar will not receive any tax deduction on account
of the exercise of the incentive stock option.
CANADIAN RESIDENTS. Under present Canadian federal income tax law, upon the
grant of any type of option or stock appreciation right, generally no taxable
income will result to the holder of such option or stock appreciation right, and
there will be no tax effect on Ultramar.
Upon exercise of an option, an amount equal to the excess of the fair market
value of the shares purchased on the exercise date over the exercise price will
be included in the employment income of the holder. Provided the exercise price
is not less than the fair market value of the shares on the date the option was
granted, 25% of the amount so included in employment income may be deducted by
the holder in the year the option is exercised.
Upon the exercise of a stock appreciation right granted "in tandem" with a
stock option, the fair market value of any shares received or the amount of any
cash received will be included in the employment income of the holder. Provided
that the exercise price in respect of the related stock option is not less than
the fair market value of the shares on the date the option was granted, the
holder will be entitled to deduct 25% of the amount so included in employment
income. Upon the exercise of a stock appreciation right granted independently of
any related stock option, the tax implications to the holder will be the same as
those which apply in respect of a stock appreciation right granted "in tandem"
with a stock option except that the 25% deduction will not be available to the
holder.
Upon the grant of a restricted stock award, Revenue Canada is of the view
that the fair market value of the restricted shares, taking into account an
appropriate discount to reflect the transfer and forfeiture conditions, must be
included in computing the employment income of the holder.
For the purposes of determining a capital gain or capital loss on a
subsequent disposition of shares received upon exercise of an option or stock
appreciation right or upon the grant of a restricted stock award, the cost of
the shares is the amount included in employment income (before any applicable
deduction of 25% thereof) plus the amount, if any, paid to acquire the shares.
If restricted shares are forfeited and provided the shares have been held by a
trustee, the holder may deduct the amount that had been included in income from
employment upon the acquisition thereof and the holder will be deemed not to
realize a capital gain or capital loss thereon.
No deduction for Canadian tax purposes is permitted to a Canadian subsidiary
of Ultramar for any amounts it may pay as its share of the cost of the issuance
of shares pursuant to the exercise of a stock option or stock appreciation right
or upon the grant of a restricted stock award. Any amounts paid by a Canadian
subsidiary as its share of the cost of cash payments to holders on the exercise
of stock appreciation rights are regarded by Revenue Canada as deductible in
computing the income of that subsidiary.
69
<PAGE>
BOARDS OF DIRECTORS
THE COMBINED COMPANY
See "Management and Operations of the Combined Company -- Management of the
Combined Company" with respect to the Board of Directors of the Combined
Company.
ULTRAMAR
The names, principal occupations and certain other information regarding the
members of the Ultramar Board are set forth below.
JEAN GAULIN, age 54, has been Chief Executive Officer of Ultramar and
Chairman of the Board since Ultramar's formation in 1992. From July 1989 through
January 1992, Mr. Gaulin was Chief Executive Officer of Ultramar PLC, a leading
international independent oil and gas company, engaged in exploration,
production, development, refining and marketing, that was Ultramar's
predecessor. Prior to that, Mr.Gaulin was President of Ultramar Canada Inc. Mr.
Gaulin serves on the board of directors of Quebec Telephone Inc., Crane Co. and
Medusa Corporation.
BYRON ALLUMBAUGH, age 64, has been Chairman of the Board of Ralphs Grocery
Company in Los Angeles, California since 1976. Mr. Allumbaugh is a member of the
board of directors of El Paso Natural Gas Company, H.F. Ahmanson & Company, CIES
- -- an International Chain Store Association, the California Retailers
Association and the Orange County Performing Arts Center. He is also a member of
the CEO Board of Advisors, School of Business, University of Southern
California. In addition, Mr. Allumbaugh has recently served as Chairman of the
United Way campaign for Los Angeles, Chairman of the Los Angeles Area Chamber of
Commerce, President of the California Retailers Association, and a member of the
Board of Governors of the Food Employers Council.
H. FREDERICK CHRISTIE, age 63, is a consultant specializing in strategic and
financial planning. He retired, effective January 1, 1991, as Chairman and Chief
Executive Officer of The Mission Group, the non-utility subsidiary of SCEcorp.
Prior to that he served as President of Southern California Edison Company. Mr.
Christie is a director or trustee of eighteen mutual funds under the Capital
Research and Management Company and a director of AECOM Technology Corporation,
Great Western Financial Corporation, International House of Pancakes, Inc.,
Ducommon, Incorporated, Southwest Water Company and Great Western Bank. He is a
member of the Board of Trustees of Occidental College and Trustee and President
of the Board of the Natural History Museum of Los Angeles County. He is also a
member of the Board of Councilors for the School of Public Administration at the
University of Southern California.
STANLEY H. HARTT, age 58, has been Chairman, President and Chief Executive
Officer of Camdev Corporation, a real estate development company located in
Toronto, Canada, since November 1990. From September 1990 to November 1990, he
was a partner at the law firm of Stikeman, Elliot in Montreal, Canada. From
January 1989 through September 1990, he served as Chief of Staff for the Office
of Prime Minister of Canada. Prior to that he served as Deputy Minister of
Finance for the Department of Finance, Canada. Mr. Hartt is a member of the
board of directors of Hong Kong Bank of Canada, Sun Life Assurance Company of
Canada, Gulf Canada Resources Limited and Abitibi-Price Inc.
RUSSEL H. HERMAN, age 66, has been since 1986 an owner and principal of
International Energy Consultants Ltd., a firm which provides consulting services
to senior management in the international energy industry. Prior to that, Mr.
Herman was with Exxon Corporation as President and Chief Executive Officer for
the Asia-Pacific area and Executive Vice President for Exxon's petroleum
business in Europe. Mr. Herman is a member of the Industrial and Professional
Advisory Council of the College of Engineering at Pennsylvania State University
and is chairman of the board of directors of the Connecticut Unit of Recording
for the Blind & Dyslexic.
WILLIAM F. LUCE, age 63, is a private investor who retired from Mobil
Corporation in 1990. During a 28 year career at Mobil, he held senior executive
positions in operations, corporate planning and finance.
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<PAGE>
MADELEINE SAINT-JACQUES, age 61, is Chairman of the Board of Saint-Jacques
Vallee Young & Rubicam Inc. in Montreal, Canada. From 1990 through 1994, she was
President of Young & Rubicam, and from 1978 through 1990, she served as their
Executive Vice President and Managing Director. Ms. Saint-Jacques is a member of
the board of directors of Tele-Metropole Inc., Les Reseaux Premier Choix Inc.,
St. Mary's Hospital Foundation and the Terry Fox Humanitarian Award Program. Ms.
Saint-Jacques is also a member of the Board of Governors, Inno-Centre Quebec, a
member of the Board of Associate Governors, University of Montreal and Vice
President of Societe d'edition de la revue Forces.
C. BARRY SCHAEFER, age 57, has been a Managing Director with The Bridgeford
Group, a merger and acquisition subsidiary of the Industrial Bank of Japan,
since 1992. From 1989 through 1991, he was a senior advisor with Dillon Read &
Co., Inc., an investment banking group, and prior to that he served as an
Executive Vice President of Union Pacific Corporation.
DIAMOND SHAMROCK
The names, principal occupations and certain other information regarding the
members of the Diamond Shamrock Board are set forth below.
ROGER R. HEMMINGHAUS, 60, is Chairman of the Board, President and Chief
Executive Officer of Diamond Shamrock. Mr. Hemminghaus is a director of Luby's
Cafeterias, Inc. and Southwestern Public Service Co. and is the Deputy Chairman
of the board of directors of the Federal Reserve Bank of Dallas. Mr. Hemminghaus
is Chairman of the Executive Committee and serves on the Public Responsibility
Committee. He has been a director of Diamond Shamrock since April 1987.
B. CHARLES AMES, 71, is a partner of Clayton & Dubilier, Inc. (an investment
firm). Mr. Ames served as Chairman and Chief Executive Officer of The Uniroyal
Goodrich Tire Company until May 1990 and as Chairman and/or Chief Executive
Officer of Acme-Cleveland Corporation until October 1987. Mr. Ames is a director
of M.A. Hanna Company, The Progressive Corporation, Lexmark International, Inc.,
Lexmark Holding, Inc., and Warner-Lambert Company. Mr. Ames serves on the Audit
Committee and has been a director of Diamond Shamrock since April 1987.
E. GLENN BIGGS, 63, is President of Biggs & Co., (a corporation engaged in
developmental projects and financial planning). He was the Chairman and Chief
Executive Officer of Gill Companies until July 1989. Mr. Biggs served as the
Vice Chairman of the Board and Chairman of the Executive Committee of InterFirst
Bank San Antonio, N.A. until May 1987. Mr. Biggs is a director of Central and
Southwest Corporation, Southwestern Bancorp, Inc. and director and Chairman of
the Board of Bolivian Power Corporation. Mr. Biggs serves on the Audit,
Compensation, and Executive Committees. He has been a director of Diamond
Shamrock since April 1987.
W. E. "BILL" BRADFORD, 61, is President and Chief Executive Officer of
Dresser Industries, Inc. Mr. Bradford has been with Dresser Industries, Inc.
since 1970 and has held various positions in production and management. In 1988
Mr. Bradford was appointed President and Chief Executive Officer of Dresser-Rand
Company. He was elected President and Chief Operating Officer in March 1992, and
to his present position in November 1995. Mr. Bradford serves on the Board of
Directors of Dresser Industries, Inc. and on the Board of Directors of Oryx
Energy Company. Mr. Bradford serves on the Compensation Committee and has been a
director of Diamond Shamrock since December 1992.
LAURO F. CAVAZOS, Ph.D., 69, is Professor of Family Medicine and Community
Health and acting Chairman, Tufts University School of Medicine. He has been a
management and education consultant since 1991. Dr. Cavazos was the United
States Secretary of Education from September 1988 to December 1990. Prior to
being appointed Secretary of Education, he served as President and Chief
Executive Officer of Texas Tech University and Texas Tech University Health
Sciences Center. Dr. Cavazos is a director of Luby's Cafeterias, Inc. He serves
as Chairman of the Public Responsibility Committee and on the Audit Committee.
Dr. Cavazos served on Diamond Shamrock's Board from December 1987 to September
1988 and was reelected to the Board in January 1991.
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<PAGE>
W. H. CLARK, 64, is the retired Chief Executive Officer and Chairman of the
Board of Directors of Nalco Chemical Company. He was the President and Chief
Executive Officer of Nalco Chemical Company from 1982 until 1990, and Chairman
of the Board of Directors and Chief Executive Officer of that company from 1984
until 1994. Mr. Clark is President of W. "H" Clark Associates, Ltd., and is a
member of the Board of Directors of Merrill Lynch Corp.; NICOR, Inc. and its
principal subsidiary, Northern Illinois Gas Company; USG Corporation and its
subsidiary, United States Gypsum Co.; James River Corporation; Millennium
Chemicals, Inc. and Bethlehem Steel Corporation. Mr. Clark is chairman of the
Compensation Committee and has been a director of Diamond Shamrock since March
1994.
WILLIAM L. FISHER, Ph.D., 64, is Professor and the Leonidas T. Barrow chair
in Mineral Resources at the University of Texas at Austin. Dr. Fisher served as
the Director of the Bureau of Economic Geology from 1970 to 1994, with the
exception of 1975-1977, when he served as Assistant Secretary for Energy and
Minerals in the Department of the Interior. Dr. Fisher is a member of the
National Academy of Engineering and is a director of Pogo Producing Company. Dr.
Fisher serves on the Executive Committee and Public Responsibility Committee. He
has been a director of Diamond Shamrock since April 1987.
BOB MARBUT, 61, has been Chairman and Chief Executive Officer of Argyle
Communications, Inc. since January 1992 and Chairman and Chief Executive Officer
of Argyle Television, Inc. since August 1994. He was Chairman and Chief
Executive Officer of Argyle Television Holding, Inc. from its founding in March
1993 until April 1994. Prior to 1992, Mr. Marbut was President and Chief
Executive Officer of Harte-Hanks Communications, Inc. for 20 years and served
one year as Vice Chairman of that Company. He is a director of Tupperware
Corporation, Tracor, Inc., Argyle Television, Inc., and Katz Media Group, Inc.
He serves on the Executive Committee, is chairman of the Audit Committee and has
been a director of Diamond Shamrock since March 1990.
KATHERINE D. ORTEGA, 62, was an alternate representative of the United
States to the 45th General Assembly of the United Nations 1990-1991. She served
as the 38th Treasurer of the United States, from 1983 to 1989. Prior to joining
the Treasury Department as Treasurer, Ms. Ortega served as a Commissioner on the
Copyright Royalty Tribunal, and was a member of the President's Advisory
Committee on Small and Minority Business. Ms. Ortega is a director of Ralston
Purina Company, Long Island Lighting Company, The Paul Revere Corporation,
Rayonier, Inc., and the Kroger Co. She also serves as a director of Catalyst,
and is a member of the United States Comptroller General's Consultant Panel.
Before entering government, Ms. Ortega practiced as a certified public
accountant. Ms. Ortega serves on the Public Responsibility Committee and on the
Compensation Committee. She has been a director of Diamond Shamrock since August
1989.
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<PAGE>
EXECUTIVE COMPENSATION
Information regarding the historical compensation of the executive officers
of each of Ultramar and Diamond Shamrock is set forth below. For a discussion of
certain of these matters pertaining to the Combined Company, see "The Merger --
Certain Executive Compensation and Other Employee-Related Matters Arising out of
the Merger" and "-- Effect of the Merger on Employee Benefit and Stock Plans."
ULTRAMAR EXECUTIVE COMPENSATION
ULTRAMAR SUMMARY COMPENSATION. The following table discloses compensation
received by Ultramar's Chief Executive Officer and the four next most highly
paid executive officers for fiscal years ended December 31, 1995, 1994 and 1993.
ULTRAMAR SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- -------------------------- PAYOUTS
(E) (G) ---------------
OTHER (F) SECURITIES
ANNUAL RESTRICTED UNDERLYING (H)
(A) (B) (C) (D) COMPENSA- STOCK OPTIONS/ LTIP PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) TION($)(2) AWARDS($)(3) SARS(#) ($)
- ---------------------------- --------- ----------- ------------- ------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jean Gaulin 1995 665,000 194,513 0 0 130,000 0
Chief Executive Officer..... 1994 640,000 384,000 0 0 126,500 0
1993 600,000 391,500 0 130,500 75,000 0
John G. Drosdick 1995 535,000 156,488 0 0 94,000 0
Former President and Chief 1994 510,000 306,000 0 0 75,500 0
Operating Officer(5)....... 1993 480,000 261,000 0 87,000 41,000 0
Patrick J. Guarino 1995 315,000 53,747 0 0 38,000 0
Vice President, General 1994 300,000 105,000 0 0 40,000 0
Counsel and Secretary...... 1993 300,000 114,173 0 38,087 12,000 0
H. Pete Smith 1995 300,000 51,188 0 0 30,000 0
Vice President and Chief 1994 290,000 76,135 0 25,415 26,500 0
Financial Officer.......... 1993 275,000 104,676 64,605 34,887 16,000 0
Joel Mascitelli 1995 300,000 47,857 0 0 32,000 0
Executive Vice President, 1994 290,000 84,093 0 0 28,500 0
Ultramar Inc............... 1993 270,000 114,818 0 38,280 22,000 0
<CAPTION>
(I)
ALL OTHER
(A) COMPENSA-
NAME AND PRINCIPAL POSITION TION($)(4)
- ---------------------------- -------------
<S> <C>
Jean Gaulin 19,950
Chief Executive Officer..... 19,200
7,075
John G. Drosdick 16,050
Former President and Chief 15,300
Operating Officer(5)....... 7,075
Patrick J. Guarino 9,450
Vice President, General 9,000
Counsel and Secretary...... 7,075
H. Pete Smith 9,000
Vice President and Chief 8,700
Financial Officer.......... 7,075
Joel Mascitelli 9,000
Executive Vice President, 8,700
Ultramar Inc............... 7,075
</TABLE>
- ------------------
(1) Bonus payments reported for 1995, 1994 and 1993 were awarded on February 1,
1996, January 26, 1995 and January 26, 1994, respectively.
(2) Amount shown for Mr. Smith includes imputed interest on a collateralized,
interest-free, relocation loan which imputed interest was based on an
assumed interest rate of 7.08% per annum and a one time $36,343 club
initiation fee, which membership is used solely for business purposes.
(3) Grants of restricted shares of Ultramar Common Stock reported for 1994 and
1993 were made as part of the annual bonuses awarded on January 26, 1995
and January 26, 1994, respectively. Restrictions on these shares lapse on
the second anniversary of the date of grant. Dividends are paid on all
restricted shares at the same time and at the same rates as dividends paid
to holders of unrestricted shares. At December 31, 1995, the restricted
shares held by Mr. Smith had a value of $26,935.
(4) The 1993 amounts and $4,500 of the 1994 and 1995 amounts represent Ultramar
matching payments in respect of 401(k) contributions. The balance of the
1994 and 1995 amounts represents amounts credited to non-qualified savings
plans.
(5) Mr. Drosdick resigned all positions with Ultramar effective August 31,
1996. See " -- Ultramar Employment Agreements" for a description of the
arrangements under which Mr. Drosdick received severence benefits.
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<PAGE>
ULTRAMAR OPTION GRANTS. The following table sets forth additional
information on grants of stock options in respect of fiscal 1995 pursuant to
Ultramar's existing 1992 Long-Term Incentive Plan (the "LTIP").
ULTRAMAR OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
(C) (D)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS (E) (G)
(B) UNDERLYING GRANTED TO EXERCISE OR (F) GRANT DATE
(A) DATE OF OPTIONS/ SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANT GRANTED(#)(1) FISCAL YEAR ($/SH) DATE VALUE($)(2)
- -------------------------------- ----------- --------------- ----------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jean Gaulin..................... 2/01/96 130,000 22.5% 28.25 2/01/06 700,861
John G. Drosdick(3)............. 2/01/96 94,000 16.3% 28.25 2/01/06 506,776
Patrick J. Guarino.............. 2/01/96 38,000 6.6% 28.25 2/01/06 204,867
H. Pete Smith................... 2/01/96 30,000 5.2% 28.25 2/01/06 161,737
Joel Mascitelli................. 2/01/96 32,000 5.5% 28.25 2/01/06 172,520
</TABLE>
- ------------------
(1) Options were granted on February 1, 1996 at the fair market value of the
Ultramar Common Stock on such date. They have been included in this table
because they were granted in respect of Ultramar's performance during 1995.
Options vest in increments of 30%, 30% and 40% on the first, second and
third anniversaries of the date of grant and, once vested, are exercisable
until the tenth anniversary of the date of grant. All of the options will
become fully vested and exercisable upon adoption of the Merger Agreement
by Ultramar's stockholders.
(2) Based on the Black-Scholes option pricing model which yields a
Black-Scholes ratio of .203. The calculation assumes a continuously
compounded risk-free rate of 6.2% (based on the ten-year, zero-coupon
Treasury strip rate maturing February 2006), a ten-year term and an
exercise price of $28.25. The average stock price volatility and dividend
yield were .2039 and 4.5%, respectively, based on historical data for the
36-month period ended January 31, 1996. Present values have been discounted
3% annually to account for risk of forfeiture prior to vesting.
(3) Mr. Drosdick resigned all positions with Ultramar effective August 31,
1996. See " -- Ultramar Employment Agreements" for a description of the
arrangements under which Mr. Drosdick received severence benefits.
ULTRAMAR OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table
sets forth information concerning options exercised during 1995 and presents the
value of unexercised options held by the named executives at fiscal year end:
ULTRAMAR OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE- MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT F-Y END AT F-Y END ($)
SHARES ACQUIRED ON ----------------------------- ---------------------------------
NAME EXERCISE VALUE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)(2)
- -------------------- ------------------- ----------------- ------------ --------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Jean Gaulin......... 0 0 165,500 221,000 1,348,250 515,250
John G.
Drosdick(3)........ 0 0 114,500 129,000 987,050 305,450
Patrick J.
Guarino............ 0 0 44,800 57,200 403,300 128,200
H. Pete Smith....... 0 0 56,800 45,700 523,000 101,750
Joel Mascitelli..... 0 0 46,700 49,300 383,525 122,850
</TABLE>
- ------------------
(1) The year end value for options was calculated based upon the market value
of the underlying shares at December 31, 1995 ($25.75 per share). The
options reported in the Option/SAR Grants Table were granted in 1996 in
respect of performance in 1995 and, as such, were not outstanding on
December 31, 1995.
(2) All of the options will become fully vested and exercisable upon adoption
of the Merger Agreement by Ultramar's stockholders.
(3) Mr. Drosdick resigned all positions with Ultramar effective August 31,
1996. See " -- Ultramar Employment Agreements" for a description of the
arrangements under which Mr. Drosdick received severence benefits.
74
<PAGE>
ULTRAMAR STOCKHOLDER RETURN PERFORMANCE PRESENTATION. Set forth below is a
graph comparing the cumulative total stockholder return on Ultramar's Common
Stock compared with that of (i) companies in Standard & Poor's 500 Stock Index
and (ii) the following companies which Ultramar considers representative of
companies with operations comparable to Ultramar: Ashland Oil, Inc., Diamond
Shamrock, Sun Company, Inc., Tosco Corporation and Valero Energy Corporation
(the "Ultramar Peer Group"). The information presented assumes that $100 was
invested on July 6, 1992 (the date of Ultramar's initial public offering) in
Ultramar Common Stock, the S&P 500 and the Ultramar Peer Group and that all
dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
ULTRAMAR VS. S&P 500 AND ULTRAMAR PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ULTRAMAR S&P 500 ULTRAMAR PEER GROUP
<S> <C> <C> <C>
07/06/92 100.00 100.00 100.00
12/31/92 129.93 106.83 103.10
12/31/93 183.42 122.89 117.60
12/31/94 192.24 124.84 119.15
12/31/95 202.72 138.30 163.93
</TABLE>
<TABLE>
<CAPTION>
SOURCE: DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
COMPUSTAT JULY 6, 1992 1992 1993 1994 1995
- ----------------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Ultramar........................... $ 100 $ 129.93 $ 183.42 $ 192.24 $ 202.72
S&P 500............................ $ 100 $ 106.83 $ 117.60 $ 119.15 $ 163.93
Ultramar Peer Group................ $ 100 $ 103.10 $ 122.89 $ 124.84 $ 138.30
</TABLE>
ULTRAMAR COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION. Ultramar's executive compensation policy and program was designed
and is administered by the Compensation Committee of the Ultramar Board (the
"Ultramar Compensation Committee") and approved by the outside Directors of the
Ultramar Board. The Ultramar Compensation Committee is composed of four outside
Directors.
ULTRAMAR COMPENSATION POLICY AND OBJECTIVES. The executive compensation
program is designed to reflect the accountability of executives to shareholders
by (i) linking a significant portion of all executives' compensation directly to
shareholders' return; (ii) providing competitive compensation to attract,
motivate and retain executives with superior skills and abilities; and (iii)
encouraging executives to become long-term shareholders by providing a
significant portion of their compensation in stock options and restricted
shares.
These goals are achieved through the structuring and integrated
administration of Ultramar's base salary and short and long-term incentives
based on pre-established guidelines and targets.
75
<PAGE>
COMPENSATION PROGRAM COMPONENTS.
BASE SALARY. Base salaries of executive officers are reviewed by the
Ultramar Compensation Committee annually. In considering possible salary
increases, the Ultramar Compensation Committee takes into account both
individual performance and competitive salary levels. The Ultramar Compensation
Committee relies on survey data provided by independent compensation consultants
to determine competitive salaries. In 1995 this data was derived from an
industry group of 15 petroleum and manufacturing companies the smallest of which
are comparable to Ultramar in size and complexity (the "Industry Group").
Included in this broad Industry Group are the five companies which comprise the
Ultramar Peer Group (see "-- Ultramar Stockholder Return Performance
Presentation"). Base salaries paid to the named executive officers in 1995, on
average, constituted 79% of the total cash compensation paid.
ANNUAL INCENTIVE PLAN. The purpose of Ultramar's Annual Incentive Plan (the
"AIP") is to provide incentives for executive performance by rewarding
participating executives for their contributions to profitability and
shareholder value.
Bonus targets expressed as percentages of base salary are assigned to
participating executives at the beginning of each year. For senior corporate
executives bonuses are based on corporate performance measured in terms of total
shareholder return ("TSR"). TSR is measured quarterly and includes both
dividends and changes in stock price. Ultramar's performance is compared to the
average TSR for the Ultramar Peer Group and targeted bonuses are awarded only
when Ultramar's performance exceeds Ultramar Peer Group performance. For other
participants, bonuses are based on a combination of TSR and operating unit
performance.
At the beginning of each year, the Ultramar Compensation Committee, with the
approval of the Ultramar Board, establishes earnings targets for the operating
units. These earnings targets are stated in terms of earnings before interest,
income taxes and depreciation ("EBITD"). In addition, no awards are made under
the plan unless total Ultramar EBITD equals or exceeds an EBITD threshold
established by the Ultramar Board. Bonuses are paid 75% in cash and 25% in
restricted stock unless minimum share ownership policy requirements have been
met, in which case recipients may elect to receive 100% of their awards in cash.
Ultramar's share ownership policy encourages executives and key managers to own
Ultramar Common Stock with a value equal to at least one year's base salary.
LONG TERM INCENTIVE PLAN. Ultramar's executive officers, together with
certain other key managers, also participate in the LTIP. The LTIP, approved by
stockholders at Ultramar's 1993 annual meeting, is designed to provide an
incentive to executives and managers to contribute to long-term shareholder
value creation. Awards under the LTIP are made in the form of stock options and
restricted stock.
In determining stock option awards the Ultramar Compensation Committee
relies on survey data provided by independent compensation consultants for the
competitive total compensation for each executive for that position within the
Industry Group. Stock options are used to make up any difference between the sum
of base salary and the bonus under the AIP and the competitive total
compensation amount, although actual awards may vary based on individual
performance. The Black-Scholes methodology is used to assign values to stock
option grants in determining the number of options granted.
COMPENSATION OF ULTRAMAR'S CHIEF EXECUTIVE OFFICER. In conducting its
annual review of Mr. Gaulin's compensation, the Ultramar Compensation Committee
considered the TSR performance of Ultramar. For 1995 Ultramar had a TSR of 5.29%
as compared to a 17.47% average for the Ultramar Peer Group and 37.6% for the
S&P 500 Index. This performance placed Ultramar in the 50th percentile as
compared to the Ultramar Peer Group. The Ultramar Compensation Committee also
recognized Mr. Gaulin's leadership in implementing a cost reduction program
which helped to offset lower margins in both of Ultramar's markets as well as
the completion on budget and on schedule of two major refinery development
programs.
In 1995, Mr. Gaulin had a base salary of $665,000, placing him in the 50th
percentile of the Industry Group. His bonus under the AIP is determined solely
by comparing Ultramar's TSR against the Ultramar Peer Group. Ultramar's TSR
performance relative to the Ultramar Peer Group equated to a performance
76
<PAGE>
level of 48.75% of a target bonus of 60% of base salary for Mr. Gaulin. Mr.
Gaulin's bonus was paid entirely in cash instead of cash and restricted stock
since his share ownership value significantly exceeded the recommended one year
salary.
In considering a stock option award for Mr. Gaulin under Ultramar's LTIP,
the Ultramar Compensation Committee relied on comparative company TSR data. The
Ultramar Compensation Committee attributed Ultramar's TSR performance relative
to the Industry Group to Mr. Gaulin's performance and determined competitive
total compensation for the 50th percentile of CEO's in the Industry Group. The
LTIP award for Mr. Gaulin was then calculated by deducting his base salary and
AIP award from the competitive CEO compensation level at the 50th percentile and
dividing the balance by the Black-Scholes value assigned to Ultramar's stock
option to determine the number of shares. The result was an award of 130,000
shares.
INTERNAL REVENUE SERVICE RULES. The AIP and LTIP are grandfathered under
the provisions of Section 162(m) of the Code until May 1997. The Incentive Plan
approved by the Ultramar Board of Directors and subject to stockholder approval
at the Ultramar Special Meeting has been prepared to comply with Section 162(m).
The AIP will be amended to conform to Section 162(m) and will be submitted to
stockholders for approval at Ultramar's 1997 annual meeting.
COMPENSATION COMMITTEE
C. Barry Schaefer, Chairman
Byron Allumbaugh
H. Frederick Christie
Stanley Hartt
77
<PAGE>
ULTRAMAR EMPLOYMENT AGREEMENTS. Ultramar has entered into an employment
agreement with each of the named Ultramar executive officers for a term of three
years. The agreements provide for payment to be made upon termination of
employment, including termination without cause and resignation for good reason.
Upon a qualifying termination, the executive will be entitled to receive three
years of base salary and the then-present value of pension benefits that such
executive otherwise would have earned during the period. In addition, such
executive will be credited with three years of service under the Ultramar
Supplemental Executive Retirement Plan and will continue to be covered by
Ultramar's group health and life insurance and long-term disability plans for
one year after termination of employment. With respect to Mr. Gaulin only, a
qualifying termination occurs if he is forced to resign or is not reelected to
the Ultramar Board. In addition, under Mr. Drosdick's employment agreement, he
was deemed to have at least 15 years of service under Ultramar's pension plan
upon his termination of employment with Ultramar.
The Merger Agreement provides that each of the Companies will enter into new
employment agreements with certain of their respective executive officers. See
"The Merger -- Certain Executive Compensation and Other Employee-Related Matters
in Connection with the Merger."
ULTRAMAR RETIREMENT PLANS. Ultramar maintains a tax-qualified defined
benefit pension plan (the "Qualified Plan") for participating U.S. employees.
Benefits under Ultramar's Qualified Plan are based upon formulae that take into
account (i) a participant's years of service with Ultramar (and its prior
controlled group for some participants), (ii) a participant's average
compensation (consisting of salary which, for the named executives, is set forth
in the "Salary" column of the Ultramar Summary Compensation Table) during such
participant's last three consecutive years of service with Ultramar (or the
prior controlled group), and (iii) for certain participants, the benefit formula
in effect under pension plans maintained by businesses acquired by Ultramar. In
general, a participant accrues a benefit of 1.8% of plan compensation for each
year of service. Retirement benefits payable under the Qualified Plan are offset
by pensions paid by other employers if the participant's years of service with
that employer are taken into account in determining such participant's benefits
under the Qualified Plan.
Ultramar has established a supplemental nonqualified defined benefit pension
plan to provide supplemental retirement benefits to certain executives
designated by the Ultramar Compensation Committee, including each of the named
executives (the "Nonqualified Plan"). The Nonqualified Plan provides
participants with benefits not payable from the Qualified Plan because of limits
imposed by the Code. A participant who retires at or after age 62 receives a
benefit of no less than 60% of average annual compensation, less the amount of
any other retirement benefits payable from any source.
The following table illustrates the yearly pension commencing at age 62
(which is not offset for Social Security), assuming a two-thirds joint and
survivor annuity with a ten years certain benefit, that may become payable to an
employee in the higher salary classifications out of the Qualified Plan and the
Nonqualified Plan.
ULTRAMAR PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ANNUAL -----------------------------------------------------
COMPENSATION (1) 15 20 25 30 35
- ------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 81,000 $ 108,000 $ 135,000 $ 162,000 $ 189,000
350,000 94,500 126,000 157,500 189,000 220,500
400,000 108,000 144,000 180,000 216,000 252,000
450,000 121,500 162,000 202,500 243,000 283,500
500,000 135,000 180,000 225,000 270,000 315,000
600,000 162,000 216,000 270,000 324,000 378,500
700,000 189,000 252,000 315,000 378,000 441,000
800,000 216,000 288,000 360,000 432,000 504,000
900,000 243,000 324,000 405,000 486,000 567,000
1,000,000 270,000 360,000 450,000 540,000 630,000
1,100,000 297,000 396,000 495,000 594,000 693,000
1,200,000 324,000 432,000 540,000 648,000 756,000
</TABLE>
- ------------------
(1) With respect to the Nonqualified Plan only, average annual compensation
includes bonus on retirement after age 55.
78
<PAGE>
As of December 31, 1995, Messrs. Gaulin, Drosdick, Guarino, Smith and
Mascitelli had 22, 5, 22, 15 and 22 years of service, respectively, for purposes
of the Qualified Plan and the Nonqualified Plans.
DIAMOND SHAMROCK EXECUTIVE COMPENSATION
DIAMOND SHAMROCK FIVE YEAR CUMULATIVE TOTAL RETURN. The following graph
compares the cumulative total stockholder return on the Diamond Shamrock Common
Stock with the Standard & Poor's 500 Stock Index, a peer group (the "Diamond
Shamrock Peer Group") of 11 industry-related companies for the period January 1,
1991 to December 31, 1995, assuming an initial investment of $100, and the
reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG DIAMOND SHAMROCK, INC., THE S&P 500 INDEX,
AND DIAMOND SHAMROCK PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIAMOND SHAMROCK, INC. DIAMOND SHAMROCK PEER GROUP S&P 500
<S> <C> <C> <C>
12/90 100 100 100
12/91 102 109 130
12/92 101 90 140
12/93 135 102 155
12/94 148 104 157
12/95 151 119 215
</TABLE>
The Diamond Shamrock Peer Group includes the stock of 11 industry-related
companies: Ashland, Inc., Crown Central Petroleum Corporation, Giant Industries,
Inc., Holly Corporation, Sun Company, Inc., Tesoro Petroleum Corporation, Tosco
Corporation, Total Petroleum (North America) Ltd., Ultramar, USX -- Marathon
Group and Valero Energy Corporation.
The returns of each company in the Diamond Shamrock Peer Group have been
weighted according to the respective company's stock market capitalization. No
return is attributed to Ultramar for purposes of the graph of Diamond Shamrock
Peer Group returns until after June 26, 1992. Ultramar became a publicly traded
company on that date, and, for purposes of constructing the graph of Diamond
Shamrock Peer Group returns, an initial investment of $100 in Ultramar is deemed
to have occurred on that date.
DIAMOND SHAMROCK COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION. The Compensation Committee of the Diamond Shamrock Board (the
"Diamond Shamrock Compensation Committee") approves all compensation programs
affecting the executive officers. This Committee Report discusses the components
of the executive compensation program and describes the basis on which the
Diamond Shamrock Compensation Committee made compensation decisions in 1995 with
regard to the Diamond Shamrock Chief Executive Officer.
79
<PAGE>
PHILOSOPHY AND OVERALL OBJECTIVES. Diamond Shamrock's compensation policy
is designed to support the overall objective of enhancing stockholder value. In
making executive compensation decisions, the Diamond Shamrock Compensation
Committee meets this objective by considering all elements of compensation in
light of the following:
1. The competitiveness of Diamond Shamrock's program in attracting,
rewarding and retaining executives when compared to the programs of other
companies with which Diamond Shamrock competes;
2. The program's sensitivity to corporate financial and stock market
performance;
3. The extent to which executives are building a significant ownership
stake in Diamond Shamrock and thus more closely identify with the
interests of stockholders; and,
4. The extent to which the equity incentive components operate to provide
appropriate rewards and focus executives on building long-term value
without resulting in excessive dilution of stockholder equity.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS AND REVIEW PROTOCOL. The
executive compensation program consists of base salary and benefits, annual
performance-driven incentives and long-term incentives. In making its
compensation decisions, the Diamond Shamrock Compensation Committee utilizes
surveys prepared by nationally recognized independent compensation consulting
organizations. The companies (the "General Survey Group") analyzed by these
consulting organizations are comparable in size to Diamond Shamrock and/or have
significant refining and marketing operations. Data from companies in the
Diamond Shamrock Peer Group is included in survey samples when available.
Compensation data from all of the companies included in the Diamond Shamrock
Peer Group is not available to the consulting organizations employed by Diamond
Shamrock. In addition, the Diamond Shamrock Compensation Committee has concluded
that the best information regarding relevant compensation practices is gained by
reviewing data from a broader spectrum of companies than those included in the
Diamond Shamrock Peer Group.
During 1995, the Diamond Shamrock Compensation Committee commissioned a
nationally recognized independent consulting organization to perform an in-depth
review of Diamond Shamrock's executive compensation program. The purpose of the
study was to determine if Diamond Shamrock's executive compensation program was
competitive in both level and mix, and if its design supported the overall
objective of enhancing stockholder value. The study's primary sources of data
were results of a custom survey, representing responses from ten of twenty
invited companies and results of proxy analysis of eight additional
companies(collectively, the "Custom Survey Group"). When available, data from
companies in the Diamond Shamrock Peer Group was included in the Custom Survey
Group results.
KEY ELEMENTS OF THE DIAMOND SHAMROCK EXECUTIVE COMPENSATION PROGRAM. BASE
SALARY -- The Diamond Shamrock Compensation Committee annually reviews base
salary and benefit levels for Diamond Shamrock's executive officers. When
determining base salary levels for 1995, the Diamond Shamrock Compensation
Committee examined data from the General Survey Group and Custom Survey Group
reflecting the compensation and benefits of executives who hold positions of
similar overall scope and level of responsibility. Adjustments are then based on
general movement in external salary levels, a subjective evaluation of overall
company performance, individual performance, and internal equity. The Diamond
Shamrock Compensation Committee relies in part on the Diamond Shamrock Chairman
of the Board's recommendations for executive officer compensation levels,
excluding his own.
The Diamond Shamrock Compensation Committee targeted the median of the
Custom Survey Group in 1995 when reviewing base salaries and benefits. This
target is in keeping with the Diamond Shamrock Compensation Committee's
philosophy that the non-variable portion of an executive officer's pay should be
relatively modest. The Diamond Shamrock Compensation Committee believes that the
executive officer's opportunity to surpass the median compensation level paid by
the Custom Survey Group should only arise from performance-driven variable
plans.
80
<PAGE>
Annual Performance Incentive Compensation -- Participation in the Diamond
Shamrock Performance Incentive Plan (the "Performance Incentive Plan") is
limited to those employees that play key roles in carrying out Diamond
Shamrock's annual operating plans, modified to some extent by competitive
practice. The executive officers of Diamond Shamrock are eligible for annual
incentive payments under the Performance Incentive Plan. Each Diamond Shamrock
executive officer's award is based 50% on the attainment of certain key
pre-determined corporate financial objectives, involving earnings, cash flow and
stock performance relative to the Diamond Shamrock Peer Group. Each of these
criteria are weighted equally and all three exceeded threshold in 1995. The
other 50% is based on operating objectives and other performance goals which are
developed for the Diamond Shamrock executive officers. The actual awards are
further subject to the Diamond Shamrock Compensation Committee's discretion in
that, within Performance Incentive Plan parameters, the Diamond Shamrock
Compensation Committee may take into consideration significant events which took
place during the course of the year which were not considered at the time the
objectives were established.
The Performance Incentive Plan is designed to deliver competitive incentive
opportunities commensurate with achievement of annual goals which the Diamond
Shamrock Compensation Committee deems critical to building long-term value.
Targeted award levels among the Diamond Shamrock executive officers range from
30% to 60% of base salary. These levels are believed to be consistent with
typical target levels at other similar companies. To the extent that the annual
goals are not fully achieved or are exceeded, the award will be adjusted based
upon a formula resulting in a payout ranging from 0% to 150% of targeted award
levels. All awards are paid in a combination of cash and restricted stock, with
restricted stock ranging from 12% to 33% of the total award. The portion of the
award which is paid in restricted stock is based on grade level. In 1995, the
value of the restricted stock portion of the awards (on average) was equal to
28% of the amount of the awards paid in cash, based on the closing market price
of Diamond Shamrock Common Stock on the day the restricted stock was granted.
Long-Term Incentive Compensation -- The Diamond Shamrock 1990 Long-Term
Incentive Plan (the "1990 Long-Term Incentive Plan") authorizes the Diamond
Shamrock Compensation Committee to provide various types of grants (E.G.,
restricted stock, performance units, and stock options) to the Diamond Shamrock
executive officers and other eligible employees. The terms of the grants are
designed to encourage the Diamond Shamrock executive officers to focus on
Diamond Shamrock's long-term profitability and to encourage each executive
officer to build a significant level of stock ownership over time. Target grant
levels were established in 1995 based on competitive practices at the median of,
the Custom Survey Group.
Payment of compensation in the form of restricted stock and stock options
through the 1990 Long-Term Incentive Plan (and the payment of a portion of the
annual incentive bonus in the form of restricted stock, and other Diamond
Shamrock benefit programs that are stock based, such as the ESOPs (as defined
below) and Employee Stock Purchase Loan Program (as defined below)), is intended
to reward management for its effectiveness at producing long-term corporate
success (as measured primarily by stock price appreciation) and to encourage
executive officers and other employees to build significant stock ownership over
a period of time. The Diamond Shamrock Compensation Committee believes that
ownership of Diamond Shamrock Common Stock by the Diamond Shamrock executive
officers aligns such executive's long-term interests with those of the
stockholders.
The issuance of performance units under the 1990 Long-Term Incentive Plan is
intended to reward executives and other employees when Diamond Shamrock achieves
pre-set goals over a three-year period. Executive officers and other employees
of Diamond Shamrock are thus encouraged to focus on Diamond Shamrock's
performance over a longer time period than that covered by the Performance
Incentive Plan. Performance unit grants are based on grade level, which reflects
the individual's level of responsibility and accountability within the
organization. The Diamond Shamrock Compensation Committee believes that the
issuance of performance units to employees serves further to align the interests
of those employees with those of long-term investors in Diamond Shamrock.
81
<PAGE>
As a result of the in-depth review of Diamond Shamrock's executive
compensation program discussed in the previous section, long term incentive
grants were increased for all plan participants to bring grant levels into line
with practices of the Custom Survey Group.
In summary, the Diamond Shamrock Compensation Committee believes Diamond
Shamrock's executive compensation package is competitive relative to Diamond
Shamrock's peers, while emphasizing pay vehicles which place a significant
portion of the executive officer's pay at risk. Both the annual and long-term
incentive plans are sensitive to operational, financial, and market performance,
and encourage increasing levels of executive stock ownership without undue
dilution.
The Diamond Shamrock Compensation Committee considers the net cost to
Diamond Shamrock in making all compensation decisions. However, the Diamond
Shamrock Compensation Committee does not have a policy that requires the
executive officers' compensation to qualify for deductibility under Section
162(m) of the Code.
1995 COMPENSATION OF DIAMOND SHAMROCK'S CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER. Mr. Hemminghaus' compensation package is designed
to encourage short and long-term performance in line with the interests of
Diamond Shamrock's stockholders. The majority of his compensation is at risk, in
the form of annual bonus, stock options, restricted stock, and performance unit
grants. The Diamond Shamrock Compensation Committee made the following decisions
regarding Mr. Hemminghaus' compensation during 1995:
Base salary was increased to $580,000, an increase of approximately
13.2%. After such increase, Mr. Hemminghaus' base salary remained below
the 50th percentile of the Custom Survey Group results.
Annual incentives earned for 1995 performance, including 1,935
shares of restricted stock paid as part of such awards, were equal to
60% of the salary component of Mr. Hemminghaus' Annual Compensation for
1995 if the restricted stock is valued at the closing price of the
Diamond Shamrock Common Stock on the day the restricted stock was
granted. The targeted award level was 60% of base salary. Mr.
Hemminghaus' annual incentive award is comprised of the following: 50%
of the award is contingent upon the attainment of certain key
pre-determined corporate financial objectives involving earnings, cash
flow, and stock performance relative to the Diamond Shamrock Peer Group.
Each of these is weighted equally and all three exceeded threshold in
1995. In 1995, earnings per share were 56% of the plan level targeted
for purposes of Mr. Hemminghaus' annual incentive award, cash flow
return on investment was 74% of the plan level targeted for such
purposes, and Diamond Shamrock Common Stock performance relative to the
Diamond Shamrock Peer Group was 74% of the plan level targeted for such
purposes. The remainder of Mr. Hemminghaus' annual incentive award is
based upon the Diamond Shamrock Compensation Committee's evaluation of
his individual performance, focusing in 1995 on the following goals:
conducting all business in accordance with Diamond Shamrock's vision
statement values; exceeding 1995 planned financial results; planning for
profitability growth, management succession, and other human resource
needs; enhancing credibility with Diamond Shamrock's customers,
stockholders, employees, suppliers and communities; and, setting a
course to exceed Diamond Shamrock's financial goals set under the 1990
Long-Term Incentive Plan. Additionally, the Diamond Shamrock
Compensation Committee considered the following achievements:
acquisition of NCS and its 661 Stop-N-Go stores, being named
"Convenience Store Chain of the Year", completion of certain significant
capital projects and the implementation of client server computing. In
the view of the Diamond Shamrock Compensation Committee, Mr.
Hemminghaus' accomplishments with respect to each of these items plus
his involvement with other projects and programs not mentioned above
will contribute significantly to long-term value.
316,000 performance units and 38,600 stock options were awarded to
Mr. Hemminghaus as long-term incentives in 1995. The projected total
value of Mr. Hemminghaus' long-term incentive award for 1995 is below
the median of the Custom Survey Group.
82
<PAGE>
The Diamond Shamrock Compensation Committee believes that Mr. Hemminghaus' base
salary is conservative for the Chairman of the Board, President and Chief
Executive Officer for a corporation of Diamond Shamrock's size and complexity,
being at approximately the median of the Custom Survey Group. The Diamond
Shamrock Compensation Committee prefers to maintain this position and emphasize
those compensation elements which are most sensitive to Diamond Shamrock's
performance.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
W.H. CLARK, CHAIRMAN
E. GLENN BIGGS
W.E. BRADFORD
KATHERINE D. ORTEGA
DIAMOND SHAMROCK SUMMARY COMPENSATION TABLE. The Diamond Shamrock Summary
Compensation Table presents the compensation of Diamond Shamrock's Chief
Executive Officer and each of the four most highly compensated executive
officers of Diamond Shamrock in each of the last three fiscal years. The table
includes both annual and certain long-term compensation paid or accrued for any
of the covered years during which the named executive served as an executive
officer of Diamond Shamrock. Footnotes to the table provide a brief explanation
of the elements of compensation and include a brief description of certain of
the compensation and benefit plans pursuant to which such compensation has been
paid or accrued.
