<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Ultramar Diamond Shamrock Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[ULTRAMAR DIAMOND SHAMROCK CORPORATION LOGO]
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
FOR ANNUAL MEETING TO BE HELD MAY 5, 1998
<PAGE> 3
NOTICE OF ANNUAL MEETING
MAY 5, 1998
To the Stockholders of Ultramar Diamond Shamrock Corporation:
The Annual Meeting of Stockholders (the "Annual Meeting") of Ultramar
Diamond Shamrock Corporation (the "Company" ) will be held at the Hyatt Regency
Scottsdale at Gainey Ranch, 7500 East Doubletree Ranch Road, Scottsdale, AZ
85258 on Tuesday, May 5, 1998 at 10:00 a.m. Mountain Standard Time, for the
following purposes:
1. To elect four directors to serve for a three-year term expiring in 2001
(Proxy Item 1);
2. To ratify the appointment of independent accountants for 1998 (Proxy
Item 2); and
3. To transact any other business which may be properly brought before the
Annual Meeting.
Holders of record of the Company's Common Stock at the close of business on
March 12, 1998 are entitled to notice of and to vote at the Annual Meeting.
March 30, 1998
BY ORDER OF THE BOARD OF DIRECTORS
CURTIS V. ANASTASIO
Vice President, General Counsel, and
Secretary
Ultramar Diamond Shamrock Corporation
6000 N Loop 1604 W
P.O. Box 696000
San Antonio, Texas 78269-6000
Telephone: (210) 592-2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY, AND RETURN IT IN THE ENVELOPE PROVIDED. ANY PERSON GIVING A
PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS EXERCISE AND, IF
PRESENT AT THE ANNUAL MEETING, MAY WITHDRAW IT AND VOTE IN PERSON. ATTENDANCE AT
THE ANNUAL MEETING IS LIMITED TO STOCKHOLDERS, THEIR PROXIES, AND INVITED GUESTS
OF THE COMPANY.
<PAGE> 4
PROXY STATEMENT
GENERAL INFORMATION
INTRODUCTION
The Board of Directors (the "Board") of the Company is soliciting proxies
to be voted at the 1998 Annual Meeting to be held in Scottsdale, Arizona on May
5, 1998, and at any adjournment thereof. This Proxy Statement and the enclosed
proxy are first being mailed to stockholders on or about March 30, 1998.
SHARES VOTING
Holders of shares of the Common Stock of the Company ("Common Stock") at
the close of business on March 12, 1998 (the "Record Date") are entitled to
notice of the Annual Meeting and to vote shares held on that date at the Annual
Meeting. As of the close of business on the Record Date, there were 87,884,300
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Each share of Common Stock is entitled to one vote at the Annual Meeting. A
majority of such outstanding shares of Common Stock, represented in person or by
proxy, is necessary to provide a quorum at the Annual Meeting.
VOTING OF PROXIES
This proxy solicitation is intended to afford stockholders the opportunity
to vote regarding the election of directors, the appointment of the Company's
independent accountants for 1998, and in respect of such other matters, if any,
as may be properly brought before the Annual Meeting.
It is the Company's policy for the Annual Meeting that all returned
proxies, ballots, and other voting materials used in connection with the Annual
Meeting that identify the votes of specific stockholders will be kept
confidential and made available only to certain persons involved in the receipt,
counting, tabulation, or solicitation of proxies who have agreed to maintain
stockholder confidentiality. Access to voted proxies, ballots, and other voting
materials will not be restricted where stockholders seek to communicate with
management by writing comments on their proxy cards or otherwise disclose their
vote to management or where disclosure may be required by applicable law. In
limited circumstances, such as proxy solicitation based on an opposition proxy
statement or a proxy solicitation on a matter requiring a vote of more than a
majority of the shares represented at the Annual Meeting, this policy could be
suspended by the Board.
A proxy may be revoked either by a written notice duly signed and delivered
to the Secretary of the Company prior to the Annual Meeting, by execution of a
subsequent proxy, or by voting in person at the Annual Meeting. Abstentions and
broker non-votes will be counted for purposes of determining the presence of a
quorum for the transaction of business at the Annual Meeting, but not otherwise.
Where a stockholder's proxy specifies a choice with respect to a matter, the
shares will be voted accordingly. IF NO SUCH SPECIFICATION IS MADE, THE SHARES
WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR IDENTIFIED BELOW, FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS, AND IN THE MANNER THAT THE APPOINTED PROXIES DETERMINE
WITH RESPECT TO OTHER MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
ANNUAL REPORT
The Company's annual report for the year ended December 31, 1997 is being
furnished with this Proxy Statement to stockholders of record as of the Record
Date. The annual report does not constitute a part of the proxy solicitation
materials.
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ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY)
The By-Laws of the Company (the "By-Laws") provide that the directors will
be classified into three classes. The directors of each class serve for a term
of three years and until their successors are elected and qualified.
Information regarding the nominees proposed by the Board for election at
the Annual Meeting and the other directors of the Company whose terms expire
after the Annual Meeting is set forth below. Mr. Bradford, Mr. Hemminghaus, Mr.
Herman, and Mr. Schaefer have been nominated for election to the class of
directors whose terms expire at the 2001 Annual Meeting. Each nominee is
presently serving as a director of the Company.
A majority of the votes of the Common Stock cast at the Annual Meeting, or
any adjournment thereof, is required to elect directors. Each nominee has
consented to being named in this Proxy Statement and to serve if elected. If a
nominee should for any reason become unavailable for election, proxies may be
voted with discretionary authority by the persons named therein for a substitute
designated by the Board.
THE PERSONS NAMED IN THE PROXY WILL VOTE FOR THE NOMINEES LISTED BELOW
EXCEPT WHERE AUTHORITY HAS BEEN WITHHELD.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
W. E. "Bill" Bradford, age 63, is Chairman and Chief Executive Officer of
Dresser Industries, Inc. Mr. Bradford has been with Dresser Industries, Inc.
since 1963 and has held various positions in production and management. In 1988
Mr. Bradford was appointed President and Chief Executive Officer of Dresser-
Rand Company. He was elected President and Chief Operating Officer of Dresser
Industries, Inc. in March 1992, President and Chief Executive Officer of Dresser
Industries, Inc. in November 1995, and to his present position in December 1996.
Mr. Bradford serves on the Board of Directors of Dresser Industries, Inc. and of
Oryx Energy Company. Mr. Bradford serves on the Audit Review Committee and the
Compensation Committee. He was a director of Diamond Shamrock, Inc. ("Diamond")
from 1992 until he became a director of the Company in December 1996 effective
with the merger of Diamond into the Company (the "Merger").
Roger R. Hemminghaus, age 61, is Chairman of the Board and Chief Executive
Officer of the Company. Mr. Hemminghaus is a director of Luby's Cafeterias, Inc.
and New Century Energies and is the Chairman of the board of directors of the
Federal Reserve Bank of Dallas. Mr. Hemminghaus was the Chairman, Chief
Executive Officer, and President of Diamond prior to the Merger. He served as a
director of Diamond from 1987 until he became Chairman of the Board and Chief
Executive Officer of the Company in December 1996 effective with the Merger.
Russel H. Herman, age 67, is a former owner and principal of International
Energy Consultants Ltd., a firm which provides consulting services to senior
management in the international energy industry. Prior to that, Mr. Herman was
employed by Exxon Corporation as President and Chief Executive Officer for the
Asia-Pacific area and Executive Vice President for Exxon's petroleum business in
Europe. Mr. Herman is a member of the board of the Leonhard Center for the
Enhancement of Engineering Education at Pennsylvania State University and was
named an Honor Engineering Alumnus and also an Alumni Fellow of that university.
He is on the national board of directors of Recording for the Blind & Dyslexic
and is a member of the board of Greenwich Land Trust. He is also active with the
United Way of Greenwich, Connecticut. He has been a director of the Company
since 1992, and is currently chairman of its Finance and Planning Committee and
a member of the Public Responsibility Committee.
