EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
between
ULTRAMAR CORPORATION
and
DIAMOND SHAMROCK, INC.
Dated as of September 22, 1996
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TABLE OF CONTENTS
Page
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ARTICLE I
The Merger
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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
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Capital Stock of the Constituent
--------------------------------
Corporations; Exchange of Certificates
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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
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SECTION 4.01. Conduct of Business . . . . . . . . 36
SECTION 4.02. No Solicitation by DSI . . . . . . 44
SECTION 4.03. No Solicitation by UC . . . . . . . 46
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ARTICLE V
Additional Agreements
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SECTION 5.01. Preparation of the Form S-4 and the
Joint Proxy Statement; Stock-
holders 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
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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
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SECTION 7.01. Termination . . . . . . . . . . . . 65
SECTION 7.02. Effect of Termination . . . . . . . 68
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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
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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
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AGREEMENT AND PLAN OF MERGER dated as of September 22, 1996,
between ULTRAMAR CORPORATION, a Delaware corporation ("UC"), and
DIAMOND SHAMROCK, INC., a Delaware corporation ("DSI").
WHEREAS, the respective Boards of Directors of UC and DSI have
approved the merger of DSI with and into UC (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, whereby (a) each issued
and outstanding share of common stock, par value $.01 per share, of DSI ("DSI
Common Stock"), other than shares owned by UC, DSI or any of their wholly owned
subsidiaries, will be converted into the right to receive the Merger
Consideration (as defined in Section 2.01(b)) and (b) each issued and
outstanding share of 5% Cumulative Convertible Preferred Stock, par value $.01
per share, of DSI (the "DSI Convertible Preferred Stock"), other than shares
owned by UC, DSI or any of their wholly owned subsidiaries, will be converted
into the right to receive one share of 5% Cumulative Convertible Preferred
Stock, par value $.01 per share, of UC (the "UC Convertible Preferred Stock");
WHEREAS, the respective Boards of Directors of UC and DSI have
each determined that the Merger and the other transactions contemplated hereby
are consistent with, and in furtherance of, their respective business strategies
and goals;
WHEREAS, UC and DSI desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that
the Merger will be accounted for as a pooling of interests transaction;
WHEREAS, immediately following the execution and delivery of this
Agreement, DSI and UC will
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enter into a stock option agreement (the "DSI Stock Option Agreement"), pursuant
to which DSI will grant UC the option (the "DSI Option") to purchase shares of
DSI Common Stock together with the associated DSI Rights (as defined in
Section 3.01(c)) upon the terms and subject to the conditions set forth therein;
and
WHEREAS, immediately following the execution and delivery of this
Agreement, UC and DSI will enter into a stock option agreement (the "UC Stock
Option Agreement", and, together with the DSI Stock Option Agreement, the
"Option Agreements"), pursuant to which UC will grant DSI the option (the "UC
Option") to purchase shares of common stock, par value $.01 per share, of UC
("UC Common Stock") together with the associated UC Rights (as defined in
Section 3.02(c)) upon the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I
The Merger
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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
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"Closing") will take place at 10:00 a.m. on a date to be specified by the
parties (the "Closing Date"), which (subject to satisfaction or waiver of the
conditions set forth in Sections 6.01, 6.02 and 6.03) shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Section 6.01, unless another time or date is agreed to by the parties hereto.
The Closing will be held at such location in the City of New York as is agreed
to by the parties hereto.
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SECTION 1.03. Effective Time. Subject to the provisions of this
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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.
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(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
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designate another individual to serve in such individual's place. If any
officer listed on or appointed in accordance with Exhibit B ceases to be a full-
time employee of either DSI or UC, the parties will agree upon another person to
serve in such person's stead. The committees of the Board of Directors of UC
will have such authority as may, subject to applicable law, be delegated to them
by the Board of Directors.
ARTICLE II
Effect of the Merger on the Capital Stock of the
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Constituent Corporations; Exchange of Certificates
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SECTION 2.01. Effect on Capital Stock. As of the Effective
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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
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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
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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
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issued and outstanding share of DSI Convertible Preferred Stock
(other than shares to be canceled in accordance with
Section 2.01(a) and shares held by persons who perfect their
appraisal rights under the DGCL) shall be converted into the
right to receive one fully paid and nonassessable share of UC
Convertible Preferred Stock, which UC Convertible Preferred Stock
(i) will have terms that are identical to the DSI Convertible
Preferred Stock (as a result of the Merger, (x) the issuer
thereof will be UC rather than DSI and (y) in accordance with the
terms of the DSI Preferred Stock, the UC Convertible Preferred
Stock will be convertible as of the Effective Time at the
conversion price necessary to make each share of UC Convertible
Preferred Stock convertible into the number of shares of UC
Common Stock receivable upon the Merger by a holder of the number
of shares of DSI Common Stock into which one share of DSI
Convertible Preferred Stock might have been converted immediately
prior to the Merger), and (ii) will be issued pursuant to action
taken by the Board of Directors of UC. As of the Effective Time,
all such shares of DSI Convertible Preferred Stock shall no
longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a
certificate representing any such shares of DSI Convertible
Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive one share of UC Convertible
Preferred Stock to be issued in consideration therefor upon
surrender of such certificate in accordance with Section 2.02,
without interest.
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SECTION 2.02. Exchange of Certificates. (a) Exchange Agent.
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As of the Effective Time, UC shall enter into an agreement with such bank or
trust company as may be designated by UC and DSI (the "Exchange Agent"), which
shall provide that UC shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of DSI Common Stock and DSI
Convertible Preferred Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of UC Common
Stock and UC Convertible Preferred Stock (such shares of UC Common Stock and UC
Convertible Preferred Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, any Excess Shares
(as defined in Section 2.02(e)) and any cash (including cash proceeds from the
sale of the Excess Shares) payable in lieu of any fractional shares of UC Common
Stock being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.01 in exchange for outstanding shares of DSI Common Stock and DSI
Convertible Preferred Stock.
(b) Exchange Procedures. As soon as reasonably practicable
--------------------
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of DSI Common Stock or DSI Convertible Preferred
Stock (the "Certificates") whose shares were converted into the right to receive
the Merger Consideration or shares of UC Convertible Preferred Stock, as
applicable, pursuant to Section 2.01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as UC and DSI may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration or shares of UC
Convertible Preferred Stock, as applicable. Upon surrender of a Certificate for
cancelation to the Exchange Agent or to such other agent or agents as may be
appointed by UC, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of UC Common Stock or UC
Convertible Preferred Stock and, in the case of Certificates representing DSI
Common Stock, cash, if any,
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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
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
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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
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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
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Convertible Preferred Stock. All shares of UC Common Stock or UC Convertible
- ----------------------------
Preferred Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of DSI Common Stock or DSI
Convertible Preferred Stock, as applicable, theretofore represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to pay
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any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by DSI on such shares of DSI
Common Stock or DSI Convertible Preferred Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of DSI Common
Stock or DSI Convertible Preferred Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip
---------------------
representing fractional shares of UC Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of UC shall
relate to such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
UC.