DIAMOND SHAMROCK SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
---------------------------------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------------------ RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP
NAME AND SALARY BONUS COMPENSA- AWARDS OPTIONS GRANTED PAYOUTS
PRINCIPAL POSITION YEAR (1)(2) (1)(2)(3) TION (4) (5)(6) (#)(7) ($)(8)
- ------------------------------- --------- --------- ----------- ------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger R. Hemminghaus........... 1995 $ 551,254 $ 275,600 $ 7,619 $ 57,566 48,562 $ 238,370
Chairman, President, and 1994 508,258 330,000 4,532 63,030 39,993 55,000
Chief Executive Officer 1993 486,838 275,000 0 100,665 79,941
T. J. Fretthold................ 1995 241,752 90,000 1,230 13,388 10,300 80,967
Senior Vice President/Group 1994 228,419 101,000 757 13,847 11,625 16,500
and General Counsel 1993 217,835 85,000 0 28,179 18,904
W. R. Klesse................... 1995 260,250 105,000 2,568 13,685 16,992 80,967
Executive Vice President 1994 228,419 101,000 1,222 13,847 11,454 16,500
1993 217,835 85,000 0 28,179 18,529
J. Robert Mehall............... 1995 260,250 105,000 2,963 13,685 16,892 80,967
Executive Vice President 1994 228,419 101,000 1,956 13,847 11,529 16,500
1993 217,835 85,000 0 28,179 24,001
A. W. O'Donnell................ 1995 241,752 90,000 3,598 13,388 11,574 80,967
President/Marketing and 1994 228,419 101,000 3,065 13,847 11,628 16,500
Senior Vice President 1993 217,835 90,000 0 28,414 18,686
<CAPTION>
ALL OTHER
NAME AND COMPENSA-
PRINCIPAL POSITION TION (9)
- ------------------------------- -----------
<S> <C>
Roger R. Hemminghaus........... $ 120,549
Chairman, President, and 79,862
Chief Executive Officer 80,675
T. J. Fretthold................ 30,838
Senior Vice President/Group 24,824
and General Counsel 24,346
W. R. Klesse................... 34,493
Executive Vice President 35,536
25,322
J. Robert Mehall............... 31,536
Executive Vice President 26,337
25,676
A. W. O'Donnell................ 46,798
President/Marketing and 35,744
Senior Vice President 32,799
</TABLE>
- ------------------------------
(1) Includes amounts which have been deferred under Diamond Shamrock's Deferred
Compensation Plan (the "Deferred Compensation Plan"). The Deferred
Compensation Plan permits key employees of Diamond Shamrock to defer the
receipt of salaries and bonuses. Compensation so deferred may be
denominated in dollars or in shares of Diamond Shamrock Common Stock.
Share-denominated accounts are credited with dividends and
dollar-denominated accounts are credited with interest at 1% below the
prime lending rate of specified banks. If the participant elects to defer
compensation until retirement, and such participant's employment is not
terminated prior to retirement, voluntarily or for cause, appreciation or
depreciation on share-denominated accounts or interest on
dollar-denominated accounts will be enhanced by 4% annually. Preferential
interest and dividends may be forfeited if the participant's employment is
terminated voluntarily or for cause
83
<PAGE>
before retirement and may vest prior to retirement upon a change in control
of Diamond Shamrock as defined in the Deferred Compensation Plan. Payments
of deferrals from share-denominated accounts will be made only in cash.
Amounts deferred under the Deferred Compensation Plan may be secured in a
trust established with Key Trust Company. The assets of the trust are
subject to the claims of Diamond Shamrock's general creditors. Compensation
received after January 1, 1996 may not be deferred under the Deferred
Compensation Plan, but may be deferred under Diamond Shamrock's
nonqualified 401(k) plan (the "Nonqualified 401(k) Plan"). See footnote
(2).
(2) Includes amounts which have been deferred under Diamond Shamrock's 401(k)
Retirement Savings Plan (the "401(k) Plan"). Diamond Shamrock employees can
defer receipt of salary and bonus for tax purposes until retirement, or, if
earlier, termination of employment or death, under the 401(k) Plan. Salary
and bonus deferred under the 401(k) Plan are allocated among a number of
stock, bond, mixed, and fixed income investments, as directed by the
employee participant. Diamond Shamrock began to make matching contributions
to employee participants' 401(k) Plan accounts after January 1, 1996. Such
matching contributions are in amounts equal to 50% of employee
contributions, not to exceed a total of 3% of the total salary and bonus of
the employee participant. In addition to the 401(k) Plan, beginning on
January 1, 1996, Diamond Shamrock made available the Nonqualified 401(k)
Plan to key employees under which participants are permitted to defer
receipt of compensation in addition to deferrals under the 401(k) Plan.
Deferrals under the 401(k) Plan are limited by certain provisions of the
Code. Under the Nonqualified 401(k) Plan, compensation deferred at the
election of the participant will be partially matched by Diamond Shamrock
in an amount equal to 50% of the compensation so deferred, provided that
amounts paid by Diamond Shamrock to match compensation deferred under the
Nonqualified 401(k) Plan combined with amounts paid to match compensation
deferred under the 401(k) Plan will not exceed 3% of the total salary and
bonus of the employee participant. Participants in the Nonqualified 401(k)
Plan will also be provided additional credits to make up for certain
benefits lost by reason of their deferral of income. Amounts deferred under
the Nonqualified 401(k) Plan, along with make-up and matching contributions
will be deemed invested and allocated among a number of stock, bond, and
fixed income investments at the participant's direction. Amounts deferred
under the Nonqualified 401(k) Plan may be secured in a "rabbi" trust
established with Key Trust Company.
(3) Reflects incentive-based cash bonuses awarded under Diamond Shamrock's
Performance Incentive Plan. Awards are reported as compensation in the year
with respect to which the award was earned, even if actually paid in the
following year. The figures shown include amounts deferred under the
Deferred Compensation Plan and the 401(k) Plan. See Footnotes 1 and 2
above.
(4) Diamond Shamrock reimburses its executive officers for federal income tax
and medicare tax relating to certain benefits, including benefits accrued
under Diamond Shamrock's various benefits plans and premiums paid by
Diamond Shamrock for group life insurance in excess of $50,000. Perquisites
and other personal benefits received by the executive officers are not
included because the aggregate amount of such compensation, if any, does
not exceed the lesser of $50,000 or 10% of the total amount of annual
salary and bonus for any named individual.
(5) The shares of restricted stock, the fair market value of which on the date
of grant is reported in the Diamond Shamrock Summary Compensation Table,
are subject to forfeiture and vest four years after the anniversary of the
date of grant. Shares of restricted stock that are conditioned upon Diamond
Shamrock meeting certain performance goals ("performance restricted stock")
are not reflected in this table, but are included in the "Diamond Shamrock
Long-Term Incentive Plans-- Awards in Last Fiscal Year" table for the year
in which they are awarded. Unvested shares of restricted stock may not be
sold or transferred. The shares otherwise carry full voting rights and
dividends are paid on restricted stock awards from the time of grant at the
same rate as paid to all stockholders. The total amount of restricted stock
held by each of the named executive officers and the fair market value of
such shares as of December 31, 1995, without reducing such market value for
restrictions on transfer was as follows: R. R. Hemminghaus, 12,830 shares,
$331,976; T. J. Fretthold, 3,714 shares, $96,100; W. R. Klesse, 3,639
shares, $94,159; J. R. Mehall, 3,714 shares, $96,100 and A. W. O'Donnell,
3,724 shares, $96,359. Restricted stock reported in the Diamond Shamrock
Summary Compensation Table for 1995 was earned by the named executive
officers in 1995, but not issued until after December 31, 1995, and,
therefore, is not included in the foregoing.
(6) The restricted stock awards shown in this column for 1995 and 1994 were
made in lieu of additional cash bonus for that year. Restricted stock
awards for 1993 shown in this column consisted of a combination of
restricted stock awarded in lieu of additional cash bonus and restricted
stock awarded strictly as a long-term incentive.
(7) Options granted in 1995 and 1993 include reload options granted upon
exercise of the associated option. See Footnote (1) to table entitled
"Diamond Shamrock Option Grants in Last Fiscal Year."
(8) Long-term incentive plan payouts included in this column consist of the
dollar value of performance restricted stock granted in 1991, 1992, and
1993 which vested in 1995. That value was established using the closing
price of Diamond Shamrock's Common Stock on the New York Stock Exchange on
the last trading day immediately preceding the day on which the performance
restricted stock vested.
(9) Includes various items of compensation paid or accrued under benefit plans
maintained by Diamond Shamrock in which the named executive officers
participate. Such amounts consist of the following items:
(a) Above-market interest or preferential dividends accrued on amounts
deferred under the Deferred Compensation Plan. Such interest and
dividend accruals may be forfeited under certain circumstances. See
Footnote 1 above. Amounts
84
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accrued under the Deferred Compensation Plan attributable to
above-market interest and preferential dividends for the individuals
named in the table in the last fiscal year were: R. R. Hemminghaus
$30,159, T. J. Fretthold $2,920, W. R. Klesse $4,394 and A. W. O'Donnell
$11,468.
(b) Annual allocations or accruals in the last fiscal year under ESOP I (as
defined below) and ESOP II (as defined below) and related Excess
Benefits Plan (as defined below) for the accounts of the individuals
named in the table were: R. R. Hemminghaus $59,607, T. J. Fretthold
$23,481, W. R. Klesse $24,589, J. R. Mehall $24,626, and A. W. O'Donnell
$23,514. For a description of these plans see "-- Diamond Shamrock
Retirement and Other Compensation" below.
(c) The executive life insurance program provides that if an executive
officer dies, such officer's beneficiary will receive a lump-sum amount,
after federal income taxes, equal to two and one-half times such
officer's annual salary, excluding bonuses, less the aggregate amount of
the lump sum equivalent of all payments payable upon such officer's
death under other group life insurance plans sponsored by Diamond
Shamrock for employees generally. Premiums paid or accrued in the last
fiscal year by Diamond Shamrock to fulfill its obligations under the
executive life insurance program relating to the named executive
officers were: R. R. Hemminghaus $25,511, T. J. Fretthold $3,300, W. R.
Klesse $4,232, J. R. Mehall $5,371 and A. W. O'Donnell $9,787.
(d) The supplemental disability income program provides executive officers
an amount equal to 66 2/3% of base compensation less any amount received
by such officer under any other long-term disability plan sponsored by
Diamond Shamrock for employees generally. Annual premiums paid or
accrued in the last fiscal year by Diamond Shamrock to fulfill its
obligations under the supplemental disability income program relating to
the named executive officers were: R. R. Hemminghaus $5,272, T. J.
Fretthold $1,137, W. R. Klesse $1,278, J. R. Mehall $1,539 and A. W.
O'Donnell $2,029.
DIAMOND SHAMROCK LONG-TERM INCENTIVE PLANS. The Diamond Shamrock Board
believes that Diamond Shamrock's long-term incentive plans are important in
attracting, retaining and rewarding executives and other key employees, and in
encouraging director and employee ownership of Diamond Shamrock Common Stock.
Through the use of stock options, restricted stock, performance units and other
awards, such plans are intended to provide incentives to directors and employees
to remain associated with Diamond Shamrock and to maintain and enhance Diamond
Shamrock's long-term performance and return to stockholders. The 1990 Long-Term
Incentive Plan and the Diamond Shamrock 1987 Long-Term Incentive Plan (the "1987
Long-Term Incentive Plan" and together with the "1990 Long-Term Incentive Plan",
the "Long-Term Incentive Plans") are substantially similar. No new grants have
been made under the 1987 Long-Term Incentive Plan since 1992.
The Long-Term Incentive Plans are administered by the Diamond Shamrock
Compensation Committee. The Diamond Shamrock Compensation Committee is
authorized to grant stock options, stock appreciation rights ("SARs"),
restricted stock awards, performance awards and security awards to the officers
and salaried employees of Diamond Shamrock and its majority-owned subsidiaries.
Subject to certain adjustments, no participant in the 1990 Long-Term Incentive
Plan may in any fiscal year be granted (i) options and SARs for more than
200,000 shares of Diamond Shamrock Common Stock, (ii) performance awards and
securities awards for more than 200,000 shares of Diamond Shamrock Common Stock,
and (iii) performance awards, in the aggregate, of more than $1,000,000. The
Long-Term Incentive Plans also provide for the grant of options and restricted
stock awards to non-employee directors. Apart from options and restricted stock
awards, non-employee directors are not eligible to receive awards from the
Long-Term Incentive Plans. As of March 1, 1996, 303 employees participated in
the Long-Term Incentive Plans.
The exercise price of options to purchase Diamond Shamrock Common Stock
granted employees under the 1990 Long-Term Incentive Plan is determined by
reference to the closing sale price per share of the Diamond Shamrock Common
Stock as reported in the New York Stock Exchange Composite Transactions Report
for the trading day immediately preceding the date of grant. Options granted
under the 1990 Long-Term Incentive Plan may include both incentive stock options
intended to qualify for special treatment under certain provisions of the Code,
and non-qualified options. The exercise price of incentive stock options, and of
non-qualified options granted under the 1990 Long-Term Incentive Plan, may not
be less than the fair market value of the shares covered thereby.
Options must be exercised within a period established as of the date of
grant (which may not exceed 10 years and one day), although options may expire
earlier because of termination of employment, retirement, permanent disability
or death of the optionee. Upon payment in cash of any award granted under the
1990 Long-Term Incentive Plan, any shares of Diamond Shamrock Common Stock
85
<PAGE>
that related to that grant shall again be available for issuance or transfer.
Upon the full or partial payment of the price of any option, SAR, or other award
by the transfer to Diamond Shamrock with shares of Diamond Shamrock Common Stock
or upon satisfaction of tax withholding obligations in connection with any such
exercise by the transfer or relinquishment of shares of Diamond Shamrock Common
Stock, there shall be deemed to have been issued or transferred under the 1990
Long-Term Incentive Plan only the net number of shares of Diamond Shamrock
Common Stock actually issued or transferred by Diamond Shamrock.
Options or rights granted pursuant to the Long-Term Incentive Plans become
exercisable at such times and in such amounts as are determined by the Diamond
Shamrock Compensation Committee at the time of grant. Under such plans, the
Diamond Shamrock Compensation Committee may specify in the instrument granting
such options or rights events which accelerate the dates upon which such options
and rights would otherwise become exercisable.
Options typically become exercisable in three annual installments on the
anniversary date of grant of 40%, 30% and 30%, respectively. Options held by
certain employees of Diamond Shamrock, including certain of the options held by
executive officers of Diamond Shamrock, become exercisable to the extent of 100%
of the shares of Diamond Shamrock Common Stock covered thereby upon a "change in
control" as defined in the agreements under which the options are granted
("Option Agreements"). The Merger does not constitute a change in control for
this purpose.
With the exception of options granted in 1994, options outstanding under the
Long-Term Incentive Plans have reload rights. A reload option is granted when
previously owned shares are used to exercise an option and is granted for a
number of shares equal to the number of shares tendered to pay the exercise
price of the related option. The reload option becomes exercisable on the second
anniversary after the date of grant (or upon a change in control if earlier) and
expires no later than the date on which the underlying option in respect of
which the reload option was granted would have expired or terminated. A reload
option is forfeited if within the two years following the date of grant the
shares acquired upon exercise of the underlying options are sold. This
forfeiture provision is eliminated in the event of a change in control, as
defined in the Option Agreement. Reload options are issued without related
reload rights. The reload option price is the closing price of the Diamond
Shamrock Common Stock on the trading day prior to the exercise date of the
underlying option.
The 1990 Long-Term Incentive Plan also authorizes the Diamond Shamrock
Compensation Committee to grant performance units, which are rights to receive a
predetermined amount, payable in cash or shares of Diamond Shamrock Common
Stock, on such terms and subject to such conditions as may be determined by the
Diamond Shamrock Compensation Committee. The Diamond Shamrock Compensation
Committee may also make awards of restricted stock, junior stock, convertible
debentures, or discounted stock, as well as other types of awards that utilize
corporate securities. Such awards of securities may be absolute or contingent
upon various factors, may provide for payment by the recipient of amounts that
are less than the fair market value of securities or for no consideration, and
may provide for repurchase of such securities by Diamond Shamrock in specified
circumstances. Awards may be payable over a specified period, and may be vested
in whole or in part on the date of grant thereof, as determined from time to
time by the Diamond Shamrock Compensation Committee in its discretion.
DIAMOND SHAMROCK STOCK OPTIONS. The tables below set forth information
regarding stock options, including options granted upon exercise of reload
rights, granted to and exercised by the named executive officers of Diamond
Shamrock in the last fiscal year, and the value of unexercised options and
related rights held by such executive officers at the end of the fiscal year.
86
<PAGE>
DIAMOND SHAMROCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
NUMBER OF -----------------------------------
SECURITIES PERCENT OF TOTAL EXERCISE OR GRANT DATE VALUE
UNDERLYING OPTIONS GRANTED TO BASE ---------------------------------
OPTIONS GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION GRANT DATE
NAME (#)(1) YEAR ($/SH)(2) DATE PRESENT VALUE ($)(3)
- ---------------------------- --------------- ------------------- -------------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Roger R. Hemminghaus........ 23,000 8.74% $ 24.00 2/06/05 $ 227,590
4,282 1.63 28.25 5/04/02 40,487
5,680 2.16 28.25 2/01/03 56,498
15,600 5.93 25.87 7/31/05 147,655
T. J. Fretthold............. 6,600 2.51 24.00 2/06/05 65,308
3,700 1.41 25.875 7/31/05 35,021
W. R. Klesse................ 9,000 3.42 24.00 2/06/05 89,057
4,900 1.86 25.875 7/31/05 46,379
1,329 0.51 26.125 5/04/02 10,961
1,763 0.67 26.125 2/01/03 15,121
J. Robert Mehall............ 9,000 3.42 24.00 2/06/05 89,057
1,286 0.49 27.00 5/04/02 10,715
1,706 0.65 27.00 2/01/03 14,975
4,900 1.86 25.875 7/31/05 46,379
A. W. O'Donnell............. 6,600 2.51 24.00 2/06/05 65,308
1,274 0.48 27.25 5/04/02 10,984
3,700 1.41 25.875 7/31/05 35,021
</TABLE>
- ------------------
(1) Options were granted under the 1990 Long-Term Incentive Plan by the Diamond
Shamrock Compensation Committee on February 6, 1995 with an exercise price
of $24.00 per share and on July 31, 1995 with an exercise price of $25.875
per share and become exercisable in three annual installments on the
anniversary of grant of 40%, 30%, and 30%, respectively, or earlier, in the
event of a change in control. See "-- Diamond Shamrock Long-Term Incentive
Plans". All other option grants listed in the table are reload options
granted upon exercise of reload rights relating to already existing options.
The options granted in 1995 included reload rights.
(2) The exercise price for options reported in the table was determined by
reference to the closing sales price per share of the Diamond Shamrock
Common Stock on the trading day prior to the date of grant.
(3) The amounts shown in this column represent a calculation of the value of the
options on the date of grant using the Black-Scholes model option pricing
formula. This is a mathematical formula often used to value exchange traded
options. The calculation requires that assumptions be made with respect to a
number of factors to estimate the option's value. For purposes of the
Black-Scholes calculation, assumptions have been made as to the annualized
volatility of the stock's rate of return and the annual dividend yield on
the stock. The volatility and dividend yield assumptions are based upon the
actual experience in Diamond Shamrock's stock price change and dividends
paid during the 3-year period leading up to the option grant date, measured
month by month. For regular options granted on February 6, 1995 and July 31,
1995 with ten-year terms, the assumptions are .2856 and 2.35% and .2514 and
2.28%, respectively, for the annualized volatility and annual dividend
yield, respectively. For reload options with terms of less than ten years,
the assumptions range from .2493 to .2670 for annualized volatility, and
from 2.21% to 2.34% for the annual dividend yield. The risk-free rate of
interest assumed for purposes of calculating each option's value was the
yield on the U.S. Treasury strips obligation whose term corresponded most
closely to the term of the option on the date of grant. This created an
assumed risk-free rate of interest for options with ten-year terms of 7.77%
and 6.63%, respectively. The risk-free rate of interest for reload options
with terms less than ten years range from 6.09% to 7.11%. The term of the
option, measured from the date of grant, has been used to calculate each
option's value shown in this column. The calculation fails to take into
account the fact that unlike exchange-traded options, employee stock options
may not be transferred and are subject to certain vesting requirements.
Accordingly, it is possible that the Black-Scholes model overstates the
value of options awarded by Diamond Shamrock pursuant to the Long Term
Incentive Plans. The ultimate value of a stock option will depend on the
market value of Diamond Shamrock Common Stock at a future date.
87
<PAGE>
DIAMOND SHAMROCK AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS
ACQUIRED ON VALUE OPTIONS AT 12/31/95 AT FISCAL YEAR END ($)
NAME EXERCISE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ----------- ------------ -------------------------- --------------------------
<S> <C> <C> <C> <C>
Roger R. Hemminghaus............ 14,973 $ 141,570 86,695/87,428 $112,828/$91,563
T. J. Fretthold................. 0 0 26,756/21,602 61,347/ 26,277
W. R. Klesse.................... 4,297 31,497 23,430/28,123 21,904/ 30,777
J. Robert Mehall................ 4,297 35,257 19,622/28,098 27,254/ 30,777
A. W. O'Donnell................. 1,980 19,243 21,824/22,879 40,706/ 28,604
</TABLE>
- ------------------
(1) No SARs were held in tandem with options by the named executive officers at
December 31, 1995.
DIAMOND SHAMROCK LONG-TERM INCENTIVE AWARDS
Performance units have been granted to executive officers and other key
employees under the Long-Term Incentive Plans. The following table sets forth
information regarding performance units granted in the last fiscal year by
Diamond Shamrock to the named executive officers.
DIAMOND SHAMROCK LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS(2)
OTHER PERIOD UNTIL -----------------------------------
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM ($
NAME UNITS (#) PAYOUT (1) ($ OR #) ($ OR #) OR #)
- --------------------------------------------- ----------- ------------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Roger R. Hemminghaus......................... 158,000 12/31/97 $ 47,400 $ 158,000 $ 316,000
158,000 12/31/97 39,500 158,000 316,000
T. J. Fretthold.............................. 42,500 12/31/97 12,750 42,500 85,000
42,500 12/31/97 10,625 42,500 85,000
W. R. Klesse................................. 56,500 12/31/97 16,950 56,500 113,000
56,500 12/31/97 14,125 56,500 113,000
J. R. Mehall................................. 56,500 12/31/97 16,950 56,500 113,000
56,500 12/31/97 14,125 56,500 113,000
A. W. O'Donnell.............................. 42,500 12/31/97 12,750 42,500 85,000
42,500 12/31/97 10,625 42,500 85,000
</TABLE>
- ------------------
(1) Payout of one-half of the performance units awarded in 1995 is based upon
attaining a specified ranking of stockholders return relative to
stockholders return of the Diamond Shamrock Peer Group over the three-year
period beginning January 1, 1995 and ending December 31, 1997. Payout of the
other half of the performance units awarded in 1995 is based upon Diamond
Shamrock's reaching certain goals for improving Diamond Shamrock's
"controllable earnings per share" over the same period. Controllable
earnings per share is a measure of Diamond Shamrock's earnings performance
after adjusting for certain factors that affect earnings but that are beyond
the control of Diamond Shamrock and its employees (E.G., crude oil price and
margin fluctuations).
(2) The target payout of all of the performance units awarded in 1995 is $1.00.
If the threshold performance is attained, performance units with payout
based on return to Diamond Shamrock stockholders could be worth as little as
$.25 each and performance units awarded with payout based on controllable
earnings per share could be worth as little as $.30 each. All performance
units could be worth as much as $2.00 each (maximum), if maximum performance
targets are attained or exceeded for stockholder return and controllable
earnings per share for the three years ended December 31, 1997. Payouts on
performance units awarded in 1995 will be made in cash.
DIAMOND SHAMROCK RETIREMENT AND OTHER COMPENSATION. The executive
retirement program of Diamond Shamrock consists of several plans, including a
Retirement Income Plan (the "Retirement Income Plan"), an Excess Benefits Plan
(the "Excess Benefits Plan"), and a Supplemental Executive Retirement Plan (the
"Diamond Shamrock Supplemental Executive Retirement Plan"). Each of such Plans
is described in more detail below. Subject to certain vesting requirements, the
Diamond Shamrock
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Supplemental Executive Retirement Plan provides a participant with an aggregate
benefit equal to 60% of the average of the highest compensation received by such
participant over any three years during the last ten years of employment with
Diamond Shamrock, offset by any benefits the participant receives under the
Retirement Income Plan, the Excess Benefits Plan, and certain benefits paid by
previous employers. The Diamond Shamrock Pension Table estimates the combined
annual benefits payable by operation of such plans to a participant upon
retirement based on the specified compensation and years of service combinations
indicated without reduction for benefits payable by previous employers.
DIAMOND SHAMROCK PENSION TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL COMBINED BENEFITS CREDITED FOR YEARS
OF
SERVICE INDICATED ($)(2)
-----------------------------------------------------
EARNINGS CREDITED ($)(1) 15 20 25 30 35
- --------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 250,000.............................. $ 150,000 $ 150,000 $ 150,000 $ 150,000 $ 150,000
300,000.............................. 180,000 180,000 180,000 180,000 180,000
400,000.............................. 240,000 240,000 240,000 240,000 240,000
500,000.............................. 300,000 300,000 300,000 300,000 300,000
600,000.............................. 360,000 360,000 360,000 360,000 360,000
700,000.............................. 420,000 420,000 420,000 420,000 420,000
800,000.............................. 480,000 480,000 480,000 480,000 480,000
900,000.............................. 540,000 540,000 540,000 540,000 540,000
1,000,000............................. 600,000 600,000 600,000 600,000 600,000
</TABLE>
- ------------------
(1) Earnings credited include salary and bonus paid within a calendar year. At
December 31, 1995, the average of the highest compensation received by each
of the executive officers named in the Diamond Shamrock Summary Compensation
Table over any three years during the last ten years of employment with
Diamond Shamrock and their credited years of service were R. R. Hemminghaus,
$898,251, 12 years; T. J. Fretthold, $342,108, 19 years; W. R. Klesse,
$346,301, 27 years; J. Robert Mehall, $352,515, 23 years and A. W.
O'Donnell, $340,948, 10 years.
(2) Amounts shown in the Diamond Shamrock Pension Table represent the maximum
defined benefit values payable under the executive retirement program.
Benefits are calculated without offset for social security benefits or
reduction for benefits payable by previous employers. Whether these amounts
actually become payable in whole or in part depends on the contingencies and
conditions governing such plans, including the individual's age, date of
hire, term of service as an executive officer, career earnings, amount of
certain other pension plan payments, and related supplemental retirement
payments received from former employers.
RETIREMENT INCOME PLAN. Pursuant to the Retirement Income Plan, eligible
employees of Diamond Shamrock, including executive officers, acquire a right
upon retirement to a yearly amount equal to 2% of the employee's career average
earnings from February 1, 1987 through May 31, 1989 without offset for social
security benefits. After the formation of ESOP II, the Retirement Income Plan
benefit was reduced from 2% to 1% of the employee's career average earnings from
June 1, 1989 forward, plus, for certain employees, a potential adjustment based
upon the future performance of ESOP II. Benefits under the Retirement Income
Plan become vested after five years of service.
DIAMOND SHAMROCK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Diamond
Shamrock Supplemental Executive Retirement Plan provides additional benefits to
eligible employees of Diamond Shamrock, including the executive officers. The
Diamond Shamrock Supplemental Executive Retirement Plan benefit is calculated on
the basis of 60% of the average of the highest compensation the executive
officer received over any three years during the last ten years of employment
with Diamond Shamrock. A reduction is made to eliminate benefits payable under
Diamond Shamrock's Retirement Income Plan and Excess Benefits Plan and under any
defined benefit plan of previous employers.
In addition, benefits payable under the Diamond Shamrock Supplemental
Executive Retirement Plan will be reduced ten percent per year for each year
less than ten that the participant is in the plan. At December 31, 1995, the
executive officers named in the Diamond Shamrock Summary Compensation Table were
credited with the following years of participation in the plan: R. R.
Hemminghaus, 11.6 years; T. J. Fretthold, 11.6 years; W. R. Klesse, 8.6 years,
J. Robert Mehall, 8.6 years and A. W. O'Donnell, 8.6
89
<PAGE>
years. The Diamond Shamrock Board has approved a trust arrangement pursuant to
which benefits under the Diamond Shamrock Supplemental Executive Retirement Plan
may be secured, subject to claims of general creditors of Diamond Shamrock.
EXCESS BENEFITS PLAN. The Excess Benefits Plan provides non-qualified
benefits in place of reductions of qualified benefits resulting from various
statutory limitations imposed by the Code, the deferral of compensation through
the Deferred Compensation Plan, the 401(k) Plan, and the Nonqualified 401(k)
Plan. The Diamond Shamrock Board has approved a trust arrangement pursuant to
which benefits under the Excess Benefits Plan may be secured in a trust which is
subject to claims of general creditors of Diamond Shamrock.
EMPLOYEE STOCK OWNERSHIP PLANS. Diamond Shamrock maintains two employee
stock ownership plans, ESOP I (as defined below) and ESOP II (as defined below).
Diamond Shamrock has made loans to the ESOPs totaling $65.8 million, which the
ESOPs used to buy 3,519,164 shares of Diamond Shamrock Common Stock, and Diamond
Shamrock has contributed a total of 377,517 treasury shares of Diamond Shamrock
Common Stock to ESOP I as part of the Success Sharing Program (as defined below)
and special award programs. Annually, as Diamond Shamrock's loans to the ESOPs
are repaid, the shares are allocated to the accounts of participants.
All employees of Diamond Shamrock who have attained a minimum length of
service and satisfied other plan requirements are eligible to participate in the
ESOPs, except that ESOP II excludes employees covered by any collective
bargaining agreement. At December 31, 1995, there were 4,153 participants in
ESOP I and 3,797 participants in ESOP II. Participants obtain vested interests
in the ESOPs after five years of service, giving effect to service with Diamond
Shamrock's predecessors. Participants are entitled to direct the voting of the
shares held in their ESOP accounts. Unallocated shares are voted proportionately
in the manner in which allocated shares are voted.
Shares are allocated to the participants' accounts in the ratio that each
participant's salary and bonus for the plan year bears to the total eligible
compensation of all participants for the plan year, subject to a maximum
eligibility limitation in 1995 of $150,000 imposed by the Code. However, Diamond
Shamrock has established the Excess Benefits Plan to provide like benefits for
the executive officers and other employees of Diamond Shamrock in place of
reductions resulting from such compensation cap. See Footnote 9(b) to "--
Diamond Shamrock Summary Compensation Table."
SUCCESS SHARING PROGRAM. The Diamond Shamrock Success Sharing Program (the
"Success Sharing Program") was initiated in 1993 and is available to all Diamond
Shamrock employees who are employed on each January 1 and on the date
distributions are made after the end of the year, and who have worked at least
1,000 hours during the year. Under the Success Sharing Program, employees are
entitled to receive a bonus of up to 4% of pay, depending upon whether and by
how much Diamond Shamrock's earnings per share of common stock for the year
exceeds Diamond Shamrock's average earnings per share of common stock for the
immediately preceding three years.
DIAMOND SHAMROCK EMPLOYEE STOCK PURCHASE LOAN PROGRAM. The Diamond Shamrock
employee Stock Loan Program (the "Stock Loan Program") encourages Diamond
Shamrock Common Stock purchases by key employees. Under the Stock Loan Program,
executive officers of Diamond Shamrock may borrow the lesser of $300,000 or 100%
of their annual base salary to buy common Stock on the open market. Interest on
loans is charged at the applicable federal rate for short-term loans (compounded
annually) (the "AFR"), in effect on the date the funds are borrowed. The
interest rate is adjusted annually during the term of the loan to the lesser of
the AFR as of the date of such adjustment, the initial AFR rate on all loans, or
the weighted average rate of the current loans outstanding. As of March 1, 1996
rates of interest on loans to executive officers ranged from 4.41% to 5.73% with
the AFR being 5.05%. Interest is payable annually and principal is repayable in
five annual installments of 20% commencing on the fifth anniversary of the
borrowing. The Diamond Shamrock Board has fixed $3 million as the maximum amount
to be outstanding under the Stock Loan Program. As of March 1, 1996, 26
employees participated in the Stock Loan Program. The highest amounts
outstanding at any time during the last fiscal year under the Stock Loan Program
and the amount outstanding on March 1, 1996
90
<PAGE>
on loans to the executive officers named in the Diamond Shamrock Summary
Compensation Table which at any time during 1995 exceeded $60,000 were: R. R.
Hemminghaus $217,425 and $149,925, respectively; W. R. Klesse $170,388 and
$101,400, respectively; J. R. Mehall $226,583 and $201,640, respectively. In
addition, R. C. Becker, Vice President and Treasurer, participated in the Stock
Loan Program. Mr. Becker's highest amount outstanding during fiscal 1995 and the
amount outstanding at March 1, 1996 were $69,750 and $47,295, respectively.
DIAMOND SHAMROCK EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL
ARRANGEMENTS. Diamond Shamrock has entered into an employment agreement with
each of its executive officers. Such agreements provide for the continued
employment of each executive officer for a period of three years (or, if
earlier, until age 65) after the occurrence of a change in control. For this
purpose, a "change in control" of Diamond Shamrock occurs when (i) Diamond
Shamrock merges with, or sells all or substantially all of its assets to,
another corporation, and Diamond Shamrock's stockholders do not hold a majority
interest in the resulting or surviving corporation; (ii) a report is filed under
specified provisions of the federal securities laws disclosing that any "person"
has become the beneficial owner of 10% or more of Diamond Shamrock's voting
stock; (iii) Diamond Shamrock reports under specified provisions of the federal
securities laws that a change in control has occurred; or (iv) within any two
year period, a majority of directors at the beginning of such period cease to be
directors of Diamond Shamrock (not including persons approved by a vote of at
least two-thirds of the directors still in office who were directors at the
beginning of such period). The agreements had an initial term of five years and
are automatically extended for an additional year on each anniversary date
unless either Diamond Shamrock or the executive officer gives written notice of
the non-extension prior to an anniversary date. The agreement automatically
terminates if, prior to a change in control, the executive officer ceases to be
an employee of Diamond Shamrock. The Merger constitutes a change in control for
purposes of these agreements.
Under these agreements, an executive officer who is terminated without cause
or who terminates his employment under certain circumstances, is entitled to
receive separation pay in an amount equal to the discounted present value of all
cash compensation that the executive officer would have received for the
remainder of the employment period (based upon his then-current salary, and the
highest incentive payment that he received within the three years prior to the
change in control). Benefits, other than health benefits, are payable to the
executive officer in a lump sum at the time of such termination. Health benefits
continue for the remainder of the employment period under the agreements. The
agreements also provide that the executive officer will receive an additional
amount which will be sufficient (on an after-tax basis) to pay all excise taxes
that may be applicable to amounts deemed to be paid by reason of the change in
control. In addition, the executive officers are entitled to reimbursement from
Diamond Shamrock for the costs and expenses incurred by them in enforcing the
agreements. Upon a change in control amounts payable under the employment
agreements are required to be placed in a "rabbi" trust.
Pursuant to Diamond Shamrock's Long-Term Incentive Plans, if termination of
employment of an executive officer results other than for cause following a
change in control, then 100% of the restricted stock awards and performance
restricted stock awards made in 1990 and in following years, and which have not
been forfeited prior to such termination, immediately vest and become
nonforfeitable. In addition, stock options granted to the executive officers
under these Long-Term Incentive Plans become exercisable immediately in the
event of a change in control. In addition, amounts payable to Diamond Shamrock's
executive officers, as well as to its non-employee directors, under Diamond
Shamrock's Deferred Compensation Plan and Nonqualified 401(k) Plan vest and
become payable upon the occurrence of a change in control. The Merger
constitutes a change in control for purposes of these plans.
The Merger Agreement provides that each of the Companies will enter into new
employment agreements with certain of their respective executive officers. See
"The Merger -- Certain Executive Compensation and Other Employee-Related Matters
in Connection with the Merger."
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<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ULTRAMAR. The following table contains certain information regarding
persons who Ultramar has been advised are beneficial owners of 5% or more of the
outstanding Ultramar Common Stock as of the dates indicated in the footnotes to
the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------------- ---------------------- --------------
<S> <C> <C>
Diamond Shamrock, Inc.
9830 Colonnade Boulevard
San Antonio, TX 78230............................................. 8,927,500(1) 19.9%(2)
J.P. Morgan & Co., Incorporated
60 Wall Street
New York, NY 10260................................................ 3,476,515(3) 7.8%(2)
Wellington Management Company
75 State Street
Boston, MA 02109.................................................. 2,725,800(4) 6.1%(2)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111.................................................. 2,269,675(5) 5.1%(2)
Hotchkis and Wiley
800 West Sixth Street, Fifth Floor
Los Angeles, CA 90017............................................. 2,209,975(6) 4.9%(2)
</TABLE>
- --------------
(1) Pursuant to the Ultramar Stock Option Agreement, Diamond Shamrock has the
right to acquire the shares of Ultramar Common Stock included in the table
above, upon the occurrence of certain events, none of which had occurred as
of the date of this Proxy Statement. Diamond Shamrock has informed Ultramar
that Diamond Shamrock presently has sole voting and dispositive power with
respect to all of such shares.
(2) The percent of class indicated is calculated (i) based on 44,780,508 shares
of Ultramar Common Stock outstanding, excluding treasury shares, as of the
close of business on October 23, 1996 and (ii) before giving effect to the
issuance of the shares described in Note (1) above by Ultramar.
(3) According to a Statement on Schedule 13G dated December 29, 1995 and filed
with the Commission, the beneficial owner of such shares reported that it
has sole voting power with respect to 2,084,160 of such securities, shared
voting power with respect to 103,560 of such securities, sole dispositive
power with respect to 3,272,955 of such securities and shared dispositive
power with respect to 203,560 of such securities.
(4) According to a Statement on Schedule 13G dated February 9, 1996 and filed
with the Commission, the beneficial owner of such shares reported that it
has shared voting power with respect to 578,000 of such securities and
shared dispositive power with respect to all of such securities.
(5) According to a Statement on Schedule 13G dated February 12, 1996 and filed
with the Commission, the beneficial owner of such shares reported that it
has sole voting power with respect to 736,425 of such securities and shared
dispositive power with respect to all of such securities.
(6) According to a Statement on Schedule 13G dated January 18, 1996 filed with
the Commission, the beneficial owner of such shares reported that it has
shared voting and sole dispositive power with respect to these securities.
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<PAGE>
DIAMOND SHAMROCK. The following table contains certain information
regarding persons who Diamond Shamrock has been advised are beneficial owners of
5% or more of Diamond Shamrock Common Stock as of the dates indicated in the
footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------------- ---------------------- ------------
<S> <C> <C>
Ultramar Corporation
Two Pickwick Plaza
Greenwich, Connecticut 06830......................................... 5,858,500(1) 19.9%(2)
The Equitable Companies Incorporated
787 Seventh Avenue
New York, New York 10019............................................. 2,989,600(3) 10.2%(2)
FMR Corp.
82 Devonshire Street
Boston, MA 02109-3614................................................ 2,671,404(4) 9.1%(2)
Forstmann-Leff Associates, Inc.
55 East 52nd Street
New York, NY 10055................................................... 2,490,085(5) 8.5%(2)
J.P. Morgan & Company
60 Wall Street
New York, NY 10260................................................... 2,817,992(6) 9.6%(2)
Travelers Group, Inc.
368 Greenwich Street
New York, NY 10013................................................... 1,777,235(7) 6.1%(2)
Diamond Shamrock, Inc.
Employee Stock Ownership Plans
9830 Colonnade Blvd.
San Antonio, TX 78230................................................ 3,568,101(8) 12.2%(2)
</TABLE>
- --------------
(1) Pursuant to the Diamond Shamrock Stock Option Agreement, Ultramar has the
right to acquire the shares of Diamond Shamrock Common Stock included in the
table above upon the occurrence of certain events, none of which had
occurred as of the date of this Proxy Statement. Ultramar has informed
Diamond Shamrock that Ultramar has the sole voting and dispositive power
over all of such shares.
(2) The percent of class indicated is calculated (i) based on 29,298,606 shares
of Diamond Shamrock Common Stock outstanding, excluding treasury shares, as
of the close of business on October 23, 1996 and (ii) before giving effect
to the issuance of the shares described in Note (1) above by Diamond
Shamrock.
(3) According to a Statement on Schedule 13G dated August 9, 1996 and filed with
the Commission by The Equitable Companies Incorporated ("Equitable")
pursuant to a joint filing agreement between Equitable and Alpha Assurances
I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, and Uni Europe Assurance Mutuelle
(collectively, the "Equitable Group"), Equitable and the Equitable Group had
sole voting power with respect to 2,966,800 shares beneficially owned by
them, and sole dispositive power with respect to 2,989,600 shares
beneficially owned by them.
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<PAGE>
(4) According to a letter received by Diamond Shamrock dated October 17, 1996
from FMR Corp., as of June 30,1996, FMR Corp. beneficially owned 2,671,404
shares, including 584,116 shares obtainable by the conversion of 310,700
shares of Diamond Shamrock 5% Convertible Preferred Stock. FMR had sole
voting power with respect to 158,296 shares and sole dispositive power with
respect to 2,671,404 shares.
(5) According to a Statement on Schedule 13G dated February 13, 1996 and filed
with the Commission, the beneficial owner of such shares reported that it
has sole voting power with respect to 1,522,685 shares, sole dispositive
power with respect to 1,626,585 shares, and together with Stamford Advisors
Corp. and a subsidiary, FLA Asset Management, Inc., shared voting power with
respect to 412,025 shares and shared dispositive power with respect to
863,500 shares. Diamond Shamrock believes that Forstmann-Leff has reduced
its holdings to less than 5% of Diamond Shamrock Common Stock outstanding
since December 31, 1995.
(6) According to a Statement on Schedule 13G dated July 31, 1996 and filed with
the Commission, the beneficial owner of such shares reported that it has
sole voting power with respect to 1,947,012 shares beneficially owned by it
and sole dispositive power with respect to 2,805,492 shares beneficially
owned by it.
(7) According to a Statement on Schedule 13G dated February 1, 1996 and filed
with the Commission by Travelers Group, Inc. ("Travelers") and Smith Barney
Holdings, Inc. ("SB Holdings"), Travelers and SB Holdings hold shared voting
power with respect to 1,777,235 shares beneficially owned by Travelers and
1,744,035 shares beneficially owned by SB Holdings and shared dispositive
power with respect to 1,777,235 shares beneficially owned by Travelers and
1,744,035 shares beneficially owned by SB Holdings. Diamond Shamrock
believes that Travelers and SB Holdings have reduced their holdings to less
than 5% of Diamond Shamrock Common Stock since December 31, 1995.
(8) According to a Statement on Schedule 13G dated March 14, 1996 and filed with
the Commission, all such shares are held as of December 31, 1995 by the
Trustee, Society National Bank for the benefit of participants in the
Employee Stock Ownership Plan adopted in 1987 ("ESOP I") and the 1989
Employee Stock Ownership Plan ("ESOP II") (collectively, the "ESOPs") .
Participants are entitled to direct the voting of the 2,227,115 shares
allocated to their accounts. The plan documents provide that the unallocated
1,340,986 shares are to be voted proportionately in the manner in which
allocated shares are voted. As of December 31, 1995, ESOP I and ESOP II held
2,153,318 and 1,414,783 shares, respectively. See "Compensation of Executive
Officers -- Retirement and Other Compensation."
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<PAGE>
OWNERSHIP OF COMMON STOCK BY MANAGEMENT.
ULTRAMAR. The following table shows the beneficial ownership, reported to
Ultramar as of October 15, 1996 of Ultramar Common Stock, including shares as to
which the persons listed have a right to acquire beneficial ownership within 60
days of October 15, 1996 (for example, through the exercise of stock options or
through various trust arrangements) within the meaning of Rule 13d-3(d)(1) under
the Exchange Act, of each director, the chief executive officer and the next
four most highly compensated executive officers of Ultramar, all directors and
executive officers of Ultramar as a group and all directors, executive officers
and key managers of Ultramar as a group.
<TABLE>
<CAPTION>
RESTRICTED
NAME SHARES(1) SHARES(2) TOTAL PERCENT(3)
- --------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Byron Allumbaugh................................... 3,273 1,400 4,673 *
H. Frederick Christie.............................. 3,600 1,800 5,400 *
Jean Gaulin........................................ 319,950 0 319,950 *
Patrick J. Guarino................................. 83,962 0 83,962 *
Stanley Hartt...................................... 800 1,400 2,200 *
Russel H. Herman................................... 11,200 1,600 12,800 *
Joel Mascitelli.................................... 78,871 0 78,871 *
William F. Luce.................................... 7,600 1,800 9,400 *
Madeleine Saint-Jacques............................ 2,714 1,600 4,314 *
C. Barry Schaefer.................................. 1,954 1,400 3,354 *
H. Pete Smith...................................... 89,917 1,046 90,963 *
Directors and executive officers as a group (11
persons).......................................... 603,841 12,046 615,887 1.3%
Directors, executive officers and key managers as a
group (72 persons)(4)............................. 1,724,242 43,138 1,767,380 3.9%
</TABLE>
- --------------
* Less than one percent of the class
(1) Each person has sole voting and dispositive power with respect to the shares
listed. Included in the number of shares beneficially owned by Messrs.
Gaulin, Guarino, Mascitelli and Smith, all directors and executive officers
as a group and all directors, executive officers and key managers as a group
are 267,950, 69,200, 65,750, 77,550, 480,450 and 1,281,820 shares,
respectively, which such persons have the right to acquire within 60 days of
October 15, 1996 pursuant to stock options. Fractional shares have been
rounded to the nearest share. Upon the approval of the Merger by Ultramar's
stockholders, Messrs. Gaulin, Guarino, Mascitelli and Smith, all directors
and executive officers as a group, and all directors, executive officers and
key managers as a group will have the right to acquire an additional
248,550, 70,800, 56,750, 54,950, 431,050 and 1,010,170 shares, respectively,
pursuant to stock options.
(2) Holders of restricted shares of Ultramar Common Stock have sole voting power
but not dispositive power. Upon approval of the Merger by Ultramar's
stockholders, the restriction on their shares will lapse.
(3) The shares owned by each person or group and the shares included in the
total number of shares outstanding have been adjusted and the percentages
owned have been computed in accordance with Rule 13d-3(d)(1) under the
Exchange Act. The percentages shown above do not give effect to shares of
Ultramar Common Stock issuable under the Ultramar Stock Option Agreement.
(4) Information as to ownership by key managers is based on surveys collected by
Ultramar in connection with the preparation of the proxy statement for
Ultramar's 1996 annual meeting.
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<PAGE>
DIAMOND SHAMROCK. The table below sets forth the share ownership of Diamond
Shamrock's directors and executive officers. As of October 15, 1996, no director
or executive officer of Diamond Shamrock beneficially owned 1% or more of the
Diamond Shamrock Common Stock, and all directors and executive officers of
Diamond Shamrock as a group beneficially owned approximately 2.0% of the Diamond
Shamrock Common Stock. As of October 15, 1996, no shares of Diamond Shamrock
Convertible Preferred Stock were beneficially owned by any director or executive
officer of Diamond Shamrock. Unless otherwise indicated in the footnotes to such
table, each of the named persons and members of the group has sole voting and
investment power with respect to the shares shown.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME POSITION OWNED(1)(2)(3)
- ------------------------------------------------- ------------------------------------------------- ---------------
<S> <C> <C>
B. Charles Ames.................................. Director 9,873
E. Glenn Biggs................................... Director 8,580
W. E. Bradford................................... Director 3,118
Lauro F. Cavazos................................. Director 4,735
W. H. Clark...................................... Director 2,980
William L. Fisher................................ Director 8,580
Roger R. Hemminghaus............................. Chairman, President, and C. E. O. 230,291(4)
Bob Marbut....................................... Director 12,241
Katherine D. Ortega.............................. Director 4,054
T. J. Fretthold.................................. Sr. V.P./Group Executive and General Counsel 59,908
W. R. Klesse..................................... Executive V.P. 72,388
J. Robert Mehall................................. Executive V.P. 62,231
A. W. O'Donnell.................................. President/Marketing and Sr. V.P. 33,206
All directors and executive officers as a group
(16 persons).................................... 578,863
</TABLE>
- --------------
(1) Includes shares of restricted stock issued under the 1990 Long-Term
Incentive Plan and the 1987 Long-Term Incentive Plan (collectively, the
"Long-Term Incentive Plans") the vesting of which is contingent on the
passage of time or continued service, as follows: B. Charles Ames, 859
shares; E. Glenn Biggs, 859 shares; W. E. Bradford, 809 shares; Lauro F.
