AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 2003
REGISTRATION NO. 333-105186
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FRONT RANGE HIMALAYA CORPORATION
(Exact name of Registrant as specified in its charter)
WYOMING 2911 81-0607292
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
10000 MEMORIAL DRIVE, SUITE 600
HOUSTON, TEXAS 77024-3411
(713) 688-9600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-----------------
J. CURRIE BECHTOL, ESQ. W. JOHN GLANCY, ESQ.
VICE PRESIDENT--GENERAL SENIOR VICE PRESIDENT AND
COUNSEL GENERAL COUNSEL
FRONTIER OIL CORPORATION HOLLY CORPORATION
10000 MEMORIAL DRIVE, 100 CRESCENT COURT, SUITE
SUITE 600 1600
HOUSTON, TEXAS 77024-3411 DALLAS, TEXAS 75201-6927
(713) 688-9600 (214) 871-3555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
COPIES TO:
GEOFFREY K. WALKER, ESQ. ALAN J. BOGDANOW, ESQ.
ROBERT V. JEWELL, ESQ. VINSON & ELKINS L.L.P.
ANDREWS & KURTH L.L.P. 3700 TRAMMELL CROW CENTER
600 TRAVIS, SUITE 4200 2001 ROSS AVENUE
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201-2975
(713) 220-4200 (214) 220-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective and the conditions to the merger described herein have been satisfied
or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
PRELIMINARY DRAFT DATED AUGUST , 2003--SUBJECT TO COMPLETION
JOINT LETTER TO STOCKHOLDERS
[LOGO]
HOLLY
CORPORATION
[LOGO] FRONTIER
OIL CORPORATION
To the stockholders of Holly Corporation and Frontier Oil Corporation:
The Boards of Directors of Holly Corporation and Frontier Oil Corporation
have each unanimously approved an agreement and plan of merger to combine the
two companies. Our combined enterprise will operate five high quality
refineries, located in distinct and attractive product markets in the Rocky
Mountain region and Plains States, with a total rated crude oil capacity of
248,000 barrels per day. Together, we will be one of the financially strongest
of the nation's independent refiners, and, despite having lower revenues than
many of our competitors, we expect to continue to be among the most profitable.
Holly stockholders will receive in the merger transaction approximately
[37]% of the outstanding shares of the combined company, $172.5 million in cash
and nontransferable interests in potential future net recoveries from
litigation related to past sales of jet fuel by Holly to the United States
government. Frontier stockholders will receive in the merger transaction
approximately [63]% of the outstanding shares of the combined company, which
will be named Frontier Oil Corporation. We expect that the combined company's
shares will be listed on the New York Stock Exchange under the symbol "FTO."
Holly and Frontier will each hold a special meeting of stockholders to
consider and vote on the merger agreement. Your vote is important. Whether or
not you plan to attend your company's special meeting, please submit a proxy,
following the instructions on your proxy card.
The affirmative vote of the holders of a majority of the shares outstanding
and entitled to vote, as of the record dates for the meetings, is required for
the stockholders of each of Holly and Frontier to approve and adopt the merger
agreement. Holders of approximately [36]% of Holly's shares already agreed to
vote for the approval and adoption of the merger agreement, so the affirmative
votes of stockholders holding an additional approximately [14]% of Holly shares
will be sufficient to approve and adopt the merger agreement. Holders of
approximately [2]% of Frontier's shares likewise already agreed to vote for the
approval and adoption of the merger agreement, so the affirmative votes of
stockholders holding an additional approximately [48]% of the Frontier shares
will be sufficient to approve and adopt the merger agreement.
This document provides you with important information about the proposed
merger transaction. We encourage you to read this document carefully.
Special Meeting for Holly Special Meeting for
Stockholders: Frontier Stockholders:
, 2003 at 9:00 , 2003 at 9:00
a.m., local time a.m., local time
First National Bank Houstonian Hotel
Building 111 North Post Oak Lane
303 West Main, Suite 200 Houston, Texas
Artesia, New Mexico
We enthusiastically support this combination of our companies, and we join
with the members of our boards of directors in recommending that you vote FOR
the approval and adoption of the merger agreement.
Chairman of the Board and Chairman of the Board,
Chief Executive Officer President and
Holly Corporation Chief Executive Officer
Frontier Oil Corporation
For a discussion of risk factors that you should consider in evaluating the
merger transaction, see "Risk Factors" beginning on page 22.
Certain directors and officers of Holly and Frontier have interests in the
merger transaction that are different from or in addition to the interests of
other Holly and Frontier stockholders. For a discussion of these interests, see
"The Merger--Interests of Holly Directors and Management in the Merger"
beginning on page 78 and "The Merger--Interests of Frontier Directors and
Management in the Merger" beginning on page 81.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger transaction described in this
joint proxy statement/prospectus or the common stock of the combined company to
be issued in connection with the merger transaction, or determined if this
joint proxy statement/prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 2003 and is first
being mailed to stockholders on or about , 2003.
[LOGO]
HOLLY
CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2003
To the Stockholders of Holly Corporation:
We will hold a special meeting of the stockholders of Holly Corporation on
, 2003, at 9:00 a.m., local time, in Suite 200 of the First National
Bank Building located at 303 West Main, Artesia, New Mexico, to consider and
vote on the following proposals:
1. Approve and adopt the Agreement and Plan of Merger dated March 30, 2003,
among Frontier Oil Corporation, a Wyoming corporation, Holly Corporation, a
Delaware corporation, Front Range Himalaya Corporation, a Wyoming
corporation, which we refer to as "Parent," Front Range Merger Corporation,
a Delaware corporation and a wholly-owned subsidiary of Parent, and Himalaya
Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of
Parent.
2. Approve an adjournment of the meeting, if necessary, to solicit additional
proxies in favor of proposal number 1 above.
Pursuant to the merger agreement, Himalaya Merger Corporation will merge
with and into Holly and Front Range Merger Corporation will merge with and into
Frontier, with each of Holly and Frontier becoming wholly-owned subsidiaries of
Parent. Parent will be renamed Frontier Oil Corporation. At the time of the
merger transaction, each outstanding share of Holly common stock, par value
$0.01 per share, will be converted into the right to receive one share of
Parent common stock, par value $0.01 per share, a proportionate amount of
$172.5 million in cash to be divided among all outstanding shares of Holly
common stock, and one contingent value right representing a nontransferable
interest in potential future net recoveries from litigation related to past
sales of jet fuel by Holly to the United States government. Each outstanding
share of Frontier common stock, no par value per share, will be converted in
the merger transaction into the right to receive one share of Parent common
stock. The merger transaction is more fully described in the accompanying joint
proxy statement/prospectus.
We will transact no other business at the special meeting, except for
business properly brought before the special meeting or any adjournments or
postponements of it by the Holly Board of Directors.
Only Holly stockholders of record at the close of business on , 2003,
the record date for the special meeting, may vote at the special meeting and
any adjournments or postponements of the meeting. A complete list of Holly
stockholders of record entitled to vote at the special meeting will be
available for the 10 days before the special meeting at the office of the
Secretary for inspection by Holly stockholders during ordinary business hours
for proper purposes.
Your vote is very important. Whether or not you plan to attend the special
meeting in person, please submit your proxy as soon as possible to make sure
that your shares are represented at the special meeting. To do so, you may
complete and return the enclosed proxy card or, if you are a stockholder of
record of Holly common stock, you may submit your proxy or voting instructions
by telephone or the Internet. If your shares are held in an account with a
broker, bank or other nominee, you must instruct them how to vote your shares.
If you do not vote or do not instruct your broker, bank or other nominee, how
to vote, it will have the same effect as voting against the merger agreement
and an adjournment of the meeting, if necessary, to solicit additional proxies.
For more information about the merger agreement and the transactions
contemplated by the merger agreement, we encourage you to review the
accompanying joint proxy statement/prospectus and the merger agreement attached
to it as Annex A.
The Holly Board of Directors unanimously recommends that you vote FOR the
approval and adoption of the merger agreement and the approval of an
adjournment of the meeting, if necessary, to solicit additional proxies.
, 2003 By Order of the Holly Board of Directors,
Dallas, Texas W. John Glancy
Secretary
[LOGO] FRONTIER
OIL CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2003
To the Stockholders of Frontier Oil Corporation:
We will hold a special meeting of the stockholders of Frontier Oil
Corporation on , 2003, at 9:00 a.m., local time, at the Houstonian
Hotel, 111 North Post Oak Lane, Houston, Texas, to consider and vote on the
following proposal:
1. Approve and adopt the Agreement and Plan of Merger dated as of March 30,
2003, among Frontier Oil Corporation, a Wyoming corporation, Holly
Corporation, a Delaware corporation, Front Range Himalaya Corporation, a
Wyoming corporation, which we refer to as "Parent," Front Range Merger
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent,
and Himalaya Merger Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent.
2. Approve an adjournment of the meeting, if necessary, to solicit additional
proxies in favor of proposal number 1 above.
Pursuant to the merger agreement, Front Range Merger Corporation will merge
with and into Frontier and Himalaya Merger Corporation will merge with and into
Holly, with each of Frontier and Holly becoming wholly-owned subsidiaries of
Parent. Parent will be renamed Frontier Oil Corporation. At the time of the
merger transaction, each outstanding share of Frontier common stock, no par
value per share, will be converted into the right to receive one share of
Parent common stock, par value $0.01 per share. Each outstanding share of Holly
common stock, par value $0.01 per share, will be converted in the merger into
the right to receive one share of Parent common stock, a proportionate amount
of $172.5 million in cash to be divided among all outstanding shares of Holly
common stock and one contingent value right representing a nontransferable
interest in potential future net recoveries from litigation related to past
sales of jet fuel by Holly to the United States government. The merger
transaction is more fully described in the accompanying joint proxy
statement/prospectus.
We will transact no other business at the special meeting, except for
business properly brought before the special meeting or any adjournments or
postponements of it by the Frontier Board of Directors.
Only Frontier stockholders of record at the close of business on ,
2003, the record date for the special meeting, may vote at the special meeting
and any adjournments or postponements of the meeting. A complete list of
Frontier stockholders of record entitled to vote at the special meeting will be
available for the 10 days before the special meeting at the office of the
Secretary for inspection by Frontier stockholders during ordinary business
hours for proper purposes.
Your vote is very important. Whether or not you plan to attend the special
meeting, please submit your proxy as soon as possible to make sure that your
shares are represented at the special meeting. To do so, you may complete and
return the enclosed proxy card or, if you are a stockholder of record of
Frontier common stock, you may submit your proxy or voting instructions by
telephone or the Internet. If your shares are held in an account with a broker,
bank or other nominee, you must instruct them how to vote your shares. If you
do not vote or do not instruct your broker, bank or other nominee, how to vote,
it will have the same effect as voting against the merger agreement and an
adjournment of the meeting, if necessary, to solicit additional proxies.
For more information about the merger agreement and the transactions
contemplated by the merger agreement, we encourage you to review the
accompanying joint proxy statement/prospectus and the merger agreement attached
to it as Annex A.
The Frontier Board of Directors unanimously recommends that you vote FOR the
approval and adoption of the merger agreement and the approval of an
adjournment of the meeting, if necessary, to solicit additional proxies.
, 2003 By Order of the Frontier Board of Directors,
Houston, Texas
J. Currie Bechtol
Secretary
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................ 1
SUMMARY....................................................................... 8
The Companies.............................................................. 8
Comparative Market Price Information....................................... 12
Summary Historical and Consolidated Pro Forma Financial Data............... 13
Selected Historical Financial Data......................................... 15
Comparative Per Share Data................................................. 21
RISK FACTORS.................................................................. 22
Risk Factors Relating to the Merger........................................ 22
Risk Factors Relating to Our Business After the Merger..................... 24
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS..................... 31
RECENT DEVELOPMENTS........................................................... 32
Senior Notes Offering by Frontier.......................................... 32
Amendment of Revolving Credit Facility by Frontier......................... 33
Woods Cross Refinery Acquisition by Holly.................................. 33
Iatan System Sale by Holly................................................. 34
FERC Order Applicable to Holly............................................. 34
Acquisition of Partnership Interest by Holly............................... 35
THE HOLLY SPECIAL MEETING..................................................... 36
Date, Time and Place....................................................... 36
Purpose of Holly Special Meeting........................................... 36
Recommendation of the Holly Board of Directors............................. 36
Holly Record Date; Shares Entitled to Vote; Quorum......................... 36
Vote Required.............................................................. 37
Voting by Holly Directors and Executive Officers........................... 37
Voting of Proxies.......................................................... 37
Revocability of Proxies.................................................... 38
Solicitation of Proxies.................................................... 38
Proxies for Participants in Holly Savings Plans............................ 39
Attending the Special Meeting.............................................. 39
THE FRONTIER SPECIAL MEETING.................................................. 40
Date, Time and Place....................................................... 40
Purpose of the Frontier Special Meeting.................................... 40
Recommendation of the Frontier Board of Directors.......................... 40
Frontier Record Date; Shares Entitled to Vote; Quorum...................... 40
Vote Required.............................................................. 40
Voting by Frontier Directors and Executive Officers........................ 41
Voting of Proxies.......................................................... 41
Revocability of Proxies.................................................... 42
Solicitation of Proxies.................................................... 42
Proxies for Participants in Frontier Plans................................. 43
Attending the Special Meeting.............................................. 43
THE MERGER.................................................................... 44
General Description of the Merger.......................................... 44
Background of the Merger................................................... 45
Recommendation of Holly's Board of Directors and Reasons for the Merger.... 52
Recommendation of Frontier's Board of Directors and Reasons for the Merger. 55
Opinion of Holly's Financial Advisor....................................... 58
Opinion of Frontier's Financial Advisor.................................... 67
Interests of Holly Directors and Management in the Merger.................. 78
Interests of Frontier Directors and Management in the Merger............... 82
Listing of Parent Capital Stock............................................ 84
Dividends.................................................................. 84
i
Page
----
Material U.S. Federal Income Tax Consequences of the Merger................ 84
Accounting Treatment....................................................... 89
Regulatory Matters......................................................... 89
Appraisal Rights of Holly Stockholders..................................... 90
Dissenters' Rights of Frontier Stockholders................................ 93
Resale of Parent Common Stock.............................................. 96
THE MERGER AGREEMENT.......................................................... 97
The Merger................................................................. 97
Merger Consideration....................................................... 97
Procedures for Exchange of Share Certificates.............................. 98
Representations and Warranties............................................. 98
Interim Operations of Holly and Frontier................................... 100
Employee Benefit Matters................................................... 101
Effect on Awards Outstanding under Stock Plans............................. 103
"No Solicitation" Covenant................................................. 104
Timing of Closing.......................................................... 105
Conditions to the Completion of the Merger................................. 105
Termination of the Merger Agreement........................................ 106
Termination Fees........................................................... 107
Other Expenses............................................................. 107
Indemnification and Insurance.............................................. 107
Additional Agreements...................................................... 108
Amendment; Extension and Waiver............................................ 108
OTHER AGREEMENTS.............................................................. 109
Contingent Value Rights Agreement.......................................... 109
Support Agreements......................................................... 110
Registration Rights Agreement.............................................. 111
Parent Stock Plan.......................................................... 112
DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER................................. 114
Directors of Parent........................................................ 114
Committees of the Board of Directors of Parent............................. 114
Compensation of Directors of Parent........................................ 115
Management of Parent....................................................... 115
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................ 116
Security Ownership of Certain Beneficial Owners and Management of Holly.... 116
Security Ownership of Certain Beneficial Owners and Management of Frontier. 119
COMPARATIVE STOCK PRICES AND DIVIDENDS........................................ 122
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.............. 123
DESCRIPTION OF PARENT CAPITAL STOCK........................................... 129
Authorized Capital Stock................................................... 129
Common Stock............................................................... 129
Preferred Stock............................................................ 129
COMPARISON OF STOCKHOLDER RIGHTS.............................................. 130
LEGAL MATTERS................................................................. 142
EXPERTS....................................................................... 142
INDEPENDENT AUDITORS.......................................................... 142
STOCKHOLDER PROPOSALS......................................................... 142
OTHER MATTERS................................................................. 143
WHERE YOU CAN FIND MORE INFORMATION........................................... 143
REPORT OF INDEPENDENT AUDITORS OF PARENT...................................... F-1
ii
ANNEXES
Annex A --Agreement and Plan of Merger
Annex B --Contingent Value Rights Agreement
Annex C --Amended and Restated Articles of Incorporation of Parent
Annex D --Amended and Restated Bylaws of Parent
Annex E --Opinion of Credit Suisse First Boston LLC
Annex F --Opinion of Petrie Parkman & Co., Inc.
Annex G --Registration Rights Agreement
Annex H --Form of Holly Holder Support Agreement
Annex I --Form of Frontier Affiliate Support Agreement
Annex J --Section 262 of the Delaware General Corporation Law
Annex K --Article 13 of the Wyoming Business Corporation Act
Annex L --Frontier Oil Corporation 2003 Stock Plan
iii
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Holly and Frontier from other documents that are
not included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain free copies of the documents incorporated by reference
in this joint proxy statement/prospectus by requesting them in writing or by
telephone or over the Internet from the appropriate company at the following
addresses:
HOLLY CORPORATION FRONTIER OIL CORPORATION MORROW & CO., INC.
100 Crescent Court, Suite 1600 10000 Memorial Drive, Suite 600 445 Park Avenue, 5th Floor
Dallas, Texas 75201-6927 Houston, Texas 77024-3411 New York, New York 10022
Attention: W. John Glancy Attention: Doug Aron (800) 607-0088
(214) 871-3555 (713) 688-9600, ext. 145 E-mail:
E-mail: investors@hollycorp.com E-mail: ir@frontieroil.com Frontier_Holly.info@morrowco.com
If you would like to request documents, please do so by [ ], 2003,
in order to receive them before your special meeting.
See "Where You Can Find More Information" beginning on page 143.
iv
QUESTIONS AND ANSWERS ABOUT THE MERGER
Throughout this document, unless the context requires otherwise, the
following terms have the following meanings:
. The term "Parent" refers to Front Range Himalaya Corporation, the newly
formed holding company, which upon consummation of the merger will be
renamed "Frontier Oil Corporation."
. The term "Frontier" refers to Frontier Oil Corporation, which after
completion of the merger will become a subsidiary of Parent and will be
renamed "Frontier Oil Holdings, Inc."
. The term "Holly" refers to Holly Corporation, which after completion of
the merger will become a subsidiary of Frontier.
. The terms "we," "our" and "us" refer to Parent, Frontier and Holly,
collectively.
. The term "merger" refers to, collectively, (1) the merger of Himalaya
Merger Corporation with and into Holly, with Holly being the surviving
corporation (which we refer to as the "Holly merger") and (2) the merger
of Front Range Merger Corporation with and into Frontier, with Frontier
being the surviving corporation (which we refer to as the "Frontier
merger").
. The term "merger agreement" refers to the Agreement and Plan of Merger
among Frontier, Holly, Parent, Front Range Merger Corporation and
Himalaya Merger Corporation.
Q: When and where will the special meetings take place?
A: The special meeting of Holly stockholders will take place on , 2003
at 9:00 a.m., local time, in Suite 200 of the First National Bank Building,
located at 303 West Main, Artesia, New Mexico. The special meeting of
Frontier stockholders will take place on , 2003 at 9:00 a.m., local
time, at the Houstonian Hotel, located at 111 North Post Oak Lane, Houston,
Texas.
Q: What stockholder approvals are required to approve the merger?
A: The affirmative vote of holders of a majority of the shares outstanding and
entitled to vote, as of the record dates for the special meetings, is
required for the stockholders of each of Holly and Frontier to approve and
adopt the merger agreement.
. As of the Holly record date, Holly directors, certain officers and
related stockholders held approximately [36]% of the Holly common stock
outstanding and entitled to vote at the Holly special meeting. These
stockholders have agreed to vote for the approval and adoption of the
merger agreement.
. As of the Frontier record date, Frontier directors and certain officers
held approximately [2]% of the Frontier common stock outstanding and
entitled to vote at the Frontier special meeting. These stockholders have
agreed to vote for the approval and adoption of the merger agreement.
Q: Why do Holly and Frontier want to merge?
A: We believe that the merger will have substantial strategic and financial
benefits for Holly and Frontier and for their stockholders, including:
. substantially greater refining capacity,
. increased geographic and asset diversity,
. enhanced presence in our Rocky Mountain region and Plains States core
areas,
. greater financial resources,
. opportunities for greater operational efficiencies and cost savings, and
. a more widely held company, providing greater liquidity for Holly's and
Frontier's stockholders.
1
Q: What will happen in the merger?
A: Prior to entering into the merger agreement, Holly and Frontier formed Front
Range Himalaya Corporation, which we refer to as "Parent." Parent, in turn,
formed two merger subsidiaries, Himalaya Merger Corporation and Front Range
Merger Corporation. Himalaya Merger Corporation will merge with and into
Holly, and Front Range Merger Corporation will merge with and into Frontier.
As a result of the merger:
. Holly and Frontier will become wholly-owned subsidiaries of Parent, and
. former Holly stockholders will hold approximately [37]%, and former
Frontier stockholders will hold approximately [63]%, of the outstanding
shares of Parent common stock, based on the number of shares of Frontier
common stock and Holly common stock outstanding on [ ], 2003.
Following the merger, Parent will contribute the stock of Holly to Frontier
so that Holly will become a subsidiary of Frontier.
Q: What will be the name of the combined company after the merger?
A: Upon completion of the merger, the name of the new public company, which we
refer to as "Parent" in this document, will be "Frontier Oil Corporation."
The surviving Frontier subsidiary will be renamed "Frontier Oil Holdings,
Inc."
Q: What will Holly stockholders receive for their shares?
A: Each Holly stockholder who does not dissent to the merger will receive the
following for each outstanding share of Holly common stock that the
stockholder owns:
. one share of Parent common stock,
. a pro rata portion, calculated on the basis of the total number of shares
of Holly common stock outstanding immediately prior to the merger, of
$172.5 million in cash, or approximately [$11.12] per Holly common share
based on the number of Holly common shares outstanding on [July 31],
2003, and
. one contingent value right, representing a nontransferable interest in
potential future net recoveries from litigation related to past sales of
jet fuel by Holly to the United States government.
Example: If a Holly stockholder owns 100 shares of Holly common stock at the
time of the merger, the stockholder will be entitled to receive 100 shares
of Parent common stock, approximately [$1,112] in cash (based on the number
of shares of Holly common stock outstanding on [July 31], 2003) and 100
contingent value rights as a result of the merger.
Please read "The Merger Agreement--Merger Consideration" beginning on page
97 and "Other Agreements--Contingent Value Rights Agreement" beginning on
page 109 for a more detailed description of the consideration to be received
by Holly stockholders in the merger. The contingent value rights agreement
is attached to this joint proxy statement/prospectus as Annex B.
You should also read Parent's amended and restated articles of incorporation
attached as Annex C, Parent's amended and restated bylaws attached as Annex
D, "Description of Parent Capital Stock" beginning on page 129 and
"Comparison of Stockholder Rights" beginning on page 130.
Q: What will Frontier stockholders receive for their shares?
A: Each Frontier stockholder who does not dissent to the merger will receive
one share of Parent common stock for each outstanding share of Frontier
common stock that the stockholder owns.
Example: If a Frontier stockholder owns 100 shares of Frontier common stock
at the time of the merger, the stockholder will be entitled to receive 100
shares of Parent common stock as a result of the merger.
2
Please read "The Merger Agreement--Merger Consideration" beginning on page
97 for a more detailed description of the consideration to be received by
Frontier stockholders in the merger.
You should also read Annex C, Annex D, "Description of Parent Capital Stock"
beginning on page 129 and "Comparison of Stockholder Rights" beginning on
page 130.
Q: Why am I receiving a "contingent value right" if I am a Holly stockholder?
A: At the time Holly's board of directors approved the merger agreement, we
were unable to determine or estimate the value of potential recoveries from
Holly's litigation related to past sales of jet fuel by Holly to the United
States government. By creating the contingent value rights, Holly
stockholders will retain the direct right to participate in potential future
net recoveries from those claims as provided in the contingent value rights
agreement. Please read "Other Agreements--Contingent Value Rights Agreement"
beginning on page 109.
Q: Why are the contingent value rights nontransferable?
A: The contingent value rights are not intended to be securities, and no
certificates will be prepared or issued to represent these rights. The
value, if any, that each holder of a contingent value right may be able to
receive is very speculative.
Q: What will happen to my future dividends?
A: Pursuant to the merger agreement, Holly and Frontier are prohibited from
making any changes to their dividend policies prior to the completion of the
merger without the consent of the other. Holly's current quarterly dividend
is $0.11 per share, and Frontier's current quarterly dividend is $0.05 per
share. Parent's management currently expects to pay quarterly dividends
after the merger at the same rate as currently paid by Frontier. However,
the declaration and payment of dividends on Parent common stock after the
merger will be in the discretion of Parent's board of directors.
Q: What are my U.S. federal tax consequences as a result of the merger?
A: We intend that the Holly merger and the Frontier merger each will be a
reorganization for U.S. federal income tax purposes and/or that the Holly
merger and the Frontier merger, taken together, will constitute an exchange
described in Section 351 of the Internal Revenue Code of 1986, as amended.
Accordingly, no gain or loss will generally be recognized by Frontier
stockholders or Holly stockholders in the merger, except that Holly
stockholders will recognize gain, if any, to the extent of the amount of any
cash and the fair market value of any contingent value rights received in
the merger. If the fair market value of the contingent value rights received
by Holly stockholders in the merger cannot reasonably be ascertained, Holly
stockholders will recognize gain, if any, with respect to the contingent
value rights only as cash payments on the contingent value rights are
received. You are strongly encouraged to consult with a tax advisor to
determine the particular U.S. federal, state or local or foreign income or
other tax consequences of the merger to you. Please also read "The
Merger--Material U.S. Federal Income Tax Consequences of the Merger"
beginning on page 84.
Q: How will the cash requirements of the merger and related transactions be met?
A: Frontier will use a portion of the net proceeds from the sale of its new
senior notes described in "Recent Developments--Senior Notes Offering by
Frontier" on page 32 and borrowings under its amended and restated credit
facility described in "Recent Developments--Amendment of Revolving Credit
Facility by Frontier" on page 33, together with other available funds, to
finance the cash portion of the merger, to pay related fees and expenses, to
refinance or pay off existing Holly indebtedness and for other general
corporate purposes.
3
Q: How do I vote?
A: After carefully reading and considering the information contained in this
document, please complete and sign your proxy card and return it in the
enclosed postage-paid envelope. Additionally, if you are a holder of record
of Holly common stock, you may submit your proxy by telephone or through the
Internet by following the instructions on page 37, and if you are a holder
of record of Frontier common stock you may submit your proxy by telephone or
through the Internet by following the instructions on page 41. Please submit
your proxy as soon as possible so that your shares may be represented at
your company's special meeting or any adjournment or postponement thereof.
If your shares are held in an account with a broker, bank or other nominee,
you should contact your broker, bank or other nominee and follow the
directions that it provides to you so that you can instruct your broker,
bank or other nominee to vote your shares.
If you sign, date and send your proxy and do not indicate how you want to
vote, your proxy will be voted FOR the approval of your company's proposals.
Q: What do I do if I want to change my vote?
A: You can change your vote at any time before your proxy is voted at your
special meeting or any adjournment or postponement thereof. Regardless of
the manner in which you vote, you can change your vote in any of the
following ways. First, you can submit a written revocation of your proxy by
mail. Second, you can submit a new proxy by mail. If you choose either of
these two methods, you must submit your written revocation or your new proxy
to your company's secretary at the address under "Summary--The Companies" on
page 8 before the date of your company's special meeting or any adjournment
or postponement thereof. Third, if you are a holder of record of Holly
common stock you may submit a new proxy by telephone by following the
instructions on page 37, and if you are a holder of record of Frontier
common stock you may submit a new proxy by telephone by following the
instructions on page 41. Fourth, holders of record of Holly common stock may
submit a new proxy through the Internet by following the instructions on
page 37 of this joint proxy statement/prospectus, and holders of record of
Frontier common stock may submit a new proxy through the Internet by
following the instructions on page 41. The latest-dated proxy that you
submit by mail or, for holders of record of Holly common stock or Frontier
common stock, by telephone or through the Internet, will be your proxy for
your company's special meeting, including for any adjournment or
postponement thereof. Finally, if you are a holder of record, you can attend
your company's special meeting and vote in person. If your shares are held
in an account at a broker, bank or other nominee, you should contact your
broker, bank or other nominee to change your vote.
Q: If my broker holds my shares in "street name," will my broker vote my shares?
A: No, not without instructions from you. If you do not provide your broker
with instructions on how to vote your street name shares, your broker will
not be permitted to vote them on the merger proposal or a proposal to
adjourn the meeting, if necessary, to solicit additional proxies. You
should, therefore, be sure to provide your broker with instructions on how
to vote your shares.
Unless you give voting instructions to your broker or vote in person at your
company's special meeting, your votes will not be counted as voting for the
approval and adoption of the merger agreement. If your broker holds your
shares and you plan to attend the special meeting, please bring a letter
from your broker identifying you as the beneficial owner of the shares and
authorizing you to vote.
Q: What will happen if I abstain from voting or fail to vote?
A: An abstention or failure to vote will have the same effect as a vote against
the approval and adoption of the merger agreement and the approval of an
adjournment of the meeting, if necessary, to solicit additional proxies.
4
Q: Who else must approve the merger?
A: Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
Holly and Frontier could not complete the merger until they had filed
certain information and materials with the Antitrust Division of the U.S.
Department of Justice and the U.S. Federal Trade Commission and the
applicable waiting period had expired or been terminated. The required
filings with the Department of Justice and the Federal Trade Commission were
completed on April 17, 2003, and the waiting period expired on May 19, 2003.
See "The Merger--Regulatory Matters" on page 89.
Q: When do you expect to complete the merger?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger promptly after the stockholder meetings.
Q: Should I send in my share certificates now?
A: No. After the merger is completed, we will send Holly stockholders written
instructions for exchanging their share certificates. Frontier stockholders
will not need to exchange their share certificates. The share certificates
of Frontier stockholders immediately prior to the completion of the merger
will be deemed to represent Parent common stock following the merger.
Q: Do I have appraisal or dissenters' rights?
A: Yes. Holly stockholders will have appraisal rights under Delaware law and
Frontier stockholders will have dissenters' rights under Wyoming law as a
result of the merger. See "The Merger--Appraisal Rights of Holly
Stockholders" beginning on page 90 and "The Merger--Dissenters' Rights of
Frontier Stockholders" beginning on page 93.
Q: Who can help answer my questions?
A: If you have any questions about the merger or if you need additional copies
of this document or the enclosed proxy card, you should contact:
Holly stockholders: Frontier stockholders: Information Agent:
Holly Corporation Frontier Oil Corporation Morrow & Co., Inc.
100 Crescent Court, Suite 1600 10000 Memorial Drive, Suite 600 445 Park Avenue, 5/th/ Floor
Dallas, Texas 75201-6927 Houston, Texas 77024-3411 New York, New York 10022
Attention: W. John Glancy Attention: Doug Aron (800) 607-0088
(214) 871-3555 (713) 688-9600, ext. 145 email:
e-mail: investors@hollycorp.com e-mail: ir@frontieroil.com Frontier_Holly.info@morrowco.com
Q: Where can I find more information about the companies?
A: You can find more information about Holly and Frontier from various sources
described under "Where You Can Find More Information" beginning on page 143.
5
Q: What is the organizational structure of the companies prior to the merger?
A: The current organizational structure of the companies is as shown in the
following diagram:
[FLOW CHART]
In the merger, Front Range Merger Corporation will merge with and into
Frontier with Frontier's stockholders receiving common stock of Parent.
Concurrently, Himalaya Merger Corporation will merge with and into Holly with
Holly stockholders receiving merger consideration consisting of common stock of
Parent, cash and the contingent value rights.
6
Q: What will be the organizational structure of the combined company after the
merger?
A: After the merger, the organizational structure of the combined company will
be as shown in the following diagram:
[FLOW CHART]
As a result of the merger, each of Frontier and Holly will become a direct,
wholly-owned subsidiary of Parent, which will be renamed "Frontier Oil
Corporation." Following the merger, Parent will contribute the stock of Holly
to Frontier, which will be renamed "Frontier Oil Holdings, Inc." As a result of
this contribution of stock, Holly will become a direct, wholly-owned subsidiary
of Frontier and an indirect, wholly-owned subsidiary of Parent.
7
SUMMARY
This summary highlights selected information from this document. You should
read carefully this entire document, including the annexes, and the other
documents to which we have referred you in order to fully understand the
merger. For information on how to obtain the documents that we have filed with
the Securities and Exchange Commission, see "Where You Can Find More
Information" beginning on page 143. For a discussion of the risk factors that
you should consider in evaluating the merger, see "Risk Factors" beginning on
page 22.
The Companies
HOLLY CORPORATION
100 Crescent Court
Suite 1600
Dallas, Texas 75201-6927
(214) 871-3555
Holly is an independent petroleum refiner which operates a refinery in
Artesia and Lovington, New Mexico with a rated crude oil capacity of 60,000
barrels per day (bpd), which is being expanded to 75,000 bpd, a 7,000 bpd
refinery in Great Falls, Montana and the recently acquired 25,000 bpd Woods
Cross refinery near Salt Lake City, Utah. In addition to its refining
operations, Holly owns and operates approximately 1,600 miles of pipelines,
which provide an important part of the supply and distribution network for
Holly's refineries. Headquartered in Dallas, Texas, Holly and its wholly-owned
subsidiaries had approximately 578 employees and $541.9 million in assets at
April 30, 2003. For additional information about Holly and its business, see
"Where You Can Find More Information" beginning on page 143.
FRONTIER OIL CORPORATION
10000 Memorial Drive
Suite 600
Houston, Texas 77024-3411
(713) 688-9600
Frontier is an independent petroleum refiner which operates a 110,000 bpd
refinery located in El Dorado, Kansas and a 46,000 bpd refinery located in
Cheyenne, Wyoming. Headquartered in Houston, Texas, Frontier and its
wholly-owned subsidiaries had approximately 744 employees and $638.8 million in
assets at March 31, 2003. For additional information on Frontier and its
business, see "Where You Can Find More Information" beginning on page 143.
FRONT RANGE HIMALAYA CORPORATION
10000 Memorial Drive
Suite 600
Houston, Texas 77024-3411
(713) 688-9600
Holly and Frontier formed Front Range Himalaya Corporation, which we refer
to as "Parent," solely for the purpose of effecting the merger. To date, Parent
has not conducted any activities other than those incident to its formation,
the execution of the merger agreement and related documents and the preparation
of this document. Upon completion of the merger, Holly and Frontier will become
wholly-owned subsidiaries of Parent and the business of Parent will be the
businesses conducted by Holly and Frontier.
8
Upon completion of the merger, Parent's name will be changed to "Frontier
Oil Corporation," and the company will be headquartered in Houston, Texas.
Following the merger, Parent will contribute the stock of its Holly subsidiary
to its Frontier subsidiary, which will be called "Frontier Oil Holdings, Inc."
after the merger.
The Merger Agreement (see page 97)
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement carefully and in its entirety. It is the
principal document governing the merger.
What You Will Receive in the Merger
Holly Stockholders (see page 97). In the merger, each share of Holly common
stock, except for any dissenting shares or shares canceled pursuant to the
merger agreement, will be converted into the right to receive the following
merger consideration:
. one share of Parent common stock,
. a pro rata portion, calculated on the basis of the total number of shares
of Holly common stock outstanding immediately prior to the merger, of
$172.5 million in cash, or approximately [$11.12] per Holly common share
based on the number of Holly common shares outstanding on [July 31],
2003, and
. a contingent value right representing a nontransferable interest in
potential future net recoveries from litigation related to past sales of
jet fuel by Holly to the United States government.
Frontier Stockholders (see page 97). In the merger, each share of Frontier
common stock, except for any dissenting shares or shares canceled pursuant to
the merger agreement, will be converted into the right to receive one share of
Parent common stock.
See "Description of Parent Capital Stock" beginning on page 129 and
"Comparison of Stockholders Rights" beginning on page 130.
The value of the shares of Parent common stock, cash and contingent value
rights that Holly stockholders receive in the merger may be less than the value
of their shares of Holly common stock as of the date of the merger agreement or
on the date of the Holly special meeting. The value of the shares of Parent
common stock that Frontier stockholders receive in the merger may be less than
the value of their shares of Frontier common stock as of the date of the merger
agreement or on the date of the Frontier special meeting. Please read "Risk
Factors" beginning on page 22.
Recommendations of the Boards of Directors
Holly (see page 52). At its meeting on March 30, 2003, after due
consideration, Holly's board of directors unanimously:
. determined that the merger was consistent with and in furtherance of the
long-term strategic business interests of Holly and was advisable, fair
to and in the best interests of Holly and its stockholders,
. approved the merger agreement, and
. recommended that Holly's stockholders approve and adopt the merger
agreement.
Holly's board of directors unanimously recommends that Holly stockholders
vote FOR the approval and adoption of the merger agreement and the approval of
an adjournment of the meeting, if necessary, to solicit additional proxies.
9
Frontier (see page 55). At its meeting on March 28, 2003, after due
consideration, Frontier's board of directors unanimously:
. determined that the merger agreement and the transactions contemplated by
the merger agreement are in the best interests of Frontier stockholders,
. approved the merger agreement, and
. recommended that Frontier stockholders approve and adopt the merger
agreement.
Frontier's board of directors unanimously recommends that Frontier
stockholders vote FOR the approval and adoption of the merger agreement and the
approval of an adjournment of the meeting, if necessary, to solicit additional
proxies.
For a discussion of certain interests of directors and officers that are
different from or in addition to the interests of other stockholders, see "The
Merger--Interests of Holly Directors and Management in the Merger" beginning on
page 78 and "The Merger--Interests of Frontier Directors and Management in the
Merger" beginning on page 82.
To review the background of the merger, see pages 45 through 52.
Fairness Opinions of Financial Advisors
Holly (see page 58). In deciding to approve the merger agreement, Holly's
board of directors considered the opinion of Credit Suisse First Boston LLC
delivered on March 30, 2003 that, as of the date of the opinion and based on
and subject to the matters set forth in its opinion, the merger consideration
payable to the Holly stockholders in the Holly merger was fair, from a
financial point of view, to the Holly stockholders. The written opinion of
Credit Suisse First Boston LLC is attached as Annex E to this document. We urge
Holly stockholders to read the Credit Suisse First Boston LLC opinion carefully
and in its entirety.
Frontier (see page 67). In deciding to approve the merger agreement,
Frontier's board of directors considered the oral opinion of Petrie Parkman &
Co., Inc., delivered on March 28, 2003, which was subsequently confirmed in
writing, that, as of that date and based upon and subject to the matters set
forth in the opinion, the merger consideration to be received by the Frontier
stockholders in the merger (after taking into account the Holly merger) was
fair, from a financial point of view, to the Frontier stockholders. The written
opinion of Petrie Parkman confirming their oral opinion is attached as Annex F
to this document. We urge Frontier stockholders to read the Petrie Parkman
opinion carefully and in its entirety.
Interests of Directors and Management in the Merger
Holly (see page 78). Some of the directors and executive officers of Holly
have interests in the merger that are different from or in addition to the
interests of the Holly stockholders. These interests include positions as
directors or executive officers of Parent, payments and benefits under
consulting agreements, possible substantial payments and benefits under
employment agreements that are triggered upon a change in control and become
payable upon termination of employment of the officer for specified reasons,
accelerated vesting of stock options in the case of certain terminations of
employment after the merger and payments with respect to phantom stock awards
previously made by Holly. The merger will constitute a change in control under
the employment agreements.
Frontier (see page 82). Some of the directors and officers of Frontier have
interests in the merger that are different from or in addition to the interests
of other Frontier stockholders. These interests include positions as directors
or executive officers of Parent, possible substantial payments and benefits
under employment agreements that are triggered upon a change of control and
become payable upon termination of employment of the officer for specified
reasons and, in the absence of waivers, possible accelerated vesting of stock
options and restricted stock as a result of the merger. The merger will
constitute a change of control under the employment agreements.
10
The merger agreement provides for the composition of Parent's board of
directors, certain committees of Parent's board of directors and selected
Parent executive officer positions for the period from the completion of the
merger until immediately after the 2005 annual meeting of the stockholders of
Parent. See "Directors and Management Following the Merger" on page 114.
Parent has entered into a registration rights agreement with certain
stockholders of Frontier and Holly, including directors and officers of the
companies, covering the shares of Parent common stock that they will receive in
the merger. See "Other Agreements--Registration Rights Agreement" beginning on
page 110 for a summary of the material terms of the registration rights
agreement. The Registration Rights Agreement is attached to this joint proxy
statement/prospectus as Annex G.
The merger agreement includes provisions relating to indemnification and
insurance for directors, officers and employees of Holly and Frontier. See "The
Merger Agreement--Indemnification and Insurance" on page 107.
Appraisal or Dissenters' Rights (see pages 90 and 93)
As a result of the merger, Holly stockholders will have appraisal rights
under Delaware law and Frontier stockholders will have dissenters' rights under
Wyoming law. In order to perfect such rights, Holly stockholders who demand
appraisal of their shares should follow the procedures described under "The
Merger--Appraisal Rights of Holly Stockholders" beginning on page 90 and in
Annex J and Frontier stockholders who demand payment for their shares should
follow the procedures described under "The Merger--Dissenters' Rights of
Frontier Stockholders" beginning on page 92 and in Annex K.
Conditions to Completion of the Merger (see page 105)
Holly's and Frontier's obligations to complete the merger are each subject
to the fulfillment or waiver of a number of conditions, including the following:
. the approval and adoption of the merger agreement by a majority of the
outstanding Holly shares and by a majority of the outstanding Frontier
shares,
. the absence of any legal prohibition against the completion of the merger,
. the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act, which expired on May 19, 2003,
. approval for listing, by the New York Stock Exchange, of the shares of
Parent common stock to be issued, or reserved for issuance, in connection
with the merger,
. the completion of Holly's acquisition of the Woods Cross refinery near
Salt Lake City, Utah from ConocoPhillips, which was completed as of June
1, 2003,
. the truth and correctness of our respective representations and
warranties in the merger agreement, to the extent set forth in the merger
agreement,
. compliance with our respective covenants and agreements in the merger
agreement, to the extent set forth in the merger agreement, and
. the receipt by each of Holly and Frontier of an opinion of tax counsel to
the effect that for U.S. federal income tax purposes the Holly merger, in
the case of the opinion received by Holly, and the Frontier merger, in
the case of the opinion received by Frontier, will constitute a
reorganization and/or the Holly merger and the Frontier merger, taken
together, will constitute an exchange described in Section 351 of the
Internal Revenue Code.
11
Termination of the Merger Agreement (see page 106)
Holly and Frontier can jointly agree to terminate the merger agreement at
any time. Either company may also terminate the merger agreement:
. if the merger is not completed on or before October 31, 2003, as long as
the failure to complete the merger before that date is not the result of
the failure by the terminating company or its affiliates to fulfill any
of its obligations under the merger agreement,
. if a final and nonappealable action by a governmental entity prohibits
the completion of the merger,
. if either Holly's stockholders or Frontier's stockholders fail to approve
and adopt the merger agreement at a duly held meeting,
. if, prior to the receipt of approval of its stockholders, the other
company's board of directors withdraws or changes, in a manner adverse to
the terminating company, its approval or recommendation of the merger
agreement or the transactions contemplated thereby or recommends a
superior proposal (as defined beginning on page 104), or resolves to do
any of the foregoing,
. if the other company breaches or fails to perform any of its
representations, warranties, covenants or other agreements contained in
the merger agreement and the breach or failure cannot be cured within 30
days after written notice of the breach or failure, or
. following payment of a termination fee of $15 million and up to $1
million in expenses, if prior to the receipt of the approval of its
stockholders, it terminates the merger agreement pursuant to a
recommendation withdrawal event as described on page 106.
Termination Fees (see page 107)
Holly and Frontier have each agreed to pay a termination fee of $15 million
and up to $1 million in expenses to the other company if the merger agreement
is terminated under the circumstances described under "The Merger
Agreement--Termination Fees" on page 107.
"No Solicitation" Covenant (see page 104)
The merger agreement prohibits Holly and Frontier from seeking an
alternative transaction. The merger agreement generally prohibits Holly and
Frontier, as well as their officers, directors, subsidiaries, employees, agents
and representatives, from taking any action to solicit an acquisition proposal
as described on page 104. The merger agreement does not, however, prohibit
either Holly or Frontier or their respective boards of directors from
considering, and potentially recommending, an unsolicited, bona fide, written
superior proposal from a third party in the circumstances described under "The
Merger Agreement--'No Solicitation Covenant'" on pages 104 through 105.
Comparative Market Price Information (see page 122)
Shares of Holly common stock are listed on the American Stock Exchange under
the symbol "HOC," and shares of Frontier common stock are listed on the New
York Stock Exchange under the symbol "FTO." The following table presents the
last reported sale price per share of Holly common stock and Frontier common
stock, as reported on the American Stock Exchange reporting system or the New
York Stock Exchange reporting system, as the case may be, on March 28, 2003,
the last full trading day prior to the public announcement of the merger, and
on [August 6], 2003, the last trading day for which this information could be
obtained prior to the date of this joint proxy statement/prospectus.
Frontier Holly
Common Stock Common Stock
------------ ------------
March 28, 2003.. $17.85 $22.10
[August 6], 2003 [$14.70] [$27.22]
12
Summary Historical and Consolidated Pro Forma Financial Data
The following table sets forth certain of our summary historical
consolidated financial data and certain pro forma financial data after giving
effect to the merger, as well as to the offering and sale of senior notes under
Rule 144A as described in "Recent Developments--Senior Notes Offering by
Frontier" on page 32, and the use of proceeds therefrom, but does not include
Holly's acquisition of the Woods Cross refinery near Salt Lake City, Utah as
described in "Recent Developments--Woods Cross Refinery Acquisition by Holly"
beginning on page 33. The summary historical financial data presented below as
of and for the three months ended March 31, 2003 and for the year ended
December 31, 2002, for Frontier has been derived from the financial statements
incorporated by reference herein. Because Holly has a July 31 fiscal year end,
the summary historical financial data presented below as of and for the three
months ended March 31, 2003 and for the year ended December 31, 2002, has been
derived from Holly's accounting records as of and for the year ended July 31,
2002 and for the eight months ended March 31, 2003 and five months ended
December 31, 2002. The pro forma statement of operations data and other data
for the year ended December 31, 2002 and the three months ended March 31, 2003,
and the pro forma balance sheet data as of March 31, 2003, are derived from our
unaudited pro forma financial statements included in this joint proxy
statement/prospectus beginning on page 123. The unaudited pro forma financial
data set forth below is not necessarily indicative of the results that actually
would have been achieved had the merger and the offering and sale of the senior
notes under Rule 144A and the use of proceeds therefrom been consummated on
January 1, 2002, or December 31, 2002, or that may be achieved in the future.
You should read this information in conjunction with the Unaudited Pro Forma
Condensed Consolidated Financial Statements beginning on page 123 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of both companies
contained in their respective annual reports on Form 10-K, as amended, and
quarterly reports on Form 10-Q, as amended, filed with the Securities and
Exchange Commission as described in "Where You Can Find More Information"
beginning on page 143 and incorporated herein by reference.
Frontier Holly Frontier Holly Pro
Historical Historical Pro Forma Historical Historical Forma
---------- ---------- ---------- ---------- ---------- ----------
Three Months Ended March 31, 2003 Year Ended December 31, 2002
---------------------------------- ---------------------------------
(dollars in thousands) (dollars in thousands)
Statement of Operations Data:
Revenues.............................. $499,384 $314,912 $ 814,296 $1,813,750 $974,846 $2,788,596
Operating income...................... 1,131 5,375 12,001 27,899 25,975 59,924
Net income............................ (3,700) 12,891 9,987 1,028 18,013 11,232
Balance Sheet Data (at period end):
Cash and cash equivalents............. $113,931 $ 28,306 138,077 $ 112,364 $ 24,266 $ -- (3)
Total assets.......................... 638,824 580,067 1,624,820 628,877 520,428 -- (3)
Long-term debt........................ 208,013 17,143 426,156 207,966 17,143 -- (3)
Stockholders' equity.................. 163,285 239,414 451,918 168,258 228,760 -- (3)
Other Data:
EBITDA (1)............................ $ 8,091 $ 27,381 $ 42,900 $ 55,231 $ 59,042 $ 123,601
Net cash provided by (used in)
operating activities................. (19,339) (8,062) -- (3) 50,822 27,010 -- (3)
Net cash used in investing activities. (6,607) (7,792) -- (3) (37,117) (42,038) -- (3)
Net cash provided by (used in)
financing activities................. 27,513 (4,310) -- (3) (5,336) (17,339) -- (3)
Working capital (at period end)....... 100,223 19,888 151,629 108,253 14,254 -- (3)
Ratio of earnings to fixed charges (2) -- (4) 16.7x 2.6x 1.1x 5.5x 1.4x
- --------
(1) EBITDA represents income before interest expense, interest income, income
tax and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles; however, the amounts
included in the EBITDA calculation are derived from amounts included in the
consolidated financial statements of Frontier and Holly. EBITDA should not
be considered as an alternative to net income or operating income, as an
indication of operating
13
performance of Frontier or Holly or as an alternative to operating cash flow
as a measure of liquidity. EBITDA is not necessarily comparable to similarly
titled measures of other companies. EBITDA is presented here because
Frontier believes it enhances an investor's understanding of our ability to
satisfy principal and interest obligations with respect to our indebtedness
and to use cash for other purposes, including capital expenditures. EBITDA
is also used for internal analysis and as a basis for financial covenants.
Our EBITDA presented above is reconciled to net income as follows:
Three Months Ended March 31, 2003 Year Ended December 31, 2002
-------------------------------- ------------------------------
Frontier Holly Pro Frontier Holly Pro
Historical Historical Forma Historical Historical Forma
---------- ---------- ------- ---------- ---------- --------
(in thousands) (in thousands)
Net income.............................. $(3,700) $12,891 $ 9,759 $ 1,028 $18,013 $ 10,321
Add provision (benefit) for income taxes (2,222) 7,909 6,035 1,060 9,896 6,755
Add interest expense and other financing
costs.................................. 7,426 192 11,829 27,613 2,488 47,602
Subtract interest income................ (373) (154) (527) (1,802) (980) (2,782)
Add depreciation and amortization....... 6,960 6,543 15,804 27,332 29,625 61,705
------- ------- ------- ------- ------- --------
EBITDA.................................. $ 8,091 $27,381 $42,900 $55,231 $59,042 $123,601
======= ======= ======= ======= ======= ========
(2) Represents the ratio of the sum of income before taxes plus fixed charges
(excluding capitalized interest) for the period to fixed charges. Fixed
charges, for the purpose of this computation, represent interest expense on
debt, amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that Frontier believes is
representative of the interest component of rental expense.
(3) No pro forma statement of cash flows was prepared. In addition, a pro forma
balance sheet as of December 31, 2002 is not required and is therefore not
included in this joint proxy statement/prospectus.
(4) The earnings for the three months ended March 31, 2003 for Frontier were
inadequate to cover fixed charges. The coverage deficiency was $6.1 million
for the three months ended March 31, 2003.
14
Selected Historical Financial Data
The following tables set forth certain selected historical consolidated
financial data for Frontier and Holly based upon their historical financial
statements. The selected historical consolidated financial data presented below
for Frontier has been derived from the audited consolidated financial
statements of Frontier for each of the years in the five-year period ended
December 31, 2002 and the unaudited consolidated financial statements of
Frontier for the three months ended March 31, 2003 and 2002, incorporated by
reference herein or included in Frontier's previously filed annual reports on
Form 10-K, as amended and quarterly reports on Form 10-Q, as amended. The
selected historical consolidated financial data presented below for Holly has
been derived from the audited consolidated financial statements and related
notes of Holly for each of the years in the five-year period ended July 31,
2002, and the unaudited consolidated financial statements for the nine months
ended April 30, 2003, incorporated by reference herein or included in Holly's
previously filed annual reports on Form 10-K, as amended and quarterly reports
on Form 10-Q, as amended. This data is only a summary and you should read this
data in conjunction with the historical consolidated financial statements of
Frontier and Holly and the related notes contained in their respective annual
reports on Form 10-K, as amended and quarterly reports on Form 10-Q, as
amended, and other data previously filed with the Securities and Exchange
Commission. See "Where You Can Find More Information" beginning on page 143.
Frontier Financial Data
Three Months
Ended March 31, Fiscal Year Ended December 31,
--------------------- ---------------------------------------------------------
2003 2002 2002 2001 2000 1999(1) 1998
-------- -------- ---------- ---------- ---------- --------- --------
(dollars in thousands, except per share data)
Revenues................................ $499,384 $336,350 $1,813,750 $1,888,401 $2,045,157 $ 503,600 $299,368
Operating income (loss)................. 1,131 6,671 27,899 164,100 70,655 (5,249) 25,700
Income (loss) before extraordinary item. (3,700) 261 1,028 107,653 37,206 (17,061) 18,818
Extraordinary loss, net of taxes........ -- -- -- -- -- -- 3,013
Net income (loss)....................... (3,700) 261 1,028 107,653 37,206 (17,061) 15,805
Basic earnings (loss) per share:
Before extraordinary item............ (.14) .01 .04 4.12 1.36 (.62) .67
Net income (loss).................... (.14) .01 .04 4.12 1.36 (.62) .56
Diluted earnings (loss) per share:
Before extraordinary item............ -- -- .04 4.00 1.34 (.62) .65
Net income (loss).................... (0.14) 0.01 .04 4.00 1.34 (.62) .55
Net cash provided by (used in) operating
activities............................. (19,339) (10,044) 50,822 138,575 66,346 (11,332) 31,263
Net cash used in investing activities... (6,607) (15,635) (37,117) (22,824) (12,688) (181,703) (16,763)
Net cash provided by (used in) financing
activities............................. 27,513 29,591 (5,336) (76,202) (27,557) 197,791 (2,646)
Working capital......................... 100,223 107,033 108,253 109,064 43,610 24,832 30,125
Total assets............................ 638,824 653,010 628,877 581,746 588,213 521,493 182,026
Long-term debt.......................... 208,013 208,922 207,966 208,880 239,583 257,286 70,000
Stockholders' equity.................... 163,285 170,269 168,258 169,204 81,424 50,681 70,353
Capital expenditures(1)................. (6,607) (15,635) 37,117 22,824 12,688 181,703 16,763
Ratio of earnings to fixed charges(2)... -- (3) 1.0x 1.1x 4.9x 2.0x -- (3) 3.0x
Dividends declared per common share..... .05 .05 .20 .15 -- -- --
EBITDA(4)............................... 8,091 13,269 55,231 189,110 93,662 7,799 33,397
- --------
(1) Includes El Dorado refinery financial data from November 17, 1999. Capital
expenditures in 1999 included $171.6 million for the purchase of the El
Dorado refinery, and the three months ended March 31, 2002 and the fiscal
year ended December 31, 2002 included $7.5 million for a contingent
earn-out payment on the El Dorado acquisition.
(2) Represents the ratio of the sum of income before taxes plus fixed charges
(excluding capitalized interest) for the period to fixed charges. Fixed
charges, for the purpose of this computation, represent interest expense on
debt, amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that Frontier believes is
representative of the interest component of rental expense.
(3) The earnings for the three months ended March 31, 2003 and for year ended
December 31, 1999 were inadequate to cover fixed charges. The coverage
deficiency was $6.1 million and $15.2 million, for the three months ended
March 31, 2003 and for the year ended December 31, 1999, respectively.
15
(4) EBITDA represents income before interest expense, interest income, income
tax and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles; however, the amounts
included in the EBITDA calculation are derived from amounts included in the
consolidated financial statements of Frontier. EBITDA should not be
considered as an alternative to net income or operating income, as an
indication of operating performance of Frontier or as an alternative to
operating cash flow as a measure of liquidity. EBITDA is not necessarily
comparable to similarly titled measures of other companies. EBITDA is
presented here because Frontier believes it enhances an investor's
understanding of Frontier's ability to satisfy principal and interest
obligations with respect to Frontier's indebtedness and to use cash for
other purposes, including capital expenditures. EBITDA is also used for
internal analysis and as a basis for financial covenants. Frontier's EBITDA
for each of the years in the five-year period ended December 31, 2002, and
for the three months ended March 31, 2003 and 2002 is reconciled to net
income as follows:
Three Months
Ended March 31, Fiscal Year Ended December 31,
---------------- ---------------------------------------------
2003 2002 2002 2001 2000 1999 1998
------- ------- ------- -------- ------- -------- -------
(in thousands)
Net income (loss)............................. $(3,700) $ 261 $ 1,028 $107,653 $37,206 $(17,061) $15,805
Add provision (benefit) for income taxes...... (2,222) 98 1,060 28,073 2,075 1,865 150
Add interest expense and other financing costs 7,426 6,777 27,613 31,146 34,738 11,447 8,232
Subtract interest income...................... (373) (465) (1,802) (2,772) (3,364) (1,500) (1,500)
Add depreciation.............................. 6,960 6,598 27,332 25,010 23,007 13,048 10,710
------- ------- ------- -------- ------- -------- -------
EBITDA........................................ $ 8,091 $13,269 $55,231 $189,110 $93,662 $ 7,799 $33,397
======= ======= ======= ======== ======= ======== =======
16
Frontier Operating Data
Three Months
Ended March 31, Fiscal Year Ended December 31,
----------------- ------------------------------------------
2003 2002 2002 2001 2000 1999(1) 1998
-------- -------- -------- -------- -------- ------- -------
Charges (bpd) (2)
Light crude..................................... 26,576 31,388 35,684 31,456 35,605 10,250 2,174
Heavy crude (3)................................. 97,699 108,607 110,372 111,061 105,529 39,315 32,303
Other feed and blend stocks..................... 20,549 17,315 17,760 15,538 14,884 7,589 5,909
-------- -------- -------- -------- -------- ------- -------
Total charges................................ 144,824 157,310 163,816 158,055 156,018 57,154 40,386
Manufactured product yields (bpd) (4)
Gasoline........................................ 74,614 82,104 84,645 78,126 76,795 24,923 15,738
Diesel and jet fuel............................. 42,760 51,273 53,436 51,210 50,924 17,340 13,097
Chemicals (5)................................... 848 (52) 369 1,370 1,804 232 --
Asphalt and other............................... 23,174 21,399 22,352 24,483 23,363 12,982 10,236
-------- -------- -------- -------- -------- ------- -------
Total manufactured product yields............ 141,396 154,724 160,802 155,189 152,886 55,477 39,071
Product sales (bpd)
Gasoline........................................ 88,032 86,366 91,989 83,737 83,070 29,728 21,421
Diesel and jet fuel............................. 44,257 50,959 53,378 51,539 51,568 17,156 12,484
Chemicals (5)................................... 848 319 439 1,413 1,964 44 --
Asphalt and other............................... 16,784 16,236 20,726 22,411 21,556 10,965 8,797
-------- -------- -------- -------- -------- ------- -------
Total product sales.......................... 144,921 153,880 166,532 159,100 158,158 57,893 42,702
Average sales price (per bbl)
Gasoline........................................ $ 41.11 $ 27.07 $ 33.08 $ 35.85 $ 38.09 $ 26.61 $ 21.52
Diesel and jet fuel............................. 40.88 24.28 30.35 34.12 37.19 25.92 19.90
Chemicals (5)................................... 64.82 35.10 41.68 70.81 70.52 57.50 --
Asphalt and other............................... 15.09 8.32 13.72 14.07 16.14 12.36 12.07
Operating margin information (per sales bbl)
Average sales price............................. $ 38.16 $ 24.19 $ 29.82 $ 32.53 $ 35.20 $ 23.73 $ 19.10
Raw material, freight and other costs........... 33.38 19.95 25.71 25.69 30.41 20.31 13.33
-------- -------- -------- -------- -------- ------- -------
Refined product spread.......................... 4.78 4.24 4.11 6.84 4.79 3.42 5.77
Refinery operating expenses, excluding
depreciation................................... 3.93 3.11 2.93 3.27 3.07 2.71 3.02
Depreciation.................................... 0.54 0.47 0.44 0.42 0.39 0.61 0.68
-------- -------- -------- -------- -------- ------- -------
Operating margin............................. $ .31 $ .66 $ 0.74 $ 3.15 $ 1.33 $ 0.10 $ 2.07
======== ======== ======== ======== ======== ======= =======
Average light/heavy spread based on delivered crude
costs for the Cheyenne refinery (per bbl) (6)..... $ 6.27 $ 3.75 $ 4.24 $ 7.07 $ 5.09 $ 2.17 $ 4.15
Average WTI/WTS crude oil spread (per bbl) (7)..... $ 2.38 $ 1.53 $ 1.36 $ 3.10 $ 2.06 -- --
- --------
(1) Includes El Dorado refinery operating data from the date of acquisition,
November 17, 1999.
(2) Charges are the quantities of crude oil and other feedstock processed
through refinery units.
(3) Includes intermediate varieties of crude oil used by the El Dorado refinery.
(4) Manufactured product yields are the volumes of specification materials that
are obtained through the distilling of crude oil and the operations of
other refinery process units.
(5) During 2002, the process of shutting down the phenol and cumene units at El
Dorado began and by year-end Frontier had discontinued the production of
phenol and acetone, and began producing and selling benzene.
(6) Average light/heavy spread is the discount at which heavy crude oil
(gravity is low) sells compared to the sales price of light crude oil
(gravity is high).
(7) Average differential between benchmark West Texas intermediate (sweet) and
West Texas sour crude oil prices.
17
Frontier Selected Quarterly Financial and Operating Data
2003 2002 2001
-------- -------------------------------------- -----------------------------
First Fourth Third Second First Fourth Third Second
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited, in thousands except bbl)
Revenues................................. $499,384 $531,558 $486,680 $459,162 $336,350 $365,560 $538,049 $553,649
Operating income (loss).................. 1,131 11,110 8,487 1,631 6,671 (11,447) 62,473 100,916
Net income (loss)........................ (3,700) 2,965 809 (3,007) 261 (10,422) 34,662 78,901
Basic earnings (loss) per share.......... (.14) .11 .03 (.12) .01 (.41) 1.33 2.99
Diluted earnings (loss) per share........ (.14) .11 .03 (.12) .01 (.41) 1.27 2.86
Net cash provided by (used in) operating
activities.............................. (19,339) 43,749 20,237 (3,120) (10,044) (10,827) 73,812 109,164
Net cash used in investing activities.... (6,607) (6,729) (4,193) (10,560) (15,635) (8,585) (5,272) (4,560)
Net cash provided by (used in) financing
activities.............................. 27,513 (31,339) (19,082) 15,494 29,591 (11,528) (17,639) (64,104)
EBITDA (1)............................... 8,091 18,089 15,466 8,407 13,269 (5,056) 68,808 107,120
Refining operations
Total charges (bpd) (2)............... 144,824 162,361 170,391 165,074 157,310 153,649 169,878 161,854
Gasoline yields (bpd) (3)............. 74,614 94,564 79,779 82,050 82,104 82,310 83,506 77,283
Diesel and jet fuel yields (bpd) (3).. 42,760 55,140 53,101 54,190 51,273 49,313 54,578 52,653
Total product sales (bpd)............. 144,921 175,888 166,750 169,366 153,880 163,375 174,281 159,531
Average light/heavy spread based on
delivered crude costs for the Cheyenne
Refinery (per bbl) (4).................. $ 6.27 $ 5.73 $ 3.95 $ 3.52 $ 3.75 $ 6.13 $ 6.42 $ 7.55
Average WTI/WTS crude oil spread
(per bbl) (5)........................... $ 2.38 $ 1.73 $ .97 $ 1.22 $ 1.53 $ 2.22 $ 2.68 $ 3.77
---------
First
--------
Revenues................................. $431,143
Operating income (loss).................. 12,158
Net income (loss)........................ 4,512
Basic earnings (loss) per share.......... .17
Diluted earnings (loss) per share........ .17
Net cash provided by (used in) operating
activities.............................. (33,574)
Net cash used in investing activities.... (4,407)
Net cash provided by (used in) financing
activities.............................. 17,609
EBITDA (1)............................... 18,238
Refining operations
Total charges (bpd) (2)............... 146,632
Gasoline yields (bpd) (3)............. 69,201
Diesel and jet fuel yields (bpd) (3).. 48,247
Total product sales (bpd)............. 138,770
Average light/heavy spread based on
delivered crude costs for the Cheyenne
Refinery (per bbl) (4).................. $ 8.20
Average WTI/WTS crude oil spread
(per bbl) (5)........................... $ 3.73
- --------
(1) EBITDA represents income before interest expense, interest income, income
tax and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles; however, the amounts
included in the EBITDA calculation are derived from amounts included in the
consolidated financial statements. In addition, EBITDA should not be
considered as an alternative to net income or operating income, as an
indication of operating performance or as an alternative to operating cash
flow as a measure of liquidity. EBITDA is not necessarily comparable to
similarly titled measures of other companies. EBITDA is presented herein
because Frontier believes it enhances an investor's understanding of
Frontier's ability to satisfy principal and interest obligations with
respect to Frontier's indebtedness and to use cash for other purposes,
including capital expenditures. EBITDA is also used for internal analysis
and as a basis for financial covenants. Frontier's EBITDA for the 2002 and
2001 quarters is reconciled to net income as follows (in thousands):
2003 2002 2001
------- ---------------------------------- ------------------------------------
First Fourth Third Second First Fourth Third Second First
------- ------- ------- ------- ------- -------- ------- -------- -------
Net income (loss)............................. $(3,700) $ 2,965 $ 809 $(3,007) $ 261 $(10,422) $34,662 $ 78,901 $ 4,512
Add provision (benefit) for income taxes...... (2,222) 1,686 1,140 (1,864) 98 (7,456) 21,221 13,849 459
Add interest expense and other financing costs 7,426 6,874 7,009 6,953 6,777 7,129 7,458 8,659 7,900
Subtract interest income...................... (373) (415) (471) (451) (465) (698) (868) (493) (713)
Add depreciation.............................. 6,960 6,979 6,979 6,776 6,598 6,391 6,335 6,204 6,080
------- ------- ------- ------- ------- -------- ------- -------- -------
EBITDA........................................ $ 8,091 $18,089 $15,466 $ 8,407 $13,269 $ (5,056) $68,808 $107,120 $18,238
======= ======= ======= ======= ======= ======== ======= ======== =======
(2) Charges are the quantities of crude oil and other feedstock processed
through refinery units.
(3) Manufactured product yields are the volumes of specification materials that
are obtained through the distilling of crude oil and the operations of
other refinery process units.
(4) Average light/heavy spread is the discount at which heavy crude oil
(gravity is low) sells compared to the sales price of light crude oil
(gravity is high).
(5) Average differential between benchmark West Texas intermediate (sweet) and
West Texas sour crude oil prices.
18
Holly Financial Data
Nine Months Nine Months
Ended Ended
April 30, April 30, Fiscal Year Ended July 31,
----------- ----------- --------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
----------- ----------- -------- ---------- -------- -------- --------
(dollars in thousands, except per share data)
Revenues................................ $858,198 $635,028 $888,906 $1,142,130 $965,946 $597,986 $590,299
Operating income........................ 18,022 34,980 50,896 121,895 18,634 33,159 24,866
Net income.............................. 30,352 25,936 32,029 73,450 11,445 19,937 15,167
Basic earnings per share................ 1.96 1.67 2.06 4.84 .71 1.21 .92
Diluted earnings per share.............. 1.90 1.62 2.01 4.77 .71 1.21 .92
Net cash provided by (used in) operating
activities............................. 7,862 11,205 41,847 105,641 46,804 47,628 38,193
Net cash (used in) investing activities. (25,610) (7,606) (21,953) (28,752) (20,143) (23,979) (50,959)
Net cash (used in) financing activities. (15,832) (11,889) (14,104) (14,677) (27,227) (22,057) (4,674)
Working capital......................... 27,460 66,474 59,873 57,731 363 13,851 14,793
Total assets............................ 541,899 494,870 502,306 490,429 464,362 390,982 349,857
Long-term debt.......................... 25,714 34,285 34,285 42,857 56,595 70,341 75,516
Stockholders' equity.................... 252,282 224,596 228,556 201,734 129,581 128,880 114,349
EBITDA (2).............................. 72,945 63,170 80,020 151,689 51,283 67,296 56,970
Capital expenditures.................... 47,556 20,816 35,313 28,571 19,261 26,903 49.715
Ratio of earnings to fixed charges (3).. 12.3x 10.1x 8.8x 16.1x 3.0x 4.3x 3.3x
Dividends declared per share............ .22 .20 .41 .37 .34 .32 .30
- --------
(1) This amount reflects Holly's $25 million transportation prepayment to
Longhorn Partners Pipeline, L.P. In November 2002, Holly settled by
agreement litigation brought in August 1998 by Longhorn Partners against
Holly and litigation brought in August 2002 by Holly against Longhorn
Partners and related parties. Under the settlement agreement, Holly paid
$25 million to Longhorn Partners on November 26, 2002, as a prepayment for
the transportation of 7,000 bpd of refined products from the Gulf Coast to
El Paso, Texas, in a period of up to 6 years from the date of the Longhorn
Pipeline's start-up, and Longhorn Partners issued to Holly an unsecured $25
million promissory note that will become payable with interest if the
Longhorn Pipeline does not begin operations by July 1, 2004, or to the
extent that Longhorn Partners is unable to provide Holly the full amount of
the agreed transportation services. For additional information, see "Item
3. Legal Proceedings" in Holly's annual report on Form 10-K for the fiscal
year ended July 31, 2003, as amended, and "Part II. Item 1. Legal
Proceedings" in Holly's quarterly report on Form 10-Q for the quarterly
period ended January 31, 2003, as amended. See "Where You Can Find More
Information", beginning on page 141.
(2) EBITDA represents income before interest expense, interest income, income
tax and depreciation and amortization. EBITDA is not a calculation based
upon generally accepted accounting principles; however, the amounts
included in the EBITDA calculation are derived from amounts included in the
consolidated financial statements of Holly. EBITDA should not be considered
as an alternative to net income or operating income, as an indication of
operating performance of Holly or as an alternative to operating cash flow
as a measure of liquidity. EBITDA is not necessarily comparable to
similarly titled measures of other companies. EBITDA is presented here
because Holly believes it enhances an investor's understanding of Holly's
ability to satisfy principal and interest obligations with respect to
Holly's indebtedness and to use cash for other purposes, including capital
expenditures. EBITDA is also used by Holly management for internal analysis
and as a basis for financial covenants. The following table reconciles
Holly's EBITDA to net income for each of the nine months ended April 30,
2003 and 2002, and for each of the fiscal years in the five fiscal year
period ended July 31, 2002:
Nine Months
Ended
April 30, Fiscal Year Ended July 31,
---------------- --------------------------------------------
2003 2002 2002 2001 2000 1999 1998
------- ------- ------- -------- ------- ------- -------
(in thousands)
Net income....................... $30,352 $25,936 $32,029 $ 73,450 $11,445 $19,937 $15,167
Add interest expense............. 1,224 2,320 2,953 4,980 5,914 7,790 8.371
Subtract interest income......... (649) (1,264) (1,528) (2,513) (761) (11) (646)
Add income tax provision......... 18,682 16,149 18,867 48,445 7,189 13,222 9,699
Add depreciation and amortization 23,336 20,029 27,699 27,327 27,496 26,358 24,379
------- ------- ------- -------- ------- ------- -------
EBITDA........................... $72,945 $63,170 $80,020 $151,689 $51,283 $67,296 $56,970
======= ======= ======= ======== ======= ======= =======
(3) Represents the ratio of the sum of income before taxes plus fixed charges
(excluding capitalized interest) for the period to fixed charges. Fixed
charges, for the purpose of this computation, represent interest expense on
debt, amortization of financing costs, capitalized interest and the portion
(approximately one-third) of rental expense that management believes is
representative of the interest component of rental expense.
19
Holly Operating Data
Nine Months Nine Months
Ended Ended
April 30, April 30, Fiscal Year Ended July 31,
----------- ----------- ---------------------------------------
2003 2002 2002 2001 2000 1999 1998
----------- ----------- ------- ------- ------- ------- -------
Crude charges (bpd)............................. 63,400 58,000 60,200 64,000 65,300 66,200 59,400(1)
Refinery production (bpd) (2)................... 70,800 64,800 66,400 69,600 70,800 70,700 61,800(1)
Sales of refined products (bpd) (3)............. 81,700 74,500 76,400 77,000 77,600 75,400 67,700(1)
Sales of produced refined products (bpd)
Gasoline..................................... 40,000 36,400 37,700 38,700 40,200 40,200 35,000
Diesel fuels................................. 15,000 6,800 14,000 15,100 15,400 14,900 13,700
Jet fuels.................................... 6,900 13,700 7,100 7,400 7,300 7,300 6,600
Asphalt...................................... 5,100 5,300 5,800 5,300 5,100 5,300 5,100
LPG and other................................ 2,500 2,300 2,400 2,600 2,500 2,700 2,700
------- ------- ------- ------- ------- ------- -------
Total product sales........................ 69,500 64,500 67,000 69,100 70,400 70,400 63,100(1)
Operating margin information (per sales bbl) (4)
Average net sales price........................ $ 37.25 $ 30.36 $ 30.95 $ 39.60 $ 33.52 $ 21.29 $ 23.48
Raw material costs............................. 30.88 23.23 24.22 29.80 27.89 15.38 17.39
------- ------- ------- ------- ------- ------- -------
Refinery margin................................ $ 6.37 $ 7.13 $ 6.73 $ 9.80 $ 5.63 $ 5.91 $ 6.09
======= ======= ======= ======= ======= ======= =======
- --------
(1) Crude charge, refinery production and sales of produced refined products
were reduced as a result of a scheduled turnaround for major maintenance at
the Navajo refinery. Crude charge represents the barrels per day of crude
oil processed through the crude units at Holly's refineries. Refinery
production represents the barrels per day of refined products yielded from
processing crude and other refinery feedstocks through the crude units and
other conversion units at each of Holly's refineries.
(2) Barrels per day of refined products produced from crude oil and other feed
and blending stocks.
(3) Includes refined products purchased for resale representing 9,400 bpd,
7,900 bpd, 7,200 bpd, 5,000 bpd and 4,600 bpd, respectively.
(4) Represents average per barrel amounts for produced refined products sold.
Holly Selected Quarterly Financial and Operating Data(1)
2003 2002
--------------------------- ------------------------------------
Third Second First Fourth Third Second First
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
Revenues................... $312,180 $270,360 $275,658 $253,878 $210,327 $166,754 $257,947
Operating income (loss).... 12,096 (1,017) 6,943 8,066 8,642 (2,719) 29,057
Net income (loss).......... 26,701 (1,596) 5,247 6,093 6,199 (485) 20,222
Basic earnings (loss) per
share.................... 1.72 (0.10) 0.34 0.39 0.40 (0.03) 1.30
Diluted earnings (loss) per
share.................... 1.67 (0.10) 0.33 0.38 0.39 (0.03) 1.27
2001
-----------------------------------
Fourth Third Second First
-------- -------- -------- --------
(in thousands, except per share data)
Revenues......................... $264,837 $268,190 $283,140 $325,963
Operating income................. 29,550 34,394 20,376 33,587
Net income....................... 19,607 20,889 12,542 20,412
Basic earnings (loss) per share.. 1.27 1.38 0.83 1.35
Diluted earnings (loss) per share 1.24 1.36 0.83 1.35
- --------
(1) Holly's fiscal year-end is July 31.