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(ii) As promptly as practicable following the Effective Time,
the Exchange Agent will determine the excess of (A) the number of whole shares
of UC Common Stock delivered to the Exchange Agent by UC pursuant to
Section 2.02(a) over (B) the aggregate number of whole shares of UC Common Stock
to be distributed to holders of DSI Common Stock pursuant to Section 2.02(b)
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent will sell the Excess Shares at then-prevailing prices
on the New York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in
Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will
be executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of DSI Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of DSI Common Stock (the
"Common Shares Trust"). The Surviving Corporation will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent incurred in connection with such sale of
the Excess Shares. The Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of DSI Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share
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interest to which such holder of DSI Common Stock is entitled (after taking into
account all shares of DSI Common Stock held at the Effective Time by such
holder) and the denominator of which is the aggregate amount of fractional share
interests to which all holders of DSI Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and
(iii), the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the making
of the payments hereinabove contemplated, to pay each holder of DSI Common Stock
an amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such holder (after taking into account all
shares of DSI Common Stock held at the Effective Time by such holder) would
otherwise be entitled by (B) the closing price for a share of UC Common Stock as
reported on the NYSE Composite Transaction Tape (as reported in the Wall Street
-----------
Journal, or, if not reported thereby, any other authoritative source) on the
- -------
Closing Date, and, in such case, all references herein to the cash proceeds of
the sale of the Excess Shares and similar references will be deemed to mean and
refer to the payments calculated as set forth in this Section 2.02(e)(iv).
(v) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of DSI Common Stock with respect
to any fractional share interests, the Exchange Agent will make available such
amounts to such holders of DSI Common Stock subject to and in accordance with
the terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the
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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
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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
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distributions in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall
----------------------------
invest any cash included in the Exchange Fund, as directed by UC, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to UC.
(i) Lost Certificates. If any Certificate shall have been
------------------
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration or shares of UC Convertible Preferred Stock
and, if applicable, any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of UC Common Stock or UC Convertible Preferred
Stock deliverable in respect thereof, pursuant to this Agreement.
(j) Dissenting Shares. Notwithstanding anything in this
------------------
Agreement to the contrary, no share of DSI Convertible Preferred Stock, the
holder of which shall have properly complied with the provisions of Section 262
of the DGCL as to appraisal rights (a "Dissenting Share"), will be deemed to be
converted into and to represent the right to receive one share of UC Convertible
Preferred Stock hereunder and the holders of Dissenting Shares, if any, will be
entitled to payment, solely from the Surviving Corporation, of the appraised
value of such Dissenting Shares to the extent permitted by and in accordance
with the provisions of Section 262 of the DGCL; provided, however, that (i) if
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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
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Section 262, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of all Dissenting Shares within the time provided in such Section 262,
such holder will forfeit such right to payment for such Dissenting Shares
pursuant to such Section 262 and, as of the later of Effective Time or the
occurrence of such event, such holder's Certificate formerly representing shares
of DSI Convertible Preferred Stock shall automatically be converted into and
represent only the right to receive shares of UC Convertible Preferred Stock
pursuant to Section 2.01 hereof, without any interest thereon, upon surrender of
the Certificate or Certificates formerly representing such shares of DSI
Convertible Preferred Stock. DSI shall give UC (A) prompt notice of any written
demands for appraisal of any Dissenting Shares, attempted withdrawals of such
demands and any other instruments received by DSI relating to stockholders'
rights of appraisal and (B) the opportunity to participate in all negotiations
and proceedings with respect to demands for appraisal under the DGCL.
ARTICLE III
Representations and Warranties
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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
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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
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its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or
in the aggregate would not have a material adverse effect (as
defined in Section 8.03) on DSI. DSI has delivered to UC prior
to the execution of this Agreement complete and correct copies of
its certificate of incorporation and by-laws and has made
available to UC the certificates of incorporation and by-laws (or
comparable organizational documents) of its Significant
Subsidiaries, in each case as amended to date. As used in this
Agreement, a "Significant Subsidiary" means any subsidiary of DSI
or UC, as the case may be, that would constitute a "significant
subsidiary" of such party within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the
"SEC").
(b) Subsidiaries. Exhibit 21.1 to DSI's Annual Report on
-------------
Form 10-K for the fiscal year ended December 31, 1995 includes
all the subsidiaries of DSI which as of the date of this
Agreement are Significant Subsidiaries. All the outstanding
shares of capital stock of, or other equity interests in, each
such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly
by DSI, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of DSI
------------------
consists of 75,000,000 shares of DSI Common Stock and 25,000,000
shares of preferred stock, par value $.01 per share, of DSI ("DSI
Preferred Stock"). At the close of business on September 19,
1996, (i) 29,292,663 shares of DSI Common Stock were issued and
outstanding, (ii) 8,079
17
shares of DSI Common Stock were held by DSI in its treasury,
(iii) not more than 1,725,000 shares of DSI Convertible Preferred
Stock were issued and outstanding, (iv) no shares of DSI
Preferred Stock were held by DSI in its treasury,
(v) 1,672,584 shares of DSI Common Stock were reserved for
issuance pursuant to the Diamond Shamrock, Inc. Long-Term
Incentive Plan, the Diamond Shamrock R & M, Inc. 1987 Long-Term
Incentive Plan, the Diamond Shamrock, Inc. Performance Incentive
Plan, the 1994 Restatement of the Diamond Shamrock, Inc. Employee
Stock Ownership Plan I and the 1994 Restatement of the Diamond
Shamrock, Inc. Employee Stock Ownership Plan II (such plans,
collectively, the "DSI Stock Plans"), (vi) not more than
3,254,716 shares of DSI Common Stock were reserved for issuance
upon conversion of the DSI Convertible Preferred Stock, (vii) no
shares of Series A Junior Participating Preferred Stock (the
"Junior Preferred Stock") of DSI were issued and outstanding, and
(viii) other than the DSI Convertible Preferred Stock, the Junior
Preferred Stock and the $2.00 Convertible Exchangeable Preferred
Stock of DSI (of which no shares remain outstanding)(the "DSI
$2.00 Preferred Stock"), no other shares of DSI Preferred Stock
have been designated or issued. Except as set forth above and
except for 5,858,500 shares of DSI Common Stock (with the
associated DSI Rights) reserved for issuance upon the exercise of
the DSI Option, at the close of business on September 19, 1996,
no shares of capital stock or other voting securities of DSI were
issued, reserved for issuance or outstanding. At the close of
business on September 19, 1996 there were no outstanding stock
appreciation rights or rights (other than employee stock options
or other rights ("DSI Employee Stock Options", which term shall
not include performance units granted under the Diamond Shamrock,
Inc. Long-Term Incentive Plan) to
18
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
19
subsidiaries. As of the close of business on September 19, 1996,
except for agreements with holders of equity securities of
subsidiaries that are not wholly owned subsidiaries of DSI or any
of its other wholly owned subsidiaries, there were no outstanding
contractual obligations of DSI to vote or to dispose of any
shares of the capital stock of any of its subsidiaries. DSI has
delivered to UC a complete and correct copy of the Rights
Agreement, dated as of March 6, 1990 (the "DSI Rights
Agreement"), as amended and supplemented to the date hereof
relating to rights ("DSI Rights") to purchase Junior Preferred
Stock.
(d) Authority; Noncontravention. DSI has all requisite
----------------------------
corporate power and authority to enter into this Agreement and,
subject to the DSI Stockholder Approval (as defined in
Section 3.01(m)), to consummate the transactions contemplated by
this Agreement. DSI has all requisite corporate power and
authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by DSI and
the consummation by DSI of the transactions contemplated by this
Agreement and the Option Agreements have been duly authorized by
all necessary corporate action on the part of DSI, subject, in
the case of the adoption of this Agreement, to DSI Stockholder
Approval. This Agreement and the Option Agreements have been
duly executed and delivered by DSI and constitute legal, valid
and binding obligations of DSI, enforceable against DSI in
accordance with their terms. The execution and delivery of this
Agreement and the Option Agreements do not, and the consummation
of the transactions contemplated by this Agreement and the Option
Agreements and compliance with the provisions of this Agreement
and the Option Agreements will not, conflict with, or
20
result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation or
loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of DSI or any of
its Significant Subsidiaries under, (i) the certificate of
incorporation or by-laws of DSI or the comparable organizational
documents of any of its Significant Subsidiaries, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or
license applicable to DSI or any of its Significant Subsidiaries
or their respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to DSI or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not (x) have a
material adverse effect on DSI, (y) impair the ability of DSI to
perform its obligations under this Agreement or the Option
Agreements, or (z) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement or the
Option Agreements. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative
or regulatory agency or commission or other governmental
authority or agency (a "Governmental Entity") is required by or
with respect to DSI or any of its Significant Subsidiaries in
connection with the execution and delivery of this Agreement or
the Option Agreements by DSI or the consummation by DSI of the
21
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, 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.