Cavazos, 2,480 shares; W. H. Clark, 1,613 shares; William L. Fisher, 859
shares; R. R. Hemminghaus, 17,765 shares; Bob Marbut, 1,927 shares;
Katherine D. Ortega, 1,845 shares; T. J. Fretthold, 2,949 shares; W. R.
Klesse, 2,944 shares; J. R. Mehall, 2,954 shares; A. W. O'Donnell, 2,999
shares; and all directors and executive officers as a group (16 persons),
40,081 shares.
(2) Includes shares of Diamond Shamrock Common Stock which may be acquired
within 60 days through the exercise of options granted under the Long-Term
Incentive Plans as follows: R. R. Hemminghaus, 116,828 shares; T. J.
Fretthold, 30,944 shares; W. R. Klesse, 32,224 shares; J. R. Mehall, 28,491
shares; A. W. O'Donnell, 9,148 shares; and all directors and executive
officers as a group (16 persons), 217,635 shares.
(3) Includes cash-only securities which derive their value from the value of
Diamond Shamrock Common Stock as follows: R.R. Hemminghaus, 12,129 shares;
T. J. Fretthold, 2,004 shares; W. R. Klesse, 2,113 shares; J. R. Mehall,
2,099 shares; A. W. O'Donnell, 2,086 shares; and all directors and executive
officers as a group (16 persons) 20,714 shares. All such shares were exempt
from short-swing profit liability under the provisions of Rule 16b-3
promulgated under the Exchange Act.
(4) Includes 11,640 shares of Diamond Shamrock Common Stock with respect to
which Mr. Hemminghaus acts as trustee. Mr. Hemminghaus disclaims beneficial
ownership of such shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the DGCL, the Ultramar Charter and the
terms of the Ultramar Rights Agreement (as defined below under "Comparison of
Stockholder Rights -- Rights Plans -- Ultramar Rights Plan"). The Ultramar
Charter is included as an exhibit to the Registration Statement of which this
Proxy Statement forms a part.
The following descriptions of the Ultramar capital stock should be read
carefully by Diamond Shamrock stockholders since, at the Effective Time, each
issued and outstanding share of Diamond Shamrock Common Stock will be converted
into 1.02 fully paid and nonassessable shares of Ultramar Common Stock and each
issued and outstanding share of Diamond Shamrock Convertible Preferred Stock
will be converted into one fully paid and nonassessable share of Ultramar
Convertible Preferred Stock. See "The Merger--Merger Consideration."
DESCRIPTION OF ULTRAMAR COMMON STOCK
GENERAL. As of the Effective Time the Ultramar Charter will be amended to,
among other things, increase the number of authorized shares of Ultramar Common
Stock to 250,000,000. See "The Merger Agreement -- Amendment of Ultramar
Charter." As of the Record Date, Ultramar had outstanding shares of
Ultramar Common Stock. As of the Record Date, approximately shares of
Ultramar Common Stock were reserved for issuance upon exercise of outstanding
stock options, under various employee or non-employee director incentive,
compensation and stock purchase plans and shares were reserved for
issuance upon exercise of the option granted under the Ultramar Stock Option
Agreement.
DIVIDEND RIGHTS. Holders of Ultramar Common Stock are entitled to receive
dividends when, as and if declared by the Ultramar Board, out of funds legally
available therefor, subject, however, to the rights relating to any outstanding
preferred stock of Ultramar.
VOTING RIGHTS. Subject to the rights, if any, of the holders of any series
of preferred stock of Ultramar, all voting rights are vested in the holders of
shares of Ultramar Common Stock, each share being entitled to one vote on each
matter presented for a vote, including the election of directors. The Ultramar
Board is divided into three classes of directors with the term of one class
expiring at each annual meeting of stockholders. Because holders of Ultramar
Common Stock do not have cumulative voting rights, the holders of a plurality of
the shares of Ultramar Common Stock represented at a meeting can elect all the
directors standing for election at such meeting.
RIGHTS UPON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of Ultramar, whether voluntary or involuntary, the holders of
Ultramar Common Stock will be entitled to share ratably in assets available for
distribution to holders of Ultramar Common Stock.
MISCELLANEOUS. Shares of Ultramar Common Stock are not liable for further
calls or assessments by Ultramar and the holders of Ultramar Common Stock are
not liable for any liabilities of Ultramar. The Ultramar Common Stock does not
have preemptive or other subscription rights, any conversion rights or any
redemption or sinking fund provisions. Registrar & Transfer Company currently
acts as transfer agent and registrar for the Ultramar Common Stock.
ULTRAMAR RIGHTS. For a description of the Ultramar Rights which are
attached to each outstanding share of Ultramar Common Stock, see "Comparison of
Stockholder Rights -- Rights Plans -- Ultramar Rights Plan."
DESCRIPTION OF ULTRAMAR CONVERTIBLE PREFERRED STOCK
The following description of the terms of the Ultramar Convertible Preferred
Stock is subject to and qualified in its entirety by reference to the proposed
form of the Certificate of Designations (the "Certificate") relating to the
Ultramar Convertible Preferred Stock which is included as an exhibit to the
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<PAGE>
Registration Statement of which this Proxy Statement forms a part. Such
certificate will be filed by Ultramar with the Delaware Secretary of State prior
to the Effective Time to establish the terms of the Ultramar Convertible
Preferred Stock.
GENERAL. The Ultramar Charter authorizes the Ultramar Board to provide for
the issuance, from time to time, of preferred stock in series, to establish the
number of shares to be included in any such series, to fix the designations,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereon. Because the Ultramar Board
has the power to establish the preferences and rights of the shares of any such
series of preferred stock, it may afford holders of any preferred stock voting
rights and preferences, powers and rights senior to the rights of the holders of
Ultramar Common Stock, which could adversely affect the rights of holders of
Ultramar Common Stock. The Ultramar Board has authorized the creation, in
accordance with the terms of the Merger Agreement, of up to 1,725,000 shares of
Ultramar Convertible Preferred Stock issuable upon conversion of the Diamond
Shamrock Convertible Preferred Stock in the Merger.
Each share of Ultramar Convertible Preferred Stock will, when issued, be
fully paid and nonassessable. The holders of the shares of the Ultramar
Convertible Preferred Stock will not have preemptive rights with respect to any
shares of capital stock of Ultramar or any other securities of Ultramar
convertible into or carrying right options to purchase any such shares.
DIVIDEND RIGHTS. Holders of shares of the Ultramar Convertible Preferred
Stock will be entitled to receive, when and if declared by the Ultramar Board
out of funds of Ultramar legally available for payment, cash dividends at the
annual rate of $2.50 per share, payable in arrears quarterly on March 15, June
15, September 15 and December 15 in each year from the date of original issue,
which will be the date on which the Effective Date occurs (the "Issue Date"),
except that if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday or
legal holiday. Dividends will be cumulative and will be payable to holders of
record as they appear on the stock books of Ultramar on such record dates as are
fixed by the Ultramar Board. The amount of dividends payable per share of
Ultramar Convertible Preferred Stock for each quarterly dividend period will be
computed by dividing the annual dividend amount by four. The amount of dividends
payable for any period shorter than a full quarterly dividend period will be
computed on the basis of a 360-day year of twelve 30-day months. No interest
will be payable in respect of any dividend payment on the Ultramar Convertible
Preferred Stock which may be in arrears.
The Ultramar Convertible Preferred Stock will have priority as to dividends
over the Ultramar Common Stock and any other series or class of Ultramar's stock
hereafter issued which ranks junior as to dividends to the Ultramar Convertible
Preferred Stock ("junior dividend stock"), and no dividend (other than dividends
payable solely in junior dividend stock) may be paid on, and no purchase,
redemption, or other acquisition may be made by Ultramar of, any junior dividend
stock unless all accrued and unpaid dividends on the Ultramar Convertible
Preferred Stock have been paid or declared and set apart for payment. Ultramar
may not pay dividends on any class or series of Ultramar's stock having parity
with the Ultramar Convertible Preferred Stock as to dividends ("parity dividend
stock"), unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior periods on the Ultramar Convertible Preferred
Stock and may not pay dividends on the Ultramar Convertible Preferred Stock
unless it has paid or declared and set apart for payment or contemporaneously
pays or declares and sets apart for payment all accrued and unpaid dividends for
all prior periods on the parity dividend stock. Whenever all accrued dividends
are not paid in full on the Ultramar Convertible Preferred Stock or any parity
dividend stock, all dividends declared on the Ultramar Convertible Preferred
Stock and such parity dividend stock will be declared or made pro rata so that
the amount of dividends declared per share on the Ultramar Convertible Preferred
Stock and such parity dividend stock will bear the same ratio that accrued and
unpaid dividends per share on the Ultramar Convertible Preferred Stock and such
parity dividend stock bear to each other. The Ultramar Convertible Preferred
Stock will be junior as to dividends to any series
98
<PAGE>
or class of Ultramar's stock hereafter issued which ranks senior as to dividends
to the Ultramar Convertible Preferred Stock ("senior dividend stock"), and if at
any time Ultramar has failed to pay or declare and set apart for payment accrued
and unpaid dividends on any senior dividend stock, Ultramar may not pay any
dividend on the Ultramar Convertible Preferred Stock.
See "Redemption" below for information regarding restrictions on Ultramar's
ability to redeem the Ultramar Convertible Preferred Stock when dividends on the
Ultramar Convertible Preferred Stock are in arrears.
Under Delaware law, Ultramar may declare and pay dividends on its shares of
capital stock out of its surplus or, in case there is no such surplus, out of
net income for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. The payment of cash dividends is restricted by covenants
in credit agreements to which Ultramar is a party.
VOTING RIGHTS. The holders of Ultramar Convertible Preferred Stock will
have no voting rights except as described below or as required by Delaware law.
In exercising any such vote, each outstanding share of Ultramar Convertible
Preferred Stock will be entitled to one vote.
Whenever dividends on Ultramar Convertible Preferred Stock or on any
outstanding shares of parity dividend stock have not been paid in an aggregate
amount equal to at least six quarterly dividends on such shares (whether or not
consecutive) the holders of the Ultramar Convertible Preferred Stock, voting
separately as a class with the holders of parity dividend stock on which like
voting rights have been conferred and are exercisable, will be entitled to elect
two directors to the Ultramar Board (which directors shall be in addition to
those directors then serving on the Ultramar Board to the extent that the number
of directors permitted by the Ultramar Charter is greater than the number of
such directors then serving on the Ultramar Board) at any meeting of
stockholders of Ultramar at which directors are to be elected held during the
period such dividends remain in arrears. Whenever the right of the holders of
Ultramar Convertible Preferred Stock to elect directors shall have accrued, the
proper officers of Ultramar shall call a meeting for the election of such
directors to be held not more than 90 nor less than 45 days after the accrual of
such right. Such voting right will terminate when all such dividends accrued and
in default have been paid in full or set apart for payment. The term of office
of all directors so elected will terminate immediately upon the termination of
the right of the holders of Ultramar Convertible Preferred Stock and such parity
dividend stock to vote for such two directors.
So long as any shares of Ultramar Convertible Preferred Stock are
outstanding, Ultramar will not, without the affirmative vote or consent of the
holders of at least two-thirds of the outstanding shares of Ultramar Convertible
Preferred Stock, voting separately as a class with holders of any other class of
Ultramar's preferred stock entitled to vote in the circumstances, create,
authorize or issue any shares of any other class of senior dividend stock or
senior liquidation stock or amend the Certificate in a manner adversely
affecting the rights of such stockholders.
RIGHTS UPON LIQUIDATION. In case of the voluntary or involuntary
liquidation, dissolution or winding up of Ultramar, holders of shares of
Ultramar Convertible Preferred Stock are entitled to receive the liquidation
price of $50.00 per share, plus any accrued and unpaid dividends to the payment
date, before any payment or distribution is made to the holders of Ultramar
Common Stock or any other series or class of Ultramar's stock hereafter issued
which ranks junior as to liquidation rights to the Ultramar Convertible
Preferred Stock, but the holders of the shares of the Ultramar Convertible
Preferred Stock will not be entitled to receive the liquidation price of such
shares until the liquidation price of any other series or class of Ultramar's
stock hereafter issued which ranks senior as to liquidation rights to the
Ultramar Convertible Preferred Stock ("senior liquidation stock") has been paid
in full. The holders of Ultramar Convertible Preferred Stock and all series or
classes of Ultramar's stock hereafter issued which rank on a parity as to
liquidation rights with the Ultramar Convertible Preferred Stock are entitled to
share ratably, in accordance with the respective preferential amounts payable on
such stock, in any distribution (after payment of the liquidation price of the
senior liquidation stock) which is not sufficient to pay in full the aggregate
of the amounts payable thereon. After payment in full of the liquidation price
of the shares of the Ultramar Convertible Preferred Stock, the holders of such
shares will not be entitled to any
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further participation in any distribution of assets by Ultramar. Neither a
consolidation or merger of Ultramar with another corporation nor a sale or
transfer of all or part of Ultramar's assets for cash, securities, or other
property will be considered a liquidation, dissolution or winding up of
Ultramar.
REDEMPTION. From time to time, from the Issue Date and until June 14, 2000,
the Ultramar Convertible Preferred Stock will be redeemable at the option of
Ultramar, in whole or in part, for such number of shares of Ultramar Common
Stock as equals the $50.00 per share liquidation price of the Ultramar
Convertible Preferred Stock divided by the Conversion Price (equivalent to an
initial conversion rate of approximately 1.9246 shares of Ultramar Common Stock
for each share of Ultramar Convertible Preferred Stock). Ultramar may exercise
this option only if, for 20 of any 30 consecutive trading days, including the
last trading day of such period, the closing price of the Ultramar Common Stock
on the NYSE exceeds $33.77 (130% of the Conversion Price (as defined below)),
subject to adjustment in certain circumstances. To exercise this redemption
right, Ultramar must issue a press release announcing the redemption prior to
9:00 A.M., New York City time on the second trading day after the end of any
such 30-trading-day period. The date for the redemption will be a date selected
by Ultramar not less than 15 nor more than 60 days after the date on which
Ultramar mails the required notice of redemption.
On or after June 15, 2000, the Ultramar Convertible Preferred Stock is
redeemable for cash, in whole or in part, at any time at the option of Ultramar,
at a redemption price of $50.00 per share plus accrued and unpaid dividends to
the redemption date. If Ultramar redeems the Ultramar Convertible Preferred
Stock for cash, it will pay any accrued and unpaid dividends on the Ultramar
Convertible Preferred Stock, in arrears, for any dividend period ending on or
prior to the redemption date. If the redemption date falls after a dividend
payment record date but prior to the related payment date, the record holders of
the Ultramar Convertible Preferred Stock on that record date will be entitled to
receive the dividend payable on the Ultramar Convertible Preferred Stock
notwithstanding the redemption thereof. Except as provided in this paragraph, no
payment or allowance will be made for accrued dividends on any shares of
Ultramar Convertible Preferred Stock called for redemption.
Notice of redemption for Ultramar Convertible Preferred Stock prior to June
15, 2000 will be mailed not more than four days after Ultramar issues the press
release announcing such redemption to each holder of record of shares of
Ultramar Convertible Preferred Stock to be redeemed at the address shown on the
books of Ultramar. Notice of redemption for cash on or after June 15, 2000 will
be mailed at least 15 days but not more than 60 days before the redemption date
to each holder of record of shares of Ultramar Convertible Preferred Stock to be
redeemed at the address shown on the books of Ultramar. Shares of Ultramar
Convertible Preferred Stock redeemed by Ultramar will be restored to the status
of authorized but unissued shares of preferred stock, without designation as to
class, and may thereafter be issued, but not as shares of Ultramar Convertible
Preferred Stock.
If less than all of the outstanding shares of Ultramar Convertible Preferred
Stock are to be redeemed, Ultramar will select those to be redeemed pro rata or
by lot or in such other manner as the Ultramar Board may determine. There is no
mandatory redemption or sinking fund obligation with respect to the Ultramar
Convertible Preferred Stock.
Provided that Ultramar has made available at the office of the Transfer
Agent (as defined below) a sufficient number of shares of Ultramar Common Stock,
if applicable, and a sufficient amount of cash to effect the redemption, on and
after the redemption date, dividends will cease to accrue on the Ultramar
Convertible Preferred Stock called for redemption, such shares shall no longer
be deemed to be outstanding, and all rights of the holders of such shares of
Ultramar Convertible Preferred Stock will cease, other than the right to receive
any shares of Ultramar Common Stock issuable, and any cash payable, upon such
redemption, without interest. If the Ultramar Convertible Preferred Stock is to
be redeemed for Ultramar Common Stock, each holder of Ultramar Convertible
Preferred Stock designated for redemption will be, without further action,
deemed a holder of the right to receive the share of Ultramar Common Stock for
which such Ultramar Convertible Preferred Stock is redeemable (unless Ultramar
defaults in the delivery of the shares of Ultramar Common Stock).
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Fractional shares of Ultramar Common Stock will not be issued upon
redemption of the Ultramar Convertible Preferred Stock, but, in lieu thereof,
Ultramar will pay a cash adjustment based on the then current market price (as
determined in the Certificate) of the Ultramar Common Stock.
CONVERSION AND EXCHANGE RIGHTS; PREEMPTIVE RIGHTS. The holders of Ultramar
Convertible Preferred Stock will be entitled to convert their shares of Ultramar
Convertible Preferred Stock into Ultramar Common Stock at the conversion price
of $25.98 per share of Ultramar Common Stock (the "Conversion Price"), which is
equivalent to a conversion rate of approximately 1.9246 shares of Ultramar
Common Stock for each share of Ultramar Convertible Preferred Stock, subject to
adjustment as described below, except that, with respect to shares of Ultramar
Convertible Preferred Stock called for redemption, conversion rights will expire
at the close of business on the redemption date (unless Ultramar defaults in the
payment of the redemption price). No payment or adjustment will be made in
respect of dividends on Ultramar Common Stock or Ultramar Convertible Preferred
Stock that may be accrued or unpaid or in arrears upon conversion of shares of
Ultramar Convertible Preferred Stock. No fractional shares will be issued and,
in lieu of any fractional share, Ultramar will pay a cash adjustment based on
the then-current market price (as determined in the Designation) of the Ultramar
Common Stock.
The Conversion Price is subject to adjustment in certain circumstances,
including the issuance of shares of Ultramar Common Stock as a stock dividend,
combinations and subdivisions of the Ultramar Common Stock, certain
reclassifications of the Ultramar Common Stock, the issuance to Ultramar's
stockholders of rights or warrants to subscribe for or purchase shares of
Ultramar Common Stock at a price per share less than the then-current market
price of the Ultramar Common Stock (as determined in the Certificate) and
certain distributions to Ultramar's stockholders of evidences of indebtedness or
assets. No adjustment in the Conversion Price is required unless it would result
in at least a 1% increase or decrease in the Conversion Price; however, any
adjustment not made is carried forward.
In case of any consolidation or merger of Ultramar with any other
corporation (other than a wholly owned subsidiary), or in case of a sale or
transfer of all or substantially all of the assets of Ultramar, or in the case
of any share exchange whereby the Ultramar Common Stock is converted into other
securities or property, Ultramar will be required to make proper provision so
that the holder of each share of Ultramar Convertible Preferred Stock then
outstanding will have the right thereafter to convert such share of Ultramar
Convertible Preferred Stock into the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of the number of shares of Ultramar
Common Stock into which such share of Ultramar Convertible Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale,
transfer, or share exchange.
TRANSFER AGENT AND REGISTRAR. The transfer agent, conversion agent, and
registrar for the Preferred Stock and the transfer agent and registrar for the
Ultramar Common Stock issuable upon conversion or redemption thereof will be
Registrar and Transfer Company (the "Transfer Agent").
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of Ultramar Common Stock and the rights of holders of Diamond Shamrock
Common Stock. As each of Ultramar and Diamond Shamrock is organized under the
laws of Delaware, these differences arise from various provisions of the
Ultramar Charter and the Diamond Shamrock Charter, the By-laws of each of
Ultramar and Diamond Shamrock and the Ultramar Rights Plan and Diamond Shamrock
Rights Plan.
The Ultramar Charter, Ultramar By-laws and Ultramar Rights Plan, as amended
in accordance with the Merger Agreement, will be the Certificate of
Incorporation, By-laws and Rights Plan, respectively, of the Combined Company.
Consequently, after the Effective Time, the rights of stockholders of the
Combined Company (including those who prior to the Effective Time were
stockholders of Diamond Shamrock) will be determined by reference to the
Ultramar Charter, Ultramar By-laws and Ultramar Rights Plan as so amended. For a
discussion of the amendments to the Ultramar Charter and the Ultramar By-laws,
see "The Merger Agreement -- Amendment of Ultramar Charter."
CHARTER PROVISIONS
INTERESTED STOCKHOLDER TRANSACTIONS. The Ultramar Charter contains certain
"fair price provisions" designed to provide safeguards for stockholders when an
"interested stockholder" (defined as a stockholder owning 10% or more of
Ultramar's voting stock) or its affiliate or associate attempts to effect a
"business combination" with Ultramar. The term "business combination" includes
any merger or consolidation of Ultramar involving the interested stockholder,
certain dispositions of assets of Ultramar, any issuance of securities of
Ultramar meeting certain threshold amounts to the interested stockholder,
adoption of any plan of liquidation or dissolution of Ultramar proposed by the
interested stockholder and any reclassification of securities of Ultramar having
the effect of increasing the proportionate share of ownership of the interested
stockholder. In general, a business combination between Ultramar and the
interested stockholder must be approved by (i) the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares of stock
of all classes and series of Ultramar entitled to vote generally in the election
of directors (the "Voting Stock of Ultramar") and (ii) the affirmative vote of
the holders of at least a majority of the voting power of Voting Stock of
Ultramar, excluding Voting Stock of Ultramar owned by such interested
stockholder, unless the transaction is approved by a majority of the members of
the Board of Directors who are not affiliated with the interested stockholder or
certain minimum price and form of consideration requirements are satisfied.
The Diamond Shamrock Charter provides that any direct or indirect purchase
or other acquisition by Diamond Shamrock of the outstanding shares of capital
stock of Diamond Shamrock entitled to vote generally in the election of
directors ("Voting Stock of Diamond Shamrock") of any class from an "interested
stockholder" at a price above the market price of such stock requires the
affirmative vote of a majority of the combined voting power of the Voting Stock
of Diamond Shamrock, excluding any votes with respect to shares owned by the
interested stockholder. An "interested stockholder" under Diamond Shamrock's
Charter is any person who (i) is the beneficial owner, directly or indirectly,
of more than 5% of the outstanding Voting Stock of Diamond Shamrock, (ii) is an
affiliate of Diamond Shamrock and was such a beneficial owner within the
previous two years, or (iii) has succeeded (other than by acquisition in a
public offering) to any Voting Stock of Diamond Shamrock which was owned by an
interested stockholder at any time during the previous two years. Stockholder
approval is not required for purchases from an interested stockholder in a
tender or exchange offer, a redemption of Preferred Stock or pursuant to an open
market purchase program. The Diamond Shamrock Charter also requires the approval
or authorization of any "self-dealing transaction" by (a) the majority of
disinterested directors or (b) a majority of the combined voting power of the
Voting Stock of Diamond Shamrock, voting together as a single class, excluding
votes with respect to shares owned by an interested stockholder which is
directly or indirectly a party, or an affiliate or associate of which is,
directly or indirectly, a party to such self-dealing transaction. "Self-dealing
transactions" include certain mergers and consolidations, sales of assets,
loans, issuance of securities, adoption of a plan of reorganization or
liquidation and reclassifications of securities of Diamond Shamrock.
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CONTINGENT CUMULATIVE VOTING RIGHTS. Under the Diamond Shamrock Charter,
holders of Diamond Shamrock Common Stock are entitled to cumulative voting
rights in certain limited circumstances in which Diamond Shamrock becomes aware
that a stockholder of Diamond Shamrock (other than Diamond Shamrock or a
subsidiary of Diamond Shamrock) has become the beneficial owner, directly or
indirectly, of 30% or more of the outstanding capital stock of Diamond Shamrock
entitled to vote generally in the election of Diamond Shamrock directors.
Holders of Diamond Shamrock Common Stock are not otherwise entitled to
cumulative voting rights. Under cumulative voting, a stockholder may multiply
the number of shares owned by the number of directors to be elected, and cast
that total number of votes in any proportion among as many nominees as the
stockholder desires.
The Ultramar Charter does not contain any provisions with respect to
contingent cumulative voting.
REMOVAL OF DIRECTORS. The Certificates of Incorporation and By-laws of each
of Ultramar and Diamond Shamrock provide for the classification of the
respective Boards into three classes, with directors serving staggered
three-year terms. Ultramar's Charter also provides that directors may be removed
from office but only for cause and only by the affirmative vote of a majority of
the combined voting power of the then outstanding shares of Voting Stock of
Ultramar, voting together as a single class. "Cause" is defined in the Ultramar
Charter as the wilful and continuous failure of a director to substantially
perform such director's duties to Ultramar (including any such failure resulting
from incapacity due to physical or mental illness) or the wilful engaging by a
director in gross misconduct materially and demonstrably injurious to Ultramar.
The Diamond Shamrock Charter generally provides that, subject to the rights of
the holders of Diamond Shamrock Convertible Preferred Stock, directors may be
removed from office only by the affirmative vote of the holders of at least 80%
of the combined voting power of the outstanding shares of Voting Stock of
Diamond Shamrock.
AMENDMENTS TO THE CHARTER AND BY-LAWS. The Ultramar Charter provides that,
in addition to any vote required by law or the Ultramar Charter, the affirmative
vote of the holders of 80% of the voting power of the shares of the
then-outstanding Voting Stock of Ultramar, voting together as a single class, is
required to amend, alter or repeal, or adopt any provisions inconsistent with,
the provisions of the Ultramar Charter providing for amendments to the Ultramar
Charter, permitting the Board of Directors to establish terms of preferred
stock, prohibiting stockholder actions by written consent, establishing
exclusions from director liability for monetary damages, board classification
and certain other matters. Under the Ultramar Charter, amendment or repeal, or
adoption of any provisions inconsistent with, the "fair price" provisions of the
Ultramar Charter, requires the affirmative vote of the holders of 80% of the
voting power of the shares of the then-outstanding Voting Stock of Ultramar
voting together as a single class, and the affirmative vote of a majority of the
voting power of the then-outstanding shares of Voting Stock of Ultramar held by
stockholders other than an "interested stockholder." Under the DGCL, all other
amendments to the Ultramar Charter must be approved by the affirmative vote of
holders of a majority of the shares of capital stock of Ultramar entitled to
vote generally in the election of directors, unless a class vote is required
under the DGCL. For a description of the voting rights of Ultramar Convertible
Preferred Stock with respect to amendments adversely affecting such preferred
stock, see "Description of Capital Stock -- Description of Ultramar Convertible
Preferred Stock -- Voting Rights."
In general, the Ultramar Board has the power to amend the Ultramar By-laws
without any action by the Ultramar stockholders, except that no By-law may be so
adopted which would be inconsistent with the corporate governance provisions of
the immediately preceeding paragraph. In addition, the Ultramar By-laws provide
that, except as otherwise provided in the Ultramar Charter, the By-laws may be
altered, amended or repealed, in whole or in part, or new By-laws may be
adopted, by the affirmative vote of the holders of 80% or more of the combined
voting power of the then-outstanding shares of stock of all classes and series
of stock the holders of which are entitled to vote generally in the election of
directors, voting together as a single class.
Under the Diamond Shamrock Charter, any alteration, change, amendment or
repeal of, or adoption of any provision inconsistent with, the provisions of the
Diamond Shamrock Charter for cumulative voting, the classification of the Board
of Directors and procedures for the removal of directors and for filling
vacancies on the Board of Directors will require the affirmative vote of the
holders of at least 80% of
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the combined voting power of the Voting Stock of Diamond Shamrock. The Diamond
Shamrock Charter also requires the affirmative vote of a majority of the
combined voting power of the Voting Stock of Diamond Shamrock, excluding votes
cast by Voting Stock of an "interested stockholder" and the affirmative vote of
80% of the combined voting power of the Voting Stock of Diamond Shamrock,
including votes cast by Voting Stock of an interested stockholder, for any
change to, or adoption of any provision inconsistent with, the provisions of the
Diamond Shamrock charter regarding transactions with interested stockholders.
Under the DGCL, all other amendments to the Diamond Shamrock Charter must be
approved by the affirmative vote of holders of a majority of the voting power of
the outstanding shares of Voting Stock of Diamond Shamrock, unless a class vote
is required under the DGCL.
The Diamond Shamrock By-laws provide that, except as otherwise provided in
the Diamond Shamrock Charter, the Diamond Shamrock By-laws may be (i) altered,
changed, amended or repealed by a majority of the shares represented and
entitled to vote or (ii) amended or replaced by a majority vote of the members
of the Diamond Board present at a meeting at which a quorum is present.
SPECIAL MEETINGS OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT
The Ultramar Charter and Ultramar's By-laws provide that a special meeting
of stockholders may be called only by Chairman of the Board, the President or
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there is a vacancy). The
Ultramar Charter prohibits action by written consent in lieu of a meeting by
Ultramar stockholders.
The Diamond Shamrock Charter and Diamond Shamrock's By-laws provide that a
special meeting of stockholders may be called only by (i) the Chairman of the
Board of Directors or (ii) the Secretary at the written request of a majority of
the total number of directors. The Diamond Shamrock Charter and By-laws prohibit
action by written consent in lieu of a meeting by holders of Diamond Shamrock
Common Stock.
NOTICE OF STOCKHOLDER NOMINATIONS OF DIRECTORS
The Ultramar By-laws provide that, subject to the rights of the holders of
any preferred stock of Ultramar, written notice of a stockholder's intent to
make a nomination at a meeting of stockholders must be delivered to the
Secretary of Ultramar or mailed and received at the principal executive offices
of Ultramar (i) with respect to an election to be held at an annual meeting of
stockholders, not less than 60 days nor more than 90 days prior to the
anniversary date of the preceding annual meeting of stockholders (unless such
meeting is not held within 30 days before or after such anniversary date, in
which case such notice is due within 10 days after mailing of notice regarding,
or public disclosure of, the date of the annual meeting), and (ii) with respect
to an election to be held at a special meeting of stockholders for the election
of directors, no later than the close of business on the 10th day following
mailing of notice to stockholders regarding, or public disclosure of, the date
of the special meeting. The notice must contain (a) the name and address of the
stockholder who intends to make the nomination and the name, age, occupation and
business and residence address of the person to be nominated; (b) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the person specified in the notice; (c) the class or
series and number of shares of Ultramar capital stock owned beneficially or of
record by such stockholder and the person(s) to be nominated; (d) such other
information regarding each nominee proposed by such stockholder and regarding
such stockholder as would have been required to be disclosed in a proxy
statement for the election of directors filed pursuant to the proxy rules of the
Commission; and (e) a description of all arrangements or understandings between
such stockholder and each nominee and any other person (naming such person)
pursuant to which any such nomination is to be made by such stockholder. The
notice must be accompanied by a written consent of each proposed nominee to be
named as a nominee and to serve as a director if elected.
The Diamond Shamrock By-laws provide that, subject to the rights of the
holders of Diamond Shamrock Convertible Preferred Stock, nominations for
election to the Diamond Shamrock Board may be made by stockholders entitled to
vote in the election of directors generally by delivering written notice of such
stockholder's intent to make a nomination at a meeting of stockholders to the
Secretary of
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Diamond Shamrock not less than 80 days in advance of the meeting (unless such
meeting is not publicly announced by Diamond Shamrock by mail, press release or
otherwise more than 90 days prior to the meeting, in which case notice is timely
if delivered to the Secretary no later than the close of business on the tenth
day following the day on which such announcement of the meeting was communicated
to stockholders). The notice must contain (i) the name and address of the
stockholder who intends to make the nomination and the person or persons to be
nominated; (ii) a representation that such stockholder is a holder of record of
Diamond Shamrock capital stock entitled to vote at the meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
(naming such person) pursuant to which any such nomination is to be made by such
stockholder; (iv) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission had each proposed nominee been
nominated, or intended to be nominated, by the Diamond Shamrock Board; and (v)
the consent of each nominee to serve as a director.
STOCKHOLDER PROPOSAL PROCEDURES
The Ultramar By-laws provide that a stockholder may bring business before
the stockholders at an annual meeting that has not been specified in the notice
of the meeting or brought before the stockholders at the direction of the Board
of Directors provided such stockholder submits proper written notice to the
Secretary of Ultramar, not less than 60 days nor more than 90 days prior to the
anniversary date of the preceding annual meeting of stockholders (unless such
meeting is not held within 30 days before or after such anniversary date in
which case such notice is due within 10 days after mailing of notice regarding,
or public disclosure of, the date of the annual meeting). The Ultramar By-laws
provide that business transacted at all special meetings shall be confined to
the matters specified in the notice of the meeting.
The Diamond Shamrock By-laws provide that a stockholder may bring business
before the stockholders at an annual meeting that has not been specified in the
notice of the meeting or brought before the stockholders at the direction of the
Board of Directors provided such stockholder submits proper written notice to
the Secretary of Diamond Shamrock, not less than 80 days prior to the date of
the annual meeting (unless such meeting is not publicly announced by Diamond
Shamrock by mail, press release or otherwise more than 90 days prior to the
meeting, in which case notice is timely if delivered to the Secretary no later
than the close of business on the tenth day following the day on which such
announcement of the meeting was communicated to stockholders). The Diamond
Shamrock By-laws provide that business transacted at special meetings of Diamond
Shamrock stockholders shall be confined to the purposes stated in the notice to
stockholders of the special meeting.
RIGHTS PLANS
ULTRAMAR RIGHTS PLAN. Ultramar has entered into a Rights Agreement (as
amended, the "Ultramar Rights Agreement") with Registrar and Transfer Company,
as rights agent. Pursuant to the Ultramar Rights Agreement, a right initially
representing the right to purchase one share of Ultramar Common Stock (an
"Ultramar Right") at a price of $75 (the "Ultramar Rights Purchase Price"),
exercisable only in certain circumstances, was issued with respect to each share
of Ultramar Common Stock outstanding on June 25, 1992 and will be issued with
respect to each share of Ultramar Common Stock issued by Ultramar until the
earliest of the Ultramar Distribution Date (as defined below), the redemption of
the Ultramar Rights or the Ultramar Rights Expiration Date (as defined below).
Ultramar Rights may also be issued with respect to shares of Ultramar Common
Stock issued after the Ultramar Distribution Date in certain circumstances. An
Ultramar Right will be issued with respect to each share of Ultramar Common
Stock issued to holders of Diamond Shamrock Common Stock in the Merger. Until an
Ultramar Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of Ultramar, including the right to vote or to receive dividends.
Until the earlier of (i) such time as Ultramar learns that a person has
become an Ultramar Acquiring Person (as defined below) and (ii) the close of
business on such date, if any, as may be designated by the Ultramar Board
following the commencement of, or first public disclosure of an intent to
commence,
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a tender or exchange offer by any person (subject to certain exceptions) for
outstanding Ultramar Common Stock, if upon consummation of such tender or
exchange offer such person's beneficial ownership of outstanding Ultramar Common
Stock could equal or exceed such person's Ownership Threshold (as defined below)
(the earlier of such dates being the "Ultramar Distribution Date"), the Ultramar
Rights will be evidenced by the certificates for the Ultramar Common Stock
registered in the names of the holders thereof and not by separate right
certificates. Therefore, until the Ultramar Distribution Date, the Ultramar
Rights will be transferred with and only with the Ultramar Common Stock.
For purposes of the Ultramar Rights Agreement, (i) the term "Ultramar
Acquiring Person" means, subject to certain exceptions set forth in the Ultramar
Rights Agreement, any person, alone or together with all affiliates and
associates of such person, whose beneficial ownership of outstanding Ultramar
Common Stock equals or exceeds such person's Ownership Threshold and (ii) the
term "Ownership Threshold" means, with respect to any person, beneficial
ownership of the greater of (a) 10% of the outstanding Ultramar Common Stock or
(b) 3% plus the percentage of the outstanding Ultramar Common Stock beneficially
owned by such person on May 10, 1994.
Pursuant to its terms and with certain limited exceptions, the Ultramar
Rights Agreement may be amended or supplemented by Ultramar without the approval
of any holder of Ultramar Rights. As required by the Merger Agreement, Ultramar
has amended the Ultramar Rights Agreement (the "Ultramar Rights Amendment") (i)
to make it inapplicable to the Merger, the Merger Agreement, and the Ultramar
Stock Option Agreement, and the transactions contemplated by the Merger
Agreement or the Ultramar Stock Option Agreement and (ii) to provide that
neither Diamond Shamrock nor any of Diamond Shamrock's wholly owned subsidiaries
nor any assignee or transferee of Diamond Shamrock is an Ultramar Acquiring
Person and that no Ultramar Distribution Date occurs and no Ultramar Rights will
be exercisable solely as a result of the execution and delivery of the Merger
Agreement and the Ultramar Stock Option Agreement, the consummation of the
Merger or the consummation of the other transactions contemplated by the Merger
Agreement or the Ultramar Stock Option Agreement.
In the event a person becomes an Ultramar Acquiring Person, the Ultramar
Rights will entitle each holder thereof (other than the Ultramar Acquiring
Person (or any affiliate or associate of such Ultramar Acquiring Person)) to
purchase, for the Ultramar Rights Purchase Price, that number of shares of
Ultramar Common Stock equivalent to the number of shares of Ultramar Common
Stock which at the time of the transaction would have a market value of twice
the Ultramar Rights Purchase Price. Any Ultramar Rights that are at any time
beneficially owned by an Ultramar Acquiring Person (or any affiliate or
associate of an Ultramar Acquiring Person) will be null and void and
nontransferable and any holder of any such Ultramar Right (including any
purported transferee or subsequent holder) will be unable to exercise or
transfer any such Ultramar Right.
After there is an Ultramar Acquiring Person, the Ultramar Board may elect to
exchange each Ultramar Right (other than Ultramar Rights that have become null
and void and nontransferable as described above) for consideration per Ultramar
Right consisting of one-half of the securities that would be issuable at such
time upon the exercise of one Ultramar Right pursuant to the terms of the
Ultramar Rights Agreement, and without payment of the Ultramar Rights Purchase
Price.
In the event that, following an Ultramar Distribution Date, Ultramar is
acquired in a merger by, or other business combination with, or 50% or more of
its assets or assets representing 50% or more of its earning power are sold,
leased, exchanged or otherwise transferred (in one or more transactions) to, a
publicly traded corporation, or such corporation merges with and into Ultramar
(in certain circumstances), each Ultramar Right will entitle its holder (subject
to the next paragraph) to purchase, for the Ultramar Rights Purchase Price, that
number of common shares of such corporation which at the time of the transaction
would have a market value of twice the Ultramar Rights Purchase Price. In the
event Ultramar is acquired in a merger by, or other business combination with,
or 50% or more of its assets or assets representing 50% or more of the earning
power of Ultramar are sold, leased, exchanged or otherwise transferred (in one
or more transactions) to, an entity that is not a publicly traded corporation or
such corporation merges with and into Ultramar (in certain circumstances), each
Ultramar Right will entitle its holder (subject to the next paragraph) to
purchase, for the Ultramar Rights Purchase Price, at
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such holder's option, (i) that number of shares of such entity (or, at such
holder's option, of the surviving corporation in such acquisition, which could
be Ultramar) which at the time of the transaction would have a book value of
twice the Ultramar Rights Purchase Price or (ii) if such entity has an affiliate
which has publicly traded common shares, that number of common shares of such
affiliate which at the time of the transaction would have a market value of
twice the Ultramar Rights Purchase Price.
The Ultramar Rights are not exercisable until the Ultramar Distribution Date
and will expire on July 6, 2002 (the "Ultramar Rights Expiration Date") unless
earlier redeemed or canceled by Ultramar as described below. At any time prior
to the earlier of (i) such time as a person becomes an Ultramar Acquiring Person
and (ii) the Ultramar Rights Expiration Date, the Ultramar Board may redeem the
Ultramar Rights in whole, but not in part, at a price (in cash or Ultramar
Common Stock or other securities of Ultramar deemed by the Ultramar Board to be
at least equivalent in value) of $.01 per Ultramar Right, subject to adjustment
as provided in the Ultramar Rights Agreement (the "Ultramar Rights Redemption
Price"); provided that, for the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the Ultramar
Board in office at the commencement of such solicitation, the Ultramar Rights
may only be redeemed if (a) there are directors then in office who were in
office at the commencement of such solicitation and (b) the Ultramar Board, with
the concurrence of a majority of such directors then in office, determines that
such redemption is, in its judgment, in the best interests of Ultramar and its
stockholders. Immediately upon the action of the Ultramar Board electing to
redeem the Ultramar Rights the right to exercise the Ultramar Rights will
terminate and within 10 business days, Ultramar will give notice thereof to
holders of Ultramar Rights.
Reference is hereby made to the Ultramar Rights Agreement and the Ultramar
Rights Amendment, and the foregoing description is qualified in its entirety by
reference to the terms and conditions thereof. See "Incorporation of Certain
Documents by Reference."
DIAMOND SHAMROCK RIGHTS PLAN. Diamond Shamrock has entered into a Rights
Agreement (as amended, the "Diamond Shamrock Rights Agreement") with KeyBank
National Association, as successor Rights Agent to Ameritrust Company National
Association. Pursuant to the Diamond Shamrock Rights Agreement, the Diamond
Shamrock Board declared a dividend of one right (a "Diamond Shamrock Right") to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock, $.01 par value per share (the "Junior Preferred Shares"), of Diamond
Shamrock at a price of $75.00 per one one-hundredth of a Junior Preferred Share
(the "Diamond Shamrock Rights Purchase Price"), subject to adjustment. Each
share of Diamond Shamrock Common Stock issued prior to the Diamond Shamrock
Distribution Date (as defined below) or the earlier termination or expiration of
the Diamond Shamrock Rights includes a Diamond Shamrock Right. Until the Diamond
Shamrock Distribution Date, the Diamond Shamrock Rights will be transferred only
with shares of Diamond Shamrock Common Stock.
A "Diamond Shamrock Distribution Date" is the earliest of the following
dates: (i) the tenth day (or in certain circumstances a later date specified by
the Diamond Board) after a public announcement by Diamond Shamrock that (a) a
person, together with its affiliates and associates has acquired, or obtained
the right to acquire, beneficial ownership of 20% or more of the outstanding
shares of Diamond Shamrock Common Stock (any such person, a "Diamond Shamrock
Acquiring Person") or (b) a person, together with its affiliates and associates,
has acquired, or obtained the right to acquire, beneficial ownership of 10% or
more of the outstanding shares of Diamond Shamrock Common Stock (any such
person, an "Adverse Person"); (ii) the tenth day (or in certain circumstances a
later date specified by the Diamond Board) after the commencement of a tender
offer or exchange offer by a person, the consummation of which would result in
the beneficial ownership by such person of 20% or more of the outstanding shares
of Diamond Shamrock Common Stock; and (iii) the tenth day after the date of
public announcement by Diamond Shamrock that a Flip-in Event or a Flip-over
Event (each as defined below) has occurred.
Pursuant to its terms and with certain limited exceptions, the Diamond
Shamrock Rights Agreement may be amended or supplemented by Diamond Shamrock
without the approval of any holder of
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Diamond Shamrock Rights. Diamond Shamrock has amended the Diamond Shamrock
Rights Agreement (the "Diamond Shamrock Rights Amendment") (i) to make it
inapplicable to the Merger, the Merger Agreement, and the Diamond Shamrock Stock
Option Agreement and the transactions contemplated by the Merger Agreement or
the Diamond Shamrock Stock Option Agreement and (ii) to provide that neither
Ultramar nor any of Ultramar's wholly owned subsidiaries nor any assignee or
transferee of Ultramar is a Diamond Shamrock Acquiring Person or an Adverse
Person and that no Diamond Shamrock Distribution Date, Flip-in Event or
Flip-over Event occurs solely as a result of the execution and delivery of the
Merger Agreement and the Diamond Shamrock Stock Option Agreement, the
consummation of the Merger or the consummation of the other transactions
contemplated by the Merger Agreement or the Diamond Shamrock Stock Option
Agreement.
A "Flip-in Event" occurs when (i) any person together with its affiliates
and associates, becomes the beneficial owner of 20% or more of the outstanding
shares of Diamond Shamrock Common Stock, (ii) Diamond Shamrock publicly
announces that any person has become an Adverse Person, (iii) any Diamond
Shamrock Acquiring Person merges into or combines with Diamond Shamrock and
Diamond Shamrock is the surviving corporation or any Diamond Shamrock Acquiring
Person effects certain other transactions with Diamond Shamrock, as described in
the Diamond Shamrock Rights Agreement, or (iv) during such time as there is a
Diamond Shamrock Acquiring Person, there is any reclassification of securities
or recapitalization or reorganization of Diamond Shamrock which has the effect
of increasing by more than 1% the proportionate share of the outstanding shares
of any class of equity securities of Diamond Shamrock or any of its subsidiaries
beneficially owned by the Diamond Shamrock Acquiring Person. If a Flip-in Event
occurs, proper provision will be made so that each holder of a Diamond Shamrock
Right, other than Diamond Shamrock Rights that are or were owned beneficially by
the Diamond Shamrock Acquiring Person (which are void after the later of a
Flip-in Event or the Diamond Shamrock Distribution Date), will have the right to
receive, upon exercise thereof and payment of the Diamond Shamrock Rights
Purchase Price, the number of shares of Diamond Shamrock Common Stock having a
market value of two times the exercise price of the Diamond Shamrock Right.
A "Flip-over Event" occurs when, following the public announcement that a
person has become a Diamond Shamrock Acquiring Person, (i) Diamond Shamrock
merges with or into any person and Diamond Shamrock is not the surviving
corporation, (ii) any person merges with or into Diamond Shamrock and Diamond
Shamrock is the surviving corporation, but Diamond Shamrock Common Stock is
changed or exchanged, or (iii) 50% or more of Diamond Shamrock's assets or
earning power, including without limitation securities creating obligations of
Diamond Shamrock, are sold. If a Flip-over Event occurs, proper provision will
be made so that the holder of a Diamond Shamrock Right will thereafter have the
right to receive, upon exercise and payment of the Diamond Shamrock Rights
Purchase Price, that number of shares of common stock of such other person which
at the time of such transaction would have a market value of two times the
exercise price of the Diamond Shamrock Right.