20
Comparative Per Share Data
Set forth below are net income, cash dividends and book value per common
share amounts for Holly and Frontier on a historical basis and for Holly and
Frontier on an unaudited pro forma combined basis after giving effect to the
proposed merger using the purchase method of accounting for business
combinations as described under "Unaudited Pro Forma Condensed Consolidated
Financial Information" on page 123.
You should read the information below together with the historical financial
statements, related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of both companies contained in
the annual reports on Form 10-K, as amended, and quarterly reports on Form
10-Q, as amended, that Holly and Frontier have filed with the Securities and
Exchange Commission. See "Where You Can Find More Information" beginning on
page 143. The pro forma statements are not necessarily indicative of the actual
results of operations or financial position of Frontier and Holly that would
have occurred had the merger, the merger of Frontier Escrow Corporation with
and into Frontier, the offering of the senior notes under Rule 144A and the use
of proceeds therefrom occurred on the dates indicated nor are they necessarily
indicative of future operating results or financial position.
Three Months
Ended Year Ended
March 31, December 31,
2003 2002
------------ ------------
Historical:
Holly historical data, per common share
Net income--basic................................................. $ .83 $ 1.16
Net income--diluted............................................... .81 1.13
Cash dividends.................................................... .11 0.43
Book value at end of period....................................... 15.46 14.74
Frontier historical data, per common share
Net income (loss)--basic.......................................... (.14) .04
Net income (loss)--diluted........................................ (.14) .04
Cash dividends.................................................... .05 .20
Book value at end of period....................................... 6.25 6.44
Unaudited Pro Forma:
Frontier and Holly combined pro forma data per pro forma common share
Net Income--basic (a)............................................. .24 .25
Net Income--diluted (a)........................................... .23 .24
Cash dividends (b)................................................ .05 .20
Book value at end of period (c)................................... 10.85 -- (d)
- --------
(a) Pro forma income per share amounts are based on the combined historical
results of Frontier and Holly as well as pro forma adjustments. Pro forma
basic shares used in the calculation are Frontier's historical weighted
average common shares outstanding plus the pro forma shares assumed to be
issued to Holly stockholders in conjunction with the merger. Pro forma
diluted shares include the historical dilutive effect of Frontier options
and restricted stock as well as an estimated dilutive effect from Parent
options anticipated to be issued to Holly option holders calculated by
using the option exchange ratio calculated as set forth in the merger
agreement attached as Annex A to this document.
(b) Management of Parent currently expects to pay quarterly dividends
post-merger at the same rate as currently paid by Frontier. However, the
declaration and payment of dividends on Parent common stock after the
merger will be in the discretion of the board of directors of Parent.
(c) Pro forma book value per common share is computed by dividing the pro forma
stockholders' equity at March 31, 2003, by the pro forma number of common
shares outstanding at March 31, 2003.
(d) A pro forma balance sheet as of December 31, 2002 is not required and is
therefore not included in this joint proxy statement/prospectus.
21
RISK FACTORS
As a result of the merger, current Frontier and Holly stockholders will be
acquiring Parent common stock. As you consider how to vote and review all of
the information included in or incorporated by reference into this joint proxy
statement/prospectus, you should pay particular attention to the following risk
factors relating to the merger and the following risk factors relating to our
business after the merger.
Risk Factors Relating to the Merger
The merger agreement provides a fixed exchange ratio for shares of Holly common
stock and Frontier common stock. The value of shares of Parent common stock,
cash and contingent value rights that Holly stockholders receive in the merger
may be less than the value of their shares of Holly common stock as of the date
of the merger agreement or on the date of the Holly special meeting. The value
of shares of Parent common stock that Frontier stockholders receive in the
merger may be less than the value of their shares of Frontier common stock as
of the date of the merger agreement or on the date of the Frontier special
meeting.
Upon completion of the merger, each share of Holly common stock will be
converted into the right to receive one share of Parent common stock, cash and
one contingent value right, and each share of Frontier common stock will be
converted into the right to receive one share of Parent common stock. The
one-for-one ratios at which the shares will be converted into shares of Parent
common stock and, in the case of Holly, contingent value rights, are fixed. In
addition, the aggregate cash consideration payable to Holly stockholders in the
merger is fixed at $172.5 million, and the amount of cash consideration payable
for each share of Holly common stock will depend only on the number of shares
of Holly common stock outstanding immediately prior to the merger. As a result
of the fixed exchange ratio, there will be no adjustment of the merger
consideration for changes in the market price of either Holly common stock or
Frontier common stock. Neither company is permitted to terminate the merger
agreement or resolicit the vote of its stockholders solely because of changes
in the market price of either company's common stock.
The date when the merger is completed may not immediately follow the date or
dates when the Holly stockholders and Frontier stockholders vote on the merger
agreement at their special meetings. As a result, the relative or absolute
prices of shares of Holly common stock and Frontier common stock may vary
significantly between the dates of the merger agreement, this document, the
special meetings and the completion of the merger. These variations may be
caused by, among other factors, changes in the businesses, operations, results
and prospects of our companies, market expectations of the likelihood that the
merger will be completed and the timing of its completion, the prospects for
our post-merger operations, the effect of any conditions or restrictions
imposed on or proposed with respect to the combined company by regulators, and
general market and economic conditions.
In addition, we cannot predict accurately the market price of the shares of
Parent common stock to be received by Holly stockholders and Frontier
stockholders after the completion of the merger. Accordingly, the prices of
shares of Holly common stock and Frontier common stock on the dates of the
special meetings may not be indicative of their prices immediately prior to the
completion of the merger or the price of Parent common stock after the merger
is completed.
Our substantial indebtedness could adversely affect our ability to operate our
business.
After the merger, we will have a significant amount of indebtedness. On
March 31, 2003, after giving pro forma effect to the merger, and the offering
and sale of new senior notes and the merger of Frontier Escrow Corporation with
and into Frontier described in "Recent Developments--Senior Notes Offering by
Frontier" beginning on page 32, and the application of the net proceeds
therefrom, we would have had total indebtedness of $455.3 million. Also after
giving pro forma effect to the merger, and the offering and sale of new senior
notes and the Frontier Escrow Corporation merger, and application of the net
proceeds therefrom, our pro forma ratio of earnings to fixed charges would have
been 2.6 for the three months ended March 31, 2003.
22
Our substantial indebtedness could have important consequences to us. For
example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit our ability to borrow additional funds to fund our working capital,
expenditures, debt service requirements or for other purposes.
In addition, the indentures governing the new senior notes and our existing
notes and existing and future revolving credit facility contain, and may
contain, financial and other restrictive covenants that will limit our ability
to engage in activities that may be in our long-term best interests. Our
failure to comply with those covenants could result in an event of default
which, if not cured or waived, could result in the acceleration of all of our
debts, including the notes.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. If new debt is added to our and our subsidiaries'
current debt levels, the related risks that we and they now face could
intensify. We have entered into a new credit facility, which will increase our
available credit from $175 million to $250 million upon completion of the
merger.
The integration of Holly and Frontier following the merger, and the integration
of the Woods Cross refinery, will present significant challenges that may
result in the combined company not operating as effectively as expected or in a
failure to achieve the anticipated potential benefits of the merger.
In connection with the merger and Holly's Woods Cross refinery acquisition
described in "Recent Developments--Woods Cross Refinery Acquisition by Holly"
beginning on page 33, Holly and Frontier will face significant challenges in
consolidating functions, integrating organizations, procedures and operations
in a timely and efficient manner and retaining key personnel. The integration
of Holly and Frontier will be complex and time-consuming, and our management
will have to dedicate substantial effort to it. These efforts could divert
management's focus and resources from other strategic opportunities and from
operational matters during the integration process.
Prior to the merger, each of Frontier and Holly will have been operated as a
separate independent entity, and we may not be able to integrate the operations
and personnel of Frontier and Holly successfully. In addition, the merger may
not produce the revenues, earnings or business synergies that we anticipated,
and the combined company's business may not perform as expected for a variety
of additional reasons, including:
. potential loss of employees, including managers;
. diversion of management's attention away from other business concerns; and
. expenses of any undisclosed or potential legal liabilities of the merged
companies.
Any one or a combination of these factors may cause our revenues or earnings
to decline, and even if the combined company's business enjoyed strong growth
prior to the merger, the combined company's business may not continue to have
strong growth thereafter.
23
If the merger does not occur, Frontier and Holly will not benefit from the
expenses they have incurred in the pursuit of the merger.
The merger may not be completed. If the merger is not completed, Frontier
and Holly will have incurred substantial expenses for which no ultimate benefit
will have been received by either company. In addition, if the merger agreement
is terminated under specified circumstances, the terminating party will be
required to pay a $15 million termination fee and up to $1 million in expenses.
See "The Merger Agreement--Termination of the Merger Agreement" beginning on
page 106.
Holly stockholders may not receive any payment on the contingent value rights.
The value, if any, that each holder of a contingent value right may receive
in the future is speculative, and the contingent value rights may ultimately
have no value. Any future payment to Holly stockholders who receive contingent
value rights in the merger is wholly dependent on whether we make any net
recoveries from litigation related to past sales of jet fuel by Holly to the
United States government. We may not prevail in this litigation, and if we
prevail, the amount of the net recoveries may be insignificant. See "Other
Agreements--Contingent Value Rights Agreement" beginning on page 109.
Risk Factors Relating to Our Business After the Merger
The dividend that the stockholders of Holly will receive after the merger is
anticipated to be less per share than the dividend that they have historically
received.
Prior to the merger, the stockholders of Holly historically have received a
quarterly dividend of $0.11 per share of common stock. After the merger is
completed, it is anticipated that we will pay a quarterly dividend of
approximately $0.05 per share, which is the same rate as that historically paid
to the holders of Frontier's common stock. The declaration and payment of
dividends after the merger will be subject to approval and declaration by
Parent's board of directors and will depend on a variety of factors, including
business, financial and regulatory considerations.
Crude oil prices and refining margins significantly impact our cash flow and
have fluctuated significantly in the past.
Our cash flow from operations is primarily dependent upon producing and
selling quantities of refined products at margins that are high enough to cover
our fixed and variable expenses. In recent years, crude oil costs and margins
between refined product sales and the cost of light crude feedstock, or "crack
spreads," have fluctuated substantially. Factors that may affect crude oil
costs and refined product prices include:
. overall demand for crude oil and refined products;
. general economic conditions;
. the level of foreign and domestic production of crude oil and refined
products;
. the availability of imports of crude oil and refined products;
. the marketing of alternative and competing fuels; and
. the extent of government regulation.
Crude oil supply contracts are generally short-term contracts with price
terms that change as market prices change. Our crude oil requirements are
supplied from sources that include:
. major oil companies;
. crude oil marketing companies;
. large independent producers; and
. smaller local producers.
24
The prices we receive for our refined products are affected by:
. global market dynamics;
. product pipeline capacity;
. local market conditions; and
. the level of operations of other refineries in our regions.
The price at which we can sell gasoline and other refined products is
strongly influenced by the price of crude oil. Generally, an increase or
decrease in the price of crude oil results in a corresponding increase or
decrease in the price of gasoline and other refined products. The effect of
changes in crude oil prices on operating results, therefore, depends in part on
how quickly refined product prices adjust to reflect these changes. A
substantial or prolonged increase in crude oil prices without a corresponding
increase in refined product prices, a substantial or prolonged decrease in
refined product prices without a corresponding decrease in crude oil prices, or
a substantial or prolonged decrease in demand for refined products could have a
significant negative effect on our earnings and cash flows. From time to time,
we purchase forward crude oil supply contracts, have entered into forward
product agreements to hedge excess inventories, and for Frontier's El Dorado,
Kansas refinery, Frontier has hedged its refined product spreads. For a
discussion of these forward contracts and hedges, see Frontier's and Holly's
annual reports on Form 10-K, as amended, previously filed with the Securities
and Exchange Commission. See "Where You Can Find More Information" beginning on
page 143.
In addition, our refineries maintain inventories of crude oil, intermediate
products and refined products, the value of each being subject to rapid
fluctuations in market prices. We record our inventories at the lower of cost
(as determined on a FIFO basis) or market price. As a result, a rapid and
significant increase or decrease in the market prices for crude oil or refined
products could have a significant short-term impact on our earnings and cash
flow.
We face substantial competition from other refining and pipeline companies.
The refining industry is highly competitive. Many of our competitors are
large, integrated, major or independent oil companies that, because of their
more diverse operations, larger refineries and stronger capitalization, may be
better able than we are to withstand volatile industry conditions, including
shortages or excesses of crude oil or refined products or intense price
competition at the wholesale level. Many of these competitors have financial
and other resources substantially greater than ours. In addition, many of our
customer contracts, including government contracts, are terminable at will by
the customer. The loss of a significant customer due to competition could have
a negative impact on our business and financial results.
In recent years, there have been several refining and marketing
consolidations or acquisitions between entities competing in our geographic
markets. These transactions and future transactions could increase future
competitive pressures on our business.
Increased competition and supply of refined products in the El Paso, Texas
market may have an adverse effect on our business and results of operations.
Increased competition and supply of refined products in El Paso may
adversely affect our business and results of operations. The transportation of
refined products from the Texas Gulf Coast to the El Paso, Texas market on the
Longhorn Pipeline, which may in the future become operational as described
below, could exert significant downward pressure on wholesale refined products
prices and refined products margins in El Paso and related markets served from
El Paso. In addition, the flow of additional refined products into El Paso for
shipment to Arizona could further exacerbate the capacity restraints we
currently are experiencing on the common carrier pipelines that currently
transport our refined products to Arizona.
25
Until 1998, the El Paso, Texas market and markets served from El Paso were
generally not supplied by refined products produced by the large refineries on
the Texas Gulf Coast. While wholesale prices of refined products on the Gulf
Coast have historically been lower than prices in El Paso, distances from the
Gulf Coast to El Paso (more than 700 miles if the most direct route were used)
have made transportation by truck impractical and have discouraged the
substantial investment required for development of refined products pipelines
from the Gulf Coast to El Paso.
In 1998, a Texaco, Inc. subsidiary completed a 16-inch refined products
pipeline running from the Gulf Coast to Midland, Texas along a northern route
(through Corsicana, Texas). This pipeline, now owned by Shell Pipeline Company,
LP, is linked to a 6-inch pipeline, also owned by Shell Pipeline, that is
currently being used to transport to El Paso approximately 16,000 to 18,000 bpd
of refined products that are produced on the Texas Gulf Coast (this volume
replaces a similar volume produced at the Shell Oil Company refinery in Odessa,
Texas, which was shut down in 1998). The Shell Pipeline pipeline from the Gulf
Coast to Midland has the potential to be linked to existing or new pipelines
running from the Midland, Texas area to El Paso, thereby resulting in
substantial additional volumes of refined products that could be transported
from the Gulf Coast to El Paso.
An additional potential source of pipeline transportation from Gulf Coast
refineries to El Paso is the proposed Longhorn Pipeline. This pipeline is
proposed to run approximately 700 miles from the Houston area of the Gulf Coast
to El Paso, utilizing a direct route. The owner of the Longhorn Pipeline,
Longhorn Partners Pipeline, L.P. ("Longhorn Partners"), is a Delaware limited
partnership that includes affiliates of ExxonMobil Pipeline Company, BP
Pipeline (North America), Inc., Williams Pipe Line Company, and the Beacon
Group Energy Investment Fund, L.P. and Chisholm Holdings as limited partners.
Longhorn Partners has proposed to use the pipeline initially to transport
approximately 72,000 bpd of refined products from the Gulf Coast to El Paso and
markets served from El Paso, with an ultimate maximum capacity of 225,000 bpd.
A critical feature of this proposed petroleum products pipeline is that it
would utilize, for approximately 450 miles (including areas overlying the
environmentally sensitive Edwards Aquifer and Edwards-Trinity Aquifer and
heavily populated areas in the southern part of Austin, Texas) an existing
pipeline (previously owned by Exxon Pipeline Company) that was constructed
about 1950 for the shipment of crude oil from West Texas to the Houston area.
The Longhorn Pipeline has not yet begun operations.
If the Longhorn Pipeline begins operations as currently proposed, the
substantially lower requirement for capital investment permitted by the direct
route through Austin, Texas and over the Edwards Aquifers would permit Longhorn
Partners to give its shippers a cost advantage through lower tariffs that
could, at least for a period of time, result in significant downward pressure
on wholesale refined products prices and refined products margins in El Paso
and related markets. Our results of operations could be adversely impacted if
the Longhorn Pipeline were allowed to operate as currently proposed. We cannot
predict whether and, if so, under what conditions, the Longhorn Pipeline will
ultimately be operated, nor can we predict the consequences for us resulting
from Longhorn Pipeline's operations if they occur.
The common carrier pipelines used by us to serve the Arizona and Albuquerque
markets are currently operated at or near capacity and are subject to
proration. As a result, the volumes of refined products that we and other
shippers have been able to deliver to these markets have been limited. The flow
of additional products into El Paso for shipment to Arizona, either as a result
of operation of the Longhorn Pipeline or otherwise, could further exacerbate
such constraints on deliveries to Arizona. We may experience future constraints
on our ability to deliver our products through the common carrier pipeline to
Arizona. Any future constraints on our ability to transport our refined
products to Arizona could, if sustained, adversely affect our results of
operations and financial condition.
26
External factors beyond our control can cause fluctuations in demand for our
products and in our prices and margins, which may negatively affect income and
cash flow.
External factors can also cause significant fluctuations in demand for our
products and volatility in the prices for our products and other operating
costs and can magnify the impact of economic cycles on our business. Examples
of external factors include:
. general economic conditions;
. competitor actions;
. availability of raw materials;
. international events and circumstances; and
. governmental regulation in the United States and abroad, including
changes in policies of the Organization of Petroleum Exporting Countries.
Demand for our products is influenced by general economic conditions. For
example, our refined product margins and crude oil differentials in 2001 were
at near record levels. After experiencing such record levels, our refined
product margins and crude oil differentials declined substantially in 2002.
Contributing to this decline were unusually high prices for oil, reduced market
demand for refined products and greater imports of competitive products, all of
which adversely affected our results of operations in 2002. The existence of
similar economic and market conditions in the future may have a negative impact
on our business and financial results.
Our profitability is linked to the light/heavy crude oil price spread, which
declined during the first quarter of 2002 and remained low for three quarters
in 2002, but began to widen during the fourth quarter. Light/heavy spreads for
2002 were significantly lower than in 2001.
Our profitability, particularly at Frontier's Cheyenne, Wyoming refinery, is
linked to the price spread between light and heavy crude oil. In Cheyenne, we
prefer to refine heavy crude oil because it provides a wider refining margin
than light crude. Accordingly, any tightening of the light/heavy spread could
reduce our profitability. Crude prices were low at the beginning of 2002 making
it uneconomical for companies to produce heavy crude oil, which sells at a
discount to light crude. Although crude prices rose gradually during 2002, the
light/heavy spread only began to widen again in the fourth quarter. Crude oil
prices may not remain at their current levels and the light/heavy spread may
decline again.
Our operations involve environmental risks that may require us to make
substantial capital expenditures to remain in compliance or that could give
rise to material liabilities.
Our results of operations may be affected by increased costs resulting from
compliance with the extensive environmental laws to which our business is
subject and from any possible contamination of our facilities as a result of
accidental spills, discharges or other releases of petroleum or hazardous
substances.
Our operations are subject to a variety of federal, state and local
environmental laws and regulations relating to the protection of the
environment, including those governing the emission or discharge of pollutants
into the air and water, product specifications and the generation, treatment,
storage, transportation and disposal, or remediation, of solid and hazardous
waste and materials. Environmental laws and regulations that affect the
operations, processes and margins for our refined products are extensive and
have become progressively more stringent, thereby necessitating significant
capital investments. Additional legislation, regulatory requirements or
administrative policies could be imposed with respect to our products or
activities. Compliance with more stringent laws or regulations or more vigorous
enforcement policies of regulatory agencies could adversely affect our
financial position and results of operations and could require us to make
substantial expenditures. For more information regarding potential costs
associated with such compliance, see "Business--Government
Regulation--Environmental Matters" in Frontier's annual report on Form 10-K for
the fiscal year ended
27
December 31, 2002, as amended, and "Items 1 and 2--Capital Improvement
Projects," "Items 1 and 2--Regulation" and "Item 3--Legal Proceedings" in
Holly's annual report on Form 10-K for the fiscal year ended July 31, 2002, as
amended. See "Where You Can Find More Information" on page 143.
Our business is inherently subject to accidental spills, discharges or other
releases of petroleum or hazardous substances. Past or future spills related to
any of our operations, including our refineries, pipelines or product
terminals, may give rise to liability (including potential cleanup
responsibility) to governmental entities or private parties under federal,
state or local environmental laws, as well as under common law. This may
involve contamination associated with facilities we currently own or operate,
facilities we formerly owned or operated and facilities to which we sent wastes
or by-products for treatment or disposal and other contamination. Accidental
discharges could occur in the future, future action may be taken in connection
with past discharges, governmental agencies may assess penalties against us in
connection with past or future contamination and third parties may assert
claims against us for damages allegedly arising out of past or future
contamination. The potential penalties and clean-up costs for past or future
releases or spills, the failure of some prior owners of our facilities to
complete their clean-up obligations, the liability to third parties for damage
to their property, or the need to address any newly discovered information or
conditions that may require a response could be significant and the payment of
these amounts could have a material adverse effect on our business, financial
condition and results of operations. For the amount of potential clean-up
costs, see "Business--Government Regulation--Environmental Matters" in
Frontier's annual report on Form 10-K for the fiscal year ended December 31,
2002, as amended, and "Items 1 and 2--Capital Improvement Projects," "Items 1
and 2--Regulation" and "Item 3--Legal Proceedings" in Holly's annual report on
Form 10-K for the fiscal year ended July 31, 2002, as amended. See "Where You
Can Find More Information" on page 143.
Pending lawsuits have arisen, and potential future claims and liabilities may
arise, due to alleged or actual discharges of materials into the environment in
connection with oil and gas exploration and production activities.
Oil and gas exploration and production activities engaged in by subsidiaries
of Holly and Frontier also have given rise, and may in the future give rise, to
claims or liabilities due to alleged or actual spills, discharges or releases
of petroleum or other materials into the environment. A Frontier subsidiary,
Wainoco Oil & Gas Company, owned and operated an interest in an oil field in
the Los Angeles, California metropolitan area from 1985 to 1995. The production
facilities for that interest in the oil field are located at the campus of the
Beverly Hills High School. In April 2003, a law firm began filing claims with
the Beverly Hills school district and city on behalf of former students, school
employees and area residents alleging that emissions from the oil field or the
production facilities caused cancers or various other health problems in those
individuals. On June 9, 2003, the law firm filed a lawsuit related to some of
these claims, styled Moss, et al. vs. Venoco, Inc. et al., in Superior Court of
the State of California for the County of Los Angeles, Central District, that
asserted claims relating to 21 persons who allegedly developed cancer as a
result of alleged emissions from the oil field, from the production facilities
at the Beverly Hills High School, from other nearby production facilities that
were never operated by Frontier or any of its subsidiaries, and/or from the
Century City District Energy Plant, an electric power plant located adjacent to
the Beverly Hills High School. The lawsuit, which was amended on July 2, 2003,
named 19 defendants, including the Beverly Hills Unified School District, the
City of Beverly Hills, 12 oil and gas companies, including Wainoco Oil & Gas
Company and Frontier, involved in owning or operating production facilities and
5 additional companies involved in owning or operating the power plant. On
August 1, 2003, the law firm filed a second lawsuit against the same
defendants, styled Yeshoua, et al. vs. Venoco, Inc. et al., in Superior Court
of the State of California for the County of Los Angeles, Central District. The
second lawsuit asserts claims relating to 208 persons who allegedly developed
various kinds of cancer and 199 additional persons who allegedly developed
unspecified personal injuries and fears of diseases as a result of the alleged
emissions. Both lawsuits include claims for personal injury, wrongful death,
loss of consortium and fear of contracting diseases, and also ask for punitive
damages. No dollar amounts of damages have been specified in any of the
lawsuits.
28
Our refineries face operating hazards, and the potential limits on insurance
coverage could expose us to potentially significant liability costs.
Our operations are subject to significant interruption and our profitability
is impacted if any of our refineries experiences a major accident or fire, is
damaged by severe weather or other natural disaster, or otherwise is forced to
curtail its operations or shut down. If a pipeline becomes inoperative, crude
oil would have to be supplied to these refineries through an alternative
pipeline or from additional tank trucks to the refinery, which could hurt our
business and profitability. In addition, a major accident, fire or other event
could damage a refinery or the environment or cause personal injuries. If a
refinery experiences a major accident or fire or other event or an interruption
in supply or operations, our business could be materially adversely affected to
the extent that the damage or liability exceeds the amounts of business
interruption, property, terrorism and other insurance that we maintain against
these risks.
Our refineries consist of many processing units, a number of which have been
in operation for a long time. One or more of the units may require additional,
unscheduled down time, or "turnaround", for unanticipated maintenance or
repairs that is more frequent than our scheduled turnaround for each unit every
one to five years. Scheduled and unscheduled turnarounds could reduce our
revenues during the period of time that our units are not operating.
Instability in the Middle East, terrorist attacks and future threats may
negatively impact our business.
Our business is affected by general economic conditions and fluctuations in
consumer confidence and spending, which can decline as a result of numerous
factors outside of our control, such as the war in Iraq and terrorist attacks.
Instability in the Middle East, as well as events occurring in response to or
in connection with previous terrorist attacks in the U.S., future terrorist
attacks against U.S. targets, additional conflicts involving the United States
or its allies, or military or trade disruptions impacting our suppliers or our
customers, may adversely impact our operations. As a result, we could
experience decreased sales of our products (especially sales to our customers
that purchase jet fuel) and extension of time for payment of accounts
receivable from our customers (especially our customers in the airline
industry). Any decrease in demand for jet fuel due to a decrease in commercial
aviation activity could adversely affect our business. Strategic targets such
as our refineries or pipelines may be at greater risk of future terrorist
attacks than other targets in the United States. These occurrences could have
an adverse impact on energy prices, including prices for our crude oil and
refined products, and an impact on the margins from our refining and wholesale
marketing operations. In addition, disruption of the energy industry or
significant increases in energy prices could result in government-imposed price
controls. Further, the government could require us to exercise certain security
precautions, which may increase our operating expenses or require additional
capital expenditures. It is possible that any or a combination of these
occurrences could have a material adverse effect on our business.
We generate a significant amount of our revenue from Shell Oil Products US. As
our commitment to Shell Oil under the refined product offtake agreement
declines, we will have to find new customers for the gasoline and diesel fuel
produced at the El Dorado refinery. We may not be able to do this successfully.
In connection with the purchase of the El Dorado refinery by Frontier in
1999, Frontier entered into a 15-year refined product offtake agreement with
Shell Oil Products US from which approximately 58% of Frontier's historical
revenues were derived for the year ended December 31, 2002. Under this
agreement, Shell Oil purchases most of the gasoline and diesel production of
the El Dorado refinery at market-based prices. Initially in 1999, Shell Oil
purchased all of the El Dorado refinery's production of these products.
Beginning in 2000, we retained and marketed a portion of the refinery's
gasoline and diesel production. Also, beginning in 2000, we were permitted and
began to increase this amount by 5,000 barrels per day each year over a period
of ten years ending in 2009 at a total increase of 50,000 barrels per day
through the term of this agreement. Shell Oil will purchase substantially all
gasoline and diesel production in excess of these amounts. The offtake
agreement also provides for Shell Oil to purchase all jet fuel production from
the El Dorado refinery for five years (through October 2004). Since we will
have to market an increasing portion of the El Dorado refinery's
29
gasoline and diesel production over the next ten years, as well as jet fuel
after 2004, we will have to find new customers for these refined products.
These customers may be in markets that we have not previously sold to, and it
may be difficult for us to find customers for these products. If we cannot find
customers in locations convenient to the El Dorado refinery, our revenues and
profits may be reduced. In addition, our results of operations and ability to
service our debt obligations would be negatively affected to the extent that
Shell Oil did not make timely payments to us. Frontier does not have any other
individual customers that are material to its revenues or earnings.
For the twelve months ended January 31, 2002, Holly did not have material
sales to Shell Oil Products US. Holly did not have any other individual
customers that were material to its revenues or earnings for such period other
than four customers described in Note 15 to Holly's audited financial
statements included in Holly's annual report on Form 10-K for the fiscal year
ended July 31, 2002, as amended, none of which individually accounted for more
than 15% of Holly's revenues in fiscal 2002.
Our operating results are seasonal and generally lower in the first and fourth
quarters of the year.
Demand for gasoline and asphalt products is generally higher during the
summer months than during the winter months due to seasonal increases in
highway traffic and road construction work. As a result, our operating results
for the first and fourth calendar quarters are generally lower than those for
the second and third quarters. Diesel demand has historically been more stable
because two major east-west truck routes and two major railroads cross one of
our principal marketing areas. However, reduced road construction and
agricultural work during the winter months causes depressed demand for diesel
in such months.
We may have labor difficulties with some of our employees who are represented
by unions.
After giving effect to the merger, approximately 52 percent of our employees
will be represented by collective bargaining agreements, which will expire at
various times beginning in 2006. Approximately 59 percent of Frontier's
employees as of March 31, 2003, and approximately 38 percent of Holly's
employees as of June 18, 2003, were covered by collective bargaining
agreements. We believe that our current relations with our employees are good.
However, our employees may conduct a strike at some time in the future, which
may adversely affect our operations.
30
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus, including information incorporated by
reference in this joint proxy statement/prospectus (see "Where You Can Find
More Information" on page 143), contains "forward-looking statements," as
defined by the Securities and Exchange Commission. Such statements are those
concerning the contemplated transactions and strategic plans, expectations and
objectives for future operations. All statements, other than statements of
historical facts, included in this joint proxy statement/prospectus that
address activities, events or developments that we expect, believe or
anticipate will or may occur in the future are forward-looking statements.
These include, without limitation:
. statements concerning the contemplated transactions, including strategic
plans, expectations and objectives for future operations, the completion
of those transactions, and the realization of expected synergies from the
transactions;
. statements, other than statements of historical facts, that address
activities, events or developments that we expect, believe or anticipate
will or may occur in the future;
. statements relating to future financial performance, future equity
issuances and other matters;
. statements relating to the accretion to reported earnings estimated to
result from the merger;
. statements relating to revenue, income and operations of the combined
company after the merger; and
. any other statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"projects" or similar expressions.
Although we believe that our plans, intentions and expectations reflected in
or suggested by the forward-looking statements we make in this document are
reasonable, we can give no assurance that such plans, intentions or
expectations will be achieved. These statements are based on assumptions made
by us based on our experience and perception of historical trends, current
conditions, expected future developments and other factors that we believe are
appropriate in the circumstances. Such statements are subject to a number of
risks and uncertainties, many of which are beyond our control. You are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in the forward-looking statements.
All forward-looking statements contained in this document speak only as of
the date of this document, and all forward-looking statements contained in any
document incorporated by reference speak only as of the date of that document.
None of Parent, Holly and Frontier undertakes any obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
31
RECENT DEVELOPMENTS
Senior Notes Offering by Frontier
On April 4, 2003, Frontier Escrow Corporation, a newly formed, wholly-owned,
direct subsidiary of Frontier, issued $220 million principal amount of 8%
Senior Notes due 2013. In connection with the merger, Frontier Escrow
Corporation will merge with and into Frontier, and the obligations under the
new senior notes will become the obligations of Frontier. A portion of the
proceeds from the offering of the new senior notes will be used to pay the cash
portion of the merger consideration to be received by Holly stockholders, to
pay related fees and expenses and to refinance or pay off existing Holly
indebtedness. If the merger does not occur by October 31, 2003, Frontier Escrow
Corporation is obligated to redeem the new senior notes at a price equal to
101% of the aggregate principal amount of the notes, plus accrued interest to
October 31, 2003. In addition to the net proceeds from the notes offering, the
additional funds necessary to pay the redemption amount in full were placed
into escrow by Frontier, pending their use upon the closing of the merger or to
pay for the redemption price of the new senior notes if the merger does not
occur by October 31, 2003.
After the merger, the new senior notes will be the unsecured senior
obligations of Frontier and will be guaranteed by Parent and all of Frontier's
domestic subsidiaries, which will include Holly and all of its subsidiaries.
The new senior notes and the guarantees will rank:
. equally with all of Frontier's and the guarantors' existing unsecured
debt, which was $209.9 million on March 31, 2003, and future unsecured
debt;
. ahead of any of Frontier's and the guarantors' future debt that expressly
provides for subordination to the notes or the guarantees; and
. subordinated to any of Frontier's and the guarantors' secured
indebtedness, which was $29.1 million on March 31, 2003, to the extent of
the value of the collateral for such secured indebtedness. Frontier's
secured indebtedness is debt under its revolving credit facility.
Borrowings under this facility may change daily and are subject to our
line of credit limits and borrowing base availability.
Like the indentures under which Frontier's other senior notes were issued,
the indenture under which the new senior notes were issued will, among other
things, impose limitations or conditions on the ability of Frontier and its
restricted subsidiaries to:
. sell all or substantially all of their assets or merge or consolidate
with other companies;
. borrow money;
. incur liens;
. pay dividends or make other distributions;
. make other restricted payments or investments; and
. enter into certain transaction with their affiliates.
The limitations imposed by the indenture under which the new senior notes were
issued will in general be similar to or less restrictive than the limitations
imposed by indentures under which Frontier's other senior notes were issued.
For more information regarding the limitations imposed by Frontier's existing
indentures, please read the portions of Frontier's 2002 annual report to
shareholders filed as Exhibit 13.1 to Frontier's annual report on Form 10-K for
the year ended December 31, 2002, as amended. The indenture under which the new
senior notes were issued is filed as Exhibit 4.4 to the registration statement
of which this joint proxy statement/prospectus is a part.
For more information on the estimated effects of the sale of the new senior
notes and the use of proceeds from the sale, please see the "Unaudited Pro
Forma Condensed Consolidated Financial Information" beginning on page 123.
32
Amendment of Revolving Credit Facility by Frontier
On May 29, 2003, Frontier Oil and Refining Company, one of Frontier's
wholly-owned subsidiaries, entered into an amended and restated revolving
credit facility with a group of 11 banks. The facility, which has an expiration
date of June 15, 2006, is a collateral-based working capital facility with
total capacity prior to the consummation of the merger, and subject to the
satisfaction of certain other conditions, of up to $175 million, of which
maximum cash borrowings are $125 million, subject to borrowing base amounts.
Upon consummation of the merger, and subject to satisfaction of certain other
conditions, the capacity will be increased up to $250 million, of which maximum
cash borrowings will be $200 million, subject to borrowing base amounts. Any
unutilized capacity after cash borrowings is available for letters of credit.
As of August 1, 2003, Frontier had $34,700,000 of borrowings and $80,875,000 of
letters of credit outstanding under the credit facility. The borrowings and
letters of credit amounts usually change on a daily basis.
The facility provides working capital financing for operations, generally
the financing of crude and product supply. It is generally secured by the
borrower's current assets. The credit agreement provides for a quarterly
commitment fee of 0.300 of 1% to 0.375 of 1% per annum. Interest rates are
based, at the borrower's option, on the agent bank's prime rate plus 0.25% to
1%, the prevailing Federal Funds Rate plus 1.75% to 2.5%, or the
reserve-adjusted LIBOR plus 1.25% to 2%. Standby letters of credit issued bear
a fee of 1.125% to 1.75% annually, plus standard issuance and renewal fees. In
all cases, the rate and fees discussed above increase from the lower to higher
levels as the ratio of the difference between funded debt and specified cash
equivalents to earnings, as defined in the credit agreement, increases. The
agreement also includes financial covenant requirements relating to Frontier's
working capital, cash and cash equivalents, tangible net worth and capital
expenditure limits. Frontier is currently in compliance with these covenants.
Woods Cross Refinery Acquisition by Holly
Effective June 1, 2003, Holly acquired from ConocoPhillips the 25,000 bpd
Woods Cross refinery near Salt Lake City, Utah for a purchase price of
approximately $21.2 million in cash ($25 million for assets purchased less $3.8
million for pension obligations assumed) plus approximately $41 million in cash
for crude oil, refined product and other inventories. Holly financed the Woods
Cross purchase from a combination of cash on hand and borrowings under its
existing revolving credit agreement, which agreement was amended to increase
total availability to $100 million.
Woods Cross Assets Acquired
The Woods Cross refinery has a rated crude oil capacity of 25,000 bpd and
has operated at close to that capacity over the last five years. The refinery's
high conversion capability enables it to produce a large percentage of high
value products such as motor fuels, jet fuel and distillates. In addition to
the refinery, Holly acquired
. a 50% undivided interest in two storage terminals located in Boise, Idaho
(221,500 barrel capacity) and Burley, Idaho (140,000 barrel capacity)
that are operated by Sinclair Oil Corporation,
. a storage terminal located in Spokane, Washington (271,000 barrel
capacity),
. approximately 60 branded marketer contracts that supply an estimated 220
service stations located in Utah, Idaho, Montana and Wyoming,
. 25 retail service stations located in Utah and Wyoming, and
. a ten-year exclusive license to market fuels under the Phillips 66 brand
in the states of Utah, Idaho, Montana and Wyoming, with an agreement to
work cooperatively on possible extensions of the ten-year term.
ConocoPhillips also granted Holly the option to market ConocoPhillips'
ancillary branded products in the four state region and assigned Holly usage
rights to necessary technology, software, hardware and databases
33
unique to the refinery. Holly assumed specified raw materials supply agreements
of ConocoPhillips needed for the operation of the refinery. None of the
materials supply agreements are long-term. All crude oil purchase agreements
have thirty-day terms, subject to automatic renewal for an additional thirty
days unless either party terminates the agreement.
Approximately 80% of the refinery's gasoline production is sold through a
wholesale marketer network and the remaining 20% is sold through the 25 retail
service stations to be acquired. Twenty-two of the service stations acquired
are located in the Salt Lake City, Utah area and sell under the Phillips 66
brand. The three Wyoming outlets were recently purchased from El Paso CGP
Corporation, formerly The Coastal Corporation, and sell under the Coastal
brand. Conoco Phillips assigned Holly its rights to the Coastal trademark for
the three Wyoming stores, which continue through April 24, 2011.
Transferred Employees
In connection with the acquisition, Holly hired approximately 140 employees
from ConocoPhillips, 90 of whom are union employees.
Historical Financial Statements Not Provided for Woods Cross Assets
In the Woods Cross acquisition, Holly acquired a collection of assets from
ConocoPhillips that were never operated by ConocoPhillips as an independent
operating division or subsidiary. Rather, the various assets and their related
operations were operated as part of ConocoPhillips' more extensive refinery,
marketing and transportation operations. In order to operate these assets,
Holly has established various alternative operating systems and networks,
employee compensation/benefit structures, and supply and other contractual
relationships after the completion of the Woods Cross acquisition. Differences
in Holly's operating approach could result in Holly obtaining different
productivity levels, results of operations and revenues than those obtained by
ConocoPhillips historically. Furthermore, Holly's operation of the Woods Cross
assets will not be burdened by the corporate overhead allocation charges
historically applied by ConocoPhillips. For these reasons, we believe that the
Woods Cross assets acquired do not constitute a "business" under generally
accepted accounting principles or federal securities laws and, accordingly, the
inclusion in this joint proxy statement/prospectus of historical financial
statements for the Woods Cross assets is not required by federal securities
laws.
In light of the different operating plan and mix of assets employed by Holly
in its conduct of business using the Woods Cross assets following the
completion of the Woods Cross acquisition, we believe that the historical
financial statements, if available, for the Woods Cross assets would not be
indicative of Holly's future operations. Accordingly, we have not provided
historical financial statements for the Woods Cross assets in this joint proxy
statement/prospectus.
The "Unaudited Pro Forma Condensed Consolidated Financial Information" on
page 123 does not include the effects of Holly's acquisition of the Woods Cross
refinery.
Iatan System Sale by Holly
On March 4, 2003, Holly sold its 400-mile Iatan crude oil gathering system
located in West Texas to Plains Marketing, L.P., an affiliate of Plains
All-American Pipeline, L.P., for $24 million in cash, agreeing to transport
crude oil purchased in West Texas on the Iatan system at an agreed upon tariff
for six and a half years. The Iatan system, while profitable, was not
considered central to Holly's refining operations. The proceeds from the sale
increased Holly's cash resources available for investment in its core refining
operations, including the Woods Cross acquisition.
FERC Order Applicable to Holly
In September 2002, the Federal Energy Regulatory Commission, which we refer
to as the "FERC," issued an order in proceedings brought by Holly and other
parties against Kinder Morgan's SFPP, L.P., which we refer
34
to as "SFPP," relating to tariffs of common carrier pipelines, which are owned
and operated by SFPP, for shipments of refined products during the period from
1993 through July 2000 from El Paso, Texas to Tucson and Phoenix, Arizona and
from points in California to points in Arizona. Holly is one of several
refiners that regularly utilize an SFPP pipeline to ship refined products from
El Paso, Texas to Tucson and Phoenix, Arizona. The September 2002 order
resolved most remaining issues relating to SFPP's tariffs on the pipelines to
points in Arizona from 1993 through July 2000. On January 29, 2003, the FERC
issued an order accepting most of the computations prepared by SFPP pursuant to
the September 2002 order and requiring a change in one item. During April 2003,
Holly received a refund of $15.2 million from SFPP, subject to judicial review
of the FERC decision. In June 2003 the FERC issued a further order requiring an
adjustment in the computations which is expected to result in a small
additional payment to Holly. The final FERC decision on this matter is subject
to judicial review by the Court of Appeals for the District of Columbia
Circuit. In the event SFPP prevails in whole or in part in such judicial
review, the reparations actually owed may be less than the $15.2 million and in
that event part or all of the $15.2 million received by Holly in April 2003
would have to be refunded. As of the date of this joint proxy
statement/prospectus, it is not possible to predict the outcome of the judicial
review by the Court of Appeals.
Acquisition of Partnership Interest by Holly
On May 6, 2003, Holly received notice from the Juarez Pipeline Company, an
affiliate of The Williams Companies, Inc., of a proposed sale of Juarez's 45%
partnership interest in the Rio Grande Pipeline Company ("Rio Grande") for a
purchase price of $27.5 million, subject to adjustment. Rio Grande had 2002
annual revenues of approximately $14.2 million and owns the Rio Grande
Pipeline, a natural gas liquids pipeline that delivers natural gas liquids from
a point near Odessa, Texas to a point on the international border between
Mexico and the United States near El Paso, Texas. Holly then owned a 25%
partnership interest in Rio Grande. Pursuant to the Rio Grande partnership
agreement, Holly and the other partner in Rio Grande had a right of first
refusal to purchase their pro rata share of the Juarez partnership interest.
Holly notified Juarez that it would exercise its right of first refusal. The
other partner in Rio Grande did not timely exercise its right of first refusal.
Therefore, Holly purchased the entire Juarez partnership interest on June 30,
2003. Holly received from Frontier a waiver that Holly required under the
merger agreement in order to proceed with the purchase. Holly financed the
purchase with borrowings under its revolving credit agreement and obtained a
waiver from its lenders under the revolving credit agreement in order to
increase its ownership in Rio Grande.
The "Unaudited Pro Forma Condensed Consolidated Financial Information"
beginning on page 123 does not include the effects of Holly's acquisition of
the Juarez partnership interest in Rio Grande.
35
THE HOLLY SPECIAL MEETING
We are furnishing this joint proxy statement/prospectus to Holly
stockholders as part of the solicitation of proxies by Holly's board of
directors for use at the Holly special meeting.
Date, Time and Place
Holly will hold its special meeting on , 2003, at 9:00 a.m., local
time, in Suite 200 of the First National Bank Building located at 303 West
Main, Artesia, New Mexico.
Purpose of Holly Special Meeting
At the Holly special meeting, we are asking holders of record of Holly
common stock to consider and vote on the following:
. a proposal to approve and adopt the merger agreement by and among Parent,
Frontier, Holly, Front Range Merger Corporation and Himalaya Merger
Corporation. See "The Merger" beginning on page 44 and "The Merger
Agreement" beginning on page 97.
. a proposal to approve an adjournment of the meeting, if necessary, to
solicit additional proxies.
Recommendation of the Holly Board of Directors
At its meeting on March 30, 2003, after due consideration, Holly's board of
directors unanimously:
. determined that the merger was consistent with and in furtherance of the
long-term strategic business interests of Holly and was advisable, fair
to and in the best interests of Holly and its stockholders,
. approved the merger agreement, and
. recommended that Holly stockholders approve and adopt the merger
agreement.
Holly's board of directors unanimously recommends that Holly stockholders
vote FOR the approval and adoption of the merger agreement and FOR the approval
of an adjournment of the meeting, if necessary, to solicit additional proxies.
Certain directors and officers of Holly have interests in the merger
transaction that are different from or in addition to the interests of other
Holly stockholders. For a discussion of these interests, see "The Merger -
Interests of Holly Directors and Management in the Merger" beginning on page 78.
Holly Record Date; Shares Entitled to Vote; Quorum
Only holders of record of Holly common stock at the close of business on
[ ], 2003, the Holly record date, are entitled to notice of and to vote
at the Holly special meeting, including any adjournments or postponements
thereof. On the Holly record date, approximately [15,506,028 as of July 31,
2003] shares of Holly common stock were issued and outstanding and held by
approximately [1,441 as of July 31, 2003] holders of record. Holders of record
of Holly common stock on the Holly record date are entitled to one vote per
share at the Holly special meeting on the proposal to approve and adopt the
merger agreement and the proposal to approve an adjournment of the meeting, if
necessary, to solicit additional proxies. A quorum will be present at the Holly
special meeting if holders of a majority of the shares of Holly common stock
outstanding and entitled to vote on the Holly record date are present, in
person or by proxy. If a quorum is not present at the Holly special meeting, we
expect that the Holly special meeting will be adjourned to solicit additional
proxies. Under Delaware law, abstentions and broker non-votes will count in
determining if a quorum is present at the Holly special meeting. A broker
non-vote occurs if a broker, bank or other nominee attending the special
meeting in person or submitting a proxy does not have discretionary authority
to vote on the approval and adoption of the merger agreement or the approval of
an adjournment of the meeting, if necessary, to solicit additional proxies and
has not received voting instructions with respect thereto.
36
Vote Required
The approval and adoption of the merger agreement by Holly stockholders
requires the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote at the Holly special meeting as of the Holly
record date, either in person or by proxy, voting as a single class. The
approval of an adjournment of the meeting, if necessary, to solicit additional
proxies will be approved if a majority of the shares of Holly common stock
present in person or represented by proxy at the meeting are voted in favor of
it, whether or not a quorum exists.
Voting by Holly Directors and Executive Officers
At the close of business on the Holly record date, Holly directors and
executive officers owned and were entitled to vote approximately [9.4]% of the
Holly common stock outstanding on that date. Each Holly director (including
each executive officer who is a director) has signed a support agreement with
Frontier agreeing to vote, or cause to be voted, the Holly common stock owned
by him or her for the approval and adoption of the merger agreement, as
described in "Other Agreements--Support Agreements" beginning on page 109. The
form of the support agreement signed by Holly holders is attached as Annex H.
Voting of Proxies
All shares represented by properly executed proxies received in time for the
Holly special meeting will be voted at the Holly special meeting in the manner
specified by the stockholders giving those proxies. Properly executed proxies
that do not contain voting instructions will be voted for the approval and
adoption of the merger agreement and for the approval of an adjournment of the
meeting, if necessary, to solicit additional proxies.
Because Delaware, the state in which Holly is incorporated, permits
electronic submission of proxies by telephone or through the Internet, in
addition to the option of submitting proxies by mail on the enclosed proxy
card, all holders of record will have the option to submit their proxies
electronically by telephone or through the Internet.
The telephone and Internet procedures described below for submitting your
proxy are designed to authenticate stockholders' identities, to allow
stockholders to have their shares voted and to confirm that their instructions
have been properly recorded. Stockholders submitting proxies through the
Internet should understand that there may be costs associated with electronic
access, such as usage charges from Internet access providers and telephone
companies, that would be borne by the stockholder.
Please have the control number from your printed proxy card available when
you are ready to submit your proxy by telephone or through the Internet. Holly
holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at http://www.eproxyvote.com/hoc and following the instructions; or
. by telephone by calling the toll-free number 1-877-PRX-VOTE in the United
States, Canada or Puerto Rico on a touch-tone phone and following the
recorded instructions.
If your shares are held in an account with a broker, bank or other nominee,
you should contact your broker, bank or other nominee and follow the directions
that it provides to you so that you can instruct your broker, bank or other
nominee to vote your shares. Your broker, bank or other nominee cannot vote
your shares without specific instructions from you.
Holly common stock represented at the Holly special meeting but not voting,
including Holly common stock for which proxies have been received but for which
holders of shares have abstained, will be treated as present at the Holly
special meeting for purposes of determining the presence or absence of a quorum
for the transaction of all business.
37
Only shares affirmatively voted for the approval and adoption of the merger
agreement and the approval of an adjournment of the meeting, if necessary, to
solicit additional proxies, including properly executed proxies that do not
contain voting instructions, will be counted as favorable votes for the
proposals. An abstention or failure to vote will have the same effect as a vote
against the approval and adoption of the merger agreement and against the
approval of an adjournment of the meeting, if necessary, to solicit additional
proxies. If a Holly stockholder owns shares through a broker, bank or other
nominee and attends the Holly special meeting, the stockholder should bring a
letter from that stockholder's broker, bank or other nominee identifying that
stockholder as the beneficial owner of the shares and authorizing the
stockholder to vote.
Holly does not expect that any matter other than the proposal to approve and
adopt the merger agreement and the proposal to approve an adjournment of the
meeting, if necessary, to solicit additional proxies will be brought before the
Holly special meeting. If, however, other matters are properly presented at the
Holly special meeting, or any adjournments or postponements of the meeting, the
persons named as proxies will vote in accordance with the recommendation of
Holly's board of directors.
Revocability of Proxies
Submitting a proxy on the enclosed form by telephone or through the Internet
does not preclude a Holly stockholder from voting in person at the Holly
special meeting, or at any adjournment or postponement thereof. A Holly
stockholder may revoke a proxy at any time before it is voted
. by filing a duly executed revocation of proxy with the Secretary of Holly
at the address under "Summary--The Companies" on page 8,
. by submitting a duly executed, later-dated proxy by mail to the Secretary
of Holly at the address under "Summary--The Companies" on page 8, or, if
a record holder of Holly common stock, by telephone by following the
instructions on page 37 or through the Internet by following the
instructions on page 37, or
. by appearing at the Holly special meeting, or at any adjournment or
postponement thereof, and voting in person.
Holly stockholders may revoke a proxy by any of these methods, regardless of
the method used to deliver a stockholder's previous proxy. Attendance at the
Holly special meeting, or at any adjournment or postponement thereof, without
voting will not itself revoke a proxy. If your shares are held in an account
with a broker, bank or other nominee, you should contact your broker, bank or
other nominee to change your vote.
Solicitation of Proxies
Frontier and Holly will share equally the expenses incurred in connection
with the printing and mailing of this joint proxy statement/prospectus. In
addition to solicitation by mail, the directors, officers and employees of
Holly and its subsidiaries, who will not be specially compensated, may solicit
proxies from Holly stockholders by telephone or other electronic means or in
person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares held of record by these persons,
and Holly will reimburse them for their reasonable out-of-pocket expenses.
Holly will mail a copy of this joint proxy statement/prospectus to each
holder of record of Holly common stock on the Holly record date.
You should not send in any Holly share certificates with your proxy card.
Holly share certificates immediately prior to the completion of merger will be
deemed to represent the right to receive Parent common stock, the proportionate
cash consideration and contingent value rights following the merger. Promptly
following the merger, Holly stockholders will receive a letter with
instructions explaining how to exchange their Holly share certificates for
Parent share certificates.
38
Holly has retained Morrow & Co., Inc. to assist in the solicitation of
proxies. Holly will pay Morrow & Co., Inc. approximately $6,250 for its
services, in addition to reimbursement for its out-of-pocket expenses, and will
indemnify it against any losses arising out of its proxy-soliciting services on
behalf of Holly.
Proxies for Participants in Holly Savings Plans
If you are a participant or eligible beneficiary in the Thrift Plan for
Employees of Holly Corporation, its affiliates and subsidiaries, you will
receive a voting instruction card from the trustee of the plan with respect to
shares attributable to your account. Shares of Holly common stock held by the
trustee of the plan will be voted by the trustee in accordance with
instructions from participants and eligible beneficiaries. Shares held in the
plan for which no instructions are received will be voted by the trustee in the
same manner and proportion as instructed by eligible employee participants.
Attending the Special Meeting
If you are a holder of record and plan to attend the Holly special meeting,
please indicate this when you vote. The lower portion of the proxy card will be
your admission ticket. If you are a beneficial owner of Holly common stock held
by a broker, bank or other nominee, you will need proof of ownership to be
admitted to the Holly special meeting. A recent brokerage or benefit plan
statement or a letter from a broker, bank or other nominee are examples of
proof of ownership. If you want to vote your Holly common stock held in nominee
name in person, you must get a written proxy in your name from the broker,
bank, or other nominee that holds your shares.
39
THE FRONTIER SPECIAL MEETING
We are furnishing this joint proxy statement/prospectus to Frontier
stockholders as part of the solicitation of proxies by Frontier's board of
directors for use at the Frontier special meeting.
Date, Time and Place
Frontier will hold its special meeting on [ ], 2003, at 9:00 a.m.,
local time, at the Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas.
Purpose of the Frontier Special Meeting
At the Frontier special meeting, we are asking holders of record of Frontier
common stock to consider and vote on the following:
. a proposal to approve and adopt the merger agreement by and among Parent,
Frontier, Holly, Front Range Merger Corporation and Himalaya Merger
Corporation. See "The Merger" beginning on page 44 and "The Merger
Agreement" beginning on page 97.
. a proposal to approve an adjournment of the meeting, if necessary, to
solicit additional proxies.
Recommendation of the Frontier Board of Directors
At its meeting on March 28, 2003, after due consideration, Frontier's board
of directors unanimously:
. determined that the merger agreement and the transactions contemplated by
the merger agreement are in the best interests of Frontier stockholders;
. approved the merger agreement; and
. recommended that Frontier stockholders approve and adopt the merger
agreement.
Frontier's board of directors unanimously recommends that holders of
Frontier common stock vote FOR the approval and adoption of the merger
agreement and FOR the approval of an adjournment of the meeting, if necessary,
to solicit additional proxies.
Certain directors and officers of Frontier have interests in the merger
transaction that are different from or in addition to the interests of other
Frontier stockholders. For a discussion of these, see "The Merger--Interests of
Frontier Directors and Management in the Merger" beginning on page 82.
Frontier Record Date; Shares Entitled to Vote; Quorum
Only holders of record of Frontier common stock at the close of business on
[ ], 2003, the Frontier record date, are entitled to notice of and to
vote at the Frontier special meeting, including any adjournments or
postponements thereof. On the Frontier record date, approximately [26,140,517
as of August 4, 2003] shares of Frontier common stock were issued and
outstanding and held by approximately [1,175 as of August 4, 2003] holders of
record. Holders of record of Frontier common stock on the Frontier record date
are entitled to one vote per share at the Frontier special meeting on the
proposal to approve and adopt the merger agreement and the proposal to approve
an adjournment of the meeting, if necessary, to solicit additional proxies. A
quorum will be present at the Frontier special meeting if holders of a majority
of the shares of Frontier common stock outstanding and entitled to vote on the
Frontier record date are present, in person or by proxy. If a quorum is not
present at the Frontier special meeting, we expect that the Frontier special
meeting will be adjourned to solicit additional proxies. Abstentions and broker
non-votes will count in determining if a quorum is present at the Frontier
special meeting. A broker non-vote occurs if a broker, bank or other nominee
attending the special meeting in person or submitting a proxy does not have
discretionary authority to vote on the approval and adoption of the merger
agreement or the approval of an adjournment of the meeting, if necessary, to
solicit additional proxies and has not received voting instructions with
respect thereto.
Vote Required
The approval and adoption of the merger agreement by Frontier stockholders
requires the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote at the Frontier special meeting as of the
40
Frontier record date, either in person or by proxy, voting as a single class.
The approval of an adjournment of the meeting, if necessary, to solicit
additional proxies will be approved if a majority of the shares of Frontier
common stock present in person or by proxy at the meeting are voted in favor of
it, whether or not a quorum exists.
Voting by Frontier Directors and Executive Officers
At the close of business on the Frontier record date, Frontier directors and
executive officers who owned and were entitled to vote approximately [2]% of
the Frontier common stock outstanding on that date, had signed a support
agreement with Holly agreeing to vote, or cause to be voted, the Frontier
common stock owned by him or her for the approval and adoption of the merger
agreement, as described in "Other Agreements--Support Agreements" beginning on
page 110. The form of support agreement signed by Frontier affiliates is
attached as Annex I.
Voting of Proxies
All shares represented by properly executed proxies received in time for the
Frontier special meeting will be voted at the Frontier special meeting in the
manner specified by the stockholders giving those proxies. Properly executed
proxies that do not contain voting instructions will be voted for the approval
and adoption of the merger agreement and for the approval of an adjournment of
the meeting, if necessary, to solicit additional proxies.
Because Wyoming, the state in which Frontier is incorporated, permits
electronic submission of proxies, in addition to the option of submitting
proxies by mail on the enclosed proxy card, all holders of record will have the
option to submit their proxies electronically by telephone or through the
Internet.
The telephone and Internet procedures described below for submitting your
proxy are designed to authenticate stockholders' identities, to allow
stockholders to have their shares voted and to confirm that their instructions
have been properly recorded. Stockholders submitting proxies through the
Internet should understand that there may be costs associated with electronic
access, such as usage charges from Internet access providers and telephone
companies, that would be borne by the stockholder.
Please have the control number from your printed proxy card available when
you are ready to submit your proxy by telephone or through the Internet.
Frontier holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at www.computershare.com/us/proxy and following the instructions; or
. by telephone by calling the toll-free number (877) 858-9138 in the United
States, Canada or Puerto Rico on a touch-tone phone and following the
recorded instructions.
If your shares are held in an account with a broker, bank or other nominee,
you should contact your broker, bank or other nominee and follow the directions
that it provides to you so that you can instruct your broker, bank or other
nominee to vote your shares. Your broker, bank or other nominee cannot vote
your shares without specific instructions from you.
Frontier common stock represented at the Frontier special meeting but not
voting, including Frontier common stock for which proxies have been received
but for which holders of shares have abstained, will be treated as present at
the Frontier special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business.
Only shares affirmatively voted for the approval and adoption of the merger
agreement and the approval of an adjournment of the meeting, if necessary, to
solicit additional proxies, including properly executed proxies that do not
contain voting instructions, will be counted as favorable votes for the
proposals. An abstention or failure to vote will have the same effect as a vote
against the approval and adoption of the merger
41
agreement and against the approval of an adjournment of the meeting, if
necessary, to solicit additional proxies. Also, under New York Stock Exchange
rules, brokers that hold Frontier common stock in street name for customers
that are the beneficial owners of those shares may not give a proxy to vote
those shares without specific instructions from those customers. If a Frontier
stockholder owns shares through a broker, bank or other nominee and attends the
Frontier special meeting, the stockholder should bring a letter from that
stockholder's broker, bank or other nominee identifying that stockholder as the
beneficial owner of the shares and authorizing the stockholder to vote.
Frontier does not expect that any matter other than the proposal to approve
and adopt the merger agreement and the proposal to approve an adjournment of
the meeting, if necessary, to solicit additional proxies will be brought before
the Frontier special meeting. If, however, other matters are properly presented
at the Frontier special meeting, or any adjournments or postponements of the
meeting, the persons named as proxies will vote in accordance with the
recommendation of Frontier's board of directors.
Revocability of Proxies
Submitting a proxy on the enclosed form does not preclude a Frontier
stockholder from voting in person at the Frontier special meeting, or at any
adjournment or postponement thereof. A Frontier stockholder may revoke a proxy
at any time before it is voted
. by filing a duly executed revocation of proxy with the Secretary of
Frontier at the address under "Summary--The Companies" on page 8,
. by submitting a duly executed, later dated proxy by mail to the Secretary
of Frontier at the address under "Summary--The Companies" on page 8, or,
if a record holder of Frontier common stock, by telephone by following
the instructions on page 41 or through the Internet by following the
instructions on page 41, or
. by appearing at the Frontier special meeting, or at any adjournment or
postponement thereof, and voting in person.
Frontier stockholders may revoke a proxy by any of these methods, regardless
of the method used to deliver a stockholder's previous proxy. Attendance at the
Frontier special meeting, or at any adjournment or postponement thereof,
without voting will not itself revoke a proxy. If your shares are held in an
account with a broker, bank or other nominee, you should contact your broker,
bank or other nominee to change your vote.
Solicitation of Proxies
Holly and Frontier will share equally the expenses incurred in connection
with the printing and mailing of this joint proxy statement/prospectus. In
addition to solicitation by mail, the directors, officers and employees of
Frontier and its subsidiaries, who will not be specially compensated, may
solicit proxies from Frontier stockholders by telephone, facsimile, telegram or
other electronic means or in person. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by these persons, and Frontier will reimburse them for their reasonable
out-of-pocket expenses.
Frontier will mail a copy of this joint proxy statement/prospectus to each
holder of record of Frontier common stock on the Frontier record date.
You should not send in any Frontier share certificates with your proxy card.
Frontier share certificates immediately prior to the completion of merger will
be deemed to represent Parent common stock following the merger.
42
Frontier has retained Morrow & Co., Inc. to assist in the solicitation of
proxies. Frontier will pay Morrow & Co., Inc. approximately $6,250 for its
services, in addition to reimbursement for its out-of-pocket expenses, and will
indemnify it against any losses arising out of its proxy-soliciting services on
behalf of Frontier.
Proxies for Participants in Frontier Retirement Savings Plan and Frontier Oil
Corporation and Subsidiaries Collectively Bargained Employees Retirement
Savings Plan
If you are a participant or eligible beneficiary in either of the Frontier
savings plans and are invested in the company stock fund, you will receive a
voting instruction card from the trustee of the plan with respect to shares of
Frontier common stock attributable to your account. Shares of Frontier common
stock held by the trustee of the plan will be voted by the trustee in
accordance with instructions from participants and eligible beneficiaries.
Shares held in the plan for which no instructions are received will be voted by
the trustee in the same manner and proportion as instructed by eligible
employee participants.
Attending the Special Meeting
If you are a holder of record and plan to attend the Frontier special
meeting, please indicate this when you vote. The lower portion of the proxy
card will be your admission ticket. If you are a beneficial owner of Frontier
common stock held by a broker, bank, or other nominee, you will need proof of
ownership to be admitted to the Frontier special meeting. A recent brokerage or
benefit plan statement or a letter from a broker, bank or other nominee are
examples of proof of ownership. If you want to vote your Frontier common stock
held in nominee name in person, you must get a written proxy in your name from
the broker, bank or other nominee that holds your shares.
43
THE MERGER
The discussion in this joint proxy statement/prospectus of the merger and
the principal terms of the merger agreement dated as of March 30, 2003, by and
among Holly, Frontier, Parent, Himalaya Merger Corporation and Front Range
Merger Corporation, is subject to, and is qualified in its entirety by
reference to, the merger agreement, a copy of which is attached as Annex A to
this joint proxy statement/prospectus and is incorporated in this joint proxy
statement/prospectus by reference. Himalaya Merger Corporation and Front Range
Merger Corporation are wholly owned subsidiaries of Parent and were formed
solely for the purpose of effectuating the merger.
General Description of the Merger
Pursuant to the merger agreement, Front Range Merger Corporation will merge
with and into Frontier and Himalaya Merger Corporation will merge with and into
Holly, with each of Frontier and Holly surviving as wholly-owned subsidiaries
of Parent. Immediately following the merger, Parent will contribute the stock
of its Holly subsidiary to its Frontier subsidiary.
In the merger, each outstanding share of Holly common stock, par value $0.01
per share, other than dissenting shares, will be converted into the right to
receive: (i) one share of Parent common stock, par value $0.01 per share, plus
(ii) an amount in cash equal to $172.5 million, divided by the total number of
shares of Holly common stock outstanding immediately prior to the merger, and
(iii) one contingent value right representing a nontransferable interest in
potential future recoveries from litigation related to past sales of jet fuel
by Holly to the United States government, in accordance with the contingent
value rights agreement described in "Other Agreements--Contingent Value Rights
Agreement." In the merger, each outstanding share of Frontier common stock, no
par value per share, other than dissenting shares, will be converted into the
right to receive one share of Parent common stock.
As a result,
. Holly and Frontier will become wholly-owned subsidiaries of Parent,
. former Holly stockholders will receive an aggregate of $172.5 million in
cash and contingent value rights, and
. former Holly stockholders will hold approximately [37]%, and former
Frontier stockholders will hold approximately [63]%, of the outstanding
shares of Parent common stock, based on the number of shares of Holly
common stock and Frontier common stock outstanding on [ ], 2003.
Shares of Holly common stock outstanding immediately prior to the merger and
held by a stockholder who pursues a statutory "appraisal" of his, her or its
shares in accordance with Section 262 of the Delaware General Corporation Law
will not be converted into the right to receive the merger consideration
described above, unless the dissenting stockholder fails to perfect, withdraws
or otherwise loses his, her or its right to appraisal. If, after the completion
of the merger, a Holly stockholder who has demanded appraisal fails to perfect,
withdraws or otherwise loses his, her or its right to appraisal, the shares of
that stockholder will be treated as if they had been converted at the time of
the merger into the right to receive the merger consideration described above
for Holly stockholders. See "--Appraisal Rights of Holly Stockholders" on page
90.
Shares of Frontier common stock outstanding immediately prior to the merger
and held by a stockholder who has not voted to approve and adopt the merger
agreement and who has demanded payment for such shares in accordance with
Article 13 of the Wyoming Business Corporation Act will not be converted into
shares of Parent common stock, unless the dissenting stockholder fails to
perfect, withdraws or otherwise loses his, her or its right to demand payment.
If, after the merger, the dissenting stockholder fails to perfect, withdraws or
loses his, her or its right to demand payment, such shares will be treated as
if they had been converted at the time of the merger into the right to receive
shares of Parent common stock. See "--Dissenters' Rights of Frontier
Stockholders" on page 93.
44
Background of the Merger
Holly and Frontier are both independent refiners focused in the Rocky
Mountain region and, in the case of Frontier, the Plains States. In recent
years, each of the two companies has separately pursued and entered into
strategic transactions and initiatives that their management teams believe have
enhanced their competitive positions by increasing both the efficiency and
scope of each company's operations.
These strategic transactions and initiatives by Frontier have included the
following:
. In November 1999, Frontier acquired a refinery in El Dorado, Kansas with
a rated crude oil capacity of 110,000 barrels per day ("bpd"). This more
than tripled the bpd capacity of Frontier, which had previously been a
one asset company with a 41,000 bpd refinery in Cheyenne, Wyoming.
. In early 2002, Frontier completed an expansion of the Cheyenne plant by
5,000 bpd to 46,000 bpd, increasing Frontier's total refining capacity to
156,000 bpd.
. In October 2002, Frontier entered into a five-year heavy Canadian crude
supply agreement that will supply approximately 43% of the feed stock for
the Cheyenne plant on terms that Frontier's management believes will
ensure an attractive price, relative to light sweet crude oil.
Strategic transactions and initiatives by Holly have been designed to
strengthen both the refining and pipeline transportation segments of Holly's
business and have included the following:
. In recent years, Holly developed and expanded a pipeline transportation
business, generating revenues from affiliated parties as well as
augmenting its own refining supply and distribution network. Holly
operates approximately 1,600 miles of pipelines and also holds a 25%
interest in Rio Grande Pipeline Company, a 291-mile pipeline that began
delivering liquid petroleum gases to Mexico in April 1997.
. In January 2002, Holly announced a planned expansion of its 60,000 bpd
Artesia and Lovington, New Mexico refining facilities. Holly management
anticipates that this expansion, expected to bring the capacity of the
New Mexico facilities to an estimated 75,000 bpd, will be completed by
the end of calendar 2003.
. In December 2002, Holly announced a definitive agreement to purchase the
25,000 bpd Woods Cross refinery near Salt Lake City, Utah for a purchase
price of $25 million subject to reduction for certain pension
obligations, plus the value of crude oil, refined product and other
inventories. The Woods Cross acquisition was completed as of June 1,
2003. Holly's 7,000 bpd refinery in Great Falls, Montana, together with
the Artesia/Lovington expansion project and the Woods Cross acquisition,
are expected to give Holly a total refining capacity of 107,000 bpd by
the end of 2003.
. By the end of February 2003, Holly had reached an advanced stage in
confidential negotiations to purchase a 60,000 bpd refinery and related
assets. Holly was also negotiating terms for a $350 million credit
agreement to finance the acquisition and allow for future growth. Holly
put the potential refinery acquisition and financing negotiations on hold
in early March 2003, pending the outcome of its negotiations with
Frontier.
. During the first quarter of 2003, Holly was also actively pursuing
initiatives to enhance the value of its pipeline operations, including
the formation of a master limited partnership, and to better position
Holly for additional growth in that segment of its business.
For the last five years, Holly and Frontier ranked first and second among
publicly traded independent refiners in terms of return on investment (as
calculated by Frontier based on earnings before interest, taxes, depreciation
and amortization for the year divided by beginning-of-year long-term debt plus
stockholders' equity), with averages of 38% and 29%, respectively. Although not
direct market competitors, each company was aware of the strengths of the
other, and several discussions took place during the past five years between
Frontier and Holly senior executives to explore in general terms the potential
advantages of a combination. These discussions tended to confirm the potential
for strategic and financial benefits from a business combination. However, on
each of these prior occasions either Frontier or Holly considered it an
inopportune time to pursue
45
serious discussions. During this period, Frontier and Holly also considered on
two separate occasions a potential sale to Frontier of Holly's refinery in
Great Falls, Montana. Those discussions likewise did not proceed beyond a
preliminary stage.
On November 15, 2002, Holly issued a press release announcing settlement of
litigation that had been filed against Holly in 1998 by Longhorn Partners
Pipeline, L.P. Settlement of that litigation, in which Longhorn Partners had
sought damages alleged to total up to $1,050,000,000, removed an uncertainty
that had previously impeded Frontier's ability to assess the value of a
potential merger transaction with Holly. On November 18, 2002, Jim Gibbs,
Frontier's Chief Executive Officer, telephoned Lamar Norsworthy, Holly's Chief
Executive Officer, and suggested that representatives of the two companies
should meet to discuss a possible merger. Mr. Norsworthy agreed, and a meeting
was scheduled for November 21, 2002.
On November 21, 2002, Jim Gibbs and Julie Edwards, Frontier's Executive Vice
President--Finance and Administration, met with Lamar Norsworthy, Matt Clifton,
Holly's President, and John Glancy, Holly's General Counsel, at Holly's offices
in Dallas, Texas. Frontier's representatives outlined their views as to the
potential strategic and financial benefits of a merger. Frontier's
representatives also described their analysis as of that date, based solely on
publicly available information, regarding preliminary indications of the
companies' respective values. Based on this preliminary analysis, Frontier's
representatives suggested a stock-for-stock merger with a substantial cash
component for Holly stockholders. Specifically, they proposed one Frontier
share for each Holly share plus an aggregate of $135 million in cash.
At the November 21, 2002 meeting, Holly's representatives advised Frontier's
representatives that they also perceived potential strategic and financial
benefits in a combination of the companies and that the proposed merger
structure appeared to be workable in concept. However, Holly's representatives
stated that Frontier's preliminary analysis had undervalued Holly for several
reasons, including undervaluing Holly's pipeline transportation segment and
future contributions from the ongoing expansion of Holly's Artesia and
Lovington, New Mexico refining facilities.
Based on their mutual perception of the potential advantages for both
companies in a strategic business combination, these senior executives agreed
at the November 21, 2002 meeting that Holly would provide Frontier additional
information on a confidential basis to support Holly's position on valuation
and to enable Ms. Edwards to develop a more detailed financial model. The
financial model was intended to allow both companies to better assess the
financial benefits of the business combination and the relative contributions
and valuations of the two companies. The senior executives also agreed to
restrict knowledge of the existence of the discussions to a limited number of
people within each company.
On November 24, 2002, Frontier and Holly determined to engage jointly George
Morris, an investment banker well known to and respected by both companies, to
help them assess and resolve valuation and other issues. Mr. Morris was also
asked to perform a "shuttle diplomacy" function so that the process of
exploring the potential merger could continue confidentially without requiring
frequent meetings and without involving additional corporate officers and staff
of either company. Mr. Morris met with Mr. Gibbs and Ms. Edwards at Frontier's
Houston offices on November 25, 2002, and discussed the proposed transaction
and the joint retention.
On December 2, 2002, Mr. Morris traveled to Dallas and met with Mr.
Norsworthy and Mr. Clifton in Holly's offices. Mr. Morris discussed the joint
retention and also discussed with Holly's representatives his analysis of
Frontier's management, philosophy, plans, refinery assets, refinery operations,
sources of supply, products markets, and financial position.
Also on December 2, 2002, Holly provided Frontier and Mr. Morris with
initial confidential information, consisting of a "break-apart" of historical
Holly financial data into the components contemplated by the agreed-upon
financial model format. Using this information, Ms. Edwards proceeded with the
refinement of Frontier's long-term financial model for the proposed merger and
combined operations of the companies. The long-term financial model was
distributed to Holly and Mr. Morris on December 5, 2002.
46
On December 5, 2002, Mr. Morris met with Mr. Gibbs and Ms. Edwards in
Houston to review his analysis of the proposed transaction and the financial
model.
On December 6, 2002, Mr. Morris met again in Dallas with Mr. Norsworthy and
Mr. Clifton, joined by Mr. Paul T. Stoffel, a Holly director, and discussed in
detail Mr. Morris's analysis of the proposed transaction, which included a
summary of his assessments of the merits of the transaction, the potential
benefits for each company, and the potential drawbacks for each company.
Mr. Norsworthy and Mr. Clifton advised Mr. Morris that their analysis indicated
that the cash component of the merger consideration for Holly stockholders
should be $200 million, rather than the $135 million amount that had initially
been suggested by Frontier on the basis of publicly available information and
the long-term financial model analysis. Mr. Morris then met with Mr. Gibbs and
Ms. Edwards at Frontier's Houston offices to discuss the analysis presented by
Holly's senior executives.
During the week of December 9, 2002, the parties continued to analyze the
potential financial aspects of a combination, and discussions between the
parties continued regarding the differences between the two companies'
valuation analyses.
On December 13, 2002, Mr. Morris met again with Mr. Norsworthy and Mr.
Clifton in Dallas to review his analysis of the differences between the
parties' valuation positions described above and to discuss further the
proposed transaction. As a result of that meeting, Mr. Morris advised both
Frontier and Holly that the parties continued to have significantly different
views regarding the appropriate valuation for Holly. The parties were unable to
make progress on this valuation differential during the week of December 13,
2002, and discussions lapsed.
On December 20, 2002, Holly publicly announced the signing of an agreement
to purchase from ConocoPhillips the 25,000 bpd Woods Cross refinery near Salt
Lake City, Utah.