22
(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
23
their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected
in such financial statements or in the notes thereto, (ii) as
contemplated hereunder or under the Option Agreements, (iii) for
liabilities incurred in connection with this Agreement or the
transactions contemplated hereby and (iv) for liabilities and
obligations incurred since July 1, 1996 in the ordinary course of
business consistent with past practice, neither DSI nor any of
its subsidiaries has any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise),
including liabilities arising under any laws relating to the
protection of health, safety or the environment ("Environmental
Laws"), required by generally accepted accounting principles to
be reflected in a consolidated balance sheet of DSI and its
consolidated subsidiaries and which, individually or in the
aggregate, could reasonably be expected to have a material
adverse effect on DSI.
(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
24
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or (ii) the Joint Proxy Statement will, at
the date it is first mailed to DSI's stockholders or at the time
of the DSI Stockholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, except that no
representation or warranty is made by DSI with respect to
statements made or incorporated by reference therein based on
information supplied by UC specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as
-------------------------------------
disclosed in the DSI SEC Documents filed and publicly available
prior to the date of this Agreement (as amended to the date of
this Agreement, the "DSI Filed SEC Documents"), (ii) for the
transactions provided for herein or in the Option Agreements, and
(iii) for liabilities incurred in connection with or as a result
of this Agreement or the Option Agreements, since the date of the
most recent audited financial statements included in the DSI
Filed SEC Documents, DSI has conducted its business only in the
ordinary course, and there has not been (1) any material adverse
change in DSI, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of DSI's capital stock, other than
regular quarterly dividends of $.14 per share on the DSI Common
Stock and $.625 per share on the DSI Convertible Preferred Stock
in accordance with the terms thereof, (3) any split, combination
or reclassification of any of DSI's capital stock or any issuance
or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of DSI's
capital stock, except for issuances of DSI Common
25
Stock upon conversion of DSI Convertible Preferred Stock,
(4) other than as permitted by Section 5.07, (A) any granting by
DSI or any of its Significant Subsidiaries to any director,
executive officer or other key employee of DSI of any increase in
compensation, except for normal increases in the ordinary course
of business consistent with past practice or as was required
under employment agreements in effect as of the date of the most
recent financial statements included in the DSI Filed SEC
Documents, (B) any granting by DSI or any of its Significant
Subsidiaries to any such director, executive officer or key
employee of any increase in severance or termination pay, except
as was required under any employment, severance or termination
agreements in effect as of the date of the most recent financial
statements included in the DSI Filed SEC Documents, or (C) any
entry by DSI or any of its subsidiaries into any employment,
severance or termination agreement with any such executive
officer or key employee, or (5) except insofar as may have been
disclosed in the DSI Filed SEC Documents or required by a change
in generally accepted accounting principles, any change in
accounting methods, principles or practices by DSI materially
affecting its assets, liabilities or business. For purposes of
this Agreement, "key employee" means any employee whose current
salary and targeted bonus exceeds $100,000 per annum.
(h) Litigation. As of the date of this Agreement, there was
-----------
no suit, action or proceeding pending or, to the knowledge of
DSI, threatened against or affecting DSI or any of its
subsidiaries that individually or in the aggregate could
reasonably be expected to (i) have a material adverse effect on
DSI or (ii) impair the ability of DSI to perform its obligations
under this Agreement or the Option Agreements in any material
respect, nor as of such date was there any judgment, order or
decree of any
26
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, stock
27
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
28
of DSI, there exists no condition or set of circumstances, in
connection with which DSI or any of its subsidiaries could be
subject to any liability that is reasonably likely to have a
material adverse effect on DSI (except liability for benefits
claims and funding obligations payable in the ordinary course)
under ERISA, the Code or any other applicable law.
(iii) Each DSI Benefit Plan has been administered in accordance
with its terms except for any failures so to administer any DSI
Benefit Plan as would not individually or in the aggregate have a
material adverse effect on DSI. DSI, its subsidiaries and all
the DSI Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and
the terms of all applicable collective bargaining agreements,
except for any failures to be in 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
29
in the DSI Filed SEC Documents reflect an adequate reserve for
all taxes payable by DSI and its subsidiaries for all taxable
periods and portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against DSI or any of its subsidiaries that
are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material
adverse effect on DSI. The federal income tax returns of DSI and
each of its subsidiaries consolidated in such returns have closed
by virtue of the applicable statute of limitations or remain open
for the periods described in the DSI Disclosure Schedule.
(iii) Neither DSI nor any of its subsidiaries has taken any
action that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all
federal, state and local income, property, sales, excise and
other taxes or similar governmental charges.
(m) Voting Requirements. The affirmative vote of the holders
--------------------
of a majority of the voting power of all outstanding shares of
DSI Common Stock, voting as a single class, at the DSI
Stockholders Meeting (the "DSI Stockholder Approval") to adopt
this Agreement is the only vote of the holders of any class or
series of DSI's capital stock necessary to approve and adopt this
Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) State Takeover Statutes. The Board of Directors of DSI
------------------------
has approved the terms of this Agreement and the Option
Agreements
30
and the consummation of the Merger and the other transactions
contemplated by this Agreement and the Option Agreements and,
assuming the accuracy of UC's representation and warranty
contained in Section 3.02(n), such approval constitutes approval
of the Merger and the other transactions contemplated by this
Agreement and the Option Agreements by the DSI Board of Directors
under the provisions of Section 203 of the DGCL.
(o) Accounting Matters. Neither DSI nor any of its
-------------------
affiliates has taken or agreed to take any action that would
prevent the business combination to be effected by the Merger to
be accounted for as a pooling of interests.
(p) Brokers. No broker, investment banker, financial advisor
--------
or other person, other than Wasserstein Perella & Co., Inc., the
fees and expenses of which will be paid by DSI or, if the Merger
occurs, the Surviving Corporation, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this
Agreement and the Option Agreements based upon arrangements made
by or on behalf of DSI. DSI has furnished to UC true and
complete copies of all agreements under which any such fees or
expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are
payable.
(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.
31
(r) Ownership of UC Common Stock. Other than pursuant to the
----------------------------
UC Stock Option Agreement and except for shares owned by DSI
Benefit Plans, as of the date hereof, neither DSI nor, to its
knowledge, any of its affiliates, (i) beneficially owns (as such
term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of UC.
(s) DSI Rights Agreement. The DSI Rights Agreement has been
---------------------
amended (the "DSI Rights Plan Amendment") to (i) render the DSI
Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither UC nor any of its
wholly owned subsidiaries nor any of its permitted assignees or
transferees under the DSI Stock Option Agreement is an Acquiring
Person or an Adverse Person (each as defined in the DSI Rights
Agreement) pursuant to the DSI Rights Agreement and (z) a Share
Acquisition Date, Distribution Date or Triggering Event (in each
case as defined in the DSI Rights Agreement) does not occur
solely by reason of the execution of this Agreement, and the
Option Agreements, the consummation of the Merger, or the
consummation of the other transactions contemplated by this
Agreement and the Option Agreements and such amendment may not be
further amended by DSI without the prior consent of UC in its
sole discretion. A copy of a form of the DSI Rights Plan
Amendment is attached to the DSI Disclosure Schedule.