Following a Flip-in Event or Flip-over Event, Diamond Shamrock Rights may be
exercised without the payment of the Diamond Shamrock Rights Purchase Price, in
which case the securities received by such holder will have a market value equal
to the difference between (i) the value of the securities that would have been
issuable upon payment of the Diamond Shamrock Rights Purchase Price and any
applicable transfer tax and (ii) the amount of any such payment.
The Diamond Shamrock Rights Agreement permits Diamond Shamrock to redeem the
Diamond Shamrock Rights in whole, but not in part, at a price of $.01 per
Diamond Shamrock Right at any time prior to the Diamond Shamrock Distribution
Date and the announcement that a person has become an Acquiring Person.
Reference is hereby made to the Diamond Shamrock Rights Agreement and the
Diamond Shamrock Rights Amendment and this description is qualified in its
entirety by reference to the terms and conditions thereof. See "Incorporation of
Certain Documents by Reference."
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EXPERTS
The consolidated financial statements and schedules of Ultramar appearing in
Ultramar's Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated by reference in and made a part of this Proxy Statement and the
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
by reference herein. Such consolidated financial statements and schedules are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements incorporated in this Proxy Statement by reference
to Diamond Shamrock's Annual Report on Form 10-K/A for the year ended December
31, 1995, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
With respect to the unaudited consolidated financial information of Diamond
Shamrock for the three month periods ended March 31, 1996 and 1995, and the
three and six month periods ended June 30, 1996 and 1995, incorporated by
reference in this Proxy Statement, Price Waterhouse LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports, dated May 10, 1996
and August 13, 1996, respectively, incorporated by reference herein, state 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 reports had not been included. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Price Waterhouse LLP is not
subject to the liability provisions of Section 11 of the Securities Act for
their reports on the unaudited consolidated financial information because those
reports are not "reports" or a "part" of the registration statement prepared or
certified by Price Waterhouse LLP within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of NCS for the year ended June 30,
1995 incorporated by reference in this Proxy Statement from Diamond Shamrock's
Current Report on Form 8-K/A (dated December 14, 1995 and filed with the
Commission on February 14, 1996) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report dated September 19, 1995
(insofar as it relates to the consolidated financial statements of NCS for the
year ended June 30, 1995), which is incorporated herein by reference, and such
consolidated financial statements have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
Representatives of Ernst & Young LLP and Price Waterhouse LLP are expected
to be present at the Ultramar Special Meeting and the Diamond Shamrock Special
Meeting, respectively, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the shares of Ultramar Common Stock and Ultramar Convertible
Preferred Stock being offered hereby will be passed upon for Ultramar by
Cravath, Swaine & Moore, New York, New York, counsel to Ultramar.
Certain federal income tax consequences of the Merger will be passed upon
for Ultramar by Cravath, Swaine & Moore, New York, New York, and for Diamond
Shamrock by Jones, Day, Reavis & Pogue, New York, New York.
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STOCKHOLDER PROPOSALS
Any Ultramar stockholder who wishes to submit a proposal for presentation to
the 1997 Annual Meeting of Stockholders must submit the proposal to Ultramar
Corporation, Two Pickwick Plaza, Greenwich, Connecticut 06830, Attention: Office
of the Secretary, not later than November 25, 1996, for inclusion, if
appropriate, in Ultramar's proxy statement and the form of proxy relating to the
Annual Meeting.
Any Diamond Shamrock stockholder who wishes to submit a proposal for
presentation to the 1997 Annual Meeting of Stockholders, if the Merger has not
been consummated prior to the date the meeting is to be held, must submit the
proposal to Diamond Shamrock, 9830 Colonnade Boulevard., San Antonio, Texas
78230, Attention: Office of the Secretary, not later than November 19, 1996, for
inclusion, if appropriate, in Diamond Shamrock's proxy statement and the form of
proxy relating to the Annual Meeting.
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APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
ULTRAMAR CORPORATION
AND
DIAMOND SHAMROCK, INC.
DATED AS OF SEPTEMBER 22, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.01. The Merger................................................................. A-4
SECTION 1.02. Closing.................................................................... A-4
SECTION 1.03. Effective Time............................................................. A-5
SECTION 1.04. Effects of the Merger...................................................... A-5
SECTION 1.05. Certificate of Incorporation and By-laws................................... A-5
SECTION 1.06. Boards, Committees and Officers............................................ A-5
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock.................................................... A-5
SECTION 2.02. Exchange of Certificates................................................... A-6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of DSI...................................... A-9
SECTION 3.02. Representations and Warranties of UC....................................... A-16
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business........................................................ A-22
SECTION 4.02. No Solicitation by DSI..................................................... A-26
SECTION 4.03. No Solicitation by UC...................................................... A-27
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement; Stockholders
Meetings................................................................. A-29
SECTION 5.02. Letters of DSI's Accountants............................................... A-29
SECTION 5.03. Letters of UC's Accountants................................................ A-30
SECTION 5.04. Access to Information; Confidentiality..................................... A-30
SECTION 5.05. Reasonable Efforts......................................................... A-30
SECTION 5.06. Stock Options.............................................................. A-31
SECTION 5.07. Certain Employee Matters................................................... A-32
SECTION 5.08. Indemnification, Exculpation and Insurance................................. A-32
SECTION 5.09. Fees and Expenses.......................................................... A-32
SECTION 5.10. Public Announcements....................................................... A-33
SECTION 5.11. Affiliates................................................................. A-34
SECTION 5.12. NYSE Listing............................................................... A-34
SECTION 5.13. Stockholder Litigation..................................................... A-34
SECTION 5.14. Tax Treatment.............................................................. A-34
SECTION 5.15. Pooling of Interests....................................................... A-34
SECTION 5.16. DSI Rights Agreement....................................................... A-34
</TABLE>
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SECTION 5.17. UC Rights Agreement........................................................ A-34
SECTION 5.18. Headquarters............................................................... A-35
SECTION 5.19. UC Convertible Preferred Stock............................................. A-35
SECTION 5.20. Indemnification Agreements................................................. A-35
SECTION 5.21. Certain Tax Matters........................................................ A-35
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger................. A-35
SECTION 6.02. Conditions to Obligations of UC............................................ A-36
SECTION 6.03. Conditions to Obligation of DSI............................................ A-36
SECTION 6.04. Frustration of Closing Conditions.......................................... A-37
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination................................................................ A-37
SECTION 7.02. Effect of Termination...................................................... A-38
SECTION 7.03. Amendment.................................................................. A-38
SECTION 7.04. Extension; Waiver.......................................................... A-38
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver.................. A-39
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties.............................. A-39
SECTION 8.02. Notices.................................................................... A-39
SECTION 8.03. Definitions................................................................ A-40
SECTION 8.04. Interpretation............................................................. A-40
SECTION 8.05. Counterparts............................................................... A-40
SECTION 8.06. Entire Agreement; No Third Party Beneficiaries............................. A-40
SECTION 8.07. Governing Law.............................................................. A-40
SECTION 8.08. Assignment................................................................. A-40
SECTION 8.09. Enforcement................................................................ A-41
Exhibit A Amendments to Certificate of Incorporation and By-laws
Exhibit B Board, Committees and Officers
Exhibit C Affiliate Letter
Exhibit D UC Tax Representations
Exhibit E DSI Tax Representations
Exhibit F DSI Stockholder Tax Representations
Schedule 5.07 Certain Employee Matters
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AGREEMENT AND PLAN OF MERGER dated as of September 22, 1996, between
ULTRAMAR CORPORATION, a Delaware corporation ("UC"), and DIAMOND SHAMROCK,
INC., a Delaware corporation ("DSI").
WHEREAS, the respective Boards of Directors of UC and DSI have approved the
merger of DSI with and into UC (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, whereby (a) each issued and outstanding
share of common stock, par value $.01 per share, of DSI ("DSI Common Stock"),
other than shares owned by UC, DSI or any of their wholly owned subsidiaries,
will be converted into the right to receive the Merger Consideration (as defined
in Section 2.01(b)) and (b) each issued and outstanding share of 5% Cumulative
Convertible Preferred Stock, par value $.01 per share, of DSI (the "DSI
Convertible Preferred Stock"), other than shares owned by UC, DSI or any of
their wholly owned subsidiaries, will be converted into the right to receive one
share of 5% Cumulative Convertible Preferred Stock, par value $.01 per share, of
UC (the "UC Convertible Preferred Stock");
WHEREAS, the respective Boards of Directors of UC and DSI have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals;
WHEREAS, UC and DSI desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction;
WHEREAS, immediately following the execution and delivery of this Agreement,
DSI and UC will enter into a stock option agreement (the "DSI Stock Option
Agreement"), pursuant to which DSI will grant UC the option (the "DSI Option")
to purchase shares of DSI Common Stock together with the associated DSI Rights
(as defined in Section 3.01(c)) upon the terms and subject to the conditions set
forth therein; and
WHEREAS, immediately following the execution and delivery of this Agreement,
UC and DSI will enter into a stock option agreement (the "UC Stock Option
Agreement", and, together with the DSI Stock Option Agreement, the "Option
Agreements"), pursuant to which UC will grant DSI the option (the "UC Option")
to purchase shares of common stock, par value $.01 per share, of UC ("UC Common
Stock") together with the associated UC Rights (as defined in Section 3.02(c))
upon the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), DSI shall be merged with and into UC at the Effective Time (as
defined in Section 1.03). Following the Effective Time, UC shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of DSI in accordance with the DGCL.
SECTION 1.02. CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which (subject to satisfaction or waiver of the conditions set forth in
Sections 6.01, 6.02 and 6.03) shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Section 6.01, unless
another time or date is agreed to by the parties hereto. The Closing will be
held at such location in the City of New York as is agreed to by the parties
hereto.
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SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed with the Delaware Secretary of State, or at such subsequent date or
time as UC and DSI shall agree and specify in the Certificate of Merger (the
time the Merger becomes effective being hereinafter referred to as the
"Effective Time").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The certificate of incorporation of UC, as in effect immediately prior
to the execution of this Agreement, shall be amended as of the Effective Time as
set forth in Exhibit A and, as so amended, such certificate of incorporation
shall be the certificate of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(b) The by-laws of UC, as in effect immediately prior to the execution of
this Agreement, shall be amended as of the Effective Time as set forth in
Exhibit A and, as so amended, such by-laws shall be the by-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
SECTION 1.06. BOARDS, COMMITTEES AND OFFICERS. The Board of Directors
(including classes thereof), committees of the Board of Directors, composition
of such committees (including chairmen thereof) and officers of the Surviving
Corporation shall be as set forth on Exhibit B hereto until the earlier of the
resignation or removal of any individual listed on or designated in accordance
with Exhibit B or until their respective successors are duly elected and
qualified, as the case may be, it being agreed that if any director shall be
unable to serve as a director (including as a member or chairman of any
committee) at the Effective Time the party which designated such individual as
indicated in Exhibit B shall designate another individual to serve in such
individual's place. If any officer listed on or appointed in accordance with
Exhibit B ceases to be a full-time employee of either DSI or UC, the parties
will agree upon another person to serve in such person's stead. The committees
of the Board of Directors of UC will have such authority as may, subject to
applicable law, be delegated to them by the Board of Directors.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
DSI Common Stock, DSI Convertible Preferred Stock or UC Common Stock:
(a) CANCELATION OF TREASURY STOCK AND UC-OWNED STOCK. Each share of
DSI Common Stock and DSI Convertible Preferred Stock that is owned by DSI or
by any wholly owned subsidiary of DSI or by UC or any wholly owned
subsidiary of UC shall automatically be canceled and retired and shall cease
to exist, and no consideration shall be delivered in exchange therefor.
(b) CONVERSION OF DSI COMMON STOCK. Subject to Section 2.02(e), each
issued and outstanding share of DSI Common Stock (other than shares to be
canceled in accordance with Section 2.01(a)) shall be converted into the
right to receive 1.02 fully paid and nonassessable shares of UC Common Stock
(the "Merger Consideration"). As of the Effective Time, all such shares of
DSI Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of DSI Common Stock shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration and any cash in lieu of fractional shares of UC Common Stock
to be issued or paid in
A-5
<PAGE>
consideration therefor upon surrender of such certificate in accordance with
Section 2.02, without interest.
(c) CONVERSION OF DSI CONVERTIBLE PREFERRED STOCK. Each issued and
outstanding share of DSI Convertible Preferred Stock (other than shares to
be canceled in accordance with Section 2.01(a) and shares held by persons
who perfect their appraisal rights under the DGCL) shall be converted into
the right to receive one fully paid and nonassessable share of UC
Convertible Preferred Stock, which UC Convertible Preferred Stock (i) will
have terms that are identical to the DSI Convertible Preferred Stock (as a
result of the Merger, (x) the issuer thereof will be UC rather than DSI and
(y) in accordance with the terms of the DSI Preferred Stock, the UC
Convertible Preferred Stock will be convertible as of the Effective Time at
the conversion price necessary to make each share of UC Convertible
Preferred Stock convertible into the number of shares of UC Common Stock
receivable upon the Merger by a holder of the number of shares of DSI Common
Stock into which one share of DSI Convertible Preferred Stock might have
been converted immediately prior to the Merger), and (ii) will be issued
pursuant to action taken by the Board of Directors of UC. As of the
Effective Time, all such shares of DSI Convertible Preferred Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of DSI Convertible Preferred Stock shall cease to have any rights
with respect thereto, except the right to receive one share of UC
Convertible Preferred Stock to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 2.02, without
interest.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, UC shall enter into an
agreement with such bank or trust company as may be designated by UC and DSI
(the "Exchange Agent"), which shall provide that UC shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
shares of DSI Common Stock and DSI Convertible Preferred Stock, for exchange
in accordance with this Article II, through the Exchange Agent, certificates
representing the shares of UC Common Stock and UC Convertible Preferred
Stock (such shares of UC Common Stock and UC Convertible Preferred Stock,
together with any dividends or distributions with respect thereto with a
record date after the Effective Time, any Excess Shares (as defined in
Section 2.02(e)) and any cash (including cash proceeds from the sale of the
Excess Shares) payable in lieu of any fractional shares of UC Common Stock
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.01 in exchange for outstanding shares of DSI Common Stock and DSI
Convertible Preferred Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of DSI Common Stock or DSI Convertible
Preferred Stock (the "Certificates") whose shares were converted into the
right to receive the Merger Consideration or shares of UC Convertible
Preferred Stock, as applicable, pursuant to Section 2.01, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as UC and DSI may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration or shares of UC Convertible Preferred Stock, as
applicable. Upon surrender of a Certificate for cancelation to the Exchange
Agent or to such other agent or agents as may be appointed by UC, together
with such letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of UC Common Stock or UC
Convertible Preferred Stock and, in the case of Certificates representing
DSI Common Stock, cash, if any, which such holder has the right to receive
pursuant to the provisions of this Article II, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of DSI Common Stock or DSI Convertible Preferred Stock which is
not registered in the transfer records of DSI, a certificate representing
the proper number of shares of UC Common
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Stock or UC Convertible Preferred Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form
for transfer and the person requesting such issuance shall pay any transfer
or other taxes required by reason of the issuance of shares of UC Common
Stock or UC Convertible Preferred Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of UC
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration or shares of UC Convertible
Preferred Stock, as applicable, and, in the case of Certificates
representing DSI Common Stock, cash, if any, which the holder thereof has
the right to receive in respect of such Certificate pursuant to the
provisions of this Article II. No interest will be paid or will accrue on
any cash payable to holders of Certificates pursuant to the provisions of
this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to UC Common Stock or UC Convertible
Preferred Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of UC
Common Stock or UC Convertible Preferred Stock represented thereby, and, in
the case of Certificates representing DSI Common Stock, no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.02(e), and all such dividends, other distributions and cash in
lieu of fractional shares of UC Common Stock shall be paid by UC to the
Exchange Agent and shall be included in the Exchange Fund, in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat or similar laws, following
surrender of any such Certificate there shall be paid to the holder of the
certificate representing whole shares of UC Common Stock or UC Convertible
Preferred Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of UC Common Stock or UC Convertible Preferred Stock, and, in
the case of Certificates representing DSI Common Stock, the amount of any
cash payable in lieu of a fractional share of UC Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares
of UC Common Stock or UC Convertible Preferred Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN DSI COMMON STOCK OR DSI CONVERTIBLE
PREFERRED STOCK. All shares of UC Common Stock or UC Convertible Preferred
Stock issued upon the surrender for exchange of Certificates in accordance
with the terms of this Article II (including any cash paid pursuant to this
Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of DSI Common Stock or
DSI Convertible Preferred Stock, as applicable, theretofore represented by
such Certificates, SUBJECT, HOWEVER, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or made
by DSI on such shares of DSI Common Stock or DSI Convertible Preferred Stock
which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of DSI Common Stock or DSI Convertible Preferred
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be canceled and
exchanged as provided in this Article II, except as otherwise provided by
law.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of UC
Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of UC shall relate to such
fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
UC.
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(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole
shares of UC Common Stock delivered to the Exchange Agent by UC pursuant
to Section 2.02(a) over (B) the aggregate number of whole shares of UC
Common Stock to be distributed to holders of DSI Common Stock pursuant to
Section 2.02(b) (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will sell the Excess
Shares at then-prevailing prices on the New York Stock Exchange, Inc.
(the "NYSE"), all in the manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and
will be executed in round lots to the extent practicable. The Exchange
Agent will use reasonable efforts to complete the sale of the Excess
Shares as promptly following the Effective Time as, in the Exchange
Agent's sole judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been distributed to the
holders of DSI Common Stock, the Exchange Agent will hold such proceeds
in trust for the holders of DSI Common Stock (the "Common Shares Trust").
The Surviving Corporation will pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent incurred in connection with such sale
of the Excess Shares. The Exchange Agent will determine the portion of
the Common Shares Trust to which each holder of DSI Common Stock is
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction, the numerator of which
is the amount of the fractional share interest to which such holder of
DSI Common Stock is entitled (after taking into account all shares of DSI
Common Stock held at the Effective Time by such holder) and the
denominator of which is the aggregate amount of fractional share
interests to which all holders of DSI Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments hereinabove contemplated, to pay each holder of
DSI Common Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such holder (after
taking into account all shares of DSI Common Stock held at the Effective
Time by such holder) would otherwise be entitled by (B) the closing price
for a share of UC Common Stock as reported on the NYSE Composite
Transaction Tape (as reported in the WALL STREET JOURNAL, or, if not
reported thereby, any other authoritative source) on the Closing Date,
and, in such case, all references herein to the cash proceeds of the sale
of the Excess Shares and similar references will be deemed to mean and
refer to the payments calculated as set forth in this Section
2.02(e)(iv).
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of DSI Common Stock with respect to
any fractional share interests, the Exchange Agent will make available
such amounts to such holders of DSI Common Stock subject to and in
accordance with the terms of Section 2.02(c).
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to UC, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to UC for payment of their claim for
Merger Consideration or shares of UC Convertible Preferred Stock, any cash
in lieu of fractional shares of UC Common Stock and any dividends or
distributions with respect to UC Common Stock or UC Convertible Preferred
Stock.
(g) NO LIABILITY. None of UC, DSI or the Exchange Agent shall be
liable to any person in respect of any shares of UC Common Stock or UC
Convertible Preferred Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If
any Certificate shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such
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earlier date on which any Merger Consideration or shares of UC Convertible
Preferred Stock, any cash payable to the holder of such Certificate
representing DSI Common Stock pursuant to this Article II or any dividends
or distributions payable to the holder of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.01(d)), any such Merger Consideration or shares of UC Convertible
Preferred Stock or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by UC, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
UC.
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration or shares of UC
Convertible Preferred Stock and, if applicable, any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of UC
Common Stock or UC Convertible Preferred Stock deliverable in respect
thereof, pursuant to this Agreement.
(j) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, no share of DSI Convertible Preferred Stock, the holder of
which shall have properly complied with the provisions of Section 262 of the
DGCL as to appraisal rights (a "Dissenting Share"), will be deemed to be
converted into and to represent the right to receive one share of UC
Convertible Preferred Stock hereunder and the holders of Dissenting Shares,
if any, will be entitled to payment, solely from the Surviving Corporation,
of the appraised value of such Dissenting Shares to the extent permitted by
and in accordance with the provisions of Section 262 of the DGCL; PROVIDED,
HOWEVER, that (i) if any holder of Dissenting Shares, under the
circumstances permitted by the DGCL, subsequently delivers a written
withdrawal of his or her demand for appraisal of such Dissenting Shares,
(ii) if any holder fails to establish his or her entitlement to rights to
payment as provided in such Section 262, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition
demanding a determination of the value of all Dissenting Shares within the
time provided in such Section 262, such holder will forfeit such right to
payment for such Dissenting Shares pursuant to such Section 262 and, as of
the later of Effective Time or the occurrence of such event, such holder's
Certificate formerly representing shares of DSI Convertible Preferred Stock
shall automatically be converted into and represent only the right to
receive shares of UC Convertible Preferred Stock pursuant to Section 2.01
hereof, without any interest thereon, upon surrender of the Certificate or
Certificates formerly representing such shares of DSI Convertible Preferred
Stock. DSI shall give UC (A) prompt notice of any written demands for
appraisal of any Dissenting Shares, attempted withdrawals of such demands
and any other instruments received by DSI relating to stockholders' rights
of appraisal and (B) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the DGCL.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF DSI. Except as disclosed
in the DSI Filed SEC Documents (as such term is defined in Section 3.01(g)) or
as set forth on the Disclosure Schedule delivered by DSI to UC prior to the
execution of this Agreement (the "DSI Disclosure Schedule"), DSI represents and
warrants to UC as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of DSI and its
Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with
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respect to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as
now being conducted. Each of DSI and its Significant Subsidiaries is duly
qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in
good standing individually or in the aggregate would not have a material
adverse effect (as defined in Section 8.03) on DSI. DSI has delivered to UC
prior to the execution of this Agreement complete and correct copies of its
certificate of incorporation and by-laws and has made available to UC the
certificates of incorporation and by-laws (or comparable organizational
documents) of its Significant Subsidiaries, in each case as amended to date.
As used in this Agreement, a "Significant Subsidiary" means any subsidiary
of DSI or UC, as the case may be, that would constitute a "significant
subsidiary" of such party within the meaning of Rule 1-02 of Regulation S-X
of the Securities and Exchange Commission (the "SEC").
(b) SUBSIDIARIES. Exhibit 21.1 to DSI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 includes all the subsidiaries of DSI
which as of the date of this Agreement are Significant Subsidiaries. All the
outstanding shares of capital stock of, or other equity interests in, each
such Significant Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by DSI, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens").
(c) CAPITAL STRUCTURE. The authorized capital stock of DSI consists of
75,000,000 shares of DSI Common Stock and 25,000,000 shares of preferred
stock, par value $.01 per share, of DSI ("DSI Preferred Stock"). At the
close of business on September 19, 1996, (i) 29,292,663 shares of DSI Common
Stock were issued and outstanding, (ii) 8,079 shares of DSI Common Stock
were held by DSI in its treasury, (iii) not more than 1,725,000 shares of
DSI Convertible Preferred Stock were issued and outstanding, (iv) no shares
of DSI Preferred Stock were held by DSI in its treasury, (v) 1,672,584
shares of DSI Common Stock were reserved for issuance pursuant to the
Diamond Shamrock, Inc. Long-Term Incentive Plan, the Diamond Shamrock R & M,
Inc. 1987 Long-Term Incentive Plan, the Diamond Shamrock, Inc. Performance
Incentive Plan, the 1994 Restatement of the Diamond Shamrock, Inc. Employee
Stock Ownership Plan I and the 1994 Restatement of the Diamond Shamrock,
Inc. Employee Stock Ownership Plan II (such plans, collectively, the "DSI
Stock Plans"), (vi) not more than 3,254,716 shares of DSI Common Stock were
reserved for issuance upon conversion of the DSI Convertible Preferred
Stock, (vii) no shares of Series A Junior Participating Preferred Stock (the
"Junior Preferred Stock") of DSI were issued and outstanding, and (viii)
other than the DSI Convertible Preferred Stock, the Junior Preferred Stock
and the $2.00 Convertible Exchangeable Preferred Stock of DSI (of which no
shares remain outstanding)(the "DSI $2.00 Preferred Stock"), no other shares
of DSI Preferred Stock have been designated or issued. Except as set forth
above and except for 5,858,500 shares of DSI Common Stock (with the
associated DSI Rights) reserved for issuance upon the exercise of the DSI
Option, at the close of business on September 19, 1996, no shares of capital
stock or other voting securities of DSI were issued, reserved for issuance
or outstanding. At the close of business on September 19, 1996 there were no
outstanding stock appreciation rights or rights (other than employee stock
options or other rights ("DSI Employee Stock Options", which term shall not
include performance units granted under the Diamond Shamrock, Inc. Long-Term
Incentive Plan) to purchase or receive DSI Common Stock granted under the
DSI Stock Plans) to receive shares of DSI Common Stock on a deferred basis
granted under the DSI Stock Plans or otherwise. The DSI Disclosure Schedule
sets forth a complete and correct list, as of September 19, 1996, of the
number of shares of DSI Common Stock subject to Employee Stock Options and
the exercise prices thereof. All outstanding shares of capital stock of DSI
are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the close of business on September 19, 1996, there
were no bonds, debentures, notes or other indebtedness of
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DSI having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
DSI may vote. Except as set forth above or as contemplated by Schedule 5.07,
as of the close of business on September 19, 1996, there were no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which DSI or any of its
subsidiaries is a party or by which any of them is bound obligating DSI or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of DSI or of any of its subsidiaries or obligating DSI or any of
its subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. Except for agreements entered into with respect to the DSI
Stock Plans, as of the close of business on September 19, 1996, there were
no outstanding contractual obligations of DSI or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of DSI
or any of its wholly owned subsidiaries. As of the close of business on
September 19, 1996, except for agreements with holders of equity securities
of subsidiaries that are not wholly owned subsidiaries of DSI or any of its
other wholly owned subsidiaries, there were no outstanding contractual
obligations of DSI to vote or to dispose of any shares of the capital stock
of any of its subsidiaries. DSI has delivered to UC a complete and correct
copy of the Rights Agreement, dated as of March 6, 1990 (the "DSI Rights
Agreement"), as amended and supplemented to the date hereof relating to
rights ("DSI Rights") to purchase Junior Preferred Stock.
(d) AUTHORITY; NONCONTRAVENTION. DSI has all requisite corporate power
and authority to enter into this Agreement and, subject to the DSI
Stockholder Approval (as defined in Section 3.01(m)), to consummate the
transactions contemplated by this Agreement. DSI has all requisite corporate
power and authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and delivery of this
Agreement and the Option Agreements by DSI and the consummation by DSI of
the transactions contemplated by this Agreement and the Option Agreements
have been duly authorized by all necessary corporate action on the part of
DSI, subject, in the case of the adoption of this Agreement, to DSI
Stockholder Approval. This Agreement and the Option Agreements have been
duly executed and delivered by DSI and constitute legal, valid and binding
obligations of DSI, enforceable against DSI in accordance with their terms.
The execution and delivery of this Agreement and the Option Agreements do
not, and the consummation of the transactions contemplated by this Agreement
and the Option Agreements and compliance with the provisions of this
Agreement and the Option Agreements will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancelation or
acceleration of any obligation or loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
DSI or any of its Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of DSI or the comparable organizational documents
of any of its Significant Subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to DSI or any of its
Significant Subsidiaries or their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to DSI or any of its Significant Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on DSI, (y) impair the ability of DSI to perform its
obligations under this Agreement or the Option Agreements, or (z) prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement or the Option Agreements. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative or
regulatory agency or commission or other governmental authority or agency (a
"Governmental Entity") is required by or with respect to DSI or any of its
Significant Subsidiaries in connection with the execution and delivery of
this Agreement or the Option Agreements by DSI or the consummation by DSI of
the transactions contemplated by this Agreement or the Option Agreements,
except for (1) the filing of a premerger notification and report form by DSI
under the
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Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (2) the filing with the SEC of (A) a proxy statement relating to the
DSI Stockholders Meeting (as defined in Section 5.01(b)) (such proxy
statement, together with the proxy statement relating to the UC Stockholders
Meeting (as defined in Section 5.01(c)), in each case as amended or
supplemented from time to time, the "Joint Proxy Statement"), and (B) such
reports under Section 13(a), 13(d), 15(d) or 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements; (3) the filing of
the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
DSI is qualified to do business and such filings with Governmental Entities
to satisfy the applicable requirements of state securities or "blue sky"
laws; (4) such filings with and approvals of the NYSE to permit the shares
of DSI Common Stock that are to be issued pursuant to the DSI Stock Option
Agreement to be listed on the NYSE; (5) such other filings and consents as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval necessitated
by the Merger or the transactions contemplated by this Agreement and the
Option Agreements; and (6) such consents, approvals, orders or
authorizations the failure of which to be made or obtained would not
reasonably be expected to have a material adverse effect on DSI.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. DSI has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1995 (the "DSI SEC Documents"). As of their respective dates, the
DSI SEC Documents complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such DSI SEC Documents, and none of the
DSI SEC Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the
extent that information contained in any DSI SEC Document has been revised
or superseded by a later DSI Filed SEC Document, none of the DSI SEC
Documents contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of DSI included in the
DSI SEC Documents comply as to form, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of DSI
and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments). Except (i) as reflected in such financial
statements or in the notes thereto, (ii) as contemplated hereunder or under
the Option Agreements, (iii) for liabilities incurred in connection with
this Agreement or the transactions contemplated hereby and (iv) for
liabilities and obligations incurred since July 1, 1996 in the ordinary
course of business consistent with past practice, neither DSI nor any of its
subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), including liabilities
arising under any laws relating to the protection of health, safety or the
environment ("Environmental Laws"), required by generally accepted
accounting principles to be reflected in a consolidated balance sheet of DSI
and its consolidated subsidiaries and which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on
DSI.
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(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by DSI specifically for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by UC in
connection with the issuance of UC Common Stock and UC Convertible Preferred
Stock in the Merger (the "Form S-4") will, at the time the Form S-4 is filed
with the SEC or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy Statement will, at
the date it is first mailed to DSI's stockholders or at the time of the DSI
Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Joint Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, except that no representation
or warranty is made by DSI with respect to statements made or incorporated
by reference therein based on information supplied by UC specifically for
inclusion or incorporation by reference in the Joint Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except (i) as disclosed in
the DSI SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "DSI Filed SEC
Documents"), (ii) for the transactions provided for herein or in the Option
Agreements, and (iii) for liabilities incurred in connection with or as a
result of this Agreement or the Option Agreements, since the date of the
most recent audited financial statements included in the DSI Filed SEC
Documents, DSI has conducted its business only in the ordinary course, and
there has not been (1) any material adverse change in DSI, (2) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of DSI's capital
stock, other than regular quarterly dividends of $.14 per share on the DSI
Common Stock and $.625 per share on the DSI Convertible Preferred Stock in
accordance with the terms thereof, (3) any split, combination or
reclassification of any of DSI's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of DSI's capital stock, except for
issuances of DSI Common Stock upon conversion of DSI Convertible Preferred
Stock, (4) other than as permitted by Section 5.07, (A) any granting by DSI
or any of its Significant Subsidiaries to any director, executive officer or
other key employee of DSI of any increase in compensation, except for normal
increases in the ordinary course of business consistent with past practice
or as was required under employment agreements in effect as of the date of
the most recent financial statements included in the DSI Filed SEC
Documents, (B) any granting by DSI or any of its Significant Subsidiaries to
any such director, executive officer or key employee of any increase in
severance or termination pay, except as was required under any employment,
severance or termination agreements in effect as of the date of the most
recent financial statements included in the DSI Filed SEC Documents, or (C)
any entry by DSI or any of its subsidiaries into any employment, severance
or termination agreement with any such executive officer or key employee, or
(5) except insofar as may have been disclosed in the DSI Filed SEC Documents
or required by a change in generally accepted accounting principles, any
change in accounting methods, principles or practices by DSI materially
affecting its assets, liabilities or business. For purposes of this
Agreement, "key employee" means any employee whose current salary and
targeted bonus exceeds $100,000 per annum.
(h) LITIGATION. As of the date of this Agreement, there was no suit,
action or proceeding pending or, to the knowledge of DSI, threatened against
or affecting DSI or any of its subsidiaries that individually or in the
aggregate could reasonably be expected to (i) have a material adverse effect
on DSI or (ii) impair the ability of DSI to perform its obligations under
this Agreement or the Option Agreements in any material respect, nor as of
such date was there any judgment, order or decree of any Governmental Entity
or arbitrator outstanding against DSI or any of its subsidiaries having, or
which could reasonably be expected to have, any effect referred to in clause
(i) or (ii) above.
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(i) COMPLIANCE WITH APPLICABLE LAWS. DSI and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of DSI and its subsidiaries, taken as a whole (the "DSI Permits"). DSI and
its subsidiaries are in compliance with the terms of the DSI Permits and all
applicable statutes, laws, ordinances, rules and regulations, including
Environmental Laws, except where the failure so to comply, individually or
in the aggregate, could not reasonably be expected to have a material
adverse effect on DSI. The businesses of DSI and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, including Environmental Laws, except for possible
violations which could not reasonably be expected to have a material adverse
effect on DSI. As of the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity with respect to DSI
or any of its subsidiaries is pending or, to the knowledge of DSI,
threatened, other than, in each case, those the outcome of which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on DSI.
(j) ABSENCE OF CHANGES IN BENEFIT PLANS. Since the date of the most
recent financial statements included in the DSI Filed SEC Documents, there
has not been any adoption or amendment in any material respect by DSI or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of
DSI or any of its wholly owned subsidiaries. Except as permitted by Section
5.07, since the date of the most recent financial statements included in the
DSI Filed SEC Documents, neither DSI nor any of its wholly owned
subsidiaries has entered into any employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
with any current or former employee, officer or director of DSI or any of
its wholly owned subsidiaries.
(k) ERISA COMPLIANCE.
(i) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (all the foregoing being herein called "Benefit Plans"),
maintained or contributed to by DSI or any subsidiary of DSI (the "DSI
Benefit Plans"), DSI has made available to UC a true and correct copy of
(A) the most recent annual report (Form 5500) filed with the IRS, (B)
such DSI Benefit Plans, (C) each trust agreement relating to such DSI
Benefit Plans, (D) the most recent summary plan description for each DSI
Benefit Plans for which a summary plan description is required, (E) the
most recent actuarial report or valuation relating to DSI Benefit Plans
subject to Title IV of ERISA, and (F) the most recent determination
letter issued by the IRS with respect to any DSI Benefit Plans qualified
under Section 401(a) of the Code.
(ii) With respect to the DSI Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of DSI, there
exists no condition or set of circumstances, in connection with which DSI
or any of its subsidiaries could be subject to any liability that is
reasonably likely to have a material adverse effect on DSI (except
liability for benefits claims and funding obligations payable in the
ordinary course) under ERISA, the Code or any other applicable law.
(iii) Each DSI Benefit Plan has been administered in accordance with
its terms except for any failures so to administer any DSI Benefit Plan
as would not individually or in the aggregate have a material adverse
effect on DSI. DSI, its subsidiaries and all the DSI Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in
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such compliance as would not individually or in the aggregate have a
material adverse effect on DSI.
(iv) No employee of DSI will be entitled to any additional benefits
or any acceleration of the time of payment or vesting of any benefits
under any DSI Benefit Plan as a result of the transactions contemplated
by this Agreement or the Option Agreements.
(l) TAXES.
(i) Each of DSI and its subsidiaries has filed all tax returns and
reports required to be filed by it or requests for extensions to file
such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file or to have
extensions granted that remain in effect individually or in the aggregate
would not have a material adverse effect on DSI. DSI and each of its
subsidiaries has paid (or DSI has paid on its behalf) all taxes shown as
due on such returns, and the most recent financial statements contained
in the DSI Filed SEC Documents reflect an adequate reserve for all taxes
payable by DSI and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against DSI or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on DSI. The federal
income tax returns of DSI and each of its subsidiaries consolidated in
such returns have closed by virtue of the applicable statute of
limitations or remain open for the periods described in the DSI
Disclosure Schedule.
(iii) Neither DSI nor any of its subsidiaries has taken any action
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all federal,
state and local income, property, sales, excise and other taxes or
similar governmental charges.
(m) VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of DSI Common Stock,
voting as a single class, at the DSI Stockholders Meeting (the "DSI
Stockholder Approval") to adopt this Agreement is the only vote of the
holders of any class or series of DSI's capital stock necessary to approve
and adopt this Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) STATE TAKEOVER STATUTES. The Board of Directors of DSI has
approved the terms of this Agreement and the Option Agreements and the
consummation of the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and, assuming the accuracy of UC's
representation and warranty contained in Section 3.02(n), such approval
constitutes approval of the Merger and the other transactions contemplated
by this Agreement and the Option Agreements by the DSI Board of Directors
under the provisions of Section 203 of the DGCL.
(o) ACCOUNTING MATTERS. Neither DSI nor any of its affiliates has
taken or agreed to take any action that would prevent the business
combination to be effected by the Merger to be accounted for as a pooling of
interests.
(p) BROKERS. No broker, investment banker, financial advisor or other
person, other than Wasserstein Perella & Co., Inc., the fees and expenses of
which will be paid by DSI or, if the Merger occurs, the Surviving
Corporation, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Option Agreements based upon
arrangements made by or on behalf of DSI. DSI has furnished to UC true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
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(q) OPINION OF FINANCIAL ADVISOR. DSI has received the opinion of
Wasserstein Perella & Co., Inc., dated the date of this Agreement, to the
effect that, as of such date, the exchange ratio for the conversion of DSI
Common Stock into UC Common Stock pursuant to the Merger is fair to DSI's
stockholders from a financial point of view, a signed copy of which opinion
has been delivered to UC.
(r) OWNERSHIP OF UC COMMON STOCK. Other than pursuant to the UC Stock
Option Agreement and except for shares owned by DSI Benefit Plans, as of the
date hereof, neither DSI nor, to its knowledge, any of its affiliates, (i)
beneficially owns (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, or (ii) is party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing
of, in each case, shares of capital stock of UC.
(s) DSI RIGHTS AGREEMENT. The DSI Rights Agreement has been amended
(the "DSI Rights Plan Amendment") to (i) render the DSI Rights Agreement
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and (ii) ensure that (y) neither UC nor
any of its wholly owned subsidiaries nor any of its permitted assignees or
transferees under the DSI Stock Option Agreement is an Acquiring Person or
an Adverse Person (each as defined in the DSI Rights Agreement) pursuant to
the DSI Rights Agreement and (z) a Share Acquisition Date, Distribution Date
or Triggering Event (in each case as defined in the DSI Rights Agreement)
does not occur solely by reason of the execution of this Agreement, and the
Option Agreements, the consummation of the Merger, or the consummation of
the other transactions contemplated by this Agreement and the Option
Agreements and such amendment may not be further amended by DSI without the
prior consent of UC in its sole discretion. A copy of a form of the DSI
Rights Plan Amendment is attached to the DSI Disclosure Schedule.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF UC. Except as disclosed in
the UC Filed SEC Documents (as such term is defined in Section 3.02(g)) or as
set forth on the Disclosure Schedule delivered by UC to DSI prior to the
execution of this Agreement (the "UC Disclosure Schedule"), UC represents and
warrants to DSI as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of UC and its
Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as
now being conducted. Each of UC and its Significant Subsidiaries is duly
qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in
good standing individually or in the aggregate would not have a material
adverse effect on UC. UC has delivered to DSI prior to the execution of this
Agreement complete and correct copies of its certificate of incorporation
and by-laws and has made available to DSI the certificates of incorporation
and by-laws (or comparable organizational documents) of its Significant
Subsidiaries, in each case as amended to date.
(b) SUBSIDIARIES. Exhibit 21 to UC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 includes all the subsidiaries of UC
which as of the date of this Agreement are Significant Subsidiaries. All the
outstanding shares of capital stock of, or other equity interests in, each
such Significant Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by UC, free and clear of
all Liens.
(c) CAPITAL STRUCTURE. The authorized capital stock of UC consists of
100,000,000 shares of UC Common Stock and 25,000,000 shares of preferred
stock, par value $.01 per share, of UC ("UC Preferred Stock"). At the close
of business on September 19, 1996, (i) 44,637,958 shares of UC Common Stock
were issued and outstanding, (ii) no shares of UC Common Stock were held by
UC in its treasury, (iii) 6,137,103 shares of UC Common Stock were reserved
for issuance pursuant to
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the Ultramar Corporation Annual Incentive Plan, the Ultramar Corporation
Dividend Reinvestment, the Ultramar Corporation Restricted Share Plan for
Directors and Employee Stock Purchase Plan and the Ultramar Corporation 1992
Long Term Incentive Plan (such plans, collectively, the "UC Stock Plans"),
and (iv) no shares of UC Preferred Stock have been designated or issued.
Except as set forth above and except for 8,927,500 shares of UC Common Stock
(with the associated UC Rights) reserved for issuance upon the exercise of
the UC Option, at the close of business on September 19, 1996, no shares of
capital stock or other voting securities of UC were issued, reserved for
issuance or outstanding. At the close of business on September 19, 1996
there were no outstanding stock appreciation rights or rights (other than
employee stock options or other rights ("UC Employee Stock Options") to
purchase or receive UC Common Stock granted under the UC Stock Plans) to
receive shares of UC Common Stock on a deferred basis granted under the UC
Stock Plans or otherwise. The UC Disclosure Schedule sets forth a complete
and correct list, as of September 19, 1996, of the number of shares of UC
Common Stock subject to Employee Stock Options and the exercise prices
thereof. All outstanding shares of capital stock of UC are, and all shares
which may be issued will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. As of the
close of business on September 19, 1996, there were no bonds, debentures,
notes or other indebtedness of UC having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any
matters on which stockholders of UC may vote. Except as set forth above or
as contemplated by Schedule 5.07, as of the close of business on September
19, 1996, there were no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which UC or any of its subsidiaries is a party or by which any of them is
bound obligating UC or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of UC or of any of its subsidiaries or obligating UC
or any of its subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except for agreements entered into with respect to the UC
Stock Plans, as of the close of business on September 19, 1996, there were
no outstanding contractual obligations of UC or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of UC or
any of its wholly owned subsidiaries. As of the close of business on
September 19, 1996, except for agreements with holders of equity securities
of subsidiaries that are not wholly owned subsidiaries of UC or any of its
other wholly owned subsidiaries, there were no outstanding contractual
obligations of UC to vote or to dispose of any shares of the capital stock
of any of its subsidiaries. UC has delivered to DSI a complete and correct
copy of the Rights Agreement dated as of June 25, 1992, as amended as of May
10, 1994 (the "UC Rights Agreement") between UC and Registrar and Transfer
Company (as successor to First City, Texas-Houston, National Association)
relating to rights ("UC Rights") to purchase UC Common Stock.
(d) AUTHORITY; NONCONTRAVENTION. UC has all requisite corporate power
and authority to enter into this Agreement and, subject to the UC
Stockholder Approval (as defined in Section 3.02(m)), to consummate the
transactions contemplated by this Agreement. UC has all requisite corporate
power and authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and delivery of this
Agreement and the Option Agreements by UC and the consummation by UC of the
transactions contemplated by this Agreement and the Option Agreements have
been duly authorized by all necessary corporate action on the part of UC,
subject, in the case of the adoption of this Agreement and the issuance of
UC Common Stock in connection with the Merger, to UC Stockholder Approval.
This Agreement and the Option Agreements have been duly executed and
delivered by UC and constitute legal, valid and binding obligations of UC,
enforceable against UC in accordance with their terms. The execution and
delivery of this Agreement and the Option Agreements do not, and the
consummation of the transactions contemplated by this Agreement and the
Option Agreements and compliance with the provisions of this Agreement and
the Option Agreements will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancelation or acceleration of any
obligation or loss of a material benefit under, or result
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in the creation of any Lien upon any of the properties or assets of UC or
any of its Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of UC or the comparable organizational documents of
any of its Significant Subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to UC or any of its
Significant Subsidiaries or their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to UC or any of its Significant Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on UC, (y) impair the ability of UC to perform its
obligations under this Agreement or the Option Agreements, or (z) prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement or the Option Agreements. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to UC or any of its
Significant Subsidiaries in connection with the execution and delivery of
this Agreement or the Option Agreements by UC or the consummation by UC of
the transactions contemplated by this Agreement or the Option Agreements,
except for (1) the filing of a premerger notification and report form by UC
under the HSR Act; (2) the filing with the SEC of (A) the Joint Proxy
Statement relating to the UC Stockholders Meeting (as defined in Section
5.01(c)), (B) the Form S-4 and (C) such reports under Section 13(a), 13(d),
15(d) or 16(a) of the Exchange Act as may be required in connection with
this Agreement, the Option Agreements and the transactions contemplated by
this Agreement and the Option Agreements; (3) the filing of the Certificate
of Merger and the Certificate of Designations with respect to the UC
Convertible Preferred Stock with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
UC is qualified to do business and such filings with Governmental Entities
to satisfy the applicable requirements of state securities or "blue sky"
laws; (4) such filings with and approvals of the NYSE to permit the shares
of UC Common Stock that are to be issued in the Merger, under the DSI Stock
Plans and pursuant to the UC Stock Option Agreement to be listed on the
NYSE; (5) such other filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the Merger or
the transactions contemplated by this Agreement and the Option Agreements;
and (6) such consents, approvals, orders or authorizations the failure of
which to be made or obtained would not reasonably be expected to have a
material adverse effect on UC.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. UC has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1995 (the "UC SEC Documents"). As of their respective dates, the
UC SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such UC SEC
Documents, and none of the UC SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any UC SEC Document has
been revised or superseded by a later UC Filed SEC Document, none of the UC
SEC Documents contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of UC included in
the UC SEC Documents comply as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of UC
and its consolidated subsidiaries as of
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the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto, (ii) as
contemplated hereunder or under the Option Agreements, (iii) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby and (iv) for liabilities and obligations incurred since July 1, 1996
in the ordinary course of business consistent with past practice, neither UC
nor any of its subsidiaries has any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise), including
liabilities arising under any Environmental Laws, required by generally
accepted accounting principles to be reflected in a consolidated balance
sheet of UC and its consolidated subsidiaries and which, individually or in
the aggregate, could reasonably be expected to have a material adverse
effect on UC.
