-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QMFjOhZ3QEJDPtmiNeTxv4qI0Wbt9HD6YS4jeaUZgUO2BF2tfmp8+PQmI1J52Lo9 xUgANXJKaMz7gugZmxOULA== 0000810316-96-000069.txt : 19961118 0000810316-96-000069.hdr.sgml : 19961118 ACCESSION NUMBER: 0000810316-96-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND SHAMROCK INC CENTRAL INDEX KEY: 0000810316 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 742456753 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09409 FILM NUMBER: 96664074 BUSINESS ADDRESS: STREET 1: 9830 COLONNADE BLVD CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2106416800 MAIL ADDRESS: STREET 1: P O BOX 696000 CITY: SAN ANTONIO STATE: TX ZIP: 78230 FORMER COMPANY: FORMER CONFORMED NAME: DIAMOND SHAMROCK R&M INC DATE OF NAME CHANGE: 19900207 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarterly period ended September 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from______________ to _______________ Commission file number: 1-9409 DIAMOND SHAMROCK, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2456753 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9830 Colonnade Boulevard, San Antonio, Texas 78230 (Address of principal executive offices) (Zip Code) 210-641-6800 (Registrant's telephone number, including area code ___________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) YES ( )NO APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ( )YES ( )NO APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of Common Stock outstanding at October 31, 1996: 29,298,218 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements DIAMOND SHAMROCK, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (dollars in millions, except per share data) Three Months Nine Months Ended Ended September 30, September 30, 1996 1995(a) 1996 1995(a) REVENUES Sales and operating revenues $1,236.5 $ 941.7 $3,639.1 $2,769.3 Other revenues, net 7.1 4.6 21.6 13.0 1,243.6 946.3 3,660.7 2,782.3 COSTS AND EXPENSES Cost of products sold 777.8 574.4 2,325.3 1,676.3 Operating expenses 164.4 106.3 460.2 304.7 Depreciation and amortization 26.5 19.4 78.2 57.5 Selling and administrative 23.3 21.9 71.3 61.5 Taxes other than income taxes 209.7 205.3 603.1 587.2 Interest 18.6 11.2 55.0 34.0 1,220.3 938.5 3,593.1 2,721.2 Income Before Tax Provision 23.3 7.8 67.6 61.1 Provision for Income Taxes 9.7 2.1 28.1 21.9 Net Income 13.6 5.7 39.5 39.2 Dividend Requirement on Preferred Stock 1.1 1.1 3.2 3.2 Earnings Applicable to Common Shares $ 12.5 $ 4.6 $ 36.3 $ 36.0 Primary Earnings Per Share $ 0.43 $ 0.16 $ 1.23 $ 1.24 Fully Diluted Earnings Per Share $ 0.42 $ 0.16 $ 1.21 $ 1.22 Cash Dividends Per Share Common $ 0.14 $ 0.14 $ 0.42 $ 0.42 Preferred $ 0.625 $ 0.625 $ 1.875 $ 1.875 Weighted Average Common Shares Outstanding (thousands of shares) Primary 29,408 29,130 29,390 29,103 Fully Diluted 32,699 32,385 32,692 32,376 (a) Reclassified to conform to 1996 presentation, to include excise taxes as a component of sales: Excise taxes for the three months ended September 30, 1996-$197.3 million; 1995-$195.4 million, and for the nine months ended September 30, 1996-$568.9 million; 1995-$556.6 million. (See Note 2) See accompanying Notes to Consolidated Financial Statements. DIAMOND SHAMROCK, INC. CONSOLIDATED BALANCE SHEET (dollars in millions, except per share data) September 30, December 31, 1996 1995 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 49.5 $ 48.6 Receivables, less doubtful receivables of $7.2; $7.1 in 1995 222.4 213.0 Inventories Finished products 196.8 204.1 Raw materials 95.8 137.4 Supplies 33.8 34.5 326.4 376.0 Prepaid expenses and other current assets 12.5 17.3 Total Current Assets 610.8 654.9 Properties and Equipment, less accumulated depreciation of $748.2; $684.2 in 1995 1,405.8 1,357.1 Excess of Cost over Acquired Net Assets, less accumulated amortization of $6.0; $0.3 in 1995 154.1 160.1 Deferred Charges and Other Assets 70.1 73.3 $ 2,240.8 $ 2,245.4 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Long-term debt payable within one year $ 4.5 $ 7.2 Accounts payable 179.9 274.3 Accrued taxes 73.9 71.0 Other accrued liabilities 123.5 137.0 Total Current Liabilities 381.8 489.5 Long-term Debt 1,014.2 957.5 Deferred Income Taxes 67.6 58.6 Other Liabilities and Deferred Credits 118.7 115.1 Stockholders' Equity Preferred Stock, $.01 par value Authorized shares - 25,000,000 Issued and Outstanding shares - 1,725,000; 1,725,000 in 1995 0.0 0.0 Common Stock, $.01 par value Authorized shares - 75,000,000 Issued shares - 29,302,321; 29,035,853 in 1995 Outstanding shares - 29,302,321; 28,994,715 in 1995 0.3 0.3 Paid-in Capital 457.4 447.8 ESOP Stock and Stock Held in Treasury (34.4) (37.4) Retained Earnings 235.2 214.0 Total Stockholders' Equity 658.5 624.7 $ 2,240.8 $ 2,245.4 See accompanying Notes to Consolidated Financial Statements. DIAMOND SHAMROCK, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (dollars in millions) Nine Months Ended September 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 39.5 $ 39.2 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 78.2 57.5 Deferred income taxes 12.2 4.0 Loss on sale of properties and equipment 0.2 1.0 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable (9.4) 29.0 Decrease (increase) in inventories 49.6 29.9 Decrease (increase) in prepaid expenses 4.8 (6.1) Increase (decrease) in accounts payable (97.1) (56.2) Increase (decrease) in taxes payable 4.6 (5.6) Increase (decrease) in accrued liabilities (13.5) (14.7) Other, net 4.7 14.1 NET CASH PROVIDED BY OPERATING ACTIVITIES 73.8 92.1 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of properties and equipment 21.0 0.7 Purchase of properties and equipment (135.8) (171.6) Expenditures for investments (4.3) (2.1) NET CASH (USED IN) INVESTING ACTIVITIES (119.1) (173.0) CASH FLOWS FROM FINANCING ACTIVITIES: Increases in long-term debt 294.0 312.7 Repayments of long-term debt (237.3) (214.5) Payments of long-term liability (2.1) (8.2) Funds received from ESOP 2.1 2.8 Sale of Common Stock 6.1 0.2 Sale of Common Stock held in treasury 1.0 0.3 Dividends paid (15.5) (15.4) Other, net (2.1) - NET CASH PROVIDED BY FINANCING ACTIVITIES 46.2 77.9 Net increase (decrease) in cash and cash equivalents 0.9 (3.0) Cash and cash equivalents at beginning of period 48.6 27.4 Cash and cash equivalents at end of period $ 49.5 $ 24.4 In January 1995, the Company acquired a portion of a crude oil import and storage terminal in a non-cash transaction under an installment purchase arrangement. The purchase price was $12.0 million. See accompanying Notes to Consolidated Financial Statements. DIAMOND SHAMROCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Financial Statements The consolidated financial statements as of September 30, 1996 and for the three months and nine months ended September 30, 1996 and 1995 are unaudited, but in the opinion of Diamond Shamrock, Inc. (the "Company"), all adjustments (consisting only of normal accruals) necessary for a fair presentation of consolidated results of operations, consolidated financial position, and consolidated cash flows at the date and for the periods indicated have been included. The consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1995 Annual Report on Form 10-K/A (filed on October 1, 1996, the "1995 Form 10K"). With respect to the unaudited consolidated financial information of the Company as of September 30, 1996, and for the three months and nine months ended September 30, 1996 and 1995, Price Waterhouse LLP has made a review (based on procedures adopted by the American Institute of Certified Public Accountants) and not an audit, as set forth in their separate report appearing herein. Such a report is not a "report" or "part of a Registration Statement" within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the liability provisions of Section 11 of such Act do not apply. 2. Classification of Excise Taxes Beginning in 1996, the Company includes federal excise taxes and state motor fuel taxes in Sales and operating revenues and in Costs and expenses for financial reporting purposes. The results of operations for the three months and nine months ended September 30, 1995 have been reclassified to conform to the 1996 presentation. The amount of such taxes for the three months ended September 30, 1996 and 1995, is $197.3 million and $195.4, respectively. The amount of such taxes for the nine months ended September 30, 1996 and 1995, is $568.9 million and $556.6, respectively. Neither operating profits nor net income are affected by the reclassification of such taxes. 3. Acquisition On December 14, 1995, the Company completed the acquisition of National Convenience Stores Incorporated ("NCS") (see footnote 4 of the 1995 Form 10-K). The acquisition was accounted for under the purchase method. Consequently, the operating results of NCS are included in the third quarter and first nine months Consolidated Statement of Income and the Consolidated Statement of Cash Flows for 1996, but not for 1995. The amount of NCS sales included in the 1996 third quarter and first nine months Consolidated Statement of Operations is $253.3 million and $643.3 million, respectively. 4. Inventories Inventories are valued at the lower of cost or market with cost determined primarily under the Last-in, First-out (LIFO) method. At September 30, 1996, current costs exceeded the LIFO cost of inventories by $12.6 million. At December 31, 1995 current costs were lower than LIFO cost by $16.0 million. Costs of all other inventories are determined on an average cost method. 5. Long-term Debt The Company currently has outstanding $90.0 million of debt designated as the 10.75% Senior Notes. As of May 1, 1996, $30.0 million of the long-term debt became payable within one year. Since the Company intends to refinance the $30.0 million repayment by the use of commercial paper or other credit facilities which would be classified as long-term, and the Company has the ability to do so, the current portion of the long-term debt payable on April 30, 1997 has been classified as long-term debt. 6. Commitments and Contingencies In connection with the 1987 Spin-off from Maxus Energy Corporation ("Maxus"), the Company agreed to assume a share of certain liabilities of Maxus' businesses discontinued or disposed of prior to the Spin-off date (see Note 17 of the 1995 Form 10-K). The Company's total liability for such shared costs is limited to $85.0 million. The Company has reimbursed Maxus for a total of $82.2 million as of September 30, 1996, including $7.3 million paid during the nine months ended September 30, 1996. See Note 3 of the 1995 Form 10-K for a discussion of the change in the method of accounting for the liability. 