C. Barry Schaefer, age 59, is an Executive Director of The Beacon Group, an
investment and financial advisory firm. Prior to joining Beacon in April 1997,
he had been a Managing Director with The Bridgeford Group, a merger and
acquisition subsidiary of the Industrial Bank of Japan, since 1992. From 1989
through 1991 he was a senior advisor with Dillon Read & Co., Inc., an investment
banking group, and prior to that he served as an Executive Vice President of
Union Pacific Corporation. Mr. Schaefer serves as Chairman of the
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Compensation Committee, and as a member of the Audit Review Committee. He has
been a director of the Company since 1992.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
H. Frederick Christie, age 64, is a consultant specializing in strategic
and financial planning. He retired, effective January 1, 1991, as Chairman and
Chief Executive Officer of The Mission Group, the non-utility subsidiary of SCE
Corp. Prior to that he served as President of Southern California Edison
Company. Mr. Christie is a director or trustee of nineteen mutual funds under
the Capital Research and Management Company and a director of AECOM Technology
Corporation, International House of Pancakes, Inc., Ducommon, Incorporated, and
Southwest Water Company. Mr. Christie serves on the Audit Review Committee and
on the Finance and Planning Committee. He has been a director of the Company
since 1992.
W. H. Clark, age 65, is the retired Chief Executive Officer and Chairman of
the Board of Directors of Nalco Chemical Company. He was the President and Chief
Executive Officer of Nalco Chemical Company from 1982 until 1990, and Chairman
of the Board of Directors and Chief Executive Officer of that company from 1984
until 1994. Mr. Clark is President of W. "H" Clark Associates, Ltd., and is a
member of the Board of Directors of Merrill Lynch Corporation; NICOR, Inc. and
its principal subsidiary, Northern Illinois Gas Company; USG Corporation and its
subsidiary, United States Gypsum Company; Fort James Corporation; Bethlehem
Steel Corporation; and Millennium Chemicals Corp. Mr. Clark serves on the
Compensation Committee and the Finance and Planning Committee. He served as a
director of Diamond from 1994 until he became a director of the Company in
December 1996 effective with the Merger.
Jean Gaulin, age 55, is Vice-Chairman of the Board, President, and Chief
Operating Officer of the Company. Prior to the Merger, he had been the Chairman
of the Board and Chief Executive Officer of the Company since the Company's
formation in 1992. From July 1989 through January 1992, Mr. Gaulin was Chief
Executive Officer of Ultramar PLC, a leading international integrated oil and
gas company, engaged in exploration, production, development, and refining and
marketing, which was the Company's predecessor. Prior to that, Mr. Gaulin was
President of Ultramar Canada, Inc. Mr. Gaulin serves on the board of directors
of Quebec Telephone, Inc., Crane Co., and Medusa Corporation. He has been a
director of the Company since 1992.
Bob Marbut, age 62, has been Chairman and Chief Executive Officer of Argyle
Communications, Inc. since January 1992, and Chairman and Co-Chief Executive
Officer of Hearst-Argyle Television, Inc. since August 1997. He was Chairman and
Chief Executive Officer of Argyle Television, Inc. from August 1994 until its
merger with Hearst Broadcasting in August 1997. He was Chairman and Chief
Executive Officer of Argyle Television Holding, Inc. from its founding in March
1993 until April 1994. Prior to 1992, Mr. Marbut was President and Chief
Executive Officer of Harte-Hanks Communications, Inc. for 20 years and served
one year as Vice Chairman of that Company. He is a director of Tupperware
Corporation, Tracor, Inc., and Hearst-Argyle Television, Inc. He is chairman of
the Audit Review Committee and serves on the Finance and Planning Committee. He
served as a director of Diamond from 1990 until he became a director of the
Company in December 1996 effective with the Merger.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
Byron Allumbaugh, age 66, is the former Chairman and Chief Executive
Officer of Ralphs Grocery Company in Los Angeles, California. Mr. Allumbaugh is
a member of the board of directors of El Paso Natural Energy Company, H. F.
Ahmanson & Company, C. K. E. Restaurants and the Automobile Club of Southern
California. Mr. Allumbaugh serves on the Compensation Committee and on the
Public Responsibility Committee. He has been a director of the Company since
1992.
E. Glenn Biggs, age 64, is President of Biggs & Co., (a corporation engaged
in developmental projects and financial planning). He was the Chairman and Chief
Executive Officer of Gill Companies until July 1989. Mr. Biggs served as the
Vice Chairman of the Board and Chairman of the Executive Committee of InterFirst
Bank San Antonio, N.A. until May 1987. He is a director of Central and Southwest
Corporation, Southwestern Bancorp, Inc., and former director and Chairman of the
Board of Bolivian Power Corporation.
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<PAGE> 7
Mr. Biggs serves as Chairman of the Public Responsibility Committee and is a
member of the Finance and Planning Committee. He was a director of Diamond from
1987 until he became a director of the Company in December 1996 effective with
the Merger.
Katherine D. Ortega, age 62, was an alternate representative of the United
States to the 45th General Assembly of the United Nations 1990-1991. She served
as the 38th Treasurer of the United States, from 1983 to 1989. Prior to joining
the Treasury Department as Treasurer, Ms. Ortega served as a Commissioner on the
Copyright Royalty Tribunal, and was a member of the President's Advisory
Committee on Small and Minority Business. Ms. Ortega is a director of Ralston
Purina Company, Long Island Lighting Company, Rayonier, Inc., and the Kroger Co.
She also serves as a director of Catalyst, and is a member of the United States
Comptroller General's Consultant Panel. Ms. Ortega is a member of the Washington
Mutual Investors Fund Advisory Board. Before entering government, Ms. Ortega
practiced as a certified public accountant. Ms. Ortega serves on the Public
Responsibility Committee and on the Audit Review Committee. She was a director
of Diamond from 1989 until she became a director of the Company in December 1996
effective with the Merger.
Madeleine Saint-Jacques, age 62, is Chairman of the board of Saint-Jacques
Vallee Young and Rubicam Inc. in Montreal, Canada. From 1990 through 1994, she
was President of Young & Rubicam, and from 1978 through 1990, she served as
their Executive Vice President and Managing Director. Ms. Saint-Jacques is a
member of the board of directors of Tele-Metropole Inc., St. Mary's Hospital
Foundation, and the Terry Fox Humanitarian Award Program. Ms. Saint-Jacques is
also a member of the Board of Governors, Inno-Centre Quebec, a member of the
Board of Associate Governors, University of Montreal and Vice President of
Societe d'edition de la revue Forces. Ms. Saint-Jacques serves on the Public
Responsibility Committee and the Compensation Committee. She has been a director
of the Company since 1992.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The management of the Company is under the direction of its Board. The
Board has established Audit Review, Compensation, Finance and Planning, and
Public Responsibility Committees. The Board held a total of nine meetings in
1997. Attendance at the meetings of the Board was 95%. Attendance at the
meetings of the Audit Review Committee was 83%. Attendance at the meetings of
the Compensation Committee was 88%. Attendance at the meetings of the Finance
and Planning Committee was 90%. Attendance at the meetings of the Public
Responsibility Committee was 77%.
BOARD COMMITTEES
Audit Review Committee. Bob Marbut (Chairman), W. E. Bradford, H. Frederick
Christie, Katherine D. Ortega, and C. Barry Schaefer serve as members of the
Audit Review Committee. The Audit Review Committee reviews the professional
services provided by the Company's independent accountants. The Committee's
review includes the scope of the audit by the Company's independent accountants,
the annual financial statements of the Company, the annual audit report of the
independent accountants, the adequacy of the Company's internal accounting
controls, and such other matters with respect to the accounting, auditing, and
financial reporting practices and procedures of the Company as it finds
appropriate or as may be brought to its attention. The Audit Review Committee
held three meetings in 1997.
Compensation Committee. C. Barry Schaefer (Chairman), Byron Allumbaugh, W.
E. Bradford, W. H. Clark, and Madeleine Saint-Jacques serve on the Compensation
Committee. The Compensation Committee establishes executive compensation policy,
administers incentive compensation, stock options, and certain benefit plans of
the Company, and approves the salaries and other benefits of the executive
officers. In addition, this Committee advises and consults with the Company's
management regarding the compensation policies and practices of the Company
applicable to other employees. The Compensation Committee held four meetings in
1997.
Finance and Planning Committee. Russel H. Herman (Chairman), E. Glenn
Biggs, H. Frederick Christie, W. H. Clark, and Bob Marbut serve on the Finance
and Planning Committee. The Finance and
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Planning Committee reviews and makes recommendations to the Board with regard to
the overall financial structure, financial condition, and financial capacity of
the Company, including consideration of such financial matters as material
corporate borrowings, investments, capital expenditures, and long-term
commitments. In addition, it reviews and makes recommendations to the Board with
respect to the Company's annual budget and five-year business plan. The Finance
and Planning Committee held five meetings in 1997.
