SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
Date of Report (Date of earliest event reported)
September 22, 1996
ULTRAMAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-11154 13-3663331
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(State of (Commission (IRS Employer
incorporation File Number Indentification No.
Two Pickwick Plaza, Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 622-7000
<PAGE>
Item 5. Other Events.
On September 22, 1996, Ultramar Corporation ("UC") entered
into an Agreement and Plan of Merger (the "Merger Agreement")
with Diamond Shamrock, Inc. ("DSI"). Pursuant to the Merger
Agreement, DSI will be merged with and into UC. In connection
with the Merger Agreement, DSI granted UC an option to purchase
up to 19.9% of the common stock of DSI pursuant to a Stock Option
Agreement (the "DSI Stock Option Agreement") dated as of
September 22, 1996. The option becomes exercisable upon the
occurrence of certain events, none of which has occurred at the
time of this filing. Also in connection with the Merger
Agreement, UC granted DSI an option to purchase up to 19.9% of
the common stock of UC, on terms substantially similar to those
contained in the DSI Stock Option Agreement, pursuant to a Stock
Option Agreement (the "UC Stock Option Agreement") dated as of
September 22, 1996. In addition, UC entered into an amendment
dated as of September 22, 1996, (the "Rights Agreement
Amendment") to its Right Agreement dated as of June 25, 1992, as
amended by the First Amendment dated as of October 26, 1992, and
the Amendment dated as of May 10, 1994 (as amended, the "Rights
Agreement"), for the purpose of excluding DSI and any of its
wholly-owned subsidiaries from the definition of Acquiring Person
solely as a result of DSI's execution and delivery of the Merger
Agreement or the UC Stock Option Agreement or the consummation of
the transactions contemplated by the Merger Agreement or the UC
Stock Option Agreement. Copies of the Merger Agreement, Rights
Agreement Amendment, Rights Agreement, DSI Stock Option
Agreement, UC Stock Option Agreement and press release announcing
execution of the Merger Agreement are attached hereto as Exhibits
2.1, 4.1, 4.2, 10.1, 10.2 and 99.1, respectively, and by this
reference made a part hereof.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
1. Financial Statements of Business Acquired. Not Applicable.
2. Pro Forma Financial Information. Not Applicable.
3. Exhibits. See the Index to Exhibits attached hereto.
Page 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
ULTRAMAR CORPORATION
-----------------------
(Registrant)
Dated: September 25, 1996
By: /s/ H. Pete Smith
--------------------------------
Name: H. Pete Smith
Title: Senior Vice President and
Chief Financial Officer
Page 3
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
2.1 Agreement and Plan of Merger between
Ultramar Corporation and Diamond
Shamrock, Inc. dated as of
September 22, 1996.
4.1 Amendment dated as of September 22,
1996, to the Rights Agreement dated
as of June 25, 1992 between Ultramar
Corporation and Registrar and
Transfer Company (as successor rights
agent to First City, Texas-Houston,
National Association), as amended by
the First Amendment dated as of
October 26, 1992 and the Amendment
dated as of May 10, 1994.
4.2 Rights Agreement dated as of June 25,
1992 between Ultramar Corporation and
Registrar and Transfer Company (as
successor rights agent to First City,
Texas-Houston, National Association),
as amended by the First Amendment
dated as of October 26, 1992, and the
Amendment dated as of May 10, 1994
(incorporated by reference to
Registration Statement on Form S-1
(File No. 33-47586), Exhibit 4.2;
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1992,
Exhibit 4.2; Annual Report on Form
10-K for the Year Ended December 31,
1994, Exhibit 4.3).
10.1 Stock Option Agreement dated as of
September 22, 1996 between Diamond
Shamrock, Inc., as Issuer, and
Ultramar Corporation, as Grantee.
10.2 Stock Option Agreement dated as of
September 22, 1996 between Ultramar
Corporation, as Issuer, and Diamond
Shamrock, Inc., as Grantee.
99.1 Press Release dated September 23,
1996.
Page 4
Exhibit 2.1
==============================================================
AGREEMENT AND PLAN OF MERGER
between
ULTRAMAR CORPORATION
and
DIAMOND SHAMROCK, INC.
Dated as of September 22, 1996
==============================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
SECTION 1.01. The Merger................................. 2
SECTION 1.02. Closing.................................... 2
SECTION 1.03. Effective Time............................. 3
SECTION 1.04. Effects of the Merger...................... 3
SECTION 1.05. Certificate of Incorporation and By-laws... 3
SECTION 1.06. Boards, Committees and Officers............ 3
ARTICLE II
Effect of the Merger on the
Capital Stock of the Constituent
Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock.................... 4
SECTION 2.02. Exchange of Certificates................... 5
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of DSI...... 12
SECTION 3.02. Representations and Warranties of UC....... 25
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business........................ 36
SECTION 4.02. No Solicitation by DSI..................... 44
SECTION 4.03. No Solicitation by UC...................... 46
<PAGE>
Page
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the Joint
Proxy Statement; Stockholders Meetings.... 49
SECTION 5.02. Letters of DSI's Accountants............... 51
SECTION 5.03. Letters of UC's Accountants................ 51
SECTION 5.04. Access to Information; Confidentiality..... 51
SECTION 5.05. Reasonable Efforts......................... 52
SECTION 5.06. Stock Options.............................. 53
SECTION 5.07. Certain Employee Matters .................. 55
SECTION 5.08. Indemnification, Exculpation and
Insurance................................. 55
SECTION 5.09. Fees and Expenses.......................... 56
SECTION 5.10. Public Announcements....................... 58
SECTION 5.11. Affiliates................................. 58
SECTION 5.12. NYSE Listing............................... 59
SECTION 5.13. Stockholder Litigation..................... 59
SECTION 5.14. Tax Treatment.............................. 59
SECTION 5.15. Pooling of Interests....................... 59
SECTION 5.16. DSI Rights Agreement....................... 60
SECTION 5.17. UC Rights Agreement........................ 60
SECTION 5.18. Headquarters............................... 60
SECTION 5.19. UC Convertible Preferred Stock............. 60
SECTION 5.20. Indemnification Agreements................. 61
SECTION 5.21. Certain Tax Matters........................ 61
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation to
Effect the Merger......................... 61
SECTION 6.02. Conditions to Obligations of UC............ 63
SECTION 6.03. Conditions to Obligation of DSI............ 64
SECTION 6.04. Frustration of Closing Conditions.......... 65
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination................................ 65
SECTION 7.02. Effect of Termination...................... 68
<PAGE>
Page
SECTION 7.03. Amendment.................................. 68
SECTION 7.04. Extension; Waiver.......................... 68
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver....................... 68
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties................................ 69
SECTION 8.02. Notices.................................... 69
SECTION 8.03. Definitions................................ 70
SECTION 8.04. Interpretation............................. 71
SECTION 8.05. Counterparts............................... 71
SECTION 8.06. Entire Agreement; No Third Party
Beneficiaries............................. 72
SECTION 8.07. Governing Law.............................. 72
SECTION 8.08. Assignment................................. 72
SECTION 8.09. Enforcement................................ 72
Exhibit A Amendments to Certificate of Incorporation
and By-laws
Exhibit B Board, Committees and Officers
Exhibit C Affiliate Letter
Exhibit D UC Tax Representations
Exhibit E DSI Tax Representations
Exhibit F DSI Stockholder Tax Representations
Schedule 5.07 Certain Employee Matters
<PAGE>
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
<PAGE>
Option") to purchase shares of DSI Common Stock together
with the associated DSI Rights (as defined in Section
3.01(c)) upon the terms and subject to the conditions set
forth therein; and
WHEREAS, immediately following the execution and
delivery of this Agreement, UC and DSI will enter into a
stock option agreement (the "UC Stock Option Agreement",
and, together with the DSI Stock Option Agreement, the
"Option Agreements"), pursuant to which UC will grant DSI
the option (the "UC Option") to purchase shares of common
stock, par value $.01 per share, of UC ("UC Common Stock")
together with the associated UC Rights (as defined in
Section 3.02(c)) upon the terms and subject to the
conditions set forth therein.
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and
in accordance with the Delaware General Corporation Law (the
"DGCL"), DSI shall be merged with and into UC at the
Effective Time (as defined in Section 1.03). Following the
Effective Time, UC shall be the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all
the rights and obligations of DSI in accordance with the
DGCL.
SECTION 1.02. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties (the "Closing Date"), which
(subject to satisfaction or waiver of the conditions set
forth in Sections 6.01, 6.02 and 6.03) shall be no later
than the second business day after satisfaction or waiver of
the conditions set forth in Section 6.01, unless another
time or date is agreed to by the parties hereto. The Closing
will be held at such location in the City of New York as is
agreed to by the parties hereto.
<PAGE>
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
<PAGE>
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
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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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).
<PAGE>
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders
of the Certificates for six months after the Effective Time
shall be delivered to UC, upon demand, and any holders of
the Certificates who have not theretofore complied with this
Article II shall thereafter look only to UC for payment of
their claim for Merger Consideration or shares of UC
Convertible Preferred Stock, any cash in lieu of fractional
shares of UC Common Stock and any dividends or distributions
with respect to UC Common Stock or UC Convertible Preferred
Stock.
(g) No Liability. None of UC, DSI or the Exchange
Agent shall be liable to any person in respect of any shares
of UC Common Stock or UC Convertible Preferred Stock (or
dividends or distributions with respect thereto) or cash
from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been
surrendered prior to seven years after the Effective Time
(or immediately prior to such earlier date on which any
Merger Consideration or shares of UC Convertible Preferred
Stock, any cash payable to the holder of such Certificate
representing DSI Common Stock pursuant to this Article II or
any dividends or distributions payable to the holder of such
Certificate would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section
3.01(d)), any such Merger Consideration or shares of UC
Convertible Preferred Stock or cash, dividends or
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
<PAGE>
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.
<PAGE>
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of
DSI. Except as disclosed in the DSI Filed SEC Documents (as
such term is defined in Section 3.01(g)) or as set forth on
the Disclosure Schedule delivered by DSI to UC prior to the
execution of this Agreement (the "DSI Disclosure Schedule"),
DSI represents and warrants to UC as follows:
(a) Organization, Standing and Corporate Power.
Each of DSI and its Significant Subsidiaries is a
corporation or other legal entity duly organized,
validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the
laws of the jurisdiction in which it is organized and
has the requisite corporate or other power, as the case
may be, and authority to carry on its business as now
being conducted. Each of DSI and its Significant
Subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to
jurisdictions which recognize such concept) in each
jurisdiction in which the nature of its business or the
ownership or leasing of 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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,
<PAGE>
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
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,
<PAGE>
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
<PAGE>
Agreement or the transactions contemplated hereby and
(iv) for liabilities and obligations incurred since
July 1, 1996 in the ordinary course of business
consistent with past practice, neither DSI nor any of
its subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise), including liabilities arising
under any laws relating to the protection of health,
safety or the environment ("Environmental Laws"),
required by generally accepted accounting principles to
be reflected in a consolidated balance sheet of DSI and
its consolidated subsidiaries and which, individually
or in the aggregate, could reasonably be expected to
have a material adverse effect on DSI.
(f) Information Supplied. None of the information
supplied or to be supplied by DSI specifically for
inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the
SEC by UC in connection with the issuance of UC Common
Stock and UC Convertible Preferred Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 is
filed with the SEC or at the time it becomes effective
under the Securities Act, contain any untrue 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
<PAGE>
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.
<PAGE>
(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.
(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,
<PAGE>
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.
<PAGE>
(iii) Each DSI Benefit Plan has been administered
in accordance with its terms except for any failures so
to administer any DSI Benefit Plan as would not
individually or in the aggregate have a material
adverse effect on DSI. DSI, its subsidiaries and all
the DSI Benefit Plans are in compliance with the
applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable
collective bargaining agreements, except for any
failures to be in such compliance as would not
individually or in the aggregate have a material
adverse effect on DSI.