7. Merger On September 23, 1996, the Company announced that it had entered into a definitive merger agreement pursuant to which it would merge with and into Ultramar Corporation. The agreement provides that, upon closing, the holders of the Company's common stock will receive 1.02 shares of Ultramar common stock for each share of the Company's common stock held. The transaction is expected to be recorded as a "pooling of interests" and the name of the combined company will be Ultramar Diamond Shamrock Corporation. The merger is is expected to occur on December 3, 1996. REVIEW BY INDEPENDENT ACCOUNTANTS With respect to the unaudited consolidated financial information of the Company as of September 30, 1996 and the three months and nine months ended September 30, 1996 and 1995, Price Waterhouse LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 13, 1996, appearing below, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Price Waterhouse LLP has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Price Waterhouse LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a "report" or "part of a Registration Statement" prepared or certified by Price Waterhouse LLP within the meaning of Sections 7 and 11 of the Act. REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Diamond Shamrock, Inc. We have reviewed the consolidated interim financial information included in the Report on Form 10-Q of Diamond Shamrock, Inc. (the "Company") and its subsidiaries as of September 30, 1996 and for the three months and nine months ended September 30, 1996 and 1995. This financial information is the responsibility of the management of Diamond Shamrock, Inc. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1995, and the related consolidated statements of operations and of cash flows for the year then ended (not presented herein), and in our report dated February 23, 1996, except as to the last paragraph of Note 2 (which describes the Company's reclassification of excise and motor fuel taxes), for which our report is dated as of September 27, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Antonio, Texas November 13, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations On September 23, 1996, the Company announced that it had entered into a definitive merger agreement pursuant to which it would merge with and into Ultramar Corporation. The agreement provides that, upon closing, the holders of the Company's common stock will receive 1.02 shares of Ultramar common stock for each share of the Company's common stock held. The transaction is expected to be recorded as a "pooling of interests" and the name of the combined company will be Ultramar Diamond Shamrock Corporation. The merger is pending and is expected to occur on December 3, 1996. Results of Operations The following are the Company's sales and operating revenues and operating profit for the three months and nine months ended September 30, 1996 and 1995. Business segment operating profit is sales and operating revenues less applicable segment operating expense. In determining the operating profit of the three business segments, neither interest expense nor administrative expenses are included. Three Months Nine Months Ended Ended September 30, September 30, 1996 1995 1996 1995 Sales and Operating Revenues: Refining and Wholesale $ 503.6 $ 467.8(1) $ 1,511.9 $1,359.1(1) Retail 619.9 389.9(1) 1,829.4 1,115.0(1) Allied Businesses 113.0 84.0 297.8 295.2 Total Sales and Operating Revenues $1,236.5 $ 941.7 $ 3,639.1 $2,769.3 Operating Profit: Refining and Wholesale $ 38.4 $ 5.9 $ 109.6 $ 60.5 Retail 16.6 19.8 48.6 46.8 Allied Businesses 7.2 11.2 25.5 39.6 Total Operating Profit $ 62.2 $ 36.9 $ 183.7 $ 146.9 (1) Reclassified to conform to 1996 presentation, including excise taxes as a component of sales. Consolidated Results Third Quarter 1996 vs Third Quarter 1995 Sales and operating revenues of $1,236.5 million for the third quarter of 1996 were 31.3% higher than in the same period of 1995, primarily due to the acquisition of National Convenience Stores Incorporated ("NCS") in mid-December 1995 which contributed $253.3 million in sales and operating revenues for the quarter. Excluding the impact of the NCS acquisition, sales and operating revenues for the third quarter of 1996 increased 4.4% primarily due to a 17.5% and an 8.4% increase in refined product sales prices and volumes, respectively, in the Refining and Wholesale segment. In addition, sales and operating revenues increased 34.5% in the Allied Businesses segment, primarily due to a 33.4% and a 13.6% increase in natural gas liquids prices and volumes, respectively, and an 86.6% increase in polymer grade propylene sales volumes due to increased demand. During the third quarter of 1996, the Company had net income of $13.6 million compared to net income of $5.7 million in the 1995 third quarter. The increase in net income is primarily due to a 25.2% increase in refining margins. An increase in the market value of refinery inventories due primarily to crude oil price increases in the third quarter of 1996 also had a positive impact on net income. Fluctuations in the market value of refinery inventories had the opposite impact on the third quarter 1995 net income. Partially offsetting these increases were lower operating profits in the Company's propane/propylene business. Inventories are valued at the lower of cost or market with cost determined primarily under the Last-in, First-out (LIFO) method. At September 30, 1996, current costs exceeded the LIFO cost of inventories by $12.6 million. At December 31, 1995 current costs were lower than LIFO cost by $16.0 million. Costs of all other inventories are determined on an average cost method. Estimating the financial impact of changes in the valuation of refinery inventories due to such inventories being valued at market is difficult because of the number of variables that must be considered. For operating purposes, management attempts to estimate the impact of changes in valuation of refinery inventories on net income. The estimated after tax change in inventory values was a positive $4.0 million and negative $6.8 million in the third quarters of 1996 and 1995, respectively. Consolidated Results First Nine Months 1996 vs First Nine Months 1995 Sales and operating revenues of $3,639.1 million for the first nine months of 1996 were $869.8 million higher than for the same period of 1995, primarily due to the acquisition of NCS in mid-December 1995 which contributed $643.3 million in sales and operating revenues for the period. Excluding the impact of the NCS acquisition, sales and operating revenues for the first nine months of 1996 increased 8.2%, primarily due to a 13.6% and a 10.6% increase in wholesale refined product sales prices and volumes, respectively, in the Refining and Wholesale segment. Also contributing to the increase in sales and operating revenues was a 4.9% and a 2.0% increase in retail gasoline sales prices and volumes, respectively, from the Corner Store retail outlets. During the first nine months of 1996, the Company had net income of $39.5 million compared to net income of $39.2 million in the first nine months of 1995. An increase in refinery margins during the first nine months was offset by a decrease in demand for polymer grade propylene and ammonia fertilizer in the Company's Allied Businesses. An increase in the value of refinery inventories due primarily to crude oil price increases in the first nine months of 1996 also had a positive impact on net income. The estimated after tax impact of the change in inventory values was a positive $6.0 million and $2.9 million in the first nine months of 1996 and 1995, respectively. Segment Results Third Quarter 1996 vs Third Quarter 1995 During the third quarter of 1996, the Refining and Wholesale segment had sales and operating revenues of $503.6 million compared to $467.8 million during the third quarter of 1995. Sales and operating revenues increased primarily due to an increase in refined product prices and volumes. Operating profit in the third quarter of 1996 increased $32.5 million from the third quarter of 1995, primarily due to a 25.2% increase in refinery margins from the same period a year ago. An increase in the value of refinery inventories due primarily to crude oil price increases in the third quarter of 1996 also had a positive impact on net income. The Retail segment in the third quarter of 1996 reflected a 59.0% increase in sales and operating revenues over the third quarter of 1995, primarily due to the acquisition of NCS and its 661 retail outlets in mid-December 1995. Excluding the impact of the NCS acquisition, sales and operating revenues for the third quarter of 1996 increased 2.4%, primarily due to a 6.4% increase in retail gasoline sales prices. Operating profit in the third quarter of 1996 was $16.6 million compared to $19.8 million in the third quarter of 1995. The decrease in operating profit was primarily due to an 10.7% decrease in retail fuel margins, partially offset by a 2.3% increase in merchandise margins compared to the third quarter of 1995. During the third quarter of 1996, the Allied Businesses segment reflected an increase in sales and operating revenues of 34.5% as compared to the third quarter of 1995. This increase was primarily due to a 51.5% increase in sales and operating revenues from the Company's natural gas liquids marketing business, reflecting a 33.4% and a 13.6% increase in natural gas liquids sales prices and volumes, respectively. Also contributing to this increase was a 62.0% increase in sales and operating revenues from the Company's propane/propylene business, reflecting increased demand compared to the third quarter of 1995. Operating profits were $7.2 million for the third quarter of 1996 compared to $11.2 million in the third quarter of 1995. Operating profits decreased primarily due to a decrease in margins in the Company's propane/propylene business, and decreased demand for ammonia fertilizer compared to the third quarter of 1995. Segment Results First Nine Months 1996 vs First Nine Months 1995 Sales and operating revenues from the Refining and Wholesale segment were $1,511.9 million in the first nine months of 1996 compared to $1,359.1 million during the first nine months of 1995. The increase in sales and operating revenues was primarily due to a 13.6% and a 10.6% increase in wholesale refined product sales prices and volumes, respectively. Operating profit in the first nine months of 1996 was $109.6 million compared to $60.5 million in the first nine months of 1995. The increase in operating profit was primarily due to a 19.2% increase in refinery margins from the same period a year ago. Refinery margins increased significantly late in the first quarter of 1996, decreased somewhat in the second quarter and increased again late in the third quarter, as volatile and rising crude oil prices continued to have a significant impact on refining margins during the first nine months of 1996. The Retail segment results for the first nine months of 1996 reflected a 64.1% increase in sales and operating revenues, primarily due to the acquisition of NCS in mid-December 1995 which has contributed $643.3 million in sales and operating revenues for the period. Excluding the impact of the NCS acquisition, sales and operating revenues for the first nine months of 1996 increased 6.4%, primarily due to a 4.9% and a 2.0% increase in retail gasoline sales prices and volumes, respectively. Also contributing to the increase in sales and operating revenues was a 4.8% increase in Corner Store merchandise sales. Operating profit in the first nine months