On January 14, 2003, Mr. Gibbs met with Mr. Norsworthy and Mr. Clifton at
Holly's offices in Dallas. They discussed their respective differences as to
the appropriate valuations of the two companies. No consensus or resolution was
reached at the meeting. After this meeting Mr. Gibbs called Mr. Morris and
instructed him to prepare a final bill for his services.
On February 20, 2003, at a regularly scheduled Frontier board meeting, Mr.
Gibbs advised the Frontier board of the discussions that had occurred with
Holly regarding a potential merger. The Frontier directors discussed the
potential strategic and financial benefits of the merger and encouraged
Frontier's senior executives to renew discussions with Holly management. On
February 21, 2003, Ms. Edwards telephoned Mr. Clifton and suggested that the
two meet.
On February 24, 2003, Mr. Clifton met with Ms. Edwards in Houston. Ms.
Edwards advised Mr. Clifton that the Frontier board was enthusiastic about the
prospects of a proposed combination of the companies. Ms. Edwards also
indicated that, based upon the announced Woods Cross agreement and other
developments, she thought perhaps Frontier's model could be revised to justify
a cash amount higher than $135 million, although not as high as $200 million.
She asked Mr. Clifton to provide additional information about Woods Cross and
other matters pertinent to Frontier's valuation analysis and to advise Frontier
whether Holly's management would consider a cash amount less than $200 million.
Mr. Clifton agreed to provide the requested additional information and to
respond to Frontier on the cash amount issue.
During the week of February 24, 2003, Mr. Clifton provided additional Woods
Cross and other information to Ms. Edwards. Frontier updated its financial
analysis, and discussions continued. In these discussions, Holly suggested a
cash amount of $180 million, and Frontier suggested a cash amount of $165
million.
On February 28, 2003, Mr. Gibbs and Ms. Edwards met with Mr. Norsworthy and
Mr. Clifton in Dallas. Although the parties did not resolve the cash amount
issue, they agreed in principle to work together to bridge the $15 million
difference. At this meeting, the senior executives of the two companies also
discussed the management structure for the combined company. Specifically, they
agreed to recommend that the combined
47
company's board consist of an even number of directors, designated one-half by
the Holly board of directors and one-half by the Frontier board of directors,
and that, except for two board seats, the board of directors of the combined
company should be composed entirely of directors who qualified as "independent"
under the currently proposed rules of the New York Stock Exchange. The two
non-independent directors would be Mr. Norsworthy, who would be Chairman of the
Board of the combined company, and Mr. Gibbs, who would be President and Chief
Executive Officer of the combined company.
On February 28, 2003, Frontier engaged Andrews & Kurth L.L.P., its principal
outside legal counsel, to assist Frontier in the merger transaction. Holly had
previously engaged Vinson & Elkins L.L.P., its principal outside legal counsel,
to assist Holly in the merger transaction. Beginning on March 1, 2003, Andrews
& Kurth, in consultation with Currie Bechtol, Frontier's General Counsel,
commenced work on a proposed form of merger agreement and prepared Frontier's
initial due diligence information request for delivery to Holly.
During the week of March 3, 2003, representatives of Holly and Frontier
continued to discuss the appropriate amount of the cash payment. These
discussions, along with the information that had been received by Frontier
about Woods Cross and the discussions about how the combined company would be
managed, resulted in Frontier and Holly management agreeing on an appropriate
valuation, which included a cash payment of $172.5 million to be received by
the Holly stockholders as part of the merger consideration.
On March 7, 2003, the Frontier board of directors met telephonically to
discuss the proposed Holly merger transaction and to review Frontier's
financial model. The Frontier board also discussed the proposed management
structure for the combined company and approved a mutual confidentiality
agreement with Holly that included a two-year "standstill" agreement under
which each company agreed not to propose a takeover or combination transaction
to the other company or its stockholders without the consent of the other
company's board. This confidentiality/standstill agreement was executed by
Frontier following the board meeting. The Frontier board authorized Mr. Gibbs
and Ms. Edwards to continue negotiations consistent with the terms generally
outlined at the meeting. The board of Frontier also discussed the necessity of
engaging a financial advisor to assist the board in analyzing the financial
aspects of the proposed merger.
On March 7, 2003, the Holly board of directors held a regular meeting at
Holly's Dallas office. At the meeting, Messrs. Norsworthy, Clifton and Bruce
Shaw, Holly's Vice President, Corporate Development, informed the Holly board
of Holly management's discussions with Frontier management regarding a possible
business combination of Holly and Frontier in which the two companies would be
merged and each outstanding share of Holly common stock would be converted into
the right to receive one share of the combined company and a pro rata portion
of $172.5 million in cash. The Holly board of directors was also advised of the
proposed management structure of the combined company and the
confidentiality/standstill agreement to be entered into between Holly and
Frontier. At the meeting, the Holly board of directors also considered, among
other things, Holly management's preliminary financial analysis of both
Frontier on a standalone basis and Frontier and Holly on a combined basis. The
Holly board considered the fact that Holly, in all likelihood, could not
complete both a business combination with Frontier and the potential 60,000 bpd
refinery acquisition that had been under confidential discussion and
consideration, the potential advantages and disadvantages of pursuing the
business combination versus the potential refinery acquisition, and the fact
that the combined company could, with equal or possibly greater success,
continue to pursue pending Holly initiatives to derive added value from Holly's
pipeline assets and pursue additional growth in that business. After a thorough
discussion, the Holly board of directors authorized Holly management to proceed
with its discussions with Frontier regarding a potential business combination
and to delay active pursuit of the potential 60,000 bpd refinery acquisition
pending the results of Holly management's discussions with Frontier. The
proposed confidentiality/standstill agreement was executed by Holly following
this meeting.
During the week of March 10, 2003, Frontier engaged Petrie Parkman & Co.,
Inc. to serve as its financial advisor to render an opinion concerning the
fairness of the proposed merger, from a financial point of view, to the
stockholders of Frontier. Mr. Morris had joined Petrie Parkman & Co., Inc. in
early January 2003, and his knowledge of both companies was viewed as a
valuable resource by Frontier. Holly consented to this engagement. All parties
agreed that Mr. Morris would not receive any compensation for the services that
he had
48
rendered in his individual capacity in November, December or January, and the
bill that he had previously submitted was withdrawn.
Separately, Holly had contacted Credit Suisse First Boston LLC to serve as
Holly's financial advisor and to render an opinion concerning the fairness,
from a financial point of view, of the proposed merger consideration to Holly
stockholders pursuant to the terms of an existing engagement agreement entered
into between Holly and Credit Suisse First Boston LLC.
Also during the week of March 10, 2003, Frontier and Holly commenced their
respective "due diligence" reviews of documents provided by the other company
and began providing "due diligence" documents requested by the other company.
At the same time, the parties and their counsel began negotiating the terms of
a merger agreement, as well as the proposed support agreements, corporate
governance documents and other agreements to be entered into in connection with
the proposed merger. This due diligence, documentation and negotiation process
continued through the week of March 24, 2003.
On March 11, 2003, Holly management met in Dallas with representatives of
Credit Suisse First Boston LLC and reviewed with Credit Suisse First Boston LLC
the preliminary terms of the proposed business combination with Frontier. At
the meeting, Holly management and Credit Suisse First Boston LLC discussed the
expected timing of the proposed transaction and various due diligence matters
raised by Credit Suisse First Boston LLC.
On March 14, 2003, the Holly board of directors held a special meeting by
conference telephone. At the meeting, Messrs. Norsworthy and Clifton updated
the Holly board of directors on the status of negotiations of the proposed
business combination with Frontier. At the meeting, Vinson & Elkins discussed
the legal obligations of the directors and other legal considerations in
connection with the proposed business combination and also summarized the terms
of Frontier's proposed merger agreement, including each company's rights to
terminate the merger agreement under certain circumstances, the amount of and
conditions under which a break-up fee might be payable, the terms of the
proposed support agreements to be entered into by directors, officers and
certain stockholders of the companies, and the tax consequences of the proposed
transaction to Holly's stockholders. Also at the meeting, representatives of
Credit Suisse First Boston LLC advised the Holly board of directors of the
procedures that Credit Suisse First Boston LLC would follow in advising the
Holly board about the possible fairness, from a financial point of view, of the
merger consideration to Holly's stockholders and the expected time to complete
the financial analysis. The participants at the meeting also discussed the
likely next steps to be taken, the timing for the transaction, and the deferral
of further consideration of the potential 60,000 bpd refinery acquisition.
After a thorough discussion, the Holly board of directors authorized Holly
management to continue its negotiations with Frontier.
Also on March 14, 2003, representatives of Petrie Parkman & Co., Inc. met
with representatives of Frontier to discuss the proposed transaction and
continue due diligence review of Frontier. On March 17, 2003, representatives
of Petrie Parkman & Co., Inc. met with representatives of Holly to conduct a
due diligence review of Holly.
On March 17, 2003, Credit Suisse First Boston LLC met telephonically with
representatives of Frontier to conduct a due diligence review of Frontier.
During its engagement as Holly's financial advisor, Credit Suisse First Boston
LLC held additional conference calls with representatives of Holly and Frontier
management to conduct due diligence reviews of Holly and Frontier, respectively.
On March 20, 2003, the Holly board of directors held a special meeting at
Holly's Dallas office. At the meeting, Mr. Norsworthy updated the board of
directors on the status of negotiations with Frontier as well as issues raised
by the latest draft of the merger agreement. Mr. Norsworthy also advised the
Board of his and Mr. Clifton's discussions with Frontier management on March
19, 2003 about Holly's unwillingness to proceed with a merger that would be
contingent upon Frontier's ability to obtain financing. At the meeting,
representatives of Credit Suisse First Boston LLC presented to the Holly board
of directors a preliminary review
49
of the contemplated transaction and its basic terms. The Holly board of
directors also discussed the possible methods for preserving for Holly's
stockholders interests in potential future net recoveries from Holly's lawsuits
related to past Holly sales of jet fuel to the United States government.
Frontier had been unwilling to ascribe any specific incremental value to these
jet fuel claims for purposes of determining the merger consideration payable to
Holly stockholders. After a thorough discussion, the Holly board of directors
authorized Holly management to continue its negotiations with Frontier and also
directed Holly management to pursue the preservation of the potential value of
the jet fuel claims for Holly's stockholders.
On March 24, 2003, Ms. Edwards called a senior investment banker at Bear,
Stearns & Co., Inc. to discuss potential financing alternatives that would
allow Frontier to agree to a merger agreement in which its obligation to
proceed would not be contingent upon Frontier's ability to obtain financing.
Also on March 24, 2003, Frontier management and Holly management and their
respective legal counsel met at Frontier's offices in Houston, Texas. At the
meeting, the parties agreed upon more specific corporate governance measures
with respect to equal representation on the board of directors and principal
board committees of the combined company. They also substantially resolved the
terms of the proposed support agreements under which, as a condition to the
signing of the merger agreement, directors and certain officers and
stockholders of each Company would be required to agree to vote for and
otherwise support the merger. In addition, they reached agreement on the
principal terms for non-transferable contingent value rights that would be used
as a mechanism to preserve for Holly's stockholders interests in potential
future net recoveries from Holly's jet fuel claims.
On March 25, 2003, Frontier and Holly management and their respective legal
counsel further discussed by telephone, among other things, the contingent
value rights and the means by which the outstanding stock options of Frontier
and Holly would be assumed by Parent.
On March 26, 2003, Frontier management met with representatives of Bear,
Stearns & Co., Inc. and discussed financing alternatives and current market
conditions. As a result of these discussions, Frontier decided to pursue an
immediate offering and sale of senior notes upon signing of a merger agreement
with the proceeds to be deposited into escrow pending completion of the
proposed merger. This financing plan was subsequently implemented through the
sale of $220 million of senior notes as described in "Recent Developments" on
page 32.
On March 28, 2003, the board of directors of Frontier convened a special
meeting to consider the proposed merger. All members of the Frontier board
participated in the special meeting. At the meeting, Mr. Gibbs and Ms. Edwards
presented Frontier management's analysis of the strategic and financial
advantages of the proposed transaction for the combined company as well as the
potential risks of the transaction for Frontier and its stockholders. These
matters were discussed thoroughly at the special meeting and are summarized in
this document under the caption "The Merger--Recommendation of Frontier's Board
of Directors and Reasons for the Merger" beginning on page 55. In addition,
Andrews & Kurth discussed with the Frontier board members at the special
meeting their fiduciary duties in considering and acting upon the proposed
merger transaction, including their duty of loyalty and their duty of due care.
Andrews & Kurth also reviewed in detail with the Frontier board the terms and
provisions of the proposed merger agreement and the various related documents
and agreements, copies of which had been distributed to the directors for
review prior to the special meeting.
Also at the March 28, 2003 Frontier board meeting, representatives of Petrie
Parkman & Co., Inc. reviewed with the board the financial terms of the
transaction, the various financial analyses undertaken by Petrie Parkman in
connection with the preparation of the Petrie Parkman opinion (which analyses
are summarized in this document under the caption "The Merger--Opinion of
Frontier's Financial Advisor" beginning on page 67) as well as the assumptions
made, procedures followed, matters considered and the scope of review. In
addition, Petrie Parkman discussed general economic, market and financial
conditions. The representatives of Petrie Parkman delivered the firm's oral
opinion (which was subsequently confirmed by delivery of a written opinion
dated March 28, 2003) that, as of such date and based upon and subject to the
matters set forth therein, the Frontier merger consideration to be received by
the Frontier stockholders in the Frontier merger (after taking into account the
Holly merger) was fair, from a financial point of view, to the stockholders of
Frontier. We encourage
50
you to read the full opinion of Petrie Parkman & Co., Inc. attached to this
document as Annex F and to review the discussion under the caption "The
Merger--Opinion of Frontier's Financial Advisor" beginning on page 67.
Frontier's board of directors unanimously approved the proposed merger
agreement and related matters at the March 28, 2003 special board meeting and
authorized Frontier's management to conclude negotiations and to execute the
merger agreement and other documents. The Frontier board also voted unanimously
to recommend that the Frontier stockholders approve and adopt the merger
agreement.
On March 28, 2003, Parent was incorporated in Wyoming and its two merger
subsidiaries were incorporated in Delaware.
On March 28, 2003, the board of directors of Holly held a special meeting at
Holly's Dallas office. At the meeting, Vinson & Elkins reviewed for the Holly
board discussions that Holly and Frontier management had at their meeting in
Houston on March 24, 2003, summarized the principal terms of the latest draft
of the merger agreement, including the use of contingent value rights to
preserve for Holly stockholders interests in potential future net recoveries
from Holly's jet fuel claims, as well as the elimination of any financing
condition, and also informed the Holly board of the remaining unresolved
matters. These remaining matters included the final terms of the contingent
value rights, inclusion of the closing of the Woods Cross refinery acquisition
among the conditions to the merger, and assessment of risks from possible
future litigation against a Frontier subsidiary in Beverly Hills, California.
(Please read the Risk Factor "Oil and gas exploration and production activities
may also give rise to claims and liabilities due to discharges of materials
into the environment" on page 28 for more information about this litigation.)
At the March 28, 2003 meeting, the Holly board discussed with Holly
management and its legal and financial advisors the potential benefits and
risks of the proposed merger to Holly and its stockholders. Potential benefits
and risks considered by the Holly board are summarized in this document in "The
Merger--Recommendation of Holly's Board of Directors and Reasons for the
Merger" beginning on page 52. Also at the meeting, Credit Suisse First Boston
LLC presented to the Holly board of directors its financial analysis of the
proposed transaction. After further discussions, the Holly board authorized
Holly management to continue its negotiations of the remaining issues with
Frontier.
Also on March 28, 2003, Holly management and Frontier management discussed
and resolved the remaining unresolved matters, including clarification in the
merger agreement as ultimately executed by the parties of the terms of the
condition, in the merger agreement, that neither party would be obligated to
complete the merger if possible future litigation, such as the Beverly Hills,
California litigation against a Frontier subsidiary discussed at the Holly
Board meeting, or any other contingent liability, would reasonably be expected
to have a material adverse effect on the other party.
On March 30, 2003, the Holly board of directors held a special meeting by
conference telephone. At the meeting, Vinson & Elkins summarized the principal
terms of the final draft of the merger agreement, including the clarification
of the conditions to the parties' obligations to complete the merger under the
merger agreement and the agreed terms for the contingent value rights. Vinson &
Elkins also reviewed with the Holly board the board's legal obligations in
respect of its deliberations regarding the proposed business combination. The
Board discussed further the currently available information on the potential
Beverly Hills, California litigation against a Frontier subsidiary and the
treatment of the matter in the final draft of the merger agreement. Also at the
meeting, representatives of Credit Suisse First Boston LLC rendered to the
Holly board of directors a written opinion dated March 30, 2003, to the effect
that, as of the date of the opinion and based on and subject to the matters
described in the opinion, the merger consideration payable to the Holly
stockholders in the Holly merger was fair, from a financial point of view, to
the Holly stockholders. We encourage you to read the full opinion of Credit
Suisse First Boston LLC attached to this document as Annex E and to review the
discussions under the caption "The Merger--Opinion of Holly's Financial
Advisor" beginning on page 58. After further deliberation and discussion, the
Holly board of directors unanimously approved the merger agreement and related
transactions and instructed Holly management to finalize and execute the merger
agreement and related
51
agreements on behalf of Holly. Additionally, the Holly board of directors
unanimously voted to recommend that the Holly stockholders approve and adopt
the merger agreement.
On March 30, 2002, Parent, Frontier, Holly and the two merger subsidiaries
of Parent executed the merger agreement. At the same time, the support
agreements and registration rights agreement were entered into.
Early in the morning on Monday, March 31, 2003, Holly and Frontier issued a
joint press release announcing the merger agreement.
Recommendation of Holly's Board of Directors and Reasons for the Merger
At its meeting on March 30, 2003, after due consideration, Holly's board of
directors unanimously:
. determined that the merger was consistent with and in furtherance of the
long-term strategic business interests of Holly and was advisable, fair
to and in the best interests of Holly and its stockholders,
. approved the merger agreement, and
. recommended that Holly stockholders approve and adopt the merger
agreement.
Holly's board of directors unanimously recommends that Holly stockholders vote
FOR the approval and adoption of the merger agreement.
Holly's board of directors believes that the terms of the merger agreement
and the merger are consistent with and in furtherance of the long-term
strategic business interests of Holly and are advisable, fair to and in the
best interests of Holly and its stockholders. Accordingly, the members of
Holly's board of directors have unanimously approved the merger agreement and
the merger, and Holly's board of directors recommends that Holly stockholders
approve and adopt the merger agreement. In reaching its determination to
recommend the approval and adoption of the merger agreement, Holly's board of
directors considered various factors, including the following factors they
believe support the merger agreement:
. the conditions in the petroleum refining and marketing industry in North
America generally and the Southwestern and Rocky Mountain regions of the
United States in particular, the likelihood of future consolidation in
the refining and marketing industry in North America generally and the
Southwestern and Rocky Mountain regions of the United States in
particular;
. historical market prices and trading information with respect to shares
of Frontier common stock and Holly common stock and the amounts and terms
of the merger consideration as provided in the merger agreement, which as
of March 28, 2003, the last trading day prior to the announcement of the
execution of the merger agreement, represented an approximate 31% premium
over the closing price of Holly's common stock on that date;
. receipt of Credit Suisse First Boston LLC's opinion that, as of March 30,
2003, and based on and subject to the matters described in its opinion,
the merger consideration payable to the Holly stockholders in the Holly
merger was fair, from a financial point of view, to the Holly
stockholders and receipt of the analyses of Credit Suisse First Boston
LLC summarized under "The Merger-- Opinion of Holly's Financial Advisor"
beginning on page 58;
. the fact that the merger consideration offers Holly stockholders both the
opportunity to participate in the growth and opportunities of the
combined company through the stock component, which will allow Holly's
stockholders to own approximately [37%] of Parent's common stock based on
the number of shares of Holly common stock and Frontier common stock
outstanding on [ ], 2003, after completion of the merger, and the
opportunity to realize cash for a substantial portion of the value of
their shares through the cash portion of the merger consideration;
. the fact that the combined company will be significantly larger than
Holly is now and as a result of the larger size and greater number of
outstanding shares, Holly's stockholders should have significantly
greater liquidity for their shares;
52
. the fact that the merger agreement provides a fixed exchange ratio that
will provide certainty as to the number of shares of Parent common stock
that will be issued to Holly stockholders and the impact to Holly's
stockholders of having a fixed exchange ratio, which is primarily that
Holly stockholders will receive the benefit of any rise in value of
Frontier common stock prior to the consummation of the merger, but will
not have any protection in the event that the price of Frontier's common
stock falls prior to the consummation of the merger;
. the fact that, for a period of time after the merger, Parent will have a
board of directors composed one-half of persons designated by Holly,
supporting continuity of management for the combined company;
. the fact that Mr. Norsworthy will be the Chairman of the Board of
Directors and Mr. Gibbs will be Chief Executive Officer and President of
Parent, both of whom will provide continuity of management for the
combined company;
. the fact that the receipt by Holly stockholders of Parent common stock in
exchange for Holly common stock will be tax-free to Holly's stockholders
and that only the cash portion of the merger consideration and the
contingent value rights would be subject to federal income tax when
received;
. the competitive position, business, financial position, personnel and
prospects of Frontier, which Holly's board of directors believes would
represent a good strategic fit with the competitive position, business,
financial position, personnel and prospects of Holly;
. potential opportunities for greater operational efficiencies and
synergies through conducting Holly's and Frontier's refining and
petroleum transportation operations as parts of a single enterprise and
the belief that the results of operations of Frontier, when combined with
Holly, would be less volatile than the results of operations of Holly on
a standalone basis;
. the potential to expand the combined company's operations;
. Frontier's willingness to actively consider initiatives to enhance the
value of Holly's pipeline operations, including the formation of a master
limited partnership after the merger;
. the provisions included in Parent's organizational documents designed to
prevent the Chairman of the Board of Directors and Chief Executive
Officer positions from being changed for a certain period of time without
a supermajority vote of Parent's board of directors, which are designed
to provide continuity of management for the combined company;
. the fact that, by receiving contingent value rights, the Holly
stockholders will retain the opportunity to receive additional cash
payments in the event that Holly's jet fuel claims against the government
are successful; and
. the terms and conditions of the merger agreement, including, among other
things, the fact that the merger agreement permits Holly's board of
directors, in the exercise of its fiduciary duties, to (a) engage in
negotiations with or to furnish information to third parties in response
to any unsolicited acquisition proposal that is more favorable to Holly
stockholders than the merger and to terminate the merger agreement in
order to enter into a definitive agreement relating to such alternative
proposal or (b) withdraw its recommendation of the merger and terminate
the merger agreement, and in either such case, upon payment of a $15
million termination fee and the reimbursement of up to $1 million of
Frontier's expenses.
Holly's board of directors also considered the following risks associated
with the merger agreement:
. the risk to Holly's stockholders of having a fixed exchange ratio, which
is primarily that Holly stockholders will not have any protection in the
event that the price of Frontier's common stock falls prior to the
consummation of the merger;
. the risk that the merger will not be consummated;
53
. the challenges and potential costs of combining the businesses of Holly
and Frontier, and the attendant risks of not achieving the expected
operating efficiencies, other synergies, improvements in earnings and
other benefits through the merger;
. the fact that substantial management time and effort will be required to
consummate the merger and integrate the operations of the two companies,
which may divert management's attention away from other business concerns;
. various other strategic alternatives that were then available to Holly,
such as Holly's potential acquisition of the 60,000 bpd refinery
described in "The Merger--Background of the Merger" on page 45, and the
possibility that some of those alternatives may no longer be available to
Holly;
. the potential risks and costs arising out of the Beverly Hills,
California litigation described in "Risk Factors--Oil and gas and
exploration and production activities may also give rise to claims and
liabilities due to discharges of materials into the environment" on page
28 and the potential risks that the pendency of such litigation might
adversely impact perceptions of Frontier's value or access to capital
markets and that an unfavorable decision might result in material
liability to, or have a material adverse effect on, Frontier; and
. the terms and conditions of the merger agreement, including, among other
things, the fact that the merger agreement permits Frontier's board of
directors, in the exercise of its fiduciary duties, to (a) engage in
negotiations with or to furnish information to third parties in response
to any unsolicited acquisition proposal that is more favorable to
Frontier's stockholders than the merger and to terminate the merger
agreement in order to enter into a definitive agreement relating to such
alternative proposal or (b) withdraw its recommendation of the merger and
terminate the merger agreement, and in either such case, upon payment of
a $15 million termination fee and the reimbursement of up to $1 million
of Holly's expenses, which terms make the consummation of the merger less
certain from Holly's standpoint.
Holly's board of directors also considered the following additional factors:
. the post-merger capital structure and financial ratios of Parent, as the
successor to Holly and Frontier, including, among other things, the fact
that Parent as compared to Holly, would likely have more working capital,
more long-term indebtedness, a higher debt to equity ratio and more
shares of common stock outstanding;
. the fact that the support agreements entered into between Frontier and
various Holly stockholders holding approximately [36]% of Holly's
outstanding shares of common stock, based on the number of shares of
Holly common stock outstanding as of [June 9], 2003, make likely the
approval of the merger by the holders of a majority of the outstanding
common stock of Holly; and
. presentations by, and discussions with, senior executives of Holly and
legal and financial advisors regarding the terms of the merger agreement.
In the judgment of Holly's board of directors, the potential benefits of the
merger substantially outweighed the risks associated with the merger. In its
deliberations with respect to the merger agreement and the merger, Holly's
board of directors consulted with Holly's management and the financial, legal
and accounting advisors to Holly. The foregoing discussion of factors
considered by Holly's board of directors is not exhaustive, but Holly believes
it includes the material factors considered by Holly's board of directors.
Holly's board of directors did not quantify or otherwise attempt to assign
relative weights to the specific factors Holly's board of directors considered
in reaching its determination to recommend the merger. Rather, Holly's board of
directors viewed its position and recommendation as being based on the total
information presented to and considered by Holly's board of directors.
Certain directors and officers of Holly have interests in the merger
transaction that are different or in addition to the interests of other Holly
stockholders. For a discussion of these interests, see "--Interests of Holly
Directors and Management in the Merger" beginning on page 78.
54
Recommendation of Frontier's Board of Directors and Reasons for the Merger
Recommendation of Frontier's Board
At its meeting on March 28, 2003, after due consideration, Frontier's board
of directors unanimously:
. determined that the merger agreement and the transactions contemplated by
the merger agreement are in the best interests of Frontier stockholders;
. approved the merger agreement; and
. recommended that Frontier stockholders vote for the approval and adoption
of the merger agreement.
Frontier's board of directors unanimously recommends that Frontier
stockholders vote FOR the approval and adoption of the merger agreement.
Frontier's board of directors believes that the terms of the merger
agreement and the merger are consistent with the long-term strategic business
interests of Frontier and are advisable, fair and in the best interests of
Frontier and its stockholders. Accordingly, the members of Frontier's board of
directors have unanimously approved the merger and the merger agreement, and
Frontier's board of directors recommends that Frontier stockholders approve and
adopt the merger agreement. In reaching its determination to recommend the
approval and adoption of the merger agreement, Frontier's board of directors
considered various factors, including the following factors they believe
support the merger agreement:
. the prospective business opportunities and strengths of Frontier and
Holly on a combined basis, giving effect to the merger, Holly's
then-pending Woods Cross refinery acquisition and Holly's expansion
project at Artesia and Lovington, New Mexico.
. the fact that the combined company will operate five refineries in the
Rocky Mountain region and Plains States, with a total rated crude oil
capacity of 248,000 barrels per day. This will be an increase of
approximately 60% over Frontier's current refining capacity and will
further increase the market diversification of Frontier's refining and
marketing operations.
. the fact that, while the five Frontier and Holly refineries do not
compete with each other in their respective markets, all of these markets
share characteristics that Frontier believes are favorable to the
long-term success of the combined company: flexible supplies of crude
oil, growing demand for refined products, and limited in-market refining
capacity.
. the fact that in both the Rocky Mountain region and the Plains States,
refined product demand exceeds supply, with the shortfall shipped into
the regions via pipeline. The proximity of our refineries to their
markets in these regions gives us a transportation cost advantage over
refiners shipping product in from outside the regions. In addition,
certain areas in the Rocky Mountain region are experiencing above average
growth in refined products demand. According to the Department of
Energy's Energy Information Administration, or EIA, since 1995, growth in
the consumption of gasoline and diesel fuel in the Rocky Mountain region
states of Arizona, Colorado and Utah has significantly exceeded the
national average. Specifically, between 1995 and 2000, total domestic
consumption of gasoline and diesel fuel increased at an annual rate of
2.2%, while over the same time period, it grew at an annual rate of 4.0%
in Arizona, 3.4% in Colorado and 3.5% in Utah. As a result of this supply
and demand profile, Frontier believes that the margin between refined
product sales and the cost of light crude feedstock, or the "crack
spread," in these regions has been consistently higher than those
experienced in the Gulf Coast and East Coast markets.
. the fact that, for the last five years, Holly and Frontier have ranked
first and second among publicly traded independent refiners in terms of
return on investment (calculated based on earnings before interest,
taxes, depreciation and amortization for the year divided by
beginning-of-year long-term debt plus stockholders' equity), averaging
38% and 29%, respectively. Frontier believes that our combined company
can continue to achieve attractive rates of return on investment by
continuing to earn good product margins and continuing to focus on cost
controls and streamlining operations.
55
. their belief that the combined company will have opportunities to achieve
operating and marketing synergies by operating five refineries in
adjacent market regions and conducting the two companies' refining and
petroleum transportation operations as parts of a single enterprise.
These anticipated opportunities include staggering turnarounds to
minimize the impact of operational interruptions in any particular
period, supplying affected customers from other refineries during
turnarounds, and cross-marketing refined products to customers of each
refinery.
. approximately 90% of the combined company's refining capacity will be
complex. The complexity of a refinery refers to the number, type and
capacity of processing units at the refinery and may be measured by its
Nelson complexity index rating. The combined company's weighted average
Nelson complexity index rating will be higher than the weighted average
of competing refiners, both in the Rocky Mountain region and in the
Plains States. (The Nelson complexity index rating of a refinery is the
ratio of (a) the sum of the capacities (bpd) of the refinery's various
process units multiplied by their respective Nelson complexity factors,
divided by (b) the raw crude capacity (bpd) of the refinery as a whole.
The Nelson complexity factor of a given refinery process unit, in turn,
is the ratio of the construction cost of that unit on a bpd of capacity
basis divided by the construction cost of a crude unit on a bpd of
capacity basis. Therefore, if a refinery consists of a single crude unit
and no other processing units, then its Nelson complexity is 1. In
general, the more units and the more sophisticated they are relative to a
crude unit, the higher the Nelson complexity index rating of a refinery.)
As with most complex refineries, the combined company will have
substantial upgrading capacity, which is the ability to process lower
cost, heavy crude oil into higher margin light products such as gasoline
and diesel fuel.
. the combined company's refineries will have a wide variety of crude oil
choices available to them, allowing management to select among crude oil
supply alternatives to optimize the financial and operating performance
of the refineries. This wide range of potential crude oil supplies also
allows the combined company to avoid being dependent on any single source
and to adjust supply sources in response to opportunities created by
changes in crude price differentials.
. the combined company will benefit from a strong and experienced
management team at both the corporate and operating levels. After the
merger, Lamar Norsworthy, Holly Corporation's current Chairman and Chief
Executive Officer, will be the Chairman, and Jim Gibbs, Frontier's
current Chairman, President and Chief Executive Officer, will be the
President and Chief Executive Officer of the combined company. Both
Frontier's and Holly's senior management teams have demonstrated a
positive track record in operating their refineries and have delivered
industry leading financial performance.
. the combined company will own significant pipeline and other mid-stream
assets that generate substantial third party revenues and also form an
important part of the supply and distribution network for the combined
company's refining operations. The Frontier board believes these assets
will add value to the combined company's operations.
. after the merger, the balance sheet of the combined company will remain
among the least leveraged of the publicly-traded independent refiners.
Not only will the combined company's net debt to total capitalization
ratio (debt less cash divided by total capitalization less cash,
estimated to be approximately 41%) be relatively low, the company also
expects to maintain a significant cash position. The combined company's
balance sheet and cash balance should allow it not only to weather future
downturns that may occur in the refining industry but also to continue to
expand as appropriate opportunities are available.
. the Frontier board's belief that current conditions, and the likelihood
of future consolidation, in the petroleum refining and marketing industry
in North America generally, and the Rocky Mountain region in particular,
could present attractive expansion opportunities for the combined company.
. the Frontier board's belief that the competitive position, business,
financial position, personnel and prospects of Holly on a combined basis
with those of Frontier, which Frontier's board of directors
56
believes represent a good strategic fit between the two companies in view
of their respective operations, markets and businesses.
. the opinion of Petrie Parkman & Co., Inc. that, as of March 28, 2003, the
merger consideration to be received by the Frontier stockholders in the
merger, after taking into account the Holly merger, was fair, from a
financial point of view, to Frontier stockholders, and the analyses of
Petrie Parkman & Co., Inc. described under "The Merger--Opinion of
Frontier's Financial Advisor" beginning on page 67.
. the fact that the merger agreement provides a fixed aggregate cash
component, and also provides a fixed exchange ratio that will provide
certainty as to the number of shares of Frontier common stock that will
be issued to Holly stockholders in the merger.
. the fact that the Support Agreements entered into between Frontier and
various Holly stockholders holding approximately [36]% of Holly's
outstanding shares, based on the number of shares of Holly common stock
outstanding as of [June 9], 2003, make the approval of the merger by the
holders of a majority of the outstanding common stock of Holly more
easily attainable.
. the fact that the contingent value rights agreement will allow both
former Holly stockholders and all stockholders of the combined company to
participate in potential recoveries from Holly's jet fuel claims, and the
fact that no special consideration will be paid to Holly stockholders in
respect of such jet fuel claims unless there in fact are substantial
future recoveries.
. the fact that combined company will have a greater number of outstanding
shares and the expectation that Frontier's stockholders should have
greater liquidity for their shares.
Frontier's board of directors also considered the following risks associated
with the merger agreement:
. challenges and potential costs of combining the businesses of Holly and
Frontier, and the attendant risks of not achieving the expected operating
efficiencies, other synergies, improvements in earnings and other
benefits through the merger.
. the fact that substantial management time and effort will be required to
consummate the merger and integrate the operations of the two companies.
. various other strategic alternatives available to Frontier and the fact
that some of those alternatives will not be available if the merger is
consummated.
. the fact that the combined company's competitive advantages in the Rocky
Mountain region and Plains States markets could be diminished by future
increased competition, from pipelines or other competitors.
. risk factors discussed more fully in "Risk Factors" beginning on page 22,
including risks related to potential environmental or other litigation.
. the risk that the merger may not be consummated.
Frontier's board of directors also considered the following additional
factors:
. the effects of the merger and related financing on the capital structure
and financial ratios of the combined company, including, among other
things, Parent's liquidity and relatively low leverage position which
would not inhibit future growth.
. historical market prices and trading information with respect to shares
of Frontier common stock and Holly common stock and the amounts and terms
of the merger consideration as provided in the merger agreement, which as
of March 28, 2003, the last trading day prior to the announcement of the
execution of the merger agreement, represented an approximate 31% premium
over the closing price of Holly's common stock on that date.
. the fact that, for a period of time after the merger, Parent will have a
board of directors composed of persons designated one-half by Frontier
and one-half by Holly, requiring consensus of directors from both legacy
companies for major decisions.
57
. the provisions included in Parent's corporate documents designed to
prevent the Chairman of the Board of Directors and Chief Executive
Officer positions from being changed for a certain period of time without
a supermajority vote of the board of directors of Parent.
. the terms and conditions of the merger agreement, including, among other
things, the fact that the merger agreement permits Frontier's board of
directors, in the exercise of its fiduciary duties, to (a) engage in
negotiations with, or to furnish information to, third parties in
response to any unsolicited acquisition proposal that is more favorable
to Frontier stockholders than the merger and to terminate the merger
agreement in order to enter into a definitive agreement relating to such
alternative proposal or (b) withdraw its recommendation of the merger and
terminate the merger agreement, and in either such case, upon payment of
a $15 million termination fee and the reimbursement of up to $1 million
of Frontier's expenses.
. the fact that Holly's Board, in the exercise of its fiduciary duties, can
similarly terminate the merger agreement upon payment of the same amounts.
. presentations by, and discussions with, senior executives of Frontier and
legal and financial advisors regarding the terms of the merger agreement.
In the judgment of Frontier's board of directors, assessing all of these
factors together, the potential benefits of the merger substantially outweighed
the risks inherent in the merger. In connection with the Frontier board's
deliberations with respect to the merger agreement and the merger, Frontier's
board of directors and management consulted with each other and with the
financial, legal and accounting advisors to Frontier. This discussion of
factors considered by Frontier's board of directors is not exhaustive, but
Frontier believes it includes the material factors considered by Frontier's
board of directors. Frontier's board of directors did not quantify or otherwise
attempt to assign relative weights to the specific factors Frontier's board of
directors considered in reaching its determination to recommend the merger.
Rather, Frontier's board of directors viewed its position and recommendation as
being based on the total information presented to and considered by Frontier's
board of directors.
Certain directors and officers of Frontier have interests in the merger
transaction that are different from or in addition to the interests of other
Frontier stockholders. For a discussion of these interests, see "--Interests of
Frontier Directors and Management in the Merger" beginning on page 82.
Opinion of Holly's Financial Advisor
Credit Suisse First Boston LLC has acted as Holly's exclusive financial
advisor in connection with the merger. Credit Suisse First Boston LLC is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. Holly selected
Credit Suisse First Boston LLC, based on Credit Suisse First Boston LLC's
experience, expertise and reputation, and its familiarity with Holly and its
business.
In connection with Credit Suisse First Boston LLC's engagement, Holly
requested that Credit Suisse First Boston LLC evaluate the fairness, from a
financial point of view, to the holders of Holly common stock of the merger
consideration payable to such holders in the merger. On March 30, 2003, at a
meeting of Holly's board of directors held to evaluate the merger, Credit
Suisse First Boston LLC delivered to Holly's board of directors a written
opinion dated March 30, 2003, to the effect that, as of that date and based on
and subject to the matters described in its opinion, the merger consideration
payable to the holders of Holly common stock was fair, from a financial point
of view, to such holders.
The full text of Credit Suisse First Boston LLC's written opinion, dated
March 30, 2003, to Holly's board of directors, is attached as Annex E and is
incorporated into this joint proxy statement/prospectus
58
by reference. Credit Suisse First Boston LLC has consented to the use of its
opinion dated March 30, 2003 in this joint proxy statement/prospectus. Holly
stockholders are encouraged to read this opinion carefully and in its entirety.
Credit Suisse First Boston LLC's opinion is addressed to Holly's board of
directors and relates only to the fairness, from a financial point of view, to
the holders of Holly common stock of the merger consideration payable to such
holders in the merger, does not address any other aspect of the proposed merger
or any related transaction and does not constitute a recommendation to any
stockholder as to any matter relating to the merger. The summary of Credit
Suisse First Boston LLC's opinion in this joint proxy statement/prospectus is
qualified in its entirety by reference to the full text of the opinion. Holly
does not currently intend to seek an updated fairness opinion in connection
with the merger.
In arriving at its opinion, Credit Suisse First Boston LLC reviewed a draft
of the merger agreement dated March 30, 2003 and certain other related
agreements, as well as certain publicly available business and financial
information relating to Holly and Frontier. Credit Suisse First Boston LLC also
reviewed certain other information relating to Holly and Frontier, including
financial forecasts, provided by or discussed with Holly and Frontier and met
with the management of Holly and Frontier to discuss the businesses and
prospects of Holly and Frontier, respectively. Credit Suisse First Boston LLC
also considered financial and stock market data of Holly and Frontier, and
compared that data with similar data for publicly held companies in businesses
that Credit Suisse First Boston LLC deemed similar to those of Holly and
Frontier, and considered, to the extent publicly available, the financial terms
of certain other business combinations and other transactions effected or
announced. Credit Suisse First Boston LLC also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant.
In connection with its review, Credit Suisse First Boston LLC did not assume
any responsibility for independent verification of any of the information that
it reviewed or considered and relied on that information being complete and
accurate in all material respects. With respect to the publicly available
financial forecasts that Credit Suisse First Boston LLC reviewed, the
managements of Holly and Frontier advised Credit Suisse First Boston LLC, and
Credit Suisse First Boston LLC assumed, that such forecasts represented
reasonable estimates and judgments as to the future financial performance of
Holly and Frontier, respectively. With respect to the non-publicly available
financial forecasts that Credit Suisse First Boston LLC reviewed, the
management of Holly and Frontier advised Credit Suisse First Boston LLC, and
Credit Suisse First Boston LLC assumed, that such forecasts represented the
best currently available estimates and judgments of the managements of Holly
and Frontier as to the future financial performance of Holly and Frontier,
respectively. In addition, Credit Suisse First Boston LLC relied upon, without
independent verification, the assessment of the management of Holly as to the
strategic benefits and potential cost savings (including the amount, timing and
achievability thereof) anticipated to result from the merger. The management of
Holly informed Credit Suisse First Boston LLC, and Credit Suisse First Boston
LLC assumed, that the Holly merger and the Frontier merger would be treated as
tax-free reorganizations for federal income tax purposes and/or the merger
would be treated as a tax-free exchange for federal income tax purposes. Credit
Suisse First Boston LLC assumed that the merger agreement, when executed, would
conform to the draft reviewed by Credit Suisse First Boston LLC in all respects
material to its analysis. Credit Suisse First Boston LLC also assumed, with
Holly's consent, that in the course of obtaining necessary regulatory and third
party approvals and consents for the merger, no modification, delay,
limitation, restriction or condition would be imposed that would have an
adverse effect on Holly, Frontier or Parent or the contemplated benefits of the
merger and that the merger would be consummated in accordance with the terms of
the merger agreement, without waiver, modification or amendment of any material
term, condition or agreement therein. In addition, Credit Suisse First Boston
LLC was not requested to make, and did not make, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Holly or
Frontier, nor was Credit Suisse First Boston LLC furnished with any such
evaluations or appraisals.
Credit Suisse First Boston LLC's opinion was necessarily based on
information available to it, and financial, economic, market and other
conditions as they existed and could be evaluated, on the date of Credit Suisse
First Boston LLC's opinion. Credit Suisse First Boston LLC did not express any
opinion as to what the value of Parent common stock or the contingent value
rights to be received by the holders of Holly common stock in the merger
59
actually would be when issued in the merger or the prices at which Parent
common stock would trade at any time. Although Credit Suisse First Boston LLC
evaluated the merger consideration payable to the holders of Holly common stock
in the Holly merger from a financial point of view, Credit Suisse First Boston
LLC was not requested to, and did not, recommend the specific consideration
payable in the merger, which consideration was determined by negotiation
between Holly and Frontier. Credit Suisse First Boston LLC's opinion did not
address the relative merits of the merger as compared to other business
strategies that might have been available to Holly, and also did not address
the underlying business decision of Holly to proceed with the merger. In
addition, Credit Suisse First Boston LLC's opinion did not address any aspect
or implication of any agreement between any stockholder of Holly or Frontier or
any of its affiliates in connection with the merger agreement or the
transactions contemplated thereby. Credit Suisse First Boston LLC was not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of Holly. Except as described above, Holly imposed no
other limitations on Credit Suisse First Boston LLC with respect to the
investigations made or procedures followed in rendering its opinion.
In preparing its opinion to Holly's board of directors, Credit Suisse First
Boston LLC performed a variety of financial and comparative analyses, including
those described below. The summary of Credit Suisse First Boston LLC's analyses
described below is not a complete description of the analyses underlying its
opinion. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Credit
Suisse First Boston LLC made qualitative judgments as to the significance and
relevance of each analysis and factor that it considered. Accordingly, Credit
Suisse First Boston LLC believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors or focusing on
information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston LLC considered industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Holly or Frontier. No
company, transaction or business used in Credit Suisse First Boston LLC's
analyses as a comparison is identical to Holly, Frontier or the proposed
merger, and an evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions analyzed. The estimates contained in Credit
Suisse First Boston LLC's analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, Credit Suisse First Boston LLC's analyses and estimates are
inherently subject to substantial uncertainty. For purposes of its analyses and
in consultation with Holly management, no value was assigned by Credit Suisse
First Boston LLC to the contingent value rights to be received by the holders
of Holly common stock in the merger. The financial information for Holly used
by Credit Suisse First Boston LLC in its financial analyses, other than the
historical financial information used in connection with its contribution
analysis as described in "Opinion of Holly's Financial Advisor--Exchange Ratio
Analysis--Contribution Analysis," was adjusted by Holly management to reflect
completion of the acquisition of the Woods Cross refinery and the sale of
Holly's Iatan crude oil gathering system.
Credit Suisse First Boston LLC's opinion and financial analyses were only
one of many factors considered by Holly's board of directors in its evaluation
of the proposed merger and should not be viewed as determinative of the views
of Holly's board of directors or management with respect to the merger or the
merger consideration.
60
The following is a summary of the material financial analyses underlying
Credit Suisse First Boston LLC's opinion dated March 30, 2003 delivered to
Holly's board of directors in connection with the merger. The financial
analyses summarized below include information presented in tabular format. In
order to understand fully Credit Suisse First Boston LLC's financial analyses,
the tables must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Credit Suisse First Boston LLC's financial analyses.
The following table presents:
. the implied per share equity reference range for Holly based on Credit
Suisse First Boston LLC's analysis, as compared to the implied merger
consideration payable to the holders of Holly common stock in the merger
based on the closing price of Frontier common stock on March 26, 2003 of
$17.18 and cash consideration of $11.12 per share (calculated by dividing
$172.5 million by approximately 15.5 million shares);
. the implied per share equity reference range for Frontier based on Credit
Suisse First Boston LLC's analysis, as compared to the closing price of
Frontier common stock on March 26, 2003 of $17.18; and
. the implied exchange ratio reference ranges for Holly and Frontier based
on Credit Suisse First Boston LLC's analysis, as compared to the implied
exchange ratio in the merger assuming an all-stock transaction of one
share of Frontier common stock, plus 0.647 of a share of Frontier common
stock in lieu of $11.12 in cash per share (calculated as described
above), based on the closing price of Frontier common stock on March 26,
2003 of $17.18:
Implied Merger
Consideration Based on
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
------------------------ ---------------------------
Holly Discounted Cash Flow Analysis...... $ 25.81 to $29.02 $ 28.30
Holly Selected Companies Analysis........ $ 24.58 to $29.02
Holly Selected Transactions Analysis..... $ 24.58 to $29.02
Per Share Price of Frontier
Implied Per Share Equity Common Stock as of
Reference Range March 26, 2003
------------------------ ---------------------------
Frontier Discounted Cash Flow Analysis... $ 14.05 to $17.46 $ 17.18
Frontier Selected Companies Analysis..... $ 14.92 to $18.44
Frontier Selected Transactions Analysis.. $ 16.70 to $20.17
Implied Exchange Ratio in
Implied Exchange Ratio the Merger Assuming All-
Reference Range Stock Transaction
------------------------ ---------------------------
Discounted Cash Flow Analysis............ 1.479x to 2.066x 1.647x
Selected Companies Analysis.............. 1.333x to 1.954x
Selected Transactions Analysis........... 1.219x to 1.737x
Aggregate Implied Exchange Ratio Analysis 1.274x to 1.835x
Contribution Analysis.................... 1.366x to 2.371x
Historical Exchange Ratio Analysis....... 0.656x to 1.789x
In order to understand fully Credit Suisse First Boston LLC's financial
analyses summarized in the table above, the table must be read together with
the description of each analysis below. The table above does not constitute a
complete description of the financial analyses. Please refer to the relevant
sections of the discussion below.
61
Holly
Introduction. Credit Suisse First Boston LLC performed a "Discounted Cash
Flow Analysis," "Selected Companies Analysis" and "Selected Transactions
Analysis" for Holly. Based on these analyses, Credit Suisse First Boston LLC
derived the following aggregate implied per share equity reference range for
Holly, as compared to the implied merger consideration payable to the holders
of Holly common stock in the merger based on the closing price of Frontier
common stock on March 26, 2003 of $17.18 and cash consideration of $11.12 per
share (calculated by dividing $172.5 million by approximately 15.5 million
shares):
Implied Merger
Aggregate Implied Per Consideration Based on
Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$24.58 to $29.02 $28.30
Discounted Cash Flow Analysis. Credit Suisse First Boston LLC estimated the
present value of the stand-alone, unlevered, after-tax free cash flows that
Holly could generate for the calendar years 2003 to 2007, based on internal
estimates of Holly management, as adjusted in consultation with Holly
management. Credit Suisse First Boston LLC calculated a range of estimated
terminal values for Holly by applying a range of selected earnings before
interest, taxes, depreciation and amortization, commonly referred to as EBITDA,
terminal value multiples of 4.0x to 4.5x to Holly's calendar year 2007
normalized EBITDA. Normalized EBITDA reflects EBITDA expected to be achieved in
a typical refining cycle as of the terminal year based on discussions with
Holly management. The estimated free cash flows and terminal values were then
discounted to present value using selected discount rates ranging from 10.0% to
11.0%. This analysis indicated the following implied per share equity reference
range for Holly, as compared to the implied merger consideration payable to the
holders of Holly common stock in the merger based on the closing price of
Frontier common stock on March 26, 2003 of $17.18 and cash consideration of
$11.12 per share (calculated as described above):
Implied Merger
Consideration Based on
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$25.81 to $29.02 $28.30
Selected Companies Analysis. Credit Suisse First Boston LLC compared
financial, operating and stock market data of Holly to corresponding data for
the following seven publicly traded companies, including Holly, in the
petroleum refining and marketing industry:
. Frontier
. Holly
. Giant Industries, Inc.
. Premcor Inc.
. Sunoco, Inc.
. Tesoro Petroleum Corporation
. Valero Energy Corporation
Credit Suisse First Boston LLC reviewed enterprise values, calculated as
equity value plus net debt, preferred stock, minority interests and any other
comparable corporate adjustment, as applicable, as multiples of calendar years
2003 and 2004 estimated EBITDA. Credit Suisse First Boston LLC then applied a
range of selected multiples of calendar years 2003 and 2004 estimated EBITDA
derived from the selected companies to corresponding financial data of Holly.
All multiples were based on closing stock prices on March 26, 2003. Estimated
financial data for Holly were based on internal estimates of Holly management,
as adjusted in consultation with Holly management and estimated financial data
for the selected companies were based on publicly available research estimates.
This analysis indicated the following implied per share equity reference
62
range for Holly, as compared to the implied merger consideration payable to the
holders of Holly common stock in the merger based on the closing price of
Frontier common stock on March 26, 2003 of $17.18 and cash consideration of
$11.12 per share (calculated as described above):
Implied Merger
Consideration based on
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$24.58 to $29.02 $28.30
Selected Transactions Analysis. Credit Suisse First Boston LLC reviewed the
implied transaction multiples in the following eight selected merger and
acquisition transactions in the petroleum refining and marketing industry:
Announcement
Date Acquiror Target/Seller
- ------------ -------- -------------
10/09/2001. Shell Oil Company/Saudi Refining, Inc. Texaco Inc. (Equilon Enterprises LLC and
Motiva Enterprises LLC)
05/07/2001. Valero Energy Corporation Ultramar Diamond Shamrock Corporation
02/05/2001. Phillips Petroleum Company Tosco Corporation
11/03/1997. The Blackstone Capital Partners III Merchant Clark USA, Inc.
Banking Fund, L.P.
04/15/1997. Ultramar Diamond Shamrock Corporation Total Petroleum (North America) Ltd.
03/17/1997. Valero Energy Corporation Basis Petroleum Inc.
11/18/1996. Tosco Corporation Unocal Corporation
09/23/1996. Ultramar Corporation Diamond Shamrock, Inc.
In addition, Credit Suisse First Boston LLC also reviewed the implied
transaction multiples in the following fifteen selected asset acquisition
transactions in the petroleum refining and marketing industry:
Announcement
Date Acquiror Seller
- ------------ -------- ------
12/20/2002. Holly Corporation ConocoPhillips (Woods Cross refinery)
11/26/2002. Premcor Inc. The Williams Companies (Memphis refinery)
02/12/2002. Giant Industries, Inc. BP p.l.c. (Yorktown refinery)
02/05/2002. Tesoro Petroleum Corporation Valero Energy Corporation (Golden Eagle refinery)
07/17/2001. Tesoro Petroleum Corporation BP p.l.c. (Salt Lake City & Mandan refineries)
06/04/2001. Valero Energy Corporation El Paso Corporation (Corpus Christi refinery)
07/13/2000. Tosco Corporation BP Amoco p.l.c. (Alliance refinery)
07/05/2000. Ultramar Diamond Shamrock Corporation Tosco Corporation (Avon refinery)
04/06/2000. Tosco Corporation Equilon Enterprises LLC (Wood River refinery)
03/02/2000. Valero Energy Corporation Exxon Mobil Corporation (Benecia refinery)
06/07/1999. Frontier Oil Corporation Equilon Enterprises LLC (El Dorado refinery)
07/01/1998. Clark USA Inc. BP p.l.c. (Lima refinery)
05/21/1998. Valero Energy Corporation Mobil Oil Corporation (Paulsboro refinery)
04/01/1998. Tesoro Petroleum Corporation Shell Oil Corporation (Anacortes refinery)
02/03/1998. Petroleos de Venezuela, S.A. Amerada Hess Corporation (St. Croix refinery)
Credit Suisse First Boston LLC compared enterprise values (which, in the
case of the selected asset acquisition transactions, do not include value
attributable to inventories, other working capital or earn-outs, as applicable)
and adjusted enterprise values, calculated as enterprise values minus the
estimated value of retail assets, in the selected transactions as multiples of
latest twelve-month EBITDA, capacity and Nelson capacity. Capacity is
calculated as the number of barrels of crude oil that a refinery can process in
a single day. Nelson capacity measures a refinery's ability to produce high
value-added products. Credit Suisse First Boston LLC then applied a range of
selected multiples of adjusted enterprise value to capacity, adjusted
enterprise value to Nelson
63
capacity, and enterprise value to latest twelve-month EBITDA derived from the
selected transactions to corresponding financial and operating data of Holly,
as well as to Holly's mid-cycle EBITDA. All multiples for the selected
transactions were based on publicly available information at the time of
announcement of the relevant transaction. Historical financial and operational
data for Holly were based on publicly available filings of Holly, except for
the mid-cycle EBITDA, which was based on publicly available research estimates,
in each case adjusted in consultation with Holly management. Latest
twelve-month EBITDA for Holly was calculated as of January 31, 2003. This
analysis indicated the following implied per share equity reference range for
Holly as compared to the implied merger consideration payable to the holders of
Holly common stock in the merger based on the closing price of Frontier common
stock on March 26, 2003 of $17.18 and cash consideration of $11.12 per share
(calculated as described above):
Implied Merger
Consideration Based on
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$24.58 to $29.02 $28.30
Frontier
Introduction. Credit Suisse First Boston LLC performed a "Discounted Cash
Flow Analysis," "Selected Companies Analysis" and "Selected Transactions
Analysis" for Frontier. Based on these analyses, Credit Suisse First Boston LLC
derived the following aggregate implied per share equity reference range for
Frontier, as compared to the closing price of Frontier common stock on March
26, 2003:
Aggregate Implied Per Per Share Price of
Share Equity Reference Frontier Common Stock as
Range of March 26, 2003
$15.81 to $19.30 $17.18
Discounted Cash Flow Analysis. Credit Suisse First Boston LLC estimated the
present value of the stand-alone, unlevered, after-tax free cash flows that
Frontier could generate for the calendar years 2003 to 2007, based on internal
estimates of Frontier management, as adjusted in consultation with Holly and
Frontier management. Credit Suisse First Boston LLC calculated a range of
estimated terminal values for Frontier by applying a range of selected EBITDA
terminal value multiples of 4.0x to 5.0x to Frontier's calendar year 2007
normalized EBITDA. Normalized EBITDA reflects EBITDA expected to be achieved in
a typical refinery cycle as of the terminal year based on discussions with
Holly and Frontier management. The estimated free cash flows and terminal
values were then discounted to present value using selected discount rates
ranging from 10.0% to 11.0%. This analysis indicated the following implied per
share equity reference range for Frontier, as compared to the closing price of
Frontier common stock on March 26, 2003:
Per Share Price of
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$14.05 to $17.46 $17.18
Selected Companies Analysis. Credit Suisse First Boston LLC compared
financial, operating and stock market data of Frontier to corresponding data
for the seven publicly traded companies described in "--Opinion of Holly's
Financial Advisor--Holly--Selected Companies Analysis," including Frontier.
Credit Suisse First Boston LLC reviewed enterprise values as multiples of
calendar years 2003 and 2004 estimated EBITDA. Credit Suisse First Boston LLC
then applied a range of selected multiples of calendar years 2003 and 2004
estimated EBITDA derived from the selected companies to corresponding financial
data of Frontier. All multiples were based on closing stock prices on March 26,
2003. Estimated financial data for Frontier were based on internal estimates of
Frontier management, as adjusted in consultation with Holly and Frontier
management and estimated financial data for the selected companies were based
on publicly available
64
research estimates. This analysis indicated the following implied per share
equity reference range for Frontier, as compared to the closing price of
Frontier common stock on March 26, 2003:
Per Share Price of
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$14.92 to $18.44 $17.18
Selected Transactions Analysis. Credit Suisse First Boston LLC reviewed the
implied transaction multiples in the eight selected merger and acquisition
transactions and the fifteen selected asset acquisition transactions described
in "--Opinion of Holly's Financial Advisor--Holly--Selected Transactions
Analysis."
Credit Suisse First Boston LLC compared enterprise values and adjusted
enterprise values in the selected transactions as multiples of EBITDA, capacity
and Nelson capacity. Credit Suisse First Boston LLC then applied a range of
selected multiples of adjusted enterprise value to capacity, adjusted
enterprise value to Nelson capacity, and enterprise value to latest
twelve-month EBITDA derived from the selected transactions to corresponding
financial and operating data of Frontier as well as to Frontier's mid-cycle
EBITDA. All multiples for the selected transactions were based on publicly
available information at the time of announcement of the relevant transaction.
Historical financial and operational data for Frontier were based on publicly
available filings of Frontier, except for the mid-cycle EBITDA which was based
on publicly available research estimates. Latest twelve-month EBITDA for
Frontier was calculated as of December 31, 2002. This analysis indicated the
following implied per share equity reference range for Frontier, as compared to
the closing price of Frontier common stock on March 26, 2003:
Per Share Price of
Implied Per Share Equity Frontier Common Stock as
Reference Range of March 26, 2003
$16.70 to $20.17 $17.18
Exchange Ratio Analysis
Relative Exchange Ratio Analysis. Credit Suisse First Boston LLC compared
the implied per share equity reference ranges for Holly and Frontier derived
from the "Discounted Cash Flow Analysis," "Selected Companies Analysis" and
"Selected Transactions Analysis" for Holly and Frontier described above in
order to derive the following implied exchange ratio reference ranges,
including an aggregate implied reference range derived from these analyses, as
compared to the implied exchange ratio in the merger of 1.647x, assuming an
all-stock transaction of one share of Frontier common stock, plus 0.647 of a
share of Frontier common stock in lieu of $11.12 in cash per share (calculated
as described above), based on the closing stock price of Frontier common stock
on March 26, 2003 of $17.18:
Implied Exchange
Ratio in the
Merger Assuming
Implied Exchange Ratio All-Stock
Implied Exchange Ratio Reference Range Reference Range Transaction
-------------------------------------- ---------------------- ----------------
Discounted Cash Flow Analysis................... 1.479x to 2.066x 1.647x
Selected Companies Analysis..................... 1.333x to 1.945x
Selected Transactions Analysis.................. 1.219x to 1.737x
Aggregate Implied Exchange Ratio Reference Range 1.274x to 1.835x
Contribution Analysis. Credit Suisse First Boston LLC reviewed the relative
contributions of Holly and Frontier to 2001 and 2002 actual EBITDA, calendar
years 2003 and 2004 estimated EBITDA and estimated mid-cycle EBITDA. The 2001
and 2002 actual EBITDA for Holly were for the twelve-month periods ended
January 31, 2001 and 2002, respectively. The 2001 and 2002 actual EBITDA for
Frontier were for the twelve-month periods ended December 31, 2001 and 2002,
respectively. Historical financial data were based on publicly
65
available filings of Holly and Frontier. Estimated financial data, other than
estimated mid-cycle EBITDA, were based on the internal estimates of Holly and
Frontier management, as adjusted in consultation with Holly and Frontier
management, respectively. Estimated mid-cycle EBITDA was based on publicly
available research estimates adjusted, in the case of Holly, in consultation
with Holly management. Credit Suisse First Boston LLC then computed implied
exchange ratios, assuming an all-stock transaction, based on the diluted
ownership percentages of Holly's stockholders in the combined company implied
by Holly's relative contribution for each metric observed after taking into
account the relative balance sheet leverage of Holly and Frontier.
This analysis indicated the following implied exchange ratio reference
range, as compared to the implied exchange ratio in the merger, assuming an
all-stock transaction based on the assumptions described in "--Opinion of
Holly's Financial Advisor--Exchange Ratio Analysis--Relative Exchange Ratio
Analysis":
Implied Exchange Ratio in
Implied Exchange Ratio the Merger Assuming
Reference Range All-Stock Transaction
1.366x to 2.371x 1.647x
Historical Exchange Ratio Analysis. Credit Suisse First Boston LLC reviewed
the ratio of the closing price of Holly common stock to the closing price of
Frontier common stock on March 26, 2003, the average of these daily ratios
calculated over the five-day, twenty-day, six-month, one-year, two-year and
three-year periods ended March 26, 2003, and the high and low ratios for the
three-year period ended March 26, 2003, as indicated in the following table:
Period Implied Exchange Ratio
------ ----------------------
March 26, 2003.... 1.274x
Five-day average.. 1.267x
Twenty-day average 1.288x
Six-month average. 1.343x
One-year average.. 1.188x
Two-year average.. 1.210x
Three-year average 1.133x
Three-year high... 1.789x
Three-year low.... 0.656x
This analysis indicated the following implied exchange ratio reference
range, as compared to the implied exchange ratio in the merger, assuming an
all-stock transaction based on the assumptions described above in "--Opinion of
Holly's Financial Advisor--Exchange Ratio Analysis--Relative Exchange Ratio
Analysis":
Implied Exchange Ratio in
Implied Exchange Ratio the Merger Assuming
Reference Range All-Stock Transaction
0.656x to 1.789x 1.647x
Pro Forma Transaction Consequences
Credit Suisse First Boston LLC analyzed the potential pro forma effect of
the merger on Frontier's calendar years 2003 and 2004 estimated earnings per
share, commonly referred to as EPS, and estimated after tax cash flow per
share, giving effect to potential synergies estimated by the management of
Holly to result from the merger and other merger related adjustments. Estimated
financial data for Holly and Frontier were based on publicly available research
estimates. Based on the merger consideration in the merger, this analysis
suggested that the merger would be accretive to Frontier's estimated calendar
year 2004 EPS and estimated calendar years 2003 and 2004 after tax cash flow
per share and modestly dilutive to Frontier's estimated calendar year 2003 EPS.
66
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Other Factors
In the course of preparing its opinion, Credit Suisse First Boston LLC also
reviewed and considered other information and data, including:
. the historical price performance and trading characteristics of Holly
common stock and Frontier common stock and the relationship between
movements in Holly common stock and Frontier common stock; and
. selected credit statistics of Holly and Frontier on a stand-alone basis
and pro forma for the merger.
Miscellaneous
Pursuant to the engagement letter between Holly and Credit Suisse First
Boston LLC, Holly has agreed to pay Credit Suisse First Boston LLC a
transaction fee equal to 1% of the total fair market value at the time of
closing of all consideration (including cash, securities, property, all
long-term debt remaining on Holly's financial statements at closing and any
other form of consideration) paid or payable, or otherwise distributed,
directly or indirectly, to the holders of Holly common stock in connection with
the merger. Credit Suisse First Boston LLC estimates that such transaction fee
will be approximately $4 million to $5 million. This transaction fee, other
than $100,000 which was previously paid, is contingent on completion of the
merger. Holly also has agreed to reimburse Credit Suisse First Boston LLC for
its reasonable out-of-pocket expenses, including reasonable fees and expenses
of legal counsel and any other advisor retained by Credit Suisse First Boston
LLC with Holly's prior approval, and to indemnify Credit Suisse First Boston
LLC and related parties against liabilities, including liabilities under the
federal securities laws, arising out of its engagement.
Credit Suisse First Boston LLC and its affiliates have in the past provided
investment banking and financial services to Holly and Frontier, unrelated to
the proposed merger, for which services Credit Suisse First Boston LLC and its
affiliates have received compensation, and Credit Suisse First Boston LLC and
its affiliates may, in the future, provide investment banking and financial
services to Holly, Frontier or Parent for which Credit Suisse First Boston LLC
would expect to receive compensation. During the past two years, Credit Suisse
First Boston LLC and its affiliates have provided investment banking and
financial services to Holly and Frontier, unrelated to the proposed merger, for
which services Credit Suisse First Boston LLC and its affiliates have received
approximately $460,000 in compensation from Holly and approximately $25,000 in
compensation from Frontier. There are no other material relationships between
Credit Suisse First Boston LLC and Holly or Frontier. Credit Suisse First
Boston LLC or one or more of its affiliates may provide or arrange, or seek to
provide or arrange, financing for Frontier or Parent in connection with the
merger. In the ordinary course of business, Credit Suisse First Boston LLC and
its affiliates may actively trade the debt and equity securities of Holly and
Frontier and their affiliates, for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in
those securities.
Opinion of Frontier's Financial Advisor
Pursuant to an engagement letter dated as of March 14, 2003, Petrie Parkman
delivered to the board of directors of Frontier on March 28, 2003 its oral
opinion (subsequently confirmed in writing) that, as of that date and based
upon and subject to the matters set forth in the opinion, the merger
consideration to be received by the Frontier stockholders in the Frontier
merger (after taking into account the Holly merger) is fair, from a financial
point of view, to the stockholders of Frontier.
67
The full text of Petrie Parkman's opinion dated March 28, 2003, is attached
as Annex F and is incorporated in this joint proxy statement/prospectus by
reference. Petrie Parkman has consented to the use of its opinion in this joint
proxy statement/prospectus. The summary of the Petrie Parkman opinion set forth
below is qualified in its entirety by reference to the full text of the
opinion. Frontier stockholders are encouraged to, and should, read the Petrie
Parkman opinion carefully in its entirety.
Petrie Parkman's opinion was provided to Frontier's board of directors for
its information and addresses only the fairness, from a financial point of
view, of the merger consideration (after taking into account the Holly merger)
to be received by the holders of Frontier common stock. Petrie Parkman's
opinion does not constitute a recommendation to any holder of Frontier or Holly
common stock as to how such stockholder should vote at the special meeting of
stockholders. Petrie Parkman's opinion and its presentation to Frontier's board
of directors on March 28, 2003 were among many factors taken into consideration
by Frontier's board of directors in making its determination to approve, and
recommend the approval and adoption of, the merger agreement by the Frontier
stockholders.
In arriving at its opinion, Petrie Parkman, among other things:
. reviewed certain publicly available business and financial information
relating to Frontier, including its annual report on Form 10-K and
related audited financial statements for the fiscal years ended December
31, 2002, December 31, 2001, December 31, 2000, December 31, 1999 and
December 31, 1998;
. reviewed certain publicly available business and financial information
relating to Holly, including (i) its annual report on Form 10-K and
related audited financial statements for the fiscal years ended July 31,
2002, July 31, 2001, July 31, 2000, July 31, 1999 and July 31, 1998, and
(ii) its quarterly report on Form 10-Q and related unaudited financial
statements for the fiscal quarters ended January 31, 2003 and October 31,
2002;
. reviewed certain historical and projected financial and operating data of
(i) Frontier prepared by the management and staff of Frontier with the
management of Frontier and Holly, and (ii) Holly prepared by the
management and staff of Holly with the management of Holly and Frontier;
. discussed the current operations and prospects of Frontier and Holly with
the management and staff of Frontier and Holly;
. reviewed the historical market prices and trading history of the Frontier
common stock and Holly common stock;
. compared recent stock market capitalization indicators for Frontier and
Holly with recent stock market capitalization indicators for certain
other publicly-traded independent refining and marketing companies;
. compared the financial terms of the Frontier merger and the Holly merger
with the financial terms of other transactions that Petrie Parkman deemed
to be relevant;
. discussed current and historical accounting matters and audits of
Frontier and Holly with their respective independent auditors;
. reviewed a draft dated March 27, 2003 of the merger agreement; and
. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as Petrie
Parkman deemed necessary or appropriate.
In connection with its opinion, Petrie Parkman assumed and relied upon,
without assuming any responsibility for, or independently verifying, the
accuracy and completeness of all information supplied or otherwise made
available to it by Frontier and Holly. Petrie Parkman further relied upon the
assurances of the management of Frontier and Holly that they were not aware of
any facts that would make the information, in light of the circumstances in
which it was provided or obtained, incomplete or misleading in any material
respect.
68
With respect to projected financial and operating data, Petrie Parkman
assumed that the data had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Frontier and
Holly, as the case may be, relating to the future financial and operational
performance of Frontier and Holly. With respect to the costs associated with
current and projected future liabilities for environmental matters and the
risks associated with the Longhorn Pipeline, Petrie Parkman assumed that they
had been reasonably assessed on bases reflecting the best currently available
estimates and judgments of the management of Frontier and Holly, as the case
may be. Petrie Parkman did not make an independent evaluation or appraisal of
the assets or liabilities of Frontier, Holly or any of their respective
subsidiaries, nor was Petrie Parkman furnished with any such evaluations or
appraisals. In addition, Petrie Parkman did not assume any obligation to
conduct, nor did Petrie Parkman conduct, any physical inspection of the
facilities of any of Frontier, Holly or their respective subsidiaries.
Petrie Parkman assumed that the merger agreement executed and delivered by
the parties would contain financial and economic terms and otherwise be
substantially similar to the draft merger agreement reviewed by it in
connection with its analysis, and that the transactions will be consummated on
the terms and conditions contemplated in the merger agreement. Petrie Parkman's
opinion does not address the relative merits of the transactions contemplated
by the merger agreement as compared to other business strategies that might be
available to Frontier, nor does it address the underlying business decision of
Frontier to proceed with the transactions contemplated by the merger agreement.
In addition, the opinion assumes the legal, tax, regulatory and accounting
consequences that were disclosed to Petrie Parkman, which has been advised by
the Frontier management that they have received advice on such matters from
qualified persons.
Petrie Parkman's opinion was rendered on the basis of conditions in the
securities markets existing and capable of evaluation on the date of its
opinion and the conditions and prospects, financial or otherwise, of Frontier
and Holly as they were represented to Petrie Parkman as of the date of its
opinion or as they were reflected in the materials and discussions described
above. Petrie Parkman's opinion does not address the prices at which the
Frontier common stock or the Holly common stock will trade following
announcement of the transaction or the prices at which the Parent common stock
will trade following consummation of the transactions contemplated by the
merger agreement.
The following is a summary of the financial analyses performed by Petrie
Parkman and presented to Frontier's board of directors on March 28, 2003 in
connection with the preparation of its opinion dated March 28, 2003.
This summary includes information presented in tabular format. In order to
fully understand these financial analyses, the tables must be read together
with the text accompanying each summary. The tables alone do not constitute a
complete description of these financial analyses. Considering the data set
forth in the tables without considering the full narrative description of these
analyses, including the methodologies and assumptions underlying these
analyses, could create a misleading or incomplete view of these financial
analyses performed by Petrie Parkman.
69
Summary of Analyses. Petrie Parkman performed several analyses to evaluate
the exchange ratio, including analyses of discounted cash flow, comparable
transactions and common stock comparison. The table below summarizes the range
of values for a share of Frontier common stock and Holly common stock implied
by each Petrie Parkman analysis compared to the implied exchange ratio and the
transaction exchange ratio which is based upon the closing price of Frontier
common stock on March 25, 2003 of $17.49 and cash consideration of $10.52. This
summary does not include the underlying assumptions or descriptions of each
analysis. In order to fully understand this summary, please read the
description of each analysis that follows below.
Implied Transaction
Methodology Frontier Holly Exchange Ratio Exchange Ratio
- ----------- ------------ ------------ ---------------- --------------
($/Share) ($/Share) (Holly/Frontier)
Discounted Cash Flow Analysis
Company Case................. $13.40-16.08 $27.58-31.82 1.98-2.06 1.60
Case I....................... $ 9.37-11.58 $25.96-30.39 2.63-2.77 1.60
Case II...................... $14.87-17.94 $31.75-37.02 2.06-2.14 1.60
Case III..................... $20.75-24.70 $37.54-43.64 1.77-1.81 1.60
Comparable Transaction Analysis. $13.76-17.43 $27.55-33.42 1.92-2.00 1.60
Common Stock Comparison Analysis $14.68-18.35 $23.90-28.48 1.55-1.63 1.60
Historical Stock Trading Ratio Analysis. Petrie Parkman compared the average
daily closing share price of Holly common stock to the corresponding average
price of Frontier common stock over various periods from January 1, 2000
through March 25, 2003, and reviewed and analyzed the historical trading ratios
implied by these comparisons. The following table presents the historical
trading ratios from January 1, 2000 through March 25, 2003.
Historical Trading
Ratio (Holly/
Period (Average Trading Ratio) Frontier)
------------------------------ ------------------
1 Week............... 1.26
1 Month.............. 1.29
3 Months............. 1.33
6 Months............. 1.35
1 Year............... 1.19
2 Years.............. 1.21
Since 1/1/00......... 1.12
Period Max........... 1.79
Period Min........... 0.66
These trading ratios were compared to the implied Holly per share purchase
price of $28.01 and the implied exchange ratio of 1.60. The implied Holly per
share purchase price of $28.01 represents cash consideration of $10.52 per
share (based on aggregate cash consideration of $172.5 million and 16.4 million
fully-diluted shares of Holly common stock) and $17.49 representing the per
share closing price of one share of Frontier common stock on March 25, 2003.
Discounted Cash Flow Analysis. Petrie Parkman performed a discounted cash
flow analysis for the purpose of determining equity reference value ranges per
share for Frontier and Holly common stock. In connection with its analysis,
Petrie Parkman calculated the net present value of estimates of future
unlevered, after-tax, free cash flows of Frontier's and Holly's refining,
pipeline and other businesses based on information provided by Frontier and
Holly for the period 2003 through 2022.
70
Petrie Parkman evaluated four scenarios in which the principal variables
were refining margins and inflation escalation factors. The Company Case used
approximate refining margins based on the five year, 1998 through 2002, average
refining margins for each of Frontier's and Holly's refineries as provided by
Holly and Frontier and assumed no inflation in projected future refining
margins, expenses and capital costs. The other three refining margin
scenarios--Case I, Case II and Case III--were based on the five year, 1998
through 2002, average refining margins for each of Frontier's and Holly's
refineries and assumed a two percent escalation in projected future refining
margins, expenses and capital costs.
Case Refining Margin Escalation
---- --------------- ----------
Company Case Company plan None
Case I $0.50/bbl less than 5-year average 2% on margins and costs
Case II 5-year average 2% on margins and costs
Case III $0.50/bbl more than 5-year average 2% on margins and costs
Applying various after-tax discount rates, ranging from 8.0% to 10.0%, to
the after-tax cash flows, assuming a carry-over of existing tax positions,
adjusting for other assets and liabilities, long-term debt and net working
capital and applying pro forma adjustments for recent acquisitions and
divestitures for Frontier and Holly, Petrie Parkman calculated equity reference
value ranges for each pricing case shown in the table below, which were then
used to derive the exchange ratio ranges also shown in the table below as
compared to the implied Holly per share purchase price of $28.01 and the
implied exchange ratio of 1.60.