(iv) No employee of DSI will be entitled to any
additional benefits or any acceleration of the time of
payment or vesting of any benefits under any DSI
Benefit Plan as a result of the transactions
contemplated by this Agreement or the Option
Agreements.
(l) Taxes. (i) Each of DSI and its subsidiaries
has filed all tax returns and reports required to be
filed by it or requests for extensions to file such
returns or reports have been timely filed, granted and
have not expired, except to the extent that such
failures to file or to have extensions granted that
remain in effect individually or in the aggregate would
not have a material adverse effect on DSI. DSI and each
of its subsidiaries has paid (or DSI has paid on its
behalf) all taxes shown as due on such returns, and the
most recent financial statements contained 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.
<PAGE>
(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
<PAGE>
Agreements based upon arrangements made by or on behalf
of DSI. DSI has furnished to UC true and complete
copies of all agreements under which any such fees or
expenses are payable and all indemnification and other
agreements related to the engagement of the persons to
whom such fees are payable.
(q) Opinion of Financial Advisor. DSI has received
the opinion of Wasserstein Perella & Co., Inc., dated
the date of this Agreement, to the effect that, as of
such date, the exchange ratio for the conversion of DSI
Common Stock into UC Common Stock pursuant to the
Merger is fair to DSI's stockholders from a financial
point of view, a signed copy of which opinion has been
delivered to UC.
(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
<PAGE>
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
<PAGE>
Stock and 25,000,000 shares of preferred stock, par
value $.01 per share, of UC ("UC Preferred Stock"). At
the close of business on September 19, 1996,
(i) 44,637,958 shares of UC Common Stock were issued
and outstanding, (ii) no shares of UC Common Stock were
held by UC in its treasury, (iii) 6,137,103 shares of
UC Common Stock were reserved for issuance pursuant to
the Ultramar Corporation Annual Incentive Plan, the
Ultramar Corporation Dividend Reinvestment, the
Ultramar Corporation Restricted Share Plan for
Directors and Employee Stock Purchase Plan and the
Ultramar Corporation 1992 Long Term Incentive Plan
(such plans, collectively, the "UC Stock Plans"), and
(iv) no shares of UC Preferred Stock have been
designated or issued. Except as set forth above and
except for 8,927,500 shares of UC Common Stock (with
the associated UC Rights) reserved for issuance upon
the exercise of the UC Option, at the close of business
on September 19, 1996, no shares of capital stock or
other voting securities of UC were issued, reserved for
issuance or outstanding. At the close of business on
September 19, 1996 there were no outstanding stock
appreciation rights or rights (other than employee
stock options or other rights ("UC Employee Stock
Options") to purchase or receive UC Common Stock
granted under the UC Stock Plans) to receive shares of
UC Common Stock on a deferred basis granted under the
UC Stock Plans or otherwise. The UC Disclosure
Schedule sets forth a complete and correct list, as of
September 19, 1996, of the number of shares of UC
Common Stock subject to Employee Stock Options and the
exercise prices thereof. All outstanding shares of
capital stock of UC are, and all shares which may be
issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not 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
<PAGE>
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
<PAGE>
the Option Agreements do not, and the consummation of
the transactions contemplated by this Agreement and the
Option Agreements and compliance with the provisions of
this Agreement and the Option Agreements will not,
conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or loss
of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of UC
or any of its Significant Subsidiaries under, (i) the
certificate of incorporation or by-laws of UC or the
comparable organizational documents of any 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
<PAGE>
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
<PAGE>
material respects with applicable accounting
requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting
principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods
involved (except as may be indicated in the notes
thereto) and fairly present in all material respects
the consolidated financial position of UC and its
consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end
audit adjustments). Except (i) as reflected in such
financial statements or in the notes thereto, (ii) as
contemplated hereunder or under the Option Agreements,
(iii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby and
(iv) for liabilities and obligations incurred since
July 1, 1996 in the ordinary course of business
consistent with past practice, neither UC nor any of
its subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise), including liabilities arising
under any Environmental Laws, required by generally
accepted accounting principles to be reflected in a
consolidated balance sheet of UC and its consolidated
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,
<PAGE>
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
<PAGE>
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 on UC or (ii) impair the
ability of UC to perform its obligations under this
Agreement or the Option Agreements in any material
respect, nor as of such date was there any judgment,
order or decree of any Governmental Entity or
arbitrator outstanding against UC or any of its
subsidiaries having, or which could reasonably be
expected to have, any effect referred to in clause (i)
or (ii) above.
(i) Compliance with Applicable Laws. UC and its
subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental
Entities which are material to the operation of the
businesses of UC and its subsidiaries, taken as a whole
(the "UC Permits"). UC and its subsidiaries are in
compliance with the terms of the UC Permits and all
applicable statutes, laws, ordinances, rules and
regulations, including Environmental Laws, except where
the failure so to comply, individually or in the
aggregate, could not reasonably be expected to have a
material adverse effect on UC. The businesses of UC and
its subsidiaries are not being conducted in violation
of any law, ordinance or regulation of any Governmental
Entity, including Environmental Laws, except for
possible violations which could not reasonably be
expected to have a material adverse effect on UC. As of
the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity
with respect to UC or any of its subsidiaries is
pending or, to the knowledge of UC, threatened, other
than, in each case, those the outcome of which,
individually or in the aggregate could not reasonably
be expected to have a material adverse effect on UC.
<PAGE>
(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
<PAGE>
ordinary course) under ERISA, the Code or any other
applicable law.
(iii) Each UC Benefit Plan has been administered
in accordance with its terms, except for any failures
so to administer any UC Benefit Plans as would not
individually or in the aggregate have a material
adverse effect on UC. UC, its subsidiaries and all the
UC Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code and all other applicable
laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in
such compliance as would not individually or in the
aggregate have a material adverse effect on UC.
(iv) No employee of UC will be entitled to any
additional benefits or any acceleration of the time of
payment or vesting of any benefits under any UC Benefit
Plan as a result of the transactions contemplated by
this Agreement or the Option Agreements.
(l) Taxes. (i) Each of UC and its subsidiaries has
filed all tax returns and reports required to be filed
by it or requests for extensions to file such returns
or reports have been timely filed, granted and have not
expired, except to the extent that such failures to
file or to have extensions granted that remain in
effect individually or in the aggregate would not have
a material adverse effect on UC. UC and each of its
subsidiaries has 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.
<PAGE>
(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
<PAGE>
date of this Agreement, to the effect that, as of such
date, the exchange ratio for the conversion of DSI
Common Stock into UC Common Stock pursuant to the
Merger is fair to UC and, accordingly, to UC's
stockholders from a financial point of view, a signed
copy of which opinion has been delivered to DSI.
(r) Ownership of DSI Common Stock. Other than
pursuant to the DSI Stock Option Agreement and except
for shares owned by UC Benefit Plans, as of the date
hereof, neither UC nor, to its knowledge, any of 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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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,
<PAGE>
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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.
<PAGE>
(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
<PAGE>
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 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
<PAGE>
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,
<PAGE>
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 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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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
<PAGE>
Section 5.05(a) will limit or affect actions permitted to be
taken pursuant to Sections 4.02 and 4.03.
(b) In connection with and without limiting the
foregoing, DSI and UC shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this
Agreement, the Option Agreements or any of the other
transactions contemplated by this Agreement or the Option
Agreements and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to the Merger, this
Agreement, the Option Agreements or any other transaction
contemplated by this Agreement or the Option Agreements,
take all action necessary to ensure that the Merger and the
other transactions contemplated by this 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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, that no
Termination Fee shall be payable to UC pursuant to clause
<PAGE>
(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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
(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 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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
<PAGE>
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);
(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
<PAGE>
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
<PAGE>
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 instrument in writing signed on behalf of such party. The
failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of
such rights.
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver. A termination of this Agreement pursuant to
Section 7.01, an amendment of this Agreement pursuant to Section 7.03
or an extension or waiver pursuant to Section 7.04 shall, in order to
be effective, require, in the case of UC or DSI, action by its Board
of
<PAGE>
Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of
Directors.
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties. None of the representations and warranties in
this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time. This
Section 8.01 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance
after the Effective Time.
SECTION 8.02. Notices. All notices, requests,
claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if
delivered personally, telecopied (which is confirmed) or
sent by overnight courier (providing proof of delivery) to
the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to UC, to
Ultramar Corporation
Two Pickwick Plaza, Suite 300
Greenwich, Connecticut 06830
Telecopy No.: (203) 622-7007
Attention: Patrick J. Guarino, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: William P. Rogers, Jr.; and
<PAGE>
(b) if to DSI, to
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Telecopy No.: (210) 641-8885
Attention: Timothy J. Fretthold, Esq.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 30th Floor
New York, New York 10022
Telecopy No.: (212) 755-7306
Attention: Robert A. Profusek, Esq.
SECTION 8.03. Definitions. For purposes of this
Agreement:
(a) an "affiliate" of any person means another
person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under
common control with, such first person;
(b) "material adverse change" or "material adverse
effect" means, when used in connection with DSI or UC,
any change, effect, event or occurrence that is
materially adverse to the business, financial condition
or results of operations of such party and its
subsidiaries taken as a whole other than any change,
effect, event or occurrence relating to the United
States economy in general or to the petroleum refining
and marketing industry in general, and not specifically
relating to DSI or UC or their respective subsidiaries,
and the terms "material" and "materially" have
correlative meanings;
(c) "person" means an individual, corporation,
partnership, limited liability 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
<PAGE>
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.
<PAGE>
SECTION 8.06. Entire Agreement; No Third-Party
Beneficiaries. This Agreement (including the documents and
instruments referred to herein), the Option Agreements and
the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b)
except for the provisions of Article II, Section 5.06 and
Section 5.08, are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 8.07. Governing Law. This Agreement shall
be governed by, and construed in accordance with, the laws
of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.08. Assignment. Neither this Agreement
nor any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by either of the parties
hereto without the prior written consent of the other party.
Any assignment in violation of the preceding sentence shall
be void. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors
and assigns.
SECTION 8.09. Enforcement. The parties agree that
irreparable damage would occur and that the parties would
not have any adequate remedy at law in the event that any of
the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any federal court located in
the State of Delaware or in Delaware state court, this being
in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of
<PAGE>
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
<PAGE>
EXHIBIT A
TO THE MERGER AGREEMENT
Amendments to UC Certificate
of Incorporation and By-laws
The certificate of incorporation of UC shall be
amended as of the Effective Time so that (i) it reads in its
entirety as it exists on the date of the Agreement and as
otherwise set forth herein, (ii) Article FIRST of such
certificate of incorporation reads in its entirety as
follows: "The name of the Corporation is Ultramar Diamond
Shamrock Corp. (hereinafter the "Corporation").", (iii)
Section 1 of Article FOURTH of such certificate of
incorporation reads in its entirety as follows: "The total
number of shares which the Corporation shall have authority
to issue is 275,000,000 shares, consisting of (a)
250,000,000 shares of common stock, par value $.01 per share
(the "Common Stock"), and (ii) 25,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred
Stock").", and (iv) there shall be added an Article Eleventh
which reads in its entirety as follows: "ELEVENTH: With
respect to any action required or permitted to be taken by
the stockholders of the Corporation at any annual or special
meeting, unless required by law or determined by the
chairman of the meeting to be advisable, the vote on any
matter, including the election of directors, need not be by
written ballot."