of 1996 was $48.6 million compared to $46.8 million in the first nine months of 1995. Operating profit increased primarily due to increased retail gasoline sales volumes and prices, and a 139.1% increase in merchandise sales, reflecting the contributions from the NCS acquisition. Partially offsetting these increases was an 11.4% decrease in retail fuel margins compared to the first nine months of 1995 as the retail segment was unable to completely recoup the rising wholesale fuel costs resulting from higher crude prices compared to the same period a year ago. The Allied Businesses segment results reflected an increase in sales and operating revenues of 0.9% to $297.8 million in the first nine months of 1996 as compared to the same period in 1995. This increase was primarily due to a 19.7% increase in sales in the Company's natural gas liquids business, reflecting a 20.0% increase in natural gas liquids sales prices. Partially offsetting this increase in sales and operating revenues was a 10.9% decrease in sales and operating revenues for the Company's propane/propylene business, reflecting decreased sales prices attributable to reduced demand for polymer grade propylene. Operating profits were $25.5 million for the first nine months of 1996 compared to $39.6 million in 1995. Operating profits decreased primarily due to a $9.3 million and a $3.9 million decrease in operating profit from the Company's propane/propylene and ammonia fertilizer businesses, respectively, reflecting decreased demand for polymer grade propylene and ammonia fertilizer. Outlook Although refining margins were under pressure in the third quarter, industry fundamentals remain strong. U.S. gasoline inventories continue to trend downward and gasoline demand is expected to rise with the growing economy. U.S. distillate demand for 1996 is at historically high levels due to both the cold winter and the increase in the use of on-highway diesel. Distillate inventories usually build significantly during the summer months, but this has not been the case in 1996. In fact, distillate inventories are at historically low levels, although recent reports have shown increases in domestic distillate inventories. Refinery utilization rates remain high. Conversion capacity is expected to grow, but at a more moderate rate than the last several years due to the decline in capital expenditures for the industry. There is still concern about the volatility of crude prices. The impact of Iraqi crude entering the market and the effect it will have on the price of crude remains unclear at this time. Liquidity and Capital Resources Cash Flow and Working Capital For the nine months ended September 30, 1996, cash provided by operations was $73.8 million, compared with $92.1 million in the same period of 1995. Working capital at September 30, 1996 was up $63.6 million from December 31, 1995, and consisted of current assets of $610.8 million and current liabilities of $381.8 million, or a current ratio of 1.6. At December 31, 1995, current assets were $654.9 million and current liabilities were $489.5 million, or a current ratio of 1.3. The increase in working capital was primarily due to a 34.4% and a 10.4% decrease in accounts payable and accrued liabilities, respectively. The decrease in current liabilities was partially offset by a 13.2% decrease in inventories. In addition, receivables increased during the first nine months of 1996, primarily due to increased refined product sales prices and volumes. Capital Expenditures In recent years, capital expenditures have related to a variety of projects designed to expand and maintain up-to-date refinery facilities, improve terminal and distribution systems, modernize and expand retail outlets, comply with environmental regulatory requirements, acquire businesses, and pursue new ventures in related businesses. Although the Company intends to continue to pursue acquisitions and other capital investment opportunities as those opportunities arise, the Company's near-term objective is to reduce its total debt to pre-NCS acquisition levels by year end 1997, primarily through cash flow generated from operations and the sale of non-strategic assets. In addition, the Company has reduced its capital expenditure budget compared to recent years so that revised capital spending plans are approximately $160.0 million in 1996 and $140.0 million in 1997 (1997 budget subject to final approval). Capital spending plans include the rebranding and integration of the NCS stores into the Company's systems as well as the construction of additional retail stores, principally in Arizona. The Company has completed the rebranding of the NCS gasoline retail outlets. This rebranding and integration program included signage on the street and at the pump, and upgraded security, computerization, and store interiors. Expansion and upgrading projects begun in 1995 at the Company's Three Rivers refinery will be completed in 1996, and include the recently completed heavy gas oil hydrotreater that was put on-stream in the third quarter of 1996. These projects will increase the capacity of the refinery from 75,000 to 85,000 barrels per day and will allow heavy oils to be upgraded to higher value refined products. In addition, expenditures continue at Three Rivers on the previously announced benzene, toluene, and xylene ("BTX") extraction unit, which will produce high value petrochemical feedstocks. Once completed in 1997, the BTX unit will give the Company the flexibility to shift certain components out of the gasoline pool into more attractively priced petrochemical feedstocks. Finally, the 1996 capital budget also includes construction of a second 730 million pound per year propylene splitter at Mont Belvieu which was completed in August 1996. The Company's capital and investment expenditures during the first nine months of 1996 were $139.6 million. The Company's capital expenditures were $183.6 million during the first nine months of 1995, including a non-cash investment of $12.0 million for the Corpus Christi crude oil terminal acquired under an installment purchase arrangement. The Company anticipates continued consolidation in the industries in which it operates. The Company expects from time to time to consider acquisition and other investment opportunities in the Company's core refining and marketing businesses and in the downstream petrochemicals area as opportunities may arise. Although it is presently the Company's goal to reduce debt in 1996, if its assumptions regarding operating results or capital requirements change, the Company believes that it has adequate financial flexibility through its bank credit, bank money market, commercial paper facilities, and access to the capital markets to refinance existing debt or otherwise meet its financial requirements. In June 1996, the Company issued $100.0 million in 7.65% debentures due July 1, 2026. The proceeds from the issuance of the debentures were used to re-pay outstanding short term debt. In June, July and October 1996, the Company completed the sale of 7, 27, and 43 non-strategic retail outlets, respectively. In addition, the Company opened 14 retail outlets and closed 17 marginal retail outlets during the first nine months of 1996. Regulatory Matters It is expected that rules and regulations implementing the federal, state, and local laws relating to health and environmental quality will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation, rules or regulations will be enacted in the future or how existing or future laws, rules or regulations will be administered or enforced with respect to products or activities of the Company. However, while the Company does not have any major capital programs underway designed to satisfy these requirements, compliance with more stringent laws or regulations, as well as more expansive interpretation of existing laws and their more vigorous enforcement by the regulatory agencies could have an adverse effect on the operations of the Company and could require substantial additional expenditures by the Company, such as for the installation and operation of pollution control systems and equipment. PART II. OTHER INFORMATION Item 1. Legal Proceedings On August 21, 1996, the Texas Natural Resources Conservation Commission approved an Agreed Order assessing a $995,000 penalty with a remittance of $596,440 against the Company based on completion of two Supplemental Environmental Projects by the Company: one providing funding for the City of Dumas to repair and upgrade its wastewater treatment plant with the Company contributing $320,400 to the City for $320,442 in penalty remittance, and the other replacing underground petroleum piping with above ground piping at Three Rivers and McKee, with the Company's pending $1,946,000 for $276,000 in penalty remittance. Item 2. Changes in Securities The Rights Agreement between the Company and Ameritrust Company National Association was amended effective September 22, 1996, to make the Rights outstanding in connection with the Company's common stock inapplicable to the Agreement and Plan of Merger, dated as of September 22, 1996 between Ultramar Corporation and the Company, and inapplicable to the stock option agreement executed in connection with such merger agreement, pursuant to which Ultramar Corporation was granted the right to purchase 5,858,500 shares of the Company's common stock, for the price and under the conditions set out in such option agreement. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Amendment to Rights Agreement between the Company and Ameritrust Company National Association, as described in the Company's filing on Form 8-A/A, filed October 23, 1996 and incorporated herein by reference. 10.1 Agreement and Plan of Merger, dated September 22, 1996, by and among Ultramar Corporation and the Company, filed as Exhibit to the Company's Report on Form 8-K filed on September 25, 1996 and incorporated herein by reference. 10.2 Supplemental Executive Retirement Plan, as amended through July 22, 1996. 10.3 Performance Incentive Plan, as amended through July 22, 1996. 10.4 Form of Disability Benefit Agreement. 10.5 Form of Supplemental Death Benefit Agreement. 10.6 Excess Benefit Plan of the Company, as amended through July 22, 1996. 10.7 Director s Retirement Plan of the Company, as amended through July 22, 1996. 10.8 1987 Long Term Incentive Plan of the Company, as amended through July 22, 1996. 10.9 Diamond Shamrock, Inc. Long-Term Incentive Plan, as amended through August 15, 1996. 15.1 Independent Accountants Awareness Letter 27.1 Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K was filed by the Company on, September 26, 1996 and October 10, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIAMOND SHAMROCK, INC. By: /s/ GARY E. JOHNSON Gary E. Johnson Vice President and Controller (Principal Accounting Officer) November 13, 1996 w3502.TW EX-10.2 2 Exhibit 10.2 THIRD AMENDMENT TO DIAMOND SHAMROCK, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Supplemental Executive Retirement Plan (the "Plan"). 