Public Responsibility Committee. E. Glenn Biggs (Chairman), Byron
Allumbaugh, Russel H. Herman, Katherine D. Ortega, and Madeleine Saint-Jacques
serve on the Public Responsibility Committee. The Public Responsibility
Committee reviews and monitors the Company's policies, programs, and practices
which significantly affect such responsibilities as environmental protection,
safety and health, equal employment opportunity, and business conduct. The
Committee, after consultation with management, recommends policies, practices,
and programs to the Board regarding the Company's relationships with its various
constituencies. In addition, this Committee has responsibility for considering
the composition, structure, and functioning of the Board, and for selecting
nominees for election as directors of the Company. The Public Responsibility
Committee held three meetings in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, C. Barry Schaefer (Chairman), Byron Allumbaugh, W. E.
Bradford, W. H. Clark, and Madeleine Saint-Jacques served on the Company's
Compensation Committee. None of those individuals has ever been an officer or
employee of the Company or its subsidiaries. No executive officer of the Company
has served as a member of the board of directors or the compensation committee
of any company whose executive officers include a member of the Board or the
Compensation Committee of the Company.
NOMINATIONS FOR DIRECTOR
The Public Responsibility Committee is responsible for considering the
composition, structure, and functioning of the Board, and for selecting nominees
for election as directors of the Company. Stockholders may make nominations to
the Board by following the procedures set out in Article III, Section 2 of the
Company's By-laws, and not otherwise. The By-laws provide generally that
stockholders wishing to nominate director candidates for consideration by the
Public Responsibility Committee may do so by writing the Secretary of the
Company and giving the candidate's name, biographical information,
qualifications, and class or series and number of shares of capital stock of the
Company owned by the nominee. Such notice must also set out the name and address
of the stockholder giving the notice, the class or series and number of shares
of capital stock of the Company beneficially owned by such stockholder, a
description of any arrangements relating to the nomination between the
stockholder and the nominee or any other person, and a representation that the
stockholder intends to appear in person to make the nomination. Such notice must
be accompanied by the consent of the nominee to serve if elected. The By-Laws
require that notice of nominations by the stockholders of persons for election
as directors at annual meetings of the Company be delivered not less than 60 nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting; provided, that if the annual meeting is called for a date that
is not within 30 days of such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth day following the first to occur of the day on which the notice of
such annual meeting was mailed or the date of the public disclosure of the date
of the annual meeting. A copy of the By-laws is maintained with the Securities
and Exchange Commission (the "Commission") as part of the Company's public
reporting obligations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be reviewed at any of the public reference facilities
maintained by the Commission. A copy of the By-laws may also be obtained free of
charge from the Company's investor relations department, which can be reached by
calling (800) 333-3377, or by writing to the Company at P. O. Box 696000, San
Antonio, Texas 78269-6000.
DIRECTORS' FEES AND RELATED INFORMATION
Directors who are not employees of the Company receive an annual retainer
of $28,000 plus $2,000 per day for attendance at each meeting of the Board.
Non-employee directors who serve on committees of the Board also receive $1,000
per day for committee meetings attended with the chairmen receiving $1,500 per
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<PAGE> 9
day for chairing meetings of those committees. Directors who are employees of
the Company are not compensated for their Board and committee service.
Under the Non-Employee Director Equity Plan all non-employee directors
receive at least one-half of their annual retainer, with an election to receive
up to 100% of such retainer, in restricted shares of Common Stock. The shares
vest in 20% increments each year over five years and carry full voting and
dividend rights from the time of grant.
In addition to the grant of restricted shares of Common Stock, all
non-employee directors receive an annual grant of options to purchase 1,000
shares of Common Stock. Except in certain situations, 100% of the options become
exercisable one year from the date they are granted and expire ten years from
the date granted. The exercise price of the options is equal to the closing
price of the Common Stock as reported on the New York Stock Exchange (the
"NYSE") on the date of grant.
BENEFICIAL OWNERSHIP OF SECURITIES
The table below sets forth the share ownership of the Company's directors
and executive officers as of the Record Date. As of that date, no director or
executive officer beneficially owned 1% or more of the Common Stock and all
directors and executive officers as a group beneficially owned approximately
1.8% of the Common Stock. Unless otherwise indicated in the footnotes to such
table, each of the named persons and members of the group has sole voting and
investment power with respect to the shares shown:
<TABLE>
<CAPTION>
UNRESTRICTED TOTAL
SHARES SHARES
RESTRICTED SHARES SUBJECT BENEFICIALLY BENEFICIALLY
NAME SHARES(1) TO OPTION(2) OWNED OWNED
---- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Byron Allumbaugh................................ 3,528 1,000 5,243(3) 9,771
E. Glenn Biggs.................................. 3,528 4,060 8,642 16,230
W. E. Bradford.................................. 3,528 4,060 3,300 10,888
H. Frederick Christie........................... 3,528 1,000 5,767(4) 10,295
W. H. Clark..................................... 3,528 4,060 1,854 9,442
Timothy J. Fretthold............................ 1,050 71,157 26,976 99,183
Jean Gaulin..................................... 0 436,500 78,277 514,777
Roger R. Hemminghaus............................ 4,665 176,386 112,055(5) 293,106
Russel H. Herman................................ 3,528 1,000 13,167 17,695
William R. Klesse............................... 1,060 74,526 38,402 113,988
Bob Marbut...................................... 3,528 4,060 12,972 20,560
Katherine D. Ortega............................. 3,528 4,060 2,726 10,314
Madeleine Saint-Jacques......................... 1,764 1,000 4,930 7,694
C. Barry Schaefer............................... 1,764 1,000 4,056(6) 6,820
H. Pete Smith................................... 0 133,700 13,576 147,276
All directors and executive officers as a group
(19 persons).................................. 39,901 1,202,655 371,996 1,614,552
</TABLE>
- ---------------
(1) Includes shares of restricted stock issued under the Long-Term Incentive
Plans of the Company, the vesting of which is contingent on the passage of
time or continued service. See "The Board of Directors and Its
Committees -- Directors' Fees and Related Information" and "Compensation of
Executive Officers."
(2) Includes shares of Common Stock which may be acquired within 60 days through
the exercise of options granted under the Long-Term Incentive Plans of the
Company. See "The Board of Directors and its Committees -- Directors' Fees
and Related Information" and "Compensation of Executive Officers."
(3) Includes 2,339 shares of Common Stock registered in the name of Byron E. And
Sharon K. Allumbaugh Revocable Trust.
(4) Includes 3,000 shares of Common Stock registered in the name of the Christie
Family Trust.
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<PAGE> 10
(5) Includes 11,872 shares of Common Stock with respect to which Mr. Hemminghaus
acts as trustee.
(6) Includes 500 shares of Common Stock registered in the name of Evelyn G.
Schaefer Trust.
The following table contains certain information regarding persons or
entities whom the Company has been advised are beneficial owners of 5% or more
of the Common Stock as of the dates indicated in the footnotes to the table.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS
------------------- ------------------- ----------------
<S> <C> <C>
The Capital Group Companies, Inc..................... 7,478,390(1) 8.5%
333 South Hope Street
Los Angeles, CA 90071
Total Finance/TOTAL.................................. 7,049,853(2) 8.04%
Tour Total
24 cours Michelet
92069 Paris, La Defense, France
Brinson Partners, Inc................................ 6,856,002(3) 7.8%
209 South La Salle St.
Chicago, IL 60604-1295
Wellington Management Company, LLP................... 6,491,671(4) 7.41%
75 State Street
Boston, MA 02109
Vanguard/Windsor Funds, Inc. -- Windsor Fund......... 5,555,100(5) 6.34%
100 Vanguard Bld.
P. O. Box 2600
Malvern, PA 19355
</TABLE>
- ---------------
(1) According to Schedule 13G filed as of December 31, 1997 with the Securities
and Exchange Commission by The Capital Group Companies, Inc., it holds sole
dispositive power with respect to 7,478,390 shares of Common Stock.
(2) According to Schedule 13D filed jointly on September 30, 1997 with the
Securities and Exchange Commission by TOTAL and Total Finance, a
wholly-owned subsidiary of TOTAL, TOTAL holds sole voting and dispositive
power with respect to 49,050 shares of Common Stock, and shares voting and
dispositive power with respect to 7,000,803 shares of Common Stock with
Total Finance.