Company Case Case I Case II Case III
-------------- -------------- -------------- --------------
Frontier Equity Reference Value Range,
$/Share............................. $13.40 - 16.08 $ 9.37 - 11.58 $14.87 - 17.94 $20.75 - 24.70
Holly Equity Reference Value Range,
$/Share............................. $27.58 - 31.82 $25.96 - 30.39 $31.75 - 37.02 $37.54 - 43.64
Implied Exchange Ratio................ 1.98 - 2.06 2.63 - 2.77 2.06 - 2.14 1.77 - 1.81
71
Comparable Transaction Analysis. Petrie Parkman reviewed selected publicly
available information for the following 31 refinery asset and company
acquisition transactions announced between April 1993 and March 2003.
Date Acquiror Target
---- -------- ------
Pending Holly Corporation ConocoPhillips--Woods Cross
3/4/03 Premcor Inc. Williams--Memphis Refinery
5/17/02 Tesoro Valero--Golden Eagle
5/14/02 Giant BP--Yorktown
1/2/02 Valero Energy Corp. Ultramar Diamond Shamrock
12/31/01 Royal Dutch Petroleum Co Sunoco--Yubucoa
9/16/01 Phillips Petroleum Co. Tosco Corp.
9/6/01 Tesoro BP Refining--Salt Lake and North Dakota
7/16/01 Tosco Irish National Petroleum--Whitegate
6/1/01 Valero Energy Corp. Huntway Refinery
1/2/01 Petroplus International NV Phillips-Imperial Petroleum / Teesside Refinery
9/8/00 Tosco BP--Alliance
8/31/00 UDS Tosco--Avon
8/22/00 Alon Israel Oil Company Total Fina Elf--Big Spring
6/1/00 Tosco Equilon--Wood River
5/15/00 Valero Exxon--Benicia
11/17/99 Frontier Oil Equilon--El Dorado
9/16/98 Valero Mobil Oil--Paulsboro
8/10/98 Clark BP Oil--Lima
8/10/98 Tesoro Shell--Anacortes
5/29/98 Tesoro BHP Petroleum Americas
5/1/97 Valero Basis--Texas City, Houston, Kratz Springs
12/3/96 Ultramar Diamond Shamrock
2/2/96 Tosco BP Oil--Marcus Hook
10/5/95 Giant Gary-Williams--Bloomfield
8/8/95 Koch Kerr-McGee--Corpus Christi
8/3/95 Gary-Williams Kerr-McGee--Wynnewood
2/27/95 Clark Chevron--Port Arthur
8/4/94 Sun Co. Chevron--Philadelphia
12/28/93 Tosco BP Oil--Ferndale
4/8/93 Tosco Exxon--Bayway
Based on a review of (x) the purchase price (refinery value plus inventory
value) multiples of the latest twelve months ("LTM") and 2000 through 2002
fiscal year average earnings before interest, taxes, depreciation, depletion
and amortization ("EBITDA"), and (y) refinery value per barrel of capacity and
Nelson Complexity Capacity for the acquired assets in each transaction, Petrie
Parkman determined benchmark ranges of purchase prices to Frontier's and
Holly's corresponding refinery measures in order to yield enterprise reference
value ranges for Frontier's and Holly's refinery assets.
72
The maximum, mean, median and minimum implied multiples in these
transactions are set forth below. The table below also includes benchmark
multiple ranges selected by Petrie Parkman for both Holly and Frontier measures
based on a review of the implied multiples in the selected transactions.
Implied Multiples in Selected
Transactions
------------------------------ Benchmark
Maximum Mean Median Minimum Range
------- ------ ------ ------- ------------
Purchase Price / LTM EBITDA.......................... 10.0x 5.2x 4.7x 2.1x 4.0-5.0x
Purchase Price / 2000-2002 Fiscal Year
Average EBITDA..................................... -- -- -- -- 4.0-5.0x
Refinery Value / Capacity (thousand bpd)............. $5,625 $1,922 $1,545 $326 $1,500-2,000
Refinery Value / Nelson Complexity Capacity (thousand
bpd)............................................... $1,757 $ 294 $ 180 $ 45 $ 175-250
Petrie Parkman multiplied the benchmark multiples set forth above to
Frontier and Holly's refining measures and, after adjusting for other assets
and liabilities, determined composite enterprise reference value ranges for the
refining businesses of both Frontier and Holly.
73
In the case of Holly, Petrie Parkman analyzed its pipeline assets using two
methodologies--comparable transaction analysis and common stock comparison
analysis. For its comparable transaction analysis, Petrie Parkman reviewed
selected publicly available information for the following 24 pipeline asset
transactions announced between March 2001 and December 2002.
Date Acquiror Target
---- -------- ------
12/22/02 Southern Union Co. & AIG Highstar Capital Panhandle Eastern Pipeline Company
11/12/02 Sunoco Logostics Partners L.P. West Texas Gulf Pipeline Company
10/31/02 Sunoco Logostics Partners L.P Interests in Various Petroleum Products
Pipelines (Unocal)
10/16/02 ONEOK Inc. Gas Distribution Assets (Southern Union)
10/03/02 Buckeye Partners, L.P Interest in Colonial Pipeline
09/23/02 Enbridge Energy Partners, L.P. Enbridge Midcoast Energy Co
09/16/02 AIG Highstar Capital, L.P. Central Pipeline
08/26/02 Williams Energy Partners L.P. Refined Petroleum Products Pipeline
08/01/02 Enterprise Products Partners L.P. Mapletree LLC and Oaktree LLC
07/29/02 MidAmerican Energy Holdings Northern Natural Pipeline Company
05/30/02 El Paso Energy Partners San Juan Assets (El Paso Corp.)
05/28/02 TEPPCO Partners, L.P. Val Verde Gathering System
05/06/02 Plains All American Pipeline, LP Shell Pipeline Company
04/11/02 Williams Energy Partners L.P. Williams Pipeline Company LLC
03/27/02 MidAmerican Energy Holdings Kern River Gas Transmission Company
02/19/02 El Paso Energy Partners EPN Holding Co.
01/31/02 Dynegy Inc. Northern Natural Pipeline Company
01/09/02 TEPPCO Partners, L.P. Chaparral Pipeline / Quanah Pipeline
12/17/01 Kinder Morgan Energy Partners, L.P. Tejas Gas, LLC
11/27/01 Undisclosed South Texas, Gulf Coast Gathering Assets
09/20/01 Duke Energy Corp. Westcoast Energy Inc.
09/10/01 TEPPCO Partners, L.P. Jonah Gas Gathering Company
07/18/01 Undisclosed Gulf of Mexico Gathering Assets
03/16/01 Enbridge Inc. Midcoast Energy Resources Inc.
The maximum, mean, median and minimum implied multiples in these
transactions are set forth below. The table below also includes benchmark
multiple ranges selected by Petrie Parkman for Holly measures based on a review
of the implied multiples in the selected transactions.
Implied Multiples in Selected
Transactions
--------------------------- Benchmark
Maximum Mean Median Minimum Range
------- ---- ------ ------- ---------
Total Investment / LTM EBITDA 14.9x 8.6x 8.2x 4.8x 7.0-8.0x
Petrie Parkman applied the benchmark multiples to Holly's pipeline LTM
EBITDA to determine an enterprise reference value range for Holly's pipeline
business.
74
For its common stock comparison analysis, Petrie Parkman calculated the
current yields for the following 16 publicly traded master limited partnerships
using market prices as of March 25, 2003.
. Buckeye Partners, . Martin Midstream
L.P. Partners, L.P.
. Crosstex Energy, . Northern Border
L.P. Partners, L.P.
. El Paso Energy . Pacific Energy
Partners, L.P. Partners, L.P.
. Enbridge Energy . Plains All American
Partners, L.P. Pipeline, L.P.
. Enterprise Products . Sunoco Logistics
Partners L.P. Partners L.P.
. Kaneb Pipe Line . TEPPCO Partners,
Partners, L.P. L.P.
. Kinder Morgan
Energy Partners,
L.P. . Valero L.P.
. Markwest Energy . Williams Energy
Partners, L.P. Partners L.P.
The maximum, mean, median and minimum yields for these 16 companies are set
forth below. The table below also includes the benchmark range of yields
selected by Petrie Parkman for Holly's pipeline business based on a review of
the comparable yields.
Comparable Company Yields
-------------------------- Benchmark
Maximum Mean Median Minimum Range
------- ---- ------ ------- ---------
Yield 10.8% 8.3% 8.2% 6.7% 9.0-10.0%
Petrie Parkman applied the benchmark yields to Holly's distributable cash
flow from its pipeline assets and adjusted for other assets and transaction
costs to determine an enterprise reference value range for Holly's pipeline
business. Based on a review of the comparable transaction analysis and common
stock comparison analysis, Petrie Parkman determined a composite enterprise
reference value range for Holly's pipeline business. Petrie Parkman adjusted
the composite refinery and pipeline enterprise reference value ranges for other
assets and liabilities, long-term debt and net working capital for Frontier and
Holly to calculate equity reference value ranges of $13.76 to $17.43 per share
for Frontier and $27.55 to $33.42 for Holly, which were then used to derive an
implied exchange ratio range of 1.92 to 2.00 as compared with the implied Holly
per share purchase price of $28.01 and the implied exchange ratio of 1.60.
Common Stock Comparison Analysis. Using publicly available information,
Petrie Parkman calculated market capitalization multiples of 2003 and 2004
estimated net income and LTM discretionary cash flow, and 2003 and 2004
estimated discretionary cash flow for seven publicly traded companies for
Frontier and seven publicly traded companies for Holly. Petrie Parkman also
calculated enterprise value multiples of LTM EBITDA, and 2003 and 2004
estimated EBITDA for the seven publicly traded companies for Frontier and
Holly. In each case, estimated 2003 and 2004 net income, discretionary cash
flow and EBITDA were based on Petrie Parkman's research analyst estimates.
Petrie Parkman defined market value for purposes of this analysis as the market
value of common equity as of March 25, 2003. Petrie Parkman obtained the
enterprise value of each company by adding the market value of its common
equity plus the aggregate amount of its long-term debt plus the market value of
its preferred stock (or if not publicly traded, liquidation or book value) plus
the book value of its minority interest in other companies, and subtracting
from that amount net working capital.
Petrie Parkman determined that the following companies were relevant to an
evaluation of Frontier based upon Petrie Parkman's view of the comparability of
the operating and financial characteristics of these companies to those of
Frontier:
. Ashland Inc. . Sunoco, Inc.
. Giant Industries, . Tesoro Petroleum
Inc. Corporation
. Holly Corporation . Valero Energy
Corporation
. Premcor Inc.
75
The maximum, mean, median and minimum multiples for these seven companies
are set forth below. The table also includes benchmark multiple ranges selected
by Petrie Parkman based on a review of the comparable company multiples.
Comparable Company Multiples
--------------------------- Benchmark
Measure Maximum Mean Median Minimum Ranges
------- ------- ---- ------ ------- ---------
Market Value / 2003 Estimated Net Income............. 10.8x 8.2x 8.0x 4.8x 8.0-10.0x
Market Value / 2004 Estimated Net Income............. 18.6x 9.3x 8.1x 4.8x 8.0-9.5x
Market Value / LTM Discretionary Cash Flow........... 23.6x 10.8x 8.4x 1.8x 8.0-9.0x
Market Value / 2003 Estimated Discretionary Cash Flow 5.0x 3.5x 3.8x 0.8x 4.0-5.0x
Market Value / 2004 Estimated Discretionary Cash Flow 4.6x 3.4x 4.2x 0.7x 4.0-4.5x
Enterprise Value / LTM EBITDA........................ 15.7x 10.2x 9.7x 6.3x 10.0-12.5x
Enterprise Value / 2003 Estimated EBITDA............. 5.3x 4.6x 4.6x 4.0x 4.5-5.0x
Enterprise Value / 2004 Estimated EBITDA............. 5.6x 4.5x 4.6x 3.4x 4.0-5.0x
Petrie Parkman applied the benchmark multiples to Frontier's 2003 and 2004
estimated net income, and January 31, 2003 LTM discretionary cash flow, 2003
and 2004 estimated discretionary cash flow and LTM EBITDA and 2003 and 2004
estimated EBITDA and adjusted for long-term debt and net working capital, where
appropriate, to determine enterprise reference value ranges for Frontier.
Petrie Parkman determined that the following companies were relevant to an
evaluation of Holly based on Petrie Parkman's view of the comparability of the
operating and financial characteristics of these companies to those of Holly:
. Ashland Inc. . Sunoco, Inc.
. Frontier Oil . Tesoro Petroleum
Corporation Corporation
. Giant Industries, . Valero Energy
Inc. Corporation
. Premcor Inc.
The maximum, mean, median and minimum multiples for these seven companies
are set forth below. The table also includes benchmark multiple ranges selected
by Petrie Parkman based on a review of the comparable company multiples.
Comparable Company Multiples
--------------------------- Benchmark
Measure Maximum Mean Median Minimum Ranges
------- ------- ---- ------ ------- ---------
Market Value / 2003 Estimated Net Income........ 10.8x 8.5x 8.0x 4.8x 8.0-10.0x
Market Value / 2004 Estimated Net Income........ 18.6x 9.4x 8.1x 4.8x 8.0-9.5x
Market Value / LTM Discretionary Cash Flow...... 23.6x 11.7x 8.5x 1.8x 8.0-9.0x
Market Value / 2003 Estimated Discretionary Cash
Flow.......................................... 6.2x 3.6x 3.8x 0.8x 4.0-5.0x
Market Value / 2004 Estimated Discretionary Cash
Flow.......................................... 5.9x 3.6x 4.2x 0.7x 4.0-5.0x
Enterprise Value / LTM EBITDA................... 15.7x 10.7x 10.4x 6.3x 10.0-12.5x
Enterprise Value / 2003 Estimated EBITDA........ 5.3x 4.7x 4.7x 4.0x 4.5-5.0x
Enterprise Value / 2004 Estimated EBITDA........ 5.6x 4.6x 4.6x 3.6x 4.0-5.0x
Petrie Parkman applied the benchmark multiples to Holly's 2003 and 2004
estimated net income, and January 31, 2003 LTM discretionary cash flow, 2003
and 2004 estimated discretionary cash flow and LTM EBITDA and 2003 and 2004
estimated EBITDA and adjusted for long-term debt and net working capital, where
appropriate, to determine enterprise reference value ranges for Holly.
After selecting composite enterprise reference value ranges for Frontier and
Holly and then adjusting for the long-term debt and working capital of Frontier
and Holly, Petrie Parkman calculated equity reference value
76
ranges of $14.68 to $18.35 per share for Frontier and $23.90 to $28.48 per
share for Holly to derive an implied exchange ratio reference range of 1.55 to
1.63 as compared to the implied Holly per share purchase price of $28.01 and
the implied exchange ratio of 1.60.
Pro Forma Analysis. Petrie Parkman analyzed the pro forma financial effects
of the transactions contemplated by the merger agreement as of December 31,
2002 and for the years ended 2003 and 2004 based on projections provided by
Frontier and Holly. In addition to the analysis of the pro forma financial
effects based on Frontier and Holly projections, Petrie Parkman also analyzed
the pro forma financial effects of the transaction based on four case
sensitivities consistent with the three refining margin scenarios utilized in
the discounted cash flow analysis (Cases I, II and III) as well as Petrie
Parkman's equity research analyst estimates.
For purposes of its analysis, Petrie Parkman assumed $5 million of pre-tax
synergies in each of 2003 and 2004. This analysis used balance sheets for
Frontier as of December 31, 2002 and Holly as of January 31, 2003 and a
Frontier stock price of $17.49 per share, the closing price on March 25, 2003.
Using company projections provided by Holly and Frontier, the analysis
indicated that the transaction would be accretive to Parent's 2003 and 2004
estimated earnings per share and discretionary cash flow per share. This
analysis also indicated that the transaction would result in slightly lower
debt to debt plus book equity capitalization than for Frontier on a stand-alone
basis.
Analysis of the four sensitivity cases indicated the transaction would be
(i) accretive to Parent's 2003 and 2004 estimated discretionary cash flow per
share for each of the four sensitivity cases, (ii) would be dilutive to
Parent's 2003 estimated earnings for each of the four sensitivity cases, (iii)
would be accretive to Parent's 2004 estimated earnings for each of Cases I, II
and III, and (iv) would be dilutive to Parent's 2004 estimated earnings per
share for the Petrie Parkman equity research analyst estimates sensitivity. All
four sensitivity cases indicated that the transaction would result in lower
debt to debt plus book equity capitalization for Parent than for Frontier on a
stand-alone basis.
The description set forth above constitutes a summary of the analyses
employed and factors considered by Petrie Parkman in rendering its opinion to
Frontier's board of directors. Petrie Parkman believes that its analyses must
be considered as a whole and that selecting portions of its analyses, without
considering all analyses and factors, could create an incomplete view of the
process underlying its opinion. The preparation of a fairness opinion is a
complex, analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and is not necessarily
susceptible to partial analysis or summary description.
In arriving at its opinion, Petrie Parkman did not attribute any particular
weight to any analysis considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis. Any estimates resulting
from the analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth in this document.
In addition, analyses based on forecasts of future results are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by these analyses. Estimates of reference values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because the estimates are inherently
subject to uncertainty and based upon numerous factors or events beyond the
control of the parties and Petrie Parkman, Petrie Parkman cannot assure that
the estimates will prove to be accurate.
No company used in the analyses of other publicly traded companies nor any
transaction used in the analyses of comparable transactions is identical to
Frontier, Holly or the proposed transactions contemplated by the merger
agreement. Accordingly, these analyses must take into account differences in
the financial and operating characteristics of the selected publicly traded
companies and differences in the structure and timing of the selected
transactions and other factors that would affect the public trading values and
acquisition values of the companies considered.
77
Petrie Parkman, as part of its investment banking business, is continually
engaged in the evaluation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
evaluations for corporate and other purposes. Frontier's board of directors
selected Petrie Parkman as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the transactions contemplated by the
merger agreement. During the past two years, certain of Petrie Parkman's
professionals have provided investment banking and financial services to
Frontier and Holly; however, such professionals did not receive any
compensation in connection with such services. In the ordinary course of
business, Petrie Parkman or its affiliates may trade in the debt or equity
securities of Frontier or Holly for its account or for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to the engagement letter between Petrie Parkman and Frontier,
Frontier agreed to pay Petrie Parkman a fee of $675,000 in connection with
rendering its fairness opinion, of which $50,000 was paid upon the execution of
the engagement letter, $300,000 was paid upon notification to Frontier by
Petrie Parkman that it was in a position to render the opinion and $325,000 of
which will be payable upon consummation of the merger. In addition, Frontier
agreed to reimburse Petrie Parkman for its reasonable out-of-pocket expenses
related to its rendering of a fairness opinion, including reasonable fees and
expenses of counsel. Frontier also agreed to indemnify Petrie Parkman and its
affiliates, the respective directors, officers, partners, agents and employees
of Petrie Parkman, and controlling persons for certain losses, claims, damages,
liabilities and expenses related to or arising out of its engagement in this
respect.
Interests of Holly Directors and Management in the Merger
In considering the recommendation of Holly's board of directors to vote for
the approval and adoption of the merger agreement, Holly stockholders should be
aware that members of Holly's board of directors and members of Holly's
management have agreements or arrangements that provide them with interests in
the merger that differ from or are in addition to those of Holly stockholders.
Holly's board of directors was aware of these agreements and arrangements
during its deliberations on the merits of the merger and in determining to
recommend to the Holly stockholders that they vote for the approval and
adoption of the merger agreement.
The following table lists those directors and executive officers of Holly
who are expected to receive compensatory payments or benefits in connection
with the merger and the expected amounts of these payments. This table should
be read together with the discussion that follows for a complete understanding
of the interests of Holly's directors and management in the merger and the
nature of compensatory payments or benefits that are expected to be paid to
Holly's executive officers and directors.
Phantom Share
Cashout Severance Consulting Total
Name of Executive Officer or Director Payments(1) Payments Payments Payments
- ------------------------------------- ------------- --------- ---------- --------
Leland S. Brake................ $ 8,555.97 --
Matthew P. Clifton............. $ 76,433.33 $[ ]
W. John Glancy................. -- $[ ]
William J. Gray................ $ 55,328.09 --
Marcus R. Hickerson............ $ 55,328.09 --
John A. Knorr.................. $ 22,245.52 --
Thomas K. Matthews, II......... $ 55,328.09 --
Robert G. McKenzie............. $ 55,328.09 --
Masoud Mirbagheri.............. $ 17,682.34 --
C. Lamar Norsworthy, III....... $565,237.70 --
Paul L. Stoffel................ $ 55,328.09 --
=========== ======== ====== ========
Total......................... $966,795.31 $ $ $
- --------
(1) Cancellation payments are based upon Holly common stock value of $28.5199
per share. This value is the average of the volume weighted sales prices
per share for June 11, 2003, June 12, 2003, June 13, 2003, June 16, 2003,
and June 17, 2003. These are the Holly common stock values that would have
been used if the merger had been completed on June 20, 2003.
78
Governance Structure and Management Positions
The merger agreement and Parent's amended and restated bylaws provide for
the composition of Parent's board of directors, certain committees of Parent's
board of directors and selected Parent executive officer positions for the
period from the completion of the merger until after the 2005 annual meeting of
stockholders of Parent. See "Directors and Management Following the Merger"
beginning on page 113.
Stock Options
Each option to purchase shares of Holly common stock granted under a Holly
stock option plan which is outstanding immediately prior to the effective time
of the merger, whether vested or unvested, will be converted into an option to
purchase shares of Parent common stock on the same terms and conditions as were
applicable under such Holly stock option plan while taking into account any
changes in the terms of the awards, including accelerated vesting, provided for
in the Holly stock option plan or any award agreements by reason of the merger.
See "The Merger Agreement--Effect on Awards Outstanding under Stock Plans"
beginning on page 102 for a more detailed discussion of the treatment of
Holly's stock options under the merger agreement.
Phantom Share Surrender Agreements
Holly has outstanding phantom share awards previously made to certain
employees and directors pursuant to supplemental payment agreements and/or the
Holly Corporation ESOP Restoration Plan. The phantom share awards entitle
participants to supplemental payments equal to the product of the number of
phantom shares subject to the employee's or director's agreement or plan
account, and the value of Holly's common stock. Each of the phantom share
awards, whether vested or unvested, which is outstanding immediately prior to
the effective time of the merger will be cancelled for a cash payment in
connection with the merger. See "The Merger Agreement--Effect on Awards
Outstanding under Stock Plans" beginning on page 103 for a more detailed
discussion of the treatment of Holly stock-based awards other than Holly stock
options under the merger agreement.
Consulting Agreements
Holly has entered into a consulting agreement with Matthew P. Clifton, a
director and President of Holly, in connection with the merger that provides
for certain rights and obligations of Mr. Clifton upon the completion of the
merger, including a monthly consulting fee to Mr. Clifton of $18,500 and a
severance payment equal to 250% of Mr. Clifton's base salary and annual
performance bonus in effect immediately prior to the merger. Under the
agreement, all stock options held by Mr. Clifton become fully exercisable on
the date of the merger and will expire if unexercised one year after the date
of the merger. The agreement entitles Mr. Clifton to reimbursements for normal
expenses incurred in the course of his services, continued medical coverage and
continued indemnification protection equivalent to that protection held by
Mr. Clifton while he was an officer of Holly. Pursuant to the agreement, Mr.
Clifton agreed to perform consulting services of approximately 20 hours per
week as reasonably requested by Holly through December 2005. The agreement
requires that Mr. Clifton not disclose confidential information obtained by him
without the written consent of Holly and requires Mr. Clifton to refrain from
competition with Holly for three years from the date of the merger. Both Mr.
Clifton and Holly released each other and in the case of Mr. Clifton, parties
related to Holly, from any and all claims, causes of actions, and damages which
a party may have against the other party as of the date of the execution of the
agreement. The agreement reduces any cash payments made to Mr. Clifton if any
of the payments made pursuant to the agreement would result in an excess
parachute payment for purposes of Section 280G of the Internal Revenue Code. If
the merger is not consummated before March 29, 2004, but Holly undergoes a
change in control, other than as is contemplated in the merger agreement,
before March 29, 2004, Mr. Clifton's agreement will provide him benefits and
rights equivalent to those provided to the other Holly executive officers
pursuant to the employment agreements as described below under "Employment
Agreements--Executives" beginning on page 80.
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Holly has entered into a consulting agreement with W. John Glancy, a
director and Senior Vice President and General Counsel of Holly, in connection
with the merger that provides for certain rights and obligations of Mr. Glancy
upon the completion of the merger, including a monthly fee to Mr. Glancy of
$26,500 per month from the date of the merger through April 2004 and $13,000
per month from May 2004 through April 2007 and a severance payment equal to
200% of Mr. Glancy's base salary and annual performance bonus in effect
immediately prior to the merger. Under the agreement, all stock options held by
Mr. Glancy will become fully exercisable at the date of the merger and will
expire if unexercised one year from the date of the merger. The agreement
entitles Mr. Glancy to reimbursements for normal expenses incurred in the
course of his services, continued medical coverage and continued
indemnification protection equivalent to that protection held by Mr. Glancy
while he was an officer of Holly. Pursuant to the agreement, Mr. Glancy agreed
to be employed as a consultant to Holly to perform services as reasonably
requested by Holly on an essentially full-time basis through April 2004 and for
80 hours per month from May 2004 through April 2007. The agreement requires
that Mr. Glancy not disclose confidential information obtained by him without
the written consent of Holly and requires Mr. Glancy to refrain from
competition with Holly through April 2007. Both Mr. Glancy and Holly released
each other and, in the case of Mr. Glancy, parties related to Holly, from any
and all claims, causes of action, and damages which a party may have against
the other party as of the date of the execution of the agreement. The agreement
reduces any cash payments made to Mr. Glancy if any of the payments made
pursuant to the agreement would result in an excess parachute payment for
purposes of Section 280G of the Internal Revenue code. If the merger is not
consummated before March 29, 2004, Mr. Glancy's agreement will provide him
benefits and rights equivalent to those provided to the other Holly executive
officers pursuant to the employment agreements as described below under
"Employment Agreements--Executives" beginning on page 80.
Employment Agreements--Executives
Holly has entered into employment agreements with six of its executive
officers in connection with the merger that are substantially similar to
agreements between Frontier and its executive officers. This group of executive
officers includes David G. Blair, John A. Knorr, Lamar Norsworthy, Bruce R.
Shaw, James G. Townsend and Gregory A. White. The agreements are designed to
assure Holly and the executives of continuity of management in the event of an
actual or threatened change in control of Holly. For purposes of the
agreements, the merger constitutes a change in control. Pursuant to the
agreements, the executives accrue certain rights as of the earlier of the date
prior to the date of a change in control or the date the executive's employment
is terminated in anticipation of a change in control. The agreements will
expire and become null and void if a change in control of Holly does not occur
prior to March 29, 2004. In addition, an executive's agreement will terminate
and become null and void if the executive ceases to be an executive officer of
Holly prior to a change in control by reason of death, disability, discharge or
resignation, except if the executive is terminated in anticipation of the
change in control.
Upon a change in control, an executive's accrued rights will continue for a
period of three years unless terminated prior to such time as detailed below.
During this three year period, the executive will be guaranteed a base salary
at a rate no less than the rate in effect immediately prior to the change in
control with increases as are made from time to time in accordance with Holly's
regular practices, an annual performance bonus determined by percentages of the
base salary (75% for Mr. Norsworthy, 40% for Messrs. Knorr and Shaw and 35% for
Messrs. Blair, Townsend and White), continued participation in compensation
arrangements in which the executive participated prior to the change in
control, perquisites at least equivalent to those received by the executive
prior to the change in control, and continued employee benefit plan
participation for the executive and his dependents. In the event of the
executive's death during such three year period, the executive or his legal
representative, is entitled to salary and bonus continuation for the period
ending as of the close of business on the last day of the twelfth month
following the month in which the death occurs. If the executive's termination
is due to a disability, the executive will be entitled to all of the rights and
benefits to which he was entitled prior to the termination; however, these
rights will continue only until the close of business on the last day of the
six-month period beginning on the date on which the disability occurred.
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In the event of a termination of an executive by Holly after a change in
control or in anticipation of a change in control for any reason other than due
to death, disability or for cause, or in the case of a resignation by the
executive due to
. a change in the executive's status as a principal officer of Holly,
. a significant change in the nature and scope of the executive's
authorities, powers, functions or duties or a reduction in compensation
whereby such change or reduction is not remedied,
. a good faith determination by the executive that a change in control
renders him unable to carry out the authorities, powers and functions or
duties attached to his position,
. a breach by Holly of any provision of the executive's employment
agreement, or
. a liquidation, dissolution, consolidation or merger of Holly whereby the
successor does not assume the duties and obligations accruing to Holly
under the employment agreement,
the executive will continue to be entitled to salary and bonus for the three
year period following termination. In exchange for any employee benefits and
perquisites an executive would have received during the remainder of such three
year period, the executive will be entitled to a payment in an amount no less
than 30% of the total amount of the unpaid base salary payable pursuant to the
executive's employment agreement for the remainder of such three year period.
In the case of such termination or resignation, an executive will also be
entitled to a cash out payment in cancellation of any outstanding and
unexercised stock options, whether or not the stock options were exercisable at
the time. The agreements also entitle the executives to gross up payments if
the payments made pursuant to the employment agreements or any other agreement
entered into by and between one of the executives and Holly result in
"parachute payment" excise taxes pursuant to the Internal Revenue Code.
In consideration of the rights and benefits owed to the executives pursuant
to the agreements, the executives agree not to disclose any confidential
information, obtained in connection with the executive's employment, during the
executive's employment or at any time thereafter.
Severance Arrangements
Pursuant to the Merger Agreement, Holly may enter into severance
arrangements with employees that it selects providing for severance payments
upon termination either prior to or following completion of the merger. The
total value of the benefits to be received pursuant to the severance
arrangements and the consulting agreement with Matthew P. Clifton, including
any cash paid, property or assets transferred, employee benefits provided, and
acceleration of any right or payment, may not exceed $5,000,000 in the
aggregate. The individuals who are parties to such agreements or subject to
such arrangements will waive their rights to such payments to the extent that
any payment would constitute an "excess parachute payment" for purposes of
Section 280G of the Internal Revenue Code.
Registration Rights Agreement
Parent has entered into a registration rights agreement with the following
directors, officers and stockholders of Holly and Frontier: with respect to
Holly, C. Lamar Norsworthy, III, Matthew P. Clifton, W. John Glancy, William J.
Gray, Marcus R. Hickerson, Thomas K. Matthews, II, Robert G. McKenzie,
Jack P. Reid, Paul T. Stoffel, Nona Barrett, Betty Simmons East Texas Trust,
Margaret Simmons East Texas Trust, Suzanne Simmons East Texas Trust, Betty
Simmons Nueces County Trust, Margaret Simmons Nueces County Trust, Suzanne
Simmons Nueces County Trust, NBN Capital Limited Partnership, and NBN Asset
Management Company, L.L.C; and with respect to Frontier, James R. Gibbs, Julie
H. Edwards, W. Reed Williams, Douglas Y. Bech, G. Clyde Buck, T. Michael
Dossey, James H. Lee, Paul B. Loyd, Jr., Carl W. Schafer and James S. Palmer.
See "Other Agreements--Registration Rights Agreement" beginning on page 111 for
a summary of the material terms of the registration rights agreement.
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Indemnification and Insurance
The merger agreement includes provisions relating to indemnification and
insurance for directors, officers and employees of Frontier and Holly. See "The
Merger Agreement--Indemnification and Insurance" on page 107.
Interests of Frontier Directors and Management in the Merger
In considering the recommendation of Frontier's board of directors to vote
for the approval and adoption of the merger agreement, Frontier stockholders
should be aware that members of Frontier's board of directors and members of
the Frontier management team have agreements or arrangements that provide them
with interests in the merger that differ from or are in addition to those of
other Frontier stockholders. Frontier's board of directors was aware of these
agreements and arrangements during its deliberations on the merits of the
merger and in determining to recommend to the Frontier stockholders that they
vote for the approval and adoption of the merger agreement.
Governance Structure and Management Positions
The merger agreement and Parent's amended and restated bylaws provide for
the composition of Parent's board of directors, certain committees of Parent's
board of directors and selected executive officer positions of Parent for the
period from the completion of the merger until the 2005 annual meeting of
stockholders of Parent. See "Directors and Management Following the Merger"
beginning on page 114.
Employment Agreements--Executives
Frontier had previously entered into employment agreements with seven of its
executive officers--James R. Gibbs, Julie H. Edwards, W. Reed Williams, J.
Currie Bechtol, Jon D. Galvin, Gerald B. Faudel and Nancy J. Zupan. The
agreements are designed to assure Frontier and the executives of continuity of
management in the event of an actual or threatened change in control of
Frontier. For purposes of the agreements, the initial filing of the
registration statement of which this joint proxy statement/prospectus is a part
constituted a change in control.
Upon a change in control, an executive's accrued rights will continue for a
period of three years unless terminated prior to such time as detailed below.
During this three year period, the executive will be guaranteed a base salary
at a rate no less than the rate in effect immediately prior to the change in
control with increases as are made from time to time in accordance with
Frontier's regular practices, an annual performance bonus determined by
percentages of the base salary (75% for Mr. Gibbs, 50% for Ms. Edwards and
Messrs. Williams and Galvin, 40% for Ms. Zupan and 35% for Messrs. Bechtol and
Faudel), continued participation in compensation arrangements in which the
executive participated prior to the change in control, perquisites at least
equivalent to those received by the executive prior to the change in control,
and continued employee benefit plan participation for the executive and his
dependents. Also during the three-year period, the executive will not be
required to change the location of his or her employment or residence and will
not be required to travel more than 60 working days in any calendar year nor
more than 20 consecutive days at any one time. In the event of the executive's
death during such three year period, the executive or his legal representative,
is entitled to salary and bonus continuation for the period ending as of the
close of business on the last day of the twelfth month following the month in
which the death occurs. If the executive's termination is due to a disability,
the executive will be entitled to all of the rights and benefits to which he or
she was entitled prior to the termination; however, these rights will continue
only until the close of business on the last day of the six-month period
beginning on the date on which the disability occurred.
In the event of a termination of an executive by Frontier after a change in
control or in anticipation of a change in control for any reason other than due
to death, disability, or for cause or in the case of a resignation by the
executive due to
. a change in the executive's status as a principal officer of Frontier,
82
. a significant change in the nature and scope of the executive's
authorities, powers, functions or duties or a reduction in compensation
whereby such change or reduction is not remedied,
. a good faith determination by the executive that a change in control
renders him or her unable to carry out the authorities, powers and
functions or duties attached to his position,
. a breach by Frontier of any provision of the executive's employment
agreement, or
. a liquidation, dissolution, consolidation or merger of Frontier whereby
the successor does not assume the duties and obligations accruing to
Frontier under the employment agreement,
the executive will continue to be entitled to salary and bonus for the three
year period following termination. In exchange for any employee benefits and
perquisites an executive would have received during the remainder of such three
year period, the executive will be entitled to a payment in an amount no less
than 30% of the total amount of the unpaid base salary payable pursuant to the
executive's employment agreement for the remainder of such three year period.
In the case of such termination or resignation, an executive will also be
entitled to a cash out payment in cancellation of any outstanding and
unexercised stock options, whether or not the stock options were exercisable at
the time. The agreements also entitle the executives to gross up payments if
the payments made pursuant to the employment agreements or any other agreement
entered into by and between one of the executives and Frontier result in
"parachute payment" excise taxes pursuant to the Internal Revenue Code.
In consideration of the rights and benefits owed to the executives pursuant
to the agreements, the executives agree not to disclose any confidential
information, obtained in connection with the executive's employment, during the
executive's employment or at any time thereafter.
Frontier Stock Options and Stock-Based Awards
Under the terms of the Frontier stock plans, unvested stock options with
respect to 1,308,399 shares of Frontier common stock and 205,629 unvested
shares of restricted stock would have become vested as a result of the filing
by Frontier with the SEC of a current report on Form 8-K on April 2, 2003
regarding entering into the merger agreement. Certain Frontier employees,
including all seven executive officers--Mr. Gibbs, Ms. Edwards, Mr. Williams,
Mr. Bechtol, Mr. Galvin, Mr. Faudel and Ms. Zupan--have executed written
agreements waiving any accelerated vesting as to an aggregate of 947,750 stock
options and 205,629 shares of restricted stock as a result of the merger
agreement or the transactions contemplated by the merger agreement. Such stock
options and restricted shares account for approximately 72% of the total
outstanding stock options and 100% of the total outstanding restricted shares,
respectively, that would have accelerated vesting. The waiver agreements,
however, do not apply to any payments with respect to stock options in the
event of a termination under the employment agreements with executive officers
as described above.
Registration Rights Agreement
Parent has entered into a registration rights agreement with the following
directors, officers and stockholders of Frontier and Holly: with respect to
Frontier, James R. Gibbs, Julie H. Edwards, W. Reed Williams, Douglas Y. Bech,
G. Clyde Buck, T. Michael Dossey, James H. Lee, Paul B. Loyd, Jr.,
Carl W. Schafer and James S. Palmer; and with respect to Holly, C. Lamar
Norsworthy, III, Matthew P. Clifton, W. John Glancy, William J. Gray, Marcus R.
Hickerson, Thomas K. Matthews, II, Robert G. McKenzie, Jack P. Reid, Paul T.
Stoffel, Nona Barrett, Betty Simmons East Texas Trust, Margaret Simmons East
Texas Trust, Suzanne Simmons East Texas Trust, Betty Simmons Nueces County
Trust, Margaret Simmons Nueces County Trust, Suzanne Simmons Nueces County
Trust, NBN Capital Limited Partnership, and NBN Asset Management Company,
L.L.C. See "Other Agreements--Registration Rights Agreement" beginning on page
110 for a summary of the material terms of the registration rights agreement.
83
Indemnification and Insurance
The merger agreement includes provisions relating to indemnification and
insurance for directors, officers and employees of Holly and Frontier. See "The
Merger Agreement--Indemnification and Insurance" on page 107.
Listing of Parent Capital Stock
It is a condition to the completion of the merger that Parent common stock
issuable to Holly and Frontier stockholders pursuant to the merger agreement be
approved for listing on the New York Stock Exchange. An initial application for
listing was submitted to the New York Stock Exchange on July 7, 2003.
Dividends
Pursuant to the merger agreement, each of Holly and Frontier are prohibited
from making any changes to their dividend policies prior to the completion of
the merger without the other's consent. The most recent quarterly dividend
declared by Holly was $0.11 per share payable on July 1, 2003. Holly's current
dividend is $0.11 per share of Holly common stock on a quarterly basis. The
most recent quarterly dividend declared by Frontier was $0.05 per share payable
on April 14, 2003. Frontier's current dividend is $0.05 per share of Frontier
common stock on a quarterly basis.
Parent's management currently expects to pay quarterly dividends after the
merger at the same rate as that currently paid by Frontier. The payment of
dividends by Parent, however, will be subject to approval and declaration by
Parent's board of directors, and will depend on a variety of factors, including
business, financial and regulatory considerations.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of the anticipated material U.S.
federal income tax consequences of the merger to Parent, Frontier, Holly,
holders of Frontier common stock and holders of Holly common stock and the
anticipated material U.S. federal income tax consequences of the ownership of
the contingent value rights. In connection with the filing of the registration
statement of which this document is a part, Andrews & Kurth L.L.P. has provided
an opinion to Frontier and Vinson & Elkins L.L.P. has provided an opinion to
Holly. The legal conclusions set forth in the following discussion with respect
to U.S. federal income tax consequences of the merger to Frontier and
stockholders of Frontier represent the opinion of Andrews & Kurth, and the
legal conclusions set forth in the following discussion with respect to U.S.
federal income tax consequences of the merger to Holly and stockholders of
Holly represent the opinion of Vinson & Elkins.
These opinions rely on factual representations contained in officer's
certificates of Parent, Frontier, Holly, Front Range Merger Corporation and
Himalaya Merger Corporation and on the assumptions that:
. the merger will be completed in the manner described in this document and
in accordance with the provisions of the merger agreement,
. the representations set forth in the merger agreement are presently true,
correct and complete and will continue to be true, correct and complete
at all times up to and including the effective time of the merger, and
. any representations in the officer's certificates of Parent, Frontier,
Holly, Front Range Merger Corporation and Himalaya Merger Corporation or
in the merger agreement made to the knowledge of any person or similarly
qualified are presently true, correct and complete and will be true,
correct and complete at all times up to and including the effective time
of the merger as if made without such qualification.
84
If any of these assumptions or factual representations are inaccurate, these
opinions could be affected.
This discussion applies only to holders of Frontier common stock, Holly
common stock or contingent value rights that are U.S. holders. For purposes of
this discussion, a U.S. holder means:
. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
. a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust, or
. an estate that is subject to U.S. federal income tax on its income,
regardless of its source.
This discussion is based upon the Internal Revenue Code, Treasury
regulations, administrative rulings and judicial decisions currently in effect,
all of which are subject to change, possibly with retroactive effect. The
discussion applies only to Frontier stockholders that hold their Frontier
common stock, Holly stockholders that hold their Holly common stock and
contingent value rights holders that hold their contingent value rights as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code.
Further, the discussion does not address all aspects of U.S. federal income
taxation that may be relevant to a particular stockholder in light of his, her
or its personal investment circumstances or to stockholders subject to special
treatment under the U.S. federal income tax laws, including:
. insurance companies,
. tax-exempt organizations,
. dealers in securities or foreign currency,
. traders in securities that elect to mark to market,
. financial institutions,
. mutual funds,
. persons that hold their Frontier common stock or Holly common stock as
part of a straddle, a hedge against currency risk or a constructive sale
or conversion transaction,
. persons that have a functional currency other than the U.S. dollar,
. investors in pass-through entities,
. stockholders who acquired their Frontier common stock, Holly common stock
or contingent value rights through the exercise of options, or otherwise
as compensation or through a tax-qualified retirement plan, or
. holders of options granted under any Frontier or Holly benefit plan.
The following discussion is not binding on the Internal Revenue Service.
None of Frontier, Holly or Parent has requested a ruling from the Internal
Revenue Service with respect to any of the U.S. federal income tax consequences
of the merger and, as a result, we cannot assure you that the Internal Revenue
Service will not disagree with or challenge any of the conclusions described
below.
This discussion does not address any non-income tax or any foreign, state or
local tax consequences of the merger or the tax consequences of any transaction
other than the merger. Accordingly, each Frontier stockholder and Holly
stockholder is strongly encouraged to consult with a tax advisor to determine
the particular federal, state, local or foreign income or other tax
consequences of the merger to the holder.
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Tax Opinions Regarding the Merger
Completion of the merger is conditioned upon the receipt by Frontier of an
additional written opinion, dated the closing date, of Andrews & Kurth, counsel
to Frontier, to the effect that for U.S. federal income tax purposes,
. the Frontier merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code and/or the Frontier merger
and the Holly merger, taken together, will constitute an exchange
described in Section 351 of the Internal Revenue Code, and
. no gain or loss will be recognized by Frontier or the stockholders of
Frontier to the extent they receive Parent common stock in exchange for
Frontier common stock pursuant to the Frontier merger.
Completion of the merger is also conditioned upon the receipt by Holly of an
additional written opinion, dated the closing date, of Vinson & Elkins, counsel
to Holly, to the effect that for U.S. federal income tax purposes,
. the Holly merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and/or the Frontier merger
and the Holly merger, taken together, will constitute an exchange
described in Section 351 of the Internal Revenue Code,
. no gain or loss will be recognized by Holly, and
. no gain or loss will be recognized by the stockholders of Holly as a
result of the exchange of Holly common stock for Parent common stock
pursuant to the Holly merger, except that gain, if any, will be
recognized on the receipt of cash consideration in the Holly merger and
the receipt of contingent value rights and/or payments thereon.
These additional opinions will be based upon customary assumptions and
representations, including representations made by Parent, Frontier and Holly.
Each of Andrews & Kurth and Vinson & Elkins presently intends to deliver to
Frontier and Holly, respectively, on the closing date of the merger, an opinion
that satisfies the requirements set forth in the preceding paragraphs. If
either Frontier or Holly fails to receive an additional opinion that satisfies
the requirements set forth in the preceding paragraphs or agrees to waive the
condition relating to the receipt of its respective additional opinion, the
applicable company would circulate revised materials to its stockholders and
would resolicit proxies from its stockholders if the U.S. federal income tax
consequences of the merger to its stockholders are materially different from
those described below.
Tax Consequences of the Merger to Parent, Frontier and Holly
No gain or loss will be recognized by Parent, Frontier or Holly as a result
of the merger.
Tax Consequences of the Merger to Frontier Stockholders
No gain or loss will be recognized by Frontier stockholders for U.S. federal
income tax purposes on the exchange of Frontier common stock for Parent common
stock in the merger.
The aggregate adjusted basis of the Parent common stock received in the
merger by a Frontier stockholder will be equal to the aggregate adjusted basis
of that stockholder's Frontier common stock exchanged for Parent common stock.
The holding period of Parent common stock received in the merger by a
Frontier stockholder will include the holding period of the stockholder's
Frontier common stock exchanged for that Parent common stock.
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Tax Consequences of the Merger to Holly Stockholders
For U.S. federal income tax purposes, a Holly stockholder is generally
required to recognize gain, but not loss, at the time of the merger equal to
the lesser of:
. the amount of cash consideration and the fair market value of any
property, including the contingent value rights, received by the Holly
stockholder in the merger; and
. the excess of (i) the sum of the fair market value of the Parent common
stock, the amount of cash consideration, and the fair market value of any
property, including the contingent value rights, received by the Holly
stockholder in the merger, over (ii) the Holly stockholder's adjusted
federal income tax basis for the shares of Holly common stock exchanged
in the merger.
Because of the contingent nature of the contingent value rights, the
determination of the amount of the fair market value of the property received
by a Holly stockholder and therefore the amount of gain to be recognized is not
clear. Under applicable Treasury Regulations, Holly stockholders are generally
required to value the contingent value rights based on all available facts and
circumstances.
Any gain or loss recognized will generally constitute capital gain or loss
and will constitute long-term capital gain or loss if the holder's holding
period is greater than 12 months as of the date of the merger. For non-
corporate holders, this long-term capital gain generally will be taxed at a
maximum U.S. federal income tax rate of 15%. The deductibility of capital
losses is subject to limitation. Certain non-corporate Holly stockholders may
be subject to backup withholding on cash payments received in the merger unless
they comply with specific certification requirements. The backup withholding
rate is currently 28%.
The aggregate adjusted basis of the Parent common stock received in the
merger by a Holly stockholder will be equal to the aggregate adjusted basis of
that stockholder's Holly common stock exchanged for Parent common stock,
increased by the amount of gain recognized by the Holly stockholder in the
merger, and reduced by the cash consideration and the value of the contingent
value rights received by the stockholder in the merger.
The holding period of Parent common stock received in the merger by a Holly
stockholder will include the holding period of the stockholder's Holly common
stock exchanged for that Parent common stock.
The adjusted tax basis of any contingent value rights received will equal
the value of the contingent value rights on the effective date of the merger,
and the holding period of the contingent value rights will begin on the day
following the effective date of the merger.
If the contingent value rights do not have a reasonably ascertainable fair
market value, then the federal tax consequences of the merger will be
determined under the "open transaction" method. Under the open transaction
method, the tax consequences of the merger to a Holly stockholder would be as
described above except that the Holly stockholder would not take the contingent
value rights into account for purposes of determining gain with respect to the
exchange of Holly common shares or the tax basis of Parent common stock
received in the merger, and the Holly stockholder would take no tax basis in
the contingent value rights. Applicable Treasury Regulations provide that only
in "rare and extraordinary cases" is the value of property received in
connection with a sale or exchange so uncertain that open transaction treatment
is available. For example, the Internal Revenue Service could assert that the
relevant trading prices of the Holly common stock and Frontier common stock
provide a sufficient basis for determining the value of the contingent value
rights to preclude the application of the open transaction method.
In the event that the contingent value rights are treated as debt
instruments for U.S. federal income tax purposes, a holder would be required to
include currently in income as interest on an annual basis the amount of
"original issue discount" on the debt instrument, based on the yield of
"comparable" debt instruments, which accrues for each taxable year in advance
of the receipt of any payment, regardless of a holder's method of
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accounting. The excess of any payments received on a debt instrument over the
issue price of the debt instrument plus any accrued original issue discount
would be treated as additional interest income at the time the payments are
received. Given the wholly contingent nature of the payments on the contingent
value rights, the contingent value rights should not be treated as debt
instruments for U.S. federal income tax purposes.
Due to the uncertainty regarding the valuation of the contingent value
rights and the possible applicability of the open transaction method, each
Holly stockholder is strongly encouraged to consult his, her or its tax advisor
concerning the recognition of gain, if any, resulting from the receipt of
contingent value rights in the merger.
Tax Consequences of Ownership of Contingent Value Rights
There are no authorities considering the tax treatment of rights that are
substantially similar to the contingent value rights. As a result, the tax
treatment of the contingent value rights is somewhat uncertain and could differ
from the treatment described in this discussion. Contingent value right holders
are strongly encouraged to consult their own tax advisors regarding the
federal, state, local and foreign tax consequences to them of the receipt,
ownership and disposition of the contingent value rights.
The parties intend to take the position, and the following discussion
assumes, that payments made on the contingent value rights to holders of the
contingent value rights will be treated as payments under a contract for the
sale or exchange of Holly common stock that are subject to Section 483 of the
Internal Revenue Code.
Under Section 483, a holder of a contingent value right will not be required
to include any amount in income with respect to the contingent value right,
other than any gain recognized on the receipt of the contingent value right in
the merger described above in "--Tax Consequences of the Merger to Holly
Stockholders," until payments on the contingent value right are received, or in
some circumstances described below, until the right to those payments becomes
fixed. When a payment is received on the contingent value right, a portion of
the amount received will be treated under Section 483 as interest income that
is ordinary income to the holder. The balance of the amount will be treated as
sales proceeds with the consequences described below. The interest amount will
equal the excess of the amount received over its present value as of the
effective date of the merger, calculated using as the discount rate the
applicable federal rate, or AFR.
The AFR is a rate reflecting an average of market yields on Treasury debt
obligations for different ranges of maturities that is published monthly by the
Internal Revenue Service. The relevant AFR will be the lower of
. the lowest AFR in effect during the 3-month period ending with the month
which includes the date on which the merger agreement was signed, or
. the lowest AFR in effect during the 3-month period ending with the month
which includes the effective date of the merger.
In each case, the maturity range of the relevant AFR will correspond to the
period from the effective date of the merger to the date the amount is
received. Where a payment is due more than six months after it is fixed, the
payment will be discounted back to the date when it became fixed, using a
discount rate equal to the AFR that would apply under Section 483 to a payment
on the initial contingent value right that is made when the fixed payment is
due, the discount on the deferred payment is treated as interest accruing over
the period of deferral, and the discounted amount is divided between interest
and principal under Section 483 as if it were paid in cash on the date it
becomes fixed. The Section 483 interest must be included in income by a holder
under its regular method of accounting, e.g., the accrual method or the cash
method.
When payment is received on a contingent value right by a contingent value
right holder, the contingent value right holder will recognize gain equal to
the difference between the amount of the payment received, net of imputed
interest under Section 483, and the holder's basis in the contingent value
right, if any, that is allocable to the payment. If multiple payments may be
received on the contingent value right, the holder may be required to
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allocate its basis, if any, among those payments. The method for making that
allocation is unclear. If a holder receives a payment that is less than its
basis in the contingent value right, the holder may not be allowed a loss until
it is determined that no further payments will be made.
Certain non-corporate contingent value right holders may be subject to
backup withholding on cash payments received on the contingent value rights
unless they comply with specific certification requirements. The backup
withholding rate is currently 28%.
If identifiable events occur which establish the worthlessness of the
contingent value rights, a contingent value right holder would be entitled to
deduct as a capital loss, in the year of the identifiable event, the holder's
adjusted tax basis, if any, in his, her or its contingent value right.
Accounting Treatment
The merger will be accounted for using purchase accounting. Generally
accepted accounting principles require that one of the two companies in the
transaction be designated as the acquiror for accounting purposes. Frontier has
been designated as the acquiror based on the fact that its stockholders will
hold more than 50% of the Parent stock after the merger. The purchase price
(based on the closing price of Frontier common stock for a reasonable period
before and after March 31, 2003) will be allocated to Holly's identifiable
assets and liabilities based on their estimated fair market values at the date
of the completion of the merger, and any excess of the purchase price over
those fair market values will be accounted for as goodwill. The results of
final valuations of property, plant and equipment, and intangible and other
assets and the finalization of any potential plans of restructuring have not
yet been completed. We may revise the allocation of the purchase price when
additional information becomes available.
Regulatory Matters
Certain regulatory requirements imposed by U.S. regulatory authorities must
be complied with before the merger is completed. Holly and Frontier are not
aware of any material governmental consents or approvals that are required
prior to the completion of the merger other than those described below. We have
agreed that, if any additional governmental consents and approvals are
required, we will each use our reasonable best efforts to obtain these consents
and approvals.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which we refer to as the "HSR Act," and the rules promulgated under it by the
U.S. Federal Trade Commission, which we refer to as the "FTC," the merger could
not be completed until notifications had been given and certain information had
been furnished to the FTC and the Antitrust Division of the U.S. Department of
Justice, which we refer to as the "Antitrust Division," and the specified
waiting periods had expired or been terminated. Holly and Frontier completed
their filings of notification and report forms under the HSR Act with the FTC
and the Antitrust Division on April 17, 2003, and the waiting period expired on
May 19, 2003.
At any time before or after completion of the merger, the Antitrust Division
or the FTC or any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the completion of the merger, to rescind the merger or to seek
divestiture of particular assets of Holly or Frontier. Private parties also may
seek to take legal action under the antitrust laws under certain circumstances.
A challenge to the merger on antitrust grounds may be made, and, if such a
challenge is made, it is possible that Holly and Frontier will not prevail.
Under the merger agreement, each of Holly and Frontier has agreed to use its
reasonable best efforts to complete the merger, including to gain clearance
from regulatory authorities and to obtain other required approvals. However,
neither Holly nor Frontier nor any of their respective subsidiaries is required
to hold separate or divest any of their businesses or assets, or to take, or to
agree to take, any action or agree to any
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limitation that could reasonably be expected to have a material adverse effect
on either Holly or Frontier. Also, neither Holly nor Frontier is required to
agree to any divestiture, to hold separate any business or to take any other
action that is not conditional on the consummation of the merger.
Prior to completing the merger, the applicable waiting period under the HSR
Act must have expired or been terminated, and any required approvals of other
regulatory authorities must be obtained if the failure to obtain antitrust
approvals of those regulatory authorities would have a material adverse effect
on Parent after the completion of the merger.
Holly and Frontier, through their respective subsidiaries, hold a number of
licenses issued by the Federal Communications Commission, which we refer to as
the "FCC," to operate fixed microwave transmission facilities. These radio
facilities are used to transmit real-time data on the operational status of
certain of Holly's and Frontier's crude oil and refined product pipelines.
Under the Communications Act of 1934 and the rules and policies of the FCC,
Holly and Frontier are required to obtain the FCC's approval prior to
consummating the "transfer of control" of the entity (or its parent) holding
these licenses. Consummation of the merger will result in a transfer of control
under the FCC's rules and policies. Both Holly and Frontier intend to submit
applications to the FCC seeking approval to transfer control of the Holly
subsidiaries and the Frontier subsidiaries holding these licenses prior to the
Holly and Frontier special meetings. Based on past precedent, the parties
anticipate that the FCC will approve the transfer of control applications.
Holly and Frontier will remain the licensees and be required to comply with all
FCC rules and polices incumbent upon FCC licensees until such time as the FCC
approves the transfer of control.
Holly and its subsidiaries own crude oil and refined product pipelines in
the states of Idaho, Montana, New Mexico, and Texas, and, upon completion of
the Woods Cross acquisition, will own crude oil and refined products pipelines
in Utah. The completion of the merger requires the approval of state regulatory
authorities in Montana and Utah pursuant to state law in these states.
Additionally, Holly is required to notify the state regulatory authority in
Idaho of the merger pursuant to state law in these states. Holly intends to
submit applications to the state regulatory authorities in Utah and Montana
seeking approval of the merger prior to the Holly special meeting and notice to
the state regulatory authority in Idaho in the manner required by law.
Although we do not expect regulatory authorities to raise any significant
objections in connection with their review of the merger, we cannot assure you
that we will obtain all required regulatory approvals or that these regulatory
approvals will not contain terms, conditions or restrictions that would be
detrimental to Parent after the completion of the merger.
Appraisal Rights of Holly Stockholders
Under the Delaware General Corporation Law, which we refer to as the "DGCL,"
Holly stockholders will be entitled to pursue a statutory "appraisal" of their
shares as a result of the merger. In order to perfect their right to a
statutory appraisal, Holly stockholders desiring such relief must strictly
comply with the procedural and substantive provisions of Section 262 of the
DGCL.
The following discussion summarizes the material information relating to the
appraisal rights of Holly stockholders under the DGCL. Holly stockholders
should read the full text of Section 262, which is attached to this joint proxy
statement/prospectus as Annex J carefully and in its entirety because that
statute, and not this summary description, defines a Holly stockholder's rights
to demand appraisal for shares of Holly common stock.
If a Holly stockholder chooses either to exercise his, her or its appraisal
rights or preserve the right to do so, that stockholder should carefully review
the requirements under Section 262 of the DGCL and consult with an attorney.
Only a holder of record of shares of Holly common stock is entitled to
assert appraisal rights. If a Holly stockholder's shares are held of record in
the name of another person, such as a broker, bank or other nominee, the
stockholder must act promptly to cause the record holder to follow the steps
summarized below properly and in timely manner in order to assert his, her or
its appraisal rights.
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Under the DGCL, Holly stockholders who follow the procedures set forth in
Section 262 will be entitled to have their shares of Holly common stock
appraised by the Delaware Court of Chancery and to receive payment of the "fair
value" of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, as determined by such court.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, the corporation, not less than twenty (20) days prior
to the meeting, must notify each of its stockholders entitled to appraisal
rights that such appraisal rights are available and include in such notice a
copy of Section 262. This joint proxy statement/prospectus constitutes such
notice, and the applicable statutory provisions are attached to this joint
proxy statement/prospectus as Annex J. Any Holly stockholder who wishes to
exercise such appraisal rights or who wishes to preserve his, her or its right
to do so, should review the following discussion and Annex J carefully, because
failure to timely and properly comply with the procedures specified will result
in the loss of appraisal rights under the DGCL.
A Holly stockholder wishing to exercise his, her or its appraisal rights
must deliver to Holly, before the vote on the Holly merger at the Holly special
meeting, a written demand for appraisal of his, her or its shares of Holly
common stock and must not vote in favor of the merger. A proxy or vote against
the merger does not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand. The demand must reasonably
inform Holly of the identity of the stockholder and that the stockholder is
demanding appraisal of his, her or its shares of Holly common stock. Because a
duly executed proxy which does not contain voting instructions will, unless
revoked, be voted for the merger, a Holly stockholder who votes by proxy and
who wishes to exercise his, her or its appraisal rights must vote against the
merger or abstain from voting on the merger. A vote against the merger, in
person or by proxy, will not in and of itself constitute a written demand for
appraisal satisfying the requirements of Section 262. In addition, a Holly
stockholder wishing to exercise his, her or its appraisal rights must hold of
record such shares on the date the written demand for appraisal is made and
must continue to hold such shares of record until the completion of the merger.
If any Holly stockholder fails to comply with any of these conditions and the
merger becomes effective, the stockholder will be entitled to receive the
consideration receivable with respect to such shares in the absence of a valid
assertion of appraisal rights in accordance with the merger agreement.
Only a holder of record of shares of Holly common stock is entitled to
assert appraisal rights for the shares registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as his, her or its name appears on his, her or its
stock certificates, and must state that the stockholder intends thereby to
demand appraisal of his, her or its shares in connection with the Holly merger.
If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the shares are owned of record by more than one person, as in
a joint tenancy and tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including two or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds shares of Holly
common stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the shares held for one or more beneficial owners while
not exercising such rights with respect to the shares held for other beneficial
owners; in such case, however, the written demand should set forth the number
of shares of Holly common stock as to which appraisal is sought and, where no
number of shares is expressly mentioned, the demand will be presumed to cover
all shares of Holly common stock held in the name of the record owner.
Stockholders who hold their shares in brokerage accounts or other nominee forms
and who wish to exercise appraisal rights are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal by such a nominee. Any beneficial owner desiring appraisal who holds
shares of Holly common stock through a broker, bank or other nominee is
responsible for ensuring that the demand for appraisal is made by the record
holder. The beneficial holder of the shares should instruct the broker, bank or
nominee that the demand for appraisal should be made by the record holder of
the shares, which may be the nominee of a central security depository if the
shares have been so deposited.
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All written demands for appraisal pursuant to Section 262 of the DGCL should
be sent or delivered to Holly Corporation at 100 Crescent Court, Suite 1600,
Dallas, Texas 75201, Attention: Corporate Secretary.
Within ten (10) days after the completion of the merger, Holly, as the
surviving corporation of the Holly merger, must notify each Holly stockholder
who has complied with Section 262 and has not voted in favor of or consented to
the merger of the date that the merger has become effective. Within one hundred
twenty (120) days after the completion of the merger, but not thereafter, Holly
or any Holly stockholder who has complied with Section 262 and is entitled to
appraisal rights under Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of such shares. Holly is
under no obligation to and has no present intention to file such a petition.
Accordingly, it is the obligation of the holders of Holly common stock to
initiate all necessary action to perfect their appraisal rights within the time
prescribed in Section 262.
Within one hundred twenty (120) days after the completion of the merger, any
Holly stockholder who has complied with the requirements for exercise of
appraisal rights will be entitled, upon written request, to receive from Holly
a statement setting forth the aggregate number of shares of Holly common stock
entitled to demand appraisal rights not voted in favor of the merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement must be mailed within
ten (10) days after a written request has been received by Holly or within ten
(10) days after the expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed by a Holly stockholder
entitled to demand appraisal rights and a copy of the petition is served upon
Holly, Holly will then be obligated within twenty (20) days to file with the
Delaware Register in Chancery a duly verified list containing the names and
addresses of all Holly stockholders who have demanded an appraisal of their
shares and with whom agreements as to the value of their shares have not been
reached. After notice to such stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights. The Delaware Court of Chancery may require
stockholders who demanded payment for their shares to submit their stock
certificates to the Delaware Register in Chancery for notation thereon of the
pendency of the appraisal proceedings, and if any stockholder fails to comply
with such direction, the Court of Chancery may dismiss the proceedings as to
such stockholder.
After determining the Holly stockholders entitled to appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. As determined in a statutory appraisal
proceeding under Section 262, the "fair value" of a share of Holly common stock
could be more than, the same as or less than the value of the merger
consideration for such share available to a Holly stockholder who does not
pursue an appraisal. The Delaware Supreme Court has stated that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
the appraisal proceeding. The Court of Chancery will also determine the amount
of interest, if any, to be paid upon the amounts to be received by persons
whose shares of Holly common stock have been appraised. The costs of the
proceeding may be determined by the Court and taxed upon the parties as the
Court deems equitable. Upon application of a stockholder, the Court may also
order that all or a portion of the expenses incurred by any stockholder in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged against the value of all the shares of Holly common
stock entitled to be appraised.
Any Holly stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends
or other distributions payable to holders of record of Holly common stock as of
a record date prior to the merger).
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If any stockholder who demands appraisal of his, her or its shares of Holly
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, his, her or its right to appraisal, as provided in the DGCL, the shares
of such stockholder will be converted into the right to receive the Holly
merger consideration pursuant to the merger agreement (without interest). A
stockholder will fail to perfect, or effectively loses or withdraws, his, her
or its right to appraisal if no petition for appraisal is filed within one
hundred twenty (120) days after the completion of the merger, or if the
stockholder delivers to Holly a written withdrawal of his, her or its demand
for appraisal and an acceptance of the merger consideration, except that any
such attempt to withdraw made more than sixty (60) days after the completion of
the merger will require the written approval of Holly and, once a petition for
appraisal is filed, the appraisal proceeding may not be dismissed as to any
holder absent court approval.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Dissenters' Rights of Frontier Stockholders
Under the Wyoming Business Corporation Act, a Frontier stockholder is
entitled to dissent from the merger and obtain "fair value" plus interest for
its shares of Frontier common stock by asserting dissenters' rights. For
purposes of dissenters' rights, "fair value" means the value of the shares
immediately before the effective time of the merger, excluding any appreciation
or depreciation in anticipation of the merger, unless exclusion would be
inequitable, and "interest" means interest from the effective date of the
merger until the date of payment at the average rate currently paid by Frontier
on its principal bank loans, or, if none, at a rate that is fair and equitable
under all of the circumstances. Frontier's interest rates under its current
revolving credit facility agreement are based, at the borrower's option, on the
agent bank's prime rate plus 0.25% to 1%, the prevailing Federal Funds Rate
plus 1.75% to 2.5%, or the reserve adjusted LIBOR plus 1.25% to 2%. The rates
above increase from the lower to the higher levels based on certain financial
covenant calculations. The average interest rate on funds borrowed under the
revolving credit facility during 2002 was 3.7%.
The following is a summary of the material information relating to
dissenters' rights of Frontier stockholders under the Wyoming Business
Corporation Act. Frontier stockholders should read the dissenters' rights
provisions in Article 13 of the Wyoming Business Corporation Act, the full text
of which is attached to this joint proxy statement/prospectus as Annex K,
carefully and in its entirety because that statute, and not this summary
description, defines a Frontier stockholder's rights to dissent.
If a Frontier stockholder chooses either to assert dissenters' rights or
preserve the right to dissent, that stockholder should carefully review the
requirements under Article 13 of the Wyoming Business Corporation Act and
consult with an attorney.
If the dissenting stockholder's shares are held of record in the name of
another person, such as a broker, bank or other nominee, the stockholder must
act promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner in order to perfect dissenters' rights or the
beneficial owner may assert dissenters' rights. Alternatively, the beneficial
owner may assert dissenters' rights as to shares held on its behalf if the
beneficial owner submits to Frontier the record holder's written consent to the
dissent not later than the time the beneficial owner asserts dissenters' rights
and asserts dissenters' rights with respect to all of the shares of which it is
the beneficial owner.
If a Frontier stockholder elects to exercise dissenters' rights, the
stockholder must (1) provide Frontier with written notice of intention to
demand payment of the fair value of the dissenting stockholder's shares before
the stockholders vote on the merger proposal at the special meeting; (2) not
vote the shares in favor of the merger agreement; and (3) assert dissenters'
rights as to all of the dissenting stockholder's shares over which he, she or
it has the power to direct the vote (except where certain shares are
beneficially owned by another person but registered under the dissenting
stockholder's name as long as the stockholder dissents with respect to all
shares beneficially owned by any one person and notifies Frontier in writing of
the name and address of each person on whose behalf the dissenters stockholder
asserts dissenters' rights).
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The written notice must reasonably inform Frontier of the dissenting
stockholder's identity and the dissenting stockholder's intention to exercise
dissenters' rights. All written notices should be addressed to Frontier Oil
Corporation, 10000 Memorial Drive, Suite 600, Houston, Texas 77024-3411,
Attention: Corporate Secretary.
A failure to vote will not constitute a waiver of dissenters' rights, but a
vote in favor of the merger by proxy or in person will constitute a waiver of
dissenters' rights and will override any previously filed written notice of
intent to demand payment. A signed proxy returned with no indication of how it
should be voted (or an abstention) will be a vote for the merger agreement and
will therefore constitute a waiver of dissenters' rights.
If a dissenting stockholder fails to comply with these conditions and all
other conditions imposed by the Wyoming Business Corporation Act, the
dissenting stockholder will have no dissenters' rights with respect to the
dissenting stockholder's shares.
If the merger agreement is approved and adopted by the stockholders and a
dissenting stockholder has properly asserted the intention to demand payment
for shares, Frontier must give each such dissenting stockholder a written
notice no later than ten (10) days after the completion of the merger that
contains the following information:
. the address where the demand for payment must be sent and where and when
stock certificates must be deposited;
. any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
. a form for demanding payment that includes the date of the first
announcement to news media or to stockholders of the terms of the merger
and requires that the person asserting dissenters' rights certify whether
or not the dissenting stockholder, or the beneficial owner on whose
behalf such holder dissents, acquired beneficial ownership of the shares
before the date;
. the date when the payment demand must be received, which may not be fewer
than thirty (30) nor more than sixty (60) days after the notice by
Frontier is delivered; and
. a copy of Article 13 of the Wyoming Business Corporation Act.
By no later than the date set forth in the written notice described above,
the dissenting stockholder must demand payment, certify whether the dissenting
stockholder acquired beneficial ownership of the shares before the announcement
of the merger and deposit the dissenting stockholder's stock certificate as
instructed by Frontier, or the dissenting stockholder will forfeit dissenters'
rights. The dissenting stockholder will retain all rights as a stockholder
until the completion of the merger.
Except for shares beneficially acquired after announcement of the merger,
which may be treated as described below, as soon as the merger is completed or
upon receipt of a payment demand, Frontier will send each dissenting
stockholder who makes a proper demand for payment and deposits the dissenting
stockholder's stock certificate an amount that Frontier estimates to be the
fair value of the dissenting stockholder's shares, plus accrued interest. The
payment for fair value must be accompanied by the following:
. Frontier's closing balance sheet, statement of income and a statement of
changes in stockholders' equity for a fiscal year ending not more than
sixteen (16) months before the date of payment;
. Frontier's latest available interim financial statements;
. a statement of Frontier's estimate of the fair value of the dissenting
stockholder's shares;
. an explanation of the method used to calculate interest;
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. a description of the procedures to be followed if the dissenting
stockholder wishes to demand supplemental payment in the event the
stockholder is dissatisfied with the estimate of the fair value of the
dissenting stockholder's shares and offered payment; and
. a copy of Article 13 of the Wyoming Business Corporation Act.
If, however, the merger is not completed within sixty (60) days after the
date set for demanding payment and depositing the dissenting stockholder's
share certificates or if the dissenting stockholder does not comply with all of
the requirements for exercising dissenters' rights under Wyoming law and as
herein provided, Frontier will not send the dissenting stockholder the fair
value of the such stockholder's shares or the additional information listed
above. In such a case Frontier will return any previously deposited share
certificates and release any transfer restriction on uncertificated shares.
If a dissenting stockholder believes the amount of the payment as calculated
by Frontier is less than the fair value of the dissenting stockholder's shares,
plus interest, the dissenting stockholder must give written notice to Frontier
of the dissenting stockholder's own estimate of the fair value of the shares,
plus interest, within thirty (30) days after the date Frontier sends the
dissenting stockholder Frontier's fair value estimate and payment. The
dissenting stockholder's written notice must also demand payment for the
difference between the dissenting stockholder's fair value estimate and the
payment already made by Frontier. If the dissenting stockholder fails to give
written notice of the dissenting stockholder's estimate to Frontier and demand
payment for the difference within the 30-day time period, the dissenting
stockholder will be entitled only to the amount Frontier estimated as fair
value and previously paid to the dissenting stockholder. These demand
procedures also apply in the event Frontier fails to make payment of Frontier's
estimated fair value of the dissenting stockholder's shares within sixty (60)
days after the date set for demanding payment, or Frontier fails to complete
the merger and does not return the dissenting stockholder's previously
deposited certificates (or release any restrictions on uncertificated shares)
within sixty (60) days after the date set for demanding payment.
If Frontier and the dissenting stockholder cannot agree within sixty (60)
days after Frontier receives the dissenting stockholder's estimate of the fair
value of the shares, then Frontier will file an action in a court of competent
jurisdiction in Laramie County, Wyoming within such sixty (60) day period,
asking the court to determine the fair value of the dissenting stockholder's
shares, plus interest. If the payment demand is not settled within the
applicable 60-day settlement period, the dissenting stockholder will be made a
party to the proceeding. If Frontier fails to petition the court to determine
fair value within this sixty (60) day period, Frontier will pay each dissenting
stockholder whose demand is unsettled the amount demanded (less any amount
previously paid by Frontier).
After notice to the dissenting stockholder, the court will determine the
fair value of the dissenting stockholder's shares. The court may appoint one or
more persons as appraisers to receive evidence and make a fair value
recommendation to the court. The dissenting stockholder will be entitled to
discovery on the same basis as any other party to a civil action.
If the court determines that the fair value of the shares is in excess of
Frontier's estimate of the fair value of the shares, then the court will enter
a judgment in the dissenting stockholder's favor in an amount by which the
value determined by the court exceeds Frontier's estimate and previous payment
of the fair value, plus interest.
If the dissenter was not the beneficial owner of Frontier shares or is not
dissenting on behalf of a person who was a beneficial owner of the shares on
March 31, 2003, the date of the first announcement to news media of the terms
of the proposed merger, Frontier may elect to withhold payment of the estimated
fair value, plus interest, for the dissenting stockholder's or such person's
shares. To the extent Frontier elects to withhold payment in such a manner,
after the merger is complete, Frontier must deliver to the dissenting
stockholder
. a payment equal to Frontier's estimate of the fair value of the
dissenting stockholder's shares, plus accrued interest;
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. a statement of Frontier's estimate of the fair value of the dissenting
stockholder's shares;
. an explanation of how the interest was calculated; and
. a description of the procedures to be followed if the dissenting
stockholder wishes to demand supplemental payment in the event such
stockholder is dissatisfied with Frontier's estimate of the fair value of
the dissenting stockholder's shares and offered payment.
A Frontier stockholder who is considering asserting dissenters' rights
should realize that the fair value of a dissenting stockholder's shares, as
determined under Article 13 of Wyoming Business Corporation Act, could be more
than, the same as, or less than the value of shares of Parent common stock that
the stockholder would have received in the merger.
If the dissenting stockholder fails to comply fully with the statutory
procedure summarized above, the dissenting stockholder will forfeit the
dissenting stockholder's right to dissent.
Resale of Parent Common Stock
Parent common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, as amended,
except for shares of Parent common stock issued to any Holly stockholder or
Frontier stockholder that is, or is expected to be, an "affiliate" of Holly,
Frontier or Parent, as applicable, for purposes of Rule 145 under the
Securities Act. Persons that may be deemed to be "affiliates" of Holly,
Frontier or Parent for such purposes generally include individuals or entities
that control, are controlled by, or are under common control with, Holly,
Frontier, or Parent, respectively, and include the directors and executive
officers of Holly, Frontier, and Parent, respectively. The merger agreement
requires each of Holly and Frontier to use its reasonable best efforts to cause
each of its affiliates to execute a written agreement with Parent to the effect
that they will not transfer any Parent common stock received in the merger,
except pursuant to an effective registration statement under the Securities Act
or in a transaction not required to be registered under the Securities Act.
This joint proxy statement/prospectus does not cover resales of Parent common
stock received by any person upon completion of the merger, and no person is
authorized to make any use of this joint proxy statement/ prospectus in
connection with any resale.