1. New Section 2 (c) is added as follows and the former Section 2(c) and all subsequent subsections are re-lettered accordingly: (c) "Benefit Review Committee" means the committee appointed by the President, Chairman of the Board and Chief Executive Officer of the Corporation pursuant to Section 12 (c) hereof with power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan pursuant to Section 12 (c) below. 2. New Section 2 (f) is added as follows and the former Section 2 (f) and all subsequent subsections are re-lettered accordingly: (f) "Change in Control" will be deemed to have occurred when (1) a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13 (d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 10% of the combined voting power of the then-outstanding voting securities of the Corporation and such acquisition has not been authorized, approved or recommended by majority vote of the Board of Directors prior to the date of the filing of such report, or (2) such other event has occurred which the Board of Directors may, in its sole discretion, by majority vote determine to constitute a change in control. 3. Effective December 5, 1995, Section 2 (m) "Early Retirement Date" is amended by deleting the phrase "fifty-fifth (55)" and substituting the phrase "fifty-seventh (57)" in its place. 4. Effective December 5, 1995, Section 5 (b) is amended by deleting the phrase "fifty-five (55)" and substituting the phrase "fifty-seven (57)" in its place. 5. Section 6(a) is amended by the addition of the following paragraph: In the event of a Change in Control, the fraction described in clause (iii), above, will not be multiplied by the excess of (i) over (ii); clause (iii) will be eliminated from the formula for calculating the Normal Retirement Benefit. 6. Effective December 5, 1995, new Section 6(d) is added as follows: (d) Notwithstanding anything contained in Subsection (c) above to the contrary, the Normal Retirement Benefit may be paid in any of the following optional forms, at the discretion of the Compensation Committee: a life annuity; a number of equal annual installments not exceeding ten (10); a lump sum; or any other actuarially equivalent form of payment. 7. New Section 6 (e)is added as follows: (e) In the event a Participant's employment is terminated following a Change in Control, the Participant's accrued benefit shall be distributed in the form of a lump sum to the Participant within sixty (60) days of such termination. 8. Section 7(a) is amended by the addition of the following phrase to the end of clause (i): provided, however, upon a Change in Control, this clause (i) shall not apply. 9. New Section 7(c) is added to read as follows: (c) Notwithstanding anything contained herein to the contrary, in the event of a Change in Control, the right of a Participant to receive or to continue to receive any benefits hereunder shall at all times be fully vested and nonforfeitable. 10. The first sentence of the fourth paragraph of Section 12(a) is amended by deleting the phrase "Compensation Committee" and replacing it with "Benefit Review Committee." 11. Section 12(b) is amended by deleting the phrase "Compensation Committee" from each place in which it appears in the Section and replacing it with "Benefit Review Committee." 12. Section 12 is further amended by adding new subsections (c) and (d) as follows: (c) The President, Chairman of the Board and Chief Executive Officer of the Corporation shall appoint a Benefit Review Committee consisting of not less than three nor more than five persons, having the administrative responsibilities and discretionary authority described in this Section 12. The Benefit Review Committee has full power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan. The determinations of the Benefit Review Committee shall be final and binding, subject only to Subsection (d), below. (d) The Plan and any claims arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim has been appealed from the Claims Coordinator to the Benefit Review Committee and the claimant desires to appeal the decision of the Benefit Review Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. The following amendments shall be effective December 5, 1995, and shall apply only to any Participant in the Plan who is designated a Participant on or after December 5, 1995: 13. Section 2(a) "Average Monthly Compensation" is amended to read in its entirety as follows: (a) "Average Monthly Compensation" means the result obtained by dividing the sum of the total Basic Compensation paid to a Participant during a considered period plus the total Incentive Compensation earned by a Participant with respect to such considered period by the number of months in the considered period. The considered period shall be the three (3) complete consecutive calendar years within the ten (10) consecutive calendar year period ending prior to the Participant's date of termination or disability, which yield the highest Average Monthly compensation, or in the event the Participant was employed for fewer than three (3) calendar years within such ten-year period, the considered period shall be all complete calendar months of Service with the Corporation. For purposes of determining whether Basic Compensation or Incentive Compensation was paid to or earned by, respectively, a Participant, no reduction shall be made for any amount deferred therefrom or for any pre-tax contribution made therefrom to any Qualified Plan. 14. Section 2(b) is amended to read in its entirety as follows: (b) "Basic Compensation" means the paid base salary, paid sick days, paid vacation days taken for a calendar year, and payment for unused vacation time made to a Participant upon his termination of employment, but excluding Incentive Compensation, any amount previously deferred from Basic Compensation or Incentive Compensation, moving expenses, severance pay, payments under long-term disability insurance, income resulting from the exercise of stock appreciation rights, employee stock options, restricted stock awards and dividends thereon, performance units, and any other right granted under the Diamond Shamrock, Inc. 1987 Long Term Incentive Plan and the Diamond Shamrock, Inc. Long Term Incentive Plan, and the value of any perquisites, welfare benefits and fringe benefits such as life, medical, disability, or hospitalization insurance premiums and contributions made by the Corporation allocated to a Participant under any Qualified Plan. 15. Section 6(a) is amended to read in its entirety as follows: (a) The monthly Normal Retirement Benefit of a Participant shall be equal to the amount calculated by subtracting (iii) from the product of (i) multiplied by (ii), as follows: (i) sixty percent (60%) of his Average Monthly Compensation, multiplied by (ii) a fraction, the numerator of which is the Participant's number of complete years of Plan Participation (but not greater than ten (10)) and the denominator of which is ten (10) minus (iii) the sum of his Other Retirement Benefits; provided, however, that for purposes of this Section 6 (a), the Compensation Committee may credit a Participant with additional complete years of Plan Participation, and may provide that a Participant's Normal Retirement Benefit shall in no event be less than the product obtained by multiplying the fraction prescribed by clause (ii), above, by an amount specified by the Committee. In the event of a Change in Control, the benefit described in clause (i), above, will not be multiplied by the fraction described in clause (ii); clause (ii) will be eliminated from the formula for calculating the Normal Retirement Benefit. 16. Section 6(b) is amended to read in its entirety as follows: (b) The monthly Early Retirement Benefit of a Participant shall be equal to the amount calculated by subtracting (iv) from the product of (i) multiplied by (ii) and (iii), as follows: (i) sixty percent (60%) of his Average Monthly Compensation, multiplied by (ii) a fraction, the numerator of which is the Participant's number of complete years of Plan Participation (but not greater than ten (10)) and the denominator of which is ten (10), multiplied by (iii) the percentage obtained by multiplying five percent (5%) by the number of years and/or partial year, rounded to the nearest month, that the Early Retirement Date precedes the earlier of his sixty-second (62nd) birthday or his Normal Retirement Date, minus (iv) the sum of his Other Retirement Benefits; provided, however, that for purposes of this Section 6 (b), the Compensation Committee may credit a Participant with additional complete years of Plan Participation, and may provide that a Participant's Normal Retirement Benefit shall in no event be less than the product obtained by multiplying the fraction prescribed by clause (ii), above, by an amount specified by the Committee. In the event of a Change in Control, the benefit described in clause (i), above, will not be multiplied by the fraction described in clause (ii); clause (ii) will be eliminated from the formula for calculating the Early Retirement Benefit. Except as stated otherwise herein, the foregoing amendments shall be effective as of May 7, 1996. Except as amended herein, by that First Amendment date June 2, 1988, and by that Second Amendment dated January 17, 1990, the terms and provisions of said Plan shall remain in full force and effect. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W2803.LW EX-10.3 3 Exhibit 10.3 AMENDMENT TO DIAMOND SHAMROCK, INC. PERFORMANCE INCENTIVE PLAN Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Performance Incentive Plan (the "Plan"). 1. Section III is amended by the addition of the definition of "Change in Control" as follows: "Change in Control" will be deemed to have occurred when (1) a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13 (d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 25% of the combined voting power of the then-outstanding voting securities of the Corporation and such acquisition has not been authorized, approved or recommended by majority vote of the Board of Directors prior to the date of the filing of such report, or (2) such other event has occurred which the Board of Directors may, in its sole discretion, by majority vote determine to constitute a change in control. 2. New Section VIII is added as follows: VIII. CHANGE IN CONTROL Notwithstanding anything contained herein to the contrary, in the event of a Change in Control, a prorated portion of each participant's Performance Incentive Award will vest, based on the number of months or portion of a month completed at the time of the Change in Control. [Upon a Change in Control, the award will be calculated based on performance at target level,] and the award will be paid entirely in cash within thirty (30) days of the Change in Control. 3. New Section IX is added as follows: IX. DIALOGUE The Plan and any claims arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). Any such claims or appeals of claim decisions must be conducted solely within the limitations and procedures of Dialogue. The foregoing amendments shall be effective as of May 7, 1996. Except as amended herein, the terms and provisions of said Plan shall remain in full force and effect. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W3132.LW EX-10.4 4 Exhibit 10.4 AMENDMENT TO DIAMOND SHAMROCK, INC. DISABILITY BENEFIT AGREEMENT Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Disability Benefit Agreement (the "Agreement"). 1. New Section 7 is added as follows and the former Section 7 is re-numbered Section 8: 7. BENEFIT REVIEW COMMITTEE; DIALOGUE. (a) The President, Chairman of the Board and Chief Executive Officer of the Company shall appoint a Benefit Review Committee consisting of not less than three nor more than five persons, having the administrative responsibilities and discretionary authority described in this Section 7. The Benefit Review Committee has full power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan. The determinations of the Benefit Review Committee shall be final and binding, subject only to Subsection (b), below. (b) The Plan and any claims arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim has been has been appealed from the administrator to the Benefit Review Committee and the claimant desires to appeal the decision of the Benefit Review Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. The foregoing amendments shall be effective as of May 7, 1996. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W3135.LW EX-10.5 5 Exhibit 10.5 AMENDMENT TO DIAMOND SHAMROCK, INC. SUPPLEMENTAL DEATH BENEFIT AGREEMENT Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Supplemental Death Benefit Agreement (the "Agreement"). 1. New Section 7 is added as follows and the former Section 7 is re-numbered Section 8: 7. BENEFIT REVIEW COMMITTEE; DIALOGUE. (a) The President, Chairman of the Board and Chief Executive Officer of the Company shall appoint a Benefit Review Committee consisting of not less than three nor more than five persons, having the administrative responsibilities and discretionary authority described in this Section 7. The Benefit Review Committee has full power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan. The determinations of the Benefit Review Committee shall be final and binding, subject only to Subsection (b), below. (b) The Plan and any claims arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim has been has been appealed from the administrator to the Benefit Review Committee and the claimant desires to appeal the decision of the Benefit Review Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. The foregoing amendments shall be effective as of May 7, 1996. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W3136.LW EX-10.6 6 Exhibit 10.6 AMENDMENT TO DIAMOND SHAMROCK, INC. EXCESS BENEFITS PLAN Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Excess Benefits Plan (the "Plan"). 1. New Section 2 (a) is added as follows and the former Section 2 (a) and all subsequent subsections are re-lettered accordingly: (a) "Benefit Review Committee" means the committee appointed by the President, Chairman of the Board and Chief Executive Officer of the Corporation pursuant to Section 14 (c) hereof with power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan pursuant to Section 14 (c) below. 2. New Section 2 (d) is added as follows and the former Section 2 (d) and all subsequent subsections are re-lettered accordingly: (d) "Change in Control" will be deemed to have occurred when (1) a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13 (d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 25% of the combined voting power of the then-outstanding voting securities of the Corporation and such acquisition has not been authorized, approved or recommended by majority vote of the Board of Directors prior to the date of the filing of such report, or (2) such other event has occurred which the Board of Directors may, in its sole discretion, by majority vote determine to constitute a change in control. 3. Effective January 1, 1996, Section 2 (e) "CODA" is amended by the addition of the following phrase at the end of such section: "provided, however; that the Diamond Shamrock, Inc. 401(k) Retirement Savings Plan is specifically excluded from the definition of "CODA." 4. Effective January 1, 1994, Section 8 is amended to read as follows: (a) Subject to the rights of general creditors as set forth in Section 12 and the right of the Corporation to discontinue the Plan as provided in Section 15(c), a Participant shall have a vested and nonforfeitable interest in the benefits payable under Sections 4, 6, and 7 to the same extent and in the same manner as the Participant's benefits are vested under the CARIP, the ESIP, and the CODA, respectively. (b) Subject to the rights of general creditors as set forth in Section 12 and the right of the Corporation to discontinue the Plan as provided in Section 15(c), a Participant shall have a vested and nonforfeitable interest in the ESOP benefits payable under Section 5 at the time the ESOP benefit is allocated to the Participant's ESOP account. 5. Section 9 is amended by the addition of the following sentence at the end of such section: In the event a Participant's employment is terminated following a Change in Control, the Participant's accrued benefit shall be distributed in the form of a lump sum to the Participant within sixty (60) days of such termination. 6. The first sentence of the fourth paragraph of Section 14(a) is amended by deleting the phrase "Compensation Committee" and replacing it with "Benefit Review Committee." 7. Section 14(b) is amended by deleting the phrase "Compensation Committee" from each place in which it appears in the Section and replacing it with "Benefit Review Committee." 8. Section 14 is further amended by adding new subsections (c) and (d) as follows: (c) The President, Chairman of the Board and Chief Executive Officer of the Corporation shall appoint a Benefit Review Committee consisting of not less than three nor more than five persons, having the administrative responsibilities and discretionary authority described in this Section 14. The Benefit Review Committee has full power and authority to construe the Plan and determine all questions of eligibility and interpretation under the Plan. The determinations of the Benefit Review Committee shall be final and binding, subject only to Subsection (d), below. (d) The Plan and any claims arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim has been appealed from the Claims Coordinator to the Benefit Review Committee and the claimant desires to appeal the decision of the Benefit Review Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. Except as provided otherwise, the foregoing amendments shall be effective as of May 7, 1996. Except as amended herein, the terms and provisions of said Plan restated effective December 1, 1992, shall remain in full force and effect. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W3133.LW EX-10.7 7 Exhibit 10.7 AMENDMENT TO DIAMOND SHAMROCK, INC. RETIREMENT PLAN FOR DIRECTORS Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Retirement Plan for Directors (the "Plan"). 1. New Sections 4 and 5 are added as follows and the former Sections 4 and 5 and all subsequent sections are re-numbered accordingly: 4. No Further Accrual of Benefits Effective May 7, 1996, no further Benefits shall accrue to any Non-Employee Director under this Plan and all Benefits accrued to date are frozen. 5. Lump Sum Distribution upon a Change in Control In the event a Non-Employee Director's services as a director of the Corporation are terminated following a Change in Control, the Non- Employee Director's Benefit shall be distributed in the form of a lump sum to the Non-Employee Director within sixty (60) days of such termination. "Change in Control" will be deemed to have occurred when (1) a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13 (d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 25% of the combined voting power of the then-outstanding voting securities of the Corporation and such acquisition has not been authorized, approved or recommended by majority vote of the Board of Directors prior to the date of the filing of such report, or (2) such other event has occurred which the Board of Directors may, in its sole discretion, by majority vote determine to constitute a change in control. The foregoing amendment shall be effective as of May 7, 1996 and except as amended herein, the terms and provisions of said Plan shall remain in full force and effect. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W2802.LW EX-10.8 8 Exhibit 10.8 AMENDMENT TO DIAMOND SHAMROCK, INC. 1987 LONG TERM INCENTIVE PLAN Diamond Shamrock, Inc., a Delaware corporation, pursuant to authority granted by its Board of Directors, hereby adopts the following amendment to its Excess Benefits Plan (the "Plan"). 1. New Section 11 is added as follows: The Plan and any claims of all Participants, with the sole exception of non-employee Directors, arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim of a Participant (other than a non-employee Director) has been filed with the Committee, the Committee has responded to the claim, and the claimant desires to appeal the decision of the Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. The foregoing amendment shall be effective as of May 7, 1996. Except as amended herein and by that amendment dated June 2, 1987, the terms and provisions of said Plan shall remain in full force and effect. Executed this 22nd day of July, 1996. DIAMOND SHAMROCK, INC. By: /s/ WILLIAM R. KLESSE William R. Klesse Executive Vice President W3143.LW EX-10.9 9 DIAMOND SHAMROCK, INC. LONG-TERM INCENTIVE PLAN As Amended and Restated as of August 15, 1996 The purpose of this Diamond Shamrock, Inc. Long-Term Incentive Plan (the "Plan") is to promote the long-term success of Diamond Shamrock, Inc. (the "Company") by providing the directors, officers, and other salaried employees of the Company, its subsidiaries, and its affiliates (the "Participants") with incentives to create excellent performance and to continue their association with the Company, its subsidiaries, and its affiliates. In addition, the Plan operates to encourage Participants to become stockholders of the Company and by providing actual share ownership through Plan awards, it is also intended that Participants will view the Company from a stockholder's perspective. 