The by-laws of UC shall be amended as of the
Effective Time so that they read in their entirety as they
exist on the date of the Agreement except that:
(i) Section 1 of Article IV of such by-laws reads
in its entirety as follows:
"SECTION 1. General. The officers of the
Corporation shall be chosen by the Board of Directors
and shall be a Chairman of the Board of Directors (who
must be a director), a Vice Chairman of the Board of
Directors (who also must be a director), a Chief
Executive Officer, a President and Chief Operating
Officer, a Secretary and a Treasurer. The Board of
Directors, in its discretion, may also choose one or
more Vice Presidents (including, without limitation,
Assistant, Executive, Senior and Group), Assistant
Secretaries, Assistant Treasurers and other officers.
Any number of offices may be held by the same person,
unless otherwise prohibited by law, the Certificate of
Incorporation or these By-laws. The officers of the
Corporation need not be stockholders of the Corporation
<PAGE>
nor, except in the case of the Chairman of the Board of
Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the
Corporation.";
(ii) Sections 4, 5 and 6 of Article IV of such
by-laws read in their entirety as follows:
"SECTION 4. Chairman and Vice Chairman of the
Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of the
stockholders and of the Board of Directors. Except
where by law the signature of the Chief Executive
Officer or the President and Chief Operating Officer is
required, the Chairman of the Board of Directors shall
possess the same power as the Chief Executive Officer
or the President and Chief Operating Officer to sign
all contracts, certificates and other instruments of
the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the
Chief Executive Officer or President and Chief
Operating Officer, the Chairman of the Board of
Directors shall exercise all the powers and discharge
all the duties of the Chief Executive Officer or
President and Chief Operating Officer, as applicable.
The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other
powers as from time to time may be assigned to him by
these By-laws or by the Board of Directors. The Vice
Chairman of the Board of Directors shall, during the
absence or disability of the Chairman of the Board of
Directors, have the powers and perform the duties of
the Chairman of the Board of Directors and shall also
perform such other duties and may exercise such other
powers as from time to time may be assigned to him by
the Board of Directors. Notwithstanding anything in
these By-laws to the contrary, the Chairman of the
Board of Directors and the Vice Chairman of the Board
of Directors may only be removed from such offices (but
not as directors) by an affirmative vote of the
majority of the entire Board of Directors.
"SECTION 5. Chief Executive Officer and President
and Chief Operating Officer. The Chief Executive
Officer shall, subject to the control of the Board of
Directors and the Chairman of the Board of Directors
(or during his absence or disability, the Vice Chairman
of the Board of Directors), have general supervision of
<PAGE>
the business and affairs of the Corporation and shall
see that all orders and resolutions of the Board of
Directors are carried into effect. He shall possess the
power to execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and
executed and except that the other officers of the
Corporation may sign and execute documents when so
authorized by these By-laws, the Board of Directors or
the Chief Executive Officer. In the absence or
disability of both the Chairman of the Board of
Directors and the Vice Chairman of the Board of
Directors, the Chief Executive Officer shall preside at
all meetings of the stockholders and the Board of
Directors. The Chief Executive Officer shall also
perform such other duties and may exercise such other
powers as from time to time may be assigned to him by
these By-laws or by the Board of Directors. The
President and Chief Operating Officer (hereinafter
sometimes referred to only as the "President") shall,
subject to the direction and control of the Board of
Directors, and the supervision of the Chairman of the
Board of Directors (or during his absence or
disability, the Vice Chairman of the Board of
Directors) and the Chief Executive Officer, have
general supervision of the business operations of the
Corporation. The President and Chief Operating Officer
shall, during the absence or disability of the Chief
Executive Officer, have the powers and perform the
duties of the Chief Executive Officer and shall also
perform such other duties and may exercise such other
powers as from time to time may be assigned to him by
these By-laws or the Board of Directors.
Notwithstanding anything in these By-laws to the
contrary, the Chief Executive Officer and the President
and Chief Operating Officer may only be removed from
such offices by an affirmative vote of the majority of
the entire Board of Directors.
"SECTION 6. Vice Presidents. At the request of the
Chief Executive Officer or in his absence or in the
event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors, Vice Chairman
of the Board of Directors or President and Chief
Operating Officer), the Vice President or the Vice
Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the
<PAGE>
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
investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or an officer of
the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to
an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted
or required by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA
<PAGE>
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 connec-
tion with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
"SECTION 2. Right to Advancement of Expenses. The
right to indemnification conferred in Section 1 of this
Article VIII shall include the right to be paid by the
Corporation the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending any such
proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if
the Delaware General Corporation Law so requires, an
advancement of expenses incurred by an indemnitee in his or
her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined
by final judicial decision from which there is no further
right to appeal (hereinafter a "final adjudication") that
such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to
indemnification and to the advancement of expenses conferred
in Sections 1 and 2 of this Article VIII shall be contract
rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
"SECTION 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this Article VIII is not
paid in full by the Corporation within 60 calendar days
after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be
20 calendar days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of
<PAGE>
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 Corpora-
tion Law. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel or stock-
holders) to have made a determination prior to the com-
mencement of such suit that indemnification of the indemni-
tee 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 under-
taking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of
expenses, under this Article VIII or otherwise shall be on
the Corporation.
"SECTION 4. Non-Exclusivity of Rights. The rights
to indemnification and to the advancement of expenses
conferred in this Article VIII shall not be exclusive of any
other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of
Incorporation, By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
"SECTION 5. Insurance. The Corporation may
maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to
<PAGE>
indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
"SECTION 6. Indemnification of Employees and
Agents of the Corporation. The Corporation may, to the
extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the
Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation."
<PAGE>
EXHIBIT B
TO THE MERGER AGREEMENT
Board of Directors
The Board of Directors of the Surviving
Corporation will consist of Roger R. Hemminghaus, Jean
Gaulin and ten other members, five of whom shall be
designated by each of UC and DSI. Roger R. Hemminghaus will
serve as Chairman of the Board of Directors and Jean Gaulin
will serve as Vice Chairman of the Board of Directors, and
in such capacities each shall be considered officers of the
Surving Corporation for the purposes of this Agreement,
including this Exhibit B and Section 1.06. Each class of the
Board of Directors will be comprised of four directors, of
which two shall be designated by each of UC and DSI. For the
purposes of this Exhibit B and Section 1.06, Jean Gaulin
shall be deemed designated by UC and Roger R. Hemminghaus
shall be deemed designated by DSI.
Committees of the Board of Directors and Chairmen of
Committees
The Board of Directors shall initially have four
committees, the finance and planning committee, the
compensation committee, the audit review committee and the
public responsibility committee . Each committee will be
comprised of four directors, of which two shall be
designated by each of UC and DSI. UC will designate the
chairman of the finance and planning committee and the
compensation committee and DSI will designate the chairman
of the audit review committee and the public responsibility
committee.
Officers
Roger R. Hemminghaus Chairman of the Board of
Directors and Chief Executive
Officer
Jean Gaulin Vice Chairman of the Board of
Directors, President and Chief
Operating Officer
T. J. Fretthold Executive Vice President and
Chief Administrative Officer
Patrick J. Guarino Executive Vice President,
General Counsel and Secretary
<PAGE>
W. R. Klesse Executive Vice President
Logistics and Supply
J. Robert Mehall Executive Vice President
Corporate Development
H. Pete Smith Executive Vice President and
Chief Financial Officer
Joel Mascitelli Senior Vice President Refining
West Coast
Paul Eisman Senior Vice President Refining
Southwest
Alain Ferland President Ultramar Limited
Christopher Havens President Ultramar Energy
A. W. O'Donnell President Marketing Southwest
and West Coast
<PAGE>
EXHIBIT C
TO THE MERGER AGREEMENT
Form of Affiliate Letter
Dear Sirs:
The undersigned, a holder of shares of common
stock, par value $.01 per share ("DSI Common Stock"), of
Diamond Shamrock, Inc., a Delaware corporation ("DSI"), or
of shares of 5% Cumulative Convertible Preferred Stock, par
value $.01 per share ("DSI Convertible Preferred Stock"), of
DSI, is entitled to receive in connection with the merger
(the "Merger") of DSI with and into Ultramar Corporation, a
Delaware corporation ("UC"), securities (the "UC
Securities") of UC. The undersigned acknowledges that the
undersigned may be deemed an "affiliate" of DSI within the
meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"),
by the Securities and Exchange Commission (the "SEC") and
may be deemed an "affiliate" of DSI for purposes of
qualifying the Merger for pooling of interests accounting
treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations, although
nothing contained herein should be construed as an admission
of either such fact.
If in fact the undersigned were an affiliate under
the Securities Act, the undersigned's ability to sell,
assign or transfer the UC Securities received by the
undersigned in exchange for any shares of DSI Common Stock
or DSI Convertible Preferred Stock in connection with the
Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from
such registration is available. The undersigned understands
that such exemptions are limited and the undersigned has
obtained or will obtain advice of counsel as to the nature
and conditions of such exemptions, including information
with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the
Securities Act. The undersigned understands that UC will not
be required to maintain the effectiveness of any
registration statement under the Securities Act for the
purposes of resale of UC Securities by the undersigned.
The undersigned hereby represents to and covenants
with UC that the undersigned will not sell, assign or
transfer any of the UC Securities received by the
undersigned in exchange for shares of DSI Common Stock or
DSI Convertible Preferred Stock in connection with the
Merger except (i) pursuant to an effective registration
<PAGE>
statement under the Securities Act, (ii) in conformity with
the volume and other limitations of Rule 145 or (iii) in a
transaction which, in the opinion of the general counsel of
UC or other counsel reasonably satisfactory to UC or as
described in a "no-action" or interpretive letter from the
Staff of the SEC specifically issued with respect to a
transaction to be engaged in by the undersigned, is not
required to be registered under the Securities Act;
provided, however, that in any such case, such sale,
assignment or transfer shall only be permitted if, in the
opinion of counsel of UC, such transaction would not have,
directly or indirectly, any adverse consequences for UC with
respect to the treatment of the Merger for tax purposes.
The undersigned hereby further represents to and
covenants with UC that the undersigned has not, within the
preceding 30 days, sold, transferred or otherwise disposed
of any shares of DSI Common Stock or DSI Convertible
Preferred Stock held by the undersigned and that the
undersigned will not sell, transfer or otherwise dispose of
any UC Securities received by the undersigned in connection
with the Merger until after such time as results covering at
least 30 days of combined operations of DSI and UC have been
published by UC, in the form of a quarterly earnings report,
an effective registration statement filed with the SEC, a
report to the SEC on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes such combined
results of operations.
In the event of a sale or other disposition by the
undersigned of UC Securities pursuant to Rule 145, the
undersigned will supply UC with evidence of compliance with
such Rule, in the form of a letter in the form of Annex I
hereto and the opinion of counsel or no-action letter
referred to above. The undersigned understands that UC may
instruct its transfer agent to withhold the transfer of any
UC Securities disposed of by the undersigned, but that
(provided such transfer is not prohibited by any other
provision of this letter agreement) upon receipt of such
evidence of compliance, UC shall cause the transfer agent to
effectuate the transfer of the UC Securities sold as
indicated in such letter.
UC covenants that it will take all such actions
as may be reasonably available to it to permit the sale or
other disposition of UC Securities by the undersigned under
Rule 145 in accordance with the terms thereof.
<PAGE>
The undersigned acknowledges and agrees that the
legends set forth below will be placed on certificates
representing UC Securities received by the undersigned in
connection with the Merger or held by a transferee thereof,
which legends will be removed by delivery of substitute
certificates upon receipt of an opinion in form and
substance reasonably satisfactory to UC from independent
counsel reasonably satisfactory to UC to the effect that
such legends are no longer required for purposes of the
Securities Act.