SECTION 3.02. Representations and Warranties of UC. Except
-------------------------------------
as disclosed in the UC Filed SEC Documents (as such term is defined in
Section 3.02(g)) or as set forth on the Disclosure Schedule delivered by UC to
DSI
32
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.
33
(c) Capital Structure. The authorized capital stock of UC
------------------
consists of 100,000,000 shares of UC Common Stock and 25,000,000
shares of preferred stock, par value $.01 per share, of UC ("UC
Preferred Stock"). At the close of business on September 19,
1996, (i) 44,637,958 shares of UC Common Stock were issued and
outstanding, (ii) no shares of UC Common Stock were held by UC in
its treasury, (iii) 6,137,103 shares of UC Common Stock were
reserved for issuance pursuant to 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
34
subject to preemptive rights. As of the close of business on
September 19, 1996, there were no bonds, debentures, notes or
other indebtedness of UC having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of UC may vote. Except as
set forth above or as contemplated by Schedule 5.07, as of the
close of business on September 19, 1996, there were no
outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind
to which UC or any of its subsidiaries is a party or by which any
of them is bound obligating UC or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of
UC or of any of its subsidiaries or obligating UC or any of its
subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except for agreements entered into
with respect to the UC Stock Plans, as of the close of business
on September 19, 1996, there were no outstanding contractual
obligations of UC or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of UC or
any of its wholly owned subsidiaries. As of the close of
business on September 19, 1996, except for agreements with
holders of equity securities of subsidiaries that are not wholly
owned subsidiaries of UC or any of its other wholly owned
subsidiaries, there were no outstanding contractual obligations
of UC to vote or to dispose of any shares of the capital stock of
any of its subsidiaries. UC has delivered to DSI a complete and
correct copy of the Rights Agreement dated as of June 25, 1992,
as amended as of May 10, 1994 (the "UC Rights Agreement") between
UC and Registrar and
35
Transfer Company (as successor to First City, Texas-Houston,
National Association) relating to rights ("UC Rights") to
purchase UC Common Stock.
(d) Authority; Noncontravention. UC has all requisite
----------------------------
corporate power and authority to enter into this Agreement and,
subject to the UC Stockholder Approval (as defined in
Section 3.02(m)), to consummate the transactions contemplated by
this Agreement. UC has all requisite corporate power and
authority to enter into the Option Agreements and to consummate
the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by UC and
the consummation by UC of the transactions contemplated by this
Agreement and the Option Agreements have been duly authorized by
all necessary corporate action on the part of UC, subject, in the
case of the adoption of this Agreement and the issuance of UC
Common Stock in connection with the Merger, to UC Stockholder
Approval. This Agreement and the Option Agreements have been
duly executed and delivered by UC and constitute legal, valid and
binding obligations of UC, enforceable against UC in accordance
with their terms. The execution and delivery of this Agreement
and the Option Agreements do not, and the consummation of the
transactions contemplated by this Agreement and the Option
Agreements and compliance with the provisions of this Agreement
and the Option Agreements will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or loss of a
material benefit under, or result 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
36
of its Significant Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
applicable to UC or any of its Significant Subsidiaries or their
respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to UC or any of its
Significant Subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate would not (x) have a
material adverse effect on UC, (y) impair the ability of UC to
perform its obligations under this Agreement or the Option
Agreements, or (z) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement or the
Option Agreements. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to UC or any of its
Significant Subsidiaries in connection with the execution and
delivery of this Agreement or the Option Agreements by UC or the
consummation by UC of the transactions contemplated by this
Agreement or the Option Agreements, except for (1) the filing of
a premerger notification and report form by UC under the HSR Act;
(2) the filing with the SEC of (A) the Joint Proxy Statement
relating to the UC Stockholders Meeting (as defined in
Section 5.01(c)), (B) the Form S-4 and (C) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may
be required in connection with this Agreement, the Option
Agreements and the transactions contemplated by this Agreement
and the Option Agreements; (3) the filing of the Certificate of
Merger and the
37
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
38
a later UC Filed SEC Document, none of the UC SEC Documents
contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The financial statements of UC included in the UC SEC Documents
comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present in
all material respects the consolidated financial position of UC
and its consolidated subsidiaries as of 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
39
subsidiaries and which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on UC.
(f) Information Supplied. None of the information supplied
---------------------
or to be supplied by UC specifically for inclusion or
incorporation by reference in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or (ii) the Joint Proxy Statement will, at the date it
is first mailed to UC's stockholders or at the time of the UC
Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder, except that no
representation or warranty is made by UC with respect to
statements made or incorporated by reference therein based on
information supplied by DSI specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as
-------------------------------------
disclosed in the UC SEC Documents filed and publicly available
prior to the date of this Agreement (as amended to the date of
this Agreement, the "UC Filed SEC Documents"), (ii) for the
transactions provided for herein or in the Option Agreements, and
(iii) for liabilities incurred in connection with or as a result
of this Agreement or the Option Agreements, since the date of the
most recent financial statements included in the
40
UC Filed SEC Documents, UC has conducted its business only in the
ordinary course, and there has not been (1) any material adverse
change in UC, (2) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or
property) with respect to any of UC's capital stock, other than
regular quarterly dividends of $.275 per share on the UC Common
Stock, (3) any split, combination or reclassification of any of
UC's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of UC's capital stock, (4) other than as
permitted by Section 5.07, (A) any granting by UC or any of its
Significant Subsidiaries to any director, executive officer or
other key employee of UC of any increase in compensation, except
for normal increases in the ordinary course of business
consistent with past practice or as was required under employment
agreements in effect as of the date of the most recent financial
statements included in the UC Filed SEC Documents, (B) any
granting by UC or any of its Significant Subsidiaries to any such
director, executive officer or key employee of any increase in
severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of
the date of the most recent financial statements included in the
UC Filed SEC Documents, or (C) any entry by UC or any of its
subsidiaries into any employment, severance or termination
agreement with any such executive officer or key employee or
(5) except insofar as may have been disclosed in the UC Filed SEC
Documents or required by a change in generally accepted
accounting principles, any change in accounting methods,
principles or practices by UC materially affecting its assets,
liabilities or business.
(h) Litigation. As of the date of this Agreement, there was
-----------
no suit, action or
41
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.
42
(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.
43
(ii) With respect to the UC Benefit Plans, individually and in
the aggregate, no event has occurred and, to the knowledge of UC,
there exists no condition or set of circumstances, in connection
with which UC or any of its subsidiaries could be subject to any
liability that is reasonably likely to have a material adverse
effect on UC (except liability for benefits claims and funding
obligations payable in the ordinary course) under ERISA, the Code
or any other applicable law.
(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
44
paid (or UC has paid on its behalf) all taxes shown as due on
such returns, and the most recent financial statements contained
in the UC Filed SEC Documents reflect an adequate reserve for all
taxes payable by UC and its subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any taxes have been proposed,
asserted or assessed against UC or any of its subsidiaries that
are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material
adverse effect on UC.
(iii) Neither UC nor any of its subsidiaries has taken any
action that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(m) Voting Requirements. The affirmative vote of the holders
--------------------
of a majority of the voting power of all outstanding shares of UC
Common Stock, voting as a single class, at the UC Stockholders
Meeting (the "UC Stockholder Approval") to adopt this Agreement
and to approve the issuance of UC Common Stock in connection with
the Merger is the only vote of the holders of any class or series
of UC's capital stock necessary to approve and adopt this
Agreement, the Option Agreements and the transactions
contemplated by this Agreement and the Option Agreements.