1. Aggregate Limitations on Shares Available Under the Plan. The total number of shares of common stock, $.01 par value ("Common Shares"), of the Company which are issued or transferred under the Plan shall not in the aggregate exceed 3,500,000 Common Shares, subject to the adjustments authorized by Section 5; provided, however, that the number of Common Shares issued or transferred as restricted shares that become nonforfeitable solely contingent upon the participant attaining a certain length of service with the Company shall not in the aggregate exceed 314,000 Common Shares, subject to adjustment as provided in Section 5 of this Plan. For the purposes of this Section 1: (a) Upon payment in cash of the award provided by any SAR, Performance Award, or Securities Award (as hereinafter defined) (together with an Option, a "Right") granted under this Plan, any Common Shares that were covered by that Right, shall again be available for issuance or transfer hereunder. (b) Upon the full or partial payment of the price of any Right by the transfer to the Company of Common Shares or upon satisfaction of tax withholding obligations in connection with any such exercise or any other payment made or benefit realized under this Plan by the transfer or relinquishment of Common Shares, there shall be deemed to have been issued or transferred under this Plan only the net number of Common Shares actually issued or transferred by the Company determined by subtracting the number of Common Shares so transferred or relinquished. If any Securities Awards (as hereinafter defined) are issued or transferred that pertain to Company stock other than Common Shares, there will be deemed to have been issued a number of Common Shares equal to the number of shares of such other stock so issued or transferred. In the event that such other stock is convertible into Common Shares, there will be deemed to have been issued a number of Common Shares equal to the number of Common Shares into which such other stock is convertible. 2. Administration. The Plan will be administered by the Compensation Committee (or any successor committee) of the Company's Board of Directors (the "Committee") consisting of not fewer than two directors each of whom shall be a "non-employee director" within the meaning of Rule 16b-3 or any successor rule promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") and an "outside director" within the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") . The Committee, subject to the Company's By-Laws, will from time to time establish rules for the calling and conduct of its meetings and the taking of action thereat or otherwise. In addition to the authority prescribed elsewhere herein, the Committee will have the authority in its sole discretion from time to time (i) subject to Section 3, to prescribe such limitations, restrictions, conditions upon, provisions for vesting and acceleration of, provisions prescribing the nature and amount of legal consideration to be received upon the award or exercise of any Right and all other terms and conditions of any award of any Right as the Committee deems appropriate, provided that none of the foregoing conflicts with any of the express terms of the Plan and that the foregoing are set forth in the instrument granting any Right or in the regulations referred to elsewhere in this Section 2, (ii) to interpret the Plan and to adopt, amend and rescind rules and regulations for implementing and administering the Plan, and (iii) to make all other determinations and take all other actions that the Committee deems necessary or advisable for the implementation and administration of the Plan. All such actions will be final, conclusive, and binding. No member of the Committee will be liable for any grant or award or action taken or decision made in good faith relating to the Plan or any grant or award thereunder. 3. Rights. The Committee may from time to time, and upon such terms and conditions as it determines in its discretion, authorize the granting of Rights to officers (including officers who are directors) and other salaried employees of the Company or any of its majority-owned subsidiaries who, in the judgment of the Committee based upon information furnished to it, individually or by classification are expected to contribute to the Company's long term business and prospects. Such Rights may include, as the Committee may determine in its discretion, any of the following Rights or any combination thereof: (a) options ("Options") to purchase Common Shares, which may be either incentive stock Options intended to qualify for treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO's") or non-qualified Options which are not intended to so qualify; (b) stock appreciation rights ("SARs") to receive in respect of Common Shares subject to Options granted under the Plan: (i) whole Common Shares having an aggregate Fair Market Value (as hereinafter defined) equal to a percentage (up to 100%) of the aggregate appreciation in value of the Common Shares in respect of which the SAR is exercised, measured by the difference between the aggregate Option price for such Common Shares and their aggregate Fair Market Value (as hereinafter defined); (ii) cash in an amount equivalent to that percentage appreciation determined under clause (a); or (iii) any combination of cash and whole Common Shares having a Fair Market Value (as hereinafter defined), in the aggregate, equal to the percentage appreciation determined under clause (a); (c) rights ("Performance Awards") to receive, with respect to or unrelated to Common Shares subject to Options or SARs granted under the Plan, a predetermined amount, payable in cash or Common Shares, on such terms and subject to such conditions including performance targets as may be determined by the Committee, in its discretion. Performance Awards may be payable over a specific period, and may be vested in whole or in part on the date of award thereof, as determined from time to time by the Committee in its discretion; and (d) awards ("Securities Awards") of Common Shares, of other shares of capital stock, or of other securities of the Company, which awards may be absolute or contingent upon continuation of employment or achievement of one or more performance targets, may provide for payment by the recipient of cash or deferred consideration that is less than the Fair Market Value of such securities or for no such consideration, and may provide for repurchase of such securities by the Company in specific circumstances, all on such terms and subject to such conditions as may be determined by the Committee in its discretion. Securities Awards may be payable over a specific period, and may be vested in whole or in part on the date of the award thereof, as determined from time to time by the Committee in its discretion. Rights, when so determined by the Committee, will be subject to such financial or non-financial performance or other criteria as may be adopted from time-to-time by the Committee in its discretion. The performance criteria ("Performance Criteria") applicable to any award to a Participant who is, or is determined by the Committee, to be likely to become, a "covered employee" within the meaning of Section 162(m) of the Code (or any successor provision) shall be limited to growth, improvement or attainment of certain levels of: (i) return on capital, equity, or operating assets; (ii) margins; (iii) total stockholder return or market value relative to other companies selected by the Committee; (iv) operating profit or net income; (v) sales, throughput, or product volumes; or (vi) costs or expenses. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management performance objectives to be unsuitable, the Committee may modify such Performance Criteria or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable; provided, however, that no such modification shall be made in the case of any award to a Participant who is, or is determined by the Committee to be likely to become, a covered employee if the effect would be to cause the award to fail to qualify for the performance-based exception to Section 162(m) of the Code (or any successor provision). In addition, at the time the Right is awarded and performance goals established, the Committee is authorized to determine the manner in which the Performance Criteria will be calculated or measured to take into account certain factors over which Participants have no or limited control including market related changes in inventory value, changes in industry margins, changes in accounting principles, and extraordinary charges to income. Subject to adjustment as provided in Section 5 of this Plan, no Participant shall be granted under this Plan in any fiscal year: (i) Options and SARs, in the aggregate, for more than 200,000 Common Shares; (ii) Performance Awards and Securities Awards, in the aggregate, for more than 200,000 Common Shares; and (iii) Performance Awards, in the aggregate, for more than $1,000,000. Each of the foregoing Rights will contain and be subject to such other terms and conditions as the Committee from time to time determines pursuant to Sections 1 or 2 or otherwise. Payment for any Right may be made by the delivery of cash, Common Shares, any combination thereof, or other consideration, as determined from time to time by the Committee in its discretion. Any grant may provide for deferred payment of the Option price from the proceeds of sale through a broker of some or all of the Common Shares to which the exercise relates. The Committee shall not, without the further approval of the stockholders of the Company, authorize the amendment of any outstanding Option to reduce the Option price or authorize the amendment of any outstanding SAR to reduce the base price. Furthermore, no Option or SAR shall be canceled and replaced with awards having a lower Option price or base price without the further approval of the stockholders of the Company. Further, the Committee may in its discretion prohibit a terminated employee from exercising a previously granted Option or otherwise receiving the benefit of any previously granted Right if such terminated employee has an outstanding loan from the Company, any parent or any majority-owned subsidiary or any predecessor of any such corporations. Notwithstanding any of the foregoing, the Company retains the right to convert any previously granted ISO's to non-qualified Options. The Committee may provide for the grant, to any optionee except to a non-employee director, of additional Options ("Reload Options") upon the exercise of Options, including Reload Options, through the delivery of Common Shares; provided, however, that (i) Reload Options may be granted only with respect to the same number of Common Shares as were surrendered to exercise the Options and (ii) the exercise price of the Reload Options will be the Fair Market Value (as hereinafter defined). 4. Transferability. No Option or other derivative security (as that term is used in Rule 16b-3 of the Exchange Act) granted under this Plan may be transferred by a Participant except by will or the laws of descent and distribution. Options and SARs granted under this Plan may not be exercised during a Participant's lifetime except by the Participant or, in the event of the Participant's legal incapacity, by his guardian or legal representative, acting in a fiduciary capacity on behalf of the Participant under state law and court supervision. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide for the transferability of particular awards under this Plan so long as such provisions will not disqualify the exemption of other awards under Rule 16b-3 of the Exchange Act. 5. Exercise Price; Adjustments. The exercise price of any Option may not be less than the fair market value of the Common Shares covered thereby as determined by the Committee from time-to-time ("Fair Market Value") . The Committee may, but will not be required to, make or provide for such adjustments (eliminating fractions) in the originally specified price or in the number or kind of Common Shares covered by outstanding Rights or in other consideration which has been previously granted or is available for issuance under the Plan (including shares of another issuer) as the Committee may determine is equitably required to prevent dilution, enlargement or any other change of or in the rights of recipients that otherwise would result from any merger, spin-off or other distribution of assets to shareholders, consolidation, reorganization, assumption, and conversion of outstanding grants due to an acquisition, or other business combination transaction, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise, from the date that any Right is granted or awarded by the Committee. Moreover, the Committee may on or after the date of grant provide in the agreement evidencing any award under this Plan that the holder of the award may elect to receive an equivalent award in respect of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect, or the Committee may provide that the holder will automatically be entitled to receive such an equivalent award. The Committee may also make or provide for such adjustments in the maximum number of Common Shares specified in Sections 1 and 3 of this Plan as the Committee may in good faith determine to be appropriate in order to reflect any transaction or event described in this Section 5. 6. Incentive Options. No ISO shall be granted after the ten (10) year period following the adoption of the Plan and no ISO shall be exercisable after the expiration of ten (10) years from the date of grant. Notwithstanding the provisions of Section 1 to the contrary, any Common Shares subject to an SAR which has been granted in tandem with an ISO will not be available for issuance under the Plan upon exercise of such SAR. Notwithstanding the provisions of Section 5 to the contrary, no adjustment shall be made with respect to any Option intended to qualify as an ISO if such an adjustment would prevent such Option from so qualifying. 7. Foreign Participants. Subject to the provisions of Section 12, the Committee may, in order to fulfill the Plan purposes and without amending the Plan, modify previously granted Rights to employees who are foreign nationals or employed outside the United States to recognize differences in local law, tax policy or custom. 8. Non-Employee Directors: Restricted Shares. Each non-employee director will be granted Common Shares that are forfeitable and nontransferable except as provided in this Section 8 ("Restricted Shares") in lieu of 100% of his or her annual retainer on the terms and conditions set forth in this Section 8. Prior to August 15, 1996, a non-employee director elected to the Board was awarded, on the day of election, Restricted Shares with respect to one-third (1/3) of the amount of his annual retainer payable for the next five years. In addition, a non-employee director could elect to receive Restricted Shares in lieu of the remainder of his annual retainer. Any amount not converted to Restricted Shares was payable in cash in the year in which it was earned. To coincide with the Company's desire to foster a greater ownership interest by the non-employee directors of the Company, the Plan has been amended and restated. The Plan currently provides that a non-employee director will receive Restricted Shares in lieu of 100% of his annual retainer payable for the five year period following election to the Board of Directors. Non-employee directors who were appointed to the Board on or before August 6, 1996 will receive an additional grant of Restricted Shares representing the amount of annual retainer for the period remaining in any current Retainer Grant that the non-employee director elected to receive in cash (as described below). (a) Non-employee Directors Appointed On or Before August 6, 1996. (i) Wraparound Grant. Non-employee directors serving on August 6, 1996 will receive an additional grant of Restricted Shares on September 1, 1996 in lieu of any amounts payable in cash that are attributable to the period of time remaining in a non-employee director's Retainer Grant (as defined below) (the "Wraparound Grant"). The total number of Restricted Shares included in each Wraparound Grant will be equal to the amount of the non-employee director's remaining annual retainer as provided in this Section 8(a), divided by the closing sale price per share of the Common Shares as reported in the New York Stock Exchange Composite Transactions Report (or any other consolidated transactions reporting system which subsequently may replace such Composite Transactions Report) for the New York Stock Exchange trading day immediately preceding such Wraparound Grant, or if there are no sales on such date, on the next preceding day on which there were sales, and rounded up to the next whole Restricted Share. (ii) Restrictions and Conditions on Wraparound Grant. The Restricted Shares subject to a Wraparound Grant will become transferable and nonforfeitable on a pro-rata basis on the first Tuesday in May (the "Anniversary Date") during the remaining term of the Retainer Grants in a manner similar to the non-employee director's outstanding Retainer Grant; provided, however, the number of Restricted Shares that will become transferable and nonforfeitable on the Anniversary Date which immediately follows the date of grant will be determined in a manner reflecting service from September 1, 1996 through May 6, 1997. (b) Non-employee Directors Appointed After August 6, 1996. Non-employee directors first elected to the Company's Board of Directors after August 6, 1996 will be granted Restricted Shares on the date of election to the Board of Directors. The amount of the non-employee director's annual retainer used to determine the amount of the Retainer Grant attributable to the first partial year of service of any new non-employee director elected to the Board of Directors in a month other than May will be pro-rated to the Anniversary Date which follows election to the Board of Directors. (c) Renewal Grants. Each non-employee director will be granted additional Restricted Shares on the fifth Anniversary Date that follows the initial date of grant of Restricted Shares pursuant to Section 8(b) of the Plan or former Section 8(a) of the Plan, and on each succeeding fifth Anniversary Date thereafter. (d) Price and Number of Restricted Shares Awarded. Each non-employee director will receive 100% of the value of his annual retainer to which he would otherwise be entitled during the five (5) years following the date of grant in the form of Restricted Shares (the "Retainer Grant") . Retainer Grants will be made on the date of grant provided in Section 8(b) or Section 8(c), as the case may be. The total number of Restricted Shares included in each such Retainer Grant will be equal to the amount of the non-employee director's annual retainer as provided in Section 8(b) or this Section 8(d) of the Plan, as the case may be, divided by the closing sale price per share of the Common Shares as reported in the New York Stock Exchange Composite Transactions Report (or any other consolidated transactions reporting system which subsequently may replace such Composite Transactions Report) for the New York Stock Exchange trading day immediately preceding such Retainer Grant, or if there are no sales on such date, on the next preceding day on which there were sales, and rounded up to the next whole Restricted Share. (e) Vesting of Restricted Shares. (i) In General. Twenty percent (20%) of the Restricted Shares subject to a Retainer Grant will become transferable and nonforfeitable one year after the Anniversary Date on which the Retainer Grant was made. An additional twenty percent (20%) will become transferable and nonforfeitable two, three, four, and five years after the Anniversary Date on which the Retainer Grant was made. The foregoing percentages will not apply, however, to any non-employee director who is first elected to the Company's Board of Directors after August 6, 1996 and in a month other than May. (ii) Non-employee Directors Appointed After August 6, 1996 and for Less that a Complete First Year. The number of Restricted Shares awarded to any non-employee director appointed after August 6, 1996 and in a month other than May that becomes transferable and nonforfeitable on the Anniversary Date which immediately follows the date of such election will equal 20% of the total number of Restricted Shares that would have been awarded to the director had he or she first become a non-employee director as of the Anniversary Date immediately prior to election to the Board of Directors (the "Full Term Share Amount") multiplied by a fraction, the numerator of which is the amount of the annual retainer paid to such non-employee director for service as a director for the period ending on the Anniversary Date which immediately follows the date of election and the denominator of which is the total annual retainer payable to such non-employee director as if he or she had been a non-employee director as of the Anniversary Date immediately prior to election to the Board of Directors. An additional 20% of the Full Term Share Amount will become transferable and nonforfeitable on the Anniversary Dates which are one, two, three, and four years after the Anniversary Date which immediately follows the date of election to the Board of Directors. (f) Termination of Non-employee Director's Board Membership. If a non-employee director's services as a board member are terminated for any reason at any time before completion of the non-employee director's annual term of service, the portion of the Restricted Shares that would have become nonforfeitable and transferable at the end of such complete annual term will become nonforfeitable and transferable pursuant to this Section 8(f), and Section 8(e) shall not apply. The number of whole Restricted Shares that will become transferable and nonforfeitable will be determined by multiplying the number of Restricted Shares by a fraction, the numerator of which will equal the number of complete three-month periods during which at all times such non-employee director was serving as a non-employee director within the twelve-month period in which the non-employee director's service terminates (such twelve-month period to commence on the first day of May and such three-month periods to commence on August 1, November 1 and February 1) and the denominator of which is four (4). (g) Increase of Retainer Fees. Any increase in retainer fees paid to non-employee directors by the Company occurring after September 1, 1996, will be reflected in an additional wraparound grant for the period of time remaining in each such non-employee director's outstanding Retainer Grant made pursuant to this Section 8. The number of Restricted Shares to be included in such grant and the vesting of such Restricted Shares shall be determined in a manner consistent with the provisions of Section 8(a). (h) Written Agreement. Each non-employee director will enter into an agreement with the Company which will set forth the terms of the Wraparound Grant and the Retainer Grant, in such form as the Committee determines is consistent with the provisions of the Plan. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan will govern. 9. Non-Employee Directors: Options. (a) Grant of Options. Each non-employee director shall be granted, as of the close of business on each Anniversary Date, an Option to purchase 1,500 Common Shares. Each such grant shall be evidenced by an agreement in such form as attached to this Plan as Appendix A or such other form as the Committee determines is consistent with the provisions of the Plan, and shall be subject to the additional terms and conditions set forth in this Section 9. (b) Terms and Exercise of Options. (i) Except as provided in subsection (iii) below, 100% of the Option shall become exercisable three years from the date the Option is granted. (ii) An Option shall expire ten years from the date the Option is granted and shall be subject to earlier termination as hereinafter provided. Once an Option becomes exercisable, it may thereafter be exercised, wholly or in part, at any time prior to its expiration or termination. In the event of termination of service on the Company's Board of Directors, other than as provided in subsection (iii) below, an outstanding Option may be exercised only to the extent it was exercisable on the date of such termination and shall expire three years after such termination, or on its stated expiration date, whichever occurs first. (iii) Upon the occurrence of any of the following events prior to the expiration of an Option, the Option shall become immediately and fully exercisable: (1) death of the Director; (2) disability of the Director; (3) the Director ceases to be a director of the Company and is eligible to participate in the Diamond Shamrock, Inc. Retirement Plan for Directors; or (4) change in control of the Company which will be deemed to have occurred when a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13 (d)(3) or Section 14 (d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 25% of the combined voting power of the then-outstanding voting securities of the Company. (c) Exercise Price. The exercise price of any Option granted to a Non-Employee Director shall be equal to the closing sale price per share of the Common Shares as reported in the New York Stock Exchange Composite Transactions Report (or any other consolidated transactions reporting system which subsequently may replace such Composite Transactions Report) for the New York Stock Exchange trading day immediately preceding such grant, or if there are no sales on such date, on the next preceding day on which there were sales. (d) Payment. An Option may be exercised by a Non-Employee Director only upon payment to the Company in full of the Option price of the Common Shares to be delivered. Such payment shall be made in cash or in Common Shares previously owned by the optionee for more than six months, or in a combination of cash and such Common Shares. 10. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for the withholding are insufficient, it shall be a condition to the receipt of any such payment or the realization of any such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of any taxes required to be withheld. At the discretion of the Committee, any such arrangements may without limitation include relinquishment of a portion of any such payment or benefit or the surrender of outstanding Common Shares. The Company and any Participant or such other person may also make similar arrangements with respect to the payment of any taxes with respect to which withholding is not required. 11. Effective Date. The Plan is effective as of May 1, 1990; the amendments to the Plan approved by the Company's Board of Directors on August 6, 1996 will become effective on August 15, 1996. All awards made prior to any amendment are subject to the terms of the Plan in effect as of the date of the grant. 12. Amendment. (a) This Plan may be amended from time-to-time by the Committee; provided, however, except as expressly authorized by this Plan, no such amendment shall increase the maximum number of Common Shares specified in Sections 1 and 3 hereof, or otherwise cause this Plan to cease to satisfy any applicable condition of Rule 16b-3 of the Exchange Act without the further approval of the stockholders of the Company. (b) Any Right that may be granted pursuant to an amendment to this Plan that shall have been adopted without the approval of the stockholders of the Company shall be null and void if it is subsequently determined that such approval was required in order for this Plan to continue to satisfy the applicable conditions of Rule 16b-3 of the Exchange Act or New York Stock Exchange Rule 312.03. 13. Termination. If the Plan is terminated, the terms of the Plan will, notwithstanding such termination, continue to apply to awards of Rights made prior to termination, and no suspension, termination, modification or amendment of the Plan or any Right may, without the consent of the recipient to whom an award of Rights theretofore has been granted, adversely affect the rights of such recipient under such award. 14. Governing Law. This Plan shall be governed by the laws of the State of Delaware and applicable federal law. 15. Dialogue. This Plan and any claims of all Participants, with the sole exception of non-employee Directors, arising from the Plan or in any way related to the Plan, are subject to and governed by the Diamond Shamrock, Inc. Dialogue Dispute Resolution Program ("Dialogue"). If a claim of a Participant (other than a non-employee Director) has been filed with the Committee, the Committee has responded to the claim, and the claimant desires to appeal the decision of the Committee, such appeal must be conducted solely within the limitations and procedures of Dialogue. 16. Rule 16b-3. Effective August 15, 1996, this Plan is intended to comply with and be subject to Rule 16b-3 of the Exchange Act as effective on such date. APPENDIX "A" TO THE LONG-TERM INCENTIVE PLAN NON-EMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT 1. Grant: Diamond Shamrock, Inc. ("DS") hereby grants to (the "Director") an option the "Option") to purchase at a price of $ per share (the "Price") all or part of 1,500 shares ("Option Shares") of Common Stock, $.01 par value, of DS ("Common Stock") pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (the "Plan"). Capitalized terms used in this agreement that are not otherwise defined herein will have the meaning assigned to such terms in the Plan. Subject to the terms hereof, the Option shall expire on the tenth anniversary of May (the "Grant Date") and shall become exercisable to the extent of 100 percent of the Option Shares covered thereby on the third anniversary of the Grant Date. The Option will not be transferable other than by will or the applicable laws of descent and distribution. The Option may not be exercised during the Director's lifetime except by the Director or, in the event of the Director's legal incapacity, by the Director's guardian or legal representative, acting in a fiduciary capacity on behalf of the Director under state law and court supervision. 2. Exercise of Option: Subject to the provisions of Paragraphs 1, 2, and 4 hereof, the Option may be exercised by the Director (or the Director's executor or administrator) in whole or in part from time to time by written notice to the Secretary of DS at DS's corporate headquarters. Upon the full or partial exercise of the Option and the payment of the Price therefor by the Director (which may be paid in cash, shares of Common Stock previously owned by the Director for more than six months, or a combination thereof), DS will deliver to the Director certificates representing the Option Shares. 3. Effect of Termination of Employment: If the Director ceases to be a director of either DS or any of its majority-owned subsidiaries at any time during the duration of the Option, other than for one of the reasons provided below, the Option may be exercised only to the extent it was exercisable on the date of such termination and shall expire three years after such termination, or on its stated expiration date, whichever occurs first. Upon the occurrence of any of the following events prior to the expiration of an Option, the Option shall become immediately and fully exercisable: (a) death of the Director; (b) disability of the Director; (c) Director ceases to be director of DS and is eligible to participate in the Diamond Shamrock, Inc., Retirement Plan for Directors; or (d) upon a Change in Control. A "Change in Control" will be deemed to have occurred when a report is filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing more than 25% of the combined voting power of the then-outstanding voting securities of DS. Notwithstanding anything to the contrary contained in this Paragraph, in no event will the Option be exercisable beyond ten years from the Grant Date. 4. Severability: Any provision of this agreement which is finally held to be invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining provisions hereof, and this agreement shall be construed as if such invalid or unenforceable provision had not been contained herein. 5. Incorporation by Reference: The Option is granted pursuant and subject to the Plan; and the Plan, together with all resolutions, requirements or guidelines previously or hereafter adopted by the Committee in accordance with the Plan, are hereby incorporated herein by reference. 6. Amendments: Any amendment to the Plan shall be deemed to be an amendment to this agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Director hereunder without the Director's consent. 7. Governing Law: This agreement is made under, and shall be construed in accordance with, the internal substantive laws of the State of Delaware. DATED as of May , . Diamond Shamrock, Inc. By: Chairman and Chief Executive Officer The undersigned hereby accepts the foregoing according to its terms. Director W2744.lwp EX-15.1 10 EXHIBIT 15.1 INDEPENDENT ACCOUNTANTS' AWARENESS LETTER Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that Diamond Shamrock, Inc. has included our report dated November 13, 1996 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in the Prospectuses constituting part of its Registration Statements on Form S-3 (Nos. 33-67166, 33-59451, and 333-4157) filed on August 9, 1993, May 19, 1995, and May 20, 1996 respectively, and on Form S-8 (Nos. 33-15268, 33-34306, 33-47761, 33-50573, 33-59025 and 33-64645) filed on June 22, 1987, April 13, 1990, May 6, 1992, October 6, 1993, May 2, 1995 and November 30, 1995, respectively. We are also aware that Ultramar Corporation has included our report referred to above in the Prospectus constituting part of its Registration Statement on Form S-4 (No. 333-14807) filed on October 29, 1996. We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Antonio, Texas November 13, 1996 W3198.TW EX-27.1 11
5 9-MOS DEC-31-1995 SEP-30-1996 49,500 0 229,600 7,200 326,500 610,800 2,320,100 754,200 2,240,800 381,800 0 0 0 300 658,200 2,240,800 3,660,700 3,660,700 2,785,500 2,785,500 752,600 0 55,000 67,600 28,100 39,500 0 0 0 39,500 1.23 1.21
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