(3) According to Schedule 13G filed as of December 31, 1997 with the Securities
and Exchange Commission by Brinson Partners, Inc. ("BPI") on behalf of
itself, Brinson Holdings, Inc. ("BHI"), SBC Holding (USA), Inc. ("SBCUSA"),
and Swiss Bank Corporation ("SBC"), BPI, BHI, SBCUSA, and SBC share
dispositive and voting power with respect to 6,856,002 shares of the Common
Stock.
(4) According to Schedule 13G filed as of December 31, 1997 with the Securities
and Exchange Commission by Wellington Management Company, LLP, it shares
voting power with its clients with respect to 482,273 shares of Common Stock
and shares dispositive power with its clients with respect to 6,491,671
shares of Common Stock.
(5) According to Schedule 13G filed as of December 31, 1997 with the Securities
and Exchange Commission by Vanguard/Windsor Funds, Inc., it holds sole
voting and shares dispositive power with respect to 5,555,100 shares of
Common Stock.
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<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
FIVE YEAR CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total stockholder return on the
Common Stock with the Standard & Poor's 500 Stock Index, and a peer group (the
"Peer Group") of nine industry-related companies for the period July 6, 1992 to
December 31, 1997, assuming an initial investment of $100, and the reinvestment
of all dividends.
The Peer Group includes the stock of nine industry-related companies:
Ashland, Inc., Coastal Corp., Crown Central Petroleum Corporation, Giant
Industries, Inc., Holly Corporation, Sun Company, Inc., Tosco Corporation,
USX-Marathon Group, and Valero Energy Corporation. The returns of each Company
in the Peer Group have been weighted according to the respective Company's stock
market capitalization. Data relating to Total Petroleum (North America) Ltd.
("Total"), which was previously a member of the Peer Group, has been omitted
insofar as Total was acquired by the Company in September 1997.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ULTRAMAR DIAMOND SHAMROCK CORPORATION, THE STANDARD & POOR'S 500 STOCK
INDEX, AND A PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ULTRAMAR DIAMOND
(FISCAL YEAR COVERED) SHAMROCK CORPORATION PEER GROUP STANDARD & POOR'S 500
<S> <C> <C> <C>
12/92 100 100 100
12/93 144 112 110
12/94 151 111 112
12/95 159 135 153
12/96 204 176 189
12/97 212 248 252
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation and benefit program is administered by
the Compensation Committee. The Compensation Committee is composed of five
independent "non-employee directors" as that term is defined in Section 16(b) of
the Exchange Act and related rules, who are also "outside directors" as that
term is defined in Section 162(m) ("Section 162(m)") of the Internal Revenue
Code of 1986, as amended (the "Code").
8
<PAGE> 12
COMPENSATION POLICY AND OBJECTIVES
The executive compensation program is designed to (i) provide competitive
compensation to attract, motivate, and retain executives with superior skills
and abilities; (ii) align the immediate financial goals of executives with those
of shareholders by linking a significant portion of all executives' annual
compensation directly to shareholders' return and corporate performance for the
year; and (iii) align the long-term economic interests of executives with those
of the Company's shareholders by encouraging executives to become long-term
shareholders by providing a significant portion of their compensation in stock
options.
These goals are achieved through the structuring and integrated
administration of the Company's base salary, annual incentives, and long-term
incentives based on pre-established guidelines and targets.
ELEMENTS OF COMPENSATION
Base Salary. The Compensation Committee annually reviews competitive base
salary data of an industry group composed of companies comparable in size to the
Company prepared by nationally recognized independent compensation consultants.
In determining the Chief Executive Officer's base salary for 1997, the
Compensation Committee targeted the median base salary for chief executive
officers among the companies used in the competitive base salary data. In
determining the President and Chief Operating Officer's base salary for 1997,
the Compensation Committee considered the provisions contained in the employment
contracts of the Chief Executive Officer and the Chief Operating Officer which
provide that the Chief Executive Officer will be succeeded in that position by
the Chief Operating Officer at the end of 1998, and provided a base salary which
is identical to that of the Chief Executive Officer. In determining the 1997
base salaries for the remainder of the executive officers, the Compensation
Committee reviewed data reflecting the compensation of executives who hold
positions of similar overall scope and level of responsibility targeting the
median of the competitive market base salaries reflected in the data.
Annual Incentive Plan. The 1997 Annual Incentive Plan ("AIP") was used by
the Company for 1997 annual incentive compensation in the form of an AIP bonus.
For the Chief Executive Officer and President and Chief Operating Officer,
incentive compensation under the 1997 AIP was based 60% on the Company's Total
Shareholder Return ("TSR") versus the TSR of the Peer Group and 40% on the
Company earnings before interest, taxes, depreciation, and amortization
("EBITDA"). In calculating the EBITDA component of the award, 50% of the
component was adjusted to remove market-related margin volatility in order to
recognize improvements in the Company's productivity. For other senior
executives, incentive compensation was based 40% on the Company's TSR versus
that of the Peer Group, 40% on EBITDA targets for the Company, and 20% on
individual performance based on pre-agreed objectives. The form in which annual
incentive awards are paid will be subject to the Company's minimum share
ownership guidelines after a three-year transition period ending January 1,
2000. Under the guidelines, the Chief Executive Officer and the Chief Operating
Officer are each expected to own shares of Common Stock equal in value to three
times their annual base salary, other executive committee members are expected
to own Common Stock with value equal to two times their annual base salary, and
other annual incentive plan participants are expected to own Common Stock with
value equal to their annual base salary. Annual incentive plan participants are
permitted to count Common Stock which they own outright, Common Stock they own
indirectly (e.g. through trusts or similar arrangements, including employee
stock plans), and Common Stock they own subject to restriction. Senior managers
below the level of vice president are also permitted to include the value of
vested options to purchase Common Stock. After January 1, 2000, annual incentive
awards will be paid 75% in cash and 25% in restricted stock unless minimum share
ownership policy requirements are met.
Long-Term Incentive Plan. The Long-Term Incentive Plan (the "1996 LTIP")
was adopted by the Board and approved by the Company's shareholders at the time
of the Merger. Award levels under the 1996 LTIP are developed to be competitive
with market median long-term incentive values (on an annualized basis) and to
provide an opportunity to meet stock ownership requirements.
Awards to the executive officers under the 1996 LTIP have consisted of
"front-loaded" options, the vesting of which is accelerated by significant
increases in the price of the Common Stock, and traditional options vesting over
three years in increments of 30%, 30%, and 40%, respectively.
9
<PAGE> 13
Compensation of Mr. Hemminghaus as Chairman of the Board and Chief
Executive Officer. Mr. Hemminghaus' compensation package is designed to
encourage short and long-term performance in line with the interests of the
Company's shareholders. The majority of his compensation is at risk, in the form
of annual bonus and stock options. Mr. Hemminghaus' annual base salary for 1997
was $725,000, which is at the median level for chief executives of companies
included in the industry group base salary data reviewed by the Compensation
Committee, and is consistent with base salaries paid to the Chairmen and Chief
Executive Officers of other corporations comparable in size and complexity to
the Company. He received an AIP Bonus of $507,600, based on the Company's TSR
and EBITDA for 1997. No awards were made to Mr. Hemminghaus under the 1996 LTIP
in 1997.
INTERNAL REVENUE SERVICE RULES
The Internal Revenue Service has issued regulations under Section 162(m),
as amended, which generally disallows a federal income tax deduction to any
publicly-held corporation for compensation paid in excess of $1 million in any
taxable year to the Chief Executive Officer or any of the four other most highly
compensated executive officers, unless such compensation is paid pursuant to a
qualified "performance-based compensation" plan, the material terms of which are
disclosed to and approved by stockholders.
The Board has considered these requirements and the regulations. While the
tax impact of any compensation arrangement is one factor to be considered, such
impact is evaluated by the Board in light of the Company's overall compensation
philosophy and objectives. The Company has established incentive plans which
permit stock awards that meet the requirements of Section 162(m) and hence will
maximize the Company's federal income tax deductions for compensation expense.
However, the Board believes there are circumstances in which the Company's and
stockholders' interests are best served by providing compensation which may not
always be fully deductible, and that its ability to exercise discretion
outweighs the advantages of qualifying all compensation under Section 162(m).