(n) State Takeover Statutes. The Board of Directors of UC
------------------------
has approved the terms of this Agreement and the Option
Agreements and the consummation of the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and, assuming the accuracy of DSI's representation and
warranty contained in Section 3.01(n), such approval constitutes
45
approval of the Merger and the other transactions contemplated by
this Agreement and the Option Agreements by the UC Board of
Directors under the provisions of Section 203 of the DGCL.
(o) Accounting Matters. Neither UC nor any of its affiliates
-------------------
has taken or agreed to take any action that would prevent the
business combination to be effected by the Merger to be accounted
for as a pooling of interests.
(p) Brokers. No broker, investment banker, financial advisor
--------
or other person, other than Merrill Lynch & Co. and Tanner &
Co., Inc., the fees and expenses of which will be paid by UC or,
if the Merger occurs, the Surviving Corporation, is entitled to
any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by
this Agreement and the Option Agreements based upon arrangements
made by or on behalf of UC. UC has furnished to DSI true and
complete copies of all agreements under which any such fees or
expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are
payable.
(q) Opinion of Financial Advisor. UC has received the
-----------------------------
opinion of Merrill Lynch & Co., dated the date of this Agreement,
to the effect that, as of such date, the exchange ratio for the
conversion 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
46
its affiliates, (i) beneficially owns (as such term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, or
(ii) is party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of, in
each case, shares of capital stock of DSI.
(s) UC Rights Agreement. The UC Rights Agreement has been
--------------------
amended (the "UC Rights Plan Amendment") to (i) render the UC
Rights Agreement inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option
Agreements and (ii) ensure that (y) neither DSI nor any of its
wholly owned subsidiaries nor any of its permitted assignees or
transferees under the UC Stock Option Agreement is an Acquiring
Person (as defined in the UC Rights Agreement) pursuant to the UC
Rights Agreement and (z) a Distribution Date (as defined in the
UC Rights Agreement) does not occur solely by reason of the
execution of this Agreement and the Option Agreements, the
consummation of the Merger, or the consummation of the other
transactions contemplated by this Agreement and the Option
Agreements and such amendment may not be further amended by UC
without the prior consent of DSI in its sole discretion. A copy
of a form of the UC Rights Plan Amendment is attached to the UC
Disclosure Schedule.
ARTICLE IV
Covenants Relating to Conduct of Business
-----------------------------------------
SECTION 4.01. Conduct of Business. (a) Conduct of Business
-------------------- -------------------
by DSI. Except as set forth in Section 4.01 of the DSI Disclosure Schedule,
- -------
during the period from the date of this Agreement to the Effective Time, DSI
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course in substantially the same manner as
47
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
48
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 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
49
other rights to acquire any debt securities of DSI or any of its
subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course
of business consistent with past practice, or (z) make any loans,
advances or capital contributions to, or investments in, any
other person, other than to DSI or any direct or indirect
subsidiary of DSI or to officers and employees of DSI or any of
its subsidiaries for travel, business or relocation expenses in
the ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the
operating budget of DSI previously furnished to UC, the relevant
portions of which are set forth in Section 4.01(b)(vii) of the
DSI Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on DSI or settle or compromise any
material income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) of DSI included in the DSI
Filed SEC Documents, incurred since the date of such financial
statements in the
50
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, 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
51
(xiv) authorize, or commit or agree to take, any of the
foregoing actions.
(b) Conduct of Business by UC. Except as set forth in
--------------------------
Section 4.01 of the UC Disclosure Schedule, during the period from the date of
this Agreement to the Effective Time, UC shall, and shall cause its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Except as set forth in Section 4.01 of the UC Disclosure
Schedule, without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, UC shall not, and shall
not permit any of its subsidiaries to:
(i) other than dividends and distributions (including
liquidating distributions) by a direct or indirect wholly owned
subsidiary of UC to its parent, or by a subsidiary that is
partially owned by UC or any of its subsidiaries, provided that
UC or any such subsidiary receives or is to receive its
proportionate share thereof, and other than the regular quarterly
dividends of $.275 per share with respect to the UC Common Stock,
(x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or
(z) purchase, redeem or otherwise acquire any shares of capital
stock of UC or any of its Significant Subsidiaries or any other
securities thereof or any rights, warrants or options
52
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
53
sell any debt securities or warrants or other rights to acquire
any debt securities of UC or any of its subsidiaries, guarantee
any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent
with past practice, or (z) make any loans, advances or capital
contributions to, or investments in, any other person, other than
to UC or any direct or indirect subsidiary of UC or to officers
and employees of UC or any of its subsidiaries for travel,
business or relocation expenses in the ordinary course of
business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the
operating budget of UC previously furnished to DSI, the relevant
portions of which are set forth in Section 4.01(b)(vii) of the UC
Disclosure Schedule;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on UC or settle or compromise any
material income tax liability;
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial
statements (or the notes thereto) of UC included in the UC Filed
SEC Documents, incurred since the
54
date of such financial statements in the ordinary course of
business consistent with past practice or which do not in the
aggregate have a material adverse effect on UC;
(x) except in the ordinary course of business or except as
would not reasonably be expected to have a material adverse
effect on UC, modify, amend or terminate any material contract or
agreement to which UC, any subsidiary is a party or waive,
release or assign any material rights or claims thereunder;
(xi) make any material change to its accounting methods,
principles or practices, except as may be required by generally
accepted accounting principles;
(xii) except as required by law or contemplated hereby, enter
into, adopt or amend in any material respect or terminate any UC
Benefit Plan or any other agreement, plan or policy involving UC
or its subsidiaries and one or more of their directors, officers
or employees, or materially change any actuarial or other
assumption used to calculate funding obligations with respect to
any UC pension plans, or change the manner in which contributions
to any UC pension plans are made or the basis on which such
contributions are determined;
(xiii) except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do
not materially increase benefits or compensation expenses of UC
or its subsidiaries, or as contemplated hereby or by the terms of
any contract the existence of which does not constitute a
violation of this Agreement, increase the compensation of any
director, executive officer or other key employee of UC or pay
any benefit or amount not required by a plan or
55
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.
(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,
56
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement or the Option Agreements.
SECTION 4.02. No Solicitation by DSI. (a) DSI shall not,
-----------------------
nor shall it permit any of its subsidiaries to, nor shall it authorize or permit
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any DSI Takeover Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any DSI Takeover
Proposal; provided, however, that if, at any time prior to the adoption of this
-------- -------
Agreement by the holders of DSI Common Stock, the Board of Directors of DSI
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to DSI's
stockholders under applicable law, DSI may, in response to a DSI Takeover
Proposal which was not solicited by it or which did not otherwise result from a
breach of this Section 4.02(a), and subject to compliance with Section 4.02(c),
(x) furnish information with respect to DSI and its subsidiaries to any person
pursuant to a customary confidentiality agreement (as determined by DSI after
consultation with its outside counsel) and (y) participate in negotiations
regarding such DSI Takeover Proposal. For purposes of this Agreement, "DSI
Takeover Proposal" means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 20% or more of the assets
of DSI and its subsidiaries or 20% or more of any class of equity securities of
DSI or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of DSI or any of its subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving DSI or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.02,
neither the Board of Directors of DSI nor any committee thereof shall
(i) withdraw or modify, or
57
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 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.
58
(c) In addition to the obligations of DSI set forth in
paragraphs (a) and (b) of this Section 4.02, DSI shall immediately advise UC
orally and in writing of any request for information or of any DSI Takeover
Proposal, the material terms and conditions of such request or DSI Takeover
Proposal and the identity of the person making such request or DSI Takeover
Proposal. DSI will keep UC reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or DSI
Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit DSI
from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to DSI's stockholders if, in the good faith judgment of the Board of Directors
of DSI, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to DSI's stockholders under applicable
law; provided, however, that neither DSI nor its Board of Directors nor any
-------- -------
committee thereof shall, except as permitted by Section 4.02(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, a DSI Takeover Proposal.