There will be placed on the certificates for UC
Securities issued to the undersigned, or any substitutions
therefor, a legend stating in substance:
"The shares represented by this certificate were
issued pursuant to a business combination which is
being accounted for as a pooling of interests, in a
transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies. The shares have not
been acquired by the holder with a view to, or for
resale in connection with, any distribution thereof
within the meaning of the Securities Act of 1933. The
shares may not be sold, pledged or otherwise
transferred (i) until such time as Ultramar Diamond
Shamrock Corp. shall have published financial results
covering at least 30 days of combined operations after
the Effective Time and (ii) except in accordance with
an exemption from the registration requirements of the
Securities Act of 1933."
The undersigned acknowledges that (i) the
undersigned has carefully read this letter and understands
the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of UC
Securities and (ii) the receipt by UC of this letter is an
inducement to UC's obligations to consummate the Merger.
Very truly yours,
Dated:
<PAGE>
ANNEX I
TO EXHIBIT C
[Name] [Date]
On , the undersigned sold the
securities of Ultramar Diamond Shamrock Corp., formerly
named Ultramar Corporation ("UC"), described below in the
space provided for that purpose (the "Securities"). The
Securities were received by the undersigned in connection
with the merger of Diamond Shamrock, Inc., a Delaware
corporation, with and into UC.
Based upon the most recent report or statement
filed by UC with the Securities and Exchange Commission, the
Securities sold by the undersigned were within the
prescribed limitations set forth in paragraph (e) of Rule
144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act").
The undersigned hereby represents that the
Securities were sold in "brokers' transactions" within the
meaning of Section 4(4) of the Securities Act or in
transactions directly with a "market maker" as that term is
defined in Section 3(a)(38) of the Securities Exchange Act
of 1934, as amended. The undersigned further represents that
the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the
undersigned has not made any payment in connection with the
offer or sale of the Securities to any person other than to
the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
<PAGE>
EXHIBIT D
TO THE MERGER AGREEMENT
[Letterhead of]
[Ultramar Corporation]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by
you pursuant to the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 22, 1996, between
Ultramar Corporation, a Delaware corporation ("UC"), and
Diamond Shamrock, Inc., a Delaware corporation ("DSI"), I
certify, as of the date hereof, to my knowledge and belief,
after due inquiry, as follows:
1. The facts relating to the contemplated merger
(the "Merger") of DSI with and into UC pursuant to the
Merger Agreement, as described in the Merger Agreement, the
documents described in Section 8.06 of the Merger Agreement
and the joint proxy statement/prospectus prepared by UC and
DSI, are, insofar as such facts pertain to UC, true, correct
and complete in all material respects.
2. Except in the Merger, neither UC nor any
subsidiary of UC has acquired or will acquire, or has owned
in the past five years, any shares of common stock, par
value $0.01, per share, of DSI ("DSI Common Stock"), 5%
Cumulative Convertible Preferred Stock of DSI, par value
$.01 per share, or $2.00 Convertible Exchangeable Preferred
Stock of DSI, par value $.01 per share .
<PAGE>
3. Cash payments to be made to stockholders of DSI
in lieu of fractional shares of Common Stock, par value
$0.01 per share, of UC ("UC Common Stock") that would
otherwise be issued to such stockholders in the Merger will
be made for the purpose of saving UC the expense and
inconvenience of issuing and transferring fractional shares
of UC Common Stock, and do not represent separately
bargained for consideration.
4. UC has no plan or intention, following the
Merger, to reacquire any of the UC Common Stock issued in
the Merger.
5. UC has no plan or intention, following the
Merger, to sell or otherwise dispose of any of the assets
held by DSI at the time of the Merger, except for
dispositions of such assets in the ordinary course of
business; provided, however, that UC may transfer assets of
DSI in a manner that is consistent with Section 368(a)(2)(C)
of the Internal Revenue Code of 1986, as amended (the
"Code").
6. UC, DSI and the stockholders of DSI will each
pay their respective expenses, if any, incurred in
connection with the Merger.
7. Following the Merger, UC will continue the
historic business of DSI or use a significant portion of
DSI's historic business assets in a business.
8. UC is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
9. UC will not take any position on any federal,
state or local income or franchise tax return, or take any
other action or reporting position, that is inconsistent
with the treatment of the Merger as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code or with the
representations made in this letter, unless otherwise
required by a "determination" (as defined in Section
1313(a)(1) of the Code).
10. None of the compensation received by any
stockholder-employee of DSI represents separate
consideration for, or is allocable to, any of their DSI
Common Stock. None of the UC Common Stock that will be
received by DSI stockholder-employees in the Merger
represents separately bargained for consideration which is
<PAGE>
allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for
services actually rendered and will be determined by
bargaining at arm's-length.
11. There is no intercorporate indebtedness
existing between UC and DSI that was issued or acquired, or
will be settled, at a discount.
12. The Merger Agreement and the documents
described in Section 8.06 of the Merger Agreement represent
the entire understanding of DSI and UC with respect to the
Merger.
13. References in this letter to DSI, UC or any
subsidiary thereof shall not be considered to refer to any
DSI Benefit Plan or UC Benefit Plan (each as defined in the
Merger Agreement).
Ultramar Corporation,
By:
--------------------------
<PAGE>
EXHIBIT E
TO THE MERGER AGREEMENT
[Letterhead of]
[Diamond Shamrock, Inc.]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by
you pursuant to the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 22, 1996, between
Ultramar Corporation, a Delaware corporation ("UC"), and
Diamond Shamrock, Inc., a Delaware corporation ("DSI"), I
certify, as of the date hereof, to my knowledge and belief,
after due inquiry, as follows:
1. The facts relating to the contemplated merger
(the "Merger") of DSI with and into UC pursuant to the
Merger Agreement, as described in the Merger Agreement, the
documents described in Section 8.06 of the Merger Agreement
and the joint proxy statement/prospectus prepared by UC and
DSI, are, insofar as such facts pertain to DSI, true,
correct and complete in all material respects.
2. Neither DSI nor any of its subsidiaries has
issued or acquired any shares of Common Stock, par value
$.01 of DSI ("DSI Common Stock"), 5% Cumulative Convertible
Preferred Stock of DSI, par value $.01 per share ("DSI
Convertible Preferred Stock") or $2.00 Convertible
Exchangeable Preferred Stock of DSI, par value $.01 per
<PAGE>
share, in contemplation of the Merger, or otherwise as part
of a plan of which the Merger is a part.
3. There is no present plan or intention on the
part of the stockholders of DSI that own 5% or more of the
DSI Common Stock (or holders of DSI Convertible Preferred
Stock that would, upon conversion, own 5% or more of the DSI
Common Stock) ("DSI 5% Stockholders"), and DSI knows of no
present plan or intention on the part of the remaining
holders of DSI Common Stock or DSI Convertible Preferred
Stock, to sell, exchange or otherwise dispose of, reduce the
risk of loss (by short sale or otherwise) of the holding of,
enter into any contract or other arrangement with respect
to, or consent to the sale, exchange or other disposition of
(each of the foregoing, a "disposition"), any interest in
the shares of stock of UC ("UC Stock") received in the
Merger in exchange for such DSI Common Stock (other than by
the conversion of 5% Cumulative Convertible Preferred Stock
of UC, par value $.01 per share, into shares of common stock
of UC, par value $.01 per share ("UC Common Stock")) that
would reduce the ownership of UC Stock by former holders of
DSI Common Stock and DSI Preferred Stock to a number of
shares having a value, as of immediately prior to the
Merger, of less than 50% of the value of all of the
outstanding shares of DSI Stock as of such date. For
purposes of this representation, any "disposition" (as
defined above) of UC Stock will be treated as a reduction in
ownership thereof. In addition, for purposes of this
representation, shares of DSI Stock exchanged by holders of
DSI Stock for cash in lieu of fractional shares of UC Stock
will be treated as outstanding DSI Stock immediately prior
to the Merger. Moreover, for purposes of this
representation, shares of DSI Stock and shares of UC Stock
received in the Merger and sold, redeemed or disposed of
prior to or subsequent to the Merger, in contemplation
thereof or as part of a plan therewith, will be considered
in making this representation. For purposes of this
representation we have assumed that each DSI 5% Stockholder
has a plan or intention to sell for cash all the UC Stock
that it will receive in the Merger unless we have received
from such DSI 5% Stockholder a letter substantially in the
form of Exhibit F to the Merger Agreement with respect to
such UC Stock. The aggregate amount of DSI Common Stock
owned by DSI 5% Stockholders (or that would be so owned if
each such DSI 5% Stockholder were to convert all the shares
of DSI Convertible Preferred Stock owned by it) does not
exceed 40% of the amount of DSI Common Stock actually
outstanding on the date hereof (or that would be so
<PAGE>
outstanding if any such DSI 5% Stockholder were to convert
all the shares of DSI Convertible Preferred Stock owned by
it).
4. DSI has no plan or intention to issue
additional shares of DSI Stock, except pursuant to the
exercise of employee stock options described in Section
3.01(c) of the Merger Agreement ("Employee Stock Options")
or the conversion of shares of the DSI Convertible Preferred
Stock.
5. DSI, UC and the stockholders of DSI and UC will
each pay their respective expenses, if any, incurred in
connection with the Merger.
6. Immediately prior to the Merger, DSI will not
have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any
person could acquire stock of DSI, other than the Employee
Stock Options and the DSI Convertible Preferred Stock.
7. DSI is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue
Code of 1986, as amended (the "Code").
8. DSI will not take, and DSI is not aware of any
plan or intention of DSI stockholders to take, any position
on any Federal, state or local income or franchise tax
return, or take any other action or reporting position, that
is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) of
the Code or with the representations made in this letter,
unless otherwise required pursuant to a "determination" (as
defined in Section 1313(a)(1) of the Code).
9. None of the compensation received by any
stockholder-employee of DSI represents separate
consideration for, or is allocable to, any of their DSI
Common Stock. None of the UC Common Stock that will be
received by DSI stockholder-employees in the Merger
represents separately bargained for consideration which is
allocable to any employment agreement or arrangement. The
compensation paid to any shareholder-employees will be for
services actually rendered and will be determined by
bargaining at arm's-length.
<PAGE>
10. There is no intercorporate indebtedness
existing between UC and DSI that was issued or acquired, or
will be settled, at a discount.
11. DSI is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
12. The Merger Agreement and the documents
described in Section 8.06 of the Merger Agreement represent
the entire understanding of DSI and UC with respect to the
Merger.
13. References in this letter to DSI, UC or any
subsidiary thereof shall not be considered to refer to any
DSI Benefit Plan or UC Benefit Plan (each as defined in the
Merger Agreement).
Diamond Shamrock, Inc.
By:
-------------------------
<PAGE>
EXHIBIT F
TO THE MERGER AGREEMENT
[Letterhead of]
[5% DIAMOND SHAMROCK, INC. STOCKHOLDERS]
___, 1996
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, D.C. 20005
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Dear Sirs:
In connection with the opinion to be delivered by
you pursuant to the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 22, 1996, between
Ultramar Corporation, a Delaware corporation ("UC"), and
Diamond Shamrock, Inc., a Delaware corporation ("DSI" or the
"Company"), I certify, as of the date hereof, to my
knowledge and belief, after due inquiry, as follows:
1. There is no present plan or intention on the
part of the undersigned or any trust or other entity
established or controlled by or for the benefit of the
undersigned, or any entity holding assets on behalf of the
undersigned, to sell, exchange or otherwise dispose of,
reduce the risk of loss (by short sale or otherwise) of the
holding of, enter into any contract or other arrangement
with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any
interest in the shares of stock of UC ("UC Stock") received
in the merger contemplated by the Merger Agreement (the
"Merger") that would reduce the ownership of UC Stock by the
undersigned to a number of shares having a value, as of
<PAGE>
immediately prior to the Merger, of less than 50% of the
value of all of the shares of common stock, par value $0.01
per share, of DSI ("DSI Common Stock") and 5% Cumulative
Convertible Preferred Stock, par value $0.01 per share, of
DSI ("DSI Convertible Preferred Stock") held by the
undersigned in the aggregate as of such date. For purposes
of this representation, any "disposition" (as defined above)
of UC Stock will be treated as a reduction in ownership
thereof. For purposes of this representation, shares of DSI
Common Stock, shares of DSI Convertible Preferred Stock and
shares of UC Common Stock received in the Merger and sold,
redeemed or disposed of prior to or subsequent to the
Merger, in contemplation thereof or as part of a plan
therewith, will be considered in making this representation.