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
C. Barry Schaefer, Chairman
Byron Allumbaugh
W. E. Bradford
W. H. Clark
Madeleine Saint-Jacques
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
The Summary Compensation Table presents the compensation of the Chief
Executive Officer and each of the four most highly compensated executive
officers of the Company in each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
---------------------------------- -------------------------------------
NUMBER OF
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR (1) (1)(2) (3) (4) GRANTED(#)(5) (6) (7)
------------------ ---- -------- -------- ------------ ---------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger R. Hemminghaus 1997 $725,000 $507,600 $13,378 $ 0 23,743 $ 0 $176,686
Chairman and Chief 1996 616,667 500,000 6,395 0 647,717 822,000 132,432
Executive Officer 1995 551,254 275,600 7,619 57,566 48,562 238,370 120,549
Jean Gaulin 1997 725,000 507,600 6,461 0 35,425 0 58,850
Vice Chairman,
President, 1996 669,767 443,333 0 0 480,000 0 29,100
and Chief Operating 1995 665,000 194,513 0 0 126,500 0 19,950
Officer
Timothy J. Fretthold 1997 335,000 214,400 4,251 0 1,419 0 50,059
Executive Vice President 1996 264,583 175,000 1,131 0 185,873 225,000 35,049
and Chief Administrative 1995 241,752 90,000 1,230 13,388 10,300 80,967 30,838
and Legal Officer
William R. Klesse 1997 335,000 217,400 5,082 0 1,957 0 54,104
Executive Vice President 1996 292,083 175,000 1,302 0 178,484 281,000 39,798
1995 260,250 105,000 2,568 13,685 16,992 80,967 34,493
H. Pete Smith 1997 335,000 214,400 5,267 0 0 0 167,490
Executive Vice President 1996 302,781 134,000 0 0 134,000 0 14,111
and Chief Financial 1995 300,000 51,188 0 0 26,500 0 9,000
Officer
</TABLE>
- ---------------
(1) Includes amounts which have been deferred under the Company's 401(k)
Retirement Savings Plans and Nonqualified 401(k) Plan available to former
Diamond employees. Under the Nonqualified 401(k) Plan available to former
Diamond employees, participants are permitted to defer receipt of
compensation in addition to deferrals under the 401(k) Plans. Such
deferrals are not permitted under the Nonqualified 401(k) plan available to
other Company employees.
(2) Reflects incentive-based cash bonuses awarded under the Company's annual
incentive plan. Awards under that plan are reported as compensation in the
year with respect to which the award was earned, even if actually paid in
the following year. The figures shown include amounts deferred under the
401(k) Plans and Nonqualified 401(k) Plan available to former Diamond
employees. See Footnote 1 above.
(3) Reimbursement of executive officers for federal income tax and medicare tax
relating to various benefits plans and premiums paid for group life
insurance in excess of $50,000. Perquisites and other personal benefits
received by the executive officers are not included because the aggregate
amount of such compensation, if any, does not exceed the lesser of $50,000
or 10% of the total amount of annual salary and bonus for any named
individual.
(4) Unvested shares of restricted stock may not be sold or transferred. The
shares otherwise carry full voting rights and dividends are paid on
restricted stock awards from the time of grant at the same rate as paid to
all stockholders. The total amount of restricted stock held by each of the
named executive officers and the fair market value of such shares as of
December 31, 1997, without reducing such market value for restrictions on
transfer was as follows: Mr. Hemminghaus, 4,665 shares, $148,697; Mr.
Fretthold, 1,050 shares, $33,469 and Mr. Klesse, 1,060 shares, $33,788.
(5) Options granted in 1997 to Messrs. Hemminghaus, Gaulin, Fretthold, and
Klesse, consist of reload options granted upon exercise of the associated
option. Options granted in 1996 and 1995 to Messrs. Hemminghaus, Fretthold,
and Klesse include reload options granted upon exercise of the associated
option. See footnote (2) to table entitled "Option Grants in Last Fiscal
Year."
(6) Long-Term Incentive Plan payouts included in this column for Mr.
Hemminghaus, Mr. Fretthold, and Mr. Klesse include the payout of performance
units that were granted by Diamond in 1994, 1995, and
11
<PAGE> 15
1996. One-third of the payment on 1994 performance units was paid in Common
Stock. Long-Term Incentive Plan payouts for Messrs. Hemminghaus, Fretthold,
and Klesse also include the dollar value of performance-restricted Common
Stock granted by Diamond in 1991, 1992, and 1993 which vested in 1995.
(7) Includes the following compensation paid or accrued under benefit plans
maintained by the Company:
(a)Above-market interest accrued on amounts deferred by Messrs.
Hemminghaus, Fretthold, and Klesse, under the Diamond Deferred
Compensation Plan: Mr. Hemminghaus $40,500, Mr. Fretthold $4,178, and
Mr. Klesse $6,237.
(b)Annual allocations or accruals in the last fiscal year under the
Company's Employee Stock Ownership Plans and related Excess Benefits
Plan: Mr. Hemminghaus $65,002, Mr. Fretthold $26,585, and Mr. Klesse
$27,874. The Company's Employee Stock Ownership Plans were terminated in
November 1997.
(c)The supplemental disability income program for executive officers of the
Company employed prior to the Merger provides those executive officers
an amount equal to 60% of base compensation less any amount received by
such officer under any other long-term disability plan sponsored by the
Company for employees generally. The supplemental disability income
program for former Diamond executives provides participants with an
amount equal to 66 2/3% of base compensation less an amount received by
such executive under any other long-term disability plan sponsored by
the Company for employees generally. Annual premiums paid or accrued in
the last fiscal year by the Company to fulfill its obligations under the
supplemental disability income program relating to the named executive
officers were: Mr. Hemminghaus $5,272, Mr. Gaulin $9,784, Mr. Fretthold
$1,137, Mr. Klesse $1,278, and Mr. Smith $1,008.
(d)Premiums paid or accrued in the last fiscal year under the executive
life insurance program for executive officers relating to the named
executive officers were: Mr. Hemminghaus $28,934, Mr. Gaulin $12,088,
Mr. Fretthold $1,677, and Mr. Klesse $2,143.
(e)Matching contributions to participants' 401(k) accounts, and amounts
awarded by the Company under its Nonqualified 401(k) savings plans under
which amounts are awarded which may not be awarded under the Company's
qualified 401(k) plans due to limitations imposed by the Code.
Contributions made to the accounts of the named executive officers in
1997 were: Mr. Hemminghaus $36,978, Mr. Gaulin $36,978, Mr. Fretthold
$16,482, Mr. Klesse $16,572, and Mr. Smith $16,482.
(f)Mr. Smith received a relocation incentive payment of $150,000 in
connection with his relocation to the Company's new headquarters after
the Merger was completed.
12
<PAGE> 16
STOCK OPTIONS
The tables below set forth information regarding stock options, including
options granted upon exercise of reload rights, granted to and exercised by the
named executive officers in the last fiscal year, and the value of unexercised
options and related rights held by such executive officers at the end of the
fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------
PERCENT OF GRANT DATE VALUE
NUMBER OF TOTAL ------------------------
SECURITIES OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANT DATE(1) GRANTED(#) FISCAL YEAR ($/SH)(2) DATE ($)(3)
---- ------------- ---------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger R. Hemminghaus.. 06/03/97 5,000 2.46 $33.125 02/06/05 $ 36,040.00
06/03/97 4,875 2.40 33.125 07/31/05 35,736.49
06/03/97 13,868 6.82 33.125 02/05/06 103,865.25
Jean Gaulin........... 07/31/97 35,425 17.42 33.875 07/21/02 204,723.73
Timothy J.
Fretthold........... 06/10/97 1,419 .70 33.500 02/06/05 10,296.41
William R. Klesse..... 06/03/97 1,957 .96 33.125 02/06/05 14,106.06
H. Pete Smith......... 0 0 0 0 0 0
</TABLE>
- ---------------
(1) Grants of options to purchase Common Stock were made throughout the year
under various long term incentive plans of the Company upon the exercise of
reload rights relating to already existing options.
(2) Exercise price based on the closing sales price on the NYSE on the date of
grant. The exercise price for options to purchase Common Stock was
determined by reference to the closing price of the Common Stock on the date
preceding the date of grant.