(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by UC specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 is filed with the SEC or at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
or (ii) the Joint Proxy Statement will, at the date it is first mailed to
UC's stockholders or at the time of the UC Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by
UC with respect to statements made or incorporated by reference therein
based on information supplied by DSI specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except (i) as disclosed in
the UC SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "UC Filed SEC
Documents"), (ii) for the transactions provided for herein or in the Option
Agreements, and (iii) for liabilities incurred in connection with or as a
result of this Agreement or the Option Agreements, since the date of the
most recent financial statements included in the UC Filed SEC Documents, UC
has conducted its business only in the ordinary course, and there has not
been (1) any material adverse change in UC, (2) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of UC's capital stock, other than
regular quarterly dividends of $.275 per share on the UC Common Stock, (3)
any split, combination or reclassification of any of UC's capital stock or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of UC's capital stock,
(4) other than as permitted by Section 5.07, (A) any granting by UC or any
of its Significant Subsidiaries to any director, executive officer or other
key employee of UC of any increase in compensation, except for normal
increases in the ordinary course of business consistent with past practice
or as was required under employment agreements in effect as of the date of
the most recent financial statements included in the UC Filed SEC Documents,
(B) any granting by UC or any of its Significant Subsidiaries to any such
director, executive officer or key employee of any increase in severance or
termination pay, except as was required under any employment, severance or
termination agreements in effect as of the date of the most recent financial
statements included in the UC Filed SEC Documents, or (C) any entry by UC or
any of its subsidiaries into any employment, severance or termination
agreement with any such executive officer or key employee or (5) except
insofar as may have been disclosed in the UC Filed SEC Documents or required
by a change in generally accepted accounting principles, any change in
accounting methods, principles or practices by UC materially affecting its
assets, liabilities or business.
(h) LITIGATION. As of the date of this Agreement, there was no suit,
action or proceeding pending or, to the knowledge of UC, threatened against
or affecting UC or any of its subsidiaries that individually or in the
aggregate could reasonably be expected to (i) have a material adverse effect
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on UC or (ii) impair the ability of UC to perform its obligations under this
Agreement or the Option Agreements in any material respect, nor as of such
date was there any judgment, order or decree of any Governmental Entity or
arbitrator outstanding against UC or any of its subsidiaries having, or
which could reasonably be expected to have, any effect referred to in clause
(i) or (ii) above.
(i) COMPLIANCE WITH APPLICABLE LAWS. UC and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses
of UC and its subsidiaries, taken as a whole (the "UC Permits"). UC and its
subsidiaries are in compliance with the terms of the UC Permits and all
applicable statutes, laws, ordinances, rules and regulations, including
Environmental Laws, except where the failure so to comply, individually or
in the aggregate, could not reasonably be expected to have a material
adverse effect on UC. The businesses of UC and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, including Environmental Laws, except for possible
violations which could not reasonably be expected to have a material adverse
effect on UC. As of the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity with respect to UC
or any of its subsidiaries is pending or, to the knowledge of UC,
threatened, other than, in each case, those the outcome of which,
individually or in the aggregate could not reasonably be expected to have a
material adverse effect on UC.
(j) ABSENCE OF CHANGES IN BENEFIT PLANS. Since the date of the most
recent financial statements included in the UC Filed SEC Documents, there
has not been any adoption or amendment in any material respect by UC or any
of its subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of
UC or any of its wholly owned subsidiaries. Except as permitted by Section
5.07, since the date of the most recent financial statements included in the
UC Filed SEC Documents, neither UC nor any of its wholly owned subsidiaries
has entered into any employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings with any current
or former employee, officer or director of UC or any of its wholly owned
subsidiaries.
(k) ERISA COMPLIANCE.
(i) With respect to Benefit Plans maintained or contributed to by UC
or any subsidiary of UC (the "UC Benefit Plans"), UC has made available
to DSI a true and correct copy of (A) the most recent annual report (Form
5500) filed with the IRS, (B) such UC Benefit Plans, (C) each trust
agreement relating to such UC Benefit Plans, (D) the most recent summary
plan description for each UC Benefit Plans for which a summary plan
description is required, (E) the most recent actuarial report or
valuation relating to UC Benefit Plans subject to Title IV of ERISA, and
(F) the most recent determination letter issued by the IRS with respect
to any UC Benefit Plans qualified under Section 401(a) of the Code.
(ii) With respect to the UC Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of UC, there
exists no condition or set of circumstances, in connection with which UC
or any of its subsidiaries could be subject to any liability that is
reasonably likely to have a material adverse effect on UC (except
liability for benefits claims and funding obligations payable in the
ordinary course) under ERISA, the Code or any other applicable law.
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(iii) Each UC Benefit Plan has been administered in accordance with
its terms, except for any failures so to administer any UC Benefit Plans
as would not individually or in the aggregate have a material adverse
effect on UC. UC, its subsidiaries and all the UC Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in such compliance
as would not individually or in the aggregate have a material adverse
effect on UC.
(iv) No employee of UC will be entitled to any additional benefits or
any acceleration of the time of payment or vesting of any benefits under
any UC Benefit Plan as a result of the transactions contemplated by this
Agreement or the Option Agreements.
(l) TAXES.
(i) Each of UC and its subsidiaries has filed all tax returns and
reports required to be filed by it or requests for extensions to file
such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file or to have
extensions granted that remain in effect individually or in the aggregate
would not have a material adverse effect on UC. UC and each of its
subsidiaries has paid (or UC has paid on its behalf) all taxes shown as
due on such returns, and the most recent financial statements contained
in the UC Filed SEC Documents reflect an adequate reserve for all taxes
payable by UC and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against UC or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on UC.
(iii) Neither UC nor any of its subsidiaries has taken any action
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(m) VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of UC Common Stock,
voting as a single class, at the UC Stockholders Meeting (the "UC
Stockholder Approval") to adopt this Agreement and to approve the issuance
of UC Common Stock in connection with the Merger is the only vote of the
holders of any class or series of UC's capital stock necessary to approve
and adopt this Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) STATE TAKEOVER STATUTES. The Board of Directors of UC has approved
the terms of this Agreement and the Option Agreements and the consummation
of the Merger and the other transactions contemplated by this Agreement and
the Option Agreements and, assuming the accuracy of DSI's representation and
warranty contained in Section 3.01(n), such approval constitutes approval of
the Merger and the other transactions contemplated by this Agreement and the
Option Agreements by the UC Board of Directors under the provisions of
Section 203 of the DGCL.
(o) ACCOUNTING MATTERS. Neither UC nor any of its affiliates has taken
or agreed to take any action that would prevent the business combination to
be effected by the Merger to be accounted for as a pooling of interests.
(p) BROKERS. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co. and Tanner & Co., Inc., the fees and
expenses of which will be paid by UC or, if the Merger occurs, the Surviving
Corporation, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Option Agreements based upon
arrangements made by or on behalf of UC. UC has furnished to DSI true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(q) OPINION OF FINANCIAL ADVISOR. UC has received the opinion of
Merrill Lynch & Co., dated the date of this Agreement, to the effect that,
as of such date, the exchange ratio for the conversion
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of DSI Common Stock into UC Common Stock pursuant to the Merger is fair to
UC and, accordingly, to UC's stockholders from a financial point of view, a
signed copy of which opinion has been delivered to DSI.
(r) OWNERSHIP OF DSI COMMON STOCK. Other than pursuant to the DSI
Stock Option Agreement and except for shares owned by UC Benefit Plans, as
of the date hereof, neither UC nor, to its knowledge, any of its affiliates,
(i) beneficially owns (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of capital stock of DSI.
(s) UC RIGHTS AGREEMENT. The UC Rights Agreement has been amended (the
"UC Rights Plan Amendment") to (i) render the UC Rights Agreement
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and (ii) ensure that (y) neither DSI nor
any of its wholly owned subsidiaries nor any of its permitted assignees or
transferees under the UC Stock Option Agreement is an Acquiring Person (as
defined in the UC Rights Agreement) pursuant to the UC Rights Agreement and
(z) a Distribution Date (as defined in the UC Rights Agreement) does not
occur solely by reason of the execution of this Agreement and the Option
Agreements, the consummation of the Merger, or the consummation of the other
transactions contemplated by this Agreement and the Option Agreements and
such amendment may not be further amended by UC without the prior consent of
DSI in its sole discretion. A copy of a form of the UC Rights Plan Amendment
is attached to the UC Disclosure Schedule.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY DSI. Except as set forth in Section 4.01 of
the DSI Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, DSI shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts
to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Except as set forth in
Section 4.01 of the DSI Disclosure Schedule, without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time, DSI shall not, and shall not permit any of its subsidiaries
to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of DSI to
its parent, or by a subsidiary that is partially owned by DSI or any of
its subsidiaries, provided that DSI or any such subsidiary receives or is
to receive its proportionate share thereof, and other than the regular
quarterly dividends of $.14 per share with respect to the DSI Common
Stock and regular quarterly dividends of $.625 per share with respect to
the DSI Convertible Preferred Stock in accordance with its terms, (x)
declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (z) purchase, redeem or otherwise acquire
any shares of capital stock of DSI or any of its Significant Subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to
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acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of DSI Common Stock upon the exercise of DSI
Employee Stock Options outstanding on the date of this Agreement and in
accordance with their present terms, (y) the issuance of DSI Common Stock
upon conversion of DSI Convertible Preferred Stock in accordance with
their present terms either at the option of the holders thereof or at the
option of DSI, and (z) the issuance of DSI Common Stock pursuant to the
DSI Stock Option Agreement);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business organization or
division thereof, except for (x) such acquisitions which do not in the
aggregate exceed $20,000,000 and (y) purchases of inventory, feedstock
and other items in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets,
other than (x) in the ordinary course of business consistent with past
practice and (y) sales of assets which do not individually or in the
aggregate exceed $20,000,000;
(vi) (y) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of DSI or any of
its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with
past practice, or (z) make any loans, advances or capital contributions
to, or investments in, any other person, other than to DSI or any direct
or indirect subsidiary of DSI or to officers and employees of DSI or any
of its subsidiaries for travel, business or relocation expenses in the
ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the operating
budget of DSI previously furnished to UC, the relevant portions of which
are set forth in Section 4.01(b)(vii) of the DSI Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on DSI or settle or compromise any
material income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of DSI included in the DSI
Filed SEC Documents, incurred since the date of such financial statements
in the ordinary course of business consistent with past practice or which
do not in the aggregate have a material adverse effect on DSI;
(x) except in the ordinary course of business or except as would not
reasonably be expected to have a material adverse effect on DSI, modify,
amend or terminate any material contract or agreement to which DSI or any
subsidiary is a party or waive, release or assign any material rights or
claims thereunder;
(xi) make any material change to its accounting methods, principles
or practices, except as may be required by generally accepted accounting
principles;
(xii) except as required by law or contemplated hereby, enter into,
adopt or amend in any material respect or terminate any DSI Benefit Plan
or any other agreement, plan or policy involving DSI or its subsidiaries
and one or more of their directors, officers or employees, or
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materially change any actuarial or other assumption used to calculate
funding obligations with respect to any DSI pension plans, or change the
manner in which contributions to any DSI pension plans are made or the
basis on which such contributions are determined;
(xiii) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not materially
increase benefits or compensation expenses of DSI or its subsidiaries, or
as contemplated hereby or by the terms of any contract the existence of
which does not constitute a violation of this Agreement, increase the
compensation of any director, executive officer or other key employee of
DSI or pay any benefit or amount not required by a plan or arrangement as
in effect on the date of this Agreement to any such person; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions.
(b) CONDUCT OF BUSINESS BY UC. Except as set forth in Section 4.01 of
the UC Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, UC shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, use reasonable efforts
to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Except as set forth in
Section 4.01 of the UC Disclosure Schedule, without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time, UC shall not, and shall not permit any of its subsidiaries
to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of UC to
its parent, or by a subsidiary that is partially owned by UC or any of
its subsidiaries, provided that UC or any such subsidiary receives or is
to receive its proportionate share thereof, and other than the regular
quarterly dividends of $.275 per share with respect to the UC Common
Stock, (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (z) purchase, redeem or otherwise acquire
any shares of capital stock of UC or any of its Significant Subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than (x) the
issuance of UC Common Stock upon the exercise of UC Employee Stock
Options outstanding on the date of this Agreement and in accordance with
their present terms, and (y) the issuance of UC Common Stock pursuant to
the UC Stock Option Agreement);
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business organization or
division thereof, except for (x) such acquisitions which do not in the
aggregate exceed $20,000,000 and (y) purchases of inventory, feedstock
and other items in the ordinary course of business consistent with past
practice;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets,
other than (x) in the ordinary course of business
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consistent with past practice and (y) sales of assets which do not
individually or in the aggregate exceed $20,000,000;
(vi) (y) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of UC or any of
its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with
past practice, or (z) make any loans, advances or capital contributions
to, or investments in, any other person, other than to UC or any direct
or indirect subsidiary of UC or to officers and employees of UC or any of
its subsidiaries for travel, business or relocation expenses in the
ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the operating
budget of UC previously furnished to DSI, the relevant portions of which
are set forth in Section 4.01(b)(vii) of the UC Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on UC or settle or compromise any material
income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement
or satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of UC included in the UC
Filed SEC Documents, incurred since the date of such financial statements
in the ordinary course of business consistent with past practice or which
do not in the aggregate have a material adverse effect on UC;
(x) except in the ordinary course of business or except as would not
reasonably be expected to have a material adverse effect on UC, modify,
amend or terminate any material contract or agreement to which UC, any
subsidiary is a party or waive, release or assign any material rights or
claims thereunder;
(xi) make any material change to its accounting methods, principles
or practices, except as may be required by generally accepted accounting
principles;
(xii) except as required by law or contemplated hereby, enter into,
adopt or amend in any material respect or terminate any UC Benefit Plan
or any other agreement, plan or policy involving UC or its subsidiaries
and one or more of their directors, officers or employees, or materially
change any actuarial or other assumption used to calculate funding
obligations with respect to any UC pension plans, or change the manner in
which contributions to any UC pension plans are made or the basis on
which such contributions are determined;
(xiii) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not materially
increase benefits or compensation expenses of UC or its subsidiaries, or
as contemplated hereby or by the terms of any contract the existence of
which does not constitute a violation of this Agreement, increase the
compensation of any director, executive officer or other key employee of
UC or pay any benefit or amount not required by a plan or arrangement as
in effect on the date of this Agreement to any such person; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions.
(c) COORDINATION OF DIVIDENDS. Each of UC and DSI shall coordinate
with the other regarding the declaration and payment of dividends in respect
of the UC Common Stock and the DSI Common Stock and the record dates and
payment dates relating thereto, it being the intention of UC and DSI that
any holder of DSI Common Stock shall not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with respect to its
shares of DSI Common Stock and/or
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any shares of UC Common Stock any such holder receives in exchange therefor
pursuant to the Merger.
(d) OTHER ACTIONS. Except as required by law, DSI and UC shall not,
and shall not permit any of their respective subsidiaries to, voluntarily
take any action that would, or that could reasonably be expected to, result
in (i) any of the representations and warranties of such party set forth in
this Agreement or the Option Agreements that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are
not so qualified becoming untrue in any material respect, or (iii) any of
the conditions to the Merger set forth in Article VI not being satisfied.
(e) ADVICE OF CHANGES. DSI and UC shall promptly advise the other
party orally and in writing of (i) any representation or warranty made by it
contained in this Agreement or the Option Agreements that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or the Option Agreements, or (iii) any change or event having, or
which, insofar as can reasonably be foreseen, could reasonably be expected
to have, a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions
set forth in Article VI to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement or the Option Agreements.
SECTION 4.02. NO SOLICITATION BY DSI.
(a) DSI shall not, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any
DSI Takeover Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding any DSI Takeover Proposal; provided,
however, that if, at any time prior to the adoption of this Agreement by the
holders of DSI Common Stock, the Board of Directors of DSI determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to DSI's stockholders under applicable
law, DSI may, in response to a DSI Takeover Proposal which was not solicited by
it or which did not otherwise result from a breach of this Section 4.02(a), and
subject to compliance with Section 4.02(c), (x) furnish information with respect
to DSI and its subsidiaries to any person pursuant to a customary
confidentiality agreement (as determined by DSI after consultation with its
outside counsel) and (y) participate in negotiations regarding such DSI Takeover
Proposal. For purposes of this Agreement, "DSI Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of DSI and its subsidiaries
or 20% or more of any class of equity securities of DSI or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any class of equity
securities of DSI or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving DSI or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.02, neither the Board of
Directors of DSI nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to UC, the approval
or recommendation by such Board of Directors or such committee of the Merger or
this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any DSI Takeover Proposal, or (iii) cause DSI to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "DSI Acquisition Agreement") related to any DSI Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the adoption
of this Agreement by the holders of DSI Common Stock (x) the Board of Directors
of DSI determines in good faith, after it has received a DSI Superior Proposal
(as defined below) and after consultation with outside
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counsel, that it is necessary to do so in order to comply with its fiduciary
duties to DSI's stockholders under applicable law, the Board of Directors of DSI
may (subject to this and the following sentences) withdraw or modify its
approval or recommendation of the Merger or this Agreement, or (y) the Board of
Directors of DSI determines in good faith that there is not a substantial
probability that the adoption of this Agreement by holders of DSI Common Stock
will be obtained due to the existence of a DSI Superior Proposal, the Board of
Directors of DSI may (subject to this and the following sentences) approve or
recommend such DSI Superior Proposal or terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause DSI to
enter into any DSI Acquisition Agreement with respect to any DSI Superior
Proposal), but in each of the cases set forth in this clause (y), only at a time
that is after the fifth business day following UC's receipt of written notice
advising UC that the Board of Directors of DSI has received a DSI Superior
Proposal, specifying the material terms and conditions of such DSI Superior
Proposal and identifying the person making such DSI Superior Proposal. For
purposes of this Agreement, a "DSI Superior Proposal" means any proposal made by
a third party to acquire, directly or indirectly, for consideration consisting
of cash and/or securities, more than 50% of the combined voting power of the
shares of DSI Common Stock then outstanding or all or substantially all the
assets of DSI and otherwise on terms which the Board of Directors of DSI
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to DSI's
stockholders than the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Board of Directors of
DSI, is reasonably capable of being obtained by such third party.
(c) In addition to the obligations of DSI set forth in paragraphs (a) and
(b) of this Section 4.02, DSI shall immediately advise UC orally and in writing
of any request for information or of any DSI Takeover Proposal, the material
terms and conditions of such request or DSI Takeover Proposal and the identity
of the person making such request or DSI Takeover Proposal. DSI will keep UC
reasonably informed of the status and details (including amendments or proposed
amendments) of any such request or DSI Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit DSI from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to DSI's
stockholders if, in the good faith judgment of the Board of Directors of DSI,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to DSI's stockholders under applicable
law; provided, however, that neither DSI nor its Board of Directors nor any
committee thereof shall, except as permitted by Section 4.02(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, a DSI Takeover Proposal.
SECTION 4.03. NO SOLICITATION BY UC.
(a) UC shall not, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any UC
Takeover Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding any UC Takeover Proposal; provided,
however, that if, at any time prior to the adoption of this Agreement by the
holders of UC Common Stock, the Board of Directors of UC determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to UC's stockholders under applicable
law, UC may, in response to a UC Takeover Proposal which was not solicited by it
or which did not otherwise result from a breach of this Section 4.03(a), and
subject to compliance with Section 4.03(c), (x) furnish information with respect
to UC and its subsidiaries to any person pursuant to a customary confidentiality
agreement (as determined by UC after consultation with its outside counsel) and
(y) participate in negotiations regarding such UC Takeover Proposal. For
purposes of this Agreement, "UC Takeover Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect acquisition or
purchase of 20% or more of the assets of UC and its subsidiaries or 20% or more
of any class of equity securities of UC or any of its subsidiaries, any
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tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of UC or any
of its subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving UC
or any of its subsidiaries, other than the transactions contemplated by this
Agreement.
(b) Except as expressly permitted by this Section 4.03, neither the Board of
Directors of UC nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to DSI, the approval
or recommendation by such Board of Directors or such committee of the Merger,
this Agreement or the issuance of UC Common Stock and UC Convertible Preferred
Stock in connection with the Merger, (ii) approve or recommend, or propose
publicly to approve or recommend, any UC Takeover Proposal, or (iii) cause UC to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement (each, a "UC Acquisition Agreement") related to any
UC Takeover Proposal. Notwithstanding the foregoing, in the event that prior to
the adoption of this Agreement by the holders of UC Common Stock (x) the Board
of Directors of UC determines in good faith, after it has received a UC Superior
Proposal (as defined below) and after consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to UC's
stockholders under applicable law, the Board of Directors of UC may (subject to
this and the following sentences) withdraw or modify its approval or
recommendation of the Merger, this Agreement or the issuance of UC Common Stock
in connection with the Merger, or (y) the Board of Directors of UC determines in
good faith that there is not a substantial probability that the adoption of this
Agreement by holders of UC Common Stock will be obtained due to the existence of
a UC Superior Proposal, the Board of Directors of UC may (subject to this and
the following sentences) approve or recommend such UC Superior Proposal or
terminate this Agreement (and concurrently with or after such termination, if it
so chooses, cause UC to enter into any UC Acquisition Agreement with respect to
any UC Superior Proposal), but in each of the cases set forth in this clause
(y), only at a time that is after the fifth business day following DSI's receipt
of written notice advising DSI that the Board of Directors of UC has received a
UC Superior Proposal, specifying the material terms and conditions of such UC
Superior Proposal and identifying the person making such UC Superior Proposal.
For purposes of this Agreement, a "UC Superior Proposal" means any proposal made
by a third party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than 50% of the combined voting power
of the shares of UC Common Stock then outstanding or all or substantially all
the assets of UC and otherwise on terms which the Board of Directors of UC
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be more favorable to UC's
stockholders than the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Board of Directors of
UC, is reasonably capable of being obtained by such third party.
(c) In addition to the obligations of UC set forth in paragraphs (a) and (b)
of this Section 4.03, UC shall immediately advise DSI orally and in writing of
any request for information or of any UC Takeover Proposal, the material terms
and conditions of such request or UC Takeover Proposal and the identity of the
person making such request or UC Takeover Proposal. UC will keep DSI reasonably
informed of the status and details (including amendments or proposed amendments)
of any such request or UC Takeover Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit UC from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to UC's
stockholders if, in the good faith judgment of the Board of Directors of UC,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to UC's stockholders under applicable
law; provided, however, that neither UC nor its Board of Directors nor any
committee thereof shall, except as permitted by Section 4.03(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement, the Merger, the issuance of UC Common Stock and UC Convertible
Preferred Stock in connection with the Merger, or approve or recommend, or
propose publicly to approve or recommend, a UC Takeover Proposal.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PREPARATION OF THE FORM S-4 AND THE JOINT PROXY STATEMENT;
STOCKHOLDERS MEETINGS.
(a) As soon as practicable following the date of this Agreement, DSI and UC
shall prepare and file with the SEC the Joint Proxy Statement and UC shall
prepare and file with the SEC the Form S-4, in which the Joint Proxy Statement
will be included as a prospectus. Each of DSI and UC shall use all reasonable
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. DSI will use all reasonable efforts
to cause the Joint Proxy Statement to be mailed to DSI's stockholders, and UC
will use all reasonable efforts to cause the Joint Proxy Statement to be mailed
to UC's stockholders, in each case as promptly as practicable after the Form S-4
is declared effective under the Securities Act. UC shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of UC Common Stock and UC Convertible Preferred Stock in the Merger and under
the DSI Stock Plans and UC Stock Plans and DSI shall furnish all information
concerning DSI and the holders of DSI Common Stock as may be reasonably
requested in connection with any such action.
(b) DSI will, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"DSI Stockholders Meeting") for the purpose of obtaining the DSI Stockholder
Approval. Without limiting the generality of the foregoing but subject to
Section 4.02(b), DSI agrees that its obligations pursuant to the first sentence
of this Section 5.01(b) shall not be affected by the commencement, public
proposal, public disclosure or communication to DSI of any DSI Takeover
Proposal. DSI will, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby, except to the extent that the Board of
Directors of DSI shall have withdrawn or modified its approval or recommendation
of this Agreement or the Merger and terminated this Agreement in accordance with
Section 4.02(b).
(c) UC will, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"UC Stockholders Meeting") for the purpose of obtaining the UC Stockholder
Approval. Without limiting the generality of the foregoing but subject to
Section 4.03(b), UC agrees that its obligations pursuant to the first sentence
of this Section 5.01(c) shall not be affected by the commencement, public
proposal, public disclosure or commencement to UC of any UC Takeover Proposal.
UC will, through its Board of Directors, recommend to its stockholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby, including the issuance of UC Common Stock pursuant to the
Merger, except to the extent that the Board of Directors of UC shall have
withdrawn or modified its recommendation and terminated this Agreement in
accordance with Section 4.03(b).
(d) UC and DSI will use reasonable efforts to hold the DSI Stockholders
Meeting and the UC Stockholders Meeting on the same date and as soon as
practicable after the date hereof.
SECTION 5.02. LETTERS OF DSI'S ACCOUNTANTS.
(a) DSI shall use reasonable efforts to cause to be delivered to UC two
letters from Price Waterhouse LLP, DSI's independent accountants, one dated a
date within two business days before the date on which the Form S-4 shall become
effective and one dated a date within two business days before the Closing Date,
each addressed to UC, in form and substance reasonably satisfactory to UC and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) DSI shall use its reasonable efforts to cause to be delivered to UC a
letter from Price Waterhouse LLP addressed to UC and DSI, dated as of the
Closing Date, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations.
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SECTION 5.03. LETTERS OF UC'S ACCOUNTANTS.
(a) UC shall use reasonable efforts to cause to be delivered to DSI two
letters from Ernst & Young LLP, UC's independent accountants, one dated a date
within two business days before the date on which the Form S-4 shall become
effective and one dated a date within two business days before the Closing Date,
each addressed to DSI, in form and substance reasonably satisfactory to DSI and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) UC shall use its reasonable efforts to cause to be delivered to DSI a
letter from Ernst & Young LLP, addressed to DSI and UC, dated as of the Closing
Date, stating that the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations.
SECTION 5.04. ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
Confidentiality Agreement (as defined below), each of DSI and UC shall, and
shall cause each of its respective subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of DSI and UC shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. Each of DSI and UC will
hold, and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement dated April 27, 1994, as amended as of September 3, 1996, between UC
and DSI (as amended pursuant to the following sentence, the "Confidentiality
Agreement"). UC and DSI agree that the Confidentiality Agreement is hereby
amended to delete paragraph 5 thereof.
SECTION 5.05. REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, such as those referred to in
Sections 3.01(d)(1)-(5) and 3.02(d)(1)-(5)) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the Option Agreements or the consummation of the
transactions contemplated by this Agreement or the Option Agreements, including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed, and (iv) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement and the
Option Agreements. Nothing set forth in this Section 5.05(a) will limit or
affect actions permitted to be taken pursuant to Sections 4.02 and 4.03.
(b) In connection with and without limiting the foregoing, DSI and UC shall
(i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger, this
Agreement, the Option Agreements or any of the other transactions contemplated
by this Agreement or the Option Agreements and (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger, this
Agreement, the Option Agreements or any other transaction contemplated by this
Agreement or the Option Agreements, take all action necessary
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to ensure that the Merger and the other transactions contemplated by this
Agreement and the Option Agreements may be consummated as promptly as
practicable on the terms contemplated by this Agreement and the Option
Agreements and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement and the
Option Agreements.
SECTION 5.06. STOCK OPTIONS.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of DSI (or, if appropriate, any committee administering the DSI
Stock Plans) shall adopt such resolutions or take such other actions as may be
required to effect the following:
(i) adjust the terms of all outstanding DSI Employee Stock Options
granted under DSI Stock Plans, whether vested or unvested, as necessary
to provide that, at the Effective Time, each DSI Employee Stock Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such DSI Employee Stock Option, including vesting, the
same number of shares of UC Common Stock as the holder of such DSI
Employee Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such DSI Employee Stock Option in full
immediately prior to the Effective Time, at a price per share of UC
Common Stock equal to (A) the aggregate exercise price for the shares of
DSI Common Stock otherwise purchasable pursuant to such DSI Employee
Stock Option divided by (B) the aggregate number of shares of UC Common
Stock deemed purchasable pursuant to such DSI Employee Stock Option
(each, as so adjusted, an "Adjusted Option"); provided, however, that in
the case of any option to which Section 421 of the Code applies by reason
of its qualification under any of Sections 422 through 424 of the Code
("qualified stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with
Section 424 of the Code; and
(ii) make such other changes to the DSI Stock Plans as DSI and UC may
agree are appropriate to give effect to the Merger.
(b) As soon as practicable after the Effective Time, UC shall deliver to the
holders of DSI Employee Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective DSI Stock Plans and the agreements
evidencing the grants of such DSI Employee Stock Options and that such DSI
Employee Stock Options and agreements shall be assumed by UC and shall continue
in effect on the same terms and conditions (subject to the adjustments required
by this Section 5.06 after giving effect to the Merger). UC shall comply with
the terms of the DSI Stock Plans and ensure, to the extent required by, and
subject to the provisions of, such DSI Stock Plans, that the DSI Employee Stock
Options which qualified as qualified stock options prior to the Effective Time
continue to qualify as qualified stock options after the Effective Time.
(c) UC shall take such actions as are reasonably necessary for the
assumption of the DSI Stock Plans pursuant to Section 5.06(a), including the
reservation, issuance and listing of UC Common Stock as is necessary to
effectuate the transactions contemplated by Section 5.06(a). As soon as
reasonably practicable after the Effective Time, UC shall prepare and file with
the SEC a registration statement on Form S-8 or other appropriate form with
respect to shares of UC Common Stock subject to DSI Employee Stock Options
issued under such DSI Stock Plans and shall use all reasonable efforts to
maintain the effectiveness of a registration statement or registration
statements covering such DSI Employee Stock Options (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
DSI Employee Stock Options remain outstanding. With respect to those
individuals, if any, who subsequent to the Effective Time will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, UC shall use all reasonable efforts to administer the DSI Stock
Plans assumed pursuant to Section 5.06(b) in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act to the extent the applicable DSI
Stock Plan complied with such rule prior to the Merger.
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(d) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to UC, together with the consideration therefor and the
federal withholding tax information, if any, required in accordance with the
related DSI Stock Plan.
(e) Except as otherwise contemplated by this Section 5.06, all restrictions
or limitations on transfer and vesting with respect to DSI Employee Stock
Options awarded under the DSI Stock Plans or any other plan, program or
arrangement of DSI or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by UC as set forth above.
SECTION 5.07. CERTAIN EMPLOYEE MATTERS. Each of DSI and UC will take the
actions indicated to be taken by it in Schedule 5.07 at or prior to the times
specified therein. Following the Effective Time, UC, as the Surviving
Corporation in the Merger, will honor all obligations under employment
agreements of DSI or UC the existence of which does not constitute a violation
of this Agreement in accordance with the terms thereof.
SECTION 5.08. INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) UC agrees that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former directors or officers of DSI and
its subsidiaries as provided in their respective certificates of incorporation
or by-laws (or comparable organizational documents) and any indemnification
agreements of DSI, the existence of which does not constitute a breach of this
Agreement, shall be assumed by UC, as the Surviving Corporation in the Merger,
without further action, as of the Effective Time and shall survive the Merger
and shall continue in full force and effect in accordance with their terms. In
addition, from and after the Effective Time, directors and officers of DSI who
become directors or officers of UC will be entitled to the same indemnity rights
and protections as are afforded to other directors and officers of UC.
(b) In the event that UC or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of UC assume the obligations set forth in this
Section.
(c) The provisions of this Section 5.08 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.09. FEES AND EXPENSES.
(a) Except as set forth in this Section 5.09, all fees and expenses incurred
in connection with the Merger, this Agreement, the Option Agreements and the
transactions contemplated by this Agreement and the Option Agreements shall be
paid by the party incurring such fees or expenses, whether or not the Merger is
consummated, except that each of UC and DSI shall bear and pay one-half of the
costs and expenses incurred in connection with (i) the filing, printing and
mailing of the Form S-4 and the Joint Proxy Statement (including SEC filing
fees) and (ii) the filings of the premerger notification and report forms under
the HSR Act (including filing fees).
(b) In the event that (i) a DSI Takeover Proposal shall have been made known
to DSI or any of its subsidiaries or has been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a DSI Takeover Proposal and thereafter this Agreement
is terminated by either UC or DSI pursuant to Section 7.01(b)(i) or (ii), or
(ii) this Agreement is terminated (x) by DSI pursuant to Section 7.01(h) or (y)
by UC pursuant to Section 7.01(e) or (f), then DSI shall promptly, but in no
event later than two days after the date of such termination, pay UC a fee equal
to $45 million (the "Termination Fee"), payable by wire transfer of same day
funds; PROVIDED, HOWEVER,
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that no Termination Fee shall be payable to UC pursuant to clause (i) of this
paragraph (b) or pursuant to a termination by UC pursuant to Section 7.01(e) or
(f) unless and until within 18 months of such termination DSI or any of its
subsidiaries enters into any DSI Acquisition Agreement or consummates any DSI
Takeover Proposal (for the purposes of the foregoing proviso the terms "DSI
Acquisition Agreement" and "DSI Takeover Proposal" shall have the meanings
assigned to such terms in Section 4.02 except that the references to "20%" in
the definition of "DSI Takeover Proposal" in Section 4.02(a) shall be deemed to
be references to "35%"). DSI acknowledges that the agreements contained in this
Section 5.09(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, UC would not enter into this
Agreement; accordingly, if DSI fails promptly to pay the amount due pursuant to
this Section 5.09(b), and, in order to obtain such payment, UC commences a suit
which results in a judgment against DSI for the fee set forth in this Section
5.09(b), DSI shall pay to UC its costs and expenses (including attorneys' fees
and expenses) in connection with such suit, together with interest on the amount
of the fee at the prime rate of Citibank N.A. in effect on the date such payment
was required to be made. In the event of a termination by UC pursuant to Section
7.01(e) or (f), DSI shall promptly pay upon UC's request all out-of-pocket
expenses incurred by UC in connection with this Agreement, the Option Agreements
and the transactions contemplated hereby and thereby in an amount not to exceed
$5 million, which payments shall be credited against any Termination Fee that
may subsequently become payable.
(c) In the event that (i) a UC Takeover Proposal shall have been made known
to UC or any of its subsidiaries or has been made directly to its stockholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make a UC Takeover Proposal and thereafter this Agreement is
terminated by either UC or DSI pursuant to Section 7.01(b)(i) or (iii), or (ii)
this Agreement is terminated (x) by UC pursuant to Section 7.01(d) or (y) by DSI
pursuant to Section 7.01(i) or (j), then UC shall promptly, but in no event
later than two days after the date of such termination, pay DSI the Termination
Fee, payable by wire transfer of same day funds; PROVIDED, HOWEVER, that no
Termination Fee shall be payable to DSI pursuant to clause (i) of this paragraph
(c) or pursuant to a termination by DSI pursuant to Section 7.01(i) or (j)
unless and until within 18 months of such termination UC or any of its
subsidiaries enters into any UC Acquisition Agreement or consummates any UC
Takeover Proposal (for the purposes of the foregoing proviso the terms "UC
Acquisition Agreement" and "UC Takeover Proposal" shall have the meanings
assigned to such terms in Section 4.03 except that the references to "20%" in
the definition of "UC Takeover Proposal" in Section 4.03(a) shall be deemed to
be references to "35%"). UC acknowledges that the agreements contained in this
Section 5.09(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, DSI would not enter into this
Agreement; accordingly, if UC fails promptly to pay the amount due pursuant to
this Section 5.09(c), and, in order to obtain such payment, DSI commences a suit
which results in a judgment against UC for the fee set forth in this Section
5.09(c), UC shall pay to DSI its costs and expenses (including attorneys' fees
and expenses) in connection with such suit, together with interest on the amount
of the fee at the prime rate of Citibank N.A. in effect on the date such payment
was required to be made. In the event of a termination by DSI pursuant to
Section 7.01(i) or (j), UC shall promptly pay upon DSI's request all
out-of-pocket expenses incurred by DSI in connection with this Agreement, the
Option Agreements and the transactions contemplated hereby and thereby in an
amount not to exceed $5 million, which payments shall be credited against any
Termination Fee that may subsequently become payable.
SECTION 5.10. PUBLIC ANNOUNCEMENTS. UC and DSI will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, any press release or other public statements with respect
to the transactions contemplated by this Agreement, including the Merger, and
the Option Agreements, and shall not issue any such press release or make any
such public statement prior to such consultation, except as either party may
determine is required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange. The
parties agree that the initial press release to be issued with respect to the
transactions contemplated by this Agreement and the Option Agreements shall be
in the form heretofore agreed to by the parties.
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SECTION 5.11. AFFILIATES. Prior to the Closing Date, DSI shall deliver to
UC a letter identifying all persons who are, at the time this Agreement is
submitted for adoption by to the stockholders of DSI, "affiliates" of DSI for
purposes of Rule 145 under the Securities Act or for purposes of qualifying the
Merger for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations. DSI shall
use all reasonable efforts to cause each such person to deliver to UC on or
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit C hereto. UC shall use reasonable efforts to cause all persons who
are "affiliates" of UC for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations to comply with the fourth
paragraph of Exhibit C hereto.
SECTION 5.12. NYSE LISTING. UC shall use reasonable efforts to cause the
shares of UC Common Stock to be issued in the Merger, under the DSI Stock Plans
and pursuant to the UC Stock Option Agreement to be approved for listing on the
NYSE, subject to official notice of issuance, prior to the Closing Date. DSI
shall use reasonable efforts to cause the shares of DSI Common Stock to be
issued pursuant to the DSI Stock Option Agreement to be approved for listing on
the NYSE, subject to official notice of issuance, prior to the Closing Date.
SECTION 5.13. STOCKHOLDER LITIGATION. Each of DSI and UC shall give the
other the reasonable opportunity to participate in the defense of any
stockholder litigation against DSI or UC, as applicable, and its directors
relating to the transactions contemplated by this Agreement.
SECTION 5.14. TAX TREATMENT. Each of UC and DSI shall use reasonable
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.02 and 6.03.
SECTION 5.15. POOLING OF INTERESTS. Each of DSI and UC will use reasonable
efforts to cause the transactions contemplated by this Agreement, including the
Merger, and the Option Agreements to be accounted for as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by each of DSI's and
UC's independent certified public accountants, and by the SEC, respectively, and
each of DSI and UC agrees that it will voluntarily take no action that would
cause such accounting treatment not to be obtained.
SECTION 5.16. DSI RIGHTS AGREEMENT. The Board of Directors of DSI shall
take all further action (in addition to that referred to in Section 3.01(s))
reasonably requested in writing by UC (including redeeming the DSI Rights
immediately prior to the Effective Time or amending the DSI Rights Agreement) in
order to render the DSI Rights inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option Agreements to the
extent provided herein and in the DSI Rights Plan Amendment. Except as provided
above with respect to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, the Board of Directors of DSI shall not (a)
amend the DSI Rights Agreement or (b) take any action with respect to, or make
any determination under, the DSI Rights Agreement, including a redemption of the
DSI Rights or any action to facilitate a DSI Takeover Proposal.
SECTION 5.17. UC RIGHTS AGREEMENT. The Board of Directors of UC shall take
all further action (in addition to that referred to in Section 3.02(s))
reasonably requested in writing by DSI (including redeeming the UC Rights
immediately prior to the Effective Time or amending the UC Rights Agreement) in
order to render the UC Rights inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option Agreements to the
extent provided herein and in the UC Rights Plan Amendment. Except as provided
above with respect to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, the Board of Directors of UC shall not (a)
amend the UC Rights Agreement or (b) take any action with respect to, or make
any determination under, the UC Rights Agreement, including a redemption of the
UC Rights or any action to facilitate a UC Takeover Proposal.
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SECTION 5.18. HEADQUARTERS. UC and DSI each agree that following the
consummation of the Merger the corporate headquarters of UC shall be located in
San Antonio, Texas, and each agrees to take all necessary action to effect the
relocation of UC's corporate headquarters.
SECTION 5.19. UC CONVERTIBLE PREFERRED STOCK. Prior to the Effective Time,
the Board of Directors of UC will take all necessary action to establish the
terms of the UC Convertible Preferred Stock as contemplated by this Agreement
and file a certificate of designations (the "Certificate of Designations") with
respect to the UC Convertible Preferred Stock with the Delaware Secretary of
State, all in accordance with the applicable provisions of the DGCL. The
Certificate of Designations will in all respects be identical to the existing
certificate of designations for the DSI Convertible Preferred Stock except (a)
as set forth in Section 2.01(c)(i), and (b) that the Certificate of Designations
will state that UC's obligations to pay dividends will commence on March 15,
June 15, September 15 or December 15, whichever first occurs following the
Effective Time.
SECTION 5.20. INDEMNIFICATION AGREEMENTS. UC and DSI agree that as soon as
practicable after the Effective Time the Surviving Corporation will enter into
indemnification agreements with the directors and officers of the Surviving
Corporation providing for indemnification on the terms set forth in the by-laws
of the Surviving Corporation, as amended pursuant to Section 1.05.
SECTION 5.21. CERTAIN TAX MATTERS. UC and DSI agree that they will not
treat the Merger as a change in the ownership or effective control of UC or a
change in the ownership of a substantial portion of the assets of UC, each
within the meaning of Section 280G of the Code, unless otherwise required by a
determination (as defined in Section 1313 of the Code).
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVALS. Each of the DSI Stockholder Approval and
the UC Stockholder Approval shall have been obtained.
(b) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, decree, statute,
law, ordinance, rule, regulation, temporary restraining order, preliminary
or permanent injunction or other order enacted, entered, promulgated,
enforced or issued by any court of competent jurisdiction or other
Governmental Entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger shall be in effect;
PROVIDED, HOWEVER, that each of the parties shall have used reasonable
efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(d) NO LITIGATION. There shall not be pending any suit, action or
proceeding, in each case brought by any Governmental Entity and (i) seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or the Option Agreements or
seeking to obtain from either of DSI or UC any damages that are material in
relation to DSI and its subsidiaries taken as a whole or UC and its
subsidiaries taken as a whole, as applicable, (ii) seeking to prohibit or
limit the ownership or operation by DSI, UC or any of their respective
subsidiaries of any material portion of the business or assets of DSI, UC or
any of their respective subsidiaries, or to compel DSI, UC or any of their
respective subsidiaries to dispose of or hold separate any material portion
of the business or assets of DSI, UC or any of their respective
subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement or the Option Agreements or (iii) which
otherwise could reasonably be expected to have a material adverse effect on
DSI or
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UC, as applicable. In addition, there shall not be any Restraint enacted,
entered, enforced or promulgated that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses
(ii) or (iii) above.
(e) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(f) NYSE LISTING. The shares of UC Common Stock issuable to DSI's
stockholders pursuant to this Agreement and under the DSI Stock Plans shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
(g) POOLING LETTERS. UC and DSI shall have received letters from each
of Price Waterhouse LLP and Ernst & Young LLP, dated as of the Closing Date,
addressed to UC and DSI, stating in substance that the Merger will qualify
as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF UC. The obligation of UC to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of DSI set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of DSI set
forth in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date, except
to the extent such representations and warranties expressly relate to an
earlier date (in which case as of such date), and UC shall have received a
certificate signed on behalf of DSI by the chief executive officer and the
chief financial officer of DSI to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF DSI. DSI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and UC shall have received a
certificate signed on behalf of DSI by the chief executive officer and the
chief financial officer of DSI to such effect.
(c) TAX OPINIONS. UC shall have received from Cravath, Swaine & Moore,
counsel to UC, on the date of the Joint Proxy Statement and on the Closing
Date, opinions, in each case dated as of such respective dates and stating
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that UC
and DSI will each be a party to that reorganization within the meaning of
Section 368(b) of the Code and that no gain or loss will be recognized by
the shareholders of DSI upon their exchange of DSI stock for UC stock under
Section 354 of the Code (except to the extent such a shareholder receives
cash in lieu of fractional shares). In rendering such opinions, counsel for
UC shall be entitled to rely upon representations of officers of UC, DSI and
stockholders of DSI substantially in the form of Exhibits D, E and F hereto.
(d) NO MATERIAL ADVERSE CHANGE. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating
to DSI.
SECTION 6.03. CONDITIONS TO OBLIGATION OF DSI. The obligation of DSI to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of UC set forth in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of UC set forth
in this Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except to the
extent such representations expressly relate to an earlier date (in which
case as of such date), and DSI shall have received a certificate signed on
behalf of UC by the chief executive officer and the chief financial officer
of UC to such effect.
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(b) PERFORMANCE OF OBLIGATIONS OF UC. UC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and DSI shall have received a
certificate signed on behalf of UC by the chief executive officer and the
chief financial officer of UC to such effect.
(c) TAX OPINIONS. DSI shall have received from Jones, Day, Reavis &
Pogue, counsel to DSI, on the date of the Joint Proxy Statement and on the
Closing Date, opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that UC
and DSI will each be a party to that reorganization within the meaning of
Section 368(b) of the Code and that no gain or loss will be recognized by
the shareholders of DSI upon their exchange of DSI stock for UC stock under
Section 354 of the Code (except to the extent such a shareholder receives
cash in lieu of fractional shares). In rendering such opinions, counsel for
DSI shall be entitled to rely upon representations of officers of UC, DSI
and stockholders of DSI substantially in the form of Exhibits D, E and F
hereto.
(d) NO MATERIAL ADVERSE CHANGE. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating
to UC.
SECTION 6.04. FRUSTRATION OF CLOSING CONDITIONS. Neither UC nor DSI may
rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as
the case may be, to be satisfied if such failure was caused by such party's
failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.05.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the DSI Stockholder
Approval or the UC Stockholder Approval:
(a) by mutual written consent of UC and DSI;
(b) by either UC or DSI:
(i) if the Merger shall not have been consummated by February 28,
1997; PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to this Section 7.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) if the DSI Stockholder Approval shall not have been obtained at
a DSI Stockholders Meeting duly convened therefor or at any adjournment
or postponement thereof;
(iii) if the UC Stockholder Approval shall not have been obtained at
a UC Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other
transactions contemplated by this Agreement and the Option Agreements and
such Restraint or other action shall have become final and nonappealable;
(c) by UC, if DSI shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.02(a) or (b), and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to DSI of such breach (a "DSI Material Breach") (provided that UC is not
then in UC Material Breach (as defined in Section 7.01(g)) of any
representation, warranty, covenant or other agreement contained in this
Agreement);
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(d) by UC in accordance with Section 4.03(b); PROVIDED that it has complied
with all provisions thereof, including the notice provisions therein, and that
it complies with applicable requirements of Section 5.09;
(e) by UC if (i) the Board of Directors of DSI or any committee thereof
shall have withdrawn or modified in a manner adverse to UC its approval or
recommendation of the Merger or this Agreement or failed to reconfirm its
recommendation within 15 business days after a written request to do so, or
approved or recommended any DSI Takeover Proposal or (ii) the Board of Directors
of DSI or any committee thereof shall have resolved to take any of the foregoing
actions;
(f) by UC, if DSI or any of its officers, directors, employees,
representatives or agents shall take any of the actions that would be proscribed
by Section 4.02 but for the exceptions therein allowing certain actions to be
taken pursuant to the proviso in the first sentence of Section 4.02(a) or the
second sentence of Section 4.02(b);
(g) by DSI, if UC shall have breached or failed to perform in any material
respect any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.03(a) or (b), and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to UC of such breach (a "UC Material Breach") (provided that DSI is not
then in DSI Material Breach of any representation, warranty, covenant or other
agreement contained in this Agreement);
(h) by DSI in accordance with Section 4.02(b); PROVIDED that it has complied
with all provisions thereof, including the notice provisions therein, and that
it complies with applicable requirements of Section 5.09;
(i) by DSI if (i) the Board of Directors of UC or any committee thereof
shall have withdrawn or modified in a manner adverse to DSI its approval or
recommendation of the Merger, this Agreement or the issuance of UC Common Stock
in connection with the Merger, or failed to reconfirm its recommendation within
15 business days after a written request to do so, or approved or recommended
any UC Takeover Proposal or (ii) the Board of Directors of UC or any committee
thereof shall have resolved to take any of the foregoing actions; or
(j) by DSI, if UC or any of its officers, directors, employees,
representatives or agents shall take any of the actions that would be proscribed
by Section 4.03 but for the exceptions therein allowing certain actions to be
taken pursuant to the proviso in the first sentence of Section 4.03(a) or the
second sentence of Section 4.03(b).