2. Neither the undersigned nor any entity referred
to in paragraph 1 above will take any position on any
Federal, state or local income tax return, or take any other
action or reporting position, that is inconsistent with the
treatment of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), or with the
representations made in this letter, unless otherwise
required pursuant to a "determination" (as defined in
Section 1313(a)(1) of the Code).
[DSI STOCKHOLDER]
---------------------------
Exhibit 4.1
EXECUTION COPY
AMENDMENT dated as of September 22,
1996, to the Rights Agreement dated as of
June 25, 1992, as amended by the First
Amendment dated as of October 26, 1992, and
the Amendment dated as of May 10, 1994 (as
amended, the "Rights Agreement"), by ULTRAMAR
CORPORATION.
Pursuant to the terms of the Rights Agreement and in
accordance with Section 26 thereof, the following actions are
hereby taken:
Section 1. Amendments to Rights Agreement. The Rights
Agreement is hereby amended as follows:
(a) The definition of "Acquiring Person" in Section 1
is amended by
(i) deleting the word "or" immediately before
"(b)" in the first sentence of such definition and
inserting "," in its place; and
(ii) deleting the "." at the end of clause (y)
after the word "occur" at the end of the first sentence
of such definition and inserting in its place ",(c)
Diamond Shamrock, Inc. ("DSI") or any of its
wholly-owned subsidiaries (i) solely as a result of the
execution and delivery of (x) the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of September
22, 1996, between the Company and DSI or (y) the Stock
Option Agreement (the "Option Agreement"), dated as of
September 22, 1996, between the Company, as Issuer, and
DSI, as Grantee, or the consummation of the
transactions contemplated by the Merger Agreement or
the Option Agreement, or (ii) solely as a result of DSI
or any of its wholly-owned subsidiaries being or
becoming the Beneficial Owner of not more than 2% of
the Common Shares then outstanding in addition to the
Common Shares that DSI has become the Beneficial Owner
of as a result of the execution and delivery of the
Option Agreement but excluding for the purposes of
determining whether such 2% limitation has been
exceeded Common Shares that DSI would be deemed the
Beneficial Owner of because any DSI Benefit Plan (as
that term is defined in the Merger Agreement) is the
Beneficial
<PAGE>
Owner of such Common Shares as of the date of this
Amendment, or (d) a Person (i) solely as a result of
such Person taking an assignment or transfer of DSI's
rights under the Option Agreement, in accordance with
the terms thereof, or the consummation of the
transactions contemplated thereby following any such
assignment or transfer, or (ii) solely as a result of
such Person being or becoming the Beneficial Owner of
not more than 2% of the Common Shares then outstanding
in addition to the Common Shares that such Person has
become the Beneficial Owner of as a result of the
assignment or transfer of the Option Agreement in
accordance with its terms but excluding for the
purposes of determining whether such 2% limitation has
been exceeded Common Shares that such Person would be
deemed the Beneficial Owner of because any employee
benefit plan of such Person is the Beneficial Owner of
such Common Shares as of the date of such assignment or
transfer."
(b) A new Section 33 is added as follows:
"Section 33. Merger with DSI. Notwithstanding any
provision herein to the contrary, (i) neither DSI nor any of
its wholly-owned subsidiaries shall be considered an
Acquiring Person under this Rights Agreement, no
Distribution Date shall occur, and no Rights shall be
exercisable pursuant to Section 7, Section 11 or any other
provision hereof, (x) solely as a result of the approval,
execution or delivery of the Merger Agreement or the Option
Agreement or the consummation of the transactions
contemplated by the Merger Agreement or the Option
Agreement, or (y) solely as a result of DSI or any of its
wholly- owned subsidiaries being or becoming the Beneficial
Owner of not more than 2% of the Common Shares then
outstanding in addition to the Common Shares that DSI has
become the Beneficial Owner of as a result of the execution
and delivery of the Option Agreement but excluding for the
purposes of determining whether such 2% limitation has been
exceeded Common Shares that DSI would be deemed the
Beneficial Owner of because any DSI Benefit Plan (as that
term is defined in the Merger Agreement) is the Beneficial
Owner of such Common Shares as of the date of this
Amendment, and (ii) no Person shall be considered an
Acquiring Person under this Rights Agreement, no
Distribution Date shall
<PAGE>
occur, and no Rights shall be exercisable pursuant to
Section 7, Section 11 or any other provision hereof, (x)
solely as a result of such Person taking an assignment or
transfer of DSI's rights under the Option agreement, in
accordance with the terms thereof, or the consummation of
the transactions contemplated thereby following any such
assignment or transfer, or (y) solely as a result of such
Person being or becoming the Beneficial Owner of not more
than 2% of the Common Shares then outstanding in addition to
the Common Shares that such Person has become the Beneficial
Owner of as a result of the assignment or transfer of the
Option Agreement in accordance with its terms but excluding
for the purposes of determining whether such 2% limitation
has been exceeded Common Shares that such Person would be
deemed the beneficial Owner of because any employee benefit
plan of such Person is the Beneficial Owner of such Common
Shares as of the date of such assignment or transfer."
Section 2. Full Force and Effect. Except as expressly
amended hereby, the Rights Agreement shall continue in full force
and effect in accordance with the provisions thereof on the date
hereof.
Section 3. Governing Law. This Amendment shall be
governed by and construed in accordance with the law of the State
of Delaware applicable to contracts to be made and performed
entirely within such State.
IN WITNESS WHEREOF, the Company has caused this
Amendment to be duly executed as of the day and year first above
written.
ULTRAMAR CORPORATION,
By: /s/ Patrick J. Guarino
------------------------------
Name: Patrick J. Guarino
Title: Vice President, General
Counsel and Secretary
Exhibit 10.1
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 22, 1996
(the "Agreement"), by and between Diamond Shamrock, Inc., a
Delaware corporation ("Issuer"), and Ultramar Corporation, a
Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement
and Plan of Merger, dated as of the date hereof (the "Merger
Agreement," capitalized terms not defined herein will have the
meanings set forth in the Merger Agreement), providing for, among
other things, the merger of Issuer with and into Grantee with
Grantee as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's
willingness to enter into the Merger Agreement and the UC Stock
Option Agreement, Grantee has requested that Issuer agree, and
Issuer has agreed, to grant Grantee the Option (as defined
below); and
C. As a condition and inducement to Issuer's
willingness to enter into the Merger Agreement and this
Agreement, Issuer has requested that Grantee agree, and Grantee
has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the
Option;
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth herein Issuer and Grantee agree as follows:
1. Grant of Option. Subject to the terms and
conditions set forth herein, Issuer hereby grants to Grantee an
irrevocable option (the "Option") to purchase up to 5,858,500 (as
adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, par value $0.01 per share ("Issuer Common Stock"),
of Issuer at a purchase price of $27.55 (as adjusted as set forth
herein) per Option Share (the "Purchase Price"); provided,
however, that notwithstanding anything herein to the contrary the
number of Option Shares may not exceed the whole number of shares
(rounded down) equal to (a) $60,000,000 divided by (b) the
difference between (i) the closing price on the NYSE trading day
immediately preceding the Notice Date (as defined below) per
<PAGE>
share of Issuer Common Stock as reported on the NYSE Composite
Transaction Tape (or, if not listed on the NYSE, as reported on
any other national securities exchange or national securities
quotation system on which the Issuer Common Stock is listed or
quoted, as reported in the Wall Street Journal (Northeast
edition), or, if not reported thereby, any other authoritative
source) and (ii) the Purchase Price.
2. Exercise of Option. (a) Grantee may exercise the
Option, in whole but not in part, at any one time after the
occurrence of any event as a result of which the Grantee is
entitled to receive the Termination Fee pursuant to Section
5.09(b) of the Merger Agreement (a "Purchase Event"); provided,
however, that (i) except as provided in the last sentence of this
Section 2(a), the Option will terminate and be of no further
force and effect upon the earliest to occur of (A) the Effective
Time, (B) 18 months after the first occurrence of a Purchase
Event, and (C) termination of the Merger Agreement in accordance
with its terms prior to the occurrence of a Purchase Event,
unless the Grantee has the right to receive a Termination Fee
following such termination upon the occurrence of certain events,
in which case the Option will not terminate until the later of
(x) six months following the time such Termination Fee becomes
payable and (y) the expiration of the period in which the Grantee
has such right to receive a Termination fee, and (ii) any
purchase of Option Shares upon exercise of the Option will be
subject to compliance with the HSR Act. Notwithstanding the
termination of the Option, Grantee will be entitled to purchase
the Option Shares if it has exercised the Option in accordance
with the terms hereof prior to the termination of the Option and
the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior
to or as of such termination.
(b) In the event that Grantee wishes to exercise the
Option, it will send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") to that
effect which notice also specifies a date not earlier than three
business days nor later than 20 business days from the Notice
Date for the closing of such purchase (the "Option Closing
Date"); provided, however, that (i) if the closing of the
purchase and sale pursuant to the Option (the "Option Closing")
cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that
otherwise would run pursuant to this sentence will run instead
from the date on which such restriction on consummation has
expired or been terminated and (ii) without limiting the
foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Grantee
and Issuer will promptly file the required notice or application
<PAGE>
for approval and will cooperate in the expeditious filing of such
notice or application, and the period of time that otherwise
would run pursuant to this sentence will run instead from the
date on which, as the case may be, (A) any required notification
period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite
waiting period has expired or been terminated. The place of the
Option Closing will be at the offices of Jones, Day, Reavis &
Pogue, 599 Lexington Avenue, New York, New York, and the time of
the Option Closing will be 10:00 a.m. (Eastern Time) on the
Option Closing Date.
3. Payment and Delivery of Certificates. (a) At the
Option Closing, Grantee will pay to Issuer in immediately
available funds by wire transfer to a bank account designated in
writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares.
(b) At the Option Closing, simultaneously with the
delivery of immediately available funds as provided in Section
3(a), Issuer will deliver to Grantee a certificate or
certificates representing the Option Shares to be purchased at
the Option Closing, which Option Shares will be free and clear of
all liens, claims, charges and encumbrances of any kind
whatsoever. If at the time of issuance of the Option Shares
pursuant to the exercise of the Option hereunder, Issuer shall
not have redeemed the DSI Rights, or shall have issued any
similar securities, then each Option Share issued pursuant to
such exercise will also represent a corresponding DSI Right or
new rights with terms substantially the same as and at least as
favorable to Grantee as are provided under the DSI Rights
Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at the
Option Closing will have typed or printed thereon a restrictive
legend which will read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED
OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH
SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED
AS OF SEPTEMBER 22, 1996, A COPY OF WHICH MAY BE OBTAINED
FROM THE SECRETARY OF DIAMOND SHAMROCK, INC. AT ITS
PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to
restrictions arising under the Securities Act in the above legend
<PAGE>
will be removed by delivery of substitute certificate(s) without
such reference if Grantee has delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend will
be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s)
containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under
circumstances that do not require the retention of such
reference.
4. Representations and Warranties of Issuer. Issuer
hereby represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Issuer and the
consummation by Issuer of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer and constitutes a legal,
valid, and binding obligation of Issuer, enforceable against
Issuer in accordance with its terms.