Parent has entered into a registration rights agreement with certain
stockholders of Frontier and Holly, including directors and officers of
Frontier and Holly. See "Other Agreements--Registration Rights Agreement"
beginning on page 111 for a summary of the material terms of the registration
rights agreement.
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THE MERGER AGREEMENT
The following section summarizes the material terms of the merger agreement,
a copy of which is attached as Annex A to this joint proxy
statement/prospectus. You should refer to the full text of the merger
agreement, which is incorporated in this joint proxy statement/prospectus by
reference, for details of the merger and the terms and conditions of the merger
agreement.
The Merger
Pursuant to the merger agreement, Himalaya Merger Corporation will merge
with and into Holly, and Front Range Merger Corporation will merge with and
into Frontier, with each of Holly and Frontier surviving as wholly-owned
subsidiaries of Parent. In the merger, each outstanding share of Holly common
stock and each outstanding share of Frontier common stock will be converted
into the right to receive the merger consideration described below.
Merger Consideration
The merger agreement provides that each share of Holly common stock
outstanding immediately prior to the effectiveness of the merger will be
converted into the right to receive:
. one share of Parent common stock,
. a pro rata portion, calculated on the basis of the total number of shares
of Holly common stock outstanding immediately prior to the merger, of
$172.5 million in cash, or approximately $[11.12] per Holly common share
based on the number of Holly shares outstanding on [July 31], 2003, and
. one contingent value right representing a nontransferable interest in
potential future recoveries from litigation related to past sales of jet
fuel by Holly to the United States government.
Any shares of Holly capital stock held by Holly as treasury shares or owned
by Parent, Frontier, Holly or any of their direct or indirect wholly-owned
subsidiaries will be canceled without any payment for those shares.
Shares of Holly common stock outstanding immediately prior to the merger and
held by a stockholder who pursues a statutory "appraisal" of his, her or its
shares in accordance with Section 262 of the Delaware General Corporation Law
will not be converted into the merger consideration unless the dissenting
stockholder fails to perfect, withdraws or otherwise loses his, her or its
right to appraisal. If, after the completion of the merger, the dissenting
stockholder fails to perfect, withdraws or loses his, her or its right to
appraisal, such shares will be treated as if they had been converted at the
time of the merger into the right to receive the merger consideration. See "The
Merger--Appraisal Rights of Holly Stockholders" beginning on page 90.
The merger agreement provides that each share of Frontier common stock
outstanding immediately prior to the effectiveness of the merger will be
converted into the right to receive one share of Parent common stock upon the
effectiveness of the merger. Any shares of Frontier capital stock held by
Frontier as treasury shares or owned by Parent, Frontier, Holly or any of their
direct or indirect wholly-owned subsidiaries will be canceled without any
payment for those shares.
Shares of Frontier common stock outstanding immediately prior to the merger
and held by a stockholder who has not voted to approve and adopt the merger
agreement and who has demanded payment for such shares in accordance with
Article 13 of the Wyoming Business Corporation Act will not be converted into
shares of Parent common stock, unless the dissenting stockholder fails to
perfect, withdraws or otherwise loses his, her or its right to demand payment.
If, after the completion of the merger, the dissenting stockholder fails to
perfect, withdraws or loses his, her or its right to demand payment, such
shares will be treated as if they had been converted at the effective time of
the merger into the right to receive shares of Parent common stock. See "The
Merger--Dissenters' Rights of Frontier Stockholders" beginning on page 93.
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Procedures for Exchange of Share Certificates
Holly stockholders and Frontier stockholders should not return share
certificates with the enclosed proxy card.
Promptly after completion of the merger, but not later than three business
days after the merger, a bank or trust company designated by Parent as the
exchange agent will mail the following materials to each holder of record of
Holly common stock whose shares were converted into the right to receive shares
of Parent common stock:
. a form of a letter of transmittal for use in submitting their share
certificates to the exchange agent for exchange, and
. instructions explaining what Holly stockholders must do to effect the
surrender of Holly share certificates in exchange for the consideration
to be issued in the merger.
Holly stockholders should complete and sign the letter of transmittal and
return it to the exchange agent together with the Holly stockholders' share
certificates in accordance with the instructions.
Upon completion of the merger, each Holly share certificate, other than a
Holly share certificate representing shares of a dissenting stockholder or
shares being canceled pursuant to the merger agreement, will represent only the
right to receive one share of Parent common stock, the cash portion of the
merger consideration, and one contingent value right.
Frontier share certificates of Frontier stockholders, other than a Frontier
share certificate representing shares of a dissenting stockholder or shares
being canceled pursuant to the merger agreement, immediately prior to the
completion of the merger will be deemed to represent the same number of shares
of Parent common stock without further action upon completion of the merger.
Promptly after completion of the merger, Parent will deposit with the
exchange agent, in trust for the benefit of the former Holly stockholders,
Parent share certificates and cash sufficient to pay each former Holly
stockholder after the completion of the merger the merger consideration payable
to Holly stockholders.
No dividends or distributions with a record date after the effective time of
merger will be paid to the holders of any unsurrendered Holly share certificate
until their Holly share certificates are surrendered to the exchange agent for
exchange. When their Holly share certificates are surrendered, any unpaid
dividends or other distributions, together with the merger consideration, will
be paid without interest. Any dividends or other distributions with a record
date after the effective time of the merger and a payment date after the date
on which any Holly share certificates are surrendered will be paid at the
appropriate payment date.
All shares of Parent common stock issued upon surrender of Holly share
certificates, any cash paid upon conversion of shares of Holly common stock,
and any contingent value rights, will be deemed to have been issued in full
satisfaction of all rights relating to those shares of Holly common stock. If
Holly share certificates or Frontier share certificates are presented to
Parent, Holly, Frontier or the exchange agent after the completion of the
merger, they will be canceled and exchanged as described above.
Representations and Warranties
Holly and Frontier have each made a number of representations and warranties
to the other regarding aspects of our respective businesses, financial
condition, capitalization, corporate structure and other facts pertinent to the
merger. The topics covered by these representations and warranties include the
following:
. incorporation, valid existence, good standing, qualification to do
business and corporate power and authority to own, lease and operate its
properties and carry on its business;
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. corporate power and authority to execute and deliver, and due
authorization and enforceability of, the merger agreement;
. capitalization;
. subsidiaries;
. absence of violations of organizational documents, loan or credit
agreements, notes, bonds, mortgages, indentures, contracts, agreements,
leases, licenses or other instruments, orders of any court, governmental
authority or arbitration board or tribunal, or any laws, ordinances,
governmental rules or regulations;
. permits and licenses necessary to conduct the business;
. governmental investigations;
. absence of conflicts, violations or defaults under organizational
documents, material contracts and applicable laws, rules, regulations,
judgments, orders or decrees, or the creation of a lien, as a result of
the merger agreement or the contemplated transactions;
. consents, approvals, authorizations, waivers and filings required to
complete the merger;
. filings with the Securities and Exchange Commission and the accuracy and
completeness of the information contained in those filings, including the
financial statements;
. the absence of undisclosed material liabilities;
. material pending or threatened legal proceedings;
. conduct of business in the ordinary course and the absence of changes or
events that have had or would reasonably be expected to have a material
adverse effect, since July 31, 2002 (for Holly) or since December 31,
2002 (for Frontier);
. tax matters;
. employee benefit plans and labor matters;
. environmental matters;
. intellectual property matters;
. title to property and condition of assets;
. adequacy of insurance coverage;
. brokers' fees;
. the receipt of fairness opinions from financial advisors;
. material contracts and debt instruments;
. approval and recommendation of the merger agreement and the merger by
both Holly's and Frontier's boards of directors;
. the stockholder vote required to approve and adopt the merger agreement;
. inapplicability of state takeover laws to the merger;
. absence of non-competition covenants or executory agreements limiting the
conduct of business; and
. absence of rights plans.
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Many of the representations and warranties are qualified by a material
adverse effect standard. A material adverse effect, with respect to either
Holly or Frontier, means a material adverse effect with respect to
. the business, assets and liabilities (taken together), results of
operations, condition (financial or otherwise) or prospects of Holly or
Frontier, as the case may be, and its subsidiaries on a consolidated
basis or
. the ability of Holly or Frontier, as the case may be, to consummate the
transactions contemplated by the merger agreement or fulfill the
conditions to closing in the merger agreement, except, in each case, to
the extent that such adverse effect results from:
. general economic, regulatory or political conditions in the United
States or the other countries in which it operates;
. financial or securities market fluctuations or conditions;
. the general state of the petroleum refining industry;
. the announcement or pendency of the merger or compliance with the
pre-closing conduct of business covenants described below in
"--Interim Operations of Holly and Frontier"; or
. stockholder class action or other litigation arising from allegations
of a breach of fiduciary duty relating to the merger agreement.
Interim Operations of Holly and Frontier
Each of Holly and Frontier has agreed that, prior to completion of the
merger, except as expressly contemplated by the merger agreement or consented
to in writing by the other party, it will, and will cause its subsidiaries to,
conduct its respective operations in the usual, regular and ordinary course, in
substantially the same manner as previously conducted, and will use its
reasonable best efforts, and will cause each of its subsidiaries to use its
reasonable best efforts, to preserve intact its business organization and
goodwill, keep available the services of its officers and employees and
maintain satisfactory business relationships with third parties. Each of Holly
and Frontier has also agreed that it will not, and it will not permit any of
its subsidiaries to, enter into any new joint venture or partnership or to do
business in any new country, other than as previously disclosed to the other
party or in the ordinary course of business.
In addition to these agreements regarding the conduct of business generally,
subject to specified exceptions, each of Holly and Frontier has agreed to
specific restrictions relating to the following:
. the amendment of its certificate or articles of incorporation or bylaws;
. the issuance, grant or award of capital stock, stock options or other
equity interests;
. stock splits, combinations, reclassifications or other changes in
capitalization;
. increases in compensation or benefits of directors, officers, employees
or agents;
. the entering into or amendment of any employment or severance agreement
with its present or future officers;
. the adoption or amendment of employee benefit plans or the acceleration
of rights, benefits or payments under such plans;
. the declaration or payment of dividends;
. the purchase or redemption of capital stock, stock options or other
equity interests of the companies or their subsidiaries;
. the disposition of material assets;
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. the acquisition of material assets or other entities and the entering
into or consummation of business combinations;
. changes in accounting principles or practices;
. the making of tax elections, settlement or compromise of tax claims,
controversies, audits or proceedings and changes in tax reporting;
. the incurrence or guarantee of indebtedness for borrowed money or the
issuance, sale or guarantee of debt securities, warrants or other rights
to acquire debt securities;
. the entering into, creation or amendment of material leases, mortgages,
liens or other security interests;
. the making of capital expenditures or the commitment to make capital
expenditures;
. the taking of any actions that are likely to delay or adversely affect
any governmental approval of the merger;
. the termination, amendment or waiver of any confidentiality or standstill
agreements of the company and the enforcement of such agreements;
. the entering into or amendment of any agreement with any of its
stockholders with respect to holding, voting or disposing of shares of
its common stock;
. hedge contracts;
. the purchase of the other company's securities; and
. the taking of actions that would prevent or impede the Holly merger and
the Frontier merger from each qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code or the Holly
merger and the Frontier merger, taken together from qualifying as an
exchange within the meaning of Section 351 of the Internal Revenue Code.
Frontier and Holly must use reasonable best efforts to maintain with
financially responsible insurance companies insurance in such amounts and
against such risks and losses as are customary for Frontier or Holly, as the
case may be. In addition, Frontier and Holly have agreed to promptly notify the
other of any material adverse change in its financial condition or business,
any termination, cancellation, repudiation or material breach of any material
contract, the institution of any material litigation or material governmental
complaints, investigations or hearings, or the breach in any material respect
of any representation or warranty contained in the merger agreement. Frontier
and Holly have also agreed to promptly make available (in paper form or via the
Internet) to the other copies of any report, statement or schedule filed with
the Securities and Exchange Commission after the date of the merger agreement.
Employee Benefit Matters
After the completion of the merger, Parent and its subsidiaries will honor
the obligations under all employee benefit plans, agreements and commitments of
Holly and Frontier and their respective subsidiaries existing as of the date of
the merger agreement that apply to any current or former employee or director
and the severance and indemnification agreements that Holly enters into with
its officers and directors in accordance with the merger agreement. Except for
the Holly stock plans and Frontier stock plans, which will be treated as
described below, Frontier and Holly have agreed that after the merger until
December 31, 2003 (or such later date as may be determined by Parent), (A) the
surviving corporation from the Holly merger will assume and maintain all
employee benefit plans of Holly as in effect immediately prior to the merger,
and will not amend those plans to reduce any benefits provided; and (B) the
surviving corporation from the Frontier merger will assume and maintain all
employee benefit plans of Frontier as in effect immediately prior to the
merger, and will not amend those plans to reduce any benefits provided. With
respect to any plan that is a qualified defined contribution plan providing for
discretionary employer contributions, contributions for 2003 will be made at
approximately the same percentage of compensation (or employee or salary
deferral contribution in the case of a discretionary
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matching contribution) of eligible participants that were made to the plan for
2002, except that contributions may be adjusted to the extent necessary to
comply with applicable law and regulations.
With respect to benefit plans in which employees and former employees of
Holly or Frontier become eligible to participate after the completion of the
merger, and in which such employees and former employees did not participate
prior to the merger, Parent will recognize all service with Holly and Frontier,
and their respective subsidiaries and predecessors, for all purposes (including
purposes of eligibility to participate, vesting credit and entitlement to
benefits) except for purposes of benefit accrual under any defined benefit
pension plan that did not cover the employee immediately prior to the merger
and eligibility to receive or amount of any retiree or other post-retirement
medical pension (except for COBRA medical continuation coverage or any
arrangement covering the employee prior to the merger).
Except as specifically set forth in the merger agreement, the above
provisions do not cover any employees of Holly or Frontier covered by a
collective bargaining agreement.
Parent has adopted a new stock plan to be effective as of May 31, 2003. The
Parent stock plan authorizes the conversion of Holly stock options into Parent
stock options according to the option exchange ratio described in "--Effect on
Awards Outstanding Under Stock Plans" below and the conversion of Frontier
stock options into Parent stock options and Frontier restricted shares into
Parent restricted shares. In addition, the Parent stock plan authorizes the
issuance of new stock options to eligible employees, officers, directors and
consultants. For a summary of the Parent stock plan, see "Other
Agreements--Parent Stock Plan" beginning on page 112.
Under the terms of the Frontier stock plans, unvested stock options to
purchase 1,308,399 shares of Frontier common stock and 205,629 shares of
restricted stock would have become vested as a result of the filing of the
current report on Form 8-K filed by Frontier in connection with its entering
into the merger agreement, the merger agreement or the consummation of the
transactions contemplated by the merger agreement. Under the merger agreement,
Frontier is required to use its reasonable best efforts to enter into waiver
agreements with holders of any of such unvested options or shares of restricted
stock that would otherwise have vested upon the filing of the current report on
Form 8-K. Such waiver agreements must waive any acceleration of vesting of such
options and restricted stock that would have occurred as a result of the merger
agreement or the transactions contemplated thereby, as well as the filing of
the current report on Form 8-K. Certain employees of Frontier, including all
seven executive officers of Frontier--James R. Gibbs, Chairman of the Board,
President and Chief Executive Officer, Julie H. Edwards, Executive Vice
President--Finance & Administration and Chief Financial Officer, W. Reed
Williams, Executive Vice President-Refining & Marketing Operations, J. Currie
Bechtol, Vice President, General Counsel and Secretary, Jon D. Galvin, Vice
President, Gerald B. Faudel, Vice President--Corporate Relations and
Environmental Affairs, and Nancy J. Zupan, Vice President--Controller--and
three officers of Frontier Refining & Marketing, Inc., a subsidiary of
Frontier, have executed written agreements waiving any accelerated vesting as
to an aggregate of 947,750 stock options and 205,629 shares of restricted stock
as a result of the merger agreement or the transactions contemplated by the
merger agreement. Such stock options and restricted shares account for
approximately 72% of the total outstanding stock options and 100% of the total
outstanding restricted shares, respectively, that would have accelerated
vesting. The waiver agreements, however, do not apply to any vesting or payment
under any severance, change of control or other agreement if the vesting or
payment occurs as a result of the termination of the employee's employment with
Frontier within three years following the completion of merger, as described
below.
Frontier has previously entered into employment agreements with each of its
executive officers, which provide for certain benefits for three years
following a change of control. These agreements are not subject to the waiver
agreements described above, and are not expected to be otherwise waived or
amended. For a summary of the benefits to the executive officers under these
employment agreements upon a change of control, see "The Merger--Interest of
Frontier Directors and Management in the Merger--Employment
Agreements--Executives" beginning on page 82.
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Holly has entered into consulting agreements with Matthew P. Clifton and W.
John Glancy and may enter into severance arrangements, providing for severance
payments upon termination either prior to or following completion of the
merger, with employees it selects; provided that the total value of the
benefits to be received pursuant to the severance arrangements and the
consulting agreement, including any cash paid, property or assets transferred,
employee benefits provided, and acceleration of any right or payment, may not
exceed $5,000,000 in the aggregate. The individuals who are parties to such
agreements or subject to such arrangements will waive their rights to such
payments to the extent that any payment would constitute an "excess parachute
payment" for purposes of section 280G of the Internal Revenue Code. See "The
Merger--Interests of Holly Directors and Management in the Merger--Consulting
Agreements" on page 79.
Holly has entered into employment agreements with six named employees of
Holly as described in "The Merger--Interests of Holly Directors and Management
in the Merger--Employment Agreements--Executives" beginning on page 80
providing for terms of employment, compensation and severance payments
consistent with those applicable to employees of Frontier and its subsidiaries
in similar positions. These employment agreements are not subject to the
maximum dollar limit for severance agreements and consulting agreements or the
excess parachute payment restrictions described above.
Effect on Awards Outstanding under Stock Plans
Each stock option of Holly will be converted into a stock option to acquire
shares of Parent common stock. The number of shares of Parent common stock
which will be subject to such Parent stock option will be equal to the number
of shares of Holly common stock which were subject to such option multiplied by
an option exchange ratio. The option exchange ratio will be equal to the
quotient of
. the sum of the average of the volume weighted sales prices per share of
Frontier common stock on the New York Stock Exchange for five consecutive
full trading days ending on the third full trading day prior to, but not
including, the day on which the merger is completed, plus the cash
consideration payable per share of Holly common stock, divided by
. that five-day average price of Frontier common stock.
The exercise price or base price of each Holly stock option that is
converted into a Parent stock option will be equal to the exercise price per
share of Holly common stock subject to the applicable Holly stock option,
divided by the option exchange ratio.
Each holder of a Holly stock option outstanding immediately before the
merger, whether vested or unvested, and converted into a Parent stock option
will, upon exercise of the Parent stock option, receive one contingent value
right for each share of Holly common stock into which such Holly stock option
was exercisable immediately prior to completion of the merger, except that no
contingent value rights will be issued to any such holder of a Parent stock
option who does not exercise the option prior to the first payment date of any
payment to the holders of contingent value rights.
Any stock-based awards under any Holly stock plans, other than Holly stock
options, whether vested or unvested, which are outstanding immediately prior to
the effective time of the merger, will be canceled for a cash payment in
connection with the merger. The cash payment will be
. calculated according to the relevant terms of the stock-based award or
. if consented to by the holder, at a per-share price equal to the average
of the volume weighted sales prices per share of Holly common stock on
the American Stock Exchange, which we refer to as "AMEX," for the five
consecutive full trading days in which such shares are traded on AMEX
ending on the third full trading day prior to, but not including, the day
on which the merger is completed.
Each stock option of Frontier, whether vested or unvested, which is
outstanding immediately prior to the effective time of the merger, will be
converted into a stock option to acquire the same number of shares of Parent
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common stock as the number of shares of Frontier common stock which were
subject to the option. The exercise price or base price of each Frontier stock
option that is converted into a Parent stock option will be equal to the
exercise price or base price of the applicable Frontier stock option.
The terms and conditions of the Parent stock options will otherwise be the
same as were applicable under the stock option plan of Holly or Frontier, as
the case may be, but taking into account any changes, including acceleration,
provided for in the applicable stock plan of Holly or Frontier, as the case may
be, in any applicable award agreement or as a result of the merger agreement or
the transactions contemplated by the merger agreement.
"No Solicitation" Covenant
Holly and Frontier will not, and Holly and Frontier will not permit their
respective subsidiaries, or their or their subsidiaries' directors, officers,
employees, agents and representatives, to:
. solicit, initiate or encourage any inquiry, proposal or offer with
respect to an acquisition proposal,
. participate or engage in any discussions or negotiations regarding any
acquisition proposal, or
. enter into any agreement related to any acquisition proposal, other than
a confidentiality or standstill agreement.
The merger agreement also required, at the time it was executed, Holly and
Frontier to immediately cease and terminate any existing discussions or
negotiations with respect to any acquisition proposal.
Notwithstanding the foregoing, each of Holly's and Frontier's board of
directors is permitted to engage in discussions or negotiations with, or
provide any information to, a third party in response to an unsolicited bona
fide acquisition proposal for the company, if:
. in the good faith judgment of the company's board of directors, there is
a reasonable likelihood that the acquisition proposal is a superior
proposal;
. the company's board of directors, after consultation with outside legal
counsel, determines in good faith that failure to take this action would
be inconsistent with its fiduciary obligations under applicable law;
. the company executes a confidentiality agreement as described in the
merger agreement; and
. prior to taking any action in relation to the acquisition proposal, the
company promptly notifies the other of the existence and the terms of
such proposal or inquiry, including the name of the third party.
In addition, notwithstanding the no solicitation covenant, Holly's board of
directors and Frontier's board of directors are permitted to
. take a position, and to disclose to its stockholders its position, with
respect to a tender offer in compliance with Rule 14e-2 of the Securities
Exchange Act of 1934, as amended, and
. make any disclosure to Holly's stockholders and Frontier's stockholders,
respectively, if, in its good faith judgment, failure to make such
disclosure would be inconsistent with its fiduciary duties under
applicable law or the rules of the exchange on which the company's common
stock is listed.
When we refer to an "acquisition proposal" we mean, with respect to Holly
and Frontier, any inquiry, proposal or offer with respect to a third party
tender offer, merger, consolidation, business combination or similar
transaction involving any assets or class of capital stock of Holly or
Frontier, respectively, or any acquisition of capital stock or a business or
assets of Holly or Frontier, respectively, with a value of $1,000,000 or more
in the aggregate.
When we refer to a "superior proposal" we mean, with respect to Holly and
Frontier, an unsolicited bona fide acquisition proposal made by a third party
that is on terms which Holly's board of directors or Frontier's
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board of directors, as the case may be, in good faith concludes (taking into
account all legal, financial, regulatory and other aspects of the proposal and
the likelihood of consummation and after consultation with its financial
advisors) would result in a more favorable transaction to Holly's stockholders
or Frontier's stockholders, as the case may be, from a financial point of view.
Timing of Closing
The closing will occur on the second business day immediately following the
day the conditions set forth in the merger agreement are fulfilled or waived,
unless Holly and Frontier agree to a different date or time in writing.
We expect to complete the merger promptly after the Holly and Frontier
special meetings.
Conditions to the Completion of the Merger
Holly's and Frontier's obligations to complete the merger are each subject
to the fulfillment or waiver of specified conditions before completion of the
merger, including the following:
. the approval and adoption of the merger agreement by the affirmative vote
of the holders of a majority of the voting power of the outstanding
shares of Holly common stock and Frontier common stock;
. the absence of any statute, rule, regulations, decree, order or
injunction prohibiting completion of the merger;
. the expiration or termination of the applicable waiting periods under the
HSR Act, which expired on May 19, 2003;
. the receipt of all other governmental and regulatory consents required to
complete the merger, unless not obtaining those consents would not
reasonably be expected to delay or prevent the consummation of the merger
or have a material adverse effect on the expected benefits of the
transactions contemplated by the merger agreement to Parent;
. the approval for listing, by the New York Stock Exchange, of the shares
of Parent common stock to be issued, or to be reserved for issuance, in
connection with the merger, subject to official notice of issuance; and
. the declaration of effectiveness of the registration statement on Form
S-4, of which this joint proxy statement/prospectus forms a part, by the
Securities and Exchange Commission, and the absence of any stop order or
threatened or pending proceedings seeking a stop order.
Holly's obligation to complete its merger is subject to the satisfaction or
waiver of the following additional conditions before completion of the merger:
. Frontier's representations and warranties contained in the merger
agreement that are qualified as to materiality or material adverse effect
must be true and correct and those representations and warranties not so
qualified must be true and correct in all material respects, as of the
date of the merger agreement and the date of completion of the merger,
except for representations and warranties that address matters as of a
specific date, which must be true and correct as of that specific date;
. Frontier must have performed in all material respects all of its
covenants and agreements contained in the merger agreement and required
to be performed at or prior to the completion of the merger; and
. Holly must have received from Vinson & Elkins L.L.P., counsel to Holly, a
written opinion, dated the closing date, to the effect that, for U.S.
federal income tax purposes, the Holly merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and/or the Holly merger and the Frontier merger, taken
together, will constitute an exchange described in Section 351 of the
Internal Revenue Code.
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Frontier's obligation to complete its merger is subject to the satisfaction
or waiver of the following additional conditions before completion of the
merger:
. Holly's representations and warranties contained in the merger agreement
that are qualified as to materiality or material adverse effect must be
true and correct and those representations and warranties not so
qualified must be true and correct in all material respects, as of the
date of the merger agreement and the date of completion of the merger,
except for representations and warranties that address matters as of a
specific date, which must be true and correct as of that specific date;
. Holly must have completed the acquisition of the Woods Cross refinery
near Salt Lake City, Utah from ConocoPhillips pursuant to, and on
substantially the terms and conditions set forth in, the relevant
purchase agreement, which was completed as of June 1, 2003;
. Holly must have performed in all material respects all of its covenants
and agreements contained in the merger agreement required to be performed
at or prior to the completion of the merger; and
. Frontier must have received from Andrews & Kurth L.L.P., counsel to
Frontier, a written opinion dated the closing date to the effect that,
for U.S. federal income tax purposes, the Frontier merger will constitute
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and/or the Frontier merger and the Holly merger, taken
together, will constitute an exchange described in Section 351 of the
Internal Revenue Code.
Termination of the Merger Agreement
Either Holly or Frontier may terminate the merger agreement:
. by mutual written consent of both companies;
. if the merger is not completed on or before October 31, 2003, as long as
the failure to complete the merger before that date is not the result of
the failure by the terminating company or its affiliates to fulfill any
of its obligations under the merger agreement;
. if a governmental entity takes any action permanently prohibiting the
transactions contemplated by the merger agreement, and that action has
become final and nonappealable;
. if either Holly's stockholders or Frontier's stockholders fail to approve
and adopt the merger agreement at a duly held meeting of stockholders;
. if, prior to the receipt of the approval of its stockholders, the other
company's board of directors either withdraws or changes, in a manner
adverse to the terminating company, its approval or recommendation of the
merger agreement or the transactions contemplated thereby or recommends a
superior proposal, or resolves to do any of the foregoing;
. if the other company breaches or fails to perform any of its
representations, warranties, covenants or other agreements contained in
the merger agreement and the breach or failure cannot be cured within 30
days after written notice of such breach or failure is delivered; or
. following payment of a termination fee of $15 million and up to
$1,000,000 in expenses, if prior to the receipt of the approval of its
stockholders, its board of directors:
. withdraws or changes, in a manner adverse to the non-withdrawing
party, its approval or recommendation regarding the merger agreement
or the transactions contemplated thereby or
. approves or recommends a superior proposal,
if, in either case, its board of directors has determined in good faith,
after consultation with outside counsel, that the board's failure to take
such action would be inconsistent with the board's fiduciary duty. We
refer to each of these events as a "recommendation withdrawal event."
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Termination Fees
Holly has agreed to pay a termination fee of $15 million to Frontier and to
reimburse Frontier for up to $1,000,000 in expenses if:
. either Holly or Frontier terminates the merger agreement because Holly's
stockholders fail to approve and adopt the merger agreement at a duly
held meeting of stockholders after an acquisition proposal with respect
to Holly is publicly announced; or
. Frontier terminates the merger agreement because, prior to receipt of the
approval of Holly's stockholders, Holly's board of directors either
withdraws or changes, in a manner adverse to Frontier, its approval or
recommendation of the merger agreement or the transactions contemplated
thereby or recommends a superior proposal, or resolves to do any of the
foregoing; or
. prior to receipt of the approval of Holly's stockholders, Holly
terminates the merger agreement pursuant to a recommendation withdrawal
event as described under "--Termination of the Merger Agreement" on page
106.
Frontier has agreed to pay a termination fee of $15 million to Holly and to
reimburse Holly for up to $1,000,000 in expenses if:
. either Holly or Frontier terminates the merger agreement because
Frontier's stockholders fail to approve and adopt the merger agreement at
a duly held meeting of stockholders after an acquisition proposal with
respect to Frontier is publicly announced; or
. Holly terminates the merger agreement because, prior to the receipt of
the approval of Frontier's stockholders, Frontier's board of directors
either withdraws or changes, in a manner adverse to Holly, its approval
or recommendation of the merger agreement or the transactions
contemplated thereby or recommends a superior proposal, or resolves to do
any of the foregoing; or
. prior to receipt of the approval of Frontier stockholders, Frontier
terminates the merger agreement pursuant to a recommendation withdrawal
event as described under "--Termination of the Merger Agreement" on page
106.
Other Expenses
Whether or not the merger is completed, and except as provided under
"--Termination Fees" above, all costs and expenses incurred in connection with
the merger agreement and the merger will be paid by the party incurring the
expenses, except that Frontier and Holly are each required to pay one-half of
each regulatory filing, notification, registration or similar fee required to
be paid by any party in connection with the merger agreement under the HSR Act,
the Securities Act of 1933, the Securities Exchange Act of 1934 and other
applicable laws, rules and regulations of a governmental authority.
Indemnification and Insurance
The merger agreement provides that Parent will cause each of the surviving
subsidiary corporations to indemnify, defend and hold harmless, and provide
advancement of expenses to, all persons who, at any time prior to the merger,
were directors and officers of Holly or Frontier or any of their subsidiaries
to the fullest extent permitted under applicable law. Such directors and
officers are entitled under the merger agreement to have special independent
legal counsel determine whether they are entitled to such indemnification. In
addition, the merger agreement requires Parent to maintain directors' and
officers' liability insurance policies covering such persons for six years
following the completion of the merger on terms substantially no less
advantageous than Holly's or Frontier's existing policies, as applicable,
except that neither of the surviving corporations will be required to pay
annual premiums in excess of 250% of the annual premiums paid by Frontier or
Holly, as applicable, for 2003.
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Additional Agreements
Each of Holly and Frontier has agreed to use its reasonable best efforts to
satisfy the conditions to closing contained in the merger agreement as promptly
as practicable. In addition, each has agreed to:
. promptly make its filings and any other required submissions under the
HSR Act;
. use its reasonable best efforts to cooperate with one another in
determining which filings are required to be made and which consents,
approvals, permits, or authorizations are required to be obtained prior
to the completion of the merger from any domestic or foreign governmental
entity in connection with the merger agreement and the merger; and
. use its reasonable efforts to cooperate with one another in timely making
all such filings and timely seeking all such consents, approvals, permits
or authorizations.
Holly and Frontier have also agreed to consent to, and to use their
reasonable efforts to effect, any divestitures, licenses, hold separate
arrangements or similar matters if such actions are required by a governmental
entity as a condition to its approval of the merger and are contingent on the
completion of the merger. However, neither Holly nor Frontier are required to
take any action that would have a material adverse effect on either Holly or
Frontier.
The merger agreement provides that the executive headquarters for Parent
will be located in the Houston, Texas area and also provides for other
governance related matters. See "Directors and Management Following the Merger"
on page 114.
Amendment; Extension and Waiver
The merger agreement may be amended by Holly and Frontier, by action taken
or authorized by their respective boards of directors at any time before or
after the approval and adoption of the merger agreement by Holly stockholders
or Frontier stockholders. After the adoption of the merger agreement by the
stockholders of Holly and Frontier, no amendment may be made that by law
requires further approval by Holly stockholders or Frontier stockholders, as
the case may be, without further approval. All amendments to the merger
agreement must be in writing signed by each party.
At any time prior to the completion of the merger, Holly and Frontier may,
to the extent legally allowed, extend the time for performance of any
obligations and waive any inaccuracies in representations and warranties or
compliance with any agreements or conditions for the benefit of the waiving
party contained in the merger agreement. Any agreement on the part of Holly or
Frontier to any extensions or waivers must be in writing.
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OTHER AGREEMENTS
Contingent Value Rights Agreement
In September 2002, Holly, through two of its subsidiaries, Navajo Refining
Company, L.P. and Montana Refining Company, filed suit against the United
States government with respect to claims which total approximately $210 million
relating to jet fuel sales by these two Holly subsidiaries to the Defense Fuel
Supply Center in the years 1982 through 1995. These claims had been filed in
May and June 2001 and were denied by the Department of Defense in November
2001. In September 2002, Holly, through the same two subsidiaries, filed
additional claims with the Department of Defense under the Contract Disputes
Act asserting that additional amounts totaling approximately $88 million are
due to Holly with respect to jet fuel sales to the Defense Fuel Supply Center
in the years 1995 through 1999. In November 2002, the Department of Defense
issued final decisions rejecting the jet fuel claims for the years 1995 through
1999. Following these decisions, Holly, through the same two subsidiaries, in
November 2002 filed an amended complaint in the United States Court of Federal
Claims to add the jet fuel claims for the years 1995 through 1999 to its
pending suit which was filed in September 2002 and related originally to claims
for the years 1982 through 1995. As a result of the amendment, the total amount
sought in the jet fuel suit for all years from 1982 through 1999 is
approximately $298 million. In January 2003, the United States government filed
a motion for partial summary judgment in this suit, and in February 2003,
Holly, through the same two subsidiaries, filed a cross motion for partial
summary judgment. A portion of the value of potential future net recoveries, if
any, from these jet fuel claims has been preserved for Holly's stockholders by
entitling Holly's stockholders to receive contingent value rights in the merger.
Parent, Frontier, Holly, Front Range Merger Corporation, Himalaya Merger
Corporation, and Jack P. Reid, as representative of the holders of contingent
value rights, have entered into a contingent value rights agreement that will
govern the contingent value rights. A copy of the contingent value rights
agreement is attached as Annex B to this document.
A contingent value right will represent the right to receive a cash payment
equal to a pro rata portion, subject to the adjustments and deductions
summarized below, of any cash or non-cash compensation recovered by Holly or
its subsidiaries and affiliates in connection with
. the jet fuel claims lawsuit filed by subsidiaries of Holly against the
United States government,
. claims filed against the Department of Defense under the Contract
Disputes Act, and
. any similar future lawsuits, claims or appeals brought by Parent, Holly
or their affiliates related to the sale of jet fuel by Holly or any of
its subsidiaries to the United States government prior to March 30, 2003.
Parent will retain from any recovery an amount equal to
. two times the direct costs and expenses incurred by Parent, Holly's
subsidiaries and their affiliates in prosecuting such litigation and
claims from the date of the merger agreement, plus
. 10% of the amount of the recovery net of two times such direct costs and
expenses.
The amount payable to contingent value rights holders will also be decreased
by assumed income tax liabilities of Parent attributable to the receipt of
litigation or settlement proceeds and increased by assumed income tax benefits
to Parent attributable to the payment of jet fuel litigation expenses and the
payments to the contingent value rights holders.
The contingent value rights agreement requires Parent to cause the
subsidiaries of Holly to prosecute the jet fuel litigation and claims described
above in good faith. The contingent value rights agreement also provides, among
other things, for Mr. Reid to serve as representative of the holders of the
contingent value rights. Parent
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has agreed to pay the representative not less than $4,000 per month, beginning
after the completion of the merger, for serving as the representative and to
indemnify the representative for serving in that capacity, except for the
representative's willful misconduct or bad faith. The holders of a majority of
the contingent value rights may remove the representative at any time, in which
case the board of directors of Parent will appoint the representative's
successor. The representative's successor must be a holder of contingent value
rights, but cannot be an officer of Parent.
The representative will have the right to approve in writing any settlement
of any aspect or portion of the jet fuel litigation prior to (but not on or
after) the first date on which "claims expenses" paid by Parent, Holly and
their subsidiaries after March 29, 2003 exceed $2.5 million. After these
"claims expenses" exceed $2.5 million, no consent of the representative will be
required for any settlement. The contingent value rights agreement defines
"claims expenses" to be the sum of all direct expenses paid after March 29,
2003, by Parent, Holly's subsidiaries or their affiliates in prosecuting the
litigation, including any amounts paid to or on behalf of the representative as
compensation, reimbursement of expenses or indemnification pursuant to the
contingent value rights agreement.
The contingent value rights agreement prohibits the transfer of the
contingent value rights, except by will, upon death or by operation of law, and
no certificates will be prepared or issued to holders of contingent value
rights. The contingent value rights agreement requires that the consent of the
holders of a majority of the contingent value rights be obtained to amend the
contingent value rights agreement in any manner adverse to interests of the
holders of contingent value rights. The contingent value rights agreement also
requires Parent to provide each holder of a Parent stock option who was a
holder of a Holly stock option immediately prior to the consummation of the
merger with written notice of any payment to the holders of contingent value
rights not less than ten days prior to the date that any such payment is made.
Each holder of a Holly stock option outstanding immediately before the
merger (whether vested or unvested) and converted into a Parent stock option
will, upon exercise of the Parent stock option, receive one contingent value
right for each share of Holly common stock into which such Holly stock option
was exercisable immediately prior to completion of the merger, except that no
contingent value rights will be issued to any holder of such Parent stock
option who does not exercise the option prior to the date of the first payment
to the holders of contingent value rights.
Support Agreements
In connection with the signing of the merger agreement, Holly entered into
support agreements with each of James R. Gibbs, Frontier's Chairman of the
Board, President and Chief Executive Officer, Julie H. Edwards, Frontier's
Executive Vice President--Finance & Administration and Chief Financial Officer,
and W. Reed Williams, Frontier's Executive Vice President Refining & Marketing
Operations, and the directors of Frontier, whereby each of these executive
officers and directors agreed to vote or cause to be voted the shares of
Frontier common stock beneficially owned by him or her:
. in favor of the approval and adoption of the merger agreement and the
transactions contemplated thereby;
. against any action, proposal, transaction or agreement that would result
in a breach of any covenant, representation or warranty or any other
obligation or agreement of Frontier under the merger agreement;
. against any business combination involving Frontier other than the
merger; and
. against any action or proposal that could prevent, impede, interfere
with, delay or adversely affect the merger and the other transactions
contemplated by the merger agreement.
In addition, among other things, each of the directors and those executive
officers of Frontier referred to above granted Holly an irrevocable proxy to
vote his or her shares in the manner described above and agreed not
110
to transfer his or her shares during the term of the support agreement, subject
to limited exceptions, or to take any action that would prevent, impede or
interfere with or adversely affect his or her ability to perform his or her
obligations under the support agreement. As of the record date, the shares of
Frontier common stock subject to support agreements represented approximately
[2] percent of the outstanding shares of Frontier common stock.
The support agreements terminate on the earlier to occur of the mutual
consent of the parties, October 31, 2003, the effective time of the merger or
the termination of the merger agreement.
In connection with the signing of the merger agreement, Frontier entered
into support agreements with each of C. Lamar Norsworthy, III, Holly's Chairman
of the Board and Chief Executive Officer, Matthew P. Clifton, Holly's
President, W. John Glancy, Holly's Senior Vice President, Secretary and General
Counsel, and the directors and certain stockholders of Holly, whereby each of
these executive officers, directors and stockholders agreed to vote or cause to
be voted the shares of Holly common stock beneficially owned by him or her:
. in favor of the approval and adoption of the merger agreement and the
transactions contemplated thereby;
. against any action, proposal, transaction or agreement that would result
in a breach of any covenant, representation or warranty or any other
obligation or agreement of Holly under the merger agreement;
. against any business combination involving Holly other than the merger;
and
. against any action or proposal that could prevent, impede, interfere
with, delay or adversely affect the merger and the other transactions
contemplated by the merger agreement.
In addition, among other things, each of the directors, executive officers
and stockholders of Holly referred to above granted Frontier an irrevocable
proxy to vote his or her shares in the manner described above and agreed not to
transfer his or her shares during the term of the support agreement, subject to
limited exceptions, or to exercise any of his or her Holly stock options or
fail to give any requested or required consent to the conversion of any such
options into options as provided for in the merger agreement or to take any
action that would prevent, impede or interfere with or adversely affect his or
her ability to perform his or her obligations under the support agreement. As
of the record date, the shares of Holly common stock subject to support
agreements represented approximately [36] percent of the outstanding shares of
Holly common stock. The support agreements terminate on the earlier to occur of
the mutual consent of the parties, October 31, 2003, the effective time of the
merger or the termination of the merger agreement.
Registration Rights Agreement
Parent has entered into a registration rights agreement with the following
directors, officers and stockholders of Holly and Frontier: with respect to
Holly, C. Lamar Norsworthy, III, Matthew P. Clifton, W. John Glancy, William J.
Gray, Marcus R. Hickerson, Thomas K. Matthews, II, Robert G. McKenzie,
Jack P. Reid, Paul T. Stoffel, Nona Barrett, Betty Simmons East Texas Trust,
Margaret Simmons East Texas Trust, Suzanne Simmons East Texas Trust, Betty
Simmons Nueces County Trust, Margaret Simmons Nueces County Trust, Suzanne
Simmons Nueces County Trust, NBN Capital Limited Partnership, and NBN Asset
Management Company, L.L.C; and with respect to Frontier, James R. Gibbs, Julie
H. Edwards, W. Reed Williams, Douglas Y. Bech, G. Clyde Buck, T. Michael
Dossey, James H. Lee, Paul B. Loyd, Jr., Carl W. Schafer and James S. Palmer.
Parent must file a shelf registration statement on Form S-3 covering the offer
and resale by such stockholders of the shares of Parent common stock to be
received by such stockholders in the merger (including any shares of Parent
common stock issuable upon exercise of Parent stock options received by such
stockholders pursuant to the merger agreement). Parent must use its reasonable
best efforts to have the registration statement declared effective by the
Securities and Exchange Commission promptly after the completion of the merger.
The offer and resale of these shares will be pursuant to a plan of distribution
proposed by a majority in interest of such stockholders and approved by Parent,
which approval may not be unreasonably withheld, but the plan of distribution
will not include an underwritten public offering. Parent must maintain the
effectiveness of the shelf registration on Form S-3 for a period of two years
after the merger.
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Parent Stock Plan
Parent has adopted the Frontier Oil Corporation 2003 Stock Plan, which we
refer to as the "Parent stock plan," to be effective as of May 31, 2003. The
following general description of certain features of the Parent stock plan is
qualified in its entirety by reference to the full text of the plan, which is
attached to this joint proxy statement/prospectus as Annex L.
The Parent stock plan authorizes the conversion of Holly stock options into
Parent stock options according to the option exchange ratio described in "The
Merger Agreement--Effect on Awards Outstanding under Stock Plans" beginning on
page 102, as well as the conversion of Frontier stock options into Parent stock
options and Frontier restricted shares into Parent restricted shares. The
converted options will be issued with the same terms and conditions as the
prior options, except to the extent the terms or conditions of such prior
options were modified by the merger agreement or are inconsistent with the
Parent stock plan. The Parent stock plan also authorizes the issuance of new
stock options to eligible employees, officers, directors and consultants
according to the terms set forth in the plan or the applicable option
agreements, as determined by Parent's board of directors or a committee
appointed by Parent's board of directors to administer the plan, which we refer
to as the "committee." The committee will interpret and administer the Parent
stock plan.
Parent will reserve a total of 7,900,000 shares for purposes of the Parent
stock plan (subject to adjustment to reflect stock dividends, stock splits,
recapitalizations and similar transactions or events). The shares reserved by
Parent will cover issuances pursuant to existing Holly stock options and
existing Frontier stock options, all of which will be converted into Parent
stock options as described in "The Merger Agreement--Effect on Awards
Outstanding Under Stock Plans" on page 102, and the exchange of existing
Frontier restricted stock for Parent restricted stock. The exact number of
reserved Parent shares needed to cover the existing Holly stock options and
existing Frontier stock options and restricted shares will be determined based
on the number of existing stock options and restricted shares at the time of
the merger, and based on the option exchange ratio applicable to Holly stock
options, which in turn will be determined based on the market price of Frontier
shares during a five-day measurement period prior to the merger. As of the date
of this joint proxy statement/prospectus, approximately [4,986,954 (based on
the total number of Holly stock options and Frontier stock options and
restricted stock outstanding as of June 18, 2003)] of the 7,900,000 total
shares would be required to cover the existing stock options and restricted
shares. The remainder of the shares reserved are for purposes of issuing new
options and other stock grants under the Parent stock plan after the merger. In
all events, the total number of shares issued under the Parent stock plan
cannot exceed the amounts (giving effect to the Holly option exchange ratio)
that were previously approved by Holly and Frontier stockholders and those
shares, if any, that may be approved by Parent stockholders in a timely manner
after the merger.
Term. The Parent stock plan will terminate on May 31, 2013. After such
termination, the committee may not make any awards under the Parent stock plan.
However, unless otherwise provided in the plan or the applicable option
agreement, any award granted prior to the termination of the plan, and the
authority of the committee to amend, alter, adjust, suspend, discontinue or
terminate any such award or to waive any conditions or rights under such award,
will extend beyond the termination.
Stock Options. New options issued under the Parent stock plan must have an
exercise price that is equal to or greater than the market value of shares of
Parent common stock on the date of the award. Options may be granted for no
cash consideration or for such consideration as the committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law. No employee may receive options with respect to
more than 1,000,000 shares in any calendar year (subject to adjustment to
reflect stock dividends, stock splits, recapitalizations, and similar
transactions or events). The term of each stock option will be determined by
the committee as set forth in the option agreement, but may not be longer than
ten years.
Options granted under the Parent stock plan may be "incentive stock options"
or "non-qualified stock options" within the meaning of Section 422 of the
Internal Revenue Code. Incentive stock options may be granted only to employees
of Parent and its subsidiaries. To the extent the aggregate market value of the
shares
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(determined as of the date of grant) of an option to the extent exercisable for
the first time during any calendar year (under all plans of Parent and its
subsidiaries) exceeds $100,000, such option shares in excess of $100,000 will
not be incentive stock options.
Phantom Stock Awards. Under the Parent stock plan, the committee may grant
awards which we call "phantom stock awards" to any participant. A phantom stock
award is a right to receive cash at the end of a specified deferral period as
determined by the committee. The phantom stock awards may be subject to such
restrictions or contingent upon obtaining such performance goals as the
committee may determine. If the committee determines that the phantom stock
award should constitute "performance-based compensation" for income tax
deduction purposes, the performance goals will be established in a manner that
complies with the tax rules governing such compensation deductions.
Change in Control. Unless the award agreement provides otherwise, new
awards under the Parent stock plan will not automatically vest upon a change in
control if provision is made in writing in connection with such change in
control:
. for the continuation of the plan and/or the assumption of the awards
granted under the plan, or
. for the substitution for such awards of new awards covering the stock of
a successor entity or its parent or subsidiary, with appropriate
adjustments as to the number and kinds of shares and exercise prices,
in which events the plan and awards will continue in the manner and under the
terms so provided in the plan unless the award agreement provides otherwise.
Transferability. No awards are transferable by the recipient except (1) by
will or the laws of descent and distribution, (2) as provided in the applicable
award agreement, or (3) with the consent of the committee, to immediate family
members or related family trusts, limited partnerships or similar entities on
terms and conditions that the committee may establish.
Amendments. The board or the committee may amend, alter, suspend,
discontinue, or terminate the Parent stock plan without the consent of any
stockholder, participant, other holder or beneficiary of an award, or other
person, except that no such amendment may be made without stockholder approval,
if such amendment would
. materially increase the benefits accruing to participants,
. increase the number of shares authorized under the plan, except in the
case of adjustments for recapitalizations, stock splits, or other similar
events, or
. permit reduction in the exercise price or permit an "underwater" option
to be cancelled and replaced with a new award.
The committee may waive any conditions or rights under, amend any terms of,
or alter any award, except that no change in any award will reduce the benefit
to participant without the consent of such participant. Notwithstanding the
foregoing, with respect to any award intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code, no adjustment
other than an acceleration of vesting or payment upon the participant's death,
disability or change of control will be authorized to the extent such
adjustment would cause the award to fail to so qualify.
Adjustments. The committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, awards to account for unusual
or nonrecurring events affecting Parent, any affiliate, or the financial
statements of Parent or any affiliate, or in recognition of changes in
applicable laws, regulations, or accounting principles, whenever the committee
determines that such adjustments are appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Parent stock plan.
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DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
Directors of Parent
At the effective time of the merger, the board of directors of Parent will
consist of 12 members to be comprised of six directors chosen by the current
board of directors of Frontier, one of whom will be James R. Gibbs, and six
directors chosen by the current board of directors of Holly, one of whom will
be C. Lamar Norsworthy, III. Except for Mr. Gibbs and Mr. Norsworthy, each of
the directors will be independent in accordance with the currently proposed
rules of the New York Stock Exchange. Each director will serve for a term
expiring on the earlier of his or her death, resignation or removal or the next
annual meeting of stockholders and, despite the expiration of his or her term,
until his or her successor has been elected and qualified or there is a
decrease in the number of directors. Frontier and Holly have not yet selected
the individuals who will be designated to serve on the initial board of
directors of Parent.
The amended and restated bylaws of Parent provide that, during the period
from the completion of the merger until immediately after the 2005 annual
meeting of stockholders of Parent, the affirmative vote of at least 66 2/3
percent of the members of the entire board of directors, including one Holly
designee (or his or her successor) and one Frontier designee (or his or her
successor), will be required to:
. terminate or remove the individuals serving as chairman of the board of
directors or the president and chief executive officer of Parent at the
effective time of the merger;
. diminish the powers and duties of the chairman or the president and chief
executive officer;
. propose any amendment to the articles of incorporation of Parent for
submission to the stockholders that would eliminate, limit, restrict,
avoid or otherwise modify the effect of the specific governance
provisions in the bylaws in effect from the completion of the merger to
the 2005 annual meeting;
. sell, lease, assign, transfer, exchange or otherwise dispose of all or
substantially all of the assets of Parent; or
. agree to or consummate any transaction that would result in the
acquisition by any person of beneficial ownership of 25% or more of
either the shares of common stock then outstanding or the combined voting
power of the voting securities then outstanding and entitled to vote in
the election of directors.
The amended and restated bylaws prohibit the board of directors, during the
time period specified above, without the affirmative vote of all members of the
board of directors, from taking any action or failing to take any action that
would have the effect of eliminating, limiting, restricting, avoiding or
otherwise modifying the effect of the governance provisions in the amended and
restated bylaws to be in effect until the 2005 annual meeting of stockholders
of Parent.
Committees of the Board of Directors of Parent
The board of directors will have an executive committee, an audit committee,
a compensation committee, a nominating and corporate governance committee and a
safety and environmental committee to perform the functions traditionally
performed by these committees. In addition, the board of directors may
designate other committees.
During the period from the completion of the merger until immediately after
the 2005 annual stockholders meeting, each committee will consist of four
directors comprised of an equal number of directors designated by each of
Frontier and Holly.
The nominating and corporate governance committee will have the authority to
recommend to the board of directors from the suggestions provided by the Holly
designees and the Frontier designees (or their successors) those individuals to
be designated by Parent for election by the stockholders and to fill any
vacancies in the board of directors or fill any vacancies in any committee
other than itself. During the period from the completion of the merger until
immediately after the 2005 annual stockholders meeting, the nominating and
corporate
114
governance committee will endeavor in good faith to only recommend for election
to the board of directors or to fill vacancies on the board of directors or any
committee thereof (for which the nominating and corporate governance committee
has responsibility) candidates who are qualified to serve on the board of
directors or the applicable committee thereof. The nominating and corporate
governance committee's assessment as to the qualifications of candidates for
election to, or to fill vacancies on, the board of directors includes, without
limitation, consideration of each candidate's ability to perform his or her
duties as part of an effective, functioning board of directors and also
consideration of the independence, financial expertise, skills, experience, and
diversity needs of the board of directors.
Compensation of Directors of Parent
After the merger, each director of Parent who is not an employee of Parent
will be paid a fee of $2,000 per month and $1,500 for each Board meeting
attended (including telephonic meetings), plus $1,500 for any committee meeting
attended. Additionally, the chairman of the audit committee will receive a fee
of $10,000 per year and all other committee chairmen will receive a fee of
$5,000 per year. Each non-employee director of Parent will be eligible to
participate in Parent's stock plan described in "Other Agreements--Parent Stock
Plan" beginning on page 112.
No member of the board of directors will be paid any remuneration for his or
her service as a director other than pursuant to the standard compensation
arrangement for directors. Directors who are officers of Parent will not
receive any compensation for their services as a director, except that the
chairman of the board, as an officer of Parent, will receive compensation for
serving as the chairman of the board of directors. Parent will reimburse its
directors for travel expenses incurred in attending board meetings.
Management of Parent
Upon completion of the merger, Mr. C. Lamar Norsworthy, III will serve as
Chairman of the Board of Directors, Mr. James R. Gibbs will serve as President
and Chief Executive Officer and Ms. Julie H. Edwards will serve as Executive
Vice President and Chief Financial Officer.
As Chairman of the Board of Directors of Parent, Mr. Norsworthy will preside
at meetings of the board of directors and, in the event that the chief
executive officer is unable to serve due to temporary illness or other
disability or resigns or is terminated, would serve as chief executive officer
until the chief executive officer resumes his or her duties or another person
is appointed by the board of directors. Mr. Norsworthy (age 56) has been a
director of Holly since 1967 and is Chairman of the Board and Chief Executive
Officer of Holly. Mr. Norsworthy is also a director of Cooper Cameron
Corporation.
Mr. Gibbs, as President and Chief Executive Officer of Parent, will have
general management responsibility over the business of Parent and supervision
of its officers. Mr. Gibbs (age 59) joined Frontier in February 1982 and has
been President and Chief Operating Officer since January 1987. He assumed the
additional position of Chief Executive Officer of Frontier on April 1, 1992 and
also became Chairman of the Board of Frontier on April 29, 1999. Mr. Gibbs is a
member of the board of directors of Smith International, Inc., an oil field
service company; an Advisory Director of Frost National Bank, Houston; a
director of Veritas DGC Inc., a seismic service company; and a director of
Gundle/SLT Environmental, Inc., an environmental service company. Mr. Gibbs was
elected a director of Frontier in 1985.
Ms. Edwards, as Executive Vice President and Chief Financial Officer, will
have the customary responsibilities of a chief financial officer. Ms. Edwards
(age 44) is currently the Executive Vice President--Finance & Administration of
Frontier. She joined Frontier in March 1991 as Vice President--Secretary &
Treasurer, was Senior Vice President--Finance & Chief Financial Officer from
August 1994 until April 2000, when she was promoted to her current position.
From 1985 to February 1991, she was employed by Smith Barney, Harris Upham &
Co. Inc. in the corporate finance department. Prior to 1985, she was employed
by Amerada Hess Corporation and American Ultramar, Ltd., each of which were oil
companies, as a geologist. Ms. Edwards recently became a member of the board of
directors of EOTT Energy LLC, a crude oil pipeline company, the new entity that
emerged from the bankruptcy of EOTT Energy Partners, L.P.
115
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management of Holly
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of Holly common stock as of the Holly record
date by (i) each current director of Holly, (ii) the executive officers of
Holly, (iii) all executive officers and directors of Holly as a group and (iv)
each other person known to Holly to own beneficially more than five percent of
Holly common stock outstanding on the Holly record date. Unless otherwise
indicated, all stockholders set forth below have the same principal business
address as Holly.
Holly has determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission. The number of shares beneficially owned
by a person includes shares of Holly common stock that are subject to stock
options that are either currently exercisable or exercisable within 60 days
after the Holly record date. These shares are also deemed outstanding for the
purpose of computing the percentage of outstanding shares owned by the person.
These shares are not deemed outstanding, however, for the purpose of computing
the percentage ownership of any other person. Unless otherwise indicated, to
Holly's knowledge, each stockholder has sole voting and dispositive power with
respect to the securities beneficially owned by that stockholder. As of July
31, 2003, there were 15,506,028 shares of Holly common stock outstanding.
Number of
shares and Percent of
nature of common
beneficial stock
Name and Address of Beneficial Owner ownership outstanding
------------------------------------ ---------- -----------
Brown Brothers Harriman Trust Company of Texas, trustee of trusts in the
names of Betty Regard, Margaret Simmons and Suzanne Bartolucci(1)........ 3,022,272(2) 19.5%
2001 Ross Avenue
Dallas, Texas 75201-2996
FMR Corp................................................................... 1,484,000(3) 9.6%
82 Devonshire Street
Boston, Massachusetts 02109
Merrill Lynch Trust Company, FSB Trustee for Thrift Plan for Employees of
Holly Corporation, Its Affiliates and Subsidiaries....................... 821,686(4) 5.3%
9603 South Meridian Boulevard
B-4-GES-SW
Englewood, Colorado 80112
Dimensional Fund Advisors, Inc............................................. 1,062,140(5) 6.8%
1299 Ocean Avenue
Santa Monica, California 90401
Frontier Oil Corporation................................................... 6,068,690(6) 37.9%
10000 Memorial Drive
Suite 600
Houston, Texas 77024-3411
C. Lamar Norsworthy, III................................................... 804,209(7)(8)(9) 5.1%
Nona Barrett............................................................... 605,664 3.9%
P.O. Box 150
Crested Butte, Colorado 81224
Paul T. Stoffel............................................................ 542,400 3.5%
C. Lamar Norsworthy, III and Brown Brothers
Harriman Trust Company of Texas, as co-trustees of three trusts for the
benefit of David Norsworthy, Lamar Norsworthy and Nona Barrett,
respectively(10)......................................................... 571,716(11) 3.7%
2001 Ross Avenue
Dallas, Texas 75201-2996
116
Number of
shares and Percent of
nature of common
beneficial stock
Name and Address of Beneficial Owner ownership outstanding
------------------------------------ ---------- -----------
Matthew P. Clifton..................................... 217,105(8)(9) 1.4%
Jack P. Reid........................................... 210,539(8) 1.3%
W. John Glancy......................................... 52,800(8) *
William J. Gray........................................ 30,098 *
Stephen J. McDonnell................................... 32,000(8) *
John A. Knorr.......................................... 9,084(8)(9) *
Marcus R. Hickerson.................................... 9,112(12) *
Robert G. McKenzie..................................... 2,000 *
Thomas K. Matthews, II................................. 800 *
All directors and officers as a group (21 Persons) (13) 2,617,045(8)(9) 16.2%
- --------
* less than one percent
(1) The named individuals are life beneficiaries and their "children and
descendants," of whom there are now eleven, are residuary beneficiaries of
these trusts.
(2) Brown Brothers Harriman Trust Company of Texas has filed with the
Securities and Exchange Commission a Schedule 13G, dated June 14, 2001.
Based on the Schedule 13G, Brown Brothers has sole voting power with
respect to 1,511,136 shares and shared dispositive power with respect to
285,858 shares of Holly common stock, and sole dispositive power with
respect to 2,177,924 shares and shared dispositive power with respect to
285,858 of Holly common stock.
(3) FMR Corp. has filed with the Securities and Exchange Commission an amended
Schedule 13G, dated February 13, 2003. Based on the most recent amendment,
FMR has sole voting power with respect to 0 shares and shared voting power
with respect to 0 shares of Holly common stock, and sole dispositive power
with respect to 1,484,000 shares and shared dispositive power with respect
to 0 shares of Holly common stock.
(4) Voting power is shared with plan participants.
(5) Dimensional Fund Advisors Inc. has filed with the Securities and Exchange
Commission an amended Schedule 13G dated February 11, 2003. Based on the
most recent amendment, Dimensional Fund has sole voting power with respect
to 1,062,140 shares and shared voting power with respect to 0 shares of
Holly common stock, and sole dispositive power with respect to 1,062,140
shares and shared dispositive power with respect to 0 shares of Holly
common stock.
(6) Frontier Oil Corporation has filed with the Securities and Exchange
Commission a Schedule 13D, dated April 9, 2003. Based on this filing,
Frontier Oil Corporation entered into support agreements with the
following shareholders of Holly Corporation: C. Lamar Norsworthy, III,
Matthew P. Clifton, Nona Barrett, William J. Gray, Marcus R. Hickerson,
Thomas K. Matthews, II, Robert G. McKenzie, Jack P. Reid, Paul T. Stoffel,
Brown Brothers Harriman Trust Company of Texas, as trustee for various
trusts, NBN Capital Limited Partnership, NBN Asset Management Company,
L.L.C. The number of shares held by persons subject to the support
agreements has been adjusted from 6,096,875 shares as of April 9, 2003 to
6,068,690 shares as of July 31, 2003.
(7) Does not include 571,176 shares which are beneficially owned by three
trusts of which Mr. Norsworthy is a co-trustee and which are listed
separately.
(8) The number of shares beneficially owned includes shares of Holly common
stock of which such individuals have the right to acquire beneficial
ownership either currently or within 60 days after the record date, upon
the exercise of options, as follows: 168,000 shares for Mr. Norsworthy,
180,400 shares for Mr. Clifton, 52,400 shares for Mr. Glancy, 100,000
shares for Mr. Reid, 32,000 shares for Mr. McDonnell, 4,800 shares for Mr.
Knorr, and 623,400 shares for all directors and officers as a group.
(9) The number of shares beneficially owned includes shares in the Thrift Plan
for Employees of Holly Corporation, Its Affiliates and Subsidiaries as
follows: 21,509 shares for Mr. Norsworthy, 36,705 shares for Mr. Clifton,
4,284 shares for Mr. Knorr and 109,067 shares for all directors and
officers as a
117
group. All such shares are currently subject to the participant's
directions as to holding or selling such shares.
(10) The named individuals are the life beneficiaries and members of their
families are the residuary beneficiaries of these trusts. Substantially
all of the 571,176 shares are held in a limited partnership of which the
general partner is a limited liability company owned and controlled by
these trusts. The 98.5% limited partner in such partnership is a trust of
which Mr. Norsworthy and Brown Brothers are co-trustees and under which,
unless the life beneficiary of the trust exercises a power of appointment
directing otherwise, residuary beneficiaries are the trusts for the
benefit of Mr. Norsworthy, David Norsworthy and Nona Barrett of which
Brown Brothers is the trustee.
(11) The co-trustees share indirect voting and investment powers. Mr.
Norsworthy disclaims beneficial ownership of 568,856 of these shares.
(12) Includes 6,000 shares as to which Mr. Hickerson disclaims beneficial
ownership.
(13) Includes 574,856 shares as to which the holders of Holly common stock
disclaim beneficial ownership.
118
Security Ownership of Certain Beneficial Owners and Management of Frontier
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of Frontier common stock as of August 4,
2003 by (i) each current director of Frontier, (ii) the executive officers of
Frontier, (iii) all executive officers and directors of Frontier as a group and
(iv) each other person known to Frontier to own beneficially more than five
percent of Frontier common stock outstanding on the Frontier record date.
Unless otherwise indicated, all stockholders set forth below have the same
principal business address as Frontier.
Number of
shares
and nature Percent of
of beneficial common stock
Name and Address of Beneficial Owner ownership outstanding (1)
------------------------------------ ------------- ---------------
AXA Financial, Inc...................................... 2,248,617(2) 8.6
1290 Avenue of the Americas
New York, New York 10104
Oppenheimer Funds, Inc.................................. 2,244,000(3) 8.6
498 Seventh Avenue
New York, New York 10018
Oppenheimer Main Street Growth & Income Fund............ 1,842,100(3) 7.0
6803 S. Tucson Way
Englewood, Colorado 80112
Barclay's Global Investors, NA.......................... 1,834,127(4) 7.0
45 Fremont Street
San Francisco, California 94105
Ingalls & Snyder LLC.................................... 1,589,495(5) 6.0
61 Broadway
New York, New York 10006
Great Plains Trust Company.............................. 1,577,000(6) 6.0
4705 Mission Road
Westwood, Kansas 66205
Kornitzer Capital Management, Inc....................... 1,377,694(6) 5.3
5420 West 61st Place
Shawnee Mission, Kansas 66205
Holly Corporation....................................... 2,084,925(7) 8.0
100 Crescent Court, Suite 1600
Dallas, TX 75201-6977
James R. Gibbs.......................................... 1,230,848(10) 4.6
Douglas Y. Bech (9)..................................... 36,625 *(8)
G. Clyde Buck (9)....................................... 26,625 *(8)
T. Michael Dossey (10).................................. 16,000 *(8)
James H. Lee (9)........................................ 24,125 *(8)
Paul B. Loyd, Jr. (9)................................... 26,625 *(8)
Carl W. Schafer (9)..................................... 31,625 *(8)
Julie H. Edwards........................................ 450,554(12) 1.7
W. Reed Williams........................................ 226,456(13) *(8)
J. Currie Bechtol....................................... 116,554(14) *(8)
Jon D. Galvin........................................... 180,970(15) *(8)
Directors and executive officers as a group (11 Persons) 2,367,007 9.0
119
- --------
* less than one percent
(1) Represents percentage of 26,140,517 outstanding shares of Frontier common
stock as of August 4, 2003.
(2) AXA, AXA Financial, Inc., the Mutuelles AXA (AXA Conseil Vie Assurance
Mutuelle, AXA Assurance I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and
AXA Courtage Assurance Mutuelle) have filed jointly as a group with the
Securities and Exchange Commission a Schedule 13G dated February 12, 2003.
Based on the filing, an AXA entity owns 112,200 of such shares and
subsidiaries of AXA Financial, Inc., Alliance Capital Management L.P. and
The Equitable Life Assurance Society of the United States own 2,079,617
shares and 56,800 shares, respectively, of such shares of Frontier common
stock. Each member of the group reports sole voting power with respect to
1,872,067 shares, shared voting power with respect to 14,500 shares, sole
dispositive power with respect to 2,136,417 shares and shared dispositive
power with respect to 112,200 shares of Frontier common stock.
(3) Oppenheimer Funds, Inc. ("Oppenheimer") has filed with the Securities and
Exchange Commission a Schedule 13G, dated October 22, 1999, and amendments
thereto, dated February 8, 2002 and February 13, 2003 (filed jointly with
Oppenheimer Main Street Growth & Income Fund ("Oppenheimer Main Street")).
Based on the most recent amendment, (i) Oppenheimer has sole voting power
with respect to no shares, sole dispositive power with respect to no
shares and shared dispositive power with respect to 2,244,000 shares of
Frontier common stock, and (ii) Oppenheimer Main Street has sole voting
power and shared dispositive power with respect to 1,842,100 shares of
Frontier common stock.
(4) Barclays Global Investors, NA ("Barclays") has filed with the Securities
and Exchange Commission a Schedule 13G dated February 10, 2003. Based on
the filing, Barclays has sole voting power and sole dispositive power with
respect to 1,834,127 of the above shares of Frontier common stock.
(5) Ingalls & Snyder LLC ("Ingalls & Snyder") has filed with the Securities
and Exchange Commission a Schedule 13G, dated September 6, 1995, and
amendments thereto, dated December 8, 1995, January 17 and June 10, 1996,
January 29 and July 28, 1997, February 9, 1998, February 5, 1999, January
26, 2000, February 7, June 12 and November 13, 2001, February 12, 2002 and
February 10, 2003. Based on the most recent amendment, Ingalls & Snyder
has sole voting power with respect to 32,737 of the above shares, sole
dispositive power with respect to 27,737 of the above shares and shared
dispositive power with respect to 1,556,758 of the above shares of
Frontier common stock.
(6) Kornitzer Capital Management, Inc. ("KCM") has filed with the Securities
and Exchange Commission a Schedule 13G, dated March 29, 1996, and
amendments thereto, dated February 10, 1997, February 17, 1998 (filed
jointly with Great Plains Trust Company ("Great Plains")), two amendments
dated February 27, 1999 (one of which was filed jointly with Great
Plains), two amendments dated February 14, 2001 (one of which was filed
jointly with Great Plains), an amendment dated February 14, 2002 and an
amendment dated February 14, 2003. Based on the most recent amendments,
(i) KCM has shared voting power and shared dispositive power with respect
to 1,377,694 shares of Frontier common stock, and (ii) Great Plains has
shared voting power and shared dispositive power with respect to 1,577,000
shares of Frontier common stock.
(7) Holly Corporation entered into support agreements with the following
shareholders of Frontier: James R. Gibbs, Julie H. Edwards, W. Reed
Williams, Douglas Y. Bech, G. Clyde Buck, T. Michael Dossey, James H. Lee,
Paul B. Loyd, Jr., James S. Palmer and Carl W. Schafer, relating to an
aggregate of 2,084,925 shares of Frontier common stock beneficially owned
by such shareholders. Such support agreements represent Holly's sole
voting power to vote such shares in favor of the merger.
(8) Represents percentage of outstanding shares plus shares issuable upon
exercise of all stock options owned by the individual listed that are
currently exercisable or that will become exercisable within 60 days of
the date for which beneficial ownership is provided in the table, assuming
stock options owned by all other stockholders are not exercised. As of
August 4, 2003, 26,140,517 shares of common stock were outstanding.
(9) Includes 23,125 shares with respect to which such person has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table.
(10) Includes 15,000 shares with respect to which such person has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table.
120
(11) Includes 915,000 shares with respect to which Mr. Gibbs has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table and 47,983 unvested
shares of restricted stock as to which Mr. Gibbs has voting and
dispositive power pursuant to the Frontier Oil Corporation Restricted
Stock Plan. Mr. Gibbs owns and has sole voting and sole dispositive power
with respect to 267,865 shares.
(12) Includes 315,500 shares with respect to which Ms. Edwards has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table and 21,964 unvested
shares of restricted stock as to which Ms. Edwards has voting and
dispositive power pursuant to the Frontier Oil Corporation Restricted
Stock Plan. Ms. Edwards owns and has sole voting power and sole
dispositive power with respect to 113,090 shares.
(13) Includes 198,750 shares with respect to which Mr. Williams has the right
to acquire under Frontier's stock option plans within 60 days of the date
for which beneficial ownership is provided in the table and 12,655
unvested shares of restricted stock as to which Mr. Williams has voting
and dispositive power pursuant to the Frontier Oil Corporation Restricted
Stock Plan. Mr. Williams owns and has sole voting power and sole
dispositive power with respect to 15,051 shares.
(14) Includes 103,200 shares with respect to which Mr. Bechtol has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table and 8,648 unvested
shares of restricted stock as to which Mr. Bechtol has voting and
dispositive power pursuant to the Frontier Oil Corporation Restricted
Stock Plan. Mr. Bechtol owns and has sole voting power and sole
dispositive power with respect to 4,706 shares.
(15) Includes 125,500 shares with respect to which Mr. Galvin has the right to
acquire under Frontier's stock option plans within 60 days of the date for
which beneficial ownership is provided in the table and 19,812 unvested
shares of restricted stock as to which Mr. Galvin has voting and
dispositive power pursuant to the Frontier Oil Corporation Restricted
Stock Plan. Mr. Galvin owns and has sole voting power and sole dispositive
power with respect to 35,658 shares.
121
COMPARATIVE STOCK PRICES AND DIVIDENDS
Holly common stock is currently traded on the American Stock Exchange under
the symbol "HOC." Frontier common stock is currently traded on the New York
Stock Exchange under the symbol "FTO."
The following table sets forth, for the fiscal periods indicated, dividends
and high and low sales prices per share of Holly common stock, as reported on
the American Stock Exchange, and dividends and high and low sales prices per
share of Frontier common stock, as reported on the New York Stock Exchange. For
current price information, you should consult publicly available sources.
Holly Common Stock
--------------------------
Dividends
Calendar Period High Low Paid
--------------- ------- ------- ---------
2001
First Quarter............................ $ 12.75* $ 7.07* $ 0.09*
Second Quarter........................... 25.07* 11.80* 0.09*
Third Quarter............................ 21.59* 14.10* 0.09*
Fourth Quarter........................... 20.40 15.25 0.10
2002
First Quarter............................ $ 20.80 $ 16.15 $ 0.10
Second Quarter........................... 19.40 14.25 0.10
Third Quarter............................ 17.87 15.25 0.10
Fourth Quarter........................... 17.68 14.57 0.11
2003
First Quarter............................ $ 28.80 $ 19.90 $ 0.11
Second Quarter........................... $ 29.25 $ 27.05 $ 0.11
Third Quarter (through [August 6], 2003). $[27.98] $[27.15] $[0.11]
- --------
* Adjusted for a 2 for 1 stock split effected on July 9, 2001.
Frontier Common Stock
--------------------------
Dividends
Calendar Period High Low Paid
--------------- ------- ------- ---------
2001
First Quarter............................ $ 8.99 $ 6.38 --
Second Quarter........................... 17.00 7.55 $ 0.05
Third Quarter............................ 17.99 10.80 0.05
Fourth Quarter........................... 20.25 14.65 0.05
2002
First Quarter............................ $ 21.90 $ 15.94 0.05
Second Quarter........................... 22.75 14.66 0.05
Third Quarter............................ 17.50 11.47 0.05
Fourth Quarter........................... 17.61 10.68 0.05
2003
First Quarter............................ $ 18.25 $ 14.01 0.05
Second Quarter........................... $ 18.16 $ 15.08 $ 0.05
Third Quarter (through [August 6], 2003). $[15.99] $[14.55] $[0.05]
The following table sets forth the closing prices per share of Holly common
stock on the American Stock Exchange and Frontier common stock on the New York
Stock Exchange on March 28, 2003, the last full trading day prior to the public
announcement of the merger, and on [August 6], 2003, the last trading day for
which this information could be calculated prior to the date of this joint
proxy statement/prospectus:
Holly Frontier
Common Common
Stock Stock
------- --------
March 28, 2003.. $ 22.10 $ 17.85
[August 6], 2003 $[27.22] $[14.70]
Because market prices of Holly common stock and Frontier common stock may
increase or decrease before the completion of the merger, stockholders are
urged to obtain current market quotations.
122
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements of Frontier, which we refer to as the "pro forma statements," give
effect to the merger, as well as to the offering and sale of the senior notes
under Rule 144A, as described in "Recent Developments--Senior Notes Offering by
Frontier" on page 32, and the use of proceeds therefrom, but do not include
Holly's acquisition of the Woods Cross refinery near Salt Lake City, Utah as
described in "Recent Developments--Woods Cross Refinery Acquisition by Holly"
beginning on page 33 or Holly's acquisition of Juarez Pipeline Company's 45%
partnership interest in the Rio Grande Pipeline Company as described in "Recent
Developments--Acquisition of Partnership Interest by Holly" on page 35. The
merger will be accounted for using the purchase method with Frontier as the
acquiror of Holly's business. Accordingly, Holly's assets and liabilities have
been adjusted to their estimated fair values based upon preliminary purchase
price allocations which have been made solely for the purposes of developing
the pro forma statements. Any subsequent adjustments and any uncertainties
affecting the pro forma statements based upon such allocations are not expected
to be significant. However, we cannot assure you that such adjustments will not
be significant. The results of operations of Holly's business will be included
in the consolidated financial statements of Parent following the closing date
of the merger.