(3) Value is based on the Black-Scholes option pricing model, in which data
relating to the volatility and dividend yield of the Common Stock is used,
based upon actual experience. For reload options with terms of less than 10
years, the assumptions are .1923 and .1953 for the annualized volatility and
4.02% for the annual dividend yield. The risk-free rates of interest for
reload options with terms of less than 10 years range from 5.85% to 6.73%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY
ACQUIRED UNDERLYING UNEXERCISED OPTIONS
ON VALUE OPTIONS AT 12/31/97 AT FISCAL YEAR END($)
NAME EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Roger R. Hemminghaus......... 29,152 $ 179,249 208,575/593,723 $ 998,754/$1,079,879
Jean Gaulin.................. 80,000 1,510,00 436,500/385,425 3,108,313/ 612,500
Timothy J. Fretthold......... 2,020 20,141 59,619/165,540 284,751/ 315,848
William R. Klesse............ 2,754 26,426 63,213/161,022 301,177/ 309,077
H. Pete Smith................ 0 0 133,700/102,800 1,311,413/ 179,900
</TABLE>
- ---------------
(1) Year-end value for options was calculated based on the market value of the
underlying shares at December 31, 1997.
13
<PAGE> 17
BENEFIT PLANS
The Company maintains a tax-qualified defined benefit pension plan (the
"Qualified Plan") for participating Company employees working in the United
States. Benefits are based upon formulae that take into account (i) the
participant's years of service with the Company (and its prior controlled group
for some participants), (ii) the average of a participant's compensation
(consisting of salary and bonus) during such participant's three highest-paid
consecutive years of service out of the participant's most recent five years of
service with the Company (or the prior controlled group, if higher) and (iii)
for certain participants, the benefit formula in effect under pension plans
maintained by businesses acquired by the Company. In general, a participant
accrues a benefit of 1.6% of plan compensation for each year of service.
Retirement benefits payable under the Qualified Plan are offset by pensions paid
by other employers if the participant's years of service with that employer are
taken into account in determining such participant's benefits under the
Qualified Plan.
Supplemental Non-Qualified Retirements Plans of the Company. The Company
maintains a supplemental nonqualified defined benefit pension plan (the
"Nonqualified Plan") to provide supplemental retirement benefits to certain
executives designated by the Compensation Committee, including Mr. Gaulin and
Mr. Smith out of the named executives. The Nonqualified Plan provides
participants with benefits not payable from the Qualified Plan because of limits
imposed by the Code. A Participant who retires at or after age 62 receives a
benefit of no less than 60% of average annual compensation for the three
highest-paid consecutive years of service out of the most recent five, less the
amount of any other retirement benefits payable from any other source.
The following table illustrates the yearly pension commencing at age 62
(which is not offset for social security), assuming a two-thirds joint annuity
with ten years certain, that may become payable to an employee in the higher
salary classifications out of the Qualified Plan and the Nonqualified Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ANNUAL ----------------------------------------------------
COMPENSATION(1) 15 20 25 30 35
- --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000............................. $ 81,000 $108,000 $135,000 $162,000 $189,000
400,000............................ 108,000 144,000 180,000 216,000 252,000
500,000............................ 135,000 180,000 225,000 270,000 315,000
600,000............................ 162,000 216,000 270,000 324,000 378,500
700,000............................ 189,000 252,000 315,000 378,000 441,000
800,000............................ 216,000 288,000 360,000 432,000 504,000
900,000............................ 243,000 324,000 405,000 486,000 567,000
1,000,000............................ 270,000 360,000 450,000 540,000 630,000
1,100,000............................ 297,000 396,000 495,000 594,000 693,000
1,200,000............................ 324,000 432,000 540,000 648,000 756,000
1,300,000............................ 351,000 459,000 567,000 675,000 783,000
1,400,000............................ 378,000 486,000 594,000 702,000 810,000
1,500,000............................ 405,000 513,000 621,000 729,000 837,000
</TABLE>
- ---------------
(1) As of December 31, 1997, the average highest compensation received for any
three consecutive years of service of the most recent five, and credited
years of service for the executives named in the Summary Compensation Table
entitled to receive benefits under both the Qualified Plan and the
NonQualified Plan, were Mr. Gaulin $1,068,471, 24 years; and Mr. Smith,
$445,656, 17 years.
Diamond Retirement Plans. Former Diamond executives, including Messrs.
Hemminghaus, Fretthold, and Klesse, continue to accrue benefits under certain
executive retirement programs of Diamond which were in place prior to the
Merger. The plans under which such executives continue to accrue benefits are
the Diamond Supplemental Executive Retirement Plan and the Diamond Excess
Benefits Plan.
14
<PAGE> 18
The Supplemental Executive Retirement Plan provides additional benefits to
eligible former Diamond executives and Diamond employees. The Supplemental
Executive Retirement Plan benefit is calculated on the basis of 60% of the
average of the highest compensation the executive officer received over any
three years during the last 10 years of employment with the Company and Diamond.
A reduction is made to eliminate benefits payable under the Qualified Plan and
under any defined benefit plan of previous employers. Benefits under the
Supplemental Executive Retirement Plan are secured under a trust arrangement
subject to claims of general creditors of the Company.
The Pension Plan Table below estimates the combined annual benefits payable
by operation of such plans to a participant upon retirement based on the
specified compensation and years of service combinations indicated without
reduction for benefits payable by previous employers.
PENSION PLAN TABLE
(DIAMOND RETIREMENT PLANS)
<TABLE>
<CAPTION>
ESTIMATED ANNUAL COMBINED BENEFITS CREDITED FOR YEARS OF
SERVICE INDICATED($)(2)
---------------------------------------------------------
EARNINGS CREDITED($)(1) 15 20 25 30 35
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 250,000............................... $150,000 $150,000 $150,000 $150,000 $150,000
300,000.............................. 180,000 180,000 180,000 180,000 180,000
400,000.............................. 240,000 240,000 240,000 240,000 240,000
500,000.............................. 300,000 300,000 300,000 300,000 300,000
600,000.............................. 360,000 360,000 360,000 360,000 360,000
700,000.............................. 420,000 420,000 420,000 420,000 420,000
800,000.............................. 480,000 480,000 480,000 480,000 480,000
900,000.............................. 540,000 540,000 540,000 540,000 540,000
1,000,000.............................. 600,000 600,000 600,000 600,000 600,000
1,100,000.............................. 660,000 660,000 660,000 660,000 660,000
1,200,000.............................. 720,000 720,000 720,000 720,000 720,000
1,300,000.............................. 780,000 780,000 780,000 780,000 780,000
1,400,000.............................. 840,000 840,000 840,000 840,000 840,000
1,500,000.............................. 900,000 900,000 900,000 900,000 900,000
</TABLE>
- ---------------
(1) Earnings credited include salary and bonus paid within a calendar year. At
December 31, 1997, the average of the highest compensation received by the
executive officers named in the Summary Compensation Table currently
entitled to benefits under the Diamond Plans over any three years during the
last ten years of employment with the Company and Diamond and their credited
years of service were Mr. Hemminghaus, $1,015,367, 14 years; Mr. Fretthold,
$422,129, 21 years; and Mr. Klesse, $436,911, 29 years.
(2) Amounts shown in the Pension Plan Table represent the maximum defined
benefit values payable under the executive retirement program. Benefits are
calculated without offset for social security benefits or reduction for
benefits payable by previous employers. Whether these amounts actually
become payable in whole or in part depends on the contingencies and
conditions governing such plans, including the individual's age, date of
hire, term of service as an executive officer, career earnings, amount of
certain other pension plan payments, and related supplemental retirement
payments received from former employers.
The Diamond Excess Benefits Plan provides non-qualified benefits to former
Diamond executives and employees in place of reductions of qualified ESOP
benefits resulting from various statutory limitations imposed by the Code and
the deferral of compensation through the Diamond Deferred Compensation Plan, the
Company's 401(k) Plans, and the Nonqualified 401(k) Plan available to former
Diamond employees. Until November 1997 most former Diamond employees were
entitled to receive distributions under two ESOPs created by Diamond prior to
the Merger. To the extent a portion of such employees' compensation was
ineligible for consideration in the annual calculation of distributions under
the ESOPs, an allocation
15
<PAGE> 19
equivalent to that attributable to the ineligible compensation was made under
the Diamond Excess Benefits Plan. Both ESOPs were terminated in November 1997.