(b) Authorized Stock. Issuer's representations and
warranties in Section 3.01(c) of the Merger Agreement are
incorporated herein by reference. Without limiting the
generality or effect of the foregoing, Issuer has taken all
necessary corporate and other action to authorize and
reserve and, subject to the expiration or termination of any
required waiting period under the HSR Act, to permit it to
issue, and, at all times from the date hereof until the
obligation to deliver Option Shares upon the exercise of the
Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock
necessary for Grantee to exercise the Option, and Issuer
will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common
Stock or other securities which may be issued pursuant to
Section 6 upon exercise of the Option. The shares of Issuer
Common Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common Stock or
other securities which may be issuable upon exercise of the
Option or any Substitute Option pursuant to Section 6, upon
issuance pursuant hereto, will be duly and validly issued,
fully paid and nonassessable, and will be delivered free and
<PAGE>
clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever, including without limitation any
preemptive rights of any stockholder of Issuer.
(c) No Conflicts. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or
without notice or lapse of time or both) under, or give rise
to a right of termination, cancellation, or acceleration of
any obligation or loss of a material benefit under, or
result in the creation of any Lien upon any of the
properties or assets of Issuer or any of its Significant
Subsidiaries under, (i) the certificate of incorporation or
by-laws of Issuer or the comparable organizational documents
of any Significant Subsidiary of Issuer, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise,
or license applicable to Issuer or any Significant
Subsidiary of Issuer or their respective properties or
assets, or (iii) subject to the expiration or termination of
any required waiting period under the HSR Act, any judgment,
order, decree, statute, law, ordinance, rule, or regulation
applicable to Issuer or any of its Significant Subsidiaries
or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses, or Liens that
individually or in the aggregate would not (x) have a
material adverse effect on Issuer, (y) impair the ability of
Issuer to perform its obligations under this Agreement or
(z) prevent or materially delay the consummation of any of
the transactions contemplated by this Agreement.
(d) State Takeover Statutes. The Board of
Directors of Issuer has approved the terms of this Agreement
and the consummation of the transactions contemplated by
this Agreement for the purposes of Section 203 of the DGCL.
(e) DSI Rights Amendment. The DSI Rights Agreement
has been amended as set forth in Section 3.01(s) of the
Merger Agreement.
5. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Grantee and the
<PAGE>
consummation by Grantee of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee and constitutes a legal,
valid, and binding obligation of Grantee, enforceable
against Grantee in accordance with its terms.
(b) No Conflicts. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance
with the provisions of this Agreement hereby will not,
conflict with or result in any violation of, or default
(with or without notice or lapse of time or both) under, or
give rise to a right of termination, cancellation, or
acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the
properties or assets of Grantee or any of its Significant
Subsidiaries under, (i) the certificate of incorporation or
by-laws of Grantee or the comparable organizational
documents of any Significant Subsidiary of Grantee, (ii) any
loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession,
franchise, or license applicable to Grantee or any
Significant Subsidiary of Grantee or their respective
properties or assets, or (iii) subject to the expiration or
termination of any required waiting period under the HSR
Act, any judgment, order, decree, statute, law, ordinance,
rule, or regulation applicable to Grantee or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses, or
Liens that individually or in the aggregate would not (x)
have a material adverse effect on Grantee, (y) impair the
ability of Grantee to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of any of the transactions contemplated by this
Agreement.
(c) Purchase Not for Distribution. Any Option
Shares or other securities acquired by Grantee upon exercise
of the Option will not be transferred or otherwise disposed
of except in a transaction registered, or exempt from
registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a)
In the event of any change in Issuer Common Stock by reason of a
stock dividend, split-up, merger, recapitalization, combination,
exchange of shares, or similar transaction, the type and number
of shares or securities subject to the Option, and the Purchase
Price therefor, will be adjusted appropriately, and
<PAGE>
proper provision will be made in the agreements governing such
transaction, so that Grantee will receive upon exercise of the
Option the number and class of shares or other securities or
property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior
to such event or the record date therefor, as applicable. Subject
to Section 1, and without limiting the parties' relative rights
and obligations under the Merger Agreement, if any additional
shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first
sentence of this Section 6(a)), the number of shares of Issuer
Common Stock subject to the Option will be adjusted so that,
after such issuance, it equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without giving
effect to any shares subject to or issued pursuant to the Option.
(b) Without limiting the parties' relative rights and
obligations under the Merger Agreement, in the event that Issuer
enters into an agreement (i) to consolidate with or merge into
any person, other than Grantee or one of its subsidiaries, and
Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer will be the continuing or surviving corporation, but in
connection with such merger, the shares of Issuer Common Stock
outstanding immediately prior to the consummation of such merger
will be changed into or exchanged for stock or other securities
of Issuer or any other person or cash or any other property, or
the shares of Issuer Common Stock outstanding immediately prior
to the consummation of such merger will, after such merger,
represent less than 50% of the outstanding voting securities of
the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee
or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction will make proper provision
so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein,
be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Grantee would have
received in respect of Issuer Common Stock if the Option had been
exercised immediately prior to such consolidation, merger, sale,
or transfer, or the record date therefor, as applicable.
(c) If, prior to the termination of the Option in
accordance with Section 2 or the Notice Date, Issuer enters into
any agreement pursuant to which all outstanding shares of Issuer
Common Stock are to be purchased for, or converted into the right
to receive, cash (a "Transaction"), Issuer covenants that proper
<PAGE>
provision will be made in such agreement to provide that, if the
Option shall not theretofore have been exercised, then upon the
closing of the Transaction (which in the case of a Transaction
involving a tender offer will be when shares of Issuer Common
Stock are accepted for payment), Grantee will receive in exchange
for the cancellation of the Option an amount in cash equal to the
Cash Consideration. For purposes of this Agreement, the term
"Cash Consideration" means the lesser of (i) $60,000,000 and (ii)
the number of Option Shares multiplied by the difference between
(A) the amount of cash per share of Issuer Common Stock to be
received by a holder of Issuer Common Stock in such Transaction
and (B) the Purchase Price.
7. Registration Rights. Issuer will, if requested by
Grantee at any time and from time to time within three years of
the exercise of the Option, as expeditiously as possible prepare
and file up to three registration statements under the Securities
Act if such registration is necessary in order to permit the sale
or other disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise of the
Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration
statement under Rule 415 under the Securities Act or any
successor provision, and Issuer will use its best efforts to
qualify such shares or other securities under any applicable
state securities laws. Grantee agrees to use reasonable efforts
to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to
such registration statement to be effected on a widely
distributed basis so that upon consummation thereof no purchaser
or transferee will own beneficially more than 4.9% of the then-
outstanding voting power of Issuer. Issuer will use reasonable
efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties
which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar
days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or
other disposition. The obligations of Issuer hereunder to file a
registration statement and to maintain its effectiveness may be
suspended for one or more periods of time not exceeding 60
calendar days in the aggregate if the Board of Directors of
Issuer shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and
adversely affect Issuer. Any registration statement prepared and
filed under this Section 7, and any sale covered thereby, will be
at Issuer's expense except for underwriting discounts or
commission, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto. Grantee will provide all
<PAGE>
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section 7,
Issuer effects a registration under the Securities Act of Issuer
Common Stock for its own account or for any other stockholders of
Issuer (other than on Form S-4 or Form S-8, or any successor
form), it will allow Grantee the right to participate in such
registration, and such participation will not affect the
obligation of Issuer to effect demand registration statements for
Grantee under this Section 7; provided that, if the managing
underwriters of such offering advise Issuer in writing that in
their opinion the number of shares of Issuer Common Stock
requested to be included in such registration exceeds the number
which can be sold in such offering, Issuer will include the
shares requested to be included therein by Grantee pro rata with
the shares intended to be included therein by Issuer. In
connection with any registration pursuant to this Section 7,
Issuer and Grantee will provide each other and any underwriter of
the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with
such registration.
8. Transfers. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except (i) in an
underwritten public offering as provided in Section 7 or (ii) to
any purchaser or transferee who would not, to the knowledge of
the Grantee after reasonable inquiry, beneficially owned more
than 4.9% of the then-outstanding voting power of the Issuer.
Nothing herein will limit or affect the right of the Grantee to
transfer or assign this Agreement as provided in Section 11(g).
9. Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then
listed on the NYSE (or any other national securities exchange or
national securities quotation system), Issuer, upon the request
of Grantee, will promptly file an application to list the shares
of Issuer Common Stock or other securities to be acquired upon
exercise of the Option on the NYSE (and any such other national
securities exchange or national securities quotation system) and
will use reasonable efforts to obtain approval of such listing as
promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement
executed and delivered will constitute an additional contractual
<PAGE>
obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous.
(a) Expenses. Except as otherwise provided in the
Merger Agreement, each of the parties hereto will bear and pay
all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants,
investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended,
except by an instrument in writing signed on behalf of each of
the parties.
(c) Extension; Waiver. Any agreement on the part of a
party to waive any provision of this Agreement, or to extend the
time for performance, will be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under
this Agreement or otherwise will not constitute a waiver of such
rights.
(d) Entire Agreement; No Third-Party Beneficiaries.
This Agreement, the Merger Agreement (including the documents and
instruments referred to therein) and the Confidentiality
Agreement (i) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this
Agreement, and (ii) except as provided in Section 8.06 of the
Merger Agreement, are not intended to confer upon any person
other than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by,
and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
(f) Notices. All notices, requests, claims, demands,
and other communications under this Agreement must be in writing
and will be deemed given if delivered personally, telecopied
(which is confirmed), or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
<PAGE>
If to Issuer to:
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Attention: Timothy J. Fretthold, Esq.
Fax: (210) 641-8885
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Fax: (212) 755-7306
If to Grantee to:
Ultramar Corporation
Two Pickwick Plaza
Suite 300
Greenwich, Connecticut 06830
Attention: Patrick Guarino, Esq.
Fax: (203) 622-7007
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr., Esq.
Fax: (212) 474-3700
(g) Assignment. Subject to the third sentence of this
Section 11(g), neither this Agreement nor any of the rights,
interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise,
by Issuer or Grantee without the prior written consent of the
other. Any assignment or delegation in violation of the preceding
sentence will be void. Notwithstanding the foregoing, at any time
after the Option becomes exercisable, this Agreement, together
with any rights, interests, or obligations of Grantee hereunder,
may be transferred or assigned in its entirety by Grantee without
the consent of or any action by Issuer upon notice by Grantee to
Issuer as herein provided. Subject to the
<PAGE>
first and second sentences of this Section 11(g), this Agreement
will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
(h) Further Assurances. In the event of any exercise of
the Option by Grantee, Issuer and Grantee will execute and
deliver all other documents and instruments and take all other
Section that may be reasonably necessary in order to consummate
the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable
damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any
federal court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any federal court located in the State
of Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (iii) agrees
that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any
court other than a federal court sitting in the State of Delaware
or a Delaware state court.
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this
Agreement to be signed by their respective officers thereunto
duly authorized as of the day and year first written above.
DIAMOND SHAMROCK, INC.