The unaudited pro forma condensed consolidated statement of operations for
the three months ended March 31, 2003 and the year ended December 31, 2002
gives effect to the merger, and the offering and sale of the senior notes under
Rule 144A and the use of proceeds therefrom, as if these transactions had been
completed on January 1, 2002, but does not include Holly's acquisition of the
Woods Cross refinery near Salt Lake City, Utah or Holly's acquisition of Juarez
Pipeline Company's 45% partnership interest in the Rio Grande Pipeline Company.
This pro forma statement has been prepared based upon the historical
consolidated statement of operations of Frontier contained in Frontier's annual
report on Form 10-K, as amended, and quarterly report on Form 10-Q, as amended,
and of Holly prepared as described below. See "Where You Can Find More
Information" beginning on page 143.
The unaudited pro forma condensed consolidated balance sheet at March 31,
2003 gives effect to the merger, and the offering and sale of the senior notes
under Rule 144A, and the use of proceeds therefrom, but not including Holly's
acquisition of the Woods Cross refinery near Salt Lake City, Utah or Holly's
acquisition of Juarez Pipeline Company's 45% partnership interest in the Rio
Grande Pipeline Company, as if these transactions had occurred on March 31,
2003 and is based upon the historical consolidated balance sheet of Frontier
contained in Frontier's quarterly report on Form 10-Q, as amended, and of Holly
prepared as described below. See "Where You Can Find More Information"
beginning on page 143.
The Holly historical financial statements included in Holly's most recent
annual report on Form 10-K, as amended, and quarterly reports on Form 10-Q, as
amended, are for the fiscal year ended July 31, 2002 and the quarters ended
October 31, 2002, January 31, 2003 and April 30, 2003, respectively. For
purposes of the pro forma statements, the Holly historical financial statements
as of March 31, 2003 and for the three months ended March 31, 2003 and the year
ended December 31, 2002 has been derived from Holly's accounting records as of
and for the year ended July 31, 2002 and for the eight months ended March 31,
2003 and five months ended December 31, 2002. These compiled unaudited
financial statements have been prepared on a basis consistent with the Holly
historical financial statements for the fiscal year ended July 31, 2002.
The pro forma statements should be read in conjunction with the historical
consolidated financial statements, the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of both companies contained in their
respective annual reports on Form 10-K, as amended, and quarterly reports on
Form 10-Q, as amended, previously filed with the Securities and Exchange
Commission as described in "Where You Can Find More Information" beginning on
page 143 and incorporated herein by reference. The pro forma statements are not
necessarily indicative of the actual results of operations or financial
position of Frontier and Holly that would have occurred had the merger and the
offering and sale of the senior notes under Rule 144A and the use of proceeds
therefrom, but not including Holly's acquisition of the Woods Cross refinery
near Salt Lake City, Utah or Holly's acquisition of Juarez Pipeline Company's
45% partnership interest in the Rio Grande Pipeline Company, occurred on the
dates indicated nor are they necessarily indicative of future operating results
or financial position.
123
Frontier Oil Corporation
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2003
(in thousands)
Frontier Holly Pro
Historical Historical Adjustments Forma
---------- ---------- ----------- ----------
Assets
Current assets:
Cash and cash equivalents............................ $113,931 $ 28,306 $(172,500)(a) $ 138,077
(5,640)(a)
(35,714)(b)
(2,239)(b)
(6,210)(c)
218,143 (e)
Trade receivables, net of allowance.................. 52,778 191,434 -- 244,212
Notes receivable, net of allowance................... 1,449 -- -- 1,449
Other receivables.................................... 1,371 347 -- 1,718
Inventory of crude oil, products and other........... 145,285 70,968 41,916 (a) 258,169
Deferred tax current assets.......................... 2,243 29 (29)(a),(f) --
(2,243)(g)
Other current assets................................. 2,001 19,496 (6,750)(a),(d) 11,361
(3,386)(g)
-------- -------- --------- ----------
Total current assets.............................. 319,058 310,580 25,348 654,986
Property, plant and equipment, net................... 309,850 220,448 378,515 (a) 908,813
Asset held for sale.................................. 472 -- -- 472
Investment in joint ventures......................... -- 15,050 -- 15,050
Prepaid transportation............................... -- 25,000 -- 25,000
Other assets......................................... 9,444 8,989 (708)(a),(b) 20,499
(3,436)(a),(d)
6,210 (c)
-------- -------- --------- ----------
Total assets...................................... $638,824 $580,067 $ 405,929 $1,624,820
======== ======== ========= ==========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility............................ $ 29,100 $ 10,000 $ (10,000)(b) $ 29,100
Accounts payable..................................... 168,041 243,839 -- 411,880
Accrued turnaround cost.............................. 3,343 -- 10,813 (a),(d) 14,156
Accrued liabilities and other........................ 10,375 28,232 4,000 (a) 33,213
(851)(b)
(8,543)(g)
Current deferred tax liability....................... -- 50 9,225 (a),(f) 7,032
(2,243)(g)
Current portion of long-term debt.................... -- 8,571 (8,571)(b) --
Accrued interest..................................... 7,976 -- -- 7,976
-------- -------- --------- ----------
Total current liabilities......................... 218,835 290,692 (6,170) 503,357
-------- -------- --------- ----------
Long-term debt....................................... 208,013 17,143 (17,143)(b) 426,156
218,143 (e)
-------- -------- --------- ----------
Long-term accrued turnaround cost.................... 15,687 -- 782 (a),(d) 16,469
-------- -------- --------- ----------
Pension and post-retirement employee liabilities..... 18,991 -- 22,110 (a) 46,258
5,157 (g)
-------- -------- --------- ----------
Deferred credits and other........................... 4,230 -- -- 4,230
-------- -------- --------- ----------
Deferred income taxes................................ 9,783 32,818 143,836 (a) 176,432
(10,005)(a),(f)
-------- -------- --------- ----------
Stockholders' equity:
Preferred stock................................... -- -- -- --
Common stock...................................... 57,471 169 (169)(a) 458
155 (a)
(57,168)(h)
Paid-in capital................................... 102,761 15,609 (15,609)(a) 454,630
294,701 (a)
57,168 (h)
Retained earnings................................. 44,615 236,135 (236,135)(a) 43,227
(1,388)(b)
Accumulated other comprehensive (loss) income..... (598) -- -- (598)
Treasury stock.................................... (38,387) (12,499) 12,499 (a) (38,387)
Deferred employee compensation.................... (2,577) -- (4,835)(a) (7,412)
-------- -------- --------- ----------
Total stockholders' equity..................... 163,285 239,414 49,219 451,918
-------- -------- --------- ----------
Total liabilities and stockholders' equity.............. $638,824 $580,067 $ 405,929 $1,624,820
======== ======== ========= ==========
124
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet Adjustments:
(a) For purposes of the pro forma statements, the total estimated purchase
price of Holly's business is computed and allocated as follows (in thousands):
Purchase Consideration:
Value of common stock issued to Holly Corporation Stockholders (15,502,028
shares)....................................................................... $ 271,285
Value of outstanding options granted to Holly option holders (2,312,366 Frontier
options)...................................................................... 23,571
Cash paid to Holly Corporation stockholders..................................... 172,500
Estimated transaction costs..................................................... 5,640
---------
$ 472,996
=========
Allocated to:
Working capital items:
Cash.......................................................................... $ 28,306
Trade receivables............................................................. 191,434
Other receivables............................................................. 347
Inventory..................................................................... 112,884
Other current assets.......................................................... 12,746
Accounts payable.............................................................. (243,839)
Accrued turnaround cost....................................................... (10,813)
Accrued liabilities and other................................................. (28,232)
Accrued severance costs....................................................... (3,000)
Accrued relocation costs...................................................... (1,000)
Current deferred tax liability................................................ (9,275)
Property, plant and equipment:
Refineries.................................................................... 372,963
Pipeline...................................................................... 226,000
Debt:
Revolving credit facility..................................................... (10,000)
Current portion of long-term debt............................................. (8,571)
Long-term debt................................................................ (17,143)
Accrued pension and post-retirement employee liabilities........................ (22,110)
Deferred income taxes........................................................... (166,649)
Other:
Investment in joint ventures.................................................. 15,050
Prepaid transportation........................................................ 25,000
Other assets.................................................................. 4,845
Long-term accrued turnaround cost............................................. (782)
Deferred employee compensation (equity account)................................. 4,835
---------
Total allocation................................................................. $ 472,996
=========
The estimated purchase price and the resulting allocations are based on
management's preliminary estimates of the fair value of assets acquired and
liabilities assumed and have been made solely for purposes of developing the
pro forma statements. Any subsequent adjustments and any uncertainties
affecting the pro forma presentation based upon such allocations are not
expected to be significant. However, we cannot assure you that such allocations
will not be significant.
The value of the common stock issued to Holly Corporation stockholders is
based on the number of Holly common stock issued and outstanding currently and
will be updated immediately prior to the effective time of the
125
merger valued at Frontier's market price for a reasonable period before and
after the date that the terms of the merger were agreed to and announced. The
value of outstanding options granted to Holly option holders is the number of
Holly stock options outstanding currently, which will be updated at the
effective time of the merger multiplied by the option exchange ratio, as
defined in the merger agreement, valued at fair market value based on
Black-Scholes option pricing model with Frontier's assumptions.
Inventory of crude oil, products and other is adjusted to bring Holly's
last-in, first-out ("LIFO") inventory to fair market value as of March 31, 2003.
The estimated transaction costs of $5.6 million do not include costs related
to Holly's acquisition of the Woods Cross refinery near Salt Lake City, Utah or
Holly's transaction costs related to the merger.
To estimate the fair value of Holly's property, plant and equipment at the
time of the transaction Frontier relied upon Frontier's preliminary evaluations
of Holly's pipeline and refinery assets. In connection with the consummation of
the merger, we will obtain independent third party valuations of Holly's assets
in order to make a valuation determinations. Once these independent
determinations have been made, Frontier will be able to determine the final
allocations of the purchase price for accounting purposes and amount of
goodwill, if any, that will result from this transaction.
The accrual for pension and post-retirement employee liabilities of $22.1
million is to record the July 31, 2002 unfunded, unrecorded liability of Holly
retirement pension and benefit plans as determined by actuarial calculations.
The pension and benefit liability computations were also conformed to the lower
assumed discount rate used by Frontier.
(b) To record the prepayment of Holly's existing debt of $35.7 million and
estimated prepayment penalty of $2.2 million ($1.4 million net of tax) and
write off the remaining related deferred financing costs. In connection with
the debt prepayment, a prepayment penalty based on current interest rates and
remaining years to maturity will be payable to the lender. The prepayment
penalty will be reflected as Interest Expense and Other Financing Costs in
Frontier's financial statements in the period incurred. The actual prepayment
penalty may be higher or lower depending primarily on interest rate levels and
the date of the debt prepayment.
(c) To record the capitalization and payment of financing costs of $6.2
million for borrowings under the notes used to finance the merger.
(d) To conform Holly's accounting method of turnarounds to Frontier's
accounting method. Turnarounds consist of scheduled and required shutdowns of
refinery operating units for significant overhaul and refurbishment. Holly has
historically accounted for turnaround costs by deferring them and amortizing
such costs over the period until the next scheduled turnaround. Frontier has
historically accounted for the costs of turnarounds by ratably accruing such
estimated costs over the period from the prior turnaround to the next scheduled
turnaround.
(e) To record the offering of new senior notes in the aggregate principal
amount of $220.0 million issued at a $1.9 million original issue discount. The
original issue discount is reflected as a reduction of long-term debt on the
pro forma balance sheet and will be amortized to interest expense and other
financing costs over the 10 year life of the notes using the effective interest
method.
(f) To record the deferred tax effect of the inventory, turnaround, pension
and post-retirement pro forma adjustments.
(g) Reclassifications were made to conform Holly's account balances to the
Frontier presentation.
(h) To record the issuance of the new parent company stock to both existing
Frontier and Holly stockholders at $.01 par value.
126
Frontier Oil Corporation
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2002
(in thousands)
Frontier Holly
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ----------
Revenues.................................. $1,813,750 $974,846 $ -- $2,788,596
Costs and expenses:
Raw material costs, freight and other..... 1,562,613 798,340 (19,948)(a) 2,341,005
Refinery operating expenses, excluding
depreciation............................ 178,295 105,546 (245)(c) 283,596
Selling and general expenses, excluding
depreciation............................ 17,248 22,310 1,000 (b) 42,158
1,600 (d)
Impairment loss on asset held for sale.... 363 -- -- 363
Exploration expense, including dry holes.. -- 1,315 -- 1,315
Depreciation.............................. 27,332 21,360 13,013 (e) 61,705
---------- -------- -------- ----------
1,785,851 948,871 (4,580) 2,730,142
---------- -------- -------- ----------
Operating income.......................... 27,899 25,975 4,580 58,454
Interest expense and other financing costs 27,613 2,488 15,238 (f) 47,602
621 (g)
(597)(h)
(2,239)(i)
Equity earnings in joint ventures......... -- (3,442) -- (3,442)
Interest income........................... (1,802) (980) -- (2,782)
---------- -------- -------- ----------
Income before income taxes................ 2,088 27,909 (12,921) 17,076
Provision for income taxes................ 1,060 9,896 (4,201)(j) 6,755
---------- -------- -------- ----------
Net income................................ $ 1,028 $ 18,013 $ (8,720) $ 10,321
========== ======== ======== ==========
Frontier Oil Corporation
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2003
(in thousands)
Frontier Holly Pro
Historical Historical Adjustments Forma
---------- ---------- ----------- --------
Revenues.................................. $499,384 $314,912 $ -- $814,296
Costs and expenses:
Raw material costs, freight and other..... 435,304 267,483 (7,687)(a) 695,100
Refinery operating expenses, excluding
depreciation............................ 51,311 29,676 (241)(c) 80,746
Selling and general expenses, excluding
depreciation............................ 4,678 5,587 500 (d) 10,765
Exploration expense, including dry holes.. -- 248 -- 248
Depreciation.............................. 6,960 6,543 2,301 (e) 15,804
-------- -------- ------- --------
498,253 309,537 (5,127) 802,663
-------- -------- ------- --------
Operating income.......................... 1,131 5,375 5,127 11,633
Interest expense and other financing costs 7,426 192 4,242 (f) 11,829
155 (g)
(186)(h)
Equity loss in joint ventures............. -- 984 -- 984
Gain on sale of pipeline assets........... -- (16,447) -- (16,447)
Interest income........................... (373) (154) -- (527)
-------- -------- ------- --------
Income (loss) before income taxes......... (5,922) 20,800 916 15,794
Provision (benefit) for income taxes...... (2,222) 7,909 348 (j) 6,035
-------- -------- ------- --------
Net income (loss)......................... $ (3,700) $ 12,891 $ 568 $ 9,759
======== ======== ======= ========
127
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
Adjustments:
(a) To conform Holly's accounting method for crude oil and refined products
inventories to Frontier's accounting method. Holly has historically accounted
for such inventories at the lower of cost, using the last-in, first-out
("LIFO") method, or market. Frontier has historically accounted for such
inventories at the lower of cost, using the first-in, first-out ("FIFO")
method, or market.
(b) To record estimated severance payments to Frontier employees in
connection with the merger.
(c) To conform Holly's accounting method for turnarounds to Frontier's
accounting method. Turnarounds consist of scheduled and required shutdowns of
refinery operating units for significant overhaul and refurbishment. Holly has
historically accounted for turnaround costs by deferring them and amortizing
such costs over the period until the next scheduled turnaround. Frontier has
historically accounted for the costs of turnarounds by ratably accruing such
estimated costs over the period from the prior turnaround to the next scheduled
turnaround.
(d) To record estimated amortization of deferred employee compensation
(equity account) in connection with the merger.
(e) Change in depreciation expense due to purchase accounting adjustments to
refinery plant and equipment and pipelines, net of depreciation recorded in the
historical financial statements. The estimated pro forma average useful lives
used was 16 years for refinery plant and equipment and 20 years for the
pipelines.
(f) Interest expense and amortization of debt discount relating to the
senior notes issued in connection with the merger at an interest rate of 8.0%.
(g) Amortization of financing costs of $6.2 million for borrowings under the
senior notes. The amortization period used was the life of the senior notes of
10 years.
(h) To write off Holly's historical deferred finance cost amortization due
to paying off Holly's existing debt.
(i) In connection with the prepayment of Holly's existing debt, a prepayment
penalty based on current interest rates and remaining years to maturity will be
payable to the lender. For purposes of this pro forma, a prepayment penalty of
$2.2 million was computed. This will be reflected as Interest Expense and Other
Financing Costs in Frontier's financial statements in the period incurred. The
actual prepayment penalty may be higher or lower depending primarily on
interest rate levels and the date of the debt prepayment.
(j) To record an estimated statutory rate of 38% on the net pro forma
adjustments and on Holly's historical results of operations.
128
DESCRIPTION OF PARENT CAPITAL STOCK
The following description of the material terms of the capital stock of
Parent includes a summary of specified provisions of Parent's amended and
restated articles of incorporation and Parent's amended and restated bylaws.
This description is subject to the relevant provisions of Wyoming law and is
qualified by reference to Parent's amended and restated articles of
incorporation and Parent's amended and restated bylaws, copies of which are
attached as Annexes C and D, respectively, to this joint proxy
statement/prospectus and are incorporated in this joint proxy
statement/prospectus by reference. See "Comparison of Stockholder Rights"
beginning on page 130 for a comparison of the rights of Holly and Frontier
stockholders to the rights of Parent stockholders.
Authorized Capital Stock
Parent is authorized to issue up to 74.5 million shares of common stock, par
value $0.01 per share, and 500,000 shares of preferred stock, par value $0.01
per share.
Common Stock
The shares of Parent common stock to be issued in the merger will be duly
authorized, validly issued, fully paid and nonassessable. Each holder of Parent
common stock is entitled to one vote per share in the election of directors and
on all other matters submitted to the vote of stockholders. No holder of Parent
common stock may cumulate votes in voting for Parent directors.
Subject to the rights of the holders of any Parent preferred stock that may
be outstanding from time to time, each share of Parent common stock has an
equal and ratable right to receive dividends as may be declared by Parent's
board of directors out of funds legally available for the payment of dividends,
and, in the event of the liquidation, dissolution or winding up of Parent, is
entitled to share equally and ratably in the assets available for distribution
to Parent stockholders. No holder of Parent common stock has any preemptive
right to subscribe for any securities of Parent.
Application has been made to list Parent common stock on the New York Stock
Exchange under the trading symbol "FTO."
Preferred Stock
Parent's amended and restated articles of incorporation permit Parent to
issue up to 500,000 shares of Parent preferred stock in one or more series with
designations, powers, preferences, and rights, and such qualifications,
limitations and restrictions thereof, as may be fixed by Parent's board of
directors without any further action by Parent stockholders. Except as
expressly provided by law or in the resolution of the board of directors fixing
the designations of the preferred stock (or any series of preferred stock), the
holders of preferred stock are not entitled to vote at, or receive notice of,
any stockholders meeting. No dividends may be declared or paid in common stock
unless any cumulative dividends have been paid on preferred stock. In the event
of a dissolution, liquidation or winding-up of Parent, after payment of debts
but before any distribution to holders of common stock, holders of preferred
stock will be entitled to receive the amount fixed by the board of directors
plus all cumulative but unpaid dividends.
129
COMPARISON OF STOCKHOLDER RIGHTS
Holly is incorporated under the laws of the State of Delaware, and Frontier
and Parent are incorporated under the laws of the State of Wyoming. In
accordance with the merger agreement, at the effective time of the merger, the
holders of Holly common stock and Frontier common stock will exchange their
respective shares of common stock for Parent common stock. The rights of Parent
stockholders will be governed by Wyoming law and Parent's amended and restated
articles of incorporation and Parent's amended and restated bylaws. The
following is a comparison of the material rights of Holly stockholders,
Frontier stockholders and Parent stockholders under each company's
organizational documents and the statutory framework in Delaware and Wyoming,
as applicable.
Parent's amended and restated articles of incorporation and Parent's amended
and restated bylaws are included in this joint proxy statement/prospectus as
Annex C and Annex D, respectively, and are incorporated herein by reference.
Copies of the certificate or articles of incorporation and bylaws of Holly and
Frontier were previously filed with the Securities and Exchange Commission. See
"Where You Can Find More Information" beginning on page 143. The following
description does not purport to be complete and is qualified by reference to
Delaware law and Wyoming law, and the certificate or articles of incorporation
and bylaws of Holly, Frontier and Parent, as applicable.
HOLLY FRONTIER PARENT
----- -------- ------
AUTHORIZED CAPITAL STOCK
21 million, of which (1) 50.5 million, of which 75 million, of which (1)
20 million are shares of (1) 50 million are shares 74.5 million are shares
common stock, par value of common stock, without of common stock, par
$0.01 per share, and (2) par value, and (2) value $0.01 per share,
1 million are shares of 500,000 are shares of and (2) 500,000 shares of
preferred stock, par preferred stock, $100 par preferred stock, $0.01
value $1.00 per share value per share par value per share
BOARD OF DIRECTORS
Size of Board
Holly's certificate of Frontier's articles of Parent's articles of
incorporation incorporation provide incorporation provide
provides that the board that the board of that the board of
of directors must have at directors must have at directors must have at
least 3 directors, the least 3 and not more than least 3 and not more than
exact number to be fixed 9 directors, the exact 15 directors, with the
by the bylaws. Holly's number to be fixed by the exact number to be fixed
bylaws provide that the bylaws. Frontier's bylaws by the bylaws. Parent's
number of directors may currently provide for not bylaws provide for 12
not be less than 3 nor less than 6 nor more than directors (6 directors
more than 11 directors. 9 directors. Frontier designated by Holly and 6
Holly currently has 9 currently has 7 directors. directors designated by
directors. Frontier) at the
effective time of the
merger. Until the 2005
annual meeting of
stockholders, the number
of directors may be
reduced upon the
affirmative vote of at
least 66 2/3 percent of
the board of directors
and one of Holly's
designees and one of
Frontier's designees (or
their successors), as
long as the board of
directors is comprised of
an equal number of
directors designated by
Holly and Frontier, and,
after that time, as fixed
by resolution of the
board of directors.
Qualification of Directors
Under Delaware law, Frontier's bylaws provide Same as Frontier.
directors need not be that directors need not
stockholders of Holly or be residents of Wyoming
residents of Delaware. or stockholders of
Frontier.
130
HOLLY FRONTIER PARENT
----- -------- ------
Removal of Directors
Under Delaware law and Under Wyoming law, a Same as Frontier, except
Holly's bylaws, Holly's director may be removed that the removal of a
directors may be removed only if the number of director requires the
with or without cause by votes cast to remove him vote of the holders of at
the holders of a majority exceeds the number of least 66 2/3% of the
of the shares then votes cast not to remove voting power of all
entitled to vote at an him. Stockholders may shares of capital stock
election of directors at remove directors with or entitled to vote in an
any meeting of Holly's without cause unless the election of directors,
stockholders called for articles provide voting as a single class.
that purpose. otherwise, which
Frontier's articles do
not. Wyoming law also
provides that a director
may be removed by the
stockholders only at a
meeting called for that
purpose, and that the
meeting notice must state
that the purpose, or one
of the purposes, of the
meeting is the removal of
the director.
Cumulative Voting
Holly's stockholders do Frontier's stockholders Same as Holly and Frontier
not have the right to do not have the right to
cumulate votes for the cumulate votes for the
election of directors. election of directors.
Classes of Directors
None None None
Vacancies on the Board
Holly's bylaws provide Under Wyoming law, unless Same as Frontier, except
that any vacancy may be the articles of that Parent's bylaws
filled by a majority of incorporation provide provide that vacancies,
the remaining directors, otherwise, any vacancy, including newly created
though less than a including a vacancy as a directorships resulting
quorum. The term of a result of an increase in from an increase in the
director elected to fill the number of directors, number of directors, may
a vacancy expires at the may be filled by the be filled only by a
next annual election or stockholders, the board majority of the entire
upon his or her earlier of directors, or the board of directors. The
death, resignation or majority vote of the terms of a director
removal. Holly's bylaws directors remaining in elected to fill a vacancy
also provide that if the office if the remaining expires after the next
remaining directors directors constitute less election of directors and
constitute less than a than a quorum. the successor is elected
majority of the whole and qualified or until
board, the Delaware Court Frontier's bylaws provide his or her earlier death,
of Chancery, upon that any vacancy may be resignation or removal.
application of filled by the majority of
stockholders that hold at the remaining directors, From the effective time
least ten percent (10%) though less than a of the merger until
of the total number of quorum. The terms of a immediately after the
shares of the capital director elected to fill 2005 annual meeting of
stock of Holly at the a vacancy expires at the stockholders, any
time outstanding and have next stockholders meeting directorship vacated by a
the right to vote for at which directors are director designated by
directors, may summarily elected and the successor Frontier or Holly (or
order an election to be is elected and qualified their successors) may be
held to fill any such or until his or her filled only upon
vacancies or newly earlier death, recommendation of the
created directorships, or resignation or removal. nominating and corporate
to replace the directors governance committee,
chosen by the directors which shall consider only
then in office, which those candidates
election would be suggested by the Frontier
governed by Delaware law. designees (or their
successors) to fill a
directorship vacated by a
Frontier designee (or his
or her successor) or by
the Holly designees (or
their successors) to fill
a directorship vacated by
a Holly designee (or his
or her successor).
131
HOLLY FRONTIER PARENT
----- -------- ------
Board Quorum and Vote Requirements
Holly's bylaws provide Frontier's bylaws provide that a Same as Frontier, except
that a majority of the majority of the entire board of that, during the period
entire board of directors constitutes a quorum and from the effective time
directors, but not less the act of a majority of directors of the merger until
than two directors, present at any meeting at which a immediately after the
constitutes a quorum and quorum is present is the act of the 2005 annual meeting of
the act of a majority of board of directors. stockholders, the
directors present at any affirmative vote of at
meeting at which there is least 66 2/3% of the
a quorum is the act of members of the entire
the board of directors. board of directors,
including one Holly
designee (or his or her
successor) and one
Frontier designee (or his
or her successor), at any
regular or special
meeting will be required
to terminate or remove
the chairman or president
and CEO, to diminish the
powers and duties of the
chairman or president and
CEO, to propose any
amendment to the articles
of incorporation for
submission to the
stockholders that would
have the effect of
eliminating, limiting,
restricting, avoiding or
otherwise modifying the
effect of the special
governance provisions
contained in Article X of
the bylaws, to sell,
lease, assign, transfer,
exchange or otherwise
dispose of all or
substantially all of the
assets of the
corporation, or to agree
to or consummate any
transaction that would
result in the acquisition
by any person of
beneficial ownership of
25% or more of either the
outstanding shares of
common stock of the
corporation or the
combined voting power of
the outstanding voting
securities of the
corporation entitled to
vote generally in the
election of directors.
STOCKHOLDERS MEETINGS
Annual Meetings
Holly's bylaws provide Frontier's bylaws provide that the Parent's bylaws provide
that the annual meeting annual meeting must be held that date, time and place
must be held on the within 180 days after the close of of the annual meeting is
second Thursday in each fiscal year at a time and place determined by the board
December of each year, designated by the board and that of directors. Notice of
except that if the board notice of the meeting must be the meeting must be given
of directors deems it given not less than 10 nor more not less than 10 nor more
impracticable to hold the than 60 days before the meeting. than 60 days before the
meeting on that date, the meeting.
annual meeting will be
held as soon as
practicable after that
date. Holly's bylaws
provide that notice of
the meeting must be given
not less than 30 nor more
than 60 days before the
date on which the annual
meeting is to be held.
132
HOLLY FRONTIER PARENT
----- -------- ------
Special Meetings
Holly's bylaws provide Wyoming law requires a Wyoming law requires a
that special meetings may corporation to hold a corporation to hold a
be called by the special meeting at the special meeting at the
President, and must be call of the board of call of the board of
called by the President, directors or the persons directors or the persons
a Vice President, the authorized to do so in by authorized to do so in by
Secretary or an Assistant the articles or bylaws, the articles or bylaws,
Secretary of Holly at the or upon receipt of or upon receipt of
written request of a written demands signed by written demands signed by
majority of the board of the holders of at least the holders of at least
directors, or of a 10% of the votes entitled 10% of the votes entitled
majority of the executive to be cast at the meeting. to be cast at the meeting.
committee of the board of
directors, or of Frontier's bylaws provide Parent's bylaws provide
stockholders owning a that special meetings of that special meetings may
majority of the the stockholders may be be called by the chairman
outstanding shares having called by the board of of the board or
voting power. The special directors, chairman, president, and must be
meeting request must chief executive officer, called by the president
state the purpose or president or chief or secretary at the
purposes of the proposed operating officer and request of a majority of
meeting. Holly's bylaws must be called by the the board of directors.
provide that notice of chairman, or in his Notice of the meeting
the meeting must be given absence the chief must be given not less
not less than 30 nor more executive officer, than 10 nor more than 60
than 60 days before the president or the chief days before the meeting.
date on which the meeting operating officer at the
is to be held, unless the request of the holders of
meeting is called by the 50% or more of the
President, a Vice outstanding shares
President, the Secretary entitled to vote at the
or an Assistant Secretary meeting; provided that
of Holly, at the written the board has discretion
request of a majority of to require the issues for
the board of directors, which the special meeting
in which case, notice of is called to be
the meeting must be given considered instead at the
not less than 10 nor more next annual meeting if
than 60 days before the the request for the
date on which the special special meeting is made
meeting is to be held. within 90 days prior to
the end of the fiscal
year.
Stockholder Meeting Quorum Requirements
Holly's bylaws provide Frontier's bylaws provide Parent's bylaws provide
that a majority in that holders of a that, except as otherwise
interest of the majority of the provided by law, the
stockholders entitled to outstanding shares holders of a majority of
vote at the meeting, entitled to vote with the outstanding shares
present in person or respect to any matter, entitled to vote at a
represented by proxy, present in person or meeting, present in
constitutes a quorum. represented by proxy, person or by proxy,
constitutes a quorum for constitutes a quorum at
action on that matter. the meeting.
Action by Written Consent
Under Delaware law, Under Wyoming law, any Same as Frontier.
because Holly's action required or
certificate of permitted to be taken at
incorporation does not a stockholders' meeting
provide otherwise, any may be taken without a
action that is required meeting by unanimous
or may be taken at any written consent.
annual or special meeting
of Holly's stockholders
may be taken by the
written consent by the
holders of Holly common
stock having at least the
minimum number of votes
that would be necessary
to authorize or take such
action at a meeting of
Holly's stockholders.
133
HOLLY FRONTIER PARENT
----- -------- ------
Notice Requirements for Stockholder Nominations and Other Proposals
Holly's bylaws provide Frontier's bylaws provide Parent's bylaws provide
that for a stockholder that stockholders must that notice of a
proposal, other than give notice in writing of stockholder proposal must
board nominations, to be any stockholder proposal be received by Parent
timely, written notice of to the Secretary of between 90 and 120 days
the proposal must be Frontier on or before the before the anniversary of
received by Holly not later of (1) 60 days the previous year's
less than 120 nor more before the meeting or (2) annual meeting, except
than 150 days before the 10 days after the Board that, if the annual
anniversary date of first publishes the date meeting is not within 30
Holly's proxy statement of the meeting. Notices days before or after such
mailed to Holly's must include, as to each anniversary, notice must
stockholders for the matter the stockholder be received by the close
prior year's annual proposes to bring before of business on the 10th
meeting. If no annual the annual meeting, a day after the notice of
meeting was held in the brief description of the the date of the annual
previous year or if the proposal and the reasons meeting was mailed or
date of the applicable for bringing the proposal publicly disclosed to the
annual meeting has been to the annual meeting, stockholders, whichever
changed by more than 30 the name and record was first.
days from the date address of the
contemplated at the time stockholder making the The stockholder's notice
of the previous year's proposal, the class and must include, as to each
proxy statement, then number of shares of matter the stockholder
written notice of the Frontier beneficially proposes to bring before
proposal must be received owned by the stockholder, the annual meeting,
by the secretary of Holly and any material interest
not later than 60 days of the stockholder in the . a brief description of
before the date on which proposal. the proposal and the
the proxy statement is reasons for brining the
first mailed. Notices proposal before the
must include a brief annual meeting,
description of the . the name and record
proposal, including the address of the
text of the resolutions stockholder,
and the reasons therefor . the class or series and
and, as to the number of shares owned
stockholder making the beneficially or of
proposal, the name and record by the
address of the stockholder,
stockholder, the class . a description of all
and number of shares of arrangements or
Holly voting stock understandings between
beneficially owned by the the stockholder and any
stockholder and any other person in
financial interest of the connection with the
stockholder in the proposal and any
proposal. material interest of
the stockholder in the
Holly's bylaws also proposal, and
provide that for . a representation that
stockholder board the stockholder intends
nominations to be timely, to appear in person or
written notice of the by proxy to bring the
nominations must be proposal before the
received by the secretary meeting.
of Holly, with respect to
an election at an annual Parent's bylaws also
meeting, not less than 90 provide that a
nor more than 120 days stockholder's notice of a
before the anniversary nomination of a director
date of the prior year's for election must be
annual meeting and, with received by the secretary
respect to an election at of the corporation
a special meeting, not between 90 and 120 days
later than the close of before the one-year
business on the seventh anniversary of the date
day after the first to of the previous year's
occur of the date on annual stockhoder
which notice of the date meeting. If the date of
of the special meeting the current year's annual
was mailed to Holly's meeting
stockholders or the date of stockholders has been
on changed
134
HOLLY FRONTIER PARENT
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which public disclosure by more than 30 calendar
of the date of the days from the one-year
special meeting was first anniversary of the date
made. Notices must of the previous year's
include, as to each annual meeting, then to
nominee, the information be timely the
required to be disclosed stockholder's notice must
in a solicitation of be received not later
proxies for the election than the close of
of directors or otherwise business on the 10th day
required by Regulation following the day on
14A under the Securities which the notice of the
Exchange Act of 1934 and, meeting was mailed to
as to the stockholder stockholders or publicly
making the proposal, the disclosed, whichever is
name and address of the earlier. The notice must
stockholder and the class contain each nominee's
and number of shares of name, age, business
Holly voting stock address and residence
beneficially owned by the address, principal
stockholder. occupation or employment,
the class and number of
shares of capital stock
of the corporation
beneficially owned by the
nominee, and any other
information relating to
the nominee that is
required by law or
regulation to be
disclosed in
solicitations of proxies
for the election of
directors and the
nominee's written consent
to being named as a
nominee for election as a
director and to serve as
a director if elected.
The notice must also
contain the stockholder's
the name and record
address, the class and
number of shares of
capital stock
beneficially owned by
such stockholder, a
description of all
arrangements or
understandings between
the stockholder and each
nominee and any other
persons (naming such
persons) relating to the
nomination, and any other
information required by
law or regulation to be
provided by a stockholder
intending to nominate a
person for election as a
director of the
corporation.
135
HOLLY FRONTIER PARENT
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TAKEOVER RESTRICTIONS
Under Delaware law, a The Wyoming Management Parent's articles of
corporation is prohibited Stability Act contains incorporation include a
for a three year period takeover restrictions specific provision by
following the time a that apply to publicly which Parent has "opted
stockholder becomes an traded corporations that out" of and will not be
interested stockholder, meet the tests regarding subject to the
from engaging in any size and Wyoming contacts restrictions on business
business combination with contained in the statute combinations with
an interested stockholder but that have not "opted interested stockholders,
who, together with its out" of the statute. the stockholder takeover
affiliates or associates, Because Frontier has not protection provisions and
owns, or who is an opted out, it and its the control-share
affiliate or associate of stockholders are subject acquisition provisions in
the corporation and to the restrictions the Wyoming Management
within a three-year contained in the statute. Stability Act, which are
period did own, 15% or described in the
more of the corporation's Under the statute, with preceding column for
voting stock, unless: some exceptions, Frontier Frontier.
is prohibited from
.. prior to the time the engaging in any "business
stockholder became an combination" (as defined
interested stockholder, in the statute) with an
the board of directors interested stockholder,
of the corporation or any affiliate or
approved either the associate of an
business combination or interested stockholder,
the transaction which for 3 years after the
resulted in the date the stockholder
stockholder becoming an became an interested
interested stockholder; stockholder, unless:
.. prior to the time the
stockholder became an . Before the stockholder
interested stockholder, became an interested
the board of directors stockholder, the board
of the corporation of directors approved
approved either the the business
business combination or combination or the
the transaction which transaction that
resulted in the resulted in the
stockholder becoming an stockholder becoming an
interested stockholder; interested stockholder,
.. the interested or
stockholder owned at . On or after the
least 85% of the voting stockholder became an
stock of the interested stockholder,
corporation, excluding the business
specified shares, upon combination is approved
consummation of the by the board of
transaction which directors and
resulted in the authorized at an annual
stockholder becoming an or special meeting of
interested stockholder; stockholders, and not
or by written consent, by
.. at or subsequent to the the affirmative vote of
time the stockholder at least two-thirds
became an interested ( 2/3) of the
stockholder, the outstanding voting
business combination is stock which is not
approved by the board owned by the interested
of directors of the stockholder.
corporation and
authorized by the An "interested
affirmative vote, at an stockholder," with some
annual or special exceptions, is any
meeting and not by person, and that person's
written consent, of at affiliates and
least 66 2/3% of the associates, who owns 15%
outstanding voting or more of the voting
shares of the stock or who is an
corporation, excluding affiliate or associate of
shares held by that the corporation and owned
interested stockholder. 15% or more of the voting
stock within 3
years of the date.
136
HOLLY FRONTIER PARENT
----- -------- ------
A business combination The statute also contains
generally includes: restrictions on any
.. mergers, consolidations person who makes a tender
and sales or other offer for shares if,
dispositions of 10% or after the acquisition,
more of the assets of a the person will own more
corporation to or with than 10% of any class of
an interested outstanding shares. The
stockholder; statute generally
.. specified transactions requires the offeror to
resulting in the make filings with the
issuance or transfer to secretary of state
an interested providing information
stockholder of any regarding the offer and
capital stock of the the offeror, to deliver a
corporation or its copy of the filing to the
subsidiaries; and corporation, and to make
.. other transactions the offer to holders of
resulting in a the same class on
disproportionate substantially equivalent
financial benefit to an terms. The statute also
interested stockholder. requires a waiting period
of 20 business days after
The provisions of the the offer during which no
Delaware business purchase or payment can
combination statute do be made and a period of 2
not apply to a years after the takeover
corporation if, subject during which the offeror
to certain requirements, may not acquire any
the certificate of shares unless the holder
incorporation or bylaws of those shares is also
of the corporation afforded a reasonable
contain a provision opportunity to dispose of
expressly electing not to those shares to the
be governed by the offeror upon
provisions of the statute substantially equivalent
or the corporation does terms. The stockholder
not have voting stock takeover provisions do
listed on a national not apply to an
securities exchange, acquisition if all
authorized for quotation acquisitions of equity
on The Nasdaq Stock securities of the same
Market, Inc. or held of class during the
record by more than 2,000 preceding 12 months by
stockholders. The statute the offeror or any of its
is applicable to business affiliates do not exceed
combinations of Holly 2% of that class.
because Holly has not
adopted any provision in The control-share
its certificate of acquisition provisions of
incorporation or bylaws the statute, with some
to "opt-out" of the exceptions, deny voting
Delaware business rights to shares acquired
combination statute. in a "control-share
acquisition" unless
voting rights are
conferred by a vote of
the stockholders. A
"control-share
acquisition" is the
acquisition of shares
that, when added to all
other shares of the
corporation with respect
to which that person may
exercise voting power,
would entitle that person
to exercise the voting
power of the corporation
in the election of
directors within any of
the following ranges of
voting power:
. 1/5 or more but less
than 1/3,
. 1/3 or more but less
than a majority, or
. A majority or more.
137
HOLLY FRONTIER PARENT
----- -------- ------
AMENDMENTS TO ORGANIZATIONAL DOCUMENTS
Certificate of Incorporation
Under Delaware law, an Under Wyoming law, most Same as Frontier.
amendment to Holly's amendments to the
certificate of articles of incorporation
incorporation requires require the affirmative
the approval of Holly's vote of the holders of
board of directors and the majority of the votes
the approval of holders cast at the meeting (and
of a majority of the of each class, if
outstanding stock entitled to vote as a
entitled to vote on the class), unless the
proposed amendment. articles of
incorporation, directors,
or Wyoming Business
Corporation Act require a
larger proportion. A
proposed amendment must
be approved by the
holders of a majority of
the votes entitled to be
cast on the amendment by
any voting group if the
proposed amendment would
create dissenters' rights
with respect to the
voting group.
Under Wyoming law, a
stockholder is entitled
to dissent from an
amendment of the Articles
of Incorporation that
materially and adversely
affects rights in respect
of a dissenter's shares
because it:
. alters or abolishes a
preferential right of
the shares,
. creates, alters or
abolishes a right of
redemption, including a
provision regarding a
sinking fund for the
redemption or
repurchase, of the
shares,
. alters or abolishes a
preemptive right of the
holder of the shares to
acquire shares or other
securities,
. excludes or limits the
right of the shares to
vote on any matter, or
to cumulate votes,
other than a limitation
by dilution through the
issuance of shares or
other securities with
similar voting rights,
or
. reduces the number of
shares owned by a
stockholder to a
fraction of a share if
the fractional share is
to be acquired for cash.
138
HOLLY FRONTIER PARENT
----- -------- ------
Bylaws
Under Delaware law, Frontier's articles of Parent's articles of
stockholders entitled to incorporation and bylaws incorporation and bylaws
vote have the power to provide that Frontier's provide that Parent's
adopt, amend or repeal bylaws may be altered, bylaws may be altered,
bylaws. In addition, a amended or repealed or amended or repealed or
corporation may, in its new bylaws may be adopted new bylaws may be adopted
certificate of by the board of directors by the board of directors
incorporation, confer without any action on the without any action on the
this power on the board part of the stockholders, part of the stockholders,
of directors. Holly's but such bylaws may be but such bylaws may be
certificate of altered or repealed by altered or repealed by
incorporation confers the stockholders. The the stockholders. The
this power on Holly's board of directors may board of directors may
board of directors. take such action only take such action only
Holly's bylaws provide upon receiving the upon receiving the
that they may be adopted, affirmative vote of affirmative vote of a
amended or repealed by 66 2/3% of the members of majority of the members
the affirmative vote of the board of directors. of the board of
holders of at least 67% If, for any reason, there directors. From the
of the outstanding Holly are fewer than 6 effective time of the
stock entitled to vote directors, any such merger until immediately
thereon at any regular or action will require the after the 2005 annual
special meeting of the affirmative vote of a meeting of stockholders,
stockholders or by the majority of the board. the board of directors
affirmative vote of a may not take any action
majority of Holly's board without the affirmative
of directors. vote of all members of
the board of directors
that would have the
effect of eliminating,
limiting, restricting or
modifying the effect of
the special governance
provisions contained in
Article X of Parent's
bylaws.
EXCULPATION AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Exculpation
As permitted by Delaware Frontier's articles of Parent's articles of
law, Holly's certificate incorporation include a incorporation include a
of incorporation provides provision eliminating the provision eliminating the
that no Holly director liability of a director liability of a director
will be personally liable to the corporation or its to the corporation or its
to Holly or any of its stockholders for monetary stockholders for monetary
stockholders for monetary damages for breach of damages for any action
damages for breach of his fiduciary duty as a taken, or any failure to
or her duty as a director, except liability take any action, as a
director, except that a . for breach of the director, except
Holly director will director's duty of liability for:
remain liable to the loyalty to the . the amount of financial
extent provided by law corporation or its benefit received by a
.. for breach of the stockholders, director to which he or
director's duty of . for acts or omissions she is not entitled,
loyalty to Holly or its not in good faith or . an intentional
stockholders; which involve infliction of harm on
.. for acts or omissions intentional misconduct the corporation or its
not in good faith or or a knowing violation stockholders,
which involve of law, . an unlawful
intentional misconduct . under section 17-1-141 distribution in
of a knowing violation of the Wyoming Business violation of W.S.
of law; Corporation Act, or 17-16-833 of the
.. for unlawful dividends . for any transaction Wyoming Business
or stock purchases or from which the director Corporation Act, or
redemptions by Holly; or derived an improper . an intentional
.. for any transaction personal benefit. violation of criminal
from which the director law.
derived an improper The articles also provide
personal benefit. that if the Wyoming
Business Corporation Act
is amended to authorize
the further elimination
or limitation of the
liability of directors,
then the liability of a
director of the
corporation will be
limited to the fullest
extent permitted by law.
Each of the above provisions protects Holly, Frontier and Parent directors, as
the case may be, against personal liability for monetary damages related to
breaches of their fiduciary duty of care. None of the above provisions
eliminates the director's duty of care nor has any effect on the availability
of equitable remedies, such as an injunction or rescission, based upon a
director's breach of his or her duty of care.
139
HOLLY FRONTIER PARENT
----- -------- ------
Indemnification
Holly's bylaws provide Frontier's articles of Parent's articles of
for indemnification to incorporation provides incorporation provide for
the fullest extent for indemnification, in indemnification to the
permitted by Delaware the manner and to the fullest extent permitted
law, including the full extent authorized by by Wyoming law of any
advancement of expenses, law, of any person made a person who was or is a
of any person who was or party to any threatened, party or is threatened to
is a party or is pending or completed be made a party to any
threatened to be made a action, suit or threatened, pending or
party to any threatened, proceeding, by reason of completed action, suit or
pending or completed the fact he or she was a proceeding, by reason of
action, suit or director, officer, the fact that he or she
proceeding, by reason of employee or agent or is is or was a director or
the fact that he or she or was serving at officer of Frontier, or
is or was a director, Frontier's request in is or was serving at the
officer, employee or such capacity with request of Frontier as a
agent of Holly or is or another enterprise, director, officer,
was serving at the against expenses, employee or agent of
request of Holly in such including attorneys' another corporation or
capacity with another fees, actually and other enterprise, against
corporation or other reasonably incurred, if any liability or expense
enterprise. Unless such person acted in good actually and reasonably
otherwise determined by faith and in a manner incurred by such person
Holly's board of such person reasonably in respect of the action,
directors in its believed to be in, or not suit or proceeding,
discretion, such opposed to, the best except liability for
indemnification will be interests of the
made available only if corporation and, with . receipt of a financial
any such person respect to any criminal benefit to which he or
action or proceeding, had she is not entitled,
.. notifies the President no reasonable cause to
or Secretary of Holly believe that his conduct . an intentional
of any such action, was unlawful. infliction of harm on
suit or proceeding the corporation or its
within 5 business days Frontier's articles also stockholders,
after he or she becomes provide that expenses may
aware of it; be advanced if the . an unlawful
director, officer, distribution in
.. furnishes the President employee or agent violation of W.S.
or Secretary of Holly undertakes to repay the 17-16-833 of the
with copies of all amount if it is Wyoming Business
papers served upon or ultimately determined Corporation Act, or
received by such person; that he or she is not
entitled to . an intentional
.. makes available to indemnification. violation of criminal
officers or counsel of law. The articles also
Holly all information Frontier's bylaws provide provide that if Wyoming
necessary to keep Holly for indemnification of law is amended to
currently advised as to any present or former authorize greater
the status of such director or officer or indemnification of a
action, suit or any person who while director, officer,
proceeding; and serving as a director or employee or agent, then
officer served at the indemnification of
.. permits Holly, at its Frontier's request as a such person will be
option and expense, to director, officer, provided to the fullest
participate in or partner, trustee, extent permitted by law.
direct the defense employee or agent or in
thereof in good faith any similar position of Parent's articles of
and in the case of any another enterprise, or a incorporation also
proposed settlement of person who had been provide for advancement
any action, suit or nominated or designated of expenses incurred by a
proceeding the defense by the board of a director or officer in
of which is not committee to serve in defending any threatened
directed by Holly, such capacity, against or pending civil,
submits the proposed liabilities incurred by criminal, administrative
terms and conditions of such person in connection or investigative action,
the settlement to with any threatened, suit or proceeding if
Holly's board of pending or completed Frontier receives an
directors for its action, suit or undertaking by the
approval. proceeding, except for a director or officer to
proceeding by or in the repay the amount if it is
right of the ultimately be determined
that he or she is not
entitled to be
indemnified by the
corporation.
140
HOLLY FRONTIER PARENT
----- -------- ------
The indemnification corporation in which the Parent's bylaws provide
rights provided in person was found liable for indemnification to
Holly's bylaws are not to the corporation or a the fullest extent
exclusive proceeding charging an permitted by law of any
of any other rights to improper personal benefit person who was or is a
which those indemnified to the person in which party, or threatened to
may be entitled under any the person was found be made a party, to any
agreement, vote of liable. threatened, pending or
stockholders or completed action, suit or
disinterested directors, Such indemnification will proceeding by reason of
or otherwise. only be made available to the fact that such person
the person if the board is or was a director or
Holly has also entered of directors, a committee officer of Parent or is
into agreements to designated by the board, or was serving at the
provide indemnification special legal counsel or request of Parent as a
for its directors and the stockholders director, officer or
executive officers in determine that the person employee of another
addition to the has conducted himself or enterprise, against
indemnification provided herself in good faith, in expenses (including
for in its bylaws. These a manner he or she attorneys' fees),
agreements, among other reasonably believed to be judgments, fines and
things, indemnify in or not opposed to the settlement amounts
directors and executive best interest of the actually and reasonably
officers of Holly, to the corporation, and, in the incurred by such person.
fullest extent permitted case of any criminal The bylaws also provide
by Delaware law, for proceeding, had no for the advancement of
certain expenses reasonable cause to expenses incurred by a
(including attorney's believe that his or her director or officer in
fees), losses, claims, conduct was unlawful. defending any threatened
liabilities, judgments, or pending action, suit
fines and settlement Frontier's bylaws provide or proceeding if the
amounts incurred by the for advancement of director or officer
person seeking reasonable expenses if undertakes to repay such
indemnification in any Frontier receives: amounts if it is
action or proceeding, ultimately determined
including any action by . a written affirmation that he or she is not
or in the right of Holly, by the indemnitee of entitled to
on account of services as his or her good faith indemnification under the
a director or officer of belief that he or she bylaws and if the
any of Holly's has met the standard of director or officer
affiliates, or as a conduct necessary for affirms in good faith
director or officer of indemnification, that he or she has met
any other company or the standard of conduct
enterprise that the . a written undertaking required by law or that
person seeking by the indemnitee to liability has been
indemnification provides repay the amount if it eliminated by the
services to at Holly's is ultimately articles of incorporation.
request. determined that he or
she was not entitled to
indemnification, and
. a determination is made
by the board, a
committee special legal
counsel or the
stockholders, as
described above.
141
LEGAL MATTERS
The validity of the Parent common stock offered by this joint proxy
statement/prospectus has been passed upon for Parent by Brown, Drew and Massey,
LLP.
EXPERTS
The consolidated financial statements of Holly Corporation appearing in
Holly Corporation's Annual Report on Form 10-K for the year ended July 31,
2002, as amended, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein
by reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements as of and for the year ended December
31, 2002 and the related 2002 financial statement schedules incorporated in
this joint proxy statement/prospectus by reference from Frontier's Annual
Report on Form 10-K for the year ended December 31, 2002, as amended, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheet of Front Range Himalaya Corporation included
in this joint proxy statement/prospectus has been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and is
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of Frontier for the fiscal years ended December 31,
2001 and 2000 were audited by Arthur Andersen LLP, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. We have not been able
to obtain the written consent of Arthur Andersen to the inclusion of their
reports in this joint proxy statement/prospectus, and we have dispensed with
the requirement to file their consent in reliance on Rule 437a promulgated
under the Securities Act of 1933, as amended. Because Arthur Andersen has not
consented to the inclusion of their reports in this joint proxy
statement/prospectus, investors will not be able to recover against Arthur
Andersen under Section 11 of the Securities Act. In addition, the ability of
Arthur Andersen to satisfy any claims (including claims arising from its
provision of auditing and other services to Frontier) may be limited as a
result of the diminished amount of assets of Arthur Andersen that are or may in
the future be available to satisfy claims.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP are expected to be present at the Holly
special meeting, and representatives of Deloitte & Touche LLP are expected to
be present at the Frontier special meeting. The representatives of the
independent auditors are expected to be available to respond to appropriate
questions from the stockholders at their respective meetings.
STOCKHOLDER PROPOSALS
If the merger is not completed, Frontier and Holly will hold their annual
stockholders' meetings as scheduled. Subject to the requirements of Rule 14a-8
under the Securities Exchange Act of 1934, as amended, stockholders of each
company may present proposals for inclusion in a company's proxy statement and
for consideration at the next annual meeting of its stockholders by submitting
their proposals to the company in a timely manner.
142
Holly
For a stockholder proposal to be included in the proxy statement for the
2003 Holly annual meeting, including a proposal for the election of a director,
pursuant to Rule 14a-8 under the Securities Exchange Act, the proposal must be
received by Holly at its principal offices no later than July 10, 2003. Also,
under Holly's bylaws, Holly stockholders must give advance notice of
nominations for directors not later than the close of business on September 13,
2003, and not earlier than August 14, 2003, and notice of other business to be
transacted at the annual meeting not later than the close of business on August
14, 2003, and not earlier than July 15, 2003. Pursuant to Rule 14a-4(c)(1)
under the Exchange Act, Holly's management will have discretionary authority to
vote on any matter of which Holly does not receive notice by September 21,
2003, with respect to proxies submitted for the 2003 annual meeting.
Frontier
Stockholder proposals to be included in the proxy statement for Frontier's
2004 annual meeting of stockholders (the "2004 Annual Meeting") pursuant to
Rule 14a-8 under the 1934 Act must be received by Frontier no later than
November 15, 2003 and must otherwise comply with the requirements of Rule
14a-8. Proposals of stockholders submitted for consideration at Frontier's 2004
annual meeting (outside of the Rule 14a-8 process), in accordance with
Frontier's bylaws, must be received by Frontier by the later of 60 days before
the 2004 annual meeting or 10 days after notice of such meeting is first
published. If such timely notice of a proposal is not given, the proposal may
not be brought before the 2004 annual meeting.
OTHER MATTERS
As of the date of this joint proxy statement/prospectus, neither Holly's
board of directors nor Frontier's board of directors knows of any matter that
will be presented for consideration at the Holly special meeting or the
Frontier special meeting, respectively, other than as described in this joint
proxy statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Parent filed a registration statement on Form S-4 on May 13, 2003, to
register with the Securities and Exchange Commission the Parent common stock to
be issued to Holly stockholders and Frontier stockholders in the merger. This
joint proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Parent in addition to being a joint proxy statement
of Holly and Frontier. As allowed by Securities and Exchange Commission rules,
this joint proxy statement/prospectus does not contain all of the information
you can find in Parent's registration statement or the exhibits to the
registration statement. Holly and Frontier file annual, quarterly and current
reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information that Holly and Frontier file with the Securities and Exchange
Commission at the Securities and Exchange Commission's public reference room at
Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet worldwide web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. Reports, proxy
statements and other information concerning Holly may also be inspected at the
offices of the American Stock Exchange, which is located at 86 Trinity Place,
New York, New York 10006. Reports, proxy statements and other information
concerning Frontier may also be inspected at the offices of the New York Stock
Exchange, which is located at 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows Holly, Frontier and Parent to
"incorporate by reference" information in this joint proxy
statement/prospectus, which means that Holly, Frontier and Parent can disclose
143
important information to you by referring you to other documents filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this joint proxy
statement/prospectus, except for any information superseded by information
contained directly in this joint proxy statement/prospectus or in later filed
documents incorporated by reference in this joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference the
documents set forth below that Holly and Frontier have previously filed with
the Securities and Exchange Commission. These documents contain important
business and financial information about Holly and Frontier that is not
included in or delivered with this joint proxy statement/prospectus.
Holly
. Annual Report on Form 10-K for the year ended July 31, 2002, as amended
. Quarterly Reports on Form 10-Q for the quarters ended October 31, 2002,
January 31, 2003 and April 30, 2003, each as amended
. Current Reports on Form 8-K filed on November 18, 2002, December 12,
2002, December 20, 2002, March 4, 2003, March 7, 2003, April 2, 2003, May
13, 2003, May 21, 2003, June 2, 2003, June 4, 2003, June 12, 2003, June
30, 2003 and July 30, 2003
Frontier
. Annual Report on Form 10-K for the year ended December 31, 2002, as
amended
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, as
amended
. Current Reports on Form 8-K filed on April 2, 2003 (2 filings), May 9,
2003, May 14, 2003, May 29, 2003, June 12, 2003, and July 31, 2003
This joint proxy statement/prospectus also incorporates by reference all
additional documents that may be filed by Holly and Frontier with the
Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, between the date of this joint
proxy statement/prospectus and the date of the Holly special meeting and the
date of the Frontier special meeting, as applicable. These include periodic
reports, such as Annual Reports on Form 10-K, as amended, Quarterly Reports on
Form 10-Q, as amended, and Current Reports on Form 8-K, as well as proxy
statements.
Holly has supplied all information contained or incorporated by reference in
this joint proxy statement/prospectus relating to Holly, and Frontier has
supplied all information contained in or incorporated by reference in this
joint proxy statement/prospectus relating to Frontier. Holly and Frontier have
jointly supplied all information contained or incorporated by reference in this
joint proxy statement/ prospectus relating to Parent, Himalaya Merger
Corporation and Front Range Merger Corporation.
If you are a Holly stockholder or a Frontier stockholder, we may have sent
you some of the documents incorporated by reference, but you can also obtain
any of them through Holly or Frontier, the Securities and Exchange Commission
or the Securities and Exchange Commission's Internet web site as described
above. Documents incorporated by reference are available from Holly or Frontier
without charge, excluding all exhibits, except that, if Holly or Frontier have
specifically incorporated by reference an exhibit in this joint proxy
statement/prospectus, the exhibit will also be provided without charge. You may
obtain documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone or email
from the appropriate company at the following addresses:
Holly Corporation Frontier Oil Corporation
100 Crescent Court, Suite 10000 Memorial Drive,
1600 Suite 600
Dallas, Texas 75201-6927 Houston, Texas 77024-3411
Attention: W. John Glancy Attention: Doug Aron
(214) 871-3555 (713) 688-9600
e-mail:
investors@hollycorp.com e-mail: ir@frontieroil.com
144
If you would like to request documents, please do so by [ ], 2003, in
order to receive them before your special meeting.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus. We have not authorized
anyone to provide you with information that is different from what is contained
in this joint proxy statement/prospectus. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you.
This joint proxy statement/prospectus is dated [ ], 2003. You should
not assume that the information contained in this joint proxy
statement/prospectus is accurate as of any date other than that date. Neither
the mailing of this joint proxy statement/prospectus to Holly stockholders and
Frontier stockholders nor the issuance of Parent common stock in the merger
creates any implication to the contrary.
145
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Front Range Himalaya Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Front Range
Himalaya Corporation and subsidiaries as of May 9, 2003. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the consolidated balance sheet presents fairly, in all material
respects, the financial position of Front Range Himalaya Corporation and
subsidiaries as of May 9, 2003, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
May 9, 2003
F-1
FRONT RANGE HIMALAYA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 9, 2003
ASSETS:
Cash....................................................................................... $ 3,000
Other assets............................................................................... 64,968
-------
TOTAL....................................................................................... $67,968
=======
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued and outstanding. $ --
Common stock, $0.01 par value; 74,500,000 shares authorized; 2 shares issued and
outstanding............................................................................ --
Additional paid-in capital............................................................... 67,968
-------
TOTAL....................................................................................... $67,968
=======
See note to consolidated balance sheet.
F-2
FRONT RANGE HIMALAYA CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED BALANCE SHEET
MAY 9, 2003
1. SIGNIFICANT ACCOUNTING POLICY
The consolidated balance sheet includes the accounts of Front Range Himalaya
Corporation (the "Company") and its wholly owned subsidiaries Front Range
Merger Corporation ("Front Range") and Himalaya Merger Corporation ("Himalaya").
The Company, incorporated in Wyoming on March 28, 2003, was formed jointly
by Frontier Oil Corporation ("Frontier") and Holly Corporation ("Holly") to
accomplish a combination of Frontier and Holly in a merger transaction. The
Company formed two merger subsidiaries, Front Range and Himalaya. Front Range
will merge with and into Frontier with Frontier's stockholders receiving common
stock of the Company, and simultaneously, Himalaya will merge with and into
Holly with Holly stockholders receiving common stock of the Company plus cash
and contingent value rights. As a result, Front Range and Himalaya will remain
wholly-owned subsidiaries of the Company. The Company's fiscal year is a
calendar year.
The Company was initially capitalized with $3,000, which included $1,500
from Frontier and $1,500 from Holly who each received one share of the
Company's common stock. The Company received $64,968 from its stockholders as
capital contributions to pay filing fees for the Company's registration
statement on Form S-4 in connection with the merger transaction.
******
F-3
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FRONTIER OIL CORPORATION,
FRONT RANGE HIMALAYA CORPORATION,
FRONT RANGE MERGER CORPORATION,
HIMALAYA MERGER CORPORATION
AND
HOLLY CORPORATION
DATED AS OF MARCH 30, 2003
TABLE OF CONTENTS
Page
----
ARTICLE 1 FORMATION OF PARENT; THE MERGERS............................ 1
Section 1.1 FORMATION OF PARENT; MERGER SUBS...................... 1
Section 1.2 THE MERGERS........................................... 2
Section 1.3 CLOSING; EFFECTIVE TIME............................... 2
Section 1.4 CERTIFICATES OF INCORPORATION......................... 2
Section 1.5 BYLAWS................................................ 3
Section 1.6 DIRECTORS AND EXECUTIVE OFFICERS...................... 3
Section 1.7 ACTIONS OF FRONTIER AND HOLLY......................... 3
Section 1.8 ACTIONS OF PARENT..................................... 3
ARTICLE 2 CONVERSION OF SECURITIES.................................... 3
Section 2.1 EFFECT ON CAPITAL STOCK OF FRONTIER AND MERGER SUB ONE 3
Section 2.2 EFFECT ON CAPITAL STOCK OF HOLLY AND MERGER SUB TWO... 4
Section 2.3 EFFECT ON PARENT COMMON STOCK......................... 6
Section 2.4 SURRENDER OF HOLLY SHARES............................. 6
Section 2.5 HOLLY STOCK OPTIONS AND OTHER STOCK-BASED AWARDS...... 6
Section 2.6 FRONTIER STOCK OPTIONS................................ 8
Section 2.7 EXCHANGE PROCEDURES................................... 8
Section 2.8 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED HOLLY SHARES 9
Section 2.9 NO FURTHER OWNERSHIP RIGHTS IN HOLLY COMMON STOCK OR
FRONTIER COMMON STOCK............................... 9
Section 2.10 NO FRACTIONAL SHARES OF PARENT COMMON STOCK........... 9
Section 2.11 TERMINATION OF EXCHANGE FUND.......................... 10
Section 2.12 NO LIABILITY.......................................... 10
Section 2.13 INVESTMENT OF THE EXCHANGE FUND....................... 10
Section 2.14 LOST CERTIFICATES..................................... 10
Section 2.15 WITHHOLDING RIGHTS.................................... 10
Section 2.16 FURTHER ASSURANCES.................................... 10
Section 2.17 STOCK TRANSFER BOOKS.................................. 11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF HOLLY..................... 11
Section 3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY......... 11
Section 3.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS...... 11
Section 3.3 CAPITALIZATION........................................ 11
Section 3.4 SUBSIDIARIES.......................................... 12
Section 3.5 NO VIOLATION.......................................... 12
Section 3.6 NO CONFLICT........................................... 12
Section 3.7 SEC DOCUMENTS......................................... 13
Section 3.8 LITIGATION AND LIABILITIES............................ 14
Section 3.9 ABSENCE OF CERTAIN CHANGES............................ 14
Section 3.10 TAXES................................................. 14
Section 3.11 EMPLOYEE BENEFIT PLANS................................ 15
Section 3.12 LABOR MATTERS......................................... 17
Section 3.13 ENVIRONMENTAL MATTERS................................. 18
Section 3.14 INTELLECTUAL PROPERTY................................. 19
Section 3.15 TITLE TO PROPERTIES; CONDITION OF ASSETS.............. 19
Section 3.16 INSURANCE............................................. 20
Section 3.17 NO BROKERS............................................ 20
Section 3.18 OPINION OF FINANCIAL ADVISOR.......................... 20
A-i
Page
----
Section 3.19 CONTRACTS; DEBT INSTRUMENTS..................... 20
Section 3.20 RECOMMENDATION; VOTE REQUIRED................... 21
Section 3.21 CERTAIN APPROVALS............................... 21
Section 3.22 CERTAIN CONTRACTS............................... 21
Section 3.23 NO RIGHTS PLAN OR AGREEMENT..................... 21
Section 3.24 SUPPORT AGREEMENTS.............................. 21
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF FRONTIER............ 21
Section 4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY... 21
Section 4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS 22
Section 4.3 CAPITALIZATION.................................. 22
Section 4.4 SUBSIDIARIES.................................... 22
Section 4.5 NO VIOLATION.................................... 22
Section 4.6 NO CONFLICT..................................... 23
Section 4.7 SEC DOCUMENTS................................... 23
Section 4.8 LITIGATION AND LIABILITIES...................... 24
Section 4.9 ABSENCE OF CERTAIN CHANGES...................... 24
Section 4.10 TAXES........................................... 25
Section 4.11 EMPLOYEE BENEFIT PLANS.......................... 25
Section 4.12 LABOR MATTERS................................... 27
Section 4.13 ENVIRONMENTAL MATTERS........................... 28
Section 4.14 INTELLECTUAL PROPERTY........................... 29
Section 4.15 TITLE TO PROPERTIES; CONDITION OF ASSETS........ 29
Section 4.16 INSURANCE....................................... 29
Section 4.17 NO BROKERS...................................... 29
Section 4.18 OPINION OF FINANCIAL ADVISOR.................... 30
Section 4.19 CONTRACTS; DEBT INSTRUMENTS..................... 30
Section 4.20 RECOMMENDATION; VOTE REQUIRED................... 30
Section 4.21 CERTAIN APPROVALS............................... 31
Section 4.22 CERTAIN CONTRACTS............................... 31
Section 4.23 NO RIGHTS PLAN OR AGREEMENT..................... 31
Section 4.24 SUPPORT AGREEMENTS.............................. 31
ARTICLE 5 COVENANTS............................................. 31
Section 5.1 CONDUCT OF BUSINESS............................. 31
Section 5.2 NO SOLICITATION BY HOLLY........................ 35
Section 5.3 NO SOLICITATION BY FRONTIER..................... 36
Section 5.4 MEETINGS OF STOCKHOLDERS........................ 37
Section 5.5 FILINGS; REASONABLE BEST EFFORTS................ 38
Section 5.6 INSPECTION...................................... 39
Section 5.7 PUBLICITY....................................... 39
Section 5.8 REGISTRATION STATEMENT.......................... 39
Section 5.9 LISTING APPLICATION............................. 40
Section 5.10 AGREEMENTS OF RULE 145 AFFILIATES............... 40
Section 5.11 EXPENSES........................................ 41
Section 5.12 INDEMNIFICATION AND INSURANCE................... 41
Section 5.13 EMPLOYEE BENEFITS............................... 42
Section 5.14 TAX QUALIFICATION............................... 44
Section 5.15 DIVIDENDS....................................... 45
Section 5.16 GOVERNANCE MATTERS; HEADQUARTERS; COMPANY NAME.. 45
Section 5.17 NO CONTROL OF OTHER PARTY'S BUSINESS............ 45
A-ii
Page
----
Section 5.18 TOTAL HOLLY COMMON STOCK NUMBER CERTIFICATE............ 46
Section 5.19 CONTINGENT VALUE RIGHTS AGREEMENT...................... 46
ARTICLE 6 CONDITIONS................................................... 46
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS.............................................. 46
Section 6.2 CONDITIONS TO OBLIGATION OF HOLLY TO EFFECT THE MERGERS 47
Section 6.3 CONDITIONS TO OBLIGATION OF FRONTIER TO EFFECT THE
MERGERS.............................................. 47
ARTICLE 7 TERMINATION.................................................. 48
Section 7.1 TERMINATION BY MUTUAL CONSENT.......................... 48
Section 7.2 TERMINATION BY FRONTIER OR HOLLY....................... 48
Section 7.3 TERMINATION BY HOLLY................................... 49
Section 7.4 TERMINATION BY FRONTIER................................ 49
Section 7.5 EFFECT OF TERMINATION.................................. 49
Section 7.6 EFFECT OF VOTE......................................... 51
ARTICLE 8 GENERAL PROVISIONS........................................... 51
Section 8.1 SURVIVAL............................................... 51
Section 8.2 NOTICES................................................ 51
Section 8.3 ASSIGNMENT; BINDING EFFECT; BENEFIT.................... 52
Section 8.4 ENTIRE AGREEMENT....................................... 52
Section 8.5 AMENDMENTS............................................. 52
Section 8.6 GOVERNING LAW; WAIVER OF JURY TRIAL.................... 53
Section 8.7 COUNTERPARTS........................................... 53
Section 8.8 HEADINGS............................................... 53
Section 8.9 INTERPRETATION......................................... 53
Section 8.10 WAIVERS................................................ 53
Section 8.11 SEVERABILITY........................................... 54
Section 8.12 ENFORCEMENT OF AGREEMENT; LIMITATION ON DAMAGES........ 54
Section 8.13 OBLIGATION OF MERGER SUB ONE AND MERGER SUB TWO........ 54
Section 8.14 EXTENSION; WAIVER...................................... 54
Section 8.15 DEFINITIONS............................................ 54
Section 8.16 DISCLOSURE LETTERS..................................... 57
EXHIBITS
Exhibit A PARENT CHARTER......................................... A-1
Exhibit B PARENT BYLAWS.......................................... B-1
Exhibit C FORM OF HOLLY HOLDER SUPPORT AGREEMENT................. C-1
Exhibit D FORM OF FRONTIER AFFILIATE'S SUPPORT AGREEMENT......... D-1
Exhibit E FORM OF HOLLY AFFILIATE'S RULE 145 AGREEMENT........... E-1
Exhibit F FORM OF REGISTRATION RIGHTS AGREEMENT.................. F-1
Exhibit G FORM OF FRONTIER AFFILIATE'S RULE 145 AGREEMENT........ G-1
A-iii
This AGREEMENT AND PLAN OF MERGER (including the Exhibits hereto, this
"Agreement"), dated as of March 30, 2003, is among FRONTIER OIL CORPORATION, a
Wyoming corporation ("Frontier"), FRONT RANGE HIMALAYA CORPORATION, a Wyoming
corporation ("Parent"), FRONT RANGE MERGER CORPORATION, a Delaware corporation
and direct wholly owned subsidiary of Parent ("Merger Sub One"), HIMALAYA
MERGER CORPORATION, a Delaware corporation and direct wholly owned subsidiary
of Parent ("Merger Sub Two"), and HOLLY CORPORATION, a Delaware corporation
("Holly").
RECITALS
WHEREAS, the respective Boards of Directors of each of Frontier, Parent,
Merger Sub One, Merger Sub Two and Holly deem it advisable, fair to and in the
best interests of their respective corporations and stockholders that Frontier
and Holly engage in a business combination in order to advance the long term
strategic business interests of Frontier and Holly;
WHEREAS, upon the terms and subject to the conditions set forth herein, (i)
Merger Sub One will merge with and into Frontier with Frontier as the surviving
corporation (the "Frontier Merger") and (ii) Merger Sub Two will merge with and
into Holly with Holly as the surviving corporation (the "Holly Merger" and
together with the Frontier Merger, the "Mergers");
WHEREAS, upon consummation of the Mergers, (i) each of Frontier and Holly
will become a wholly owned subsidiary of Parent, which has been formed by
Frontier and Holly solely for the purpose of the transactions contemplated by
this Agreement and (ii) Parent will be renamed Frontier Oil Corporation;
WHEREAS, for federal income tax purposes, it is intended that each of the
Frontier Merger and the Holly Merger qualify as a reorganization within the
meaning of section 368(a) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the "Code"), and/or, taken
together, the Mergers qualify as an exchange described in section 351 of the
Code;
WHEREAS, the Board of Directors of Holly has approved this Agreement and the
Holly Merger and has determined that the Holly Merger is advisable, fair to and
in the best interests of the holders of shares of common stock, par value $.01
per share, of Holly ("Holly Common Stock") and resolved to recommend approval
and adoption of this Agreement and the Holly Merger by the stockholders of
Holly; and
WHEREAS, the Board of Directors of Frontier has approved this Agreement and
the Frontier Merger and has determined that the Frontier Merger is advisable,
fair to and in the best interests of the holders of shares of common stock,
without par value, of Frontier ("Frontier Common Stock") and resolved to
recommend approval and adoption of this Agreement and the Frontier Merger by
the stockholders of Frontier; and
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
FORMATION OF PARENT; THE MERGERS
SECTION 1.1 Formation of Parent; Merger Subs.
(a) Parent. Frontier and Holly have caused Parent to be organized under
the laws of the State of Wyoming, and each owns 50% of the outstanding capital
stock of Parent. The authorized capital stock of Parent consists of 100 shares
of common stock, par value $.01 per share (the "Parent Common Stock"), of which
one share has been issued to Frontier and one share has been issued to Holly.
Frontier and Holly shall take, and shall cause Parent to take, all requisite
action to cause the articles of incorporation of Parent to be in the form of
A-1
Exhibit A (the "Parent Charter") and the bylaws of Parent to be in the form of
Exhibit B (the "Parent Bylaws"), in each case, at the Effective Time (as
defined below).
(b) Merger Subs. Frontier and Holly have caused Parent to organize, and
Parent has organized, Merger Sub One and Merger Sub Two under the laws of the
State of Delaware. The authorized capital stock of Merger Sub One consists of
100 shares of common stock, par value $.01 per share (the "Merger Sub One
Common Stock"), all of which are validly issued, fully paid and nonassessable,
and are owned by Parent free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"). The authorized
capital stock of Merger Sub Two consists of 100 shares of common stock, par
value $.01 per share (the "Merger Sub Two Common Stock"), all of which are
validly issued, fully paid and nonassessable, and are owned by Parent free and
clear of any Liens.
SECTION 1.2 The Mergers. Upon the terms and subject to the conditions
hereof, in accordance with the Delaware General Corporation Law (the "DGCL")
and the Wyoming Business Corporation Act (the "WBCA"), as applicable, at the
Effective Time:
(a) The Frontier Merger. Merger Sub One shall merge with and into
Frontier, with Frontier continuing as the surviving corporation in the
Frontier Merger ("Frontier Surviving Corporation") and the separate
corporate existence of Merger Sub One shall cease. The Frontier Merger shall
have the effects specified in the WBCA and the DGCL. As a result of the
Frontier Merger, Frontier will become a wholly owned subsidiary of Parent.
(b) The Holly Merger. Merger Sub Two shall merge with and into Holly,
with Holly continuing as the surviving corporation in the Holly Merger
("Holly Surviving Corporation") and the separate corporate existence of
Merger Sub Two shall cease. The Holly Merger shall have the effects
specified in the DGCL. As a result of the Holly Merger, Holly will become a
wholly owned subsidiary of Parent.
SECTION 1.3 Closing; Effective Time.