Benefits are secured under a trust arrangement which is subject to claims of
general creditors of the Company.
INDEBTEDNESS OF MANAGEMENT
Diamond Employee Stock Purchase Loan Program. This program was in effect
prior to the Merger to encourage common stock purchases by key Diamond
employees, by providing loans up to the lesser of $300,000 or 100% of their
annual base salary to buy Diamond common stock on the open market. The interest
rate is adjusted annually during the term of the loan to the lesser of the AFR
as of the date of such adjustment, the initial AFR rate on all loans, or the
weighted average rate of the current loans outstanding. As of March 15, 1998,
rates of interest on loans to executive officers ranged from 4.85% to 5.44% with
the AFR being 5.39%. Interest is payable annually and principal is repayable in
five annual installments of 20% commencing on the fifth anniversary of the
borrowing. The program has not been reactivated since the Merger. The highest
amounts outstanding at any time during the last fiscal year under the Program
and the amount outstanding on March 15, 1998 on loans to the executive officers
of the Company which at any time during 1997 exceeded $60,000 were: Mr. Beadle,
the Company's Senior Vice President, Corporate Development, $104,515 and
$42,295, respectively; Mr. Hemminghaus, $149,925 and $80,235, respectively; and
Mr. Klesse, $101,400 and $30,650, respectively.
Other Indebtedness of Management. In order to assist certain key executives
of the Company in relocating to the various areas in which the Company maintains
offices, the Company has a program for its executive officers and senior
managers who are relocated by the Company pursuant to which the Company will
provide ten-year, secured, non-interest bearing loans to be used to purchase a
primary residence. During 1992, in connection with his relocation, the Company
made such a loan to Mr. Smith. The highest amount outstanding on Mr. Smith's
loan since January 1, 1997 was $247,500, and $206,250 was outstanding on Mr.
Smith's loan on March 15, 1998. In addition, in June 1996, in connection with
his relocation, the Company made a similar loan to Christopher Havens, the
Company's Senior Vice President-Retail Marketing, in the amount of $397,500. The
Company subsequently made a second loan for similar purposes to Mr. Havens, in
the amount of $397,500. All of the initial loan and a portion of the second loan
was repaid during 1997. The highest amount outstanding on Mr. Havens' loans
since January 1, 1997 was $795,000, and $357,750 was outstanding on Mr. Havens'
loan on March 15, 1998. On August 12, 1997, the Company made a loan of $397,500
to Alain Ferland, the Company's Senior Vice President, Refining, Product Supply,
and Logistics -- Northeast in connection with his relocation to the Company's
headquarters. The highest amount outstanding on Mr. Ferland's loan since January
1, 1997 was $397,500, and $397,500 was outstanding on Mr. Ferland's loan on
March 15, 1998.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into employment agreements with each of the named
executive officers for a term of three years, except for Messrs. Hemminghaus and
Gaulin, with whom the Company has entered into employment agreements providing
for five year terms, as described below (collectively the "Executive Employment
Agreements"). Under the Executive Employment Agreements, termination of an
executive without "cause," or voluntarily termination for "good reason," will
result in a lump sum payment equal to three times his highest annual base salary
and annual incentive compensation during the three years prior to termination.
The Executive Employment Agreements define "cause" as a finding that the
executive (i) committed an illegal act intended to and which did defraud the
Company, (ii) engaged in gross negligence or gross misconduct in carrying out
his duties, or (iii) breached certain noncompete, no solicitation, and
confidentiality covenants. The Executive Employment Agreements define "good
reason" as (a) a breach by the Company of a material provision of the Executive
Employment Agreement, (b) certain material reductions of the executive's
aggregate benefits, and (c) following a change in control, termination of
employment for any reason during the 13 months following the change. For
executives employed by the Company prior to
16
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December 3, 1996, good reason will also include, if such executive has relocated
to the Company's principal place of business prior to Mr. Gaulin becoming Chief
Executive Officer, termination by the executive for any reason within 120 days
after the involuntary termination of Mr. Gaulin's employment prior to January 1,
1999, or if Mr. Gaulin does not become Chief Executive Officer by such date.
Under the terms of Mr. Smith's Executive Employment Agreement and the
related Relocation Agreement, Mr. Smith is permitted to voluntarily terminate
his employment effective June 1, 2000 by giving written notice to the Company on
or before March 1, 2000. Such termination will be treated as a termination for
"good reason" under Mr. Smith's Executive Employment Agreement, except that,
instead of a lump sum equal to three times his highest annual base salary and
annual incentive compensation during the three years prior to termination, Mr.
Smith will be entitled to receive a lump sum payment equal to three times his
highest annual base salary and annual incentive compensation for 1995, 1996, and
1997, less $150,000.
With respect to the Executive Employment Agreement of Mr. Hemminghaus ("the
CEO Agreement"), the Agreement provides that he will serve as Chief Executive
Officer of the Company until December 31, 1998 (the "CEO Employment Term"), and
will remain Chairman of the Board of the Company for three additional years.
Should Mr. Hemminghaus be terminated prior to December 31, 1998, other than for
"cause" or by voluntary termination (other than for death or disability), he
will be credited with additional years of age and service under the Company's
supplemental executive retirement plan as if he remained employed until December
31, 2001. Also, should Mr. Hemminghaus be involuntarily terminated, without
"cause," or should he voluntarily terminate for a "good reason," his termination
benefits will also include a lump sum payment equal to the aggregate fees which
would have been payable for the Consulting Term (as described below). The CEO
Agreement includes in the definition of "good reason" the removal of Mr.
Hemminghaus from the position of Chief Executive Officer of the Company prior to
December 31, 1998.
Upon expiration of Mr. Hemminghaus' employment with the Company, unless Mr.
Hemminghaus' employment with the Company has terminated prior to such date other
than on account of a voluntary termination, he will become a consultant to the
Company for a three-year "consulting term." Mr. Hemminghaus will be paid a
consulting fee during the Consulting Term equal to one-half of his highest
annual base salary during the CEO Employment Term. If the consulting arrangement
is terminated during the Consulting Term for any reason other than a voluntary
termination by Mr. Hemminghaus, he will be entitled to a lump sum payment equal
to the unpaid consulting fees for the remainder of the Consulting Term. For this
purpose, a voluntary termination will not include termination on account of
death, disability, removal of Mr. Hemminghaus from his position as Chairman of
the Board, a change in control, or, under certain circumstances, relocation of
the Company's principal executive offices.
With respect to the Executive Employment Agreement of Mr. Gaulin (the "COO
Agreement"), the Agreement provides that, from the effective date of the Merger,
Mr. Gaulin will be the Vice-Chairman of the Board, President, and Chief
Operating Officer of the Company. Upon expiration of Mr. Hemminghaus' CEO
Employment Term, the COO Agreement provides that Mr. Gaulin will become Chief
Executive Officer of the Company. The initial term of the COO Agreement is five
years and it will be automatically renewed, subject to any prior termination,
for successive one-year periods on December 3, 2001 and each anniversary
thereafter unless either party gives at least three months' prior notice of
non-renewal. The other terms of the COO Agreement, including base salary and
severance benefits, are substantially the same as those in the CEO Agreement,
except that the COO Agreement (i) does not provide for continuing consulting
services following termination, (ii) provides for enhanced retirement benefits
under the Company's nonqualified and qualified retirement plans only upon an
involuntary termination of employment without cause (including a voluntary
termination with good reason), (iii) "good reason," in the absence of a change
in control, includes non-renewal of the COO Agreement by the Company, a
significant reduction in Mr. Gaulin's duties, any addition of inconsistent
duties, failure to elect Mr. Gaulin as Chief Executive Officer of the Company by
January 1, 1999, and failure to elect Mr. Gaulin as Chairman of the Board of the
Company by January 1, 2002, and (iv) if Mr. Gaulin's employment is terminated
prior to December 3, 1998, Mr. Gaulin also will be entitled to payment of
expenses to relocate from San Antonio to any other location in the continental
United States.
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<PAGE> 21
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM 2 ON THE PROXY)
The Board has selected Arthur Andersen LLP ("Arthur Andersen") to serve as
the Company's independent accountants to audit the consolidated financial
statements of the Company for 1998. Stockholders are being asked to ratify this
appointment. The Company has been informed that neither Arthur Andersen nor any
of its partners has any direct financial interest or any material indirect
financial interest in the Company or has had any connection during the past
three years with the Company or its predecessors in the capacity of promoter,
underwriter, voting trustee, director, officer, or employee.