By: /s/ Roger R. Hemminghaus
---------------------------
Roger R. Hemminghaus
Chairman of the Board,
Chief Executive Officer and
President
ULTRAMAR CORPORATION
By: /s/ Jean Gaulin
---------------------------
Jean Gaulin
Chairman of the Board and
Chief Executive Officer
Exhibit 10.2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 22, 1996 (the
"Agreement"), by and between Ultramar Corporation, a Delaware
corporation ("Issuer"), and Diamond Shamrock, Inc., a Delaware
corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement
and Plan of Merger, dated as of the date hereof (the "Merger
Agreement," capitalized terms not defined herein will have the
meanings set forth in the Merger Agreement), providing for, among
other things, the merger of Grantee with and into Issuer with
Issuer as the surviving corporation in the Merger;
B. As a condition and inducement to Grantee's
willingness to enter into the Merger Agreement and the DSI Stock
Option Agreement, Grantee has requested that Issuer agree, and
Issuer has agreed, to grant Grantee the Option (as defined
below); and
C. As a condition and inducement to Issuer's
willingness to enter into the Merger Agreement and this
Agreement, Issuer has requested that Grantee agree, and Grantee
has agreed, to grant Issuer an option to purchase shares of
Grantee's common stock on substantially the same terms as the
Option;
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth herein Issuer and Grantee agree as follows:
1. Grant of Option. Subject to the terms and
conditions set forth herein, Issuer hereby grants to Grantee an
irrevocable option (the "Option") to purchase up to 8,927,500 (as
adjusted as set forth herein) shares (the "Option Shares") of
Common Stock, par value $0.01 per share ("Issuer Common Stock"),
of Issuer at a purchase price of $27.20 (as adjusted as set forth
herein) per Option Share (the "Purchase Price"); provided,
however, that notwithstanding anything herein to the contrary the
number of Option Shares may not exceed the whole number of shares
(rounded down) equal to (a) $60,000,000 divided by (b) the
difference between (i) the closing price on the NYSE trading day
immediately preceding the Notice Date (as defined below) per
share of Issuer Common Stock as reported on the NYSE Composite
Transaction Tape (or, if not listed on the NYSE, as reported on
any other national securities exchange or national securities
quotation system on which the Issuer Common Stock is listed or
quoted, as reported in the Wall Street Journal (Northeast
<PAGE>
edition), or, if not reported thereby, any other authoritative
source) and (ii) the Purchase Price.
2. Exercise of Option. (a) Grantee may exercise the
Option, in whole but not in part, at any one time after the
occurrence of any event as a result of which the Grantee is
entitled to receive the Termination Fee pursuant to Section
5.09(c) of the Merger Agreement (a "Purchase Event"); provided,
however, that (i) except as provided in the last sentence of this
Section 2(a), the Option will terminate and be of no further
force and effect upon the earliest to occur of (A) the Effective
Time, (B) 18 months after the first occurrence of a Purchase
Event, and (C) termination of the Merger Agreement in accordance
with its terms prior to the occurrence of a Purchase Event,
unless the Grantee has the right to receive a Termination Fee
following such termination upon the occurrence of certain events,
in which case the Option will not terminate until the later of
(x) six months following the time such Termination Fee becomes
payable and (y) the expiration of the period in which the Grantee
has such right to receive a Termination fee, and (ii) any
purchase of Option Shares upon exercise of the Option will be
subject to compliance with the HSR Act. Notwithstanding the
termination of the Option, Grantee will be entitled to purchase
the Option Shares if it has exercised the Option in accordance
with the terms hereof prior to the termination of the Option and
the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior
to or as of such termination.
(b) In the event that Grantee wishes to exercise the
Option, it will send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") to that
effect which notice also specifies a date not earlier than three
business days nor later than 20 business days from the Notice
Date for the closing of such purchase (the "Option Closing
Date"); provided, however, that (i) if the closing of the
purchase and sale pursuant to the Option (the "Option Closing")
cannot be consummated by reason of any applicable judgment,
decree, order, law or regulation, the period of time that
otherwise would run pursuant to this sentence will run instead
from the date on which such restriction on consummation has
expired or been terminated and (ii) without limiting the
foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Grantee
and Issuer will promptly file the required notice or application
for approval and will cooperate in the expeditious filing of such
notice or application, and the period of time that otherwise
would run pursuant to this sentence will run instead from the
date on which, as the case may be, (A) any required notification
period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite
waiting period has expired or been terminated. The place of the
Option Closing will be at the offices of Cravath, Swaine & Moore,
825 Eighth Avenue, New York, New York, and the time of the Option
<PAGE>
Closing will be 10:00 a.m. (Eastern Time) on the Option Closing
Date.
3. Payment and Delivery of Certificates. (a) At the
Option Closing, Grantee will pay to Issuer in immediately
available funds by wire transfer to a bank account designated in
writing by Issuer an amount equal to the Purchase Price
multiplied by the number of Option Shares.
(b) At the Option Closing, simultaneously with the
delivery of immediately available funds as provided in Section
3(a), Issuer will deliver to Grantee a certificate or
certificates representing the Option Shares to be purchased at
the Option Closing, which Option Shares will be free and clear of
all liens, claims, charges and encumbrances of any kind
whatsoever. If at the time of issuance of the Option Shares
pursuant to the exercise of the Option hereunder, Issuer shall
not have redeemed the UC Rights, or shall have issued any similar
securities, then each Option Share issued pursuant to such
exercise will also represent a corresponding UC Right or new
rights with terms substantially the same as and at least as
favorable to Grantee as are provided under the UC Rights
Agreement or any similar agreement then in effect.
(c) Certificates for the Option Shares delivered at the
Option Closing will have typed or printed thereon a restrictive
legend which will read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
STOCK OPTION AGREEMENT, DATED AS OF SEPTEMBER 22, 1996,
A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF
ULTRAMAR CORPORATION AT ITS PRINCIPAL EXECUTIVE
OFFICES."
It is understood and agreed that (i) the reference to
restrictions arising under the Securities Act in the above legend
will be removed by delivery of substitute certificate(s) without
such reference if Grantee has delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend will
be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s)
containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under
circumstances that do not require the retention of such
reference.
<PAGE>
4. Representations and Warranties of Issuer. Issuer
hereby represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Issuer and the
consummation by Issuer of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer and constitutes a legal,
valid, and binding obligation of Issuer, enforceable against
Issuer in accordance with its terms.
(b) Authorized Stock. Issuer's representations and
warranties in Section 3.02(c) of the Merger Agreement are
incorporated herein by reference. Without limiting the
generality or effect of the foregoing, Issuer has taken all
necessary corporate and other action to authorize and
reserve and, subject to the expiration or termination of any
required waiting period under the HSR Act, to permit it to
issue, and, at all times from the date hereof until the
obligation to deliver Option Shares upon the exercise of the
Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock
necessary for Grantee to exercise the Option, and Issuer
will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common
Stock or other securities which may be issued pursuant to
Section 6 upon exercise of the Option. The shares of Issuer
Common Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common Stock or
other securities which may be issuable upon exercise of the
Option or any Substitute Option pursuant to Section 6, upon
issuance pursuant hereto, will be duly and validly issued,
fully paid and nonassessable, and will be delivered free and
clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever, including without limitation any
preemptive rights of any stockholder of Issuer.
(c) No Conflicts. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or
without notice or lapse of time or both) under, or give rise
to a right of termination, cancellation, or acceleration of
any obligation or loss of a material benefit under, or
result in the creation of any Lien upon any of the
properties or assets of Issuer or any of its Significant
Subsidiaries under, (i) the certificate of incorporation or
by-laws of Issuer or the comparable organizational documents
of any Significant Subsidiary of Issuer, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or
<PAGE>
other agreement, instrument, permit, concession, franchise,
or license applicable to Issuer or any Significant
Subsidiary of Issuer or their respective properties or
assets, or (iii) subject to the expiration or termination of
any required waiting period under the HSR Act, any judgment,
order, decree, statute, law, ordinance, rule, or regulation
applicable to Issuer or any of its Significant Subsidiaries
or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses, or Liens that
individually or in the aggregate would not (x) have a
material adverse effect on Issuer, (y) impair the ability of
Issuer to perform its obligations under this Agreement or
(z) prevent or materially delay the consummation of any of
the transactions contemplated by this Agreement.
(d) State Takeover Statutes. The Board of
Directors of Issuer has approved the terms of this Agreement
and the consummation of the transactions contemplated by
this Agreement for the purposes of Section 203 of the DGCL.
(e) UC Rights Amendment. The UC Rights Agreement
has been amended as set forth in Section 3.02(s) of the
Merger Agreement.
5. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Grantee and the
consummation by Grantee of the transactions contemplated
hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee and constitutes a legal,
valid, and binding obligation of Grantee, enforceable
against Grantee in accordance with its terms.
(b) No Conflicts. The execution and delivery of
this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance
with the provisions of this Agreement hereby will not,
conflict with or result in any violation of, or default
(with or without notice or lapse of time or both) under, or
give rise to a right of termination, cancellation, or
acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the
properties or assets of Grantee or any of its Significant
Subsidiaries under, (i) the certificate of incorporation or
by-laws of Grantee or the comparable organizational
documents of any Significant Subsidiary of Grantee, (ii) any
loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession,
<PAGE>
franchise, or license applicable to Grantee or any
Significant Subsidiary of Grantee or their respective
properties or assets, or (iii) subject to the expiration or
termination of any required waiting period under the HSR
Act, any judgment, order, decree, statute, law, ordinance,
rule, or regulation applicable to Grantee or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses, or
Liens that individually or in the aggregate would not (x)
have a material adverse effect on Grantee, (y) impair the
ability of Grantee to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of any of the transactions contemplated by this
Agreement.
(c) Purchase Not for Distribution. Any Option
Shares or other securities acquired by Grantee upon exercise
of the Option will not be transferred or otherwise disposed
of except in a transaction registered, or exempt from
registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a)
In the event of any change in Issuer Common Stock by reason of a
stock dividend, split-up, merger, recapitalization, combination,
exchange of shares, or similar transaction, the type and number
of shares or securities subject to the Option, and the Purchase
Price therefor, will be adjusted appropriately, and proper
provision will be made in the agreements governing such
transaction, so that Grantee will receive upon exercise of the
Option the number and class of shares or other securities or
property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior
to such event or the record date therefor, as applicable. Subject
to Section 1, and without limiting the parties' relative rights
and obligations under the Merger Agreement, if any additional
shares of Issuer Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first
sentence of this Section 6(a)), the number of shares of Issuer
Common Stock subject to the Option will be adjusted so that,
after such issuance, it equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without giving
effect to any shares subject to or issued pursuant to the Option.
(b) Without limiting the parties' relative rights and
obligations under the Merger Agreement, in the event that Issuer
enters into an agreement (i) to consolidate with or merge into
any person, other than Grantee or one of its subsidiaries, and
Issuer will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into Issuer and
Issuer will be the continuing or surviving corporation, but in
connection with such merger, the shares of Issuer Common Stock
<PAGE>
outstanding immediately prior to the consummation of such merger
will be changed into or exchanged for stock or other securities
of Issuer or any other person or cash or any other property, or
the shares of Issuer Common Stock outstanding immediately prior
to the consummation of such merger will, after such merger,
represent less than 50% of the outstanding voting securities of
the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee
or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction will make proper provision
so that the Option will, upon the consummation of any such
transaction and upon the terms and conditions set forth herein,
be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Grantee would have
received in respect of Issuer Common Stock if the Option had been
exercised immediately prior to such consolidation, merger, sale,
or transfer, or the record date therefor, as applicable.
(c) If, prior to the termination of the Option in
accordance with Section 2 or the Notice Date, Issuer enters into
any agreement pursuant to which all outstanding shares of Issuer
Common Stock are to be purchased for, or converted into the right
to receive, cash (a "Transaction"), Issuer covenants that proper
provision will be made in such agreement to provide that, if the
Option shall not theretofore have been exercised, then upon the
closing of the Transaction (which in the case of a Transaction
involving a tender offer will be when shares of Issuer Common
Stock are accepted for payment), Grantee will receive in exchange
for the cancellation of the Option an amount in cash equal to the
Cash Consideration. For purposes of this Agreement, the term
"Cash Consideration" means the lesser of (i) $60,000,000 and (ii)
the number of Option Shares multiplied by the difference between
(A) the amount of cash per share of Issuer Common Stock to be
received by a holder of Issuer Common Stock in such Transaction
and (B) the Purchase Price.