(a) The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Mergers (the "Closing") shall take place (i) at the offices
of Andrews & Kurth L.L.P., 600 Travis Street, Houston, Texas 77002, at 4:00
p.m., local time, on the second business day immediately following the day on
which the last to be fulfilled or waived of the conditions set forth in Article
6 (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to fulfillment or waiver of those conditions) shall be
fulfilled or waived in accordance herewith or (ii) at such other time, date or
place as Frontier and Holly may agree in writing. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
(b) Effective Time of the Mergers. As soon as practicable on the Closing
Date, Frontier shall file with the Secretary of State of the State of Wyoming
(the "Wyoming Secretary") articles of merger and with the Secretary of State of
the State of Delaware (the "Delaware Secretary") a certificate of merger with
respect to the Frontier Merger (such articles of merger and certificate of
merger, together, the "Frontier Certificate of Merger") and Holly shall file
with the Delaware Secretary a certificate of merger with respect to the Holly
Merger (the "Holly Certificate of Merger," together with the Frontier
Certificate of Merger, the "Certificates of Merger"), which Certificates of
Merger shall be in such form as is required by, and executed and acknowledged
in accordance with, the WBCA and the DGCL, as applicable. The Mergers shall
become effective at such date and time as Frontier and Holly shall mutually
agree and shall be specified in the Certificates of Merger; provided that (i)
such date and time shall be after the time of filing of the Certificates of
Merger and (ii) both Mergers shall become effective at the same date and time.
As used in this Agreement, the term "Effective Time" shall mean the date and
time when the Mergers become effective.
SECTION 1.4 Certificates of Incorporation.
(a) At the Effective Time, the articles of incorporation of Frontier shall
be the articles of incorporation of Frontier Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law.
A-2
(b) At the Effective Time, the certificate of incorporation of Holly shall
be the certificate of incorporation of Holly Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.5 Bylaws. At the Effective Time, the bylaws of Merger Sub One
shall be the bylaws of Frontier Surviving Corporation and the bylaws of Merger
Sub Two shall be the bylaws of Holly Surviving Corporation.
SECTION 1.6 Directors and Executive Officers.
(a) The directors and executive officers of Parent at the Effective Time
shall be as provided in Section 5.16.
(b) The directors of Merger Sub One immediately prior to the Effective Time
shall be the directors of Frontier Surviving Corporation and the officers of
Frontier immediately prior to the Effective Time shall be the officers of
Frontier Surviving Corporation, in each case, until their respective successors
are duly elected and qualified.
(c) The directors of Merger Sub Two immediately prior to the Effective Time
shall be the directors of Holly Surviving Corporation and the officers of Holly
immediately prior to the Effective Time shall be the officers of Holly
Surviving Corporation, in each case, until their respective successors are duly
elected and qualified.
SECTION 1.7 Actions of Frontier and Holly. Frontier and Holly, in their
capacity as the holders of all the outstanding shares of Parent Common Stock,
by their execution and delivery hereof, unanimously consent to Parent's
entering into and performing this Agreement and the transactions contemplated
hereby; and Parent, in its capacity as the sole stockholder of each of Merger
Sub One and Merger Sub Two, by its execution and delivery hereof, consents to
each of such corporation's entering into and performing this Agreement and the
transactions contemplated hereby. Each of Frontier and Holly shall take all
actions necessary to cause Parent, Merger Sub One and Merger Sub Two to take
any actions necessary in order to consummate the Mergers and the other
transactions contemplated hereby.
SECTION 1.8 Actions of Parent. Parent shall cause Merger Sub One and
Merger Sub Two, as applicable, to take all actions necessary to consummate the
Mergers and the other transactions contemplated hereby.
ARTICLE 2
CONVERSION OF SECURITIES
SECTION 2.1 Effect on Capital Stock of Frontier and Merger Sub One. At the
Effective Time, by virtue of the Frontier Merger and without any action on the
part of Frontier, Parent, Merger Sub One or any holder of any shares of
Frontier Common Stock:
(a) All shares of Frontier Common Stock that are held by Frontier as
treasury stock or that are owned by Parent, Frontier, Holly Merger Sub One,
Merger Sub Two, any direct or indirect wholly owned Frontier Subsidiary, any
direct or indirect wholly owned Holly Subsidiary or any direct or indirect
wholly owned Parent Subsidiary immediately prior to the Effective Time shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(b) Except as provided in Section 2.1(a), and except for Frontier
Dissenting Shares (as defined in Section 2.1(e)), each outstanding share of
Frontier Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive one fully paid
and nonassessable share of Parent Common Stock (the "Frontier Merger
Consideration"). All shares of Parent Common Stock issued pursuant to this
Section 2.1(b) shall be duly authorized and validly issued and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
A-3
(c) All of the shares of Frontier Common Stock converted into the right
to receive shares of Parent Common Stock pursuant to this Section 2.1 shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist and, as of the Effective Time, the holders of shares of Frontier
Common Stock shall be deemed to have received shares of Parent Common Stock
(without the requirement for the surrender of any certificate previously
representing any such shares of Frontier Common Stock or issuance of new
certificates representing Parent Common Stock), with each certificate
representing shares of Frontier Common Stock prior to the Effective Time (a
"Frontier Certificate") being deemed to represent automatically an
equivalent number of shares of Parent Common Stock.
(d) Each share of Merger Sub One Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of Frontier Surviving Corporation.
(e) "Frontier Dissenting Shares" are shares of Frontier Common Stock
outstanding immediately prior to the Effective Time and held by a
stockholder who shall not have voted in favor of the Frontier Merger and who
shall have demanded payment for such shares in accordance with Article 13 of
the WBCA. Frontier Dissenting Shares shall not be converted into a right to
receive the Frontier Merger Consideration, unless such stockholder fails to
perfect, withdraws or otherwise loses its right to demand payment. If, after
the Effective Time, such stockholder fails to perfect, withdraws or loses
its right to demand payment, such shares shall be treated as if they had
been converted as of the Effective Time into the right to receive the
Frontier Merger Consideration. Frontier shall give Holly and Parent prompt
notice of any demands received by Frontier for payment for shares of
Frontier Common Stock. Except as required by applicable law or with the
prior written consent of Holly or Parent, Frontier shall not make any
payment with respect to, or settle or offer to settle, any such demands. At
the Effective Time, each Frontier Certificate, other than Frontier
Certificates representing Frontier Dissenting Shares and the shares to be
canceled pursuant to Section 2.1(a), shall thereafter represent only the
right to receive the Frontier Merger Consideration and the right to receive
any distributions or dividends pursuant to Section 2.8.
SECTION 2.2 Effect on Capital Stock of Holly and Merger Sub Two. At the
Effective Time, by virtue of the Holly Merger and without any action on the
part of Holly, Parent, Merger Sub Two or any holder of any shares of Holly
Common Stock:
(a) All shares of Holly Common Stock that are held by Holly as treasury
stock or that are owned by Parent, Frontier, Holly, Merger Sub One, Merger
Sub Two, any direct or indirect wholly owned Holly Subsidiary, any direct or
indirect wholly owned Frontier Subsidiary or any direct or indirect wholly
owned Parent Subsidiary immediately prior to the Effective Time shall cease
to be outstanding and shall be canceled and retired and shall cease to exist
and no consideration shall be delivered in exchange therefor.
(b) Except as provided in Section 2.2(a) and Section 2.10 and except for
Holly Dissenting Shares (as defined in Section 2.2(c)), each outstanding
share of Holly Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive the following:
(i) one fully paid and nonassessable share of Parent Common Stock
(the "Stock Consideration");
(ii) an amount of cash (the "Cash Consideration") equal to the
quotient of (A) $172,500,000 divided by (B) the Total Holly Common Stock
Number (as hereinafter defined) determined immediately prior to the
Effective Time and certified in the Total Holly Common Stock Number
Certificate delivered pursuant to Section 5.18 and Section 6.3(c)
hereof; and
(iii) one contingent value right (a "CVR"), which shall represent
the right to receive an amount of cash equal to the quotient of (A) the
sum of (v) the aggregate amount of all compensation, payments,
penalties, interest and other damages recovered by the Holly
Subsidiaries and their affiliates in the lawsuit filed by the Holly
Subsidiaries against the United States in the United States Court of
Federal Claims relating to jet fuel sales by the Holly Subsidiaries to
the Defense Fuel Supply Center, the claims filed against the Department
of Defense under the Contract Disputes Act and any similar future
lawsuits, claims or appeals brought by Parent or any Holly Subsidiary
related to the sale of jet fuel by
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Holly or any Holly Subsidiary to the United States prior to the date
hereof (collectively and as such pending lawsuit and claims are more
particularly described in Schedule 2.2(b) to the Holly Disclosure
Letter, the "Jet Fuel Claims"), whether such compensation, penalties,
interest or other damages are recovered at trial, upon appeal or in
settlement (the "Recovery"), minus (w) two times the direct costs and
expenses ("Claim Expenses") incurred by Parent, the Holly Subsidiaries
and their affiliates in prosecuting the Jet Fuel Claims from and after
the date hereof, including the compensation of the Representatives (as
defined in Section 5.19), minus (x) any income tax including any state
and local franchise tax imposed on net income ("Income Tax") liability
to Parent and its affiliates (based on an assumed highest statutory rate
of federal, state and local income and franchise tax applicable to
corporations in each year in which a payment of any portion of the
Recovery is made (the "Assumed Tax Rate"), net of any federal income tax
benefit of such state and local income and franchise taxes calculated at
such Assumed Tax Rate) of the Recovery, plus (y) any Income Tax benefit
to Parent and its affiliates (based on the Assumed Tax Rate during the
year of payment) of the incurrence of Claim Expenses and payments made
to holders of the CVRs minus (z) an amount equal to 10% of the remainder
of (v) minus (w), divided by (B) the total number of CVRs (which number
shall equal the sum of the total number of CVRs issued under this
Section 2.2(b)(iii) and Section 2.5(f)).
(c) The consideration provided for in Section 2.2(b), together with the
consideration provided for in Section 2.10, is referred to herein as the
"Holly Merger Consideration." "Holly Dissenting Shares" are shares of Holly
Common Stock outstanding immediately prior to the Effective Time and held by
a holder who neither shall have voted in favor of the Holly Merger nor shall
have consented thereto in writing and who shall have demanded appraisal for
such shares in accordance with the DGCL. Holly Dissenting Shares shall not
be converted into a right to receive the Holly Merger Consideration, unless
such holder fails to perfect, withdraws or otherwise loses its right to
appraisal. If, after the Effective Time, such holder fails to perfect,
withdraws or loses its right to appraisal, such shares shall be treated as
if they had been converted at the Effective Time into the right to receive
the Holly Merger Consideration. Holly shall give Frontier and Parent prompt
notice of any demands received by Holly for appraisal of shares of Holly
Common Stock. Except as required by applicable law or with the prior written
consent of Frontier or Parent, Holly shall not make any payment with respect
to, or settle or offer to settle, any such demands. At the Effective Time,
each certificate (a "Holly Certificate") formerly representing any shares of
Holly Common Stock, other than Holly Certificates representing Holly
Dissenting Shares and the shares to be canceled pursuant to Section 2.2(a),
shall thereafter represent only the right to receive the Holly Merger
Consideration and the right to receive any distribution or dividends
pursuant to Section 2.8.
(d) All of such shares of Parent Common Stock issued pursuant to this
Section 2.2 shall be duly authorized and validly issued and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. All shares of Holly Common Stock shall cease to be outstanding and
shall be canceled and retired and shall cease to exist, and each holder of a
Holly Certificate that immediately prior to the Effective Time represented
any shares of Holly Common Stock shall thereafter cease to have any rights
with respect to such shares of Holly Common Stock, except as provided in
Section 2.9 the right to receive the Holly Merger Consideration to be issued
in consideration therefor, including any cash in lieu of fractional shares
of applicable Parent Common Stock with respect thereto to be issued in
consideration therefor, and any dividends or other distributions to which
holders of Holly Common Stock become entitled, all in accordance with this
Article 2 (and subject, in the case of Holly Dissenting Shares, to Section
2.2(c)) upon the surrender of such Holly Certificate.
(e) If, between the date of this Agreement and the Effective Time, there
is declared or effected a reorganization, reclassification,
recapitalization, stock split, split-up, stock dividend or stock
distribution (including any dividend or distribution of securities
convertible into Holly Common Stock or Frontier Common Stock), combination
or exchange of shares with respect to, or rights issued in respect of, Holly
Common Stock or Frontier Common Stock, the Holly Merger Consideration and/or
Frontier Merger Consideration, as appropriate, shall be adjusted accordingly
to provide to the holders of Holly Common Stock and Frontier Common Stock
the same economic effect as contemplated by this Agreement prior to such
event.
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(f) Each share of Merger Sub Two Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of Holly Surviving Corporation.
SECTION 2.3 Effect on Parent Common Stock. At the Effective Time, each
share of the capital stock of Parent issued and outstanding immediately prior
to the Effective Time shall remain outstanding. Immediately following the
Effective Time, shares of the capital stock of Parent owned by Frontier
Surviving Corporation or Holly Surviving Corporation shall be canceled by
Parent without payment therefor.
SECTION 2.4 Surrender of Holly Shares.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company to act as agent for the holders of shares of Holly Common Stock in
connection with the Holly Merger (the "Exchange Agent") to receive the Holly
Merger Consideration to which holders of such shares shall become entitled
pursuant to Section 2.2. Promptly after the Effective Time, but in no event
later than three business days following the Closing Date, Parent will deposit
with the Exchange Agent certificates representing Parent Common Stock and cash
sufficient to make all payments pursuant to Section 2.2 and Section 2.10 and,
when and as needed, Frontier or Parent will deposit with the Exchange Agent
cash sufficient to make all payments pursuant to Section 2.8 (such funds, the
"Exchange Fund").
(b) Promptly after the Effective Time, but in no event later than three
business days following the Closing Date, Parent shall cause to be mailed to
each record holder, at the Effective Time, of an outstanding Holly Certificate,
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Holly Certificates shall pass, only
upon proper delivery of the Holly Certificate to the Exchange Agent) and
instructions for use in effecting the surrender of the Holly Certificate for
payment of the Holly Merger Consideration therefor. Within three business days
after surrender to the Exchange Agent of a Holly Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Holly Certificate shall be
entitled to receive in exchange therefor the Holly Merger Consideration for
each share formerly represented by such Holly Certificate and such Holly
Certificate shall then be canceled. Notwithstanding the foregoing, Holly
Certificates surrendered for exchange by any Holly Rule 145 Affiliate (as
determined pursuant to Section 5.10) shall not be exchanged until Parent has
received a written agreement from such Person as provided in Section 5.10. No
interest shall be paid or accrued for the benefit of holders of Holly
Certificates on the Holly Merger Consideration payable upon the surrender of
Holly Certificates (including, without limitation, any cash payable pursuant to
Section 2.8 or Section 2.10). If payment of the Holly Merger Consideration is
to be made to a person other than the person in whose name the surrendered
Holly Certificate is registered, it shall be a condition of payment that the
Holly Certificate so surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Holly Merger Consideration to a person other than the registered
holder of the Holly Certificate surrendered or shall have established to the
satisfaction of Holly Surviving Corporation that such tax either has been paid
or is not applicable.
SECTION 2.5 Holly Stock Options and Other Stock-Based Awards.
(a) As used in this Agreement, a "Stock Plan" shall be any plan or
agreement pursuant to which an option ("Stock Option") has been or may be
granted to any employee, director, independent contractor or former employee,
director or independent contractor to acquire shares of Holly Common Stock,
Frontier Common Stock, or Parent Common Stock, as the case may be. "Stock Plan"
shall also include any plan or agreement pursuant to which any stock
appreciation rights, phantom stock, restricted stock, restricted stock units,
deferred stock units, dividend equivalents or other equity-based compensation
("Stock-Based Awards") has been or may be granted to any employee, director,
independent contractor or former employee, director or independent contractor.
As used in this Section 2.5, "Option Exchange Ratio" shall mean the quotient of
(i) the sum of the Average Price plus the Cash Consideration divided by (ii)
the Average Price. The "Average Price" shall mean the average of the volume
weighted sales prices per share of the Frontier Common Stock on the New York
Stock
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Exchange, Inc. (the "NYSE"), as reported by Bloomberg Financial Markets (or, if
not reported thereby, by any other authoritative source as Frontier and Holly
shall agree in writing) for the five consecutive full trading days in which
such shares are traded on the NYSE ending on the third full trading day prior
to, but not including, the day on which the Effective Time occurs. The Average
Price shall be calculated to the nearest one-hundredth of one cent, and the
Option Exchange Ratio shall be calculated to the nearest ten-thousandth.
(b) Each option to purchase shares of Holly Common Stock (a "Holly Stock
Option") granted under the Holly Stock Plans, whether vested or unvested, that
is outstanding immediately prior to the Effective Time shall cease to represent
a right to acquire shares of Holly Common Stock and shall be converted, at the
Effective Time, into an option to purchase shares of Parent Common Stock (a
"Parent Stock Option"), on the same terms and conditions as were applicable
under such Holly Stock Option (but taking into account any changes thereto,
including the acceleration thereof, provided for in the Holly Stock Plans, in
any award agreement or in such Holly Stock Option by reason of this Agreement
or the transactions contemplated hereby). The number of shares of Parent Common
Stock which shall be subject to each such Parent Stock Option shall be the
number of shares of Holly Common Stock subject to each such Holly Stock Option
multiplied by the Option Exchange Ratio, rounded, if necessary, to the nearest
whole share of Parent Common Stock, and such Parent Stock Option shall have an
exercise price per share of Parent Common Stock (rounded to the nearest one
hundredth of a cent) equal to the exercise price per share of Holly Common
Stock for such Holly Stock Option divided by the Option Exchange Ratio;
provided, however, that, in the case of any Holly Stock Option to which Section
421 of the Code as of the Effective Time (after taking into account the effect
of any accelerated vesting thereof) applies by reason of its qualification
under Section 422 of the Code, the exercise price, the number of shares of
Parent Common Stock subject to such option and the terms and conditions of
exercise of such option shall be determined in a manner consistent with the
requirements of Section 424(a) of the Code. For purposes of this Section 2.5(b)
and Section 2.5(c), the number of shares and the exercise price per share under
each Holly Stock Option or Holly Stock-Based Award shall be adjusted
appropriately upon the occurrence of any of the events contemplated in Section
2.2(e) hereof to provide the holders of Holly Stock Options and Holly
Stock-Based Awards the same economic effect as contemplated by this Agreement
prior to the occurrence of such event.
(c) At the Effective Time, each right of any kind, contingent or accrued,
to receive shares of Holly Common Stock or benefits measured by the value of a
number of shares of Holly Common Stock, and each award of any kind consisting
of shares of Holly Common Stock, granted under the Holly Stock Plans, other
than Holly Stock Options (each, a "Holly Stock-Based Award"), whether vested or
unvested, which is outstanding immediately prior to the Effective Time shall
cease to represent a right or award with respect to shares of Holly Common
Stock and shall be canceled in consideration for a cash payment (i) computed
according to the relevant terms of each Holly Stock-Based Award or (ii) if
consented to by the holder of the Holly Stock-Based Award, at a per-share price
equal to the average of the volume weighted sales prices per share of the Holly
Common Stock on the American Stock Exchange, Inc. ("AMEX"), as reported by
Bloomberg Financial Markets (or, if not reported thereby, by any other
authoritative source as Frontier and Holly shall agree in writing) for the five
consecutive full trading days in which such shares are traded on AMEX ending on
the third full trading day prior to, but not including, the day on which the
Effective Time occurs. This price shall be calculated to the nearest
one-hundredth of one cent.
(d) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Holly Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Holly Stock Plans and agreements
evidencing the grants of such Holly Stock Options, and stating that such Holly
Stock Options and agreements have been assumed by Parent and shall continue in
effect on the same terms and conditions (subject to the adjustments required by
this Section 2.5 after giving effect to the Mergers and the terms of the Holly
Stock Plans) pursuant to the Parent Stock Plan.
(e) Prior to the Effective Time, Holly shall take all necessary action for
the adjustment of Holly Stock Options and the cancellation and cash out of
Holly Stock-Based Awards under this Section 2.5 and for the adoption by Parent
of a Stock Plan.
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(f) Each holder of a Holly Stock Option that is outstanding immediately
prior to the Effective Time (whether vested or unvested) and converted into a
Parent Stock Option pursuant to Section 2.5(b) shall, upon exercise of such
Parent Stock Option, receive one CVR for each share of Holly Common Stock into
which such Holly Stock Option was exercisable immediately prior to the
Effective Time. No CVRs shall be issued to any such holder of a Parent Stock
Option who does not exercise such Parent Stock Option prior to the first
payment date of any payment to the holders of CVRs.
SECTION 2.6 Frontier Stock Options.
(a) Each option to purchase shares of Frontier Common Stock (a "Frontier
Stock Option") granted under the Frontier Stock Plans, whether vested or
unvested, that is outstanding immediately prior to the Effective Time shall
cease to represent a right to acquire shares of Frontier Common Stock and shall
be converted, at the Effective Time, into a Parent Stock Option, on the same
terms and conditions as were applicable under such Frontier Stock Option (but
taking into account any changes thereto, including the acceleration thereof,
provided for in the Frontier Stock Plans in any award agreement or in such
Frontier Stock Option by reason of this Agreement or the transactions
contemplated hereby). The number of shares of Parent Common Stock subject to
each such Parent Stock Option shall be equal to the number of shares of
Frontier Common Stock subject to each such Frontier Stock Option and such
Parent Stock Option shall have an exercise price per share equal to the per
share exercise price specified in such Frontier Stock Option. For purposes of
this Section 2.6(a), the number of shares and the exercise price per share
under each Frontier Stock Option shall be adjusted appropriately upon the
occurrence of any of the events contemplated in Section 2.2(e) hereof to
provide the holders of Frontier Stock Options the same economic effect as
contemplated by this Agreement prior to the occurrence of such event.
(b) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Frontier Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Frontier Stock Plans and agreements
evidencing the grants of such Frontier Stock Options and stating that such
Frontier Stock Options and agreements have been assumed by Parent and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 2.6 after giving effect to the Mergers and the terms
of the Frontier Stock Plans) pursuant to the Parent Stock Plan.
(c) Prior to the Effective Time, Frontier shall take all necessary action
for the adjustment of Frontier Stock Options under this Section 2.6 and for the
adoption by Parent of the Parent Stock Plan.
SECTION 2.7 Exchange Procedures.
(a) Promptly after the Effective Time but in no event later than three
business days following the Closing Date, Parent shall cause the Exchange Agent
to mail to each holder of a Holly Certificate in accordance with Section 2.4(b)
hereof. Any uncertificated shares of Holly Common Stock in book-entry form,
other than Holly Dissenting Shares, shall be deemed surrendered to the Exchange
Agent at the Effective Time, and each holder thereof shall be entitled to
receive (A) certificates representing shares of Parent Common Stock
representing, in the aggregate, the whole number of shares of Parent Common
Stock that such holder has the right to receive pursuant to Section 2.2 (after
taking into account all shares of Holly Common Stock then held by such holder)
and (B) a check in the amount equal to the cash that such holder has the right
to receive pursuant to the provisions of this Article 2, including cash in lieu
of any fractional shares of Parent Common Stock that such holder is entitled to
receive pursuant to Section 2.10 and dividends or other distributions that such
holder is entitled to receive pursuant to Section 2.8. The Holly Certificate so
surrendered shall forthwith be canceled. Until such time as a certificate
representing Parent Common Stock is issued to or at the direction of the holder
of a surrendered Holly Certificate, such Parent Common Stock shall be deemed
not outstanding and shall not be entitled to vote on any matter. In the event
of a transfer of ownership of Holly Common Stock that occurred prior to the
Effective Time, but is not registered in the transfer records of Holly, one or
more shares of Parent Common Stock evidencing, in the aggregate, the proper
number of shares of Parent Common Stock, a check in the proper amount of cash
that such holder has the right to receive pursuant to the provisions of this
Article 2, including cash in lieu of any fractional shares of Parent Common
Stock pursuant to Section 2.10 and any dividends or other
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distributions to which such holder is entitled pursuant to Section 2.8, may be
issued with respect to such Holly Common Stock to such a transferee if the
Holly Certificate is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in
which the Holly Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Person requesting such exchange
shall pay any transfer or other taxes required by reason of the issuance of
certificates for shares of Parent Common Stock in a name other than that of the
registered holder of the Holly Certificate surrendered, or shall establish to
the reasonable satisfaction of Parent or the Exchange Agent that such tax has
been paid or is not applicable.
(b) Each Frontier Certificate (and each uncertificated share of Frontier
Common Stock in book-entry form, if any, prior to the Effective Time) shall be
deemed to represent an equivalent number of shares of Parent Common Stock
without any action on the part of the holder thereof; provided, however, that
if an exchange of Frontier Certificates for new certificates is required by law
or applicable rule or regulation, or is requested by any holder thereof, the
parties will cause Parent to arrange for such exchange on a
one-share-for-one-share basis.
SECTION 2.8 Distributions With Respect to Unexchanged Holly Shares. No
dividends or other distributions with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Holly Certificate with respect
to the shares of Parent Common Stock that such holder would be entitled to
receive upon surrender of such Holly Certificate, and no cash payment in lieu
of fractional shares of Parent Common Stock shall be paid to any such holder
pursuant to Section 2.10 until such holder shall surrender such Holly
Certificate in accordance with Section 2.10. Subject to the effect of
applicable law, following surrender of any such Holly Certificate, there shall
be paid to the record holder thereof without interest, (a) promptly after the
time of such surrender, the amount of any cash payable in lieu of fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.10 and the amount of any dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock and (b) at the appropriate payment date,
the amount of any dividends or other distributions with a record date after the
Effective Time and a payment date subsequent to such surrender payable with
respect to such shares of Parent Common Stock.
SECTION 2.9 No Further Ownership Rights in Holly Common Stock or Frontier
Common Stock. All shares of Parent Common Stock issued and cash paid upon
conversion of shares of Holly Common Stock or Frontier Common Stock in
accordance with the terms of this Article 2 (including any cash paid pursuant
to Section 2.2, Section 2.8 or Section 2.10) shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to the shares of
Holly Common Stock or Frontier Common Stock.
SECTION 2.10 No Fractional Shares of Parent Common Stock. No certificates
or scrip or shares of Parent Common Stock representing fractional shares of
Parent Common Stock or book-entry credit of the same shall be issued upon the
surrender for exchange of Holly Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
stockholder of Parent or a holder of shares of Parent Common Stock. For
purposes of this Section 2.10, all fractional shares to which a single record
holder would be entitled shall be aggregated and calculations shall be rounded
to three decimal places. Notwithstanding any other provision of this Agreement,
each holder of Holly Certificates who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock (determined after taking
into account all Holly Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to the product of (a)
such fractional part of a share of Parent Common Stock multiplied by (b) the
closing price for a share of Parent Common Stock as reported on the NYSE on the
first trading day following the date on which the Effective Time occurs. As
soon as practicable after the determination of the amount of cash to be paid to
such former holders of Holly Common Stock in lieu of any fractional interests,
the Exchange Agent shall notify Parent, and Parent shall ensure that there is
deposited with the Exchange Agent and shall cause the Exchange Agent to make
available in accordance with this Agreement such amounts to such former holders
of Holly Common Stock.
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SECTION 2.11 Termination of Exchange Fund. Any portion of the Exchange
Fund that remains undistributed to the holders of Holly Certificates six months
after the Effective Time shall, at Parent's request, be delivered to Parent or
otherwise on the instruction of Parent, and any holders of Holly Certificates
who have not theretofore complied with this Article 2 shall after such delivery
look only to Parent for the Holly Merger Consideration with respect to the
shares of Holly Common Stock formerly represented thereby to which such holders
are entitled pursuant to Section 2.2 and Section 2.4, any cash in lieu of
fractional shares of Parent Common Stock to which such holders are entitled
pursuant to Section 2.10 and any dividends or distributions with respect to
shares of Parent Common Stock to which such holders are entitled pursuant to
Section 2.8. Any such portion of the Exchange Fund remaining unclaimed by
holders of shares of Holly Common Stock immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental
entity shall, to the extent permitted by law, become the property of Parent
free and clear of any claims or interest of any Person previously entitled
thereto.
SECTION 2.12 No Liability. None of Frontier, Parent, Merger Sub One,
Merger Sub Two, Holly or the Exchange Agent shall be liable to any Person in
respect of any Holly Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
SECTION 2.13 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent, on a daily
basis, provided that no such investment or loss thereon shall affect the
amounts payable or the timing of the amounts payable to Holly stockholders
pursuant to Section 2.2 and the other provisions of this Article 2. Any
interest and other income resulting from such investments shall promptly be
paid to Parent. The Exchange Fund shall be invested by the Exchange Agent as
directed by Parent, provided that such investments shall be in obligations of
or guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank
repurchase agreements or banker's acceptances of commercial banks with capital
exceeding $500 million.
SECTION 2.14 Lost Certificates. If any Holly Certificate or Frontier
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Holly Certificate or
Frontier Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such Person of a bond in such reasonable amount as
Parent may direct as indemnity against any claim that may be made against it
with respect to such Holly Certificate or Frontier Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Holly
Certificate or Frontier Certificate, the Holly Merger Consideration or Frontier
Merger Consideration, as applicable, with respect to the shares of Holly Common
Stock or Frontier Common Stock formerly represented thereby, any cash in lieu
of fractional shares of Parent Common Stock, and unpaid dividends and
distributions on shares of Parent Common Stock deliverable in respect thereof,
pursuant to this Agreement.
SECTION 2.15 Withholding Rights. Parent shall be entitled to deduct and
withhold, or cause to be deducted or withheld, from the consideration otherwise
payable pursuant to this Agreement such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld or paid over to or deposited with the relevant governmental entity by
Parent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Person in respect of which such deduction
and withholding was made by Parent.
SECTION 2.16 Further Assurances. At and after the Effective Time, the
officers and directors of Parent, Frontier Surviving Corporation or Holly
Surviving Corporation, as applicable, shall be authorized to execute and
deliver, in the name and on behalf of Frontier Surviving Corporation, Merger
Sub One or Frontier, or Holly Surviving Corporation, Merger Sub Two or Holly,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of Frontier Surviving Corporation, Merger Sub One or
Frontier, or Holly Surviving Corporation, Merger Sub Two or Holly, any other
actions and things necessary to vest, perfect or confirm of record or otherwise
in Parent, Frontier Surviving Corporation or Holly Surviving Corporation any and
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all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by Parent, Frontier Surviving Corporation or
Holly Surviving Corporation, as applicable, as a result of, or in connection
with, the Mergers.
SECTION 2.17 Stock Transfer Books. The stock transfer books of Frontier
and Holly shall be closed immediately upon the Effective Time, and there shall
be no further registration of transfers of shares of Holly Common Stock or
Frontier Common Stock thereafter on the records of Holly or Frontier. At or
after the Effective Time, any Holly Certificates or Frontier Certificates
presented to the Exchange Agent, Parent, Frontier Surviving Corporation or
Holly Surviving Corporation for any reason shall be converted into the right to
receive the Holly Merger Consideration or Frontier Merger Consideration, as
applicable, with respect to the shares of Holly Common Stock or Frontier Common
Stock formerly represented thereby (including any cash in lieu of fractional
shares of Parent Common Stock to which the holders thereof are entitled
pursuant to Section 2.10 and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 2.8). From and after the
Effective Time, the holders of Holly Certificates or Frontier Certificates
evidencing ownership of shares outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares except as
otherwise provided for herein or by applicable law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HOLLY
Except as set forth in the disclosure letter delivered to Frontier
concurrently with the execution hereof (the "Holly Disclosure Letter") in
accordance with Section 8.16 or as disclosed with reasonable specificity in the
Holly Reports (as defined in Section 3.7), Holly represents and warrants to
Frontier that:
SECTION 3.1 Existence; Good Standing; Corporate Authority. Holly is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Holly is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which the character of the properties owned or leased by it therein or in
which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified would not have, individually or in
the aggregate, a Holly Material Adverse Effect (as defined in Section 8.9).
Holly has all requisite corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted. The copies of
Holly's certificate of incorporation and bylaws previously made available to
Frontier are true and correct and contain all amendments as of the date hereof.
SECTION 3.2 Authorization, Validity and Effect of Agreements. Holly has
the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby to which
it is a party. The consummation by Holly of the transactions contemplated
hereby has been duly authorized by all requisite corporate action, other than,
with respect to the Holly Merger, the approval and adoption of this Agreement
by Holly's stockholders. This Agreement constitutes the valid and legally
binding obligation of Holly, enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
SECTION 3.3 Capitalization. The authorized capital stock of Holly consists
of 20,000,000 shares of Holly Common Stock, and 1,000,000 shares of preferred
stock, par value of $1.00 per share (the "Holly Preferred Stock"). As of March
28,2003, there were (a) 15,492,428 shares of Holly Common Stock issued and
outstanding, (b) no shares of Holly Preferred Stock issued and outstanding, (c)
1,388,800 shares of Holly Common Stock issuable pursuant to options granted
under the stock option plans of Holly described in the Holly Disclosure Letter
(the "Holly Stock Plans"), of which the weighted average exercise price was
approximately $10.20 per share and (d) no restricted shares of Holly Common
Stock issued under the Holly Stock Plans. All issued and outstanding shares of
Holly Common Stock (i) are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, (ii) were not issued in violation
of the terms of any agreement or other understanding
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binding upon Holly and (iii) were issued in compliance with all applicable
charter documents of Holly and all applicable federal and state securities
laws, rules and regulations. Except (i) as set forth in this Section 3.3, (ii)
for any shares of Holly Common Stock issued pursuant to the exercise of the
options or other awards referred to in subsection (c) above, and (iii) for
shares of Holly Common Stock issuable pursuant to the exercise of such options,
there are no outstanding shares of capital stock and there are no options,
warrants, calls, subscriptions, stockholder rights plans or similar
instruments, convertible securities, or other rights, agreements or commitments
which obligate Holly or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock or other voting securities of Holly or any of its
Subsidiaries. Holly has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Holly on any matter.
SECTION 3.4 Subsidiaries. Each of Holly's Subsidiaries is a corporation,
limited liability company or partnership duly organized, validly existing and
in good standing (where applicable) under the laws of its jurisdiction of
incorporation or organization, has the corporate, limited liability company or
partnership power and authority to own, operate and lease its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing (where applicable) in each jurisdiction in
which the ownership, operation or lease of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not have,
individually or in the aggregate, a Holly Material Adverse Effect. All of the
outstanding shares of capital stock of, or other ownership interests in, each
of Holly's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by Holly free and clear of
all Liens. Schedule 3.4 of the Holly Disclosure Letter sets forth for each
Subsidiary of Holly, its name and jurisdiction of incorporation or organization.
SECTION 3.5 No Violation. Neither Holly nor any of its Subsidiaries is, or
has received notice that it would be with the passage of time, in violation of
any term, condition or provision of (a) its charter documents or bylaws, (b)
any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (c) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Holly or any of its Subsidiaries or
any of their respective properties or assets is subject, or is delinquent with
respect to any report required to be filed with any governmental entity,
except, in the case of matters described in clause (b) or (c), as would not
have, individually or in the aggregate, a Holly Material Adverse Effect. Except
as would not have, individually or in the aggregate, a Holly Material Adverse
Effect, (i) Holly and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders, franchises and approvals of all governmental authorities
necessary for the lawful conduct of their respective businesses (the "Holly
Permits") and (ii) Holly and its Subsidiaries are in compliance with the terms
of the Holly Permits. No investigation by any governmental authority with
respect to Holly or any of its Subsidiaries is pending or, to the knowledge of
Holly, threatened, other than those that would not have, individually or in the
aggregate, a Holly Material Adverse Effect.
SECTION 3.6 No Conflict.
(a) Neither the execution and delivery by Holly of this Agreement nor the
consummation by Holly of the transactions contemplated hereby in accordance
with the terms hereof will: (i) conflict with or result in a breach of any
provisions of the charter documents or bylaws of Holly; (ii) violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon, any of the properties of Holly or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, or otherwise
result in a detriment to Holly or any of its Subsidiaries under any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture, deed
of trust, Holly Permit, lease, contract, agreement, joint venture or other
instrument or obligation to which Holly or any of its Subsidiaries is a party,
or by which Holly or any of its Subsidiaries or any of their properties is
bound or affected; or (iii)
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contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Holly or any of its Subsidiaries, except, in the case of matters described in
clause (ii) or (iii), as would not have or reasonably be expected to have,
individually or in the aggregate, a Holly Material Adverse Effect.
(b) Neither the execution and delivery by Holly of this Agreement nor the
consummation by Holly of the transactions contemplated hereby in accordance
with the terms hereof will require any consent, approval or authorization of,
or filing or registration with, any governmental or regulatory authority, other
than (i) the filings provided for in Article 1, (ii) filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities and "Blue Sky" laws, (iii) filings required by the Federal
Energy Regulatory Commission and any state energy regulatory commissions with
respect to interstate and intrastate petroleum pipelines, and (iv) filings
required by the Federal Communications Commission with respect to microwave
transmitter licenses ((i), (ii), (iii) and (iv) collectively, the "Regulatory
Filings"), except for any consent, approval or authorization the failure of
which to obtain and for any filing or registration the failure of which to make
would not have or reasonably be expected to have, individually or in the
aggregate, a Holly Material Adverse Effect.
(c) Other than as contemplated by Section 3.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of the Holly Material Contracts (as hereinafter
defined) or for Holly to consummate the transactions contemplated hereby,
except where the failure to receive such consents or other certificates would
not have or reasonably be expected to have, individually or in the aggregate, a
Holly Material Adverse Effect.
(d) Other than as contemplated by Section 5.13(d), neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will: (i) result in or constitute the satisfaction of a
condition to (whether or not there be any additional condition to) any payment
from Holly or its Subsidiaries (including severance, unemployment compensation,
parachute payment, bonus or otherwise) becoming due to any director, employee
or independent contractor of Holly or any of its Subsidiaries under any Holly
Plan (as defined in Section 3.11) or otherwise; (ii) increase any benefits
otherwise payable under any Holly Plan or otherwise; or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
SECTION 3.7 SEC Documents. Holly has made available to Frontier each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Holly with the Securities and Exchange
Commission ("SEC") since July 31, 2000, each in the form (including exhibits
and any amendments thereto) filed with the SEC prior to the date hereof
(collectively, the "Holly Reports"), and Holly has filed all forms, reports and
documents required to be filed by it with the SEC pursuant to relevant
securities statutes, regulations, policies and rules since such time. As of
their respective dates, the Holly Reports (i) were prepared in accordance with
the applicable requirements of the Securities Act, the Exchange Act, and the
rules and regulations thereunder and complied with the then applicable
accounting requirements and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading except for such
statements, if any, as have been modified or superseded by subsequent filings
with the SEC prior to the date hereof. Each of the consolidated balance sheets
included in or incorporated by reference into the Holly Reports (including the
related notes and schedules) fairly presents in all material respects the
consolidated financial position of Holly and its Subsidiaries as of its date
and each of the consolidated statements of operations, cash flows and
stockholders' equity included in or incorporated by reference into the Holly
Reports (including any related notes and schedules) fairly presents in all
material respects the results of operations, cash flows or changes in
stockholders' equity, as the case may be, of Holly and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
such exceptions as may be permitted by Form 10-Q of the SEC), in each case in
accordance with generally accepted accounting principles consistently
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applied during the periods involved, except as may be noted therein, and except
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount or effect.
SECTION 3.8 Litigation and Liabilities. There are no actions, suits or
proceedings pending against Holly or any of its Subsidiaries or, to Holly's
knowledge, threatened against Holly or any of its Subsidiaries, at law or in
equity, or before or by any federal, state or foreign commission, court, board,
bureau, agency or instrumentality, other than those that would not have or
reasonably be expected to have, individually or in the aggregate, a Holly
Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against Holly or any of its Subsidiaries, other
than those that would not have, individually or in the aggregate, a Holly
Material Adverse Effect. There are no obligations or liabilities of any nature,
whether accrued, absolute, contingent or otherwise, of Holly or any of its
Subsidiaries, other than those liabilities and obligations (a) that are
disclosed in the Holly Reports, (b) that have been incurred in the ordinary
course of business since January 31, 2003, (c) related to expenses associated
with the transactions contemplated by this Agreement or (d) that would not have
or reasonably be expected to have, individually or in the aggregate, a Holly
Material Adverse Effect.
SECTION 3.9 Absence of Certain Changes. Since July 31, 2002, Holly has
conducted its business only in the ordinary and usual course of business, and
during such period there has not been (i) any event, condition, action or
occurrence that has had or would reasonably be expected to have, individually
or in the aggregate, a Holly Material Adverse Effect; (ii) through the date
hereof, any material change by Holly or any of its Subsidiaries (viewed on a
consolidated basis) in any of its accounting methods, principles or practices
or any of its tax methods, practices or elections, except for changes required
by generally accepted accounting principles; (iii) any material damage,
destruction, or loss to the business or properties of Holly and its
Subsidiaries, taken as a whole, not covered by insurance; (iv) through the date
hereof, any declaration, setting aside or payment of any dividend (other than
ordinary quarterly dividends of $0.11 per share on Holly Common Stock) or other
distribution in respect of the capital stock of Holly, or any direct or
indirect redemption, purchase or any other acquisition by Holly of any such
stock; (v) through the date hereof, any change in the capital stock or in the
number of shares or classes of Holly's authorized or outstanding capital stock
(other than as a result of issuances under Holly Stock Plans or exercises of
options to purchase shares of Holly Common Stock outstanding or issued as
permitted hereunder pursuant to Section 5.1(a)(vi)); (vi) through the date
hereof, any increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option, stock
purchase or other employee benefit plan, except in the ordinary course of
business; or (vii) through the date hereof, any event, condition, action or
occurrence that is prohibited on or after the date of this Agreement under
Section 5.1(a)(viii), (ix), (x), (xii), (xiii), (xv), (xvi), or (xx) of this
Agreement.
SECTION 3.10 Taxes.
(a) Each of Holly and its Subsidiaries and each affiliated, consolidated,
combined, unitary or similar group of which any such corporation is or, since
January 1, 1991, was a member has (i) duly filed (or there has been filed on
its behalf) on a timely basis (taking into account any extensions of time to
file before the date hereof) with appropriate governmental authorities all Tax
Returns (as defined below) required to be filed by or with respect to it,
except to the extent that any failure to file would not have, individually or
in the aggregate, a Holly Material Adverse Effect, and (ii) duly paid or
deposited in full on a timely basis or made adequate provisions in accordance
with generally accepted accounting principles (or there has been paid or
deposited or adequate provision has been made on its behalf) for the payment of
all Taxes (as defined below) required to be paid by it other than those being
contested in good faith by Holly or a Subsidiary of Holly and adequately
provided for on the financial statements contained in the Holly Reports and
except to the extent that any failure to pay or deposit or make adequate
provision for the payment of such Taxes would not have, individually or in the
aggregate, a Holly Material Adverse Effect.
(b) Except for matters that would not have, individually or in the
aggregate, a Holly Material Adverse Effect and for matters disclosed on
Schedule 3.10(b) of the Holly Disclosure Letter, (i) the federal income tax
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returns of Holly and each of its Subsidiaries have been examined by the
Internal Revenue Service (the "IRS") (or the applicable statutes of limitation
for the assessment of federal income taxes for such periods have expired) for
all periods; (ii) all deficiencies asserted as a result of any examinations of
Holly and its Subsidiaries by any taxing authority have been paid fully,
settled or adequately provided for in the financial statements contained in the
Holly Reports; (iii) as of the date hereof, neither Holly nor any of its
Subsidiaries has granted any requests, agreements, consents or waivers to
extend the statutory period of limitations applicable to the filing of any Tax
Return or the assessment of any Taxes of Holly or any of its Subsidiaries that
will be outstanding as of the Effective Time; (iv) neither Holly nor any of its
Subsidiaries is a party to, is bound by or has any obligation under any tax
sharing, allocation or indemnity agreement or any similar agreement or
arrangement; (v) there are no Tax liens on any assets of Holly or its
Subsidiaries except for (A) Taxes not yet currently due and (B) matters being
contested by Holly or its Subsidiaries in good faith for which adequate
reserves are reflected in the financial statements contained in the Holly
Reports; and (vi) neither Holly nor any of its Subsidiaries is a party to an
agreement that provides for the payment of any amount that could constitute a
"parachute payment" within the meaning of section 280G of the Code.
(c) Except as disclosed on Schedule 3.10(c) of the Holly Disclosure Letter,
neither Holly nor any of its Subsidiaries has participated, directly or
indirectly, in any (i) reportable transaction within the meaning of Treas. Reg.
(S) 1.6011-4T(b), or (ii) tax shelter required to be registered under Section
6111 of the Code.
(d) For purposes of this Agreement, (i) "Tax" or "Taxes" means all federal,
state, county, local, foreign or other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, accumulated earnings, personal
holding, excess profits, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
disability, capital stock, or windfall profits taxes, customs duties or other
taxes, fees, assessments or governmental charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign), and (ii) "Tax
Return" means any return, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
SECTION 3.11 Employee Benefit Plans.
(a) For purposes of this Section 3.11, the term Subsidiaries as applied to
Holly shall include any entity, whether or not incorporated, which, with Holly,
forms or formed a controlled group of corporations, a group of trades or
business under common control or an affiliated service group, within the
meaning of section 414(b), (c) or (m) of the Code, within the six full calendar
years prior to the Closing Date.
(b) All employee benefit plans, programs, arrangements and agreements,
including but not limited to pension, retirement, disability, medical, dental
or other health insurance plans; life insurance or other death benefit plans;
profit sharing, deferred compensation, stock option, bonus or other incentive
plans; vacation benefit plans or policies; severance or redundancy plans;
individual employee agreements; and foreign plans not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (whether or not
described in Section 3(3) of ERISA, whether or not funded, whether or not
written or oral and whether or not legally enforceable in whole or in part) (i)
to which Holly or any Subsidiary is a party or by which it is bound, (ii) with
respect to which Holly or any Subsidiary has made any payments or
contributions, or (iii) to which Holly or any Subsidiary may otherwise have any
liability, are listed on Schedule 3.11(b) of the Holly Disclosure Letter (the
"Holly Plans").
(c) Holly has made available to Frontier a true, correct and complete copy
of each of the Holly Plans, and all contracts relating thereto, or to the
funding thereof, including, without limitation, all trust agreements, insurance
contracts, administration contracts, investment management agreements,
subscription and participation agreements, and record-keeping agreements, each
as in effect on the date hereof. In the case of any Holly Plan that is not in
written form, Frontier has been supplied with an accurate description of such
Holly Plan as in effect on the date hereof. A true, correct and complete copy
of the most recent annual report, actuarial report,
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accountant's opinion of the plan's financial statements, summary plan
description and IRS determination letter with respect to each Holly Plan, to
the extent applicable, and a current schedule of assets (and the fair market
value thereof assuming liquidation of any asset which is not readily tradable)
held with respect to any funded Holly Plan have been made available to
Frontier. There have been no changes in the financial condition of the
respective plans from that stated in the annual reports and actuarial reports
supplied that would have, individually or in the aggregate, a Holly Material
Adverse Effect.
(d) All Holly Plans comply in form and have been administered in operation
in compliance in all material respects with all applicable requirements of law,
excluding any deficiencies that would not have, individually or in the
aggregate, a Holly Material Adverse Effect, no event has occurred which will or
could cause any such Holly Plan to fail to comply with such requirements,
excluding any deficiencies that would not have, individually or in the
aggregate, a Holly Material Adverse Effect, and no notice has been issued by
any governmental authority questioning or challenging such compliance, and no
inquiry or audit has been initiated with respect thereto by any governmental
authority.
(e) All required employer contributions under any such plans have been made
and the applicable funds have been funded in accordance with the terms thereof,
excluding any deficiencies that would not have, individually or in the
aggregate, a Holly Material Adverse Effect.
(f) To the extent applicable, the Holly Plans comply, in all material
respects, with the requirements of ERISA, the Code and any other applicable tax
act and other laws, and any Holly Plan intended to be qualified under section
401(a) of the Code has been determined by the IRS to be so qualified (or an
application for qualification is pending before the IRS) under the currently
applicable provisions of the Code, and nothing has occurred or is anticipated
to occur to cause the loss of such qualified status.
(g) Except as specifically set forth on Schedule 3.11(g) of the Holly
Disclosure Letter, Holly does not sponsor, maintain, participate in or
contribute to, and has not at any time sponsored, maintained, participated in
or contributed to (and never has been required to contribute to) any (i)
employee pension benefit plan (as such term is defined in Section 3(1) of ERISA
("Pension Plan") that is or was subject to minimum funding standards of the
Code or ERISA; (ii) "multiemployer plan" as that term is defined in Section
414(f) of the Code or Section 4001(a)(3) of ERISA; (iii) foreign benefit plans;
or (iv) voluntary employee benefit associations intended to be exempt from
federal income tax under Section 501(c)(9) of the Code.
(h) Except as specifically set forth on Schedule 3.11(h) of the Holly
Disclosure Letter: (i) Holly has paid all premiums (including any applicable
interest, charges and penalties for late payment) due the Pension Benefit
Guaranty Corporation (the "PBGC") with respect to each Pension Plan for which
premiums to the PBGC are required; (ii) no Pension Plan had, as of the most
recent actuarial report, an "unfunded benefit liability" (as such term is
defined in Section 4001(a)(18) of ERISA) or has an "accumulated funding
deficiency" (as such term is defined in Section 302 of ERISA or Section 412 of
the Code), whether or not waived; (iii) no Pension Plan has a "liquidity
shortfall" as defined in Section 412(m)(5) of the Code; (iv) no notice has been
required under Section 4011 of ERISA with respect to any Pension Plan; (v) no
event described in Section 401(a)(29) of the Code has occurred or can
reasonably be expected to occur with respect to any Pension Plan; (vi) no
"reportable event" (as that term is defined in Section 4043 of ERISA and for
which the 30-day notice requirement has not been waived) has occurred with
respect to any Pension Plan; (vii) each Pension Plan uses a funding method
permissible under ERISA and the actuarial assumptions used in connection
therewith are reasonable individually and in the aggregate; and (viii) the fair
market value of the assets of each Pension Plan will exceed or equal the
"projected benefit obligation" (as defined in Statement of Financial Accounting
Standard No. 87).
(i) Except as specifically set forth on Schedule 3.11(i) of the Holly
Disclosure Letter, the execution of this Agreement or the consummation of the
Mergers will not give rise to or trigger any change of control, accelerated
vesting, severance or other similar provisions in any Holly Plan.
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(j) Excluding claims for benefits incurred in the ordinary course of the
Holly Plan activities, there are no pending or anticipated claims against or
otherwise involving any of the Holly Plans and no suit, action or other
litigation has been brought against or with respect to any Holly Plan or any
fiduciary of any Holly Plan.
(k) Neither Holly nor any of its Subsidiaries has incurred or reasonably
expects to incur any liability under subtitle E of Title IV of ERISA with
respect to any "multiemployer plan," within the meaning of section 4001(a)(3)
of ERISA.
(l) Except as described in Schedule 3.11(l) of the Holly Disclosure Letter,
none of the assets of any Holly Plan is invested in employer securities (as
defined in section 407(d)(1) of ERISA) or employer real property (as defined in
section 407(d)(2) of ERISA).
(m) There have been no "prohibited transactions" (as described in section
406 of ERISA or section 4975 of the Code) with respect to any Holly Plan that
would have, individually or in the aggregate, a Holly Material Adverse Effect.
(n) There have been no acts or omissions by Holly or any of its
Subsidiaries which have given rise to or may give rise to fines, penalties,
taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or
100 of the Code for which Holly or any of its Subsidiaries are or may be liable
that would result in a Holly Material Adverse Effect.
(o) Each Holly Plan which constitutes a "group health plan" (as defined in
section 607(1) of ERISA or section 4980B(g)(2) of the Code), including any
plans of current and former affiliates which must be taken into account under
sections 4980B and 414(t) of the Code or section 601 of ERISA, has been
operated in material compliance with applicable law, including continuation
coverage requirements of section 4980B of the Code, Chapter 100 of the Code and
section 601 of ERISA to the extent such requirements are applicable, and each
such plan (including any such plan covering retirees or other former employees)
may be amended (including, without limitation, to prospectively curtail or
discontinue benefits and/or increase participant contribution requirements) or
terminated without liability (other than with respect to welfare benefits in
the ordinary course) to Holly, its Subsidiaries or successors.
(p) Except as listed and identified on Schedule 3.11(p) of the Holly
Disclosure Letter, neither Holly nor any of its Subsidiaries has any liability
or contingent liability for providing, under any Holly Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and section 4980B of the Code.
(q) Obligations under or relating to the Holly Plans are properly reflected
in the financial statements of Holly in accordance with generally accepted
accounting principles.
(r) There has been no act or omission that would impair the ability of
Parent, Frontier or any of its Subsidiaries (or any successor thereto) to
unilaterally amend or terminate any Holly Plan to the full extent permitted
under applicable law.
SECTION 3.12 Labor Matters.
(a) Schedule 3.12(a) of the Holly Disclosure Letter lists each of the
collective bargaining or other labor union contracts applicable to any
employees of Holly or any of its Subsidiaries to which Holly or any of its
Subsidiaries is a party or is otherwise subject (the "Holly Bargaining
Agreements"). To Holly's knowledge, Holly and each of its Subsidiaries, as
applicable, is in compliance with the Holly Bargaining Agreements. As of the
date of this Agreement, there is no pending or, to Holly's knowledge,
threatened labor dispute, strike, or work stoppage against Holly or any of its
Subsidiaries that that would have, individually or in the aggregate, a Holly
Material Adverse Effect.
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(b) Holly has provided Frontier with true, complete and correct copies of
(i) the Holly Bargaining Agreements, including any amendments thereto, (ii) the
Holly Plans covering the employees represented by the Holly Bargaining
Agreements (the "Holly Represented Employees"), including any amendments
thereto, and (iii) summaries of the Holly Plans covering the Holly Represented
Employees. There are no "employee pension benefit plans" (as defined in Section
3(2) of ERISA), "employee welfare benefit plans" (as defined in Section 3(l) of
ERISA), or other programs, plans or arrangements, maintained in whole or in
part, contributed to, or required to be contributed to, in whole or in part, by
Holly or any of its Subsidiaries relating to the Holly Represented Employees
other than as disclosed to Frontier pursuant to this paragraph.
SECTION 3.13 Environmental Matters.
(a) As used in this Agreement:
(i) "Environmental Laws" means any and all applicable laws, statutes,
regulations, rules, orders, ordinances, legally enforceable directives, and
rules of common law of any governmental entity pertaining to protection of
human health (to the extent arising from exposure to Hazardous Materials) or
the environment (including, without limitation, any natural resource damages
or any generation, use, storage, treatment, disposal, release, threatened
release, discharge, or emission of Hazardous Materials into the indoor or
outdoor environment) in effect at the time of Closing;
(ii) "Hazardous Materials" means any (1) chemical, product, substance,
waste, pollutant, or contaminant that is defined or listed as hazardous or
toxic or that is otherwise regulated under any Environmental Law; (2)
asbestos containing materials, whether in a friable or non-friable
condition, polychlorinated biphenyls, naturally occurring radioactive
materials or radon; and (3) any petroleum hydrocarbons, petroleum products,
petroleum substances, crude oil, natural gas, and any components, fractions,
or derivatives thereof;
(iii) "Environmental Permits" means any and all permits, registrations,
licenses, consents, exemptions, variances, authorizations, and similar
approvals required under Environmental Laws;
(iv) "Release" means any depositing, spilling, leaking, pumping,
pouring, placing, emitting, discarding, abandoning, emptying, discharging,
migrating, injecting, escaping, leaching, dumping, or disposing;
(v) "Holly Real Properties" means those real properties owned, leased,
or otherwise operated by Holly or its Subsidiaries in connection with the
performance of their respective businesses; and
(vi) "Offsite Non-Holly Real Properties" means any real properties other
than the Holly Real Properties.
(b) Except as would not have, individually or in the aggregate, a Holly
Material Adverse Effect:
(i) Holly and its Subsidiaries and their respective operations, assets,
businesses and Holly Real Properties are in compliance with all
Environmental Laws and Environmental Permits;
(ii) All Environmental Permits required under Environmental Laws for
operating Holly's and its Subsidiaries' assets, businesses, and Holly Real
Properties as they are currently being operated have been obtained and are
currently in full force and effect and, to Holly's knowledge, there are no
conditions or circumstances that would limit or preclude it or its
Subsidiaries from renewing such Environmental Permits;
(iii) Holly and its Subsidiaries are not subject to any pending or, to
Holly's knowledge, threatened claims, actions, suits, investigations,
inquiries or proceedings under Environmental Laws and neither Holly nor its
Subsidiaries have received written notice of alleged violations under
applicable Environmental Laws with respect to their respective operations,
assets, businesses, or Holly Real Properties;
(iv) There have been no Releases of Hazardous Materials on, under or
from the Holly Real Properties and there are no investigations,
remediations, removals or monitorings of Hazardous Materials required under
Environmental Laws at such properties;
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(v) Neither Holly nor its Subsidiaries has received any written notice
asserting an alleged liability or obligation under any Environmental Laws
with respect to the investigation, remediation, removal, or monitoring of
any Hazardous Materials at, under, or Released or threatened to be Released
from any Offsite Non-Holly Real Properties and, to the knowledge of Holly,
there are no conditions or circumstances that would reasonably be expected
to result in the receipt of such written notice; and
(vi) Holly and its Subsidiaries have made available to Frontier complete
and correct copies of all material environmental site assessment reports,
studies, and correspondence on environmental matters (in each instance
relevant to Holly or its Subsidiaries) that are in Holly's or its
Subsidiaries' possession and relating to their respective operations,
assets, businesses, or the Holly Real Properties.
Neither Holly nor its Subsidiaries makes any representation or warranty
regarding compliance or failure to comply with, or any actual or contingent
liability under, any Environmental Law, except as expressly set forth in this
Section 3.13.
SECTION 3.14 Intellectual Property. Holly and its Subsidiaries own or
possess all necessary licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights and proprietary information used or held
for use in connection with their respective businesses as currently being
conducted, free and clear of material Liens, except where the failure to own or
possess such licenses and other rights would not have, individually or in the
aggregate, a Holly Material Adverse Effect, and there are no assertions or
claims challenging the validity of any of the foregoing which would have,
individually or in the aggregate, a Holly Material Adverse Effect. Except in
the ordinary course of business, neither Holly nor any of its Subsidiaries has
granted to any other person any license to use any of the foregoing. The
conduct of Holly's and its Subsidiaries' respective businesses as currently
conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in a way which would have, individually or in the aggregate, a Holly
Material Adverse Effect. There is no infringement of any proprietary right
owned by or licensed by or to Holly or any of its Subsidiaries in a way which
would have, individually or in the aggregate, a Holly Material Adverse Effect.
SECTION 3.15 Title to Properties; Condition of Assets.
(a) Except for goods and other property sold, used or otherwise disposed of
since January 31, 2003 in the ordinary course of business for fair value, as of
the date hereof, Holly and its Subsidiaries have good and indefeasible title
to, or hold valid leasehold interests in, or valid rights of way, easements or
licenses over, under and across, all their respective properties, interests in
properties and assets, real and personal, reflected in Holly's January 31, 2003
financial statements included in the Holly Reports, free and clear of any Lien,
except: (a) Liens reflected in the balance sheet of Holly as of January 31,
2003 included in the Holly Reports; (b) Liens for current taxes, assessments or
other governmental charges not yet due and payable; (c) Liens of mechanics,
materialmen, workmen and operators arising by operation of law in the ordinary
course of business, or by written agreement existing as of the date hereof, for
sums not yet due or being contested in good faith by appropriate proceedings;
and (d) such imperfections of title, minor encumbrances, easements and Liens
that would not have, individually or in the aggregate, a Holly Material Adverse
Effect. All leases and other agreements pursuant to which Holly or any of its
Subsidiaries leases, subleases or otherwise acquires or obtains operating
rights affecting any real or personal property are valid, binding and
enforceable in accordance with their terms, except where the failure to be
valid, binding and enforceable would not have, individually or in the
aggregate, a Holly Material Adverse Effect; and there is not, under any such
leases, any existing or prospective default or event of default or event which
with notice or lapse of time, or both, would constitute a default by Holly or
any of its Subsidiaries that would have, individually or in the aggregate, a
Holly Material Adverse Effect. No consents or other approvals of any lessor, or
its lender, are required under any material lease as a result of the
consummation of the transactions contemplated by this Agreement.
(b) The tangible assets, including without limitation, refinery
improvements, terminal improvements, pipelines and equipment of Holly and its
Subsidiaries (i) are in good operating condition and repair, subject to
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ordinary wear and tear, and have been maintained in accordance with standard
industry practice, (ii) are adequate for the purpose for which they are being
used and are capable of being used in the business as presently conducted
without present need for replacement or repair, except in the ordinary course
of business, (iii) conform in all material respects with all applicable legal
requirements, and (iv) in the aggregate provide the capacity to engage in their
respective businesses on a continuous basis, subject to routine maintenance.
SECTION 3.16 Insurance. Holly and its Subsidiaries maintain insurance
coverage adequate in the industry for the operation of their respective
businesses (taking into account the cost and availability of such insurance).
SECTION 3.17 No Brokers. Holly has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Parent, Frontier, Merger Sub One, Merger Sub Two or Holly to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, except that Holly has retained Credit
Suisse First Boston LLC to act as its financial advisor in connection with the
Holly Merger and render the opinion referred to in Section 3.18, a copy of the
engagement letter for which and the terms of which (including the fees owed by
Holly in connection therewith) have been disclosed in writing to Frontier prior
to the date hereof.
SECTION 3.18 Opinion of Financial Advisor. The Board of Directors of Holly
has received the opinion of Credit Suisse First Boston LLC to the effect that
the Holly Merger Consideration is fair, from a financial point of view, to the
holders of shares of Holly Common Stock, it being understood and acknowledged
by Frontier that such opinion has been rendered for the benefit of the Board of
Directors of Holly, and is not intended to, and may not, be relied upon by
Frontier, its affiliates or their respective Subsidiaries.
SECTION 3.19 Contracts; Debt Instruments.
(a) Except for documents filed or listed as exhibits to the Holly Reports
filed since July 31, 2002 ("Holly Material Contracts"), there are no contracts
or leases that are material to the business, properties, assets, financial
condition or results of operations of Holly and its Subsidiaries taken as a
whole. Neither Holly nor any of its Subsidiaries is in violation of or in
default under (nor does there exist any condition which with the passage of
time or the giving of notice or both would cause such a violation of or default
under) any Holly Material Contract to which it is a party or by which it or any
of its properties or assets is bound, except for violations or defaults that
would not have, individually or in the aggregate, a Holly Material Adverse
Effect. Each Holly Material Contract is in full force and effect, and is a
legal, valid and binding obligation of Holly or one of its Subsidiaries and, to
the knowledge of Holly, each of the other parties thereto, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity and except where the failure of any
Holly Material Contract to be in full force and effect or a legal, valid and
binding obligation and enforceable in accordance with its terms would not have,
individually or in the aggregate, a Holly Material Adverse Effect. No condition
exists or event has occurred which (whether with or without notice or lapse of
time or both) would constitute a default by Holly or one of its Subsidiaries
or, to the knowledge of Holly, any other party thereto under any Holly Material
Contract or result in a right of termination of any Holly Material Contract,
except for any condition or event that would not have, individually or in the
aggregate, a Holly Material Adverse Effect.
(b) Set forth in Schedule 3.19(b) of the Holly Disclosure Letter is, as of
the date hereof, (i) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments pursuant to which
any indebtedness of Holly or its Subsidiaries in an aggregate principal amount
in excess of $1,000,000 is outstanding or may be incurred, (ii) the respective
principal amounts outstanding thereunder as of the date hereof and (iii) the
approximate amount of consolidated cash and cash equivalents of Holly and its
Subsidiaries as of the date hereof.
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(c) Neither Holly nor any of its Subsidiaries has entered into any
contract, and there is no commitment, judgment, injunction, order or decree to
which Holly or any of its Subsidiaries is a party or subject to, that has or
would reasonably be expected to have the effect of prohibiting or impairing the
conduct of business by Holly or any of its Subsidiaries (or of Parent or any of
its other Subsidiaries after the Mergers) or any contract that may be
terminable as a result of Frontier's status as a competitor of any party to
such contract, except, in each case, for any prohibition, impairment or
termination right that would not have, individually or in the aggregate, a
Holly Material Adverse Effect.
SECTION 3.20 Recommendation; Vote Required. The Board of Directors of
Holly, at a meeting duly called and held, has by unanimous vote of those
directors present, (i) determined that this Agreement and the transactions
contemplated hereby are advisable, fair to and in the best interests of Holly
stockholders, (ii) approved this Agreement and the transactions contemplated
hereby and (iii) recommended that this Agreement and the transactions
contemplated hereby be approved and adopted by the holders of Holly Common
Stock. The affirmative vote of the holders of a majority of the outstanding
shares of Holly Common Stock is the only vote of any class or series of Holly
capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby (the "Holly Requisite Vote").
SECTION 3.21 Certain Approvals. Holly's Board of Directors has taken any
and all necessary and appropriate action to render inapplicable to the Mergers
and the transactions contemplated by this Agreement the restrictions contained
in Section 203 of the DGCL and any other "fair price," "moratorium," control
share acquisition, interested stockholder or other similar antitakeover
provision or regulation and any restrictive provision of any antitakeover
provision in the certificate of incorporation or bylaws of Holly.
SECTION 3.22 Certain Contracts. Neither Holly nor any of its Subsidiaries
is a party to or bound by (i) any non-competition agreement or any other
agreement or obligation which purports to limit the manner in which, or the
localities in which, the current business of Holly and its Subsidiaries, taken
as a whole, or (to the knowledge of Holly) Frontier and its Subsidiaries, taken
as a whole, is conducted or (ii) any executory agreement or obligation which
pertains to the acquisition or disposition of any asset, or which provides any
third party any lien, claim or preferential right with regard thereto, except,
in the case of this clause (ii), for such agreements or obligations that would
not have, individually or in the aggregate, a Holly Material Adverse Effect.
SECTION 3.23 No Rights Plan or Agreement. Holly has not adopted any
so-called "poison pill" rights plan or agreement.
SECTION 3.24 Support Agreements. Effective contemporaneously with Holly's
entering into this Agreement, Holly has delivered to Frontier a Holly Holder
Support Agreement in the form attached hereto as Exhibit C, duly executed by
each person identified in Schedule 3.24 to the Holly Disclosure Letter; and
each such Holly Holder Support Agreement is enforceable by Frontier in
accordance with its terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF FRONTIER
Except as set forth in the disclosure letter delivered to Holly concurrently
with the execution hereof (the "Frontier Disclosure Letter") in accordance with
Section 8.16 or as disclosed with reasonable specificity in the Frontier
Reports (as defined in Section 4.7), Frontier represents and warrants to Holly
that:
SECTION 4.1 Existence; Good Standing; Corporate Authority. Frontier is a
corporation duly incorporated, validly existing and in good standing under the
laws of its state of incorporation. Frontier is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have,
individually or in
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the aggregate, a Frontier Material Adverse Effect (as defined in Section 8.9).
Frontier has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted. The copies
of Frontier's articles of incorporation and bylaws previously made available to
Holly are true and correct and contain all amendments as of the date hereof.
SECTION 4.2 Authorization, Validity and Effect of Agreements. Frontier has
the requisite corporate power and authority to execute and deliver this
Agreement and all other agreements and documents contemplated hereby to which
it is a party. The consummation by Frontier of the transactions contemplated
hereby has been duly authorized by all requisite corporate action, other than
the approval of the Frontier Merger by Frontier's stockholders. This Agreement
constitutes the valid and legally binding obligation of Frontier, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 4.3 Capitalization. The authorized capital stock of Frontier
consists of 50,000,000 shares of Frontier Common Stock and 500,000 shares of
Frontier's preferred stock, par value $1.00 per share ("Frontier Preferred
Stock"). As of March 17, 2003, there were (a) 25,925,383 shares of Frontier
Common Stock issued and outstanding (exclusive of unvested restricted shares),
(b) no shares of Frontier Preferred Stock issued and outstanding, (c) 3,408,125
shares of Frontier Common Stock issuable pursuant to options granted under the
stock options plans of Frontier described in Schedule 4.3 of the Frontier
Disclosure Letter (the "Frontier Stock Plans"), of which the weighted average
exercise price was approximately $12.55 per share, and (d) 205,632 unvested
restricted shares of Frontier Common Stock issued under the Frontier Stock
Plans. All issued and outstanding shares of Frontier Common Stock and Frontier
Preferred Stock (i) are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, (ii) were not issued in violation
of the terms of any agreement or other understanding binding upon Frontier and
(iii) were issued in compliance with all applicable charter documents of
Frontier and all applicable federal and state securities laws, rules and
regulations. Except (i) as set forth in this Section 4.3, (ii) for any shares
of Frontier Common Stock issued pursuant to the exercise of options or other
awards referred to in subsection (c) above, and (iii) for shares of Frontier
Common Stock issuable pursuant to the exercise of such options, there are no
outstanding shares of capital stock and there are no options, warrants, calls,
subscriptions, stockholder rights plans or similar instruments, convertible
securities, or other rights, agreements or commitments which obligate Frontier
or any of its Subsidiaries to issue, transfer or sell any shares of capital
stock or other voting securities of Frontier or any of its Subsidiaries.
Frontier has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Frontier on any matter.
SECTION 4.4 Subsidiaries. Each of Frontier's Subsidiaries is a
corporation, limited liability company or partnership duly organized, validly
existing and in good standing (where applicable) under the laws of its
jurisdiction of incorporation or organization, has the corporate, limited
liability company or partnership power and authority to own, operate and lease
its properties and to carry on its business as it is now being conducted, and
is duly qualified to do business and is in good standing (where applicable) in
each jurisdiction in which the ownership, operation or lease of its property or
the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good
standing would not have, individually or in the aggregate, a Frontier Material
Adverse Effect. All of the outstanding shares of capital stock of, or other
ownership interests in, each of Frontier's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by Frontier free and clear of all Liens. Schedule 4.4 of the
Frontier Disclosure Letter sets forth for each Subsidiary of Frontier its name
and jurisdiction of incorporation or organization.
SECTION 4.5 No Violation. Neither Frontier nor any of its Subsidiaries is,
or has received notice that it would be with the passage of time, in violation
of any term, condition or provision of (a) its charter documents or bylaws, (b)
any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license or other instrument or (c) any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Frontier or any of its Subsidiaries or
any of their respective
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properties or assets is subject, or is delinquent with respect to any report
required to be filed with any governmental entity, except, in the case of
matters described in clause (b) or (c), as would not have, individually or in
the aggregate, a Frontier Material Adverse Effect. Except as would not have,
individually or in the aggregate, a Frontier Material Adverse Effect, (i)
Frontier and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders, franchises and approvals of all governmental authorities
necessary for the lawful conduct of their respective businesses (the "Frontier
Permits") and (ii) Frontier and its Subsidiaries are in compliance with the
terms of the Frontier Permits. No investigation by any governmental authority
with respect to Frontier or any of its Subsidiaries is pending or, to the
knowledge of Frontier, threatened, other than those that would not have,
individually or in the aggregate, a Frontier Material Adverse Effect.
SECTION 4.6 No Conflict.
(a) Neither the execution and delivery by Frontier of this Agreement nor
the consummation by Frontier of the transactions contemplated hereby in
accordance with the terms hereof will: (i) conflict with or result in a breach
of any provisions of the charter documents or bylaws of Frontier; (ii) violate,
or conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or give rise to a right of purchase under, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of Frontier or its Subsidiaries under, or result in
being declared void, voidable, or without further binding effect, or otherwise
result in a detriment to Frontier or any of its Subsidiaries under, any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture, deed
of trust, Frontier Permit, lease, contract, agreement, joint venture or other
instrument or obligation to which Frontier or any of its Subsidiaries is a
party, or by which Frontier or any of its Subsidiaries or any of their
properties is bound or affected; or (iii) contravene or conflict with or
constitute a violation of any provision of any law, rule, regulation, judgment,
order or decree binding upon or applicable to Frontier or any of its
Subsidiaries, except, in the case of matters described in clause (ii) or (iii),
as would not have or reasonably be expected to have, individually or in the
aggregate, a Frontier Material Adverse Effect.
(b) Neither the execution and delivery by Frontier of this Agreement nor
the consummation by Frontier of the transactions contemplated hereby in
accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or
regulatory authority, other than Regulatory Filings, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make would not have or reasonably be
expected to have, individually or in the aggregate, a Frontier Material Adverse
Effect.
(c) Other than as contemplated by Section 4.6(b), no consents, assignments,
waivers, authorizations or other certificates are necessary in connection with
the transactions contemplated hereby to provide for the continuation in full
force and effect of all of the Frontier Material Contracts (as hereinafter
defined) or for Frontier to consummate the transactions contemplated hereby,
except where the failure to receive such consents or other certificates would
not have or reasonably be expected to have, individually or in the aggregate, a
Frontier Material Adverse Effect.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) result in or
constitute the satisfaction of a condition to (whether or not there be any
additional condition to) any payment from Frontier or its Subsidiaries
(including severance, unemployment compensation, parachute payment, bonus or
otherwise) becoming due to any director, employee or independent contractor of
Frontier or any of its Subsidiaries under any Frontier Plan (as defined in
Section 4.11) or otherwise; (ii) increase any benefits otherwise payable under
any Frontier Plan or otherwise; or (iii) result in the acceleration of the time
of payment or vesting of any such benefits.
SECTION 4.7 SEC Documents. Frontier has made available to Holly each
registration statement, report, proxy statement or information statement (other
than preliminary materials) filed by Frontier with the SEC since
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December 31, 2000, each in the form (including exhibits and any amendments
thereto) filed with the SEC prior to the date hereof (collectively, the
"Frontier Reports"), and Frontier has filed all forms, reports and documents
required to be filed by it with the SEC pursuant to relevant securities
statutes, regulations, policies and rules since such time. As of their
respective dates, the Frontier Reports (i) were prepared in accordance with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations thereunder and complied with the then applicable accounting
requirements and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading except for such statements, if any, as have been
modified or superseded by subsequent filings with the SEC prior to the date
hereof. Each of the consolidated balance sheets included in or incorporated by
reference into the Frontier Reports (including the related notes and schedules)
fairly presents in all material respects the consolidated financial position of
Frontier and its Subsidiaries as of its date and each of the consolidated
statements of operations, cash flows and stockholders' equity included in or
incorporated by reference into the Frontier Reports (including any related
notes and schedules) fairly presents in all material respects the results of
operations, cash flows or changes in stockholders' equity, as the case may be,
of Frontier and its Subsidiaries for the periods set forth therein (subject, in
the case of unaudited statements, to such exceptions as may be permitted by
Form 10-Q of the SEC), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein, and except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount or effect.
SECTION 4.8 Litigation and Liabilities. Except as set forth on Schedule
4.8 of the Frontier Disclosure Letter, there are no actions, suits or
proceedings pending against Frontier or any of its Subsidiaries or, to
Frontier's knowledge, threatened against Frontier or any of its Subsidiaries,
at law or in equity, or before or by any federal, state or foreign commission,
court, board, bureau, agency or instrumentality, other than those that would
not have or reasonably be expected to have, individually or in the aggregate, a
Frontier Material Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against Frontier or any of its Subsidiaries,
other than those that would not have, individually or in the aggregate, a
Frontier Material Adverse Effect. There are no obligations or liabilities of
any nature, whether accrued, absolute, contingent or otherwise, of Frontier or
any of its Subsidiaries, other than those liabilities and obligations (a) that
are disclosed in the Frontier Reports, (b) that have been incurred in the
ordinary course of business since December 31, 2002, (c) related to expenses
associated with the transactions contemplated by this Agreement or (d) that
would not have or reasonably be expected to have, individually or in the
aggregate, a Frontier Material Adverse Effect.