On March 4, 1997, upon the recommendation of the Audit Review Committee,
the Board unanimously selected Arthur Andersen to serve as the Company's
independent accountants, replacing Ernst & Young LLP ("Ernst & Young"). Ernst &
Young served as the Company's independent accountants for the two year period
ended December 31, 1996. In their report for the fiscal year ended December 31,
1996, Ernst & Young expressed reliance upon the report of Price Waterhouse LLP
("Price Waterhouse") with respect to the audit by Price Waterhouse of a
significant portion of the operations of the Company. Neither of the reports of
Ernst & Young or Price Waterhouse for the year ended December 31, 1996, were
qualified or modified as to uncertainty, audit scope, or accounting principle,
except with respect to the Company's change in its method of accounting for
refinery maintenance turnaround costs discussed in Note 5 to the Company's
consolidated financial statements for the year ended December 31, 1996. The
report of Arthur Andersen for the year ended December 31, 1997 was not qualified
or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the two fiscal years ended December 31,
1996 and the subsequent interim period through March 4, 1997, there were no
disagreements ("Disagreements"), as defined in Item 304 (a)(1)(iv) and the
Instructions to Item 304 of Regulation S-K promulgated pursuant to the
Securities and Exchange Act of 1934, as amended ("Regulation S-K"), between the
Company and Ernst & Young or Price Waterhouse on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which, if not resolved to their satisfaction, would have caused
either Ernst & Young or Price Waterhouse to make reference in their report to
the subject matter of the Disagreement.
In connection with the audits of the two fiscal years ended December 31,
1996, and the subsequent interim period through March 4, 1997, there were no
reportable events ("Reportable Events") as defined in Item 304(a)(1)(v) of
Regulation S-K.
At no time preceding March 4, 1997 has the Company consulted with Arthur
Andersen on matters regarding (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might by rendered on the Company's financial statements, or (ii)
any matter that was the subject of a Disagreement with Ernst & Young or Price
Waterhouse or which was a Reportable Event.
A representative of Arthur Andersen is expected to be present at the Annual
Meeting with the opportunity to make a statement, if such representative desires
to do so, and to be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Annual Meeting and voting on this proposal is required
to ratify the appointment of Arthur Andersen as independent accountants for
1998.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR SUCH RATIFICATION. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR
PROXIES A CONTRARY CHOICE.
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<PAGE> 22
OTHER BUSINESS
The Board does not know of any business to be presented for consideration
at the Annual Meeting, or any adjournment thereof, other than as stated in the
Notice of Annual Meeting. It is intended, however, that the persons authorized
under the Board's proxies may, in the absence of instructions to the contrary,
vote or act in accordance with their judgment with respect to any other proposal
properly presented for action at such meeting. The affirmative vote of the
holders of a majority of the shares of Common Stock represented at the Annual
Meeting, or any adjournment thereof, and actually voted would be required with
respect to any such matter brought to a stockholder vote.
MISCELLANEOUS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The rules of the Securities and Exchange Commission require that the
Company disclose late filings of reports pertaining to ownership of and
transactions in stock of the Company by the Company's directors and executive
officers. To the best of the Company's knowledge there were no such late filings
in 1997.
SUBMISSION OF PROPOSALS BY STOCKHOLDERS
In order to be eligible for inclusion in the Company's proxy statement for
the 1999 Annual Meeting of Stockholders any proposal of a stockholder must be
received by the Company at its principal executive offices in San Antonio, Texas
by December 1, 1998.
PROXY SOLICITATION
In addition to soliciting proxies by mail, directors, executive officers,
and employees of the Company, without receiving additional compensation, may
solicit proxies by telephone, by telegram, by telecopy, or in person.
Arrangements will also be made with brokerage firms and other custodians,
nominees, and fiduciaries to forward solicitation materials to the beneficial
owners of shares of Common Stock, and the Company will reimburse such brokerage
firms and other custodians, nominees, and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection with forwarding such
materials. The Company has retained Morrow & Company, Inc. to aid in the
solicitation of proxies. The fee to be paid by the Company to such firm is
estimated to be $10,000 plus reimbursement for out-of-pocket costs and expenses.
BY ORDER OF THE BOARD OF DIRECTORS
Curtis V. Anastasio
Vice President, General Counsel, and
Secretary
San Antonio, Texas
March 30, 1998
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<TABLE>
<S> <C>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE ULTRAMAR DIAMOND SHAMROCK CORPORATION
For With- For All
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 1. Election of 4 directors, each for a hold Except
FOR THE ANNUAL MEETING ON MAY 5, 1998 three-year term expiring in 2001: [ ] [ ] [ ]
The undersigned hereby appoints Roger R. Hemminghaus, Nominees: W.E. Bradford, Roger R. Hemminghaus,
Jean Gaulin, and Curtis V. Anastasio, and any of them, Russel H. Herman, and C. Barry Schaefer
each with full power of substitution and resubstitution,
as proxies to represent and to vote all shares which INSTRUCTION: To withhold authority to vote for any individual
the undersigned may be entitled to vote as of the record nominee, mark "For All Except" and write that nominee's name in
date at the Annual Meeting of Stockholders of Ultramar the space provided below.
Diamond Shamrock Corporation to be held on May 5, 1998,
and any adjournment thereof.
----------------------------------------------------------------
The following items of business to be acted upon are
listed in the Notice of Annual Meeting and described in
the Proxy Statement:
2. Ratification of appointment of Arthur For Against Abstain
Andersen, L.L.P. as independent [ ] [ ] [ ]
accountants.
The Board of Directors' recommends a vote FOR items 1 and 2.
You may specify your choices on the items by marking the
appropriate boxes. You need not mark any boxes if you wish to
vote in accordance with the Board of Director's recommendations.
Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such.
--------------
Please be sure to sign and date Date
this Proxy in the box below.
- -----------------------------------------------------
- -----------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
+ +
- ------------------------------------------------------------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE ULTRAMAR DIAMOND SHAMROCK CORPORATION
For With- For All
The Solicitation of these Confidential Voting Instructions 4 1. Election of 4 directors, each for a hold Except
is made on behalf of the Board of Directors three-year term expiring in 2001: [ ] [ ] [ ]
The undersigned as a participant in one or both Ultramar 0 Nominees: W.E. Bradford, Roger R. Hemminghaus,
Diamond Shamrock Corporation Employee Stock Ownership Plans Russel H. Herman, and C. Barry Schaefer
(the "ESOP Plans"), and/or the Ultramar Diamond Shamrock
Corporation 401(k) Plans (along with the ESOP Plans, 1 INSTRUCTION: To withhold authority to vote for any individual
collectively the "Plans") hereby instructs the Trustee of nominee, mark "For All Except" and write that nominee's name in
the respective Plans to appoint Roger Hemminghaus, Jean the space provided below.
Gaulin, and Curtis V. Anastasio, and each of them, with full (K)
power of substitution, the attorney and proxy of the said --------------------------------------------------------------------
Trustee to represent the interests of the undersigned in
Ultramar Diamond Shamrock Corporation Common Stock held E 2. Ratification of appointment of Arthur For Against Abstain
under the terms of said Plan(s), at the Annual Meeting of Anderson, L.L.P. as independent [ ] [ ] [ ]
Shareholders of Ultramar Diamond Shamrock Corporation to be accountants.
held on May 5, 1998 and any adjournment thereof, and to S
vote, with all powers the Trustee would possess if present, The Board of Directors recommends a vote FOR items 1 and 2.
all shares of Common Stock ("Common Stock") credited to the You may specify you choices on the items by marking the
undersigned's account(s) under said Plan(s) as of the record O appropriate boxes. You need not mark any boxes if you wish to
date for the Annual Meeting, upon the following matters and vote in accordance with the Board of Directors'
upon any other business that may properly come before the recommendations.
meeting or any adjournment thereof. P
By completing, signing and returning this voting instruction
card, the undersigned will be acting as a named fiduciary under
the Employee Retirement Income Security Act of 1974, as amended,
for the Plan in which the undersigned participates and will be
voting all Allocated Shares.
-------------
Please be sure to sign and date Date
this Proxy in the box below.
- -----------------------------------------------------
- -----------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
+ +
- ------------------------------------------------------------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