SECTION 4.03. No Solicitation by UC. (a) UC shall not, nor
----------------------
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any UC Takeover Proposal (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any UC Takeover
Proposal; provided, however, that if, at any time prior to the adoption of this
-------- -------
Agreement by the holders of UC Common Stock, the Board of Directors of UC
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to UC's
stockholders under applicable law, UC may, in response to a UC Takeover Proposal
which was not solicited by it or which did not otherwise result from a breach of
this Section 4.03(a), and
59
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 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
60
sentences) withdraw or modify its approval or recommendation of the Merger, this
Agreement or the issuance of UC Common Stock in connection with the Merger, or
(y) the Board of Directors of UC determines in good faith that there is not a
substantial probability that the adoption of this Agreement by holders of UC
Common Stock will be obtained due to the existence of a UC Superior Proposal,
the Board of Directors of UC may (subject to this and the following sentences)
approve or recommend such UC Superior Proposal or terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause UC to enter
into any UC Acquisition Agreement with respect to any UC Superior Proposal), but
in each of the cases set forth in this clause (y), only at a time that is after
the fifth business day following DSI's receipt of written notice advising DSI
that the Board of Directors of UC has received a UC Superior Proposal,
specifying the material terms and conditions of such UC Superior Proposal and
identifying the person making such UC Superior Proposal. For purposes of this
Agreement, a "UC Superior Proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of UC
Common Stock then outstanding or all or substantially all the assets of UC and
otherwise on terms which the Board of Directors of UC determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to UC's stockholders than the Merger
and for which financing, to the extent required, is then committed or which, in
the good faith judgment of the Board of Directors of UC, is reasonably capable
of being obtained by such third party.
(c) In addition to the obligations of UC set forth in
paragraphs (a) and (b) of this Section 4.03, UC shall immediately advise DSI
orally and in writing of any request for information or of any UC Takeover
Proposal, the material terms and conditions of such request or UC Takeover
Proposal and the identity of the person making such request or UC Takeover
Proposal. UC will keep DSI reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or UC Takeover
Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit UC
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
UC's stockholders if, in the good faith judgment of the Board of Directors of
UC, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to UC's stockholders under applicable
law; provided, however, that neither UC nor its Board of Directors nor any
-------- -------
committee thereof shall, except as permitted by Section 4.03(b), withdraw or
modify, or propose publicly to withdraw or modify, its position with
61
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 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
62
adoption of this Agreement, the Merger and the other transactions contemplated
hereby, except to the extent that the Board of Directors of DSI shall have
withdrawn or modified its approval or recommendation of this Agreement or the
Merger and terminated this Agreement in accordance with Section 4.02(b).
(c) UC will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "UC Stockholders Meeting") for the purpose of obtaining the UC
Stockholder Approval. Without limiting the generality of the foregoing but
subject to Section 4.03(b), UC agrees that its obligations pursuant to the first
sentence of this Section 5.01(c) shall not be affected by the commencement,
public proposal, public disclosure or commencement to UC of any UC Takeover
Proposal. UC will, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and the
other transactions contemplated hereby, including the issuance of UC Common
Stock pursuant to the Merger, except to the extent that the Board of Directors
of UC shall have withdrawn or modified its recommendation and terminated this
Agreement in accordance with Section 4.03(b).
(d) UC and DSI will use reasonable efforts to hold the DSI
Stockholders Meeting and the UC Stockholders Meeting on the same date and as
soon as practicable after the date hereof.
SECTION 5.02. Letters of DSI's Accountants. (a) DSI shall
-----------------------------
use reasonable efforts to cause to be delivered to UC two letters from Price
Waterhouse LLP, DSI's independent accountants, one dated a date within two
business days before the date on which the Form S-4 shall become effective and
one dated a date within two business days before the Closing Date, each
addressed to UC, in form and substance reasonably satisfactory to UC and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) DSI shall use its reasonable efforts to cause to be
delivered to UC a letter from Price Waterhouse LLP addressed to UC and DSI,
dated as of the Closing Date, stating that the Merger will qualify as a pooling
of interests transaction under Opinion 16 of the
63
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 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
64
Confidentiality Agreement is hereby amended to delete paragraph 5 thereof.
SECTION 5.05. Reasonable Efforts. (a) Upon the terms and
-------------------
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement and the Option Agreements,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, such as those referred to in Sections 3.01(d)(1)-(5) and
3.02(d)(1)-(5)) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Option Agreements or the consummation of the transactions contemplated by
this Agreement or the Option Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Option Agreements.
Nothing set forth in this Section 5.05(a) will limit or affect actions permitted
to be taken pursuant to Sections 4.02 and 4.03.
(b) In connection with and without limiting the foregoing,
DSI and UC shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement, the Option Agreements or any of the other transactions
contemplated by this Agreement or the Option Agreements and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to the
Merger, this Agreement, the Option Agreements or any other transaction
contemplated by this Agreement or the Option Agreements, take all action
necessary to ensure that the Merger and the other transactions contemplated by
this
65
Agreement and the Option Agreements may be consummated as promptly as
practicable on the terms contemplated by this Agreement and the Option
Agreements and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement and the
Option Agreements.
SECTION 5.06. Stock Options. (a) As soon as practicable
--------------
following the date of this Agreement, the Board of Directors of DSI (or, if
appropriate, any committee administering the DSI Stock Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding DSI Employee Stock
Options granted under DSI Stock Plans, whether vested or
unvested, as necessary to provide that, at the Effective Time,
each DSI Employee Stock Option outstanding immediately prior to
the Effective Time shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable
under such DSI Employee Stock Option, including vesting, the same
number of shares of UC Common Stock as the holder of such DSI
Employee Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such DSI
Employee Stock Option in full immediately prior to the Effective
Time, at a price per share of UC Common Stock equal to (A) the
aggregate exercise price for the shares of DSI Common Stock
otherwise purchasable pursuant to such DSI Employee Stock Option
divided by (B) the aggregate number of shares of UC Common Stock
deemed purchasable pursuant to such DSI Employee Stock Option
(each, as so adjusted, an "Adjusted Option"); provided, however,
-------- -------
that in the case of any option to which Section 421 of the Code
applies by reason of its qualification under any of Sections 422
through 424 of the Code ("qualified stock options"), the option
price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall
66
be determined in order to comply with Section 424 of the Code;
and
(ii) make such other changes to the DSI Stock Plans as DSI and
UC may agree are appropriate to give effect to the Merger.
(b) As soon as practicable after the Effective Time, UC shall
deliver to the holders of DSI Employee Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective DSI Stock Plans and the
agreements evidencing the grants of such DSI Employee Stock Options and that
such DSI Employee Stock Options and agreements shall be assumed by UC and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 5.06 after giving effect to the Merger). UC shall
comply with the terms of the DSI Stock Plans and ensure, to the extent required
by, and subject to the provisions of, such DSI Stock Plans, that the DSI
Employee Stock Options which qualified as qualified stock options prior to the
Effective Time continue to qualify as qualified stock options after the
Effective Time.