7. Registration Rights. Issuer will, if requested by
Grantee at any time and from time to time within three years of
the exercise of the Option, as expeditiously as possible prepare
and file up to three registration statements under the Securities
Act if such registration is necessary in order to permit the sale
or other disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise of the
Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration
statement under Rule 415 under the Securities Act or any
successor provision, and Issuer will use its best efforts to
qualify such shares or other securities under any applicable
state securities laws. Grantee agrees to use reasonable efforts
to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to
such registration statement to be effected on a widely
distributed basis so that upon consummation thereof no purchaser
<PAGE>
or transferee will own beneficially more than 4.9% of the then-
outstanding voting power of Issuer. Issuer will use reasonable
efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties
which are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar
days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or
other disposition. The obligations of Issuer hereunder to file a
registration statement and to maintain its effectiveness may be
suspended for one or more periods of time not exceeding 60
calendar days in the aggregate if the Board of Directors of
Issuer shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and
adversely affect Issuer. Any registration statement prepared and
filed under this Section 7, and any sale covered thereby, will be
at Issuer's expense except for underwriting discounts or
commission, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto. Grantee will provide all
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section 7,
Issuer effects a registration under the Securities Act of Issuer
Common Stock for its own account or for any other stockholders of
Issuer (other than on Form S-4 or Form S-8, or any successor
form), it will allow Grantee the right to participate in such
registration, and such participation will not affect the
obligation of Issuer to effect demand registration statements for
Grantee under this Section 7; provided that, if the managing
underwriters of such offering advise Issuer in writing that in
their opinion the number of shares of Issuer Common Stock
requested to be included in such registration exceeds the number
which can be sold in such offering, Issuer will include the
shares requested to be included therein by Grantee pro rata with
the shares intended to be included therein by Issuer. In
connection with any registration pursuant to this Section 7,
Issuer and Grantee will provide each other and any underwriter of
the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with
such registration.
8. Transfers. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except (i) in an
underwritten public offering as provided in Section 7 or (ii) to
any purchaser or transferee who would not, to the knowledge of
the Grantee after reasonable inquiry, beneficially owned more
than 4.9% of the then-outstanding voting power of the Issuer.
Nothing herein will limit or affect the right of the Grantee to
transfer or assign this Agreement as provided in Section 11(g).
9. Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then
listed on the NYSE (or any other national securities exchange or
<PAGE>
national securities quotation system), Issuer, upon the request
of Grantee, will promptly file an application to list the shares
of Issuer Common Stock or other securities to be acquired upon
exercise of the Option on the NYSE (and any such other national
securities exchange or national securities quotation system) and
will use reasonable efforts to obtain approval of such listing as
promptly as practicable.
10. Loss or Mutilation. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement executed
and delivered will constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
11. Miscellaneous.
(a) Expenses. Except as otherwise provided in the
Merger Agreement, each of the parties hereto will bear and pay
all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants,
investment bankers, accountants, and counsel.
(b) Amendment. This Agreement may not be amended,
except by an instrument in writing signed on behalf of each of
the parties.
(c) Extension; Waiver. Any agreement on the part of a
party to waive any provision of this Agreement, or to extend the
time for performance, will be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under
this Agreement or otherwise will not constitute a waiver of such
rights.
(d) Entire Agreement; No Third-Party Beneficiaries.
This Agreement, the Merger Agreement (including the documents and
instruments referred to therein) and the Confidentiality
Agreement (i) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this
Agreement, and (ii) except as provided in Section 8.06 of the
Merger Agreement, are not intended to confer upon any person
other than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by,
and construed in accordance with, the laws of the State of
<PAGE>
Delaware, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
(f) Notices. All notices, requests, claims, demands,
and other communications under this Agreement must be in writing
and will be deemed given if delivered personally, telecopied
(which is confirmed), or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
If to Issuer to:
Ultramar Corporation
Two Pickwick Plaza
Suite 300
Greenwich, Connecticut 06830
Attention: Patrick Guarino, Esq.
Fax: (203) 622-7007
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr., Esq.
Fax: (212) 474-3700
If to Grantee to:
Diamond Shamrock, Inc.
9830 Colonnade Blvd.
San Antonio, Texas 78230
Attention: Timothy J. Fretthold, Esq.
Fax: (210) 641-8885
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Fax: (212) 755-7306
(g) Assignment. Subject to the third sentence of this
Section 11(g), neither this Agreement nor any of the rights,
interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise,
by Issuer or Grantee without the prior written consent of the
<PAGE>
other. Any assignment or delegation in violation of the preceding
sentence will be void. Notwithstanding the foregoing, at any time
after the Option becomes exercisable, this Agreement, together
with any rights, interests, or obligations of Grantee hereunder,
may be transferred or assigned in its entirety by Grantee without
the consent of or any action by Issuer upon notice by Grantee to
Issuer as herein provided. Subject to the first and second
sentences of this Section 11(g), this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties
and their respective successors and assigns.
(h) Further Assurances. In the event of any exercise of
the Option by Grantee, Issuer and Grantee will execute and
deliver all other documents and instruments and take all other
Section that may be reasonably necessary in order to consummate
the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable
damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any
federal court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any federal court located in the State
of Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, and (iii) agrees
that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any
court other than a federal court sitting in the State of Delaware
or a Delaware state court.
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this
Agreement to be signed by their respective officers thereunto
duly authorized as of the day and year first written above.
ULTRAMAR CORPORATION
By: /s/ Jean Gaulin
------------------------------
Jean Gaulin
Chairman of the Board and
Chief Executive Officer
DIAMOND SHAMROCK, INC.
By: /s/ Roger R. Hemminghaus
------------------------------
Roger R. Hemminghaus
Chairman of the Board,
Chief Executive Officer and
President
Exhibit 99.1
FOR IMMEDIATE RELEASE
- ---------------------
Contacts: Ultramar Diamond Shamrock
- --------- -------- ----------------
Media and Investors: Media: Katherine Hughes
Steven Blank (203) 622-7019 (210) 641-8846
For 9/23 & 9/24: (212) 953-2550 Investors: Mary Hartman
(210) 641-8840
For 9/23 & 9/24: (212) 953-2550
ULTRAMAR AND DIAMOND SHAMROCK TO MERGE
Merger of Equals Will Create One of the Largest North American Petroleum
Refiner/Marketers;
Transaction Expected to be Accretive to Earnings
----------------------------------------------
GREENWICH, Conn. and SAN ANTONIO, Tex. (September 23, 1996) -- Ultramar
Corporation (NYSE:ULR) and Diamond Shamrock, Inc. (NYSE:DRM), petroleum
refining and marketing companies with strong presences in different regions
of North America, announced today that they have agreed to merge. In the
merger of equals, each share of Diamond Shamrock will be converted into
1.02 shares of Ultramar common stock. The new company will have combined
revenues of more than $8 billion and a combined equity market value of over
$2.3 billion. The transaction will be accounted for on a pooling of
interests basis and is expected to be accretive to earnings. The combined
company will be named Ultramar Diamond Shamrock Corp. and will be
headquartered in San Antonio, Texas.
Roger Hemminghaus, chairman, chief executive officer and president of
Diamond Shamrock, will become chairman and chief executive officer of
Ultramar Diamond Shamrock. Jean Gaulin, chairman, chief executive officer
and president of Ultramar, will become the new company's vice chairman,
president and chief operating officer. Mr. Gaulin will become Ultramar
Diamond Shamrock's CEO by the end of 1998 and will become chairman within
three years thereafter. The Board of Directors will be comprised of twelve
individuals, with six each coming from the boards of Ultramar and Diamond
Shamrock.
Ultramar Diamond Shamrock expects to pay an annual dividend of $1.10
per share of common stock, which is Ultramar's current dividend rate.
"This is truly a merger of equals between two strong companies that
fit together remarkably well," said Mr. Hemminghaus. "By joining together,
we will leverage both our companies' considerable strength in petroleum
refining and marketing and create new opportunities for cost savings and
strategic expansion. The merger will position the new company for greater
penetration of attractive western U.S. markets, including Arizona,
California and Nevada."
"This is a combination of two companies which have high quality assets
and management. We will be building a new company with the best management
and business opportunities from both sides. Our corporate cultures are
complementary and we are all looking forward to working together,"
Mr. Hemminghaus said.
<PAGE>
- 2 -
"Ultramar and Diamond Shamrock are ideal partners," said Mr. Gaulin.
"Diamond Shamrock's large retail network and significant presence in the
U.S. Southwest strongly complement Ultramar's refining and marketing
operations in California and Canada. With such strong regional anchors, our
new company has tremendous potential to expand into new markets and improve
performance in existing ones."
"This merger creates exciting opportunities for the shareholders of
both companies," Mr. Gaulin said. "The transaction is expected to be
accretive to earnings. Ultramar Diamond Shamrock will benefit from enhanced
earnings growth prospects, less earnings volatility, increased geographic
diversity of revenues, and significant merger savings."
Cost savings related to the merger are projected to be at least
$75 million annually, based primarily on the realization of operating
synergies and reduction of overhead and administrative costs, with
$25 million estimated to be realized in 1997 and the full $75 million to be
realized each year thereafter. One-time transaction costs are estimated at
$17 million, which will be booked in 1996. In addition there are
approximately $50 million in transition costs, most of which will be booked
in 1996. It is anticipated that approximately 200 positions will be
eliminated as a result of the merger, out of a combined workforce of about
17,000 employees.
The Boards of Directors of both Ultramar and Diamond Shamrock have
approved the merger. The transaction is subject to approval by the
shareholders of both companies, and to customary regulatory approvals. The
parties expect the transaction to close at the end of this year.
Wasserstein Perella & Co., Inc. acted as financial adviser to Diamond
Shamrock and provided a fairness opinion. Merrill Lynch & Co. acted as
principal financial adviser to Ultramar and provided a fairness opinion.
Ultramar Corporation, headquartered in Greenwich, Connecticut, is a
petroleum refining and marketing company which operates in California,
Eastern Canada and the northeast United States. Ultramar employs
approximately 4,000 people. Ultramar operates two refineries, in
Wilmington, California, and in Quebec Province, with a combined capacity of
250,000 barrels per day. In California, it markets gasoline through
360 locations (150 owned and operated by the company) under the Ultramar
and Beacon brands. Ultramar's Eastern Canadian retail network includes
1,400 locations (of which approximately 630 are company-owned or controlled
under long-term lease). In Eastern Canada, Ultramar markets gasoline under
the Ultramar and Sergaz brands. Within this network, Ultramar owns and
operates 110 convenience stores and plans to grow this number significantly
over the next several years. Ultramar is one of the largest home heating
oil companies in North America and sells heating oil to over
175,000 households in Eastern Canada and New England.
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<PAGE>
- 3 -
Diamond Shamrock, Inc., headquartered in San Antonio, is a leading
refiner and marketer of petroleum products in the Southwest, with a growing
mix of related businesses. Diamond Shamrock has two Texas refineries with a
combined capacity of 225,000 barrels per day, and markets gasoline and
convenience store items through approximately 2,700 Corner Store, Stop N Go
and Diamond Shamrock locations (1,500 owned and operated by the company) in
nine states. Diamond Shamrock markets the largest-selling gasoline brand in
Texas and the second largest in Colorado and New Mexico. Its revenue from
convenience store merchandise approaches $1 billion annually. Diamond
Shamrock also produces petrochemical feedstocks and operates the world's
largest commercial natural gas liquids storage facility, serving the
refining and petrochemicals industries in the Texas Gulf Coast area.
Diamond Shamrock has more than 13,000 employees.
# # #
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