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either DSI or UC as provided in Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of UC or DSI, other than the provisions of Section 3.01(p), Section
3.02(p), the last sentence of Section 5.04, Section 5.09, this Section 7.02 and
Article VIII and except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.03. AMENDMENT. This Agreement may be amended by the parties at
any time before or after the DSI Stockholder Approval or the UC Stockholder
Approval; provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders of
DSI or UC without the further approval of such stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
SECTION 7.04. EXTENSION; WAIVER. At any time prior to the Effective Time,
a party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.03, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an
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instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
SECTION 7.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require, in the case of UC or DSI, action
by its Board of Directors or, with respect to any amendment to this Agreement,
the duly authorized committee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to UC, to
Ultramar Corporation
Two Pickwick Plaza, Suite 300
Greenwich, Connecticut 06830
Telecopy No.: (203) 622-7007
Attention: Patrick J. Guarino, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: William P. Rogers, Jr.; and
(b) if to DSI, to
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Telecopy No.: (210) 641-8885
Attention: Timothy J. Fretthold, Esq.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 30th Floor
New York, New York 10022
Telecopy No.: (212) 755-7306
Attention: Robert A. Profusek, Esq.
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SECTION 8.03. DEFINITIONS. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when used
in connection with DSI or UC, any change, effect, event or occurrence that is
materially adverse to the business, financial condition or results of operations
of such party and its subsidiaries taken as a whole other than any change,
effect, event or occurrence relating to the United States economy in general or
to the petroleum refining and marketing industry in general, and not
specifically relating to DSI or UC or their respective subsidiaries, and the
terms "material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person; and
(e) "knowledge" of any person which is not an individual means the knowledge
of such person's executive officers after reasonable inquiry.
SECTION 8.04. INTERPRETATION. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein), the
Option Agreements and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Article II, Section 5.06 and Section 5.08,
are not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of
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the parties hereto without the prior written consent of the other party. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 8.09. ENFORCEMENT. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court.
IN WITNESS WHEREOF, UC and DSI have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all as of the date first
written above.
ULTRAMAR CORPORATION,
by
/s/ JEAN GAULIN
---------------------------------------------------------------------------
Name: Jean Gaulin
Title: Chairman of the Board and
Chief Executive Officer
DIAMOND SHAMROCK, INC.,
by
/s/ ROGER R. HEMMINGHAUS
---------------------------------------------------------------------------
Name: Roger R. Hemminghaus
Title: Chairman of the Board,
Chief Executive Officer and President
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<PAGE>
EXHIBIT A
TO THE MERGER AGREEMENT
AMENDMENTS TO UC CERTIFICATE
OF INCORPORATION AND BY-LAWS
The certificate of incorporation of UC shall be amended as of the Effective
Time so that (i) it reads in its entirety as it exists on the date of the
Agreement and as otherwise set forth herein, (ii) Article FIRST of such
certificate of incorporation reads in its entirety as follows: "The name of the
Corporation is Ultramar Diamond Shamrock Corp. (hereinafter the
"Corporation").", (iii) Section 1 of Article FOURTH of such certificate of
incorporation reads in its entirety as follows: "The total number of shares
which the Corporation shall have authority to issue is 275,000,000 shares,
consisting of (a) 250,000,000 shares of common stock, par value $.01 per share
(the "Common Stock"), and (ii) 25,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock").", and (iv) there shall be added an
Article Eleventh which reads in its entirety as follows: "ELEVENTH: With respect
to any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting, unless required by law or
determined by the chairman of the meeting to be advisable, the vote on any
matter, including the election of directors, need not be by written ballot."
The by-laws of UC shall be amended as of the Effective Time so that they
read in their entirety as they exist on the date of the Agreement except that:
(i) Section 1 of Article IV of such by-laws reads in its entirety as
follows:
"SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chairman of the Board of Directors
(who must be a director), a Vice Chairman of the Board of Directors (who
also must be a director), a Chief Executive Officer, a President and Chief
Operating Officer, a Secretary and a Treasurer. The Board of Directors, in
its discretion, may also choose one or more Vice Presidents (including,
without limitation, Assistant, Executive, Senior and Group), Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices
may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the
case of the Chairman of the Board of Directors and the Vice Chairman of the
Board of Directors, need such officers be directors of the Corporation.";
(ii) Sections 4, 5 and 6 of Article IV of such by-laws read in their
entirety as follows:
"SECTION 4. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the
signature of the Chief Executive Officer or the President and Chief
Operating Officer is required, the Chairman of the Board of Directors shall
possess the same power as the Chief Executive Officer or the President and
Chief Operating Officer to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the Chief Executive Officer
or President and Chief Operating Officer, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
Chief Executive Officer or President and Chief Operating Officer, as
applicable. The Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these By-laws or by the Board of Directors. The Vice
Chairman of the Board of Directors shall, during the absence or disability
of the Chairman of the Board of Directors, have the powers and perform the
duties of the Chairman of the Board of Directors and shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by the Board of Directors. Notwithstanding anything in these
By-laws to the contrary, the Chairman of the Board of Directors and the Vice
Chairman of the Board of Directors may only be removed from such offices
(but not as directors) by an affirmative vote of the majority of the entire
Board of Directors.
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"SECTION 5. CHIEF EXECUTIVE OFFICER AND PRESIDENT AND CHIEF OPERATING
OFFICER. The Chief Executive Officer shall, subject to the control of the
Board of Directors and the Chairman of the Board of Directors (or during his
absence or disability, the Vice Chairman of the Board of Directors), have
general supervision of the business and affairs of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried
into effect. He shall possess the power to execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under
the seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these
By-laws, the Board of Directors or the Chief Executive Officer. In the
absence or disability of both the Chairman of the Board of Directors and the
Vice Chairman of the Board of Directors, the Chief Executive Officer shall
preside at all meetings of the stockholders and the Board of Directors. The
Chief Executive Officer shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by
these By-laws or by the Board of Directors. The President and Chief
Operating Officer (hereinafter sometimes referred to only as the
"President") shall, subject to the direction and control of the Board of
Directors, and the supervision of the Chairman of the Board of Directors (or
during his absence or disability, the Vice Chairman of the Board of
Directors) and the Chief Executive Officer, have general supervision of the
business operations of the Corporation. The President and Chief Operating
Officer shall, during the absence or disability of the Chief Executive
Officer, have the powers and perform the duties of the Chief Executive
Officer and shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-laws or the
Board of Directors. Notwithstanding anything in these By-laws to the
contrary, the Chief Executive Officer and the President and Chief Operating
Officer may only be removed from such offices by an affirmative vote of the
majority of the entire Board of Directors.
"SECTION 6. VICE PRESIDENTS. At the request of the Chief Executive
Officer or in his absence or in the event of his inability or refusal to act
(and if there be no Chairman of the Board of Directors, Vice Chairman of the
Board of Directors or President and Chief Operating Officer), the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. Each Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman
of the Board of Directors, no Vice Chairman of the Board of Directors, no
President and Chief Operating Officer and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence
of the Chief Executive Officer or in the event of the inability or refusal
of the Chief Executive Officer to act, shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer."; and
(iii) Article VIII of such by-laws reads in its entirety as follows:
"ARTICLE VIII
"INDEMNIFICATION
"SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investi-gative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or an officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation
to the fullest
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extent permitted or required by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section 3 of this Article VIII with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
"SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Section 1 of this Article VIII shall include
the right to be paid by the Corporation the expenses (including, without
limitation, attorneys' fees and expenses) incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that, if the Delaware General Corporation
Law so requires, an advancement of expenses incurred by an indemnitee in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 2 or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections 1
and 2 of this Article VIII shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
"SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
Section 1 or 2 of this Article VIII is not paid in full by the Corporation
within 60 calendar days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be 20 calendar days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel or stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption
that the indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not entitled
to be indemnified, or to such advancement of expenses, under this Article
VIII or otherwise shall be on the Corporation.
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"SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification
and to the advancement of expenses conferred in this Article VIII shall not
be exclusive of any other right which any person may have or hereafter
acquire under any statute, the Corporation's Certificate of Incorporation,
By-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
"SECTION 5. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
"SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION. The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation."
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EXHIBIT B
TO THE MERGER AGREEMENT
BOARD OF DIRECTORS
The Board of Directors of the Surviving Corporation will consist of Roger R.
Hemminghaus, Jean Gaulin and ten other members, five of whom shall be designated
by each of UC and DSI. Roger R. Hemminghaus will serve as Chairman of the Board
of Directors and Jean Gaulin will serve as Vice Chairman of the Board of
Directors, and in such capacities each shall be considered officers of the
Surving Corporation for the purposes of this Agreement, including this Exhibit B
and Section 1.06. Each class of the Board of Directors will be comprised of four
directors, of which two shall be designated by each of UC and DSI. For the
purposes of this Exhibit B and Section 1.06, Jean Gaulin shall be deemed
designated by UC and Roger R. Hemminghaus shall be deemed designated by DSI.
COMMITTEES OF THE BOARD OF DIRECTORS AND CHAIRMEN OF COMMITTEES
The Board of Directors shall initially have four committees, the finance and
planning committee, the compensation committee, the audit review committee and
the public responsibility committee . Each committee will be comprised of four
directors, of which two shall be designated by each of UC and DSI. UC will
designate the chairman of the finance and planning committee and the
compensation committee and DSI will designate the chairman of the audit review
committee and the public responsibility committee.
OFFICERS
<TABLE>
<S> <C>
Roger R. Hemminghaus Chairman of the Board of Directors and Chief
Executive Officer
Jean Gaulin Vice Chairman of the Board of Directors,
President and Chief Operating Officer
T. J. Fretthold Executive Vice President and Chief
Administrative Officer
Patrick J. Guarino Executive Vice President, General Counsel
and Secretary
W. R. Klesse Executive Vice President Logistics and
Supply
J. Robert Mehall Executive Vice President Corporate
Development
H. Pete Smith Executive Vice President and Chief Financial
Officer
Joel Mascitelli Senior Vice President Refining West Coast
Paul Eisman Senior Vice President Refining Southwest
Alain Ferland President Ultramar Limited
Christopher Havens President Ultramar Energy
A. W. O'Donnell President Marketing Southwest and West Coast
</TABLE>
A-46
<PAGE>
APPENDIX B
[Letterhead of Merrill Lynch & Co.]
[FORM OF OPINION]
, 1996
Board of Directors
Ultramar Corporation
Two Pickwick Plaza
Greenwich, Connecticut 06830
Members of the Board:
Ultramar Corporation ("Ultramar") and Diamond Shamrock, Inc. ("Diamond
Shamrock") have entered into an agreement and plan of merger dated as of
September 22, 1996 (the "Agreement") pursuant to which Diamond Shamrock will be
merged with and into Ultramar in a transaction (the "Merger") in which (1) each
share of Diamond Shamrock's common stock, par value $.01 per share (the "Common
Shares"), will be converted into the right to receive 1.02 shares (the "Exchange
Ratio") of Ultramar's common stock, par value $.01 per share (the "Ultramar
Common Shares"), and (2) each share of Diamond Shamrock's 5% cumulative
convertible preferred stock, par value $.01 per share, will be converted into
the right to receive one share of Ultramar's 5% cumulative convertible preferred
stock, par value $.01 per share. In connection with the Merger, Ultramar and
Diamond Shamrock also have entered into (a) a stock option agreement dated as of
September 22, 1996 (the "Diamond Shamrock Stock Option Agreement") pursuant to
which Diamond Shamrock will grant Ultramar an option to purchase up to 5,858,500
Common Shares, subject to certain limitations, and (b) a stock option agreement
dated as of September 22, 1996 (together with the Diamond Shamrock Stock Option
Agreement, the "Stock Option Agreements") pursuant to which Ultramar will grant
Diamond Shamrock an option to purchase up to 8,927,500 Ultramar Common Shares,
subject to certain limitations.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view to Ultramar and, accordingly, to the holders of Ultramar
Common Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Diamond Shamrock's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1995,
Diamond Shamrock's Forms 10-Q and 10-Q/A and related unaudited financial
information for the quarterly period ended March 31, 1996 and Diamond
Shamrock's Form 10-Q and related unaudited financial information for the
quarterly period ended June 30, 1996;
(2) Reviewed Ultramar's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Ultramar's Forms 10-Q and related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996;
(3) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities, prospects and
margins of Diamond Shamrock and Ultramar, as well as the cost savings and
related expenses, synergies and other merger benefits expected to result
from the Merger, furnished to us by Diamond Shamrock and Ultramar;
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(4) Conducted discussions with members of senior management of Diamond
Shamrock and Ultramar concerning their respective businesses, prospects
and the cost savings and related expenses, synergies and other merger
benefits expected to result from the Merger;
(5) Reviewed the historical market prices and trading activity for the
Common Shares and Ultramar Common Shares and compared them with those of
certain publicly traded companies that we deemed to be reasonably similar
to Diamond Shamrock and Ultramar, respectively;
(6) Compared the historical and projected results of operations of Diamond
Shamrock and Ultramar with those of certain companies that we deemed to
be reasonably similar to Diamond Shamrock and Ultramar, respectively;
(7) Reviewed the financial terms of certain other business combinations that
we deemed to be relevant;
(8) Reviewed the Agreement and the Stock Option Agreements; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by Diamond Shamrock
and Ultramar, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of Diamond
Shamrock or Ultramar. With respect to the financial forecasts, including the
projected margins, and the information related to the cost savings and related
expenses, synergies and other merger benefits expected to result from the Merger
furnished by Diamond Shamrock and Ultramar, we have assumed that such forecasts
and information have been reasonably prepared and reflect the best currently
available estimates and judgments of the management of Diamond Shamrock or
Ultramar as to the expected future financial performance of Diamond Shamrock or
Ultramar, as the case may be, as well as such savings, expenses, synergies and
other benefits. In addition, we have assumed that the Merger will qualify for
pooling-of-interests accounting treatment in accordance with generally accepted
accounting principles and as a tax-free reorganization for United States Federal
income tax purposes. Our opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the date
hereof.
As you are aware, we have acted as financial advisor to Ultramar in
connection with the Merger and will receive fees from Ultramar for our services.
We also have, in the past, provided financial advisory and financing services to
Ultramar and provided financing services to Diamond Shamrock and have received
fees for the rendering of such services. In addition, in the ordinary course of
our business, we may actively trade the securities of Ultramar and Diamond
Shamrock for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair from a financial point of view to Ultramar and,
accordingly, to the holders of Ultramar Common Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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APPENDIX C
FORM OF OPINION OF WASSERSTEIN PERELLA & CO., INC.
October , 1996
Board of Directors
Diamond Shamrock, Inc.
9830 Colonnade Boulevard
P.O. Box 696000
San Antonio, Texas 78269-6000
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of shares of Common Stock, par value
$.01 per share (the "Shares"), of Diamond Shamrock, Inc. (the "Company") of the
consideration to be received by holders of Shares pursuant to the terms of the
Agreement and Plan of Merger, dated as of September 22, 1996 (the "Merger
Agreement"), between the Company and Ultramar Corporation ("UC"). The Merger
Agreement provides for, among other things, a merger of the Company with and
into UC ("the Merger") pursuant to which each outstanding Share will be
converted into 1.02 shares of common stock, par value $.01 per share, of UC (the
"Exchange Ratio").
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company and UC for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, prepared by or on behalf
of the Company and UC and provided to us for purposes of our analysis, and we
have met with management of the Company and UC to review and discuss such
information and, among other matters, the Company's and UC's business,
operations, assets, financial condition and future prospectus.
We have also reviewed and considered certain financial and stock market data
relating to the Company and UC, and we have compared that data with similar data
for certain other companies, the securities of which are publicly traded, that
we believe may be relevant or comparable in certain respects to the Company and
UC or one or more of their businesses or assets, and we have reviewed and
considered the financial terms of certain recent acquisitions and business
combinations which we believe to be reasonably comparable to the Merger or
otherwise relevant to our inquiry. We also performed such other studies,
analyses and investigations and reviewed such other information as we considered
appropriate.
You have informed us, and we have assumed, that the Merger will be accounted
for as a pooling of interests. In addition, in our review and analysis and in
formulating our opinion, we have assumed and relied upon the accuracy and
completeness of all the financial and other information provided to or discussed
with us or publicly available, and we have not assumed any responsibility for
independent verification of any of such information. We have also relied upon
the reasonableness and accuracy of the financial forecasts provided to us and we
have assumed, with your consent, that the financial forecasts provided to us
were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the managements of the Company
and UC, and we express no opinion with respect to such forecasts or the
assumptions upon which they are based. In addition, we have not reviewed any of
the books and records of the Company or UC or assumed any responsibility for
conducting a physical inspection of the properties or facilities of the Company
or UC, or for making or obtaining an independent valuation or appraisal of the
assets or liabilities of the Company or UC. Our opinion is necessarily based on
economic and market conditions and other circumstances as they exist and can be
evaluated by us as of the date hereof.
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We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a major portion of which is
contingent upon the consummation of the Merger. WP&Co. has performed advisory
services for the Company in the past and has received customary fees for those
services.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger. This
opinion does not constitute a recommendation to any shareholder with respect to
how such holder should vote with respect to the Merger and should not be relied
upon as such, and we are expressing no opinion herein as to the prices at which
any security of the Company or UC may trade following the announcement or
completion of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Exchange Ratio provided for pursuant to the Merger Agreement is fair to the
holders of Shares from a financial point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
C-2
<PAGE>
APPENDIX D
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; and words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section, provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the date
the notice is given; provided that, if the notice is given on or
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after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following discussion of Ultramar's By-laws, the Ultramar Charter,
Ultramar's employment agreements and the DGCL is not intended to be exclusive
and is respectively qualified in its entirety by such By-laws, Charter,
employment agreements and statute.
The By-laws of Ultramar provide that Ultramar shall indemnify its officers
and directors to the fullest extent permitted by applicable law. Section 145 of
the DGCL provides, in general, that each director and officer of a corporation
may be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with the defense or settlement of any threatened, pending or
completed legal proceedings in which he or she is involved by reason of the fact
that he or she is or was a director or officer, if he or she acted in good faith
and in a manner that he or she reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, if he or she had no reasonable cause to believe that his or her
conduct was unlawful. If the legal proceeding, however, is by or in the right of
the corporation, the director or officer may not be indemnified in respect of
any claim, issue or matter as to which he or she shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
company unless a court determines otherwise.
The Ultramar Charter provides that the personal liability of the directors
of Ultramar shall be eliminated to the fullest extent permitted by applicable
law. The DGCL permits a corporation's certificate of incorporation to provide
that no director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for any breach of his
fiduciary duty as a director; provided, however, that such provision shall not
apply to any liability of a director (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions that
are not in good faith or involve intentional misconduct or a knowing violation
of the law, (iii) under Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit.
Pursuant to their employment agreements with Ultramar, Messrs. Jean Gaulin,
H. Pete Smith and Patrick J. Guarino are indemnified from all liabilities
arising out of the activities reasonably taken in the performance of their
duties.
Ultramar also maintains insurance for officers and directors against certain
liabilities, including liabilities under the Securities Act. The effect of this
insurance is to indemnify any officer or director of Ultramar against expenses,
including, without limitation, attorneys' fees, judgments, fines and amounts
paid in settlement, incurred by an officer or director upon a determination that
such person acted in good faith. The premiums for such insurance are paid by
Ultramar.
In connection with the Merger, certain actions will be taken with respect to
the indemnification of directors and officers of the Combined Company. See "The
Merger -- Indemnification."
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 22, 1996, between Ultramar and Diamond Shamrock
(included as Appendix A to the Joint Proxy Statement/Prospectus which is a part of this Registration
Statement on Form S-4)
2.2 Stock Option Agreement, dated as of September 22, 1996, between Ultramar, as issuer, and Diamond Shamrock,
as grantee (incorporated by reference to Exhibit 10.2 of Ultramar's Current Report on Form 8-K, dated
September 25, 1996)
2.3 Stock Option Agreement, dated as of September 22, 1996, between Diamond Shamrock, as issuer, and Ultramar,
as grantee (incorporated by reference to Exhibit 10.1 of Ultramar's Current Report on Form 8-K dated
September 25, 1996)
3.1 Certificate of Incorporation of Ultramar dated April 27, 1992, as amended on April 28, 1992 (incorporated
by reference to Exhibit 3.1 of Ultramar's Registration Statement on Form S-1 (File No. 33-47586))
3.2 By-laws of Ultramar, dated April 28, 1992, as amended (incorporated by reference to Exhibit 3.2 of
Ultramar's Registration Statement on Form S-1 (File No. 33-47586))
4.1 Rights Agreement, dated June 25, 1992, between Ultramar and Registrar and Transfer Company (as successor
rights agent to First City, Texas-Houston, National Association), as amended by the First Amendment dated
October 26, 1992, the Amendment dated May 10, 1994 and the Amendment dated September 22, 1996
(incorporated by reference to Exhibit 4.2 of Ultramar's Registration Statement on Form S-1 (File No.
33-47586), Exhibit 4.2 of Ultramar's Quarterly Report on Form 10-Q for the quarter ended September 30,
1992, Exhibit 4.3 to Ultramar's Annual Report on Form 10-K for the year ended December 31, 1994 and
Exhibit 4.1 of Ultramar's Current Report on Form 8-K dated September 25, 1996)
4.2 Form of Certificate of Designations of Ultramar 5% Cumulative Convertible Preferred Stock
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of securities being issued
8.1 Opinion of Jones, Day, Reavis & Pogue as to tax matters
10.1 Employment Agreement, dated September 22, 1996, between Jean Gaulin and Ultramar
10.2 Ultramar Diamond Shamrock Corporation 1996 Long Term Incentive Plan
11.1 Statement re: Computation of per share earnings of Ultramar
12.1 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of Ultramar Corporation
12.2 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of Diamond Shamrock, Inc.
12.3 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
of Diamond Shamrock, Inc.
12.4 Statement re: Computation of Pro Forma Combined Ratio of Earnings to Fixed Charges of Ultramar Diamond
Shamrock Corporation
12.5 Statement re: Computation of Pro Forma Combined Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends of Ultramar Diamond Shamrock Corporation
15.1 Price Waterhouse LLP Awareness Letter
21.1 Ultramar subsidiaries (incorporated by reference to Exhibit 21 to Ultramar's Annual Report on Form 10-K
for the year ended December 31, 1995)
23.1 Consent of Independent Auditors
23.2 Consent of Independent Accountants
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibit 5.1)
23.4 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.1)
23.5 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.6 Consent of Wasserstein, Perella & Co., Inc.
23.7 Independent Auditors' Consent
99.1 Consents of persons named to become directors of the Combined Company who have not signed the Registration
Statement
99.2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (included as Appendix B to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4)
99.3 Opinion of Wasserstein, Perella & Co., Inc. (included as Appendix C to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4)
99.4 Form of Proxy for the Special Meeting of Stockholders of Ultramar
99.5 Form of Proxy for the Special Meeting of Stockholders of Diamond Shamrock
99.6 Form of Confidential Voting Instruction Form for the Special Meeting of Stockholders of Diamond Shamrock.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is
II-3
<PAGE>
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greenwich,
State of Connecticut, on the 25th day of October, 1996.
ULTRAMAR CORPORATION
By: /s/ JEAN GAULIN
-----------------------------------------
Name: Jean Gaulin
Title: CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jean
Gaulin, H. Pete Smith and Patrick J. Guarino, and each of them acting
individually, his/her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him/her and in his/her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them acting individually, full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below on October 25, 1996, by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
Chief Executive Officer,
/s/ JEAN GAULIN Chairman of the Board
- ------------------------------ and Director (Principal
(Jean Gaulin) Executive Officer)
Senior Vice President and
/s/ H. PETE SMITH Chief Financial Officer
- ------------------------------ (Principal Financial and
(H. Pete Smith) Accounting Officer)
/s/ BYRON ALLUMBAUGH
- ------------------------------ Director
(Byron Allumbaugh)
/s/ H. FREDERICK CHRISTIE
- ------------------------------ Director
(H. Frederick Christie)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
/s/ STANLEY HARTT
- ------------------------------ Director
(Stanley Hartt)
/s/ RUSSEL H. HERMAN
- ------------------------------ Director
(Russel H. Herman)
/s/ WILLIAM F. LUCE
- ------------------------------ Director
(William F. Luce)
/s/ MADELEINE SAINT-JACQUES
- ------------------------------ Director
(Madeleine Saint-Jacques)
/s/ C. BARRY SCHAEFER
- ------------------------------ Director
(C. Barry Schaefer)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of September 22, 1996, between Ultramar and Diamond
Shamrock (included as Appendix A to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4)
2.2 Stock Option Agreement, dated as of September 22, 1996, between Ultramar, as issuer, and Diamond
Shamrock, as grantee (incorporated by reference to Exhibit 10.2 of Ultramar's Current Report on
Form 8-K, dated September 25, 1996)
2.3 Stock Option Agreement, dated as of September 22, 1996, between Diamond Shamrock, as issuer, and
Ultramar, as grantee (incorporated by reference to Exhibit 10.1 of Ultramar's Current Report on
Form 8-K dated September 25, 1996)
3.1 Certificate of Incorporation of Ultramar dated April 27, 1992, as amended on April 28, 1992
(incorporated by reference to Exhibit 3.1 of Ultramar's Registration Statement on Form S-1 (File
No. 33-47586))
3.2 By-laws of Ultramar, dated April 28, 1992, as amended (incorporated by reference to Exhibit 3.2 of
Ultramar's Registration Statement on Form S-1 (File No. 33-47586))
4.1 Rights Agreement, dated June 25, 1992, between Ultramar and Registrar and Transfer Company (as
successor rights agent to First City, Texas-Houston, National Association), as amended by the
First Amendment dated October 26, 1992, the Amendment dated May 10, 1994 and the Amendment dated
September 22, 1996 (incorporated by reference to Exhibit 4.2 of Ultramar's Registration Statement
on Form S-1 (File No. 33-47586), Exhibit 4.2 of Ultramar's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, Exhibit 4.3 to Ultramar's Annual Report on Form 10-K for the
year ended December 31, 1994 and Exhibit 4.1 of Ultramar's Current Report on Form 8-K dated
September 25, 1996)
4.2 Form of Certificate of Designations of Ultramar 5% Cumulative Convertible Preferred Stock
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of securities being issued
8.1 Opinion of Jones, Day, Reavis & Pogue as to tax matters
10.1 Employment Agreement, dated September 22, 1996, between Jean Gaulin and Ultramar
10.2 Ultramar Diamond Shamrock Corporation 1996 Long Term Incentive Plan
11.1 Statement re: Computation of per share earnings of Ultramar
12.1 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of Ultramar
Corporation
12.2 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges of Diamond Shamrock,
Inc.
12.3 Statement re: Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends of Diamond Shamrock, Inc.
12.4 Statement re: Computation of Pro Forma Combined Ratio of Earnings to Fixed Charges of Ultramar
Diamond Shamrock Corporation
12.5 Statement re: Computation of Pro Forma Combined Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends of Ultramar Diamond Shamrock Corporation
15.1 Price Waterhouse LLP Awareness Letter
21.1 Ultramar subsidiaries (incorporated by reference to Exhibit 21 to Ultramar's Annual Report on Form
10-K for the year ended December 31, 1995)
23.1 Consent of Independent Auditors
23.2 Consent of Independent Accountants
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibit 5.1)
23.4 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.1)
23.5 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.6 Consent of Wasserstein, Perella & Co., Inc.
23.7 Consent of Independent Auditors' Consent
99.1 Consents of persons named to become directors of the Combined Company who have not signed the
Registration Statement
99.2 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated (included as Appendix B to the Joint
Proxy Statement/Prospectus which is a part of this Registration Statement on Form S-4)
99.3 Opinion of Wasserstein, Perella & Co., Inc. (included as Appendix C to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4)
99.4 Form of Proxy for the Special Meeting of Stockholders of Ultramar
99.5 Form of Proxy for the Special Meeting of Stockholders of Diamond Shamrock
99.6 Form of Confidential Voting Instruction Form for the Special Meeting of Stockholders of Diamond
Shamrock
</TABLE>
<PAGE>
EXHIBIT 4.2
FORM OF
ULTRAMAR CORPORATION
CERTIFICATE OF DESIGNATIONS
5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
(PURSUANT TO SECTION 151(G) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Ultramar Corporation, a corporation organized and existing under the laws of
the State of Delaware, does hereby certify that:
FIRST: Ultramar Corporation (the "Corporation") was incorporated in the
State of Delaware on April 27, 1992;
SECOND: Pursuant to authority conferred upon the Board of Directors under
the Certificate of Incorporation of the Corporation ("Certificate") and the
provisions of Sections 141 and 151 of the General Corporation Law of the State
of Delaware, the Board of Directors of the Corporation acting at the Board of
Directors' meeting held on September 22, 1996, at which a quorum was at all
times present and voting, adopted resolutions, which are in full force and
effect and are not in conflict with any provisions of the Corporation's
Certificate or its By-laws, authorizing the undersigned to execute and deliver
this certificate of designations setting forth the number, terms, designation,
relative rights, preferences and limitations of a series of preferred stock,
$.01 par value, of the Corporation as follows:
(a) DESIGNATION. There is hereby created a class of preferred stock, $.01
par value, of this Corporation to be known as "5% Cumulative Convertible
Preferred Stock" (the "5% Preferred Stock"). The number of shares of 5%
Preferred Stock authorized for issuance is 1,725,000.
(b) STATED CAPITAL. The amount to be represented in stated capital at all
times for each share of 5% Preferred Stock shall be $.01.
(c) RANK. All 5% Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $.01 par value (the "Common Stock"), now or
hereafter issued, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
(d) DIVIDENDS. The holders of shares of 5% Preferred Stock shall be entitled
to receive dividends at the rate of $2.50 per annum per share, and no more,
which shall be fully cumulative and shall accrue without interest. Dividends
will be payable in cash quarterly on March 15, June 15, September 15, and
December 15 of each year commencing March 15, 1997 (except that if any such date
is a Saturday, Sunday or legal holiday then such dividend shall be payable on
the next day that is not a Saturday, Sunday or legal holiday) to holders of
record as they appear on the stock books of the Corporation on the applicable
record date, which shall be not more than 60 nor less than 10 days preceding the
payment date for such dividends, as are fixed by the Board of Directors, but
only when, as and if declared by the Board of Directors out of funds at the time
legally available for the payment of dividends. The amount of dividends payable
per share of 5% Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount per share by four. The amount of
dividends payable for any period shorter than a full quarterly dividend period
shall be computed on the basis of a 360-day year of twelve 30-day months. No
dividends or other distributions, other than dividends payable solely in shares
of Common Stock or other capital stock of the Corporation ranking junior as to
dividends to the 5% Preferred Stock ("Junior Dividend Stock"), shall be paid or
set apart for payment on, and no purchase, redemption or other acquisition shall
be made by the Corporation of, any shares of Common Stock or Junior Dividend
Stock unless and until all accrued and unpaid dividends on the 5% Preferred
Stock shall have been paid or declared and set apart for payment.
If at any time the Corporation shall have failed to pay, or declare and set
apart for payment, in full any accrued dividend on any capital stock of the
Corporation ranking senior as to dividends to the 5% Preferred Stock ("Senior
Dividend Stock"), in whole or in part, no dividend shall be paid or declared and
<PAGE>
set apart for payment on the 5% Preferred Stock unless and until all accrued and
unpaid dividends (plus interest, if required) with respect to the Senior
Dividend Stock shall have been paid or declared and set apart for payment,
without interest. No full cumulative dividends shall be paid or declared and set
apart for payment on any class or series of the Corporation's capital stock
ranking, as to dividends, on a parity with the 5% Preferred Stock (the "Parity
Dividend Stock") for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for such payment on the 5%
Preferred Stock for all dividend payment periods terminating on or prior to the
date of payment of such full cumulative dividends. No dividends shall be paid or
declared and set apart for payment on the 5% Preferred Stock for any period
unless full cumulative dividends have been, or contemporaneously are, paid or
declared and set apart for payment on the Parity Dividend Stock for all dividend
periods terminating on or prior to the date of payment of such dividends on the
5% Preferred Stock. When dividends are not paid in full upon the 5% Preferred
Stock and the Parity Dividend Stock, all dividends paid or declared and set
aside for payment upon shares of 5% Preferred Stock and the Parity Dividend
Stock shall be paid or declared and set aside for payment pro rata so that the
amount of dividends paid or declared and set aside for payment per share on the
5% Preferred Stock and the Parity Dividend Stock shall in all cases bear to each
other the same ratio that accrued and unpaid dividends per share on the shares
of 5% Preferred Stock and the Parity Dividend Stock bear to each other.
Any reference to "distribution" contained in this Paragraph (d) shall not be
deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary.
(e) LIQUIDATION PREFERENCE. In the event of a liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
5% Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are stated capital or surplus of any nature, an
amount equal to the dividends accrued and unpaid thereon as of the date of final
distribution to such holders, whether or not declared, without interest, and a
sum equal to $50.00 per share, and no more, before any payment shall be made or
any assets distributed to the holders of Common Stock or any other class or
series of the Corporation's capital stock ranking junior as to liquidation
rights to the 5% Preferred Stock (the "Junior Liquidation Stock"); provided,
however, that such rights shall accrue to the holders of 5% Preferred Stock only
in the event that the Corporation's payments with respect to the liquidation
preferences of the holders of capital stock of the Corporation ranking senior as
to liquidation rights to the 5% Preferred Stock (the "Senior Liquidation Stock")
are fully met. The entire assets of the Corporation available for distribution
after the liquidation preferences of the Senior Liquidation Stock are fully met
shall be distributed ratably among the holders of the 5% Preferred Stock and any
other class or series of the Corporation's capital stock which may hereafter be
created having parity as to liquidation rights with the 5% Preferred Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). Neither a consolidation or
merger of the Corporation with another corporation nor a sale or transfer of all
or part of the Corporation's assets for cash, securities or other property will
be considered a liquidation, dissolution or winding up of the Corporation.
(f) REDEMPTION AT OPTION OF THE CORPORATION. The Corporation, at its option,
may at any time prior to June 14, 2000, redeem all or any part of the 5%
Preferred Stock on any date set by the Board of Directors of the Corporation by
issuing for each share of 5% Preferred Stock being redeemed such number of
shares of Common Stock as are equal to $50.00 divided by the Conversion Price
(as defined in Paragraph (h) below), and by paying an amount in cash equal to
accrued and unpaid dividends to the date fixed for redemption. The Corporation
may exercise such option only if, for 20 of any 30 consecutive trading days,
including the last trading day of such period, the Closing Price (as defined in
Paragraph (h) below) of the Common Stock exceeds 130% of the Conversion Price of
the Common Stock in effect on the last trading day of such 30-trading-day
period. To exercise its redemption right under this Paragraph (f), the
Corporation must issue a press release announcing the redemption prior to 9:00
a.m. New York City time on the second trading day after the end of any such
30-consecutive-trading day period described in the preceding sentence. On or
after June 15, 2000, the 5% Preferred Stock is redeemable
2
<PAGE>
for cash, in whole or in part, at any time at the option of the Corporation, at
a redemption price of $50.00 per share plus accrued and unpaid dividends to the
date fixed for redemption.
If the Corporation intends to redeem less than all of the then-outstanding
shares of 5% Preferred Stock, the Corporation shall designate by lot, or in such
other manner as the Board of Directors may determine, the shares to be redeemed,
or shall effect such redemption PRO RATA. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the 5% Preferred Stock at any time
outstanding until all dividends accrued and in arrears upon all 5% Preferred
Stock then outstanding shall have been paid.
Not more than 60 nor less than 15 days prior to the redemption date, and, if
the redemption is to occur on or prior to June 14, 2000, not more than four days
after the Corporation issues the press release required under the first
paragraph of this Paragraph (f), notice by first class mail, postage prepaid,
shall be given to the holders of record of the 5% Preferred Stock to be
redeemed, addressed to such stockholders at their last addresses as shown on the
stock books of the Corporation. Each such notice of redemption shall specify the
date fixed for redemption; the redemption price (if the 5% Preferred Stock is to
be redeemed for cash); the number of shares of Common Stock to be delivered (if
the 5% Preferred Stock is to be redeemed for Common Stock); the place or places
for payment or delivery; that payment or delivery of the Common Stock will be
made upon presentation and surrender of the certificates representing shares of
5% Preferred Stock being redeemed; that accrued but unpaid dividends to the date
fixed for redemption will be paid on the date fixed for redemption; that (if the
5% Preferred Stock is to be redeemed for Common Stock) a cash adjustment for
fractional shares of Common Stock will be paid on the date fixed for redemption;
that conversion rights with respect to the 5% Preferred Stock will expire on the
close of business on the redemption date; and that on and after the redemption
date, dividends will cease to accrue on such shares. If a dividend with respect
to the 5% Preferred Stock has been declared by the Board of Directors of the
Corporation and if the redemption date with respect to a redemption of 5%
Preferred Stock for either cash or Common Stock falls after the dividend record
date established by the Board of Directors of the Corporation with respect to
such dividend, but prior to the related dividend payment date, the record
holders of the 5% Preferred Stock on such record date will be entitled to
receive the dividend payable on the 5% Preferred Stock, notwithstanding the
redemption thereof.
Any notice which is mailed as herein provided shall be conclusively presumed
to have been duly given, whether or not the holder of the 5% Preferred Stock
receives such notice; and failure to give such notice by mail, or any defect in
such notice, to the holders of any shares designated for redemption shall not
affect the validity of the proceedings for the redemption of any other shares of
5% Preferred Stock. On or after the date fixed for redemption, as stated in such
notice, each holder of the shares of 5% Preferred Stock called for redemption
shall surrender the certificate evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive
payment of the redemption price or delivery of shares of Common Stock
deliverable upon redemption, as the case may be. If less than all shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. If on the date fixed for
redemption a sufficient number of shares of Common Stock, if applicable, and the
funds necessary for the redemption shall be available therefor and shall have
been irrevocably deposited with the transfer agent for the 5% Preferred Stock,
then, notwithstanding that the certificates evidencing any shares of 5%
Preferred Stock so called for redemption shall not have been surrendered,
dividends with respect to the shares of 5% Preferred Stock so called for
redemption shall cease to accrue after the date fixed for redemption, such
shares shall no longer be deemed outstanding, and all rights whatsoever with
respect to the shares so called for redemption (except the right of the holders
to receive any Common Stock issuable and any cash payable, without interest,
upon surrender of their certificates therefor) shall terminate. Shares of 5%
Preferred Stock redeemed by the Corporation will be restored to the status of
authorized but unissued shares of preferred stock, without designation as to
class, and may thereafter be issued, but not as shares of 5% Preferred Stock.
3
<PAGE>
No fractional shares of Common Stock shall be issued upon redemption of 5%
Preferred Stock for Common Stock, and in lieu of any fraction of a share of
Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares of 5% Preferred Stock redeemed at one time from the same
record holder, the Corporation shall pay in cash (rounded to the nearest cent)
an amount equal to the product of (i) the Closing Price of a share of Common
Stock on the last trading day with respect to the Common Stock before the
redemption date, and (ii) such fraction of a share.
The Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery upon redemption of
shares of 5% Preferred Stock for shares of Common Stock in a name other than
that of the record holder of the shares of the 5% Preferred Stock being redeemed
and the Corporation shall not be required to issue or deliver any such shares
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
(g) NO SINKING FUND. The shares of 5% Preferred Stock shall not be subject
to the operation of a purchase, retirement or sinking fund.
(h) CONVERSION. The holders of the 5% Preferred Stock may, upon surrender of
the certificates therefor, convert any or all of their shares of 5% Preferred
Stock into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereafter provided at any time after issuance
thereof, but not later than the close of business on the date, if any, fixed for
the redemption thereof in any notice of redemption given pursuant to the
provisions of Paragraph (f) hereof unless there is a default in payment of cash,
or the delivery of Common Stock issuable, in connection with such redemption in
which case such conversion may be effected any time prior to a subsequent
redemption date on which such payment of cash and/or delivery of Common Stock is
made in full. Each share of 5% Preferred Stock shall be convertible at the
office of the transfer agent for the 5% Preferred Stock, and at such other
office or offices, if any, as the Board of Directors of the Corporation may
designate, into the number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing $50.00 by the Conversion Price in effect at the time of
conversion. Shares of 5% Preferred Stock may be converted into full shares of
Common Stock at the initial conversion price of $25.98 per share of Common
Stock, subject to adjustment as hereinafter provided (the "Conversion Price").
No adjustment shall be made in respect of cash dividends on Common Stock or 5%
Preferred Stock that may be accrued and unpaid at the date of surrender for
conversion. Notwithstanding anything in this Paragraph (h) to the contrary, no
change in the Conversion Price shall actually be made until the cumulative
effect of the adjustments called for by this Paragraph (h) since the date of the
last change in the Conversion Price would change the Conversion Price by more
than 1%. However, once the cumulative effect would result in a change of more
than 1%, then the Conversion Price shall actually be changed to reflect all
adjustments called for by this Paragraph (h) and not previously made.
Notwithstanding anything in this Paragraph (h) to the contrary, no change in the
Conversion Price shall be made which would result in a Conversion Price of less
than the par value of the Common Stock.
The right of the holders of 5% Preferred Stock to convert their shares shall
be exercised by surrendering for such purpose to the Corporation or its agent,
as provided above, certificates representing all shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery upon conversion of shares of
5% Preferred Stock for shares of Common Stock or other securities or property in
a name other than that of the record holder of the shares of 5% Preferred Stock
being converted and the Corporation shall not be required to issue or deliver
any such shares of Common Stock or other securities or property unless and until
the person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
4
<PAGE>
A number of shares of authorized but unissued Common Stock sufficient to
provide for the conversion of the 5% Preferred Stock outstanding upon the basis
herein provided shall at all times be reserved by the Corporation, free from
preemptive rights, for such conversion, subject to the provisions of the next
succeeding paragraph. If the Corporation shall issue any securities or make any
change in its capital structure which would change the Conversion Price of the
Common Stock into which each share of the 5% Preferred Stock is convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding 5% Preferred Stock at the new Conversion Price.
In case of any consolidation or merger of the Corporation with any other
corporation (other than a wholly owned subsidiary of the Corporation), or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that holders of each share of 5% Preferred Stock then
outstanding shall have the right thereafter to convert such share of 5%
Preferred Stock into the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which such
share of 5% Preferred Stock might have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer or share exchange.
If in connection with any such consolidation, merger, sale, transfer or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
either securities, cash or other assets upon completion of such transaction, the
Corporation shall provide or cause to be provided to each holder of 5% Preferred
Stock the right to elect the securities, cash or other assets into which the 5%
Preferred Stock held by such holder shall be convertible after completion of any
such transaction on the same terms and subject to the same conditions applicable
to holders of the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election shall be made
and the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
Upon the surrender of certificates representing shares of 5% Preferred
Stock, the person converting such shares shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets as herein
provided.
No fractional shares of Common Stock shall be issued upon conversion of 5%
Preferred Stock but, in lieu of any fraction of a share of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares of
5% Preferred Stock surrendered for conversion at one time by the same holder,
the Corporation shall pay in cash an amount equal to the product of (i) the
Closing Price of a share of Common Stock on the last trading day before the
conversion date and (ii) such fraction of a share.
For the purposes of any computation pursuant to this Paragraph (h), the
"Current Market Price" per share of the Common Stock shall be deemed to be the
average daily Closing Prices of the Common Stock for the 30 consecutive trading
days commencing 45 trading days before the date to which reference is made in
subparagraphs (1) or (2) below. The "Closing Price" for each trading day shall
be the last reported sales price regular way or, in case no sale takes place on
such day, the average of the closing bid and ask prices regular way on such day,
in either case as reported on the New York Stock Exchange ("NYSE") Composite
Tape, or if the Common Stock is not listed or admitted to trading on the NYSE,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the average of the high bid and low asked prices
on such day as reported by the National Association of Securities Dealers, Inc.
through NASDAQ, or if the National Association of Securities Dealers, Inc.
through NASDAQ shall not have reported any bid and asked prices for the Common
Stock on such day, the average of the bid and
5
<PAGE>
asked prices for such day as furnished by any NYSE member firm selected from
time to time by the Corporation for such purpose, or if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
the Common Stock on such day as determined in good faith by the Board of
Directors of the Corporation.
The Conversion Price shall be adjusted from time to time under certain
circumstances, subject to the provisions of the last three sentences of the
first paragraph of this Paragraph (h) as follows:
(1) In case the Corporation shall (w) pay a dividend or make a distribution
on its Common Stock in shares of its capital stock, (x) subdivide its
outstanding Common Stock into a greater number of shares, (y) combine the
shares of its outstanding Common Stock into a smaller number of shares,
or (z) issue by reclassification of its Common Stock any shares of its
capital stock, then in each such case the Conversion Price in effect
immediately prior thereto shall be proportionately adjusted so that the
holder of any 5% Preferred Stock thereafter surrendered for conversion
shall be entitled to receive, to the extent permitted by applicable law,
the number and kind of shares of capital stock of the Corporation which
he would have owned or have been entitled to receive after the happening
of such event had the 5% Preferred Stock held by such holder been
converted immediately prior to the record date (or if no record date has
been established in connection with such event, the effective date) for
such action. An adjustment pursuant to this subparagraph (1) shall become
effective immediately after the record date in the case of a stock
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification.
(2) In case the Corporation shall issue rights or warrants to all holders of
the Common Stock entitling such holders to subscribe for or purchase
Common Stock at a price per share less than the Current Market Price per
share of the Common Stock on the record date referred to below, then in
each such case the Conversion Price in effect on such record date shall
be adjusted in accordance with the formula:
<TABLE>
<CAPTION>
<S> <C> <C>
O + N
C' = C DIVIDED BY --------------
N X P
0 + -----
M
</TABLE>
where
<TABLE>
<S> <C> <C>
C' = the adjusted Conversion Price.
C = the current Conversion Price.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock on the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If any or all
such rights or warrants are not so issued or expire or terminate before being exercised, the
Conversion Price then in effect shall be appropriately readjusted.