(c) UC shall take such actions as are reasonably necessary
for the assumption of the DSI Stock Plans pursuant to Section 5.06(a), including
the reservation, issuance and listing of UC Common Stock as is necessary to
effectuate the transactions contemplated by Section 5.06(a). As soon as
reasonably practicable after the Effective Time, UC shall prepare and file with
the SEC a registration statement on Form S-8 or other appropriate form with
respect to shares of UC Common Stock subject to DSI Employee Stock Options
issued under such DSI Stock Plans and shall use all reasonable efforts to
maintain the effectiveness of a registration statement or registration
statements covering such DSI Employee Stock Options (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
DSI Employee Stock Options remain outstanding. With respect to those
individuals, if any, who subsequent to the Effective Time will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, UC shall use all reasonable efforts to administer the DSI Stock
Plans assumed pursuant to Section 5.06(b) in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act to the extent the applicable DSI
Stock Plan complied with such rule prior to the Merger.
67
(d) A holder of an Adjusted Option may exercise such Adjusted
Option in whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to UC, together with the consideration therefor and
the federal withholding tax information, if any, required in accordance with the
related DSI Stock Plan.
(e) Except as otherwise contemplated by this Section 5.06,
all restrictions or limitations on transfer and vesting with respect to DSI
Employee Stock Options awarded under the DSI Stock Plans or any other plan,
program or arrangement of DSI or any of its subsidiaries, to the extent that
such restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by UC as set forth above.
SECTION 5.07. Certain Employee Matters. Each of DSI and UC
-------------------------
will take the actions indicated to be taken by it in Schedule 5.07 at or prior
to the times specified therein. Following the Effective Time, UC, as the
Surviving Corporation in the Merger, will honor all obligations under employment
agreements of DSI or UC the existence of which does not constitute a violation
of this Agreement in accordance with the terms thereof.
SECTION 5.08. Indemnification, Exculpation and Insurance.
-------------------------------------------
(a) UC agrees that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former directors or officers of DSI and
its subsidiaries as provided in their respective certificates of incorporation
or by-laws (or comparable organizational documents) and any indemnification
agreements of DSI, the existence of which does not constitute a breach of this
Agreement, shall be assumed by UC, as the Surviving Corporation in the Merger,
without further action, as of the Effective Time and shall survive the Merger
and shall continue in full force and effect in accordance with their terms. In
addition, from and after the Effective Time, directors and officers of DSI who
become directors or officers of UC will be entitled to the same indemnity rights
and protections as are afforded to other directors and officers of UC.
(b) In the event that UC or any of its successors or assigns
(i) consolidates with or merges into any other person and is not the continuing
or surviving
68
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 (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
69
Takeover Proposal (for the purposes of the foregoing proviso the terms "DSI
Acquisition Agreement" and "DSI Takeover Proposal" shall have the meanings
assigned to such terms in Section 4.02 except that the references to "20%" in
the definition of "DSI Takeover Proposal" in Section 4.02(a) shall be deemed to
be references to "35%"). DSI acknowledges that the agreements contained in this
Section 5.09(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, UC would not enter into this
Agreement; accordingly, if DSI fails promptly to pay the amount due pursuant to
this Section 5.09(b), and, in order to obtain such payment, UC commences a suit
which results in a judgment against DSI for the fee set forth in this
Section 5.09(b), DSI shall pay to UC its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made. In the event of a termination
by UC pursuant to Section 7.01(e) or (f), DSI shall promptly pay upon UC's
request all out-of-pocket expenses incurred by UC in connection with this
Agreement, the Option Agreements and the transactions contemplated hereby and
thereby in an amount not to exceed $5 million, which payments shall be credited
against any Termination Fee that may subsequently become payable.
(c) In the event that (i) a UC Takeover Proposal shall have
been made known to UC or any of its subsidiaries or has been made directly to
its stockholders generally or any person shall have publicly announced an
intention (whether or not conditional) to make a UC Takeover Proposal and
thereafter this Agreement is terminated by either UC or DSI pursuant to
Section 7.01(b)(i) or (iii), or (ii) this Agreement is terminated (x) by UC
pursuant to Section 7.01(d) or (y) by DSI pursuant to Section 7.01(i) or (j),
then UC shall promptly, but in no event later than two days after the date of
such termination, pay DSI the Termination Fee, payable by wire transfer of same
day funds; provided, however, that no Termination Fee shall be payable to DSI
-------- -------
pursuant to clause (i) of this paragraph (c) or pursuant to a termination by DSI
pursuant to Section 7.01(i) or (j) unless and until within 18 months of such
termination UC or any of its subsidiaries enters into any UC Acquisition
Agreement or consummates any UC Takeover Proposal (for the purposes of the
foregoing proviso the terms "UC Acquisition Agreement" and "UC Takeover
Proposal" shall have the meanings assigned to such terms in Section 4.03 except
that
70
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 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
71
person to deliver to UC on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit C hereto. UC shall use reasonable
efforts to cause all persons who are "affiliates" of UC for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations to comply with the fourth paragraph of Exhibit C hereto.
SECTION 5.12. NYSE Listing. UC shall use reasonable efforts
-------------
to cause the shares of UC Common Stock to be issued in the Merger, under the DSI
Stock Plans and pursuant to the UC Stock Option Agreement to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date. DSI shall use reasonable efforts to cause the shares of DSI
Common Stock to be issued pursuant to the DSI Stock Option Agreement to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.13. Stockholder Litigation. Each of DSI and UC
-----------------------
shall give the other the reasonable opportunity to participate in the defense of
any stockholder litigation against DSI or UC, as applicable, and its directors
relating to the transactions contemplated by this Agreement.
SECTION 5.14. Tax Treatment. Each of UC and DSI shall use
--------------
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code and to obtain the opinions of counsel
referred to in Sections 6.02 and 6.03.
SECTION 5.15. Pooling of Interests. Each of DSI and UC will
---------------------
use reasonable efforts to cause the transactions contemplated by this Agreement,
including the Merger, and the Option Agreements to be accounted for as a pooling
of interests under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations, and such accounting treatment to be accepted by each
of DSI's and UC's independent certified public accountants, and by the SEC,
respectively, and each of DSI and UC agrees that it will voluntarily take no
action that would cause such accounting treatment not to be obtained.
SECTION 5.16. DSI Rights Agreement. The Board of Directors
---------------------
of DSI shall take all further action (in addition to that referred to in Section
3.01(s)) reasonably
72
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 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
73
respects be identical to the existing certificate of designations for the DSI
Convertible Preferred Stock except (a) as set forth in Section 2.01(c)(i), and
(b) that the Certificate of Designations will state that UC's obligations to pay
dividends will commence on March 15, June 15, September 15 or December 15,
whichever first occurs following the Effective Time.
SECTION 5.20. Indemnification Agreements. UC and DSI agree
---------------------------
that as soon as practicable after the Effective Time the Surviving Corporation
will enter into indemnification agreements with the directors and officers of
the Surviving Corporation providing for indemnification on the terms set forth
in the by-laws of the Surviving Corporation, as amended pursuant to
Section 1.05.
SECTION 5.21. Certain Tax Matters. UC and DSI agree that
--------------------
they will not treat the Merger as a change in the ownership or effective control
of UC or a change in the ownership of a substantial portion of the assets of UC,
each within the meaning of Section 280G of the Code, unless otherwise required
by a determination (as defined in Section 1313 of the Code).
ARTICLE VI
Conditions Precedent
--------------------
SECTION 6.01. Conditions to Each Party's Obligation To Effect
-----------------------------------------------
the Merger. The respective obligation of each party to effect the Merger is
- -----------
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. Each of the DSI Stockholder
----------------------
Approval and the UC Stockholder Approval shall have been
obtained.
(b) HSR Act. The waiting period (and any extension thereof)
--------
applicable to the Merger under the HSR Act shall have been
terminated or shall have expired.
(c) No Injunctions or Restraints. No judgment, order,
-----------------------------
decree, statute, law, ordinance, rule, regulation, temporary
74
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.