SECTION 4.9 Absence of Certain Changes. Since December 31, 2002, Frontier
has conducted its business only in the ordinary and usual course of business
and during such period there has not been any (i) event, condition, action or
occurrence that has had or would reasonably be expected to have, individually
or in the aggregate, a Frontier Material Adverse Effect; (ii) through the date
hereof, any material change by Frontier or any of its Subsidiaries (viewed on a
consolidated basis) in any of its accounting methods, principles or practices
or any of its tax methods, practices or elections, except for changes required
by generally accepted accounting principles; (iii) any material damage,
destruction, or loss to the business or properties of Frontier and its
Subsidiaries, taken as a whole, not covered by insurance; (iv) through the date
hereof, any declaration, setting aside or payment of any dividend (other than
ordinary dividends on the Frontier Common Stock at a rate not greater than
$0.05 per share in any quarter) or other distribution in respect of the capital
stock of Frontier, or any direct or indirect redemption, purchase or any other
acquisition by Frontier of any such stock; (v) through the date hereof, any
change in the capital stock or in the number of shares or classes of Frontier's
authorized or outstanding capital stock (other than as a result of issuances
under the Frontier Stock Plans, exercises of options to purchase the Frontier
Common Stock outstanding or issued, or such other issuances of capital stock,
in each case, as permitted hereunder pursuant to Section 5.1(b)(vi)); (vi) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase
or other employee benefit plan, except in the ordinary course of business; or
(vii) through the date hereof, any event, condition, action or occurrence that
is prohibited on or after the date of this Agreement under Section
5.1(b)(viii), (ix), (x), (xii), (xiii), (xv), (xvi), or (xx) of this Agreement.
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SECTION 4.10 Taxes.
(a) Each of Frontier and its Subsidiaries and each affiliated,
consolidated, combined, unitary or similar group of which any such corporation
is or, since January 1, 1991, was a member has (i) duly filed (or there has
been filed on its behalf) on a timely basis (taking into account any extensions
of time to file before the date hereof) with appropriate governmental
authorities all Tax Returns required to be filed by or with respect to it,
except to the extent that any failure to file would not have, individually or
in the aggregate, a Frontier Material Adverse Effect, and (ii) duly paid or
deposited in full on a timely basis or made adequate provisions in accordance
with generally accepted accounting principles (or there has been paid or
deposited or adequate provision has been made on its behalf) for the payment of
all Taxes required to be paid by it other than those being contested in good
faith by Frontier or a Subsidiary of Frontier and adequately provided for on
the financial statements contained in the Frontier Reports and except to the
extent that any failure to pay or deposit or make adequate provision for the
payment of such Taxes would not have, individually or in the aggregate, a
Frontier Material Adverse Effect.
(b) Except for matters that would not have, individually or in the
aggregate, a Frontier Material Adverse Effect, and matters disclosed on
Schedule 4.10(b) of the Frontier Disclosure Letter, (i) the federal income tax
returns of Frontier and each of its Subsidiaries have been examined by the IRS
(or the applicable statutes of limitation for the assessment of federal income
taxes for such periods have expired) for all periods; (ii) all deficiencies
asserted as a result of any examinations of Frontier and its Subsidiaries by
any taxing authority have been paid fully, settled or adequately provided for
in the financial statements contained in the Frontier Reports; (iii) as of the
date hereof, neither Frontier nor any of its Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the filing of any Tax Return or the assessment of any
Taxes of Frontier or any of its Subsidiaries that will be outstanding as of the
Effective Time; (iv) neither Frontier nor any of its Subsidiaries is a party
to, is bound by or has any obligation under any tax sharing, allocation or
indemnity agreement or any similar agreement or arrangement; (v) there are no
Tax liens on any assets of Frontier or its Subsidiaries except for (A) Taxes
not yet currently due and (B) matters being contested by Frontier or its
Subsidiaries in good faith for which adequate reserves are reflected in the
financial statements contained in the Frontier Reports; and (vi) neither
Frontier nor any of its Subsidiaries is a party to an agreement that provides
for the payment of any amount that could constitute a "parachute payment"
within the meaning of section 280G of the Code.
(c) Except as disclosed on Schedule 4.10(c) of the Frontier Disclosure
Letter, neither Frontiern or any of its Subsidiaries has participated, directly
or indirectly, in any (i) reportable transaction within the meaning of Treas.
Reg. (S) 1.6011-4T(b), or (ii) tax shelter required to be registered under
Section 6111 of the Code.
SECTION 4.11 Employee Benefit Plans.
(a) For purposes of this Section 4.11, the term Subsidiaries as applied to
Frontier shall include any entity, whether or not incorporated, which, with
Frontier, forms or formed a controlled group of corporations, a group of trades
or business under common control or an affiliated service group, within the
meaning of section 414(b), (c) or (m) of the Code, within the six full calendar
years prior to the Closing Date.
(b) All employee benefit plans, programs, arrangements and agreements,
including but not limited to pension, retirement, disability, medical, dental
or other health insurance plans; life insurance or other death benefit plans;
profit sharing, deferred compensation, stock option, bonus or other incentive
plans; vacation benefit plans or policies; severance or redundancy plans;
individual employee agreements; and foreign plans not subject to ERISA (whether
or not described in Section 3(3) of ERISA, whether or not funded, whether or
not written or oral and whether or not legally enforceable, in whole or in
part) (i) to which Frontier or any Subsidiary is a party or by which it is
bound, (ii) with respect to which Frontier or any Subsidiary has made any
payments or contributions, or (iii) to which Frontier or any Subsidiary may
otherwise have any liability, are listed on Schedule 4.11(b) of the Frontier
Disclosure Letter (the "Frontier Plans").
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(c) Frontier has made available to Holly a true, correct and complete copy
of each of the Frontier Plans, and all contracts relating thereto, or to the
funding thereof, including, without limitation, all trust agreements, insurance
contracts, administration contracts, investment management agreements,
subscription and participation agreements, and record-keeping agreements, each
as in effect on the date hereof. In the case of any Frontier Plan that is not
in written form, Holly has been supplied with an accurate description of such
Frontier Plan as in effect on the date hereof. A true, correct and complete
copy of the most recent annual report, actuarial report, accountant's opinion
of the plan's financial statements, summary plan description and IRS
determination letter with respect to each Frontier Plan, to the extent
applicable, and a current schedule of assets (and the fair market value thereof
assuming liquidation of any asset which is not readily tradable) held with
respect to any funded Frontier Plan have been made available to Holly. There
have been no changes in the financial condition of the respective plans from
that stated in the annual reports and actuarial reports supplied that would
have, individually or in the aggregate, a Frontier Material Adverse Effect.
(d) All Frontier Plans comply in form and have been administered in
operation in compliance in all material respects with all applicable
requirements of law, excluding any deficiencies that would not have,
individually or in the aggregate, a Frontier Material Adverse Effect, no event
has occurred which will or could cause any such Frontier Plan to fail to comply
with such requirements, excluding any deficiencies that would not have,
individually or in the aggregate, a Frontier Material Adverse Effect, and no
notice has been issued by any governmental authority questioning or challenging
such compliance, and no inquiry or audit has been initiated with respect
thereto by any governmental authority.
(e) All required employer contributions under any such plans have been made
and the applicable funds have been funded in accordance with the terms thereof,
excluding any deficiencies that would not have, individually or in the
aggregate, a Frontier Material Adverse Effect.
(f) To the extent applicable, the Frontier Plans comply, in all material
respects, with the requirements of ERISA, the Code and any other applicable tax
act and other laws, and any Frontier Plan intended to be qualified under
section 401(a) of the Code has been determined by the IRS to be so qualified
(or an application for qualification is pending before the IRS) under the
currently applicable provisions of the Code, and nothing has occurred or is
anticipated to occur to cause the loss of such qualified status.
(g) Except as specifically set forth on Schedule 4.11(g) of the Frontier
Disclosure Letter, Frontier does not sponsor, maintain, participate in or
contribute to, and has not at any time sponsored, maintained, participated in
or contributed to (and never has been required to contribute to) any (i)
Pension Plan that is or was subject to minimum funding standards of the Code or
ERISA; (ii) "multiemployer plan" as that term is defined in Section 414(f) of
the Code or Section 4001(a)(3) of ERISA; (iii) foreign benefit plans; or (iv)
voluntary employee benefit associations intended to be exempt from federal
income tax under Section 501(c)(9) of the Code.
(h) Except as specifically set forth on Schedule 4.11(h) of the Frontier
Disclosure Letter: (i) Frontier has paid all premiums (including any applicable
interest, charges and penalties for late payment) due the PBGC with respect to
each Pension Plan for which premiums to the PBGC are required; (ii) no Pension
Plan had, as of its most recent actuarial report, an "unfunded benefit
liability" (as such term is defined in Section 4001(a)(18) of ERISA) or has an
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived; (iii) no Pension Plan
has a "liquidity shortfall" as defined in Section 412(m)(5) of the Code; (iv)
no notice has been required under Section 4011 of ERISA with respect to any
Pension Plan; (v) no event described in Section 401(a)(29) of the Code has
occurred or can reasonably be expected to occur with respect to any Pension
Plan; (vi) no "reportable event" (as that term is defined in Section 4043 of
ERISA and for which the 30-day notice requirement has not been waived) has
occurred with respect to any Pension Plan; (vii) each Pension Plan uses a
funding method permissible under ERISA and the actuarial assumptions used in
connection therewith are reasonable individually and in the aggregate; (viii)
the fair market value of the assets of each Pension Plan will exceed or equal
the "projected benefit obligation" (as defined in Statement of Financial
Accounting Standard No. 87).
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(i) Except as specifically set forth on Schedule 4.11(i) of the Frontier
Disclosure Letter, the execution of this Agreement or the consummation of the
Mergers will not give rise to or trigger any change of control, accelerated
vesting, severance or other similar provisions in any Frontier Plan.
(j) Excluding claims for benefits incurred in the ordinary course of the
Frontier Plan activities, there are no pending or anticipated claims against or
otherwise involving any of the Frontier Plans and no suit, action or other
litigation has been brought against or with respect to any Frontier Plan or any
fiduciary of any Frontier Plan.
(k) Neither Frontier nor any of its Subsidiaries has incurred or reasonably
expects to incur any liability under subtitle E of Title IV of ERISA with
respect to any "multiemployer plan," within the meaning of section 4001(a)(3)
of ERISA.
(l) Except as described in Schedule 4.11(l) of the Frontier Disclosure
Letter, none of the assets of any Frontier Plan is invested in employer
securities (as defined in section 407(d)(1) of ERISA) or employer real property
(as defined in section 407(d)(2) of ERISA).
(m) There have been no "prohibited transactions" (as described in section
406 of ERISA or section 4975 of the Code) with respect to any Frontier Plan
that would have, individually or in the aggregate, a Frontier Material Adverse
Effect.
(n) There have been no acts or omissions by Frontier or any of its
Subsidiaries which have given rise to or may give rise to fines, penalties,
taxes or related charges under section 502 of ERISA or Chapters 43, 47, 68 or
100 of the Code for which Frontier or any of its Subsidiaries are or may be
liable that would result in a Frontier Material Adverse Effect.
(o) Each Frontier Plan which constitutes a "group health plan" (as defined
in section 607(1) of ERISA or section 4980B(g)(2) of the Code), including any
plans of current and former affiliates which must be taken into account under
sections 4980B and 414(t) of the Code or section 601 of ERISA, has been
operated in material compliance with applicable law, including continuation
coverage requirements of section 4980B of the Code, Chapter 100 of the Code and
section 601 of ERISA to the extent such requirements are applicable, and each
such plan (including any such plan covering retirees or other former employees)
may be amended (including, without limitation, to prospectively curtail or
discontinue benefits and/or increase participant contribution requirements), or
terminated without liability (other than with respect to welfare benefits in
the ordinary course) to Frontier, its Subsidiaries or successors.
(p) Except as listed and identified on Schedule 4.11(p) of the Frontier
Disclosure Letter, neither Frontier nor any of its Subsidiaries has any
liability or contingent liability for providing, under any Frontier Plan or
otherwise, any post-retirement medical or life insurance benefits, other than
statutory liability for providing group health plan continuation coverage under
Part 6 of Title I of ERISA and section 4980B of the Code.
(q) Obligations under or relating to the Frontier Plans are properly
reflected in the financial statements of Frontier in accordance with generally
accepted accounting principles.
(r) There has been no act or omission that would impair the ability of
Frontier or any of its Subsidiaries (or any successor thereto) to unilaterally
amend or terminate any Frontier Plan to the full extent permitted under
applicable law.
SECTION 4.12 Labor Matters.
(a) Schedule 4.12(a) of the Frontier Disclosure Letter lists all collective
bargaining or other labor union contracts applicable to any employee of
Frontier or any of its Subsidiaries to which Frontier or any of its
Subsidiaries is a party or is otherwise subject (the "Frontier Bargaining
Agreements"). To Frontier's knowledge, Frontier and each of its Subsidiaries
are in compliance with the Frontier Bargaining Agreements. As of the date
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of this Agreement, there is no pending or, to Frontier's knowledge, threatened
labor dispute, strike, or work stoppage against Frontier or any of its
Subsidiaries that that would have, individually or in the aggregate, a Frontier
Material Adverse Effect.
(b) Frontier has provided Holly with true, complete and correct copies of
(i) the Frontier Bargaining Agreements, including any amendments thereto, (ii)
the Frontier Plans covering the employees represented by the Frontier
Bargaining Agreements (the "Frontier Represented Employees"), including any
amendments thereto, and (iii) summaries of the Frontier Plans covering the
Frontier Represented Employees. There are no "employee pension benefit plans"
(as defined in Section 3(2) of ERISA), "employee welfare benefit plans" (as
defined in Section 3(l) of ERISA), or other programs, plans or arrangements,
maintained in whole or in part, contributed to, or required to be contributed
to, in whole or in part, by Frontier or any of its Subsidiaries relating to the
Frontier Represented Employees other than as disclosed to Holly in Schedule
4.11(g) of the Frontier Disclosure Letter.
SECTION 4.13 Environmental Matters.
(a) As used in this Agreement:
(i) "Frontier Real Properties" means those real properties owned,
leased, or otherwise operated by Frontier or its Subsidiaries in connection
with the performance of any of their respective businesses; and
(ii) "Offsite Non-Frontier Real Properties" means any real properties
other than the Frontier Real Properties.
(b) Except as would not have, individually or in the aggregate, a Frontier
Material Adverse Effect:
(i) Frontier and its Subsidiaries and any of their respective
operations, assets, businesses and Frontier Real Properties are in
compliance with all Environmental Laws and Environmental Permits;
(ii) All Environmental Permits required under Environmental Laws for
operating Frontier's and its Subsidiaries' assets, businesses, and Frontier
Real Properties as they are currently being operated have been obtained and
are currently in full force and effect and, to Frontier's knowledge, there
are no conditions or circumstances that would limit or preclude it or its
Subsidiaries from renewing such Environmental Permits;
(iii) Frontier and its Subsidiaries are not subject to any pending or,
to Frontier's knowledge, threatened claims, actions, suits, investigations,
inquiries or proceedings under Environmental Laws and none of Frontier or
its Subsidiaries have received written notice of alleged violations under
applicable Environmental Laws with respect to their respective operations,
assets, businesses, or Frontier Real Properties;
(iv) There have been no Releases of Hazardous Materials on, under or
from the Frontier Real Properties and there are no investigations,
remediations, removals or monitorings of Hazardous Materials required under
Environmental Laws at such properties;
(v) None of Frontier or its Subsidiaries has received any written notice
asserting an alleged liability or obligation under any Environmental Laws
with respect to the investigation, remediation, removal, or monitoring of
any Hazardous Materials at, under, or Released or threatened to be Released
from any Offsite Non-Frontier Real Properties and, to the knowledge of
Frontier, there are no conditions or circumstances that would reasonably be
expected to result in the receipt of such written notice; and
(vi) Frontier and its Subsidiaries have made available to Holly complete
and correct copies of all material environmental site assessment reports,
studies, and correspondence on environmental matters (in each instance
relevant to Frontier or its Subsidiaries) that are in Frontier's or its
Subsidiaries' possession and relating to their respective operations,
assets, businesses or Frontier Real Properties.
None of Frontier or its Subsidiaries makes any representation or warranty
regarding compliance or failure to comply with, or any actual or contingent
liability under, any Environmental Law, except as expressly set forth in this
Section 4.13.
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SECTION 4.14 Intellectual Property. Frontier and its Subsidiaries own or
possess all necessary licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights and proprietary information used or held
for use in connection with their respective businesses as currently being
conducted, free and clear of material Liens, except where the failure to own or
possess such licenses and other rights would not have, individually or in the
aggregate, a Frontier Material Adverse Effect, and there are no assertions or
claims challenging the validity of any of the foregoing which would have,
individually or in the aggregate, a Frontier Material Adverse Effect. Except in
the ordinary course of business, neither Frontier nor any of its Subsidiaries
has granted to any other person any license to use any of the foregoing. The
conduct of Frontier's and its Subsidiaries' respective businesses as currently
conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others in a way which would have, individually or in the aggregate, a Frontier
Material Adverse Effect. There is no infringement of any proprietary right
owned by or licensed by or to Frontier or any of its Subsidiaries in a way
which would have, individually or in the aggregate, a Frontier Material Adverse
Effect.
SECTION 4.15 Title to Properties; Condition of Assets.
(a) Except for goods and other property sold, used or otherwise disposed of
since December 31, 2002 in the ordinary course of business for fair value, as
of the date hereof, Frontier and its Subsidiaries have good and indefeasible
title to, or hold valid leasehold interests in, or valid rights of way,
easements or licenses over, under and across, all their respective properties,
interests in properties and assets, real and personal, reflected in Frontier's
December 31, 2002 financial statements included in the Frontier Reports, free
and clear of any Lien, except: (a) Liens reflected in the balance sheet of
Frontier as of December 31, 2002 included in the Frontier Reports; (b) Liens
for current taxes, assessments or other governmental charges not yet due and
payable; (c) Liens of mechanics, materialmen and operators arising by operation
of law in the ordinary course of business, or by written agreement existing as
of the date hereof, for sums not yet due or being contested in good faith by
appropriate proceedings; and (d) such imperfections of title, minor
encumbrances easements and Liens that would not have, individually or in the
aggregate, a Frontier Material Adverse Effect. All leases, subleases and other
agreements pursuant to which Frontier or any of its Subsidiaries leases or
otherwise acquires or obtains operating rights affecting any real or personal
property are valid, binding and enforceable in accordance with their terms,
except where the failure to be valid, binding and enforceable would not have,
individually or in the aggregate, a Frontier Material Adverse Effect; and there
is not, under any such leases, any existing or prospective default or event of
default or event which with notice or lapse of time, or both, would constitute
a default by Frontier or any of its Subsidiaries that would have, individually
or in the aggregate, a Frontier Material Adverse Effect. No consents or other
approvals of any lessor, or its lender, are required under any material lease
as a result of the consummation of the transactions contemplated by this
Agreement.
(b) The tangible assets, including without limitation, refinery
improvements, terminal improvements, pipelines and equipment of Frontier and
its Subsidiaries (i) are in good operating condition and repair, subject to
ordinary wear and tear, and have been maintained in accordance with standard
industry practice, (ii) are adequate for the purpose for which they are being
used and are capable of being used in the business as presently conducted
without present need for replacement or repair, except in the ordinary course
of business, (iii) conform in all material respects with all applicable legal
requirements, and (iv) in the aggregate provide the capacity to engage in their
respective businesses on a continuous basis, subject to routine maintenance.
SECTION 4.16 Insurance. Frontier and its Subsidiaries maintain insurance
coverage adequate in the industry for the operation of their respective
businesses (taking into account the cost and availability of such insurance).
SECTION 4.17 No Brokers. Frontier has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Parent, Holly, Frontier, Merger Sub One or Merger Sub Two to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, except that Frontier has retained
Petrie Parkman & Co., Inc. to act as its financial advisor in connection with
the Frontier
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Merger and render the opinion referred to in Section 4.18, the terms of which
(including the fees owed by Frontier in connection therewith) have been
disclosed in writing to Holly prior to the date hereof.
SECTION 4.18 Opinion of Financial Advisor. The Board of Directors of
Frontier has received the opinion of Petrie Parkman & Co., Inc. to the effect
that the Frontier Merger Consideration is fair, from a financial point of view,
to the holders of shares of Frontier Common Stock; it being understood and
acknowledged by Frontier that such opinion has been rendered for the benefit of
the Board of Directors of Frontier, and is not intended to, and may not, be
relied upon by Holly, its affiliates or their respective Subsidiaries.
SECTION 4.19 Contracts; Debt Instruments.
(a) Except for documents filed or listed as exhibits to the Frontier
Reports filed since December 31, 2002 ("Frontier Material Contracts"), as of
the date hereof, there are no contracts or leases that are material to the
business, properties, assets, financial condition or results of operations of
Frontier and its Subsidiaries taken as a whole. Neither Frontier nor any of its
Subsidiaries is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice or both would
cause such a violation of or default under) any Frontier Material Contract to
which it is a party or by which it or any of its properties or assets is bound,
except for violations or defaults that would not have, individually or in the
aggregate, a Frontier Material Adverse Effect. Each Frontier Material Contract
is in full force and effect, and is a legal, valid and binding obligation of
Frontier or one of its Subsidiaries and, to the knowledge of Frontier, each of
the other parties thereto, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity and except where the failure of any Frontier Material Contract to be in
full force and effect or a legal, valid and binding obligation and enforceable
in accordance with its terms would not have, individually or in the aggregate,
a Frontier Material Adverse Effect. No condition exists or event has occurred
which (whether with or without notice or lapse of time or both) would
constitute a default by Frontier or one of its Subsidiaries or, to the
knowledge of Frontier, any other party thereto under any Frontier Material
Contract or result in a right of termination of any Frontier Material Contract,
except for any condition or event that would not have, individually or in the
aggregate, a Frontier Material Adverse Effect.
(b) Set forth in Schedule 4.19(b) of the Frontier Disclosure Letter is, as
of the date hereof, (i) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments pursuant to which
any indebtedness of Frontier or its Subsidiaries in an aggregate principal
amount in excess of $1,000,000 is outstanding or may be incurred, (ii) the
respective principal amounts outstanding thereunder as of the date hereof and
(iii) the approximate amount of consolidated cash and cash equivalents of
Frontier and its Subsidiaries as of the date hereof.
(c) Neither Frontier nor any of its Subsidiaries has entered into any
contract, and there is no commitment, judgment, injunction, order or decree to
which Frontier or any of its Subsidiaries is a party or subject to, that has or
would reasonably be expected to have the effect of prohibiting or impairing the
conduct of business by Frontier or any of its Subsidiaries (or of Parent or any
of its other Subsidiaries after the Mergers) or any contract that may be
terminable as a result of Holly's status as a competitor of any party to such
contract, except, in each case, for any prohibition, impairment or termination
right that would not have, individually or in the aggregate, a Frontier
Material Adverse Effect.
SECTION 4.20 Recommendation; Vote Required. The Board of Directors of
Frontier, at a meeting duly called and held, has by unanimous vote of those
directors present, (i) determined that this Agreement and the transactions
contemplated hereby are advisable, fair to and in the best interests of
Frontier stockholders, (ii) adopted this Agreement and the transactions
contemplated hereby and (iii) recommended that this Agreement and the
transactions contemplated hereby be approved by the holders of Frontier Common
Stock. The affirmative vote of the holders of a majority of the outstanding
shares of Frontier Common Stock is the only vote of the holders of any class or
series of Frontier capital stock necessary to approve and adopt this Agreement
and the transactions contemplated hereby (the "Frontier Requisite Vote").
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SECTION 4.21 Certain Approvals. Frontier's Board of Directors has taken
any and all necessary and appropriate action to render inapplicable to the
Mergers and the transactions contemplated by this Agreement the restrictions
contained in the Wyoming Management Stability Act and any other "fair price,"
"moratorium," control share acquisition, interested stockholder or similar
antitakeover provision or regulation and any restrictive provision of any
antitakeover provision in the articles of incorporation or bylaws of Frontier.
SECTION 4.22 Certain Contracts. Neither Frontier nor any of its
Subsidiaries is a party to or bound by (i) any non-competition agreement or any
other agreement or obligation which purports to limit the manner in which, or
the localities in which, the current business of Frontier and its Subsidiaries,
taken as a whole, or (to the knowledge of Frontier) Holly and its Subsidiaries,
taken as a whole, is conducted or (ii) any executory agreement or obligation
which pertains to the acquisition or disposition of any asset, or which
provides any third party any lien, claim or preferential right with regard
thereto, except, in the case of this clause (ii), for such agreements or
obligations that would not have, individually or in the aggregate, a Frontier
Material Adverse Effect.
SECTION 4.23 No Rights Plan or Agreement. Frontier has not adopted any
so-called "poison pill" rights plan or agreement.
SECTION 4.24 Support Agreements. Effective contemporaneously with
Frontier's entering into this Agreement, Frontier has delivered to Holly a
Frontier Affiliate's Support Agreement in the form attached hereto as Exhibit
D, duly executed by each person identified in Schedule 4.24 to the Frontier
Disclosure Letter; and each such Frontier Affiliate's Support Agreement is
enforceable by Holly in accordance with its terms.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS.
(a) Prior to the Effective Time, except as set forth in the Holly
Disclosure Letter or as expressly contemplated by this Agreement, including
Section 5.13, or as consented to in writing by Frontier, Holly:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and shall cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(iii) shall not amend its certificate of incorporation or bylaws;
(iv) shall promptly notify Frontier of any material adverse change in
its financial condition or business or any termination, cancellation,
repudiation or material breach of any Holly Material Contract (or
communications expressly indicating the same may be contemplated), or the
institution of any material litigation or material governmental complaints,
investigations or hearings (or communications in writing indicating the same
may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(v) shall promptly make available (in paper form or via the Internet) to
Frontier true and correct copies of any report, statement or schedule filed
with the SEC subsequent to the date of this Agreement;
(vi) shall not (A) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date hereof
and disclosed in the Holly Disclosure Letter, issue any shares of its
capital stock, effect any stock split or otherwise change its capitalization
as it existed on the date hereof; (B) grant, confer or award any option,
warrant, conversion right or other right not existing on the date hereof to
acquire any shares of its capital stock except pursuant to contractual
commitments existing on
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the date of this Agreement and disclosed in the Holly Disclosure Letter; (C)
except as provided in Section 5.13(a)(ii) and 5.13(d), increase any
compensation or benefits of any officer, director, employee or agent of
Holly or any of its Subsidiaries or enter into or amend any employment
agreement or severance agreement with any of its present or future officers;
or (D) adopt any new employee benefit plan (including any stock option,
stock benefit or stock purchase plan) or amend (except as required by law)
any existing employee benefit plan in any material respect;
(vii) shall not, and, in the case of clause (B) below, shall not permit
any of its Subsidiaries to (A) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its
capital stock (other than Holly's ordinary quarterly dividends payable with
respect to the shares of Holly Common Stock of $0.11 per share in accordance
with Section 5.15), or (B) redeem, purchase or otherwise acquire any shares
of its capital stock or capital stock of any of its Subsidiaries or any
option, warrant, conversion right or other right to acquire such shares, or
make any commitment for any such action;
(viii) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) for an amount in excess of $1,000,000, individually or in the
aggregate, except in the ordinary course of business and for fair value;
(ix) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in the Holly Disclosure Letter and except for amounts that in the
aggregate do not exceed $1,000,000, authorize, propose, agree to, enter into
or consummate any merger, consolidation or business combination transaction
(other than the Holly Merger) or acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial amount of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof;
(x) shall not, except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(xi) shall, and shall cause each of its Subsidiaries to, use reasonable
best efforts to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary
for such party;
(xii) shall not, and shall not permit any of its Subsidiaries to, except
where it would not have, individually or in the aggregate, a Holly Material
Adverse Effect, (A) make or rescind any express or deemed election relating
to Taxes, including elections for any and all joint ventures, partnerships,
limited liability companies, working interests or other investments where it
has the capacity to make such binding election, (B) settle or compromise any
claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to Taxes, or (C) change in any respect any of
its methods of reporting any item for federal income tax purposes from those
employed in the preparation of its federal income Tax Return for the most
recent taxable year for which a return has been filed, except as may be
required by applicable law;
(xiii) shall not, nor shall it permit any of its Subsidiaries to, (A)
incur any indebtedness for borrowed money (except under credit lines in
existence as of the date of this Agreement and disclosed in the Holly
Disclosure Letter or disclosed with reasonable specificity in the Holly
Reports) or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of such
party or any of its Subsidiaries or guarantee any debt securities of others,
(B) except in the ordinary course of business, enter into or materially
extend or amend any material lease (whether such lease is an operating or
capital lease) or create or materially extend any material mortgages, liens,
security interests or other encumbrances on the property of Holly or
Frontier or any of their Subsidiaries in connection with any indebtedness
thereof or (C) make or commit to make aggregate capital expenditures in
excess of those set forth in Schedule 5.1(a)(xiii) of the Holly Disclosure
Letter;
(xiv) subject to Section 5.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
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governmental commission, board or other regulatory body or the expiration of
any applicable waiting period required to consummate the Mergers;
(xv) unless in the good faith opinion of its Board of Directors after
consultation with its outside legal counsel complying with the following
provisions would be inconsistent with the fiduciary duties of such Board of
Directors and only then if taking such actions would not violate any of the
other terms of this Agreement, shall not, and shall not permit any of its
Subsidiaries to, terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party; and during such period shall enforce, to the
fullest extent permitted under applicable law, the provisions of such
agreement, including by obtaining injunctions to prevent any breaches of
such agreements and to enforce specifically the terms and provisions thereof
in any court of the United States of America or any state having
jurisdiction;
(xvi) shall not enter into or amend any agreement with any holder of
Holly capital stock with respect to holding, voting or disposing of shares
of Holly Common Stock;
(xvii) shall not by resolution of its Board of Directors cause the
acceleration of rights, benefits or payments under any Holly Plans except as
provided in Section 2.5(c);
(xviii) other than in the ordinary course of business consistent with
past practices, enter into, amend or terminate any hedge contracts;
(xix) shall not split, combine, subdivide or reclassify its outstanding
shares of capital stock;
(xx) shall not purchase any Frontier Common Stock or any other debt,
equity or other securities of Frontier;
(xxi) shall not, and shall not permit any of its Subsidiaries to, (A) do
business in any country in which Holly or any of its Subsidiaries is not
doing business as of the date hereof or (B) enter into any joint venture,
partnership or other joint business venture with any person; and
(xxii) shall not, nor shall it permit any of its Subsidiaries to, agree
in writing or otherwise to take any of the foregoing actions.
(b) Prior to the Effective Time, except as set forth in the Frontier
Disclosure Letter or as expressly contemplated by this Agreement, including
Section 5.13, or as consented to in writing by Holly, Frontier:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and shall cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(iii) shall not amend its articles of incorporation or bylaws;
(iv) shall promptly notify Holly of any material adverse change in its
financial condition or business or any termination, cancellation,
repudiation or material breach of any Frontier Material Contract (or
communications expressly indicating the same may be contemplated), or the
institution of any material litigation or material governmental complaints,
investigations or hearings (or communications in writing indicating the same
may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(v) shall promptly make available (in paper form or via the Internet) to
Holly true and correct copies of any report, statement or schedule filed
with the SEC subsequent to the date of this Agreement;
(vi) except as set forth on Schedule 5.1(b)(vi) of the Frontier
Disclosure Letter, shall not (A) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
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date hereof and disclosed in the Frontier Disclosure Letter, issue any
shares of its capital stock, effect any stock split or otherwise change its
capitalization as it existed on the date hereof; (B) grant, confer or award
any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock except pursuant to
contractual commitments existing on the date of this Agreement and disclosed
in the Frontier Disclosure Letter; (C) increase any compensation or benefits
of any officer, director, employee or agent of the Frontier or any of its
Subsidiaries or enter into or amend any employment agreement or severance
agreement with any of its present or future officers, directors or
employees, or (D) except as contemplated in Section 5.4 and Section 5.13
adopt any new employee benefit plan (including any stock option, stock
benefit or stock purchase plan) or amend (except as required by law) any
existing employee benefit plan in any material respect;
(vii) shall not, and, in the case of clause (B) below, shall not permit
any of its Subsidiaries to (A) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its
capital stock (other than ordinary dividends on the Frontier Common Stock at
a rate not greater than $0.05 per share in any quarter in accordance with
Section 5.15) or (B) redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries or any option,
warrant, conversion right or other right to acquire such shares, or make any
commitment for any such action;
(viii) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) for an amount in excess of $1,000,000, individually or in the
aggregate, except in the ordinary course of business and for fair value;
(ix) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in Schedule 5.1(b)(ix) of the Frontier Disclosure Letter and
except for amounts that in the aggregate do not exceed $1,000,000 authorize,
propose, agree to, enter into or consummate any merger, consolidation or
business combination transaction (other than the Frontier Merger) or acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial amount of the assets of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof;
(x) shall not, except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(xi) shall, and shall cause each of its Subsidiaries to, use reasonable
best efforts to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary
for such party;
(xii) shall not, and shall not permit any of its Subsidiaries to, except
where it would not have, individually or in the aggregate, a Frontier
Material Adverse Effect, (A) make or rescind any express or deemed election
relating to Taxes, including elections for any and all joint ventures,
partnerships, limited liability companies, working interests or other
investments where it has the capacity to make such binding election, (B)
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or (C)
change in any respect any of its methods of reporting any item for federal
income tax purposes from those employed in the preparation of its federal
income Tax Return for the most recent taxable year for which a return has
been filed, except as may be required by applicable law;
(xiii) shall not, nor shall it permit any of its Subsidiaries to, (A)
incur any indebtedness for borrowed money (except under credit lines in
existence as of the date of this Agreement and disclosed in Schedule
5.1(b)(xiii) of the Frontier Disclosure Letter or disclosed with reasonable
specificity in the Frontier Reports) or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any debt
securities of such party or any of its Subsidiaries or guarantee any debt
securities of others, (B) except in the ordinary course of business, enter
into or materially extend or amend any material lease (whether such lease is
an operating or capital lease) or create or materially extend any material
mortgages, liens, security interests or other encumbrances on the property
of Holly or Frontier or any of their Subsidiaries in connection with any
indebtedness thereof or (C) make or commit to make aggregate capital
expenditures in excess of those set forth in Schedule 5.1(b)(xiii) of the
Frontier Disclosure Letter;
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(xiv) subject to Section 5.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration of
any applicable waiting period required to consummate the Mergers;
(xv) unless in the good faith opinion of its Board of Directors after
consultation with its outside legal counsel complying with the following
provisions would be inconsistent with the fiduciary duties of such Board of
Directors and only then if taking such actions would not violate any of the
other terms of this Agreement, shall not, and shall not permit any of its
Subsidiaries to, terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party; and during such period shall enforce, to the
fullest extent permitted under applicable law, the provisions of such
agreement, including by obtaining injunctions to prevent any breaches of
such agreements and to enforce specifically the terms and provisions thereof
in any court of the United States of America or any state having
jurisdiction;
(xvi) shall not enter into or amend any agreement with any holder of
Frontier capital stock with respect to holding, voting or disposing of
shares of Frontier Common Stock;
(xvii) shall not by resolution of its Board of Directors cause the
acceleration of rights, benefits or payments under any Frontier Plans;
(xviii) other than in the ordinary course of business consistent with
past practice, enter into, amend or terminate any hedge contracts;
(xix) shall not split, combine, subdivide or reclassify its outstanding
shares of capital stock;
(xx) shall not purchase any Holly Common Stock or any other debt, equity
or other securities of Holly;
(xxi) shall not, and shall not permit any of its Subsidiaries to, (A) do
business in any country in which Frontier or any of its Subsidiaries is not
doing business as of the date hereof or (B) enter into any joint venture,
partnership or other joint business venture with any person; and
(xxii) shall not, nor shall it permit any of its Subsidiaries to, agree
in writing or otherwise to take any of the foregoing actions.
SECTION 5.2 No Solicitation By Holly.
(a) Holly agrees that it and its Subsidiaries: (i) will not (and Holly will
not permit its or its Subsidiaries' officers, directors, employees, agents or
representatives, including any investment banker, attorney or accountant
retained by Holly or any of its Subsidiaries, to) solicit, initiate or
encourage (including by way of furnishing non-public information) any inquiry,
proposal or offer (including any proposal or offer to its stockholders) with
respect to a third party tender offer, merger, consolidation, business
combination or similar transaction involving any assets or class of capital
stock of Holly, or any acquisition of capital stock of Holly (other than upon
exercise of Holly Stock Options that are outstanding as of the date hereof) or
a business or assets (exclusive of sales of current assets in the ordinary
course of business) with a value of $1,000,000 or more in the aggregate, in a
single transaction or a series of related transactions, or any combination of
the foregoing (any such proposal, offer or transaction being hereinafter
referred to as a "Holly Acquisition Proposal") or participate or engage in any
discussions or negotiations concerning a Holly Acquisition Proposal; and (ii)
will immediately cease and cause to be terminated any existing discussions or
negotiations with any third parties conducted heretofore with respect to any
Holly Acquisition Proposal; provided that, subject to Section 5.4(b), nothing
contained in this Agreement shall prevent Holly or its Board of Directors from
(A) complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a Holly Acquisition Proposal, (B) making any disclosure to the holders of
shares of Holly Common Stock if in the good faith judgment of Holly's Board of
Directors failure to make such disclosure would be inconsistent with its
fiduciary duties under applicable law or the rules of the AMEX or (C) providing
information (pursuant to a confidentiality agreement in reasonably customary
form and which does not contain
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terms that prevent Holly from complying with its obligations under this Section
5.2) to or engaging in any negotiations or discussions with any person or group
who has made an unsolicited bona fide Holly Acquisition Proposal if, with
respect to the actions set forth in clause (C), (x) in the good faith judgment
of Holly's Board of Directors, taking into account all legal, financial,
regulatory and other aspects of the Holly Acquisition Proposal and the
likelihood of consummation and after consultation with its financial advisors,
such Holly Acquisition Proposal is reasonably likely to result in a transaction
more favorable to the holders of the shares of Holly Common Stock from a
financial point of view than the Mergers (a "Holly Superior Proposal") and (y)
the Board of Directors of Holly, after consultation with its outside legal
counsel, determines in good faith that the failure to do so would be
inconsistent with the fiduciary obligations of the Board of Directors of Holly
under applicable law.
(b) Holly agrees that it will notify Frontier promptly (and in any event
within 24 hours) if any proposal or offer relating to or constituting a Holly
Acquisition Proposal is received by, any information is requested from, or any
discussions or negotiations are sought to be initiated or continued with, Holly
or any of its officers, directors, employees, agents or representatives. In
connection with such notice, Holly shall indicate the identity of the person or
group making such request or inquiry or engaging in such negotiations or
discussions and the material terms and conditions of any Holly Acquisition
Proposal. Thereafter, Holly shall keep Frontier fully informed on a prompt
basis (and in any event within 24 hours) of any material changes, additions or
adjustments to the terms or conditions of any such proposal or offer. Prior to
taking any action referred to in clause (C) of the proviso of Section 5.2(a),
if Holly intends to participate in any such discussions or negotiations or
provide any such information to any such third party, Holly shall give notice
to Frontier including the identity of the relevant person or group.
(c) Nothing in this Section 5.2 shall permit Holly to enter into any
agreement with respect to a Holly Acquisition Proposal during the term of this
Agreement, it being agreed that, during the term of this Agreement, Holly shall
not enter into any agreement with any person that provides for, or in any way
facilitates, a Holly Acquisition Proposal, other than a confidentiality
agreement and/or standstill agreement permitted under Section 5.2(a) that is in
reasonably customary form and that does not contain terms that prevent Holly
from complying with its obligations under this Section 5.2.
SECTION 5.3 No Solicitation by Frontier.
(a) Frontier agrees that it and its Subsidiaries: (i) will not (and
Frontier will not permit its or its Subsidiaries' officers, directors,
employees, agents or representatives, including any investment banker, attorney
or accountant retained by Frontier or any of its Subsidiaries, to) solicit,
initiate or encourage (including by way of furnishing non-public information)
any inquiry, proposal or offer (including any proposal or offer to its
stockholders) with respect to a third party tender offer, merger,
consolidation, business combination or similar transaction involving any assets
or class of capital stock of Frontier, or any acquisition of capital stock of
Frontier (other than upon exercise of Frontier Stock Options that are
outstanding as of the date hereof) or a business or assets (exclusive of sales
of current assets in the ordinary course of business) with a value of
$1,000,000 or more in the aggregate, in a single transaction or a series of
related transactions, or any combination of the foregoing (any such proposal,
offer or transaction being hereinafter referred to as a "Frontier Acquisition
Proposal") or participate or engage in any discussions or negotiations
concerning a Frontier Acquisition Proposal; and (ii) will immediately cease and
cause to be terminated any existing discussions or negotiations with any third
parties conducted heretofore with respect to any Frontier Acquisition Proposal;
provided that, subject to Section 5.4(b), nothing contained in this Agreement
shall prevent Frontier or its Board of Directors from (A) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a Frontier Acquisition
Proposal, (B) making any disclosure to the holders of Frontier Common Stock if
in the good faith judgment of Frontier's Board of Directors failure to make
such disclosure would be inconsistent with its fiduciary duties under
applicable law or the rules of the NYSE or (C) providing information (pursuant
to a confidentiality agreement in reasonably customary form and which does not
contain terms that prevent Frontier from complying with its obligations under
this Section 5.3) to or engaging in any negotiations or discussions with any
person or group
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who has made an unsolicited bona fide Frontier Acquisition Proposal if, with
respect to the actions set forth in clause (C), (x) in the good faith judgment
of Frontier's Board of Directors, taking into account all legal, financial,
regulatory and other aspects of the Acquisition Proposal and the likelihood of
consummation and after consultation with its financial advisors, such Frontier
Acquisition Proposal is reasonably likely to result in a transaction more
favorable to the holders of the Frontier Common Stock from a financial point of
view than the Mergers (a "Frontier Superior Proposal") and (y) the Board of
Directors of Frontier, after consultation with its outside legal counsel,
determines in good faith that the failure to do so would be inconsistent with
the fiduciary obligations of the Board of Directors of Frontier under
applicable law.
(b) Frontier agrees that it will notify Holly promptly (and in any event
within 24 hours) if any proposal or offer relating to or constituting a
Frontier Acquisition Proposal is received by, any information is requested
from, or any discussions or negotiations are sought to be initiated or
continued with, Frontier or any of its officers, directors, employees, agents
or representatives. In connection with such notice, Frontier shall indicate the
identity of the person or group making such request or inquiry or engaging in
such negotiations or discussions and the material terms and conditions of any
Frontier Acquisition Proposal. Thereafter, Frontier shall keep Holly fully
informed on a prompt basis (and in any event within 24 hours) of any material
changes, additions or adjustments to the terms or conditions of any such
proposal or offer. Prior to taking any action referred to in clause (C) of the
proviso of Section 5.3(a), if Frontier intends to participate in any such
discussions or negotiations or provide any such information to any such third
party, Frontier shall give notice to Holly, including the identity of the
relevant person or group.
(c) Nothing in this Section 5.3 shall permit Frontier to enter into any
agreement with respect to a Frontier Acquisition Proposal during the term of
this Agreement, it being agreed that, during the term of this Agreement,
Frontier shall not enter into any agreement with any person that provides for,
or in any way facilitates, a Frontier Acquisition Proposal, other than a
confidentiality agreement and/or standstill agreement permitted under Section
5.3(a) that is in reasonably customary form and that does not contain terms
that prevent Frontier from complying with its obligations under this Section
5.3, including the identity of the relevant person or group.
SECTION 5.4 Meetings of Stockholders.
(a) Holly will take all action necessary in accordance with applicable law
and its certificate of incorporation and bylaws to convene as promptly as
practicable a meeting of its stockholders for purposes of obtaining the Holly
Requisite Vote. Frontier will take all action necessary in accordance with
applicable law and its articles of incorporation and bylaws to convene as
promptly as practicable a meeting of its stockholders for purposes of obtaining
the Frontier Requisite Vote. Frontier and Holly shall each use their reasonable
best efforts to hold their respective stockholders meetings on the same day.
(b) Except as otherwise permitted by this Section 5.4, Holly and Frontier,
through their respective Boards of Directors, shall (i) recommend approval of
the matters described in Section 5.4(a) to be submitted to, and adoption of the
applicable plan of merger contained in this Agreement by, their respective
stockholders, (ii) not withdraw, withhold, modify, or change such
recommendation in a manner adverse to the other party, (iii) not recommend or
declare advisable any Holly Superior Proposal or Frontier Superior Proposal, as
the case may be, and (iv) unless such recommendation has been withdrawn,
withheld, modified or changed as permitted by this Section 5.4(b), use their
reasonable best efforts to solicit the Holly Requisite Vote (in the case of
Holly) and the Frontier Requisite Vote (in the case of Frontier). The Board of
Directors of Holly or Frontier, as applicable (the "Withdrawing Party," the
other party being the "Non-Withdrawing Party"), may at any time prior to
obtaining the Holly Requisite Vote or Frontier Requisite Vote, as applicable,
(A) withdraw, withhold, modify, or change, in a manner adverse to the
Non-Withdrawing Party, any approval or recommendation regarding this Agreement
or the transactions contemplated hereby or (B) approve and be prepared to enter
into or recommend and declare advisable any Holly Superior Proposal or Frontier
Superior Proposal, as the case may be, if its Board of Directors determines in
good faith after consultation with its outside legal counsel that the failure
to take the action in question would be inconsistent with the fiduciary
obligations of such Board of Directors under applicable law.
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Holly and Frontier shall each be required to comply with its obligations under
Section 5.4(a) whether or not its Board of Directors withdraws, modifies,
withholds or changes its recommendation or declaration regarding this Agreement
or the transactions contemplated hereby or recommends or declares the
advisability of any other offer or proposal.
SECTION 5.5 Filings; Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided, Holly and Frontier
shall:
(i) promptly (but in any event within 15 business days from the date
hereof) make their respective filings under the HSR Act with respect to the
Mergers and thereafter shall promptly make any other required submissions
under the HSR Act;
(ii) use their reasonable best efforts to satisfy the conditions to
closing in Article 6 (including, in the case of Holly, obtaining the opinion
described in Section 6.2(b) and, in the case of Frontier, obtaining the
opinion described in Section 6.3(b)) as promptly as practicable and to
cooperate with one another in (1) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals,
permits or authorizations are required to be obtained prior to the Effective
Time from, governmental or regulatory authorities of the United States, the
several states, and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the Mergers and the
transactions contemplated hereby; and (2) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations;
(iii) promptly notify each other of any communication concerning this
Agreement or the Mergers to that party from any governmental authority and
permit the other party to review in advance any proposed communication
concerning this Agreement or the Mergers to any governmental entity;
(iv) not agree to participate in any meeting or discussion with any
governmental authority in respect of any filings, investigation or other
inquiry concerning this Agreement or the Mergers unless it consults with the
other party in advance and, to the extent permitted by such governmental
authority, gives the other party the opportunity to attend and participate
thereat;
(v) furnish the other party with copies of all correspondence, filings
and communications (and memoranda setting forth the substance thereof)
between them and their affiliates and their respective representatives on
the one hand, and any government or regulatory authority or members or their
respective staffs on the other hand, with respect to this Agreement and the
Mergers; and
(vi) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authorities, including any filings necessary or appropriate under
the provisions of the HSR Act.
(b) Without limiting Section 5.5(a) and subject to Section 5.5(c), Frontier
and Holly shall:
(i) each use its reasonable best efforts to avoid the entry of, or to
have vacated or terminated, any decree, order or judgment that would
restrain, prevent or delay the Closing, including defending through
litigation on the merits any claim asserted in any court by any party; and
(ii) each use its reasonable best efforts to avoid or eliminate each and
every impediment under any antitrust, competition or trade regulation law
that may be asserted by any governmental entity with respect to the Mergers
so as to enable the Closing to occur as soon as reasonably possible.
(c) Neither Frontier nor Holly shall, without the other party's prior
written consent, commit to any divestitures, licenses, hold separate
arrangements or similar matters, including covenants affecting business
operating practices (or allow its Subsidiaries to commit to any divestitures,
licenses, hold separate arrangements or similar matters) in connection with the
transactions contemplated under this Agreement, but the parties shall
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commit or consent to, and shall use reasonable efforts to effect (and shall
cause their Subsidiaries to commit or consent to and use reasonable efforts to
effect), any such divestitures, licenses, hold separate arrangements or similar
matters as any governmental entity shall request if such divestitures,
licenses, hold separate arrangements or similar matters are required by any
such governmental entity as a condition to resolving such governmental entity's
objections to either or both the Merger or obtaining its approval of either or
both the Mergers and are contingent upon consummation of either or both the
Mergers; provided that, notwithstanding anything to the contrary in this
Section 5.5(c) or the remainder of this Agreement, neither Frontier, Holly nor
any of their respective Subsidiaries shall be required to agree (with respect
to (x) Frontier or its Subsidiaries or (y) Holly or its Subsidiaries) to any
divestitures, licenses, hold separate arrangements or similar matters,
including covenants affecting business operating practices, if such
divestitures, licenses, arrangements or similar matters, individually or in the
aggregate, would have a Frontier Material Adverse Effect or a Holly Material
Adverse Effect.
SECTION 5.6 Inspection. From the date hereof to the Effective Time, Holly
and Frontier shall allow all designated officers, attorneys, accountants and
other representatives of the other party reasonable access at all reasonable
times upon reasonable notice to the records and files, correspondence, audits
and properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs of Holly and its Subsidiaries or Frontier and its
Subsidiaries, including inspection of such properties; provided that no
investigation pursuant to this Section 5.6 shall affect any representation or
warranty given by any party hereunder, and provided further that
notwithstanding the provision of information or investigation by any party, no
party shall be deemed to make any representation or warranty except as
expressly set forth in this Agreement. Notwithstanding the foregoing, no party
shall be required to provide any information which it reasonably believes it
may not provide to any other party by reason of applicable law, rules or
regulations, which that party reasonably believes constitutes information
protected by attorney/client privilege, or which it is required to keep
confidential by reason of contract or agreement with third parties. The parties
hereto will make reasonable and appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
Holly and Frontier agree that they will not, and will cause their
representatives not to, use any information obtained pursuant to this Section
5.6 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. All nonpublic information obtained pursuant to
this Section 5.6 shall be governed by the Mutual Confidentiality Agreement
dated March 7, 2003 between Frontier and Holly (the "Confidentiality
Agreement").
SECTION 5.7 Publicity. Holly and Frontier will consult with each other and
will mutually agree upon any press releases or public announcements pertaining
to this Agreement or the transactions contemplated hereby and shall not issue
any such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its reasonable best efforts to consult in
good faith with the other party before issuing any such press releases or
making any such public announcements.
SECTION 5.8 Registration Statement. As promptly as reasonably practicable
following the date hereof, Frontier and Holly shall cooperate in preparing and
each shall cause to be filed with the SEC mutually acceptable joint proxy
materials (the "Proxy Statement/Prospectus") and Frontier and Holly shall
prepare, and Parent shall file with the SEC, a Registration Statement on Form
S-4 under the Securities Act (the "Registration Statement"). The Proxy
Statement/Prospectus will be included as a prospectus in and will constitute a
part of the Registration Statement as Parent's prospectus. Each of Frontier,
Holly and Parent shall use reasonable best efforts to have the Proxy
Statement/Prospectus cleared by the SEC and the Registration Statement declared
effective by the SEC and to keep the Registration Statement effective as long
as is necessary to consummate the Mergers and the transactions contemplated
hereby. Each of Frontier, Holly and Parent shall, as promptly as practicable
after receipt thereof, provide the other parties with copies of any written
comments, and advise each other of any oral comments, with respect to the Proxy
Statement/Prospectus or Registration Statement received from the SEC. Frontier,
Holly and Parent shall cooperate and provide the other parties with a
reasonable opportunity to review and comment on any amendment or supplement to
the Proxy Statement/Prospectus and the Registration
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Statement prior to filing such with the SEC, and each will provide each other
party with a copy of all such filings made with the SEC. Notwithstanding any
other provision herein to the contrary, no amendment or supplement (including
by incorporation by reference) to the Proxy Statement/Prospectus or the
Registration Statement shall be made without the approval of both Frontier and
Holly, which approval shall not be unreasonably withheld or delayed; provided
that, with respect to documents filed by a party hereto that are incorporated
by reference in the Registration Statement or Proxy Statement/Prospectus, this
right of approval shall apply only with respect to information relating to the
other party or its business, financial condition or results of operations; and
provided, further, that Frontier, in connection with a change in the
recommendation of its Board of Directors as to the Mergers, and Holly, in
connection with a change in the recommendation of its Board of Directors as to
the Mergers, may amend or supplement the Proxy Statement/Prospectus or
Registration Statement (including by incorporation by reference) to effect such
a change, and in such event, this right of approval shall apply only with
respect to information relating to the other party or its business, financial
condition or results of operations, and shall be subject to the right of each
party to have its Board of Directors' deliberations and conclusions accurately
described. Frontier will use reasonable best efforts to cause the Proxy
Statement/ Prospectus to be mailed to Frontier stockholders, and Holly will use
reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed to
Holly stockholders, in each case, as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. Each of
Frontier, Holly and Parent shall advise the other parties, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective, the issuance of any stop order, the suspension of the qualification
of the Parent Common Stock issuable in connection with the Mergers for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Proxy Statement/Prospectus or the Registration Statement. If, at any time prior
to the Effective Time, any information relating to Frontier or Holly, or any of
their respective affiliates, officers or directors, is discovered by Frontier
or Holly and such information should be set forth in an amendment or supplement
to any of the Registration Statement or the Proxy Statement/Prospectus so that
any of such documents would not include any misstatement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the
party hereto discovering such information shall promptly notify the other
parties and, to the extent required by law, rules or regulations, an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and disseminated to the stockholders of Frontier
and Holly.
SECTION 5.9 Listing Application. Parent shall use its reasonable best
efforts to cause the Parent Common Stock to be issued in the Mergers to be
approved for listing on the NYSE prior to the Effective Time, subject to
official notice of issuance. Parent shall promptly prepare and submit to the
NYSE a listing application covering the shares of Parent Common Stock issuable
in the Mergers and shares issuable pursuant to Parent Stock Options.
SECTION 5.10 Agreements of Rule 145 Affiliates. (a) Prior to the Effective
Time, Holly shall cause to be prepared and delivered to Parent and Frontier a
list identifying all persons who, at the time of the meeting of Holly's
stockholders pursuant to Section 5.4, Holly believes may be deemed to be
"affiliates" of Holly, as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act (the "Holly Rule 145 Affiliates"). Holly shall use
its reasonable best efforts to cause each person who is identified as a Holly
Rule 145 Affiliate in such list to execute and deliver to Parent, at or prior
to the Effective Time, a written agreement in substantially the form attached
hereto as Exhibit E (a "Holly Rule 145 Agreement"). As an inducement to such
Holly Rule 145 Agreements, Parent shall enter into a written registration
rights agreement with such Holly Rule 145 Affiliates in substantially the form
attached hereto as Exhibit F (the "Registration Rights Agreement").
(b) Prior to the Effective Time, Frontier shall cause to be prepared and
delivered to Parent and Holly a list identifying all persons who, at the time
of the meeting of Frontier's stockholders pursuant to Section 5.4, Frontier
believes may be deemed to be "affiliates" of Frontier, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Frontier Rule
145 Affiliates"). Parent shall be entitled to place restrictive legends on any
shares of Parent Common Stock received by such Frontier Rule 145 Affiliates.
Frontier shall use its reasonable best efforts to cause each person who is
identified as a Frontier Rule 145 Affiliate in such list to
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execute and deliver to Parent, at or prior to the Effective Time, a written
agreement in substantially the form attached hereto as Exhibit G (a "Frontier
Rule 145 Agreement," the Holly Rule 145 Agreements and the Frontier Rule 145
Agreements each a "Rule 145 Agreement" and collectively the "Rule 145
Agreements"). As an inducement to such Frontier Rule 145 Agreements, Parent
shall enter into the Registration Rights Agreement with such Frontier Rule 145
Affiliates.
SECTION 5.11 Expenses. Whether or not the Mergers are consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except (a) that Frontier and Holly shall each pay and bear one-half
of each regulatory filing, notification, registration or similar fee required
to be paid by any party in connection with this Agreement and the transactions
contemplated hereby under the HSR Act, the Securities Act, the Exchange Act and
other applicable laws, rules and regulations of any governmental authority and
(b) as expressly provided in Section 7.5.
SECTION 5.12 Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall as provided in this
Section 5.12 cause each of Frontier Surviving Corporation and Holly Surviving
Corporation to indemnify, defend and hold harmless to the fullest extent
permitted under applicable law each person who is immediately prior to the
Effective Time, or has been at any time prior to the Effective Time, an officer
or director of Frontier or Holly, respectively (or any Subsidiary or division
thereof), and each person who immediately prior to the Effective Time is
serving or prior to the Effective Time has served at the request of Frontier or
Holly, respectively, as a director, officer, trustee or fiduciary of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties") against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time, to
the fullest extent such indemnification by Frontier Surviving Corporation or
Holly Surviving Corporation, as applicable, is permitted under applicable law.
In the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Parent shall cause each of Frontier Surviving Corporation and
Holly Surviving Corporation, as applicable, to pay, as incurred, the fees and
expenses of counsel selected by the Indemnified Party, which counsel shall be
reasonably acceptable to Parent, in advance of the final disposition of any
such Action to the fullest extent permitted by applicable law, and, if
required, upon receipt of any undertaking required by applicable law, and (ii)
Parent will, and will cause each of Frontier Surviving Corporation and Holly
Surviving Corporation, as applicable, to, cooperate in the defense of any such
matter; provided, however, none of Parent, Frontier Surviving Corporation or
Holly Surviving Corporation shall be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed), and provided further that none of Parent, Frontier Surviving
Corporation or Holly Surviving Corporation shall be obligated pursuant to this
Section 5.12(a) to pay the fees and disbursements of more than one counsel,
except for one local counsel, for all Indemnified Parties in any single Action,
unless, in the good faith judgment of any of the Indemnified Parties, there is
or may be a conflict of interests between two or more of such Indemnified
Parties, in which case there may be separate counsel for each similarly
situated group. With respect to any determination of whether an Indemnified
Party is entitled to indemnification by Holly Surviving Corporation or Frontier
Surviving Corporation under this Section 5.12, the Indemnified Party shall have
the right, as contemplated by the DGCL, to require that such determination be
made by special, independent legal counsel selected by the Indemnified Party
and approved by Holly Surviving Corporation or Frontier Surviving Corporation,
as applicable (which approval shall not be unreasonably withheld), and who has
not otherwise performed material services for Frontier, Holly or the
Indemnified Party within the last three (3) years.
(b) The rights to indemnification hereunder, including provisions relating
to advances of expenses incurred in defense of any action or suit, in the
certificate of incorporation or articles of incorporation, bylaws and any
indemnification agreement of Frontier, Holly and their respective Subsidiaries
with respect to matters occurring through the Effective Time, shall survive the
Mergers and shall continue in full force and effect.
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(c) For a period of six years after the Effective Time, Parent shall, or
shall cause each of Frontier Surviving Corporation and Holly Surviving
Corporation to, maintain officers' and directors' liability insurance covering
the Indemnified Parties who are or at any time prior to the Effective Time were
covered by their respective officers' and directors' liability insurance ("D&O
Insurance") policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance with respect to acts or
omissions, or alleged acts or omissions, prior to the Effective Time (whether
claims, actions or other proceedings relating thereto are commenced, asserted
or claimed before or after the Effective Time); provided that, after the
Effective Time, neither Frontier Surviving Corporation nor Holly Surviving
Corporation shall be required to pay annual premiums in excess of 250% of the
annual premium amount payable by Frontier or Holly, as applicable, for the
policy year including the date hereof (the amount of which premiums are set
forth in Schedule 5.12(c) of the respective Disclosure Letters), but in such
case shall purchase as much coverage as reasonably practicable for such amount.
Parent shall have the right to cause coverage to be extended under the D&O
Insurance of Frontier or Holly by obtaining a six-year "tail" policy on terms
and conditions substantially no less advantageous than Frontier's or Holly's
respective existing D&O Insurance, and such "tail" policy shall satisfy the
provisions of this Section 5.12(c).
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation, articles of incorporation or bylaws of Frontier or Holly, as
applicable, or any of their respective Subsidiaries, under the DGCL or WBCA, or
otherwise. The provisions of this Section 5.12 shall survive the consummation
of the Mergers, are expressly intended to benefit each of the Indemnified
Parties, and may not be amended or terminated after the Effective Time in a
manner contrary to the interest of an Indemnified Party without the consent of
such Indemnified Party.
(e) Notwithstanding any other provisions hereof, the obligations of
Frontier, Holly, Frontier Surviving Corporation, Holly Surviving Corporation
and Parent contained in this Section 5.12 shall be binding upon the successors
and assigns of Parent, Frontier Surviving Corporation and Holly Surviving
Corporation. In the event Frontier, Holly, Frontier Surviving Corporation,
Holly Surviving Corporation or Parent or any of their respective successors or
assigns (i) consolidates with or merges into any other person or (ii) transfers
all or substantially all of its properties and assets to any person, then and
in each such case, proper provision shall be made so that the successors and
assigns of Frontier, Holly, Frontier Surviving Corporation, Holly Surviving
Corporation or Parent, as the case may be, shall assume and honor the
obligations set forth in this Section 5.12.
SECTION 5.13 Employee Benefits.
(a) After the Effective Time, Frontier and Holly shall cause Parent to
honor, and to cause its Subsidiaries to honor, (i) all employee benefit plans,
contracts, agreements and commitments of Frontier, Holly or any of their
respective Subsidiaries maintained or entered into by Frontier, Holly or any of
their respective Subsidiaries prior to the date hereof that apply to any
current or former employee or current or former director of Frontier, Holly or
any of their respective Subsidiaries, as applicable and (ii) such severance
agreements and indemnification agreements as Holly may enter into with its
officers and directors in accordance with this Agreement; provided, however,
that, except as otherwise expressly provided in this Section 5.13, Parent
reserves the right to modify, and to cause any of its Subsidiaries to modify,
any such plan, contract, agreement or commitment in accordance with its terms.
(b) Notwithstanding the provisions of Section 5.13(a):
(i) Except as provided in Sections 2.5, 2.6 and 5.1 (pertaining to Holly
Stock Plans and Frontier Stock Plans), Frontier and Holly agree that for the
period beginning at the Effective Time and ending December 31, 2003 (or such
later date as may be determined by Parent), (A) Holly Surviving Corporation
shall assume and maintain all Holly Plans as in effect immediately prior to
the Effective Time, and shall not amend any such plan to reduce any benefit
provided under any such plan; and (B) Frontier Surviving Corporation shall
assume and maintain all Frontier Plans as in effect immediately prior to the
Effective Time, and shall not amend any such plan to reduce any benefit
provided under any such plan. With respect to any Holly Plan or Frontier
Plan that is a qualified defined contribution plan providing for
discretionary
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employer contributions, such contributions for 2003 shall be made at
approximately the same percentage of compensation (or employee or salary
deferral contribution in the case of a discretionary matching contribution)
of eligible participants as was made to such plan for 2002. Notwithstanding
the foregoing, contributions may be adjusted to the extent necessary to
comply with applicable law and regulations.
(ii) Each employee of Frontier, Holly or any of their respective
Subsidiaries (and any successor entities to Frontier, Holly or any of their
respective Subsidiaries) who becomes an employee of Parent, Frontier
Surviving Corporation, Holly Surviving Corporation, or any of their
respective Subsidiaries as of the Effective Time without any gap in
employment shall be credited with service with Frontier, Holly, any of their
respective Subsidiaries, or any of their predecessors, for purposes of
eligibility, vesting and benefit determination under any employee benefit
plan or policy of Parent, Frontier Surviving Corporation or Holly Surviving
Corporation. Notwithstanding the foregoing, this Section 5.13(b)(ii) shall
not apply to the determination of accrual service under any defined benefit
pension plan as defined in section 3(35) of ERISA (regardless of whether
such plan is qualified under Code section 401(a)) that did not cover the
employee immediately prior to the Effective Time, and shall not apply to the
determination of the right to receive, or the amount of, any retiree or
other post-retirement medical service (except for COBRA medical continuation
coverage as described in section 4980B of the Code or any arrangement
covering the employee prior to the Effective Time).
(iii) Nothing in this Section 5.13(b) shall be construed to restrict the
ability of any entity to modify or terminate any plan (at or after the
Effective Time) with respect to persons employed at operations outside the
United States.
(iv) Nothing in this Section 5.13(b) shall be construed as a contract of
employment, and this Section 5.13(b) shall not give any employee the right
to be retained in the employ of any entity. Nothing in this Section 5.13(b)
shall be construed to require the provision of coverage or benefits to an
employee following termination of employment except to the extent such
coverage or benefits is otherwise required pursuant to the terms of the
applicable plan or arrangement or by applicable law.
(v) The parties intend and agree that the employees of any party on the
Closing Date are third party beneficiaries with respect to the provisions of
Section 5.13(b)(i) and (ii) that are applicable to such employee and shall
be entitled to enforce such provisions against the parties.
(c) Prior to the Effective Time, the parties shall cause Parent's Board of
Directors, or a duly authorized committee of "non-employee" directors thereof:
(i) to approve and adopt a Parent Stock Plan for the purposes described in
Sections 2.5 and 2.6 of this Agreement; (ii) to submit such Parent Stock Plan
to the then stockholders of Parent (Frontier and Holly) for approval; and (iii)
to authorize the conversion of Holly Stock Options and Frontier Stock Options
into Parent Stock Options (and the acquisition of shares of Parent Common Stock
thereunder) at the Effective Time by officers and directors of Frontier and
Holly (including officers and directors of Frontier and Holly who become, prior
to, at, or following the Effective Time of the Mergers, officers or directors
of Parent) as a result of the conversion of shares of Frontier and Holly Common
Stock in the Mergers by Parent at the Effective Time. Such resolution shall set
forth the name of the applicable "insiders" for purposes of Section 16 of the
Exchange Act, the number of securities to be acquired by each individual, and
that the approval is being granted to exempt the transaction under Rule 16b-3
of the Exchange Act. Frontier and Holly agree to vote their respective shares
of Parent to approve such Parent Stock Plan. The parties shall cause Parent to
reserve for issuance a number of shares of Parent Common Stock at least equal
to the number of shares of Parent Common Stock that will be subject to Parent
Stock Options as a result of the actions contemplated by Section 2.5 and
Section 2.6. As soon as practicable following the Effective Time, Parent shall
file a registration statement on Form S-8 (or any successor form, or if Form
S-8 is not available, other appropriate forms) with respect to the shares of
Parent Common Stock subject to such Parent Stock Options and shall maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Parent Stock Options remain outstanding.
(d) (i) Holly may make additional arrangements after the date hereof to
provide, to employees it selects, severance payments (the "Severance Payments")
in the case of any termination of any of such employees either
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prior to the Closing Date in contemplation of the transaction contemplated in
this Agreement or following the Closing Date and a consulting agreement with
Matthew P. Clifton (the "Consulting Agreement"). The total value of the
Severance Payments and Consulting Agreement, including the value of (A) cash
paid, (B) property or assets transferred, (C) employee benefits provided, and
(D) acceleration of any right or payment accelerated shall not exceed
$5,000,000 in the aggregate; provided, however, that the agreements evidencing
any Severance Payments and Consulting Agreement (the "Severance Agreements") or
the Consulting Agreement shall provide that if any payment made in connection
with such Severance Agreements would constitute an excess parachute payment,
the employee shall waive his or her right to receive any Severance Payment or
payment under the Consulting Agreement, as applicable, to the extent that such
amount, when added to any other parachute payments received in connection with
the transaction contemplated in this Agreement, would exceed 2.99 times his or
her base amount. For purposes of this subsection, "excess parachute payment",
"parachute payment", and "base amount" shall have the meanings set forth in
section 280G of the Code and the regulations promulgated pursuant thereto.
(ii) Holly may make additional arrangements after the date hereof to enter
into, with employees listed on Schedule 5.1(a)(vi), providing for terms of
employment, compensation and severance payments as discussed and consistent
with those applicable to employees of Frontier and its Subsidiaries in similar
positions ("Employee Agreements"). Arrangements entered into pursuant to this
subsection 5.13(d)(ii) shall be neither subject to nor counted towards the
maximum limit provided for payments made and agreements entered into pursuant
to Section 5.13(d)(i), and in no event shall any employee who has entered into
an agreement pursuant to this Section 5.13(d)(ii) be required to waive any
portion of any payment such employee is entitled to pursuant to his Employee
Agreement.
(e) Any other provisions hereof to the contrary notwithstanding, the
provisions of this Section 5.13 do not cover, and shall not be deemed for the
benefit of, any employees covered by any Holly Represented Employees or
Frontier Represented Employees.
(f) Frontier shall use its reasonable best efforts to cause each person
(other than those who have already done so at or prior to the date hereof and
are listed in Schedule 5.13(f) of the Frontier Disclosure Letter, which
Schedule 5.13(f) includes the number of Frontier Stock Options subject to each
such waiver), whose unvested Frontier Stock Options and/or unvested restricted
shares of Frontier Common Stock would otherwise become vested at the time of
initial filing of the Registration Statement pursuant to Section 5.8 to execute
and deliver to Frontier, prior to the time of such initial filing of the
Registration Statement, a written agreement waiving such accelerated vesting as
a result of such initial filing and as a result of this Agreement, consummation
of the Mergers and/or consummation of the other transactions contemplated by
this Agreement.
SECTION 5.14 Tax Qualification.
(a) Holly shall use its reasonable best efforts to, and to cause each of
its Subsidiaries to, (i) cause the Holly Merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and/or the
Mergers, taken together, to qualify as an exchange described in Section 351 of
the Code and (ii) obtain the opinion of counsel referred to in Section 6.2(b),
including the execution of the officers' certificates referred to therein and
in Section 6.3(b). Holly shall use its reasonable best efforts not to, and
shall use its reasonable best efforts not to permit any of its Subsidiaries to,
take any action (including any action otherwise permitted by Section 5.1(a))
that would prevent or impede the Holly Merger or the Frontier Merger from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code and/or the Mergers, taken together, from qualifying as an exchange
described in Section 351 of the Code.
(b) Frontier shall use its reasonable best efforts to, and to cause each of
its Subsidiaries to, (i) cause the Frontier Merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code and/or the
Mergers, taken together, to qualify as an exchange described in Section 351 of
the Code and (ii) obtain the opinion of counsel referred to in Section 6.3(b),
including the execution of the officers' certificates referred to
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therein and in Section 6.2(b). Frontier shall use its reasonable best efforts
not to, and shall use its reasonable best efforts not to permit any of its
Subsidiaries to, take any action (including any action otherwise permitted by
Section 5.1(b)) that would prevent or impede the Holly Merger or the Frontier
Merger from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code and/or the Mergers, taken together, from qualifying as an
exchange described in Section 351 of the Code.
SECTION 5.15 Dividends. Holly shall coordinate with Frontier respecting
the declaration, setting of record dates and payment dates of dividends on the
shares of Holly Common Stock so that holders of shares of Holly Common Stock do
not receive dividends on both shares of Holly Common Stock and Parent Common
Stock received in the Holly Merger in respect of any calendar quarter or fail
to receive a dividend on shares of Holly Common Stock or Parent Common Stock
received in the Holly Merger in respect of any calendar quarter.
SECTION 5.16 Governance Matters; Headquarters; Company Name.
(a) Frontier and Holly shall take all requisite action, effective as of the
Effective Time, (i) to cause the size of the Board of Directors of Parent (the
"Parent Board") to be twelve directors and (ii) to cause the directors on the
Parent Board to be comprised of (x) six directors chosen by the current
Frontier directors, of whom only James R. Gibbs shall not be independent, for
purposes of the proposed rules of the NYSE (as the same may be modified and/or
become effective prior to the Effective Time) (the "Frontier Designees"), and
(y) six directors chosen by the current Holly directors, of whom only C. Lamar
Norsworthy, III shall not be independent, for purposes of the proposed rules of
the NYSE (as the same may be modified and/or become effective prior to the
Effective Time) (the "Holly Designees"), each to serve for a term expiring on
the earlier of his or her death, resignation or removal or the next annual
meeting of shareholders and, despite the expiration of his or her term, until
his or her successor has been elected and qualified or there is a decrease in
the number of directors. If at any time prior to the Effective Time, any such
board designee becomes unable or unwilling to serve as a director of Parent at
the Effective Time, then the party that designated such individual shall
designate another individual to serve in such individual's place.
(b) Frontier and Holly shall take all requisite action, effective as of the
Effective time, to cause each then standing committee of the Parent Board to be
comprised of equal numbers of Frontier Designees and Holly Designees. If at any
time prior to the Effective Time, any such committee designee becomes unable or
unwilling to serve as a director of Parent at the Effective Time, then the
party that designated such individual as a board designee shall designate
another individual to serve in such individual's place on the applicable
committee(s).
(c) Frontier and Holly shall take all requisite action, effective as of the
Effective Time, to cause the executive officers of Parent to include: C. Lamar
Norsworthy, III, Chairman of the Board; James R. Gibbs, President and Chief
Executive Officer; and Julie Edwards, Chief Financial Officer. If at any time
prior to the Effective Time, either of the individuals designated to serve as
the Chairman of the Board of Parent and the President and Chief Executive
Officer of Parent becomes unable or unwilling to serve in such capacity at the
Effective Time, then the other of such individual shall serve as the Chairman
of the Board, President and Chief Executive Officer of Parent. If at any time
prior to the Effective Time, both of such individuals designated to serve as
the Chairman of the Board of Parent and the President and Chief Executive
Officer of Parent, or the individual designated as Chief Financial Officer, in
this Section 5.16(c) should become unable or unwilling to serve in his or her
designated capacity at the Effective Time, then Frontier and Holly shall
mutually agree on another individual to serve in such capacity.
(d) The executive headquarters for Parent shall be located in the Houston,
Texas area.
(e) Immediately upon consummation of the Mergers, Parent shall change its
name to Frontier Oil Corporation.
SECTION 5.17 No Control of Other Party's Business. Nothing contained in
this Agreement shall give Holly, directly or indirectly, the right to control
or direct Frontier's operations or give Frontier, directly or
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indirectly, the right to control or direct Holly's operations prior to the
Effective Time. Prior to the Effective Time, each of Frontier and Holly shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its respective operations.
SECTION 5.18 Total Holly Common Stock Number Certificate. Holly shall
deliver to Frontier at the Closing a certificate executed by its Chairman of
the Board and Chief Executive Officer or by its Chief Financial Officer (the
"Total Holly Common Stock Number Certificate") setting forth, and showing in
reasonable detail the calculation of: (a) the "Total Holly Common Stock
Number", which shall equal the total number of shares of Holly Common Stock
that are issued and outstanding immediately prior to the Effective Time (but
not including any Excluded Holly Shares); and (b) the total number of shares of
Holly Common Stock that are issuable pursuant to options, warrants, calls,
subscriptions, stockholder rights plans or similar instruments, convertible
securities, or other rights, agreements or commitments