</TABLE>
Except as otherwise provided above in this Paragraph (h), no adjustment in
the Conversion Price shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall send to the transfer agent for the 5% Preferred Stock and to
the principal securities exchange, if any, on which the 5% Preferred Stock is
traded, a statement signed by the Chairman of the Board, the Vice-Chairman of
the
6
<PAGE>
Board, the Chief Executive Officer, the President, the Chief Operating Officer
or any Vice President of the Corporation and by its Treasurer or its Secretary
stating the adjusted Conversion Price determined as provided in this Paragraph
(h) and any adjustment so evidenced, given in good faith, shall be binding upon
all stockholders of the Corporation and upon the Corporation. Whenever the
Conversion Price is adjusted, the Corporation will give notice by mail stating
the adjustment and the Conversion Price at the time of, and together with, the
next dividend payment to holders of record of 5% Preferred Stock.
Notwithstanding the foregoing notice provisions, failure of the Corporation to
give such notice or a defect in such notice shall not affect the Corporation's
obligation to adjust the Conversion Price as provided herein.
Whenever the Corporation shall propose to take any of the actions specified
in the third paragraph or in subparagraphs (1) or (2) of the eighth paragraph of
this Paragraph (h) which would result in any adjustment in the Conversion Price
under this Paragraph (h), the Corporation shall cause a notice to be mailed at
least 15 days prior to the date on which the books of the Corporation will close
or on which record will be taken for such action, to the holders of record of
the outstanding 5% Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure to mail the notice or defect in it shall
not affect the validity of the transaction.
Notwithstanding any other provision of this Paragraph (h), no adjustment in
the Conversion Price need be made (i) for a transaction referred to in
subparagraphs (1) or (2) of the eighth paragraph of this Paragraph (h) if
holders of 5% Preferred Stock are to participate in the transaction on a basis
and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction; (ii) for sales of Common Stock pursuant to a
plan for reinvestment of dividends and interest or pursuant to any employee
benefit plan adopted by the Corporation; or (iii) for a change in par value of
the Common Stock.
The Corporation from time to time may decrease the Conversion Price by any
amount for any period of time if the period is at least 20 days and if the
decrease is irrevocable during the period. Whenever the Conversion Price is
decreased, the Corporation shall mail to holders of record of 5% Preferred Stock
a notice of the decrease. The Corporation shall mail the notice at least 15 days
before the date the decreased Conversion Price takes effect. The notice shall
state the decreased Conversion Price and the period in which it will be in
effect. A decrease of the Conversion Price does not change or adjust the
Conversion Price otherwise in effect for purposes of subparagraphs (1) or (2) of
the eighth paragraph of this Paragraph (h).
(i) VOTING RIGHTS. The holders of 5% Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. Whenever dividends on the 5% Preferred Stock or any other class
or series of Parity Dividend Stock shall be in arrears in an amount equal to at
least six quarterly dividends (whether or not consecutive), the holders of the
5% Preferred Stock (voting separately as a class with all other affected classes
or series of the Parity Dividend Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for and elect two
directors of the Corporation (which directors shall be in addition to those
directors then serving on the Board of Directors to the extent that the number
of directors permitted by the Certificate is greater than the number of such
directors then serving on the Board of Directors) at any meeting of stockholders
of the Corporation at which directors are to be elected held during the period
in which such dividends remain in arrears. Whenever the right to elect directors
shall have accrued to the holders of 5% Preferred Stock, the proper officers of
the Corporation shall call a meeting for the election of such directors, such
meeting to be held not less than 45 nor more than 90 days after the accrual of
such right. The right of the holders of the 5% Preferred Stock to vote for two
directors shall terminate when all accrued and unpaid dividends on the 5%
Preferred Stock have been declared and paid or set apart for payment. The term
of office of all directors so elected shall terminate immediately upon the
termination of the right of the holders of the 5% Preferred Stock and such
Parity Dividend Stock to vote for two directors. In connection with such right
to vote, each holder of 5% Preferred Stock will have one vote for each share
held.
7
<PAGE>
Without the consent or affirmative vote of the holders of at least
two-thirds of the outstanding shares of 5% Preferred Stock, voting separately as
a class with holders of any other class of the Corporation's preferred stock
entitled to vote in such circumstances, the Corporation shall not authorize,
create or issue any shares of any other class or series of Senior Dividend Stock
or Senior Liquidation Stock. The affirmative vote or consent of the holders of
at least two-thirds of the outstanding shares of the 5% Preferred Stock, voting
separately as a class with holders of any other class of preferred stock
entitled to vote in such circumstances, will be required for any amendment,
alteration or repeal, whether by merger or consolidation or otherwise, of the
Certificate if the amendment, alteration or repeal would materially and
adversely affect the powers, preferences or special rights of the 5% Preferred
Stock.
(j) OUTSTANDING SHARES. For purposes of this Certificate of Designations,
all shares of 5% Preferred Stock shall be deemed outstanding except (i) from the
date fixed for redemption pursuant to Paragraph (f) hereof, all shares of 5%
Preferred Stock which have been so called for redemption under Paragraph (f) if
the Common Stock or funds necessary for the redemption of such shares are
available; (ii) from the date of surrender of certificates representing shares
of 5% Preferred Stock, all shares of 5% Preferred Stock converted into Common
Stock; and (iii) from the date of registration of transfer, all shares of 5%
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.
(k) PARTIAL PAYMENTS. If at any time the Corporation does not pay amounts
sufficient to redeem all 5% Preferred Stock called for redemption by the
Corporation on the redemption date set pursuant to Paragraph (f) hereof, then
such funds which are paid shall be applied to redeem such 5% Preferred Stock as
the Corporation may designate by lot.
(l) RIGHT OF ACTION. Notwithstanding any other provision of this Certificate
of Designations, if the Corporation shall default in the payment of any amount
required to be paid by it in respect of the 5% Preferred Stock, each holder of
5% Preferred Stock, individually, shall have a right to bring an action for
payment.
IN WITNESS WHEREOF, Ultramar Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Patrick J. Guarino, its
Senior Vice President, General Counsel and Secretary, and attested by Gregory A.
Robbins, its Assistant Secretary, this 3rd day of December, 1996.
ULTRAMAR CORPORATION
By: _____________________________
Patrick J. Guarino
Senior Vice President,
General Counsel and Secretary
Attest:
By: ____________________________________________________________________________
Gregory A. Robbins
Assistant Secretary
8
<PAGE>
EXHIBIT 5.1
CRAVATH, SWAINE & MOORE
[Letterhead]
October 25, 1996
Ultramar Corporation
Up to 34,341,006 Shares of Common Stock and
1,725,000 Shares of Preferred Stock to be
Issued in Connection with the Merger of
Ultramar Corporation and Diamond Shamrock, Inc.
Dear Sirs:
We have acted as counsel to Ultramar Corporation, a Delaware corporation
("Ultramar"), in connection with an Agreement and Plan of Merger (the "Merger
Agreement") dated as of September 22, 1996, between Ultramar and Diamond
Shamrock, Inc., a Delaware corporation ("DSI"), pursuant to which DSI will be
merged (the "Merger") with and into Ultramar. In connection with the Merger
Agreement, Ultramar has filed with the Securities and Exchange Commission,
pursuant to the Securities Act of 1933 (the "Securities Act"), a Registration
Statement on Form S-4 (the "Registration Statement") relating to (i) up to
34,341,006 shares of Common Stock, par value $.01 per share, of Ultramar (the
"Common Stock") and (ii) up to 1,725,000 shares of 5% Cumulative Convertible
Preferred Stock of Ultramar (the "Preferred Stock", and, together with the
Common Stock, the "Securities"), in each case to be issued in connection with
the Merger.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the
purposes of this opinion, including: (a) the Certificate of Incorporation and
By-laws of Ultramar; (b) the Registration Statement; (c) the Merger Agreement
and (d) the form of Certificate of Designations for the Preferred Stock.
Based on the foregoing, we are of opinion that the Securities to be issued
in connection with the Merger have been duly authorized and, when the Securities
are issued in accordance with the Merger Agreement, the Securities will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the section entitled "Legal
Matters" in the prospectus that is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Cravath, Swaine & Moore
Ultramar Corporation
Two Pickwick Plaza, Suite 300
Greenwich, CT 06830
<PAGE>
EXHIBIT 8.1
October 25, 1996
Diamond Shamrock, Inc.
9830 Colonnade Boulevard
San Antonio, TX 78230
Re: Registration Statement on Form S-4 of Ultramar Corporation
Gentlemen:
We have acted as counsel to Diamond Shamrock, Inc. (the "Company") in
connection with the Registration Statement on Form S-4, to which this opinion
appears as Exhibit 8.1 (the "Registration Statement"), which includes a Joint
Proxy Statement/Prospectus relating to the merger of the Company with and into
Ultramar Corporation. Unless otherwise indicated, any defined terms used herein
have the same meaning as in the Joint Proxy Statement/Prospectus. We hereby
confirm that the section of the Joint Proxy Statement/Prospectus entitled "The
Merger--Certain Federal Income Tax Consequences" accurately summarizes the
material federal income tax consequences of the Merger to holders of Diamond
Shamrock Common Stock and Diamond Shamrock Convertible Preferred Stock. In
connection with the foregoing opinion, we have relied upon, without independent
investigation, the representations and warranties of the parties as set forth in
the Merger Agreement, the compliance by the parties with the covenants therein
and representations of the managements of the companies and the representations
of certain holders of Diamond Shamrock Common Stock and Diamond Shamrock
Convertible Preferred Stock with respect to various matters.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Registration Statement and to the reference
to our firm under the heading "Legal Matters" in the Joint Proxy
Statement/Prospectus.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 22,
1996, but effective as provided herein, is made and entered into by and between
Ultramar Corporation, a Delaware corporation (the "Company"), and Jean Gaulin
(the "Executive").
WHEREAS, the Executive has been serving as the Chief Executive Officer
and Chairman of the Board of the Company;
WHEREAS, the Executive is a party to an Employment Agreement with the
Company, dated as of May 21, 1992 (the "Prior Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger between Ultramar
Corporation and Diamond Shamrock, Inc., a Delaware corporation ("Diamond
Shamrock, Inc."), dated as of September 22, 1996 (the "Merger Agreement"), as of
the effective time of the Merger (the "Effective Date"), Diamond Shamrock, Inc.
will be merged with and into Ultramar Corporation, with Ultramar Corporation as
the surviving entity (the "Merger");
WHEREAS, pursuant to the Merger Agreement it is contemplated that
Executive will execute this Agreement upon the signing of the Merger Agreement
and upon the Effective Date, Executive will serve as the Vice-Chairman of the
Board, President and Chief Operating Officer of the Company;
WHEREAS, the Company considers it in the best interests of its
stockholders to foster the continuous employment of certain key management
personnel;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined herein)
exists;
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Merger and in the event of a
Change in Control subsequent to the Merger;
WHEREAS, the Company wishes to continue to employ the Executive and
the Executive is willing to continue to render services, both on the terms and
subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
<PAGE>
1. EMPLOYMENT.
1.1 The Company hereby agrees to continue to employ the Executive and
the Executive hereby agrees to undertake employment with the Company upon the
terms and conditions herein set forth.
1.2 Employment will be for a term commencing on the Effective Date
and, subject to earlier expiration upon the Executive's termination under
Section 5, expiring on the fifth anniversary of the Effective Date (the "Term").
Notwithstanding the previous sentence, this Agreement and the employment of the
Executive will be automatically renewed and the Term extended, subject to
Section 5, for successive one-year periods upon the terms and conditions set
forth herein, commencing on the fifth anniversary of the Effective Date, and on
each anniversary date thereafter, unless either party to this Agreement gives
the other party written notice (in accordance with Section 12.5) of such party's
intention to terminate this Agreement at least three months prior to the end of
such initial or extended term. For purposes of this Agreement, any reference to
the "Term" of this Agreement will include the original term and any extension
thereof.
2. POSITIONS AND DUTIES.
2.1 POSITIONS AND DUTIES. From the Effective Date and until December
31, 1998 (or such earlier time as the Executive may be appointed Chief Executive
Officer of the Company), the Executive will serve in the positions of
Vice-Chairman of the Company's Board of Directors (the "Board"), President and
Chief Operating Officer of the Company; thereafter during the Term, the
Executive will continue as Vice-Chairman of the Board and as President and will
assume the position of Chief Executive Officer. At all times during the Term,
the Executive will have such duties, functions, responsibilities and authority
as are (i) consistent with the Executive's position as President and Chief
Operating Officer or Chief Executive Officer, as applicable, of the Company; or
(ii) assigned to his office in the Company's bylaws; or (iii) reasonably
assigned to him by the Board. The Executive will report directly to the Chief
Executive Officer. The Company will use its best efforts to cause the Executive
to be elected as a member of the Board (initially, with a term that expires in
1997) and as Vice-Chairman of the Board throughout the Term and will use its
best efforts to cause him to be included in the management slate for election as
a director at every stockholders' meeting at which his term as a director would
otherwise expire. In addition, the Company will use its best efforts to cause
the Executive to be appointed (x) to the position of Chief Executive Officer
immediately upon vacancy of such position, but in no event later than January 1,
1999, and (y) as Chairman of the Board upon vacancy in such position, but in no
event later than December 31, 2001.
-2-
<PAGE>
2.2 COMMITMENT. During the Term, the Executive will be the Company's
full-time employee and, except as may otherwise be approved in advance in
writing by the Board, and except during vacation periods and reasonable periods
of absence due to sickness, personal injury or other disability, the Executive
will devote substantially all of his business time and attention to the
performance of his duties to the Company. Notwithstanding the foregoing, the
Executive may, (i) subject to the approval of the Board, serve as a director of
a company which is not engaged in "Competition" (as defined in Section 9.1) with
the Company, (ii) serve as an officer, director or otherwise participate in
purely educational, welfare, social, religious and civic organizations, (iii)
serve as an officer, director or trustee of, or otherwise participate in, any
organizations and activities with respect to which the Executive's participation
was disclosed in the last Proxy Statement prepared by the Company prior to the
date hereof, and (iv) manage personal and family investments.
3. PLACE OF PERFORMANCE. In connection with his employment during the
Term, unless otherwise agreed by the Executive, the Executive will be based at
the Company's principal executive offices. The Executive will undertake normal
business travel on behalf of the Company.
4. COMPENSATION AND RELATED MATTERS.
4.1 COMPENSATION AND BENEFITS.
(i) ANNUAL BASE SALARY. During the Term, the Company will pay
to the Executive an annual base salary of not less than $725,000, which annual
base salary may be increased (but not decreased) from time to time by the Board
(or the Compensation Committee thereof) in its sole discretion, payable at the
times and in the manner consistent with the Company's general policies regarding
compensation of executive employees. The Board may from time to time authorize
such additional compensation to the Executive, in cash or in property, as the
Board may determine in its sole discretion to be appropriate.
(ii) ANNUAL INCENTIVE COMPENSATION. If the Board (or the
Compensation Committee thereof) authorizes any cash incentive compensation or
approves any other management incentive program or arrangement, the Executive
will be eligible to participate in such plan, program or arrangement under the
general terms and conditions applicable to executive and management employees.
The annual cash incentive compensation paid to the Executive for calendar year
1996 will be paid in accordance with Ultramar Corporation's annual incentive
compensation plan, subject to any equitable adjustment determined by the Board
(or the Compensation Committee thereof) to be necessary in light of the Merger.
Nothing in this Section 4.1(ii) will guarantee to the Executive any specific
amount of incentive compensation, or prevent the Board (or the Compensation
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Committee thereof) from establishing performance goals and compensation targets
applicable only to the Executive.
4.2 EXECUTIVE BENEFITS. In addition to the compensation described in
Section 4.1, the Company will make available to the Executive and his eligible
dependents, subject to the terms and conditions of the applicable plans,
including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), expense
reimbursement or other employee benefit policies, plans, programs or
arrangements or any equivalent successor policies, plans, programs or
arrangements that may now exist or be adopted hereafter by the Company.
4.3 EXPENSES. The Company will promptly reimburse the Executive for
all travel and other business expenses the Executive incurs in order to perform
his duties to the Company under this Agreement in a manner commensurate with the
Executive's position and level of responsibility with the Company, and in
accordance with the Company's policy regarding substantiation of expenses.
5. TERMINATION. Notwithstanding the Term specified in Section 1.2, the
termination of the Executive's employment hereunder will be governed by the
following provisions:
5.1 DEATH. In the event of the Executive's death during the Term,
the Company will pay to the Executive's beneficiaries or estate, as appropriate,
promptly after the Executive's death, (i) the unpaid annual base salary to which
the Executive is entitled, pursuant to Section 4.1, through the date of the
Executive's death, and (ii) for any accrued but unused vacation days, to the
extent and in the amounts, if any, provided under the Company's usual policies
and arrangements. This Section 5.1 will not limit the entitlement of the
Executive's estate or beneficiaries to any death or other benefits then
available to the Executive under any life insurance, stock ownership, stock
options, or other benefit plan or policy that is maintained by the Company for
the Executive's benefit.
5.2 DISABILITY.
(i) If the Company determines in good faith that the Executive
has incurred a Disability (as defined below) during
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the Term, the Company may give the Executive written notice of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company will terminate effective on the 30th day after receipt of such
notice by the Executive, provided that within the 30 days after such receipt,
the Executive will not have returned to full-time performance of his duties.
The Executive will continue to receive his annual base salary and benefits until
the date of termination. In the event of the Executive's Disability, the
Company will pay the Executive, promptly after the Executive's termination, (a)
the unpaid annual base salary to which he is entitled, pursuant to Section 4.1,
through the date of the Executive's termination, (b) for any accrued but unused
vacation days, to the extent and in the amounts, if any, provided under the
Company's usual policies and arrangements, and (c) a lump sum in cash in an
amount equal to 50% of his annual base salary at the time of termination. This
Section 5.2 will not limit the entitlement of the Executive, the Executive's
estate or beneficiaries to any disability or other benefits then available to
the Executive under any disability insurance or other benefit plan or policy
that is maintained by the Company for the Executive's benefit.
(ii) For purposes of this Agreement, "Disability" will mean the
Executive's incapacity due to physical or mental illness substantially to
perform his duties on a full-time basis for six consecutive months and within 30
days after a notice of termination is thereafter given by the Company the
Executive will not have returned to the full-time performance of the Executive's
duties; provided, however, if the Executive disagrees with a determination to
terminate him because of Disability, the question of the Executive's disability
will be subject to the certification of a qualified medical doctor agreed to by
the Company and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the absence of
agreement between the Company and the Executive, each party will nominate a
qualified medical doctor and the two doctors will select a third doctor, who
will make the determination as to Disability. In order to facilitate such
determination, the Executive will, as reasonably requested by the Company,
(a) make himself available for medical examinations by a doctor in accordance
with this Section 5.2(ii), and (b) grant the Company and any such doctor access
to all relevant medical information concerning him, arrange to furnish copies of
medical records to such doctor and use his best efforts to cause his own doctor
to be available to discuss his health with such doctor.
5.3 CAUSE.
(i) The Company may terminate the Executive's employment
hereunder for Cause (as defined below). In the event of the Executive's
termination for Cause, the Company will promptly pay to the Executive (or his
representative) the unpaid annual base salary to which he is entitled, pursuant
to Section
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4.1, through the date the Executive is terminated and the Executive will be
entitled to no other compensation, except as otherwise due to him under
applicable law.
(ii) For purposes of this Agreement, the Company will have
"Cause" to terminate the Executive's employment hereunder upon a finding by the
Board that (a) the Executive committed an illegal act or acts that were intended
to and did defraud the Company, (b) the Executive engaged in gross negligence or
gross misconduct against the Company or another employee, or in carrying out his
duties and responsibilities, or (c) the Executive materially breached any of the
express covenants set forth in Section 9.1, 9.2 or 9.3. The Company will not
have Cause unless and until the Company provides the Executive with written
notice that the Company intends to terminate his employment for Cause. Such
written notice will specify the particular act or acts, or failure to act, that
is or are the basis for the decision to so terminate the Executive's employment
for Cause. The Employee will be given the opportunity within 30 calendar days
of the receipt of such notice to meet with the Board to defend such act or acts,
or failure to act. The Executive's employment by the Company automatically will
be terminated under this Section 5.3 for Cause as of the receipt of the written
notice from the Company or, if later, the date specified in such notice. A
notice given under this Section 5.3 must set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment for Cause, and if the termination date is other than the
date of receipt of such notice, specify the date on which the Executive's
employment is to be terminated (which date will not be earlier than the date on
which such notice is given in accordance with Section 12.5). Such notice must
be given no later than 180 business days after a director of the Company
(excluding the Executive, if applicable) first has actual knowledge of the
events justifying the purported termination.
5.4 TERMINATION.
(i) INVOLUNTARY TERMINATION. The Executive's employment
hereunder may be terminated by the Company for any reason by written notice as
provided in Section 12.5. The Executive will be treated for purposes of this
Agreement as having been involuntarily terminated by the Company if the
Executive terminates his employment with the Company other than for Cause for
any of the following reasons (each, a "Good Reason"): without the Executive's
written consent, (a) the Company has breached any material provision of this
Agreement and within 30 days after notice thereof from the Executive, the
Company fails to cure such breach; (b) a successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company fails to assume
liability under the Agreement; (c) at any time after the Company has notified
the Executive pursuant to Section 1.2 that the Company does not
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intend to renew the Agreement and the Executive's employment at the end of the
Term (including any previous renewals)(rather than to allow the Agreement
automatically to renew); (d) a material reduction in the aggregate benefits
described by Section 4.2 (other than stock-based compensation) provided to the
Executive, unless such decrease is required by law or is applicable to all
employees of the Company eligible to participate in any employee benefit
arrangement affected by such reduction; (e) a significant reduction in the
Executive's duties or the addition of duties, which in either case are
materially inconsistent with the Executive's title or position; (f) the
Executive is not elected to or is removed from the Board; or (g) the Board fails
to appoint the Executive to any of his positions by the dates and as set forth
in Section 2.1, or the Executive is removed from any such position.
(ii) VOLUNTARY TERMINATION. The Executive may voluntarily
terminate the Agreement at any time by notice to the Company as provided in
Section 12.5. The Executive's death or Disability (as defined in Section
5.2(ii)) during the term of the Agreement will constitute a voluntary
termination of employment for purposes of eligibility for termination payments
and benefits as provided in Section 5.5, but for no other purpose.
5.5 TERMINATION PAYMENTS AND BENEFITS.
(i) FORM AND AMOUNT. Upon the Executive's involuntary
termination other than for Cause, (a) subject to Section 5.5(iii), the Company
will pay or provide to the Executive (1) his annual base salary and benefits
until the date of termination, (2) within five business days after termination
of his employment, a lump sum cash payment equal in amount to three times the
sum of (x) the Executive's highest annual base salary in effect during the
three years prior to his date of termination, and (y) the highest annual
incentive compensation earned by the Executive during the same three-year
period, (3) additional years of age and service credit as are required to
permit the Executive to retire under the qualified and nonqualified defined
benefit retirement plans of the Company in which the Executive participates at
the time of termination as though he had attained age 62 and such years of
service required to receive an actuarially unreduced retirement benefit;
provided, however, that in the case of a qualified defined benefit pension plan,
the present value of the additional benefit the Executive would have accrued if
he had been credited for all purposes with the additional years of age and
service under such plan as of the Executive's date of termination with the
Company will be paid in a lump sum in cash within five business days after
termination of the Executive's employment, and (4) for a period of one year
after termination of his employment, the continuation of the employee welfare
benefits set forth in Section 4.2 except as offset by benefits paid or provided
by other sources as set forth in Section 8, or as prohibited by law or as a
condition of maintaining the tax-favored status of any such benefits to the
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Company or its employees; (b) the Executive's benefit under the applicable
supplemental executive retirement plan will be not less than the benefit the
Executive would have received under the terms of the corresponding plan
(including any individual modifications thereof) applicable to the Executive as
in effect immediately prior to the Effective Date determined as if the Executive
had continued employment under the terms of such corresponding plan (and
modifications) until his actual termination of employment; and (c) if the
Executive had theretofore relocated to San Antonio and his employment has been
terminated within two years after the Effective Date, Executive will be
reimbursed the costs of relocation from San Antonio to any other location in the
continental United States under the same policies and procedures applicable to
Executive's reimbursement for relocation to San Antonio.
(ii) MAINTENANCE OF BENEFITS. During the period set forth in
Section 5.5(i)(a)(4), the Company will use its best efforts to maintain in full
force and effect for the continued benefit of the Executive all referenced
benefits or will arrange to make available to the Executive benefits
substantially similar to those that the Executive would otherwise have been
entitled to receive if his employment had not been terminated. Such benefits
will be provided to the Executive on the same terms and conditions (including
employee contributions toward the premium payments) under which the Executive
was entitled to participate immediately prior to his termination.
(iii) RELEASE. No benefit will be paid or made available under
Section 5.5(i) (a) unless the Executive first executes a release in the form
attached as an exhibit to this Agreement, and (b) to the extent any portion of
such release is subject to the seven-day revocation period prescribed by the Age
Discrimination in Employment Act of 1967, as amended, or to any similar
revocation period in effect on the date of termination of Executive's
employment, such revocation period has expired.
6. CHANGE IN CONTROL PROVISIONS.
6.1 IMPACT OF CHANGE IN CONTROL. In the event of a "Change in
Control" of the Company, as defined in Section 6.2, (i) the Company will cause
all cash benefits due under this Agreement to be secured by an irrevocable trust
for the benefit of the Executive, the assets of which will be subject to the
claims of the Company's creditors, and will transfer to such trust cash and
other property adequate to satisfy all of the expenses of the trust for at least
five years after the Change in Control and any of the Company's actual and
potential cash obligations under this Agreement, (ii) if the Executive's
employment is involuntarily terminated without Cause after the Change in
Control, (A) the covenants of Sections 9.1 and 10 will be inapplicable to the
Executive, and (B) the covenant of Section 9.2 will expire on the third
anniversary of the date of termination of the Executive's employment, and (iii)
the
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definition of Good Reason, as set forth in Section 5.4(i) above, will be
expanded to include the following:
(a) A good faith determination by the Executive that, as a result of
the Change in Control and a change in circumstances thereafter significantly
affecting his positions, including a change in the scope of business or other
activities for which he was responsible, he has been rendered substantially
unable to carry out, has been substantially hindered in the performance of, or
has suffered a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to any of the Executive's
positions; the Executive's determination will be presumed to have been made in
good faith unless otherwise shown by the Company by clear and convincing
evidence; or
(b) The relocation of the Company's principal executive offices, or
requirement that the Executive have as his principal location of work any
location that is, in excess of 50 miles from the location thereof immediately
preceding the Change in Control or to travel away from his home or office
significantly more often than that required immediately prior to the Change in
Control.
6.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
a "Change in Control" will be deemed to occur if at any time during the term of
the Agreement any of the following events will occur:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization, less than 50% of the combined voting power of
the then-outstanding securities of such corporation or person immediately after
such transaction are held in the aggregate by the holders of Voting Stock (as
that term is hereafter defined) of the Company immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and as a result of such sale or transfer, less than 50% of the combined voting
power of the then-outstanding voting securities of such corporation or person
are held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of
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securities representing 20% or more of the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the
election of Directors of the Company ("Voting Stock");
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during the period of two consecutive years individuals
who at the beginning of any such period constitute the Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders, of each
Director of the Company first elected during such period was approved by a vote
of at least two-thirds of the Directors of the Company then still in office who
were Directors of the Company at the beginning of any such period (excluding for
this purpose the election of any new Director in connection with an actual or
threatened election or proxy contest).
Notwithstanding the foregoing provisions of Section 6.2(iii) or (iv) hereof,
unless otherwise determined in a specific case by majority vote of the Board (or
the Compensation Committee thereof), a "Change in Control" will not be deemed to
have occurred for purposes of this Agreement solely because the Company, an
entity in which the Company directly or beneficially owns 50% or more of the
voting securities of such entity, any Company-sponsored employee stock ownership
plan or any other employee benefit plan of the Company either files or becomes
obligated to file a report or a proxy statement under or in response to Schedule
13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of voting securities of the Company, whether in excess
of 20% or otherwise, or because the Company reports that a change in control of
the Company has or may have occurred or will or may occur in the future by
reason of such beneficial ownership. Notwithstanding the foregoing provisions
of Section 6.2, the Merger will not constitute a Change in Control.
7.CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY:
(i) Anything in this Agreement to the contrary notwithstanding, if it
is determined (as hereafter provided) that any payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan, program
or arrangement, including without
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limitation any stock option, stock appreciation right or similar right, or the
lapse or termination of any restriction on or the vesting or exercisability of
any of the foregoing (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code (or any successor provision thereto) by reason of
being "contingent on a change in ownership or control" the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive will be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. No Gross-Up Payment will be made with respect to the
Excise Tax, if any, attributable to (a) any incentive stock option, as defined
by Section 422 of the Code ("ISO") granted prior to the execution of this
Agreement (unless a comparable Gross-Up Payment has theretofore been made
available with respect to such option), or (b) any stock appreciation or similar
right, whether or not limited, granted in tandem with any ISO described in
clause (a).
(ii) Subject to the provisions of Section 7(vi) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
will be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the Executive in his sole discretion. The
Executive will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and the Executive within 15
calendar days after the Termination Date, if applicable, and any other such time
or times as may be requested by the Company or the Executive. If the Accounting
Firm determines that any Excise Tax is payable by the Executive, the Company
will pay the required Gross-Up Payment to the Executive within five business
days after receipt of such determination and calculations. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it will, at the
same time as it makes such determination, furnish the Executive with an opinion
that he has substantial authority not to report any Excise Tax on his federal,
state, local income or other tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment will be binding upon the Company
and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and the
possibility of similar uncertainty regarding applicable state or local tax law
at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the
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Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts or fails to pursue its remedies pursuant to Section 7(vi) hereof and
the Executive thereafter is required to make a payment of any Excise Tax, the
Executive will direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment will be promptly paid by the Company to, or for
the benefit of, the Executive within five business days after receipt of such
determination and calculations.
(iii) The Company and the Executive will each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 7(ii) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and local tax returns,
if relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 7(ii) and (iv) hereof will be borne by the Company. If such fees and
expenses are initially paid by the Executive, the Company will reimburse the
Executive the full amount of such fees and expenses within five business days
after receipt from the Executive of a statement therefor and reasonable evidence
of his payment thereof.
(vi) The Executive will notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will further
apprise the Company of the nature of such
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claim and the date on which such claim is requested to be paid (in each case, to
the extent known by the Executive). The Executive will not pay such claim prior
to the earlier of (a) the expiration of the 30-calendar-day period following the
date on which he gives such notice to the Company and (b) the date that any
payment of amount with respect to such claim is due. If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive will:
(1) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(2) take such action in connection with contesting such claim as
the Company will reasonably request in writing from time to time,
including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(3) cooperate with the Company in good faith in order effectively
to contest such claim; and
(4) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(vi), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 7(vi) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at his
own cost and expense) and may, at its option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company will determine; provided, however,
that if the Company directs the Executive to pay the tax claimed and sue for a
refund, the Company will advance the amount of such payment to the Executive on
an interest-free basis and will indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of
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limitations relating to payment of taxes for the taxable year of the Executive
with respect to which the contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of any such
contested claim will be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive will be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(vii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(vi) hereof, the Executive receives
any refund with respect to such claim, the Executive will (subject to the
Company's complying with the requirements of Section 7(vi) hereof) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 7(vi)
hereof, a determination is made that the Executive will not be entitled to any
refund with respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance will
be forgiven and will not be required to be repaid and the amount of such advance
will offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid pursuant to this Section 7.
8. MITIGATION AND OFFSET. The Executive is under no obligation to
mitigate damages or the amount of any payment or benefit provided for hereunder
by seeking other employment or otherwise; provided, however, that the
Executive's coverage under the Company's welfare benefit plans will be reduced
to the extent that the Executive becomes covered under any comparable employee
benefit plan made available by another employer and covering the same type of
benefits. The Executive will report to the Company any such benefits actually
received by him.
9. COMPETITION; CONFIDENTIALITY; NONSOLICITATION
9.1 (i) Subject to Section 6.1(ii), the Executive hereby covenants and
agrees that during the Term and for one year following the Term he will not,
without the prior written consent of the Company, engage in Competition (as
defined below) with the Company. For purposes of this Agreement, if the
Executive takes any of the following actions he will be engaged in
"Competition": engaging in or carrying on, directly or indirectly, any
enterprise, whether as an advisor, principal, agent, partner, officer, director,
employee, stockholder, associate or consultant to any person, partnership,
corporation or any other business entity, that is principally engaged in the
business of refining and/or marketing oil or related products in States in which
the Company has significant operations; provided, however, that "competition"
will not include (a) the mere ownership of
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securities in any enterprise and exercise of rights appurtenant thereto or (b)
participation in management of any enterprise or business operation thereof
other than in connection with the competitive operation of such enterprise.
(ii) Subject to Section 6.1(ii), the Executive hereby covenants
and agrees that during the Term and for three years following the Term he will
not assist a third party in preparing or making an unsolicited bid for the
Company, engaging in a proxy contest with the Company, or engaging in any other
similar activity.
9.2 During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 9.2) to the extent necessary for Executive to carry out his obligations
under this Agreement. Subject to Section 6.1(ii), the Executive hereby
covenants and agrees that he will not, without the prior written consent of the
Company, during the Term or thereafter disclose to any person not employed by
the Company, or use in connection with engaging in Competition with the Company,
any confidential or proprietary information of the Company. For purposes of
this Agreement, the term "confidential or proprietary information" will include
all information of any nature and in any form that is owned by the Company and
that is not publicly available or generally known to persons engaged in
businesses similar or related to those of the Company. Confidential information
will include, without limitation, the Company's financial matters, customers,
employees, industry contracts, and all other secrets and all other information
of a confidential or proprietary nature. The foregoing obligations imposed by
this Section 9.2 will cease if such confidential or proprietary information will
have become, through no fault of the Executive, generally known to the public or
the Executive is required by law to make disclosure (after giving the Company
notice and an opportunity to contest such requirement).
9.3 Subject to Section 6.1(ii), the Executive hereby covenants and
agrees that during the Term and for one year thereafter he will not attempt to
influence, persuade or induce, or assist any other person in so persuading or
inducing, any employee of the Company to give up, or to not commence, employment
or a business relationship with the Company.
9.4 Executive acknowledges and agrees that the remedy at law available
to the Company for breach of any of his post-termination obligations under
Sections 9.1, 9.2 and 9.3 would be inadequate and that damages flowing from such
a breach may not readily be susceptible to being measured in monetary terms.
Accordingly, Executive acknowledges, consents and agrees that, in addition to
any other rights or remedies which the Company may have at law, in equity or
under this Agreement, upon adequate proof of his violation of any such provision
of this Agreement, the Company will be entitled to immediate injunctive relief
and
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<PAGE>
may obtain a temporary order restraining any threatened or further breach,
without the necessity of proof of actual damage.
10. POST-TERMINATION ASSISTANCE. Subject to Section 6.1(ii), the
Executive agrees that after his employment with the Company has terminated he
will provide, upon reasonable notice, such information and assistance to the
Company as may reasonably be requested by the Company in connection with any
litigation in which it or any of its affiliates is or may become a party;
provided, however, that the Company agrees to reimburse the Executive for any
related out-of-pocket expenses, including travel expenses.
11. SURVIVAL. The expiration or termination of the Term will not impair
the rights or obligations of any party hereto that accrue hereunder prior to
such expiration or termination, except to the extent specifically stated herein.
In addition to the foregoing, the Executive's covenants contained in
Sections 9.1, 9.2, 9.3 and 10 and the Company's obligations under Sections 5, 7
and 12.1 will survive the expiration or termination of Executive's employment.
12. MISCELLANEOUS PROVISIONS.
12.1 LEGAL FEES AND EXPENSES. Without regard to whether the Executive
prevails, in whole or in part, in connection therewith, the Company will pay and
be financially responsible for 100% of any and all attorneys' and related fees
and expenses incurred by the Executive in connection with any dispute associated
with the interpretation, enforcement or defense of the Executive's rights under
this Agreement by litigation or otherwise; provided that, in regard to such
dispute, the Executive has not acted in bad faith or with no colorable claim of
success. All such fees and expenses will be paid by the Company as incurred by
the Executive on a monthly basis upon an undertaking by the Executive to repay
such advanced amounts if a court determines, in a decision against which no
appeal may be taken or with respect to which the time period to appeal has
expired, that he acted in bad faith or with no colorable claim of success.
12.2 BINDING ON SUCCESSORS. This Agreement will be binding upon and
inure to the benefit of the Company, the Executive and each of their respective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
12.3 GOVERNING LAW. This Agreement will be governed, construed,
interpreted and enforced in accordance with the substantive laws of the State of
Delaware, without regard to conflicts of law principles.
12.4 SEVERABILITY. Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any
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<PAGE>
jurisdiction will, as to that jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provisions of this Agreement invalid, illegal, or unenforceable in any other
jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant will be
modified so that the scope of the covenant is reduced only to the minimum extent
necessary to render the modified covenant valid, legal and enforceable.
12.5 NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to the Executive at his
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address will be effective only upon receipt.
(i) TO THE COMPANY. If to the Company, addressed to the
attention of General Counsel at 9830 Colonnade Boulevard, San Antonio, Texas
78230.
(ii) TO THE EXECUTIVE. If to the Executive, to him care of the
Company at the above address.
12.6 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.7 ENTIRE AGREEMENT. The terms of this Agreement are intended by
the parties to be the final expression of their agreement with respect to the
Executive's employment by the Company and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend that this
Agreement will constitute the complete and exclusive statement of its terms and
that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding to vary the terms of this Agreement.
12.8 AMENDMENTS; WAIVERS. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the
Company and signed by the Executive and the Company. Failure on the part of
either party to complain of
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<PAGE>
any action or omission, breach or default on the part of the other party, no
matter how long the same may continue, will never be deemed to be a waiver of
any rights or remedies hereunder, at law or in equity. The Executive or the
Company may waive compliance by the other party with any provision of this
Agreement that such other party was or is obligated to comply with or perform
only through an executed writing; provided, however, that such waiver will not
operate as a waiver of, or estoppel with respect to, any other or subsequent
failure.
12.9 NO INCONSISTENT ACTIONS. The parties will not voluntarily
undertake or fail to undertake any action or course of action that is
inconsistent with the provisions or essential intent of this Agreement.
Furthermore, it is the intent of the parties hereto to act in a fair and
reasonable manner with respect to the interpretation and application of the
provisions of this Agreement.
12.10 HEADINGS AND SECTION REFERENCES. The headings used in this
Agreement are intended for convenience or reference only and will not in any
manner amplify, limit, modify or otherwise be used in the construction or
interpretation of any provision of this Agreement. All section references are
to sections of this Agreement, unless otherwise noted.
13. EFFECTIVENESS AND PRIOR AGREEMENT. This Agreement will become
effective upon, and the Prior Agreement will terminate immediately prior to, the
Effective Date. Notwithstanding any other provision of this Agreement, if the
Merger Agreement is terminated prior to the Effective Date, this Agreement will
have no further force or effect, and the Prior Agreement will continue in effect
as though this Agreement had not been entered into.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written, but effective as provided in Section 13.
/s/ Jean Gaulin
-----------------------------------
Jean Gaulin
ULTRAMAR CORPORATION,
a Delaware corporation
/s/ Ultramar Corporation
-----------------------------------
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<PAGE>
EXHIBIT
GENERAL RELEASE OF ALL CLAIMS
This General Release of all Claims (this "Agreement") is entered into by
and between _____________________ ("Executive") and Ultramar Diamond Shamrock
Corp. (including its subsidiaries) (collectively the "Company") effective as of
__________________.
In consideration of the promises set forth in the employment agreement
between Executive and the Company, dated September ___, 1996, as amended as of
the effective date hereof (the "Employment Agreement"), as well as any promises
set forth in this Agreement, Executive and the Company agree as follows:
(1) EMPLOYMENT AGREEMENT ENTITLEMENTS
The Company will provide Executive the post-termination payments and
benefits to which he is entitled under the Employment Agreement.
(2) RETURN OF PROPERTY
All Company files, access keys, desk keys, ID badges and credit cards, and
such other property of the Company as the Company may reasonably request,
in Executive's possession must be returned no later than the date of
Executive's termination from the Company (the "Termination Date").
(3) GENERAL RELEASE AND WAIVER OF CLAIMS
Except as provided in the last sentence of this paragraph (3), Executive
hereby unconditionally and forever releases, discharges and waives any and
all claims of any nature whatsoever, whether legal, equitable or otherwise,
which Executive may have against the Company arising at any time on or
before the Termination Date, other than with respect to the obligations of
the Company to the Executive under the Employment Agreement. This release
of claims extends to any and all claims of any nature whatsoever, other
than with respect to the obligations of the Company to the Executive under
the Employment Agreement, whether known, unknown or capable or incapable of
being known as of the Termination Date of thereafter. This Agreement is a
release of all claims of any nature whatsoever by Executive against the
Company, other than with respect to the obligations of the Company to the
Executive under the Employment Agreement, and includes, other than as
herein provided, any and all claims, demands, causes of action, liabilities
whether known or unknown including those caused by, arising from or related
to Executive's employment relationship with the Company including, but
without limitation, any and all alleged discrimination or acts of
discrimination which occurred or
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<PAGE>
may have occurred on or before the Termination Date based upon race, color,
sex, creed, national origin, age, disability or any other violation of any
Equal Employment Opportunity Law, ordinance, rule, regulation or order,
including, but not limited to, Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act, as amended (as further described in Section 7 below); the
Americans with Disabilities Act; claims under the Employee Retirement
Income Security Act ("ERISA"); or any other federal, state or local laws or
regulations regarding employment discrimination or termination of
employment. This also includes claims for wrongful discharge, fraud, or
misrepresentation under any statute, rule, regulation or under the common
law.
The Executive agrees and understands and knowingly agrees to this release
because it is his intent in executing this Agreement to forever discharge
the Company from any and all present, future, foreseen or unforeseen causes
of action except for the obligations of the Company set forth in the
Employment Agreement.
Notwithstanding the foregoing, Executive does not release, discharge or
waive any rights to indemnification that he may have under the By-Laws of
the Company, the laws of the State of Delaware, any indemnification
agreement between the Executive and the Company or any insurance coverage
maintained by or on behalf of the Company.
(4) RELEASE AND WAIVER OF CLAIMS UNDER THE AGE OF DISCRIMINATION IN EMPLOYMENT
ACT
Executive acknowledges that the Company encouraged him to consult with an
attorney of his choosing, and through this Agreement encourages him to
consult with his attorney with respect to possible claims under the Age
Discrimination in Employment Act of 1967, as amended ("ADEA") and that
Executive acknowledges that he understands that the ADEA is a federal
statute that prohibits discrimination, on the basis of age, in employment,
benefits, and benefit plans. Executive wishes to waive any and all claims
under the ADEA that he may have, as of the Termination Date, against the
Company, its shareholders, employees, or successors and hereby waives such
claims. Executive further understands that by signing this Agreement he is
in fact waiving, releasing and forever giving up any claim under the ADEA
that may have existed on or prior to the Termination Date. Executive
acknowledges that the Company has informed him that he has at his option,
twenty-one (21) days in which to sign the waiver of this claim under ADEA,
and he does hereby knowingly and voluntarily waive said twenty-one (21) day
period. Executive also understands that he has seven (7) days following
the Termination Date within which to revoke the release contained in this
paragraph by providing a
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<PAGE>
written notice of his revocation of the release and waiver contained in
this paragraph to the Company. Executive further understands that this
right to revoke the release contained in this paragraph relates only to
this paragraph and does not act as a revocation of any other term of this
Agreement.
(5) PROCEEDINGS
Executive has not filed, and agrees not to initiate or cause to be
initiated on his behalf, any complaint, charge, claim or proceeding against
the Company before any local, state or federal agency, court or other body
relating to his employment or the termination of his employment (each
individually, a "Proceeding"), and agrees not to voluntarily participate in
any Proceeding. Executive waives any right he may have to benefit in any
manner from any relief (whether monetary or otherwise) arising out of any
Proceeding.
(6) REMEDIES
In the event Executive initiates or voluntarily participates in any
Proceeding, or if he fails to abide by any of the terms of this Agreement
or his post-termination obligations contained in the Employment Agreement,
or if he revokes the ADEA release contained in Paragraph 4 of this
Agreement within the seven-day period provided under Paragraph 4, the
Company may, in addition to any other remedies it may have, reclaim any
amounts paid to him under the termination provisions of the Employment
Agreement or terminate any benefits or payments that are subsequently due
under the Employment Agreement, without waiving the release granted herein.
Executive acknowledges and agrees that the remedy at law available to the
Company for breach of any of his post-termination obligations under the
Employment Agreement or his obligations under Paragraphs 3, 4, and 5 of
this Agreement would be inadequate and that damages flowing from such a
breach may not readily be susceptible to being measured in monetary terms.
Accordingly, Executive acknowledges, consents and agrees that, in addition
to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of his violation of any
such provision of this Agreement, the Company shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining
any threatened or further breach, without the necessity of proof of actual
damage.
Executive understands that by entering into this Agreement he will be
limiting the availability of certain remedies that he may have against the
Company and limiting also his ability to pursue certain claims against the
Company.
(7) SEVERABILITY CLAUSE
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<PAGE>
In the event any provision or part of this Agreement is found to be invalid
or unenforceable, only that particular provision or part so found, and not
the entire agreement, will be inoperative.
(8) NON-ADMISSION
Nothing contained in this Agreement will be deemed or construed as an
admission of wrongdoing or liability on the part of the Company.
(9) GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, applicable to agreements made and to be
performed in that State; and the parties agree to the jurisdiction of the
U.S. District Court for the District of Delaware, and agree to appear in
any action in such courts by service of process by certified mail, return
receipt requested, at the following addresses:
To Company: ULTRAMAR DIAMOND SHAMROCK CORP.
9830 Colonnade Boulevard
San Antonio, Texas 78230
and
To Executive:
-----------------------------------
-----------------------------------
-----------------------------------
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT AND THAT HE FULLY
KNOWS, UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES
THE SAME AND MAKES THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR
HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the date
first set forth above.
-----------------------------------
[EXECUTIVE]
ULTRAMAR DIAMOND SHAMROCK CORP.,
a Delaware corporation
By:
------------------------------
[NAME]
[TITLE]
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<PAGE>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
1996 LONG TERM INCENTIVE PLAN
<PAGE>
1. PURPOSES; DEFINITIONS................................................... 1
2. ADMINISTRATION.......................................................... 4
2.1 COMPENSATION COMMITTEE............................................. 4
2.2 DUTIES AND POWERS OF COMMITTEE..................................... 4
2.3 MAJORITY RULE...................................................... 5
2.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.......... 5
3. SHARES SUBJECT TO THE PLAN.............................................. 6
3.1 SHARES SUBJECT TO THE PLAN......................................... 6
3.2 LIMITATIONS........................................................ 6
3.3 CHANGES IN COMPANY'S SHARES........................................ 7
4. ELIGIBILITY............................................................. 8
5. STOCK OPTIONS........................................................... 8
5.1 GRANT.............................................................. 8
5.2 TERMS.............................................................. 9
(a) PRICE......................................................... 9
(b) TERM.......................................................... 9
(c) VESTING....................................................... 9
5.3 METHOD OF EXERCISE................................................. 10
5.4 RELOAD OPTIONS..................................................... 11
6. STOCK APPRECIATION RIGHTS............................................... 11
6.1 GRANT.............................................................. 11
6.2 TERMS.............................................................. 12
(a) PRICE/AMOUNT PAID ON EXERCISE................................. 12
(b) TERM.......................................................... 13
(c) VESTING....................................................... 13
6.3 METHOD OF EXERCISE................................................. 13
6.4 EFFECTS OF EXERCISE................................................ 13
7. RESTRICTED SHARES....................................................... 14
7.1 GRANTS............................................................. 14
7.2 TERMS.............................................................. 15
(a) PRICE......................................................... 15
(b) RESTRICTIONS AND CONDITIONS................................... 15
8. PERFORMANCE CRITERIA.................................................... 16
9. MISCELLANEOUS........................................................... 18
9.1 EFFECTIVE DATE..................................................... 18
9.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN................... 19
9.3 AMENDMENT OF AWARD................................................. 20
9.4 TRANSFERABILITY.................................................... 20
9.5 NO RIGHTS AS STOCKHOLDER........................................... 20
9.6 FOREIGN PARTICIPANTS............................................... 21
9.7 EFFECT OF PLAN UPON OTHER COMPENSATION AND INCENTIVE PLANS......... 21
9.8 REGULATIONS AND OTHER APPROVALS; GOVERNING LAW..................... 21
<PAGE>
9.9 GOVERNING LAW...................................................... 23
9.10 WITHHOLDING OF TAXES............................................... 23
9.11 NO RIGHT TO CONTINUED EMPLOYMENT................................... 23
9.12 TITLES; CONSTRUCTION............................................... 24
<PAGE>
ULTRAMAR DIAMOND SHAMROCK CORPORATION
1996 LONG TERM INCENTIVE PLAN
1. PURPOSES; DEFINITIONS.
The purposes of the Plan are to further the growth, development and
financial success of the Company by providing incentives to those officers and
other key employees who have the capacity for contributing in substantial
measure toward the growth and profitability of the Company and to assist the
Company in attracting and retaining employees with the ability to make such
contributions. To accomplish such purposes, the Plan provides that the Company
may grant Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights and Restricted Shares.
Whenever the following terms are used in the Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
"BOARD" shall mean the Board of Directors of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" shall mean the Compensation Committee of the Board,
appointed as provided in Section 2.1
"COMPANY" shall mean Ultramar Diamond Shamrock Corporation, a Delaware
corporation, and any successor corporation.
<PAGE>
2
"EFFECTIVE DATE" shall have the meaning set forth in Section 11.1.
"EMPLOYEE" shall mean any employee (including any officer whether or
not a director) of the Company, or of any corporation which is then a
Subsidiary.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" of a Share as of a given date shall mean (a) the
closing sale price per Share as reported on the principal exchange on which
Shares are then trading, if any, on such date, or if there are no sales on such
date, on the next preceding trading day during which a sale occurred, or (b) if
clause (a) does not apply, the fair market value of the Share as determined by
the Committee from time to time in good faith.
"INCENTIVE STOCK OPTION" shall mean an Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
"NONQUALIFIED STOCK OPTION" shall mean an Option that is not an
Incentive Stock Option.
"OPTION" shall mean an option to purchase Shares (including Restricted
Shares, if the Committee so determines) granted pursuant to Section 5.1.
"OPTION AGREEMENT" shall mean the written agreement pursuant to which
an Option is awarded.
"OPTIONEE" shall mean an Employee to whom an Option has been granted
pursuant to the Plan.
<PAGE>
3
"PARTICIPANT" shall mean an Employee to whom an award is granted
pursuant to the Plan.
"PERFORMANCE CRITERIA" shall have the meaning set forth in Section 8.
"PLAN" shall mean this Ultramar Diamond Shamrock Corporation 1996 Long
Term Incentive Plan, as hereinafter amended from time to time.
"RESTRICTED SHARES" shall mean shares which are awarded to a
Participant that are subject to the restrictions described in Section 7.1.
"RULE 16b-3" shall mean Rule 16b-3 adopted by the Securities and
Exchange Commission under the Exchange Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARE" shall mean a share of the Company's Common Stock, $.01 par
value.
"STOCK APPRECIATION RIGHT" shall mean a right granted pursuant to
Section 6.1.
"SUBSIDIARY" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation (other than
the last corporation in the unbroken chain), or if each group of commonly
controlled corporations, then owns fifty percent (50%) or more of the total
combined voting power in one of the other corporations in such chain.
<PAGE>
4
2. ADMINISTRATION.
2.1 COMPENSATION COMMITTEE
The Plan shall be administered by the Committee, which shall consist
of two or more individuals appointed by the Board and holding office at the
pleasure of the Board. All Committee members shall be members of the Board, and
must be "non-employee directors," as such term is described in Rule 16b-3, if
and as such Rule is in effect, and "outside directors" within the meaning of
Section 162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee shall be
filled by the Board.
2.2 DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its terms and provisions. The
Committee shall have the power to interpret the Plan and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. All actions taken
and all interpretations and determinations made by the Committee and such
executive officers shall be binding upon all affected persons. In addition to
the authority otherwise prescribed in the Plan, the Committee shall have the
authority in its sole discretion to prescribe such limitations, restrictions,
and conditions upon, provisions for vesting and acceleration of,
<PAGE>
5
provisions prescribing the nature and amount of legal consideration to be
received upon the grant or exercise of, any award made under the Plan and all
other terms and conditions of any such award as the Committee deems appropriate,
provided that none of the foregoing conflicts with any of the express terms or
limitations of the Plan and that the foregoing are set forth in the instrument
granting any such award or in the rules referred to elsewhere in this Section
2.2.
2.3 MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a telephonic or other meeting or by a
memorandum or other written instrument signed by a majority of the Committee.
2.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of Board, employ attorneys, consultants, accountants,
appraisers, or other persons. The Committee, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. No member of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect
<PAGE>
6
to the Plan or the awards hereunder, and all members of the Committee shall be
fully protected by the Company in respect to any such action, determination or
interpretation.
3. SHARES SUBJECT TO THE PLAN.
3.1 SHARES SUBJECT TO THE PLAN
Subject to adjustment pursuant to Section 3.3, the number of Shares
that may be the subject of or related to awards under this Plan is 6,000,000.
Such shares may be treasury shares or shares of original issue or a combination
of the foregoing. In the event that (a) any Participant delivers Shares (i) to
pay the exercise price of an Option or any other award granted hereunder, or
(ii) in satisfaction of any tax withholding requirement, or (b) any other
payment made or benefit realized under the Plan is satisfied by the transfer or
relinquishment of Shares, the number of Shares available for awards under the
Plan shall be increased by the number of Shares so surrendered, paid or
relinquished.
3.2 LIMITATIONS
Subject to adjustment pursuant to Section 3.3:
(i) The maximum number of Shares that may be the subject of Options
and Stock Appreciation Rights under the Plan to any Participant shall not, in
the aggregate, exceed 600,000 per year;
(ii) The maximum number of Restricted Shares granted under the Plan to
any Participant shall not exceed 200,000 Shares per year;
<PAGE>
7
(iii) The number of 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 400,000 Shares; and
(iv) The aggregate number of Shares actually issued or transferred by
the Company upon the exercise of Incentive Stock Options shall not exceed the
total number of Shares specified in Section 3.1.
3.3 CHANGES IN COMPANY'S SHARES
In the event of any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Shares
at a price substantially below fair market value, or other similar corporate
event that affects the Shares or other awards granted or made available for
issuance under the Plan such that an adjustment is required in order to preserve
the benefits or potential benefits intended to be made available under this
Plan, then the Committee shall in such manner as the Committee may deem
equitable, adjust any or all of (a) the number and kind of shares which
thereafter may be awarded or optioned and sold or made the subject of other
awards granted under the Plan in the aggregate or to any Participant, (b) the
number and kind of shares subject to outstanding Options and other awards, and
(c) the grant, exercise or conversion price with respect to any of the foregoing
and/or,
<PAGE>
8
if deemed appropriate, make provision for a cash payment to a Participant or a
person who has an outstanding Option or other award; provided, however, that the
number of Shares subject to any Option or other award shall always be a whole
number.
4. ELIGIBILITY.
Any Employee who is an officer or who is designated by the Committee
as a key Employee shall be eligible to receive awards under this Plan. In
general, an Employee may be designated as a key Employee if such Employee is
responsible for or contributes to the management, growth, and/or profitability
of the business of the Company and/or a Subsidiary.
5. STOCK OPTIONS.
5.1 GRANT
Subject to the provisions of the Plan, the Committee shall have the
sole and complete authority to determine the eligible Employees to whom Options
shall be granted, the number of Shares to be covered by each Option, the
exercise price therefor and the terms and conditions applicable to the exercise
of the Option. The Committee shall have the authority to grant Incentive Stock
Options, Nonqualified Stock Options, or both. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with Section 422 of the Code and any rules or regulations promulgated
thereunder.
<PAGE>
9
5.2 TERMS
Options shall be granted only pursuant to a written Option Agreement,
which shall be executed by the Optionee and an authorized officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan, including the following:
(a) PRICE. The exercise price for the Shares subject to an Option,
or the manner in which such exercise price is to be determined, shall be
determined by the Committee, provided that, the exercise price per Share shall
not be less than 100% of the Fair Market Value of a Share as of the date the
Option is granted.
(b) TERM. Options shall be for such term as the Committee shall
determine, provided that no Option shall be exercisable after the expiration of
ten years from the date it is granted.
(c) VESTING. Options shall be exercisable in such installments
(which need not be equal) and at such times as may be designated by the
Committee and set forth in the Option Agreement. To the extent not exercised,
installments shall accumulate and may be exercised, in whole or in part, at any
time after becoming exercisable, but not later than the date the Option expires.
The Committee may accelerate the exercisability of any Option or portion thereof
at any time. Notwithstanding the foregoing, the Committee may, in its sole
discretion, provide in the Option Agreement that all or a part of the Shares
received
<PAGE>
10
by an Optionee upon the exercise of a Nonqualified Stock Option shall be
Restricted Shares subject to any or all of the restrictions or conditions
prescribed pursuant to Section 7.2(b).
5.3 METHOD OF EXERCISE
The exercise of an Option shall be made only by a written notice
delivered in person or by first class mail to the Secretary of the Company at
the Company's principal executive office, specifying the number of Shares to be
purchased and accompanied by full payment therefor and otherwise in accordance
with the Option Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise of an Option
shall be paid in full upon such exercise in cash, by check or, at the discretion
of the Committee and upon such terms and conditions as the Committee shall
approve, by transferring Shares to the Company that have been owned by the
Optionee for at least six months prior to such transfer, having Shares withheld
or exercising pursuant to a "cashless exercise" procedure, or any combination
thereof. Any Shares transferred to the Company as payment of the purchase price
under an Option shall be valued at their Fair Market Value on the date of
exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Option Agreement evidencing the Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such
Option Agreement to the Optionee. Not less than one hundred (100) Shares may be
purchased at any time upon the exercise of an
<PAGE>
11
Option unless the number of Shares so purchased constitutes the total number of
Shares then purchasable under the Option or the Committee determines otherwise,
in its sole discretion.
5.4 RELOAD OPTIONS
The Committee may provide for the grant to any Optionee of additional
Options ("Reload Options") upon the exercise of Options, including Reload
Options, through the delivery of Shares; provided, however, that (i) Reload
Options may be granted only with respect to the same number of Shares as were
surrendered to exercise the Options, (ii) the exercise price per Share of the
Reload Options shall be not less than 100% of the Fair Market Value of a Share
as of the date the Reload Options are granted, and (iii) the Reload Options
shall not be exercisable after the expiration of the term of the Options, the
exercise of which resulted in the grant of the Reload Options.
6. STOCK APPRECIATION RIGHTS.
6.1 GRANT
Subject to the provisions of the Plan, the Committee shall have the
sole and complete authority to determine the eligible Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered, and
the terms and conditions applicable to the exercise of such rights. Stock
Appreciation Rights may be granted in tandem with an Option, in addition to an
Option, or freestanding and unrelated to an Option. In the case of a
Nonqualified Stock Option, a tandem Stock Appreciation Right may be granted
either at or after the
<PAGE>
12
time of the grant of such Option. In the case of an Incentive Stock Option, a
tandem Stock Appreciation Right may be granted only at the time of the grant of
such Option, may be exercised only if and when the Fair Market Value of the
Shares subject to the Incentive Stock Option exceeds the exercise price of such
Option, and shall contain such other terms and conditions required to comply
with Section 422 of the Code and any rules or regulations promulgated
thereunder.
6.2 TERMS
Stock Appreciation Rights shall be granted only pursuant to a written
agreement, which shall be executed by the Participant and an authorized officer
of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan, including the following:
(a) PRICE/AMOUNT PAID ON EXERCISE. The strike price for a Stock
Appreciation Right shall be determined by the Committee, in its sole discretion,
provided that the strike price per Share shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share as of the date the Stock
Appreciation Right is granted. Upon the exercise of a Stock Appreciation Right,
a Participant shall be entitled to receive an amount in cash and/or Shares equal
in value to the excess of the Fair Market Value of one Share on the date of
exercise over the strike price per Share for such Stock Appreciation Right,
multiplied by the number of Shares in respect of which the Stock Appreciation
Right shall have been exercised. The Committee
<PAGE>
13
shall determine whether the Stock Appreciation Right shall be settled in cash,
Shares or a combination of cash and Shares.
(b) TERM. Stock Appreciation Rights shall be for such term as the
Committee shall determine, and as shall be set forth in each award agreement.
(c) VESTING. Stock Appreciation Rights shall be exercisable in such
installments (which need not be equal) and at such times as may be designated by
the Committee and set forth in the award agreement, provided that no Stock
Appreciation Right shall be exercisable after the expiration of ten years from
the date it is granted.
6.3 METHOD OF EXERCISE
The exercise of a Stock Appreciation Right shall be made only by a
written notice delivered in person or by first class mail to the Secretary of
the Company at the Company's principal executive office, specifying the number
of Shares with respect to which the Stock Appreciation Right is being exercised
and otherwise in accordance with the award agreement pursuant to which the Stock
Appreciation Right was granted. A Stock Appreciation Right may not be exercised
with respect to less than one hundred (100) Shares, unless the number of Shares
with respect to which it is exercised constitutes the total number of Shares
then subject to such right or the Committee determines otherwise, in its sole
discretion.
6.4 EFFECTS OF EXERCISE
<PAGE>
14
Upon the exercise of a Stock Appreciation Right that was granted in
tandem with an Option, such Option (a) shall be surrendered and deemed to have
been exercised for the purpose of the limitations set forth in Section 3.1 on
the number of Shares to be issued under the Plan in the aggregate and to any
Participant to the extent of the number of Shares with respect to which the
Stock Appreciation Right has been exercised, and (b) shall no longer be
exercisable with respect to the number of Shares for which the tandem Stock
Appreciation Right has been exercised. If requested by the Committee, the
Participant shall deliver the award agreement evidencing the Stock Appreciation
Right to the Secretary of the Company who shall endorse thereon a notation of
such exercise and return such agreement to the Participant.
7. RESTRICTED SHARES.
7.1 GRANTS
Subject to the provisions of the Plan, the Committee shall have the
sole and complete authority to determine the eligible Employees to whom, and the
time or times at which, grants of Restricted Shares will be made, the number of
Restricted Shares to be awarded, the price (if any) to be paid by the recipient
of Restricted Shares, the time or times within which such awards may be subject
to forfeiture, and all other conditions of the awards. Awards of Restricted
Shares may be granted either alone or in addition to other awards granted under
the Plan. The Committee may condition the grant or vesting of
<PAGE>
15
Restricted Shares upon the attainment of Performance Criteria or such other
factors as the Committee may determine, in its sole discretion. The provisions
of Restricted Share awards need not be the same with respect to each recipient.
7.2 TERMS
Restricted Shares awards shall be granted only pursuant to a written
agreement, which shall be executed by the Participant and a duly authorized
officer of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan, including the following:
(a) PRICE. The purchase price of Restricted Shares shall be
determined by the Committee, in its sole discretion, and may be zero.
(b) RESTRICTIONS AND CONDITIONS.
(i) The award may be subject to such restrictions as may be
imposed by the Committee in its sole discretion, including, without
limitation, Performance Criteria, as a condition for the grant or vesting
of the Restricted Shares; provided, however, that any restrictions based
upon the Participant attaining a certain length of service with the
Company shall not exceed five years of service after the date of grant of
the Restricted Shares; and provided, further, that the period within
which Performance Criteria must be achieved shall not exceed ten years
after the date of grant of the Restricted Shares. The
<PAGE>
16
Committee may provide for the lapse of restrictions imposed on an award in
installments.
(ii) Except as provided in clause (i), the Participant shall
have, with respect to the Restricted Shares, all of the rights of a
stockholder of the Company, including the right to vote the Shares and to
receive any cash dividends.
(iii) The Committee may, in its sole discretion, retain in the
applicable award agreement the authority to waive in whole or in part any
or all restrictions with respect to a Participant's Restricted Shares,
based on such factors as the Committee may deem appropriate.
(iv) The Committee may, in its sole discretion, provide that
Restricted Shares be held in escrow or trust pending delivery to the
Participant upon the satisfaction of any applicable restrictions or
delivery to the Company upon forfeiture.
8. PERFORMANCE CRITERIA.
8.1 Options, Stock Appreciation Rights and Restricted Shares, when so
determined by the Committee, may be subject to such financial or non-financial
performance or other criteria ("Performance Criteria") as may be adopted from
time to time by the Committee in its discretion. Performance Criteria shall not
include the attaining of a certain length of service with the Company.
<PAGE>
17
8.2 The Performance Criteria applicable to any Participant who is, or
who is determined by the Committee to be likely to become, a "covered employee"
within the meaning of Section 162(m) of the Code (a "Covered Employee"), shall
be limited to growth, improvement or attainment of certain levels of:
(i) return on capital, equity, or operating costs;
(ii) economic value added;
(iii) margins;
(iv) total stockholder return or market value;
(v) operating profit or net income;
(vi) cash flow, earnings before interest and taxes, earnings
before interest, taxes and depreciation, or earnings
before interest, taxes, depreciation and amortization;
(vii) sales, throughput, or product volumes; or
(viii) costs or expenses.
Such Performance Criteria may be expressed either on an absolute basis or
relative to other companies selected by the Committee. This Section 8.2 is
intended to comply with the exception from Section 162(m) of the Code for
qualified performance-based compensation, and shall be construed, applied and
administered accordingly.
8.3 If the Committee determines that a change in the business,
operations, corporate structure or capital structure of
<PAGE>
18
the Company, or the manner in which it conducts its business, or other events or
circumstances render the Performance Criteria 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. In addition, at the time the award subject to Performance Criteria
is made 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.
9. MISCELLANEOUS.
9.1 EFFECTIVE DATE
The Plan shall become effective as of October 22, 1996 (the "Effective
Date") and shall continue in effect until the tenth anniversary of such
approval, subject to (i) approval of the Plan by holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders duly held in accordance with the laws of
<PAGE>
19
the State of Delaware within twelve months of adoption of the Plan by the Board,
and (ii) the effectiveness of the merger between Diamond Shamrock, Inc., a
Delaware corporation, and the Company, with the Company as the surviving entity,
in accordance with the Agreement and Plan of Merger between the Company and
Diamond Shamrock, Inc., dated as of September 22, 1996.
9.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board; provided,
however, that, except as provided in Section 3.3, no amendment shall be
effective unless approved by the affirmative vote of a majority of the votes
eligible to be cast at a meeting of stockholders of the Company held within
twelve (12) months of the date of adoption of such amendment, where such
amendment will:
(a) increase the total number of Shares reserved for the
purposes of the Plan; or
(b) make such other change as may require stockholder approval
(i) under the rules of any exchange on which Shares are traded, or (ii)
in order for awards granted under the Plan to qualify for an exception
from Section 162(m) of the Code.
Neither the amendment, suspension nor termination of the Plan shall,
without the consent of the Participant, alter or impair any rights or
obligations under any award theretofore granted. No awards may be granted
during any period of
<PAGE>
20
suspension nor after termination of the Plan, and in no event may any awards be
granted under the Plan after ten years from the Effective Date.
9.3 AMENDMENT OF AWARD
The Committee may amend, modify or terminate any outstanding award
with the Participant's consent at any time prior to payment or exercise in any
manner not inconsistent with the terms of the Plan, including without
limitation, (a) to change the date or dates as of which an Option or Stock
Appreciation Right becomes exercisable or Restricted Shares become vested, or
(b) to cancel and reissue an award under such different terms and conditions as
it determines appropriate.
9.4 TRANSFERABILITY
Except as otherwise determined by the Committee, no award shall be
assignable or transferable except by will or the laws of descent and
distribution, and no right or interest of any Participant shall be subject to
any lien, obligation or liability of the Participant.
9.5 NO RIGHTS AS STOCKHOLDER
Subject to the provisions of the applicable award, no Participant
shall be deemed for any purpose to be or to have the rights and privileges of
the owner of any Shares subject to any Option or otherwise to be distributed
under the Plan until such Participant shall have become the holder thereof.
Notwithstanding the foregoing, in connection with each grant of Restricted
Shares, the applicable award agreement shall specify
<PAGE>
21
if and to what extent the Participant shall not be entitled to the rights of a
stockholder in respect of such Restricted Shares.
9.6 FOREIGN PARTICIPANTS
Subject to the provisions of Section 9.3, the Committee may, in order
to fulfill the Plan purposes and without amending the Plan, modify previously
granted awards to Participants who are foreign nationals or employed outside the
United States to recognize differences in local law, tax policy or custom.
9.7 EFFECT OF PLAN UPON OTHER COMPENSATION AND INCENTIVE PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in the
Plan shall be construed to limit the right of the Company or any Subsidiary to
establish any other forms of incentives or compensation for Employees of the
Company or any Subsidiary.
9.8 REGULATIONS AND OTHER APPROVALS; GOVERNING LAW
(a) The obligation of the Company to sell or deliver Shares with
respect to Options or any other award granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(b) The Committee may make such changes as may be necessary or
appropriate to comply with the rules and regulations
<PAGE>
22
of any government authority or to obtain the tax benefits under the applicable
provisions of the Code and regulations promulgated thereunder for Employees
granted Incentive Stock Options.
(c) Each Option and any other award payable in Shares is subject to
the requirement that, if at any time the Committee determines, in its sole
discretion, that the listing, registration or qualification of Shares issuable
pursuant to the Plan is required by any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection with, the grant of
an Option or the issuance of Shares, no Options shall be granted or payment made
or Shares issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions as acceptable to the Committee.
(d) In the event that the disposition of Shares acquired pursuant to
the Plan is not covered by a then current registration statement under the
Securities Act, and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the Securities
Act or regulations thereunder, and the Committee may require any individual
receiving Shares pursuant to the Plan, as a condition precedent to receipt of
such Shares, to represent to the Company in writing that the Shares acquired by
such individual are acquired for investment only and not with a view to
distribution. The certificate for any Shares acquired
<PAGE>
23
pursuant to the Plan shall include any legend that the Committee deems
appropriate to reflect any restrictions on transfer.
9.9 GOVERNING LAW
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof.
9.10 WITHHOLDING OF TAXES
No later than the date as to which an amount first becomes includible
in the gross income of a Participant for federal income tax purposes with
respect to any award granted under the Plan, the Participant shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any federal, state, local or other taxes of any kind required by the law of
any applicable jurisdiction or the Company to be withheld with respect to such
amount. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements and the Company and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant. In its discretion, the
Committee may permit Participants to satisfy withholding obligations by
delivering previously owned Shares or by electing to have Shares withheld.
9.11 NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan or in any award agreement shall confer upon any
Employee any right to continue in the employ of
<PAGE>
24
the Company or any Subsidiary or shall interfere with or restrict in any way the
right of the Company and its Subsidiaries, which are hereby expressly reserved,
to remove, terminate or discharge any Employee at any time for any reason
whatsoever, with or without cause.
9.12 TITLES; CONSTRUCTION
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan. The masculine
pronoun shall include the feminine and neuter and the singular shall include the
plural, when the context so indicates. Any reference to a section (other than
to a section of the Plan) shall also include a successor to such section.
<PAGE>
EXHIBIT 11.1
ULTRAMAR CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS OF ULTRAMAR
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
) (IN THOUSANDS, EXCEPT PER SHARE DATA
PRO FORMA
------------------------
PRIMARY
Average shares outstanding......... 44,497 38,560 39,895 38,502 38,205 38,235 38,235
Net effect of dilutive stock
options-based on the treasury
stock method using average market
price............................ 642 459 445 470 497
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total.............................. 45,139 39,019 40,340 38,972 38,702 38,235 38,235
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
accounting change................ $ 43,214 $ 6,216 $ 47,613 $ 60,975 $ 86,457 $ 56,344 $ 84,903
Cumulative effect, to December 31,
1994,
of accounting change............. 22,024 22,024
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......................... $ 43,214 $ 28,240 $ 69,637 $ 60,975 $ 86,457 $ 56,344 $ 84,903
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income per share before cumulative
effect of
accounting change................ $ .96 $ .16 $ 1.18 $ 1.56 $ 2.23 $ 1.47 $ 2.22
Cumulative effect of accounting
change........................... .56 .55
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share............... $ .96 $ .72 $ 1.73 $ 1.56 $ 2.23 $ 1.47 $ 2.22
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
FULLY DILUTED
Average shares outstanding......... 44,497 38,560 39,895 38,502 38,205 38,235 38,235
Net effect of dilutive stock
options-based on the treasury
stock method using the year-end
market price, if higher than
average market price............. 673 495 479 487 642
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total.............................. 45,170 39,055 40,374 38,989 38,847 38,235 38,235
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
accounting change................ $ 43,214 $ 6,216 $ 47,613 $ 60,975 $ 86,457 $ 56,344 $ 84,903
Cumulative effect, to December 31,
1994,
of accounting change............. 22,024 22,024
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......................... $ 43,214 $ 28,240 $ 69,637 $ 60,975 $ 86,457 $ 56,344 $ 84,903
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income per share before cumulative
effect of
accounting change................ $ .96 $ .16 $ 1.18 $ 1.56 $ 2.23 $ 1.47 $ 2.22
Cumulative effect of accounting
change........................... .56 .55
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share............... $ .96 $ .72 $ 1.73 $ 1.56 $ 2.23 $ 1.47 $ 2.22
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 12.1
ULTRAMAR CORPORATION
STATEMENT RE: COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA
Earnings:
Income before taxes.......................... 71.8 10.3 73.3 94.9 139.8 89.4 141.2
Add: Fixed charges.......................... 29.6 27.3 58.4 53.3 64.0 65.9 74.1
Amortization of interest previously
capitalized........................... 0.3 0.1 0.2 0.2
Losses of investees..................... 0.5 1.1
Less: Capitalized interest................... (4.2) (3.2) (9.6) (5.5)
Undistributed earnings of investees..... (0.1) (0.2)
--- --- --------- --------- --------- --------- ---------
Earnings as adjusted........................... 97.4 34.5 122.8 142.7 203.6 156.4 217.5
--- --- --------- --------- --------- --------- ---------
--- --- --------- --------- --------- --------- ---------
Computation of Fixed Charges:
Interest Expense............................. 24.8 23.3 45.7 43.8 52.5 53.0 62.4
Capitalized interest......................... 4.2 3.2 9.6 5.5
Interest portion of lease commitments........ 0.6 0.8 3.1 4.0 11.5 12.9 11.7
--- --- --------- --------- --------- --------- ---------
Total Fixed Charges............................ 29.6 27.3 58.4 53.3 64.0 65.9 74.1
--- --- --------- --------- --------- --------- ---------
--- --- --------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges(1).......... 3.3 1.3 2.1 2.7 3.2 2.4 2.9
--- --- --------- --------- --------- --------- ---------
--- --- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings as adjusted" consist of income before income taxes after adding
certain fixed charges as noted above. "Fixed charges" consist of interest
expense, amortization of debt discount and a portion of rent expense
representative of the interest factor.
<PAGE>
EXHIBIT 12.2
DIAMOND SHAMROCK, INC.
STATEMENT RE: COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1996 1995 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes............................................ 44.3 53.3 73.7 125.8 57.5 44.0
Add: Fixed charges............................................. 48.3 31.3 65.4 55.3 54.0 54.2
Less: Capitalized interest..................................... (2.5) (2.9) (6.8) (2.3) (6.1) (6.1)
--- --- --------- --------- --------- ---
Earnings as adjusted............................................. 90.1 81.7 132.3 178.8 105.4 92.1
--- --- --------- --------- --------- ---
--- --- --------- --------- --------- ---
Computation of Fixed Charges:
Interest expense............................................... 36.4 22.8 47.4 43.3 40.6 40.5
Capitalized interest........................................... 2.5 2.9 6.8 2.3 6.1 6.1
Interest portion of lease commitments.......................... 9.4 5.6 11.2 9.7 7.3 7.6
--- --- --------- --------- --------- ---
Total Fixed Charges.............................................. 48.3 31.3 65.4 55.3 54.0 54.2
--- --- --------- --------- --------- ---
--- --- --------- --------- --------- ---
Ratio of Earnings to Fixed Charges(1)............................ 1.9 2.6 2.0 3.2 2.0 1.7
--- --- --------- --------- --------- ---
--- --- --------- --------- --------- ---
<CAPTION>
1991
---------
<S> <C>
Earnings:
Income before taxes............................................ 57.7
Add: Fixed charges............................................. 48.4
Less: Capitalized interest..................................... (2.5)
---------
Earnings as adjusted............................................. 103.6
---------
---------
Computation of Fixed Charges:
Interest expense............................................... 37.7
Capitalized interest........................................... 2.5
Interest portion of lease commitments.......................... 8.2
---------
Total Fixed Charges.............................................. 48.4
---------
---------
Ratio of Earnings to Fixed Charges(1)............................ 2.1
---------
---------
</TABLE>
- ------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings as adjusted" consist of income before income taxes after adding
certain fixed charges as noted above. "Fixed charges" consist of interest
expense, amortization of debt discount and a portion of rent expense
representative of the interest factor.
<PAGE>
EXHIBIT 12.3
DIAMOND SHAMROCK, INC.
STATEMENT RE: COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN MILLION, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes................................. 44.3 53.3 73.7 125.8 57.5 44.0 57.7
Add: Fixed Charges.................................. 51.4 34.3 71.2 61.3 57.4 54.2 48.4
Less: Capitalized interest.......................... (2.5) (2.9) (6.8) (2.3) (6.1) (6.1) (2.5)
Dividend requirement on preferred
stock........................................ (3.1) (3.0) (5.8) (6.0) (3.4)
--- --- --------- --------- --------- --- ---------
Earnings as adjusted.................................. 90.1 81.7 132.3 178.8 105.4 92.1 103.6
--- --- --------- --------- --------- --- ---------
--- --- --------- --------- --------- --- ---------
Computation of Fixed Charges and Preferred Stock
Dividends:
Interest expense.................................... 36.4 22.8 47.4 43.3 40.6 40.5 37.7
Capitalized interest................................ 2.5 2.9 6.8 2.3 6.1 6.1 2.5
Interest portion of lease commitments............... 9.4 5.6 11.2 9.7 7.3 7.6 8.2
Preferred stock dividend requirement (2)............ 3.1 3.0 5.8 6.0 3.4
--- --- --------- --------- --------- --- ---------
Total Fixed Charges................................... 51.4 34.3 71.2 61.3 57.4 54.2 48.4
--- --- --------- --------- --------- --- ---------
--- --- --------- --------- --------- --- ---------
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends (1)......................................... 1.8 2.4 1.9 2.9 1.8 1.7 2.1
--- --- --------- --------- --------- --- ---------
--- --- --------- --------- --------- --- ---------
</TABLE>
- ------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings as adjusted" consist of income before income taxes after adding
certain fixed charges as noted above. "Fixed charges" consist of interest
expense, amortization of debt discount, a portion of rent expense
representative of the interest factor and the preferred stock dividend
requirement.
(2) The preferred stock dividend requirement has been increased to an amount
representing the pre-tax earnings which would be required to cover such
dividend requirements as preferred stock dividends are not deductible for
income tax purposes.
<PAGE>
EXHIBIT 12.4
ULTRAMAR DIAMOND SHAMROCK CORPORATION
STATEMENT RE: COMPUTATION OF PRO FORMA COMBINED RATIO OF EARNINGS TO FIXED
CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes............................. 116.1 58.0 141.1 220.7 197.3 133.4 198.9
Add: Fixed charges.............................. 77.9 73.1 151.6 108.6 118.0 120.1 122.5
Amortization of interest
previously capitalized................... 0.3 0.1 0.2 0.2
Losses of investees........................ 0.5 1.1
Less: Capitalized interest...................... (6.7) (6.1) (16.4) (7.8) (6.1) (6.1) (2.5)
Undistributed earnings of investees........ (0.1) (0.2)
--------- --------- --------- --------- --------- --------- ---------
Earnings as adjusted.............................. 187.5 125.1 277.0 321.5 309.0 248.5 319.1
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Computation of Fixed Charges:
Interest expense................................ 61.2 57.1 113.9 87.1 93.1 93.5 100.1
Capitalized interest............................ 6.7 6.1 16.4 7.8 6.1 6.1 2.5
Interest portion of lease commitments........... 10.0 9.9 21.3 13.7 18.8 20.5 19.9
--------- --------- --------- --------- --------- --------- ---------
Total Fixed Charges............................... 77.9 73.1 151.6 108.6 118.0 120.1 122.5
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges (1)............ 2.4 1.7 1.8 3.0 2.6 2.1 2.6
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings as adjusted" consist of income before income taxes after adding
certain fixed charges as noted above. "Fixed charges" consist of interest
expense, amortization of debt discount and a portion of rent expense
representative of the interest factor.
<PAGE>
EXHIBIT 12.5
ULTRAMAR DIAMOND SHAMROCK CORPORATION
STATEMENT RE: COMPUTATION OF PRO FORMA COMBINED RATIO OF EARNINGS TO FIXED
CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes............................. 116.1 58.0 141.1 220.7 197.3 133.4 198.9
Add: Fixed charges.............................. 81.0 76.1 157.4 114.6 121.4 120.1 122.5
Amortization of interest
previously capitalized................... 0.3 0.1 0.2 0.2
Losses of investees........................ 0.5 1.1
Less: Capitalized interest...................... (6.7) (6.1) (16.4) (7.8) (6.1) (6.1) (2.5)
Undistributed earnings of investees........ (0.1) (0.2)
Preferred stock dividend................... (3.1) (3.0) (5.8) (6.0) (3.4)
--------- --------- --------- --------- --------- --------- ---------
Earnings as adjusted.............................. 187.5 125.1 277.0 321.5 309.0 248.5 319.1
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Computation of Fixed Charges and Preferred Stock
Dividends:
Interest expense................................ 61.2 57.1 113.9 87.1 93.1 93.5 100.1
Capitalized interest............................ 6.7 6.1 16.4 7.8 6.1 6.1 2.5
Interest portion of lease commitments........... 10.0 9.9 21.3 13.7 18.8 20.5 19.9
Preferred stock dividend requirement (2)........ 3.1 3.0 5.8 6.0 3.4
--------- --------- --------- --------- --------- --------- ---------
Total Fixed Charges............................... 81.0 76.1 157.4 114.6 121.4 120.1 122.5
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends (1)............................. 2.3 1.6 1.8 2.8 2.5 2.1 2.6
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings as adjusted" consist of income before income taxes after adding
certain fixed charges as noted above. "Fixed charges" consist of interest
expense, amortization of debt discount, a portion of rent expense
representative of the interest factor and the preferred stock dividend
requirement.
(2) The preferred stock dividend requirement has been increased to an amount
representing the pre-tax earnings which would be required to cover such
dividend requirements as preferred stock dividends are not deductible for
income tax purposes.
<PAGE>
EXHIBIT 15.1
PRICE WATERHOUSE LLP AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Ultramar Corporation has included our reports on the
unaudited consolidated financial information of Diamond Shamrock, Inc. for the
three month periods ended March 31, 1996 and 1995 and the three and six month
periods ended June 30, 1996 and 1995, dated May 10, 1996 and August 13, 1996,
respectively (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statement on Form S-4 to be filed on or about October 25, 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
October 25, 1996
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Ultramar Corporation
for the registration of 34,341,006 shares of its common stock and 1,725,000
shares of its 5% cumulative convertible preferred stock and to the incorporation
by reference therein of our report dated February 1, 1996 with respect to the
consolidated financial statements and schedules of Ultramar Corporation included
in its Annual Report (Form 10-K) for the year ended December 31, 1995, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Stamford, Connecticut
October 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Ultramar
Corporation of our report which, except as it pertains to the last paragraph of
Note 2, for which our report is dated September 27, 1996, is dated February 23,
1996, appearing in Exhibit 13.3 of Diamond Shamrock, Inc.'s Annual Report on
Form 10-K/A for the year ended December 31, 1995. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears in Item 14(a)(2) of such Annual Report on Form 10-K/A. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
October 25, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated the date of this
Proxy Statement to the Board of Directors of Ultramar Corporation included as
Appendix B to the Proxy Statement which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Ultramar Corporation
and Diamond Shamrock, Inc. and to the references to such opinion in such Proxy
Statement under the captions "Summary -- The Merger-Opinions of Financial
Advisors", "The Merger-Background of the Merger", "The Merger-Reasons for the
Merger; Recommendations of the Boards of Directors" and "The Merger-Opinions of
Financial Advisors".
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
October 25, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the filing of our opinion, dated as of September 22,
1996 and as of the date of the Joint Proxy Statement/Prospectus on Form S-4 of
Ultramar Corporation (the "Proxy Statement"), as an Appendix and Exhibit to the
Proxy Statement and to the reference to us under the captions "Summary" and "The
Merger--Background of the Merger", "--Reasons for the Merger; Recommendations of
the Boards of Directors" and "--Opinions of Financial Advisors." In giving such
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 under the Securities Act of 1933.
/s/ WASSERSTEIN PERELLA & CO.
New York, New York
October 25, 1996
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Ultramar Corporation on Form S-4 of our report dated September 19, 1995
(insofar as it relates to the consolidated financial statements for the year
ended June 30, 1995), appearing in the Annual Report on Form 10-K of National
Convenience Stores Incorporated for the year ended June 30, 1995. We also
consent to the reference to us under the heading "Experts" in the Prospectus
which is part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
October 25, 1996
<PAGE>
Exhibit 99.1
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ R. R. HEMMINGHAUS
--------------------------------------------------------------
R. R. Hemminghaus
<PAGE>
EXHIBIT 99.1
(CONT.)
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ W. H. CLARK
--------------------------------------------------------
W. H. Clark
<PAGE>
EXHIBIT 99.1
(CONT.)
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ BOB MARBUT
--------------------------------------------------------
Bob Marbut
<PAGE>
EXHIBIT 99.1
(CONT.)
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ W. E. BRADFORD
-----------------------------------------------------------
W. E. Bradford
<PAGE>
EXHIBIT 99.1
(CONT.)
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ E. GLENN BIGGS
----------------------------------------------------------
E. Glenn Biggs
<PAGE>
EXHIBIT 99.1
(CONT.)
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of the surviving corporation of the merger of
Diamond Shamrock, Inc. with and into Ultramar Corporation upon consummation of
the merger.
Dated: October 25, 1996
/S/ KATHERINE D. ORTEGA
---------------------------------------------------------------
Katherine D. Ortega
<PAGE>
EXHIBIT 99.4
PLEASE MARK VOTES
REVOCABLE PROXY
/X/
AS IN THIS EXAMPLE
ULTRAMAR CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 3, 1996
The proxies are instructed to vote as follows:
<TABLE>
<S> <C> <C> <C> <C>
1. Adoption of the Agreement and Plan For Against Abstain
of Merger dated as of September
22, 1996 between Ultramar
Corporation and Diamond Shamrock,
Inc.
/ / / / / /
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
2. Approval of the Ultramar Diamond For Against Abstain
Shamrock Corporation 1996 Long
Term Incentive Plan.
/ / / / / /
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting as described in the
accompanying Joint Proxy Statement/Prospectus.
</TABLE>
<TABLE>
<S> <C>
Please be sure to sign and date this Date:
Proxy.
Stockholder sign here Co-holder (if any) sign here
</TABLE>
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
The undersigned hereby appoints each of Jean Gaulin and Patrick J. Guarino,
with full power of substitution and resubstitution, and hereby authorizes them
to represent and vote, as designated herein, all the shares of Common Stock of
Ultramar Corporation held of record by the undersigned on October 29, 1996 at
the Special Meeting of Stockholders to be held on December 3, 1996 or any
adjournment thereof.
The effectiveness of Proposal 2 is not a condition to the effectiveness of
Proposal 1. However, the effectiveness of Proposal 2 is conditioned upon the
approval of Proposal 1.
This Proxy, when properly executed, will be voted in the manner directed
herein. If not otherwise specified, this Proxy will be voted (i) for the
adoption of the Agreement and Plan of Merger, (ii) for the approval of the
Ultramar Diamond Shamrock Corporation 1996 Long Term Incentive Plan, and (iii)
otherwise at the discretion of the proxies. This Proxy may be revoked at any
time prior to the time it is voted at the Special Meeting.
The undersigned hereby acknowledges receipt of a Joint Proxy
Statement/Prospectus dated October , 1996 prior to signing this Proxy.
Please sign exactly as your name(s) appear(s) on this Proxy. When signing in
a representative capacity, please give title. When shares are held jointly, both
holders should sign.
TRIANGLE DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE
PROVIDED. TRIANGLE
ULTRAMAR CORPORATION
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL PROXY CARD TODAY
<PAGE>
Exhibit 99.5
DIAMOND SHAMROCK, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints Roger R. Hemminghaus, Timothy J. Fretthold,
William R. Klesse and J. Robert Mehall, and each of them, the stockholder's
attorney and proxy, each with full power of substitution and resubstitution, to
represent and to vote on behalf of the undersigned upon the proposition set
forth herein all shares of Diamond Shamrock, Inc. Common Stock held of record by
the undersigned as of October 29, 1996, at the Special Meeting of Stockholders
of Diamond Shamrock, Inc. and at all adjournments thereof, to be held at the St.
Regis Hotel, 2 East 55th St., New York, New York, 10022, at 9:00 a.m., local
time, on December 3, 1996. (THISPROXY REVOKES ALL PRIOR PROXIES GIVENBYTHE
UNDERSIGNED.)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. WHERE NO VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY
OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING.
Dated:
-------------------------------------------
Signature:
---------------------------------------
Signature if held jointly:
----------------------
Name of Corporation or Partnership:
--------------
Authorized Officer:
------------------------------
Title or authority:
------------------------------
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY
AS PROMPTLY AS POSSIBLE IN THE POSTPAID ENVELOPE PROVIDED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
(FOLD AND DETACH CARD HERE)
<PAGE>
/X/ Please mark your DIAMOND SHAMROCK, INC. SHARES IN YOUR NAME
votes as in this
example.
FOR AGAINST ABSTAIN
1. Adoption of the Agree- / / / / / /
ment and Plan of Merger
and the transactions
contemplated thereby.
2. In their discretion upon / / / / / /
such other matters as
may properly come
before the meeting.
IF NO DIRECTION IS INDICATED ON A PROPERLY EXECUTED PROXY, IT WILL BE VOTED
"FOR" EACH OF THE PROPOSALS SET FORTH ABOVE.
SIGNATURE(S) DATE
------------------------------------------ -------------------
SIGNATURE(S) DATE
------------------------------------------ -------------------
NOTE: Please DATE this proxy and SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) HEREON.
When signing as attorney, executor, administrator, trustee, guardian or other
representative, give your full title as such. If a corporation, sign the full
corporate name by an authorized officer, stating his/her title. If a
partnership, sign in partnership name by an authorized person.
- --------------------------------------------------------------------------------
(FOLD AND DETACH CARD HERE)
<PAGE>
Exhibit 99.6
DIAMOND SHAMROCK, INC.
THE SOLICITATION OF THESE CONFIDENTIAL VOTING INSTRUCTIONS
IS MADE ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned as a participant in one or both of the Diamond Shamrock, Inc.
Employee Stock Ownership Plans (the "ESOP Plans"), and/or the Diamond Shamrock
Inc. 401(k) Plan (along with the ESOPPlans, collectively the "Plans") hereby
instructs the Trustee of the respective Plans to appoint Roger R. Hemminghaus,
Timothy J. Fretthold, William R. Klesse and J. Robert Mehall, and each of them,
with full power of substitution, the attorney and proxy of the said Trustee to
represent the interests of the undersigned in Diamond Shamrock, Inc. Common
Stock ("Common Stock") held under the terms of said Plan(s), at the Special
Meeting of Shareholders of Diamond Shamrock, Inc. to be held December 3, 1996
and any adjournment thereof, and to vote, with all powers the Trustee would
possess if present, (a) all shares of Common Stock credited to the undersigned's
account(s) under said Plan(s) as of the record date for the Special Meeting
("Allocated Shares") and (b) the proportionate number of Non-Directed and
Unallocated Shares of Common Stock as to which the undersigned is entitled to
direct the voting in accordance with the provisions of the ESOP Plan(s), upon
the following matters and upon any other business that may properly come before
the meeting or any adjournment thereof.
By completing, signing and returning this voting instruction card, the
undersigned will be acting as a named fiduciary under the Employee Retirement
Income Security Act of 1974, as amended, for the Plans in which the undersigned
participates and will be voting all Allocated Shares as well as all Non-Directed
and Unallocated Shares of Common Stock held by the ESOP Plans the same way. Any
participant wishing to vote the Non-Directed and Unallocated Shares held by the
ESOPPlans differently from the Allocated Shares or not wishing to vote the Non-
Directed and Unallocated Shares held by the ESOPPlans at all may do so by
requesting a separate voting instruction card from KeyCorp Shareholder Services,
Inc., 127 Public Square, Cleveland, Ohio 44114, 216-813-3447, Lisa Rosenthal.
Non-Directed Shares are those shares of Common Stock, allocated to a participant
account under the ESOP Plans, but for which a voting instruction card is not
timely received by the Trustee. Unallocated Shares are those shares of Common
Stock which remain unallocated under the ESOP Plans.
(change of address)
--------------------------------
--------------------------------
--------------------------------
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card.)
SEE REVERSE SIDE
PLEASE MARK, SIGN, DATE AND MAIL THE VOTING INSTRUCTION CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
DETACH CARD
<PAGE>
/X/ Please mark your DIAMOND SHAMROCK, INC. SHARES IN YOUR NAME
votes as in this
example.
FOR AGAINST ABSTAIN
1. Adoption of the Agree- / / / / / /
ment and Plan of Merger
and the transactions
contemplated thereby.
2. In their discretion upon / / / / / /
such other matters as
may properly come
before the meeting.
Shares represented by this instruction will be voted as directed by the
undersigned. If no such vote is specified, the proxy will be voted FOR proposals
1 and 2.
/ / Change
of
Address
SIGNATURE(S) DATE
------------------------------------------ -------------------
SIGNATURE(S) DATE
------------------------------------------ -------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
DETACH CARD