75
(e) Form S-4. The Form S-4 shall have become effective under
---------
the Securities Act and shall not be the subject of any stop order
or proceedings seeking a stop order.
(f) NYSE Listing. The shares of UC Common Stock issuable to
-------------
DSI's stockholders pursuant to this Agreement and under the DSI
Stock Plans shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(g) Pooling Letters. UC and DSI shall have received letters
----------------
from each of Price Waterhouse LLP and Ernst & Young LLP, dated as
of the Closing Date, addressed to UC and DSI, stating in
substance that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board
and applicable SEC rules and regulations.
SECTION 6.02. Conditions to Obligations of UC. The
--------------------------------
obligation of UC to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and
-------------------------------
warranties of DSI set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the
representations and warranties of DSI set forth in this Agreement
that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date (in which case as
of such date), and UC shall have received a certificate signed on
behalf of DSI by the chief executive officer and the chief
financial officer of DSI to such effect.
(b) Performance of Obligations of DSI. DSI shall have
----------------------------------
performed in all material
76
respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and UC shall have
received a certificate signed on behalf of DSI by the chief
executive officer and the chief financial officer of DSI to such
effect.
(c) Tax Opinions. UC shall have received from Cravath,
-------------
Swaine & Moore, counsel to UC, on the date of the Joint Proxy
Statement and on the Closing Date, opinions, in each case dated
as of such respective dates and stating that the Merger will be
treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that UC and
DSI will each be a party to that reorganization within the
meaning of Section 368(b) of the Code and that no gain or loss
will be recognized by the shareholders of DSI upon their exchange
of DSI stock for UC stock under Section 354 of the Code (except
to the extent such a shareholder receives cash in lieu of
fractional shares). In rendering such opinions, counsel for UC
shall be entitled to rely upon representations of officers of UC,
DSI and stockholders of DSI substantially in the form of
Exhibits D, E and F hereto.
(d) No Material Adverse Change. At any time after the date
---------------------------
of this Agreement there shall not have occurred any material
adverse change relating to DSI.
SECTION 6.03. Conditions to Obligation of DSI. The
--------------------------------
obligation of DSI to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and
-------------------------------
warranties of UC set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the
representations and warranties of UC set forth in this
77
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 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.
78
(d) No Material Adverse Change. At any time after the date
---------------------------
of this Agreement there shall not have occurred any material
adverse change relating to UC.
SECTION 6.04. Frustration of Closing Conditions. Neither UC
----------------------------------
nor DSI may rely on the failure of any condition set forth in Section 6.01, 6.02
or 6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.05.
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
SECTION 7.01. Termination. This Agreement may be terminated
------------
at any time prior to the Effective Time, whether before or after the DSI
Stockholder Approval or the UC Stockholder Approval:
(a) by mutual written consent of UC and DSI;
(b) by either UC or DSI:
(i) if the Merger shall not have been consummated by
February 28, 1997; provided, however, that the right to
-------- -------
terminate this Agreement pursuant to this Section 7.01(b)(i)
shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the DSI Stockholder Approval shall not have been
obtained at a DSI Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof;
(iii) if the UC Stockholder Approval shall not have been
obtained at a UC Stockholders Meeting duly convened therefor
or at any adjournment or postponement thereof; or
79
(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 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
80
would be proscribed by Section 4.02 but for the exceptions
therein allowing certain actions to be taken pursuant to the
proviso in the first sentence of Section 4.02(a) or the second
sentence of Section 4.02(b);
(g) by DSI, if UC shall have breached or failed to perform in
any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to the failure
of a condition set forth in Section 6.03(a) or (b), and
(B) cannot be or has not been cured within 30 days after the
giving of written notice to UC of such breach (a "UC Material
Breach") (provided that DSI is not then in DSI Material Breach of
any representation, warranty, covenant or other agreement
contained in this Agreement);
(h) by DSI in accordance with Section 4.02(b); provided that
--------
it has complied with all provisions thereof, including the notice
provisions therein, and that it complies with applicable
requirements of Section 5.09;
(i) by DSI if (i) the Board of Directors of UC or any
committee thereof shall have withdrawn or modified in a manner
adverse to DSI its approval or recommendation of the Merger, this
Agreement or the issuance of UC Common Stock in connection with
the Merger, or failed to reconfirm its recommendation within
15 business days after a written request to do so, or approved or
recommended any UC Takeover Proposal or (ii) the Board of
Directors of UC or any committee thereof shall have resolved to
take any of the foregoing actions; or
(j) by DSI, if UC or any of its officers, directors,
employees, representatives or agents shall take any of the
actions that would be proscribed by Section 4.03 but for the
exceptions therein allowing certain
81
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
82
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
83
(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
84
company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a
majority of its Board of Directors or other governing body (or,
if there are no such voting interests, 50% or more of the equity
interests of which) is owned directly or indirectly by such first
person; and
(e) "knowledge" of any person which is not an individual means
the knowledge of such person's executive officers after
reasonable inquiry.
SECTION 8.04. Interpretation. When a reference is made in
---------------
this Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein.
85
References to a person are also to its permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be executed
-------------
in one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries.
-----------------------------------------------
This Agreement (including the documents and instruments referred to herein), the
Option Agreements and the Confidentiality Agreement (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Article II, Section 5.06 and Section 5.08,
are not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. Governing Law. This Agreement shall be
--------------
governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of
-----------
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by either of 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
86
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
87
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
----------------------------
Name: Jean Gaulin
Title: Chairman of the
Board and Chief
Executive Officer
DIAMOND SHAMROCK, INC.,
by
----------------------------
Name: Roger R. Hemminghaus
Title: Chairman of the
Board, Chief
Executive Officer
and President
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
2
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
3
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
4
duties of the Chief Executive Officer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Chief
Executive Officer. Each Vice President shall perform such other duties and
have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors, no Vice
Chairman of the Board of Directors, no President and Chief Operating
Officer and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the Chief Executive
Officer or in the event of the inability or refusal of the Chief Executive
Officer to act, shall perform the duties of the Chief Executive Officer,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer."; and
(iii) Article VIII of such by-laws reads in its entirety as follows:
"ARTICLE VIII
"Indemnification
---------------
"SECTION 1. Right to Indemnification. Each person who was or is made
------------------------
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or investi-
gative (hereinafter a "proceeding"), by reason of the fact that he or she is or
was a director or an officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest 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
5
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this Article VIII with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation.
"SECTION 2. Right to Advancement of Expenses. The right to
---------------------------------
indemnification conferred in Section 1 of this Article VIII shall include the
right to be paid by the Corporation the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law so requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 2 or otherwise. The rights to indemnification
and to the advancement of expenses conferred in Sections 1 and 2 of this Article
VIII shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
"SECTION 3. Right of Indemnitee to Bring Suit. If a claim under
---------------------------------
Section 1 or 2 of this Article VIII is not paid in full by the Corporation
within 60 calendar days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 calendar days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of
6
an undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
to have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article VIII or
otherwise shall be on the Corporation.
"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
7
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."
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,
2
General Counsel and Secretary
W. R. Klesse Executive Vice President
Logistics and Supply
J. Robert Mehall Executive Vice President
Corporate Development
H. Pete Smith Executive Vice President and
Chief Financial Officer
Joel Mascitelli Senior Vice President Refining
West Coast
Paul Eisman Senior Vice President Refining
Southwest
Alain Ferland President Ultramar Limited
Christopher Havens President Ultramar Energy
A. W. O'Donnell President Marketing
Southwest and West Coast
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
2
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.
3
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:
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.]
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.
2
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
3
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:
--------------------------
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
2
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
3
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.
4
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:
--------------------------
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
2
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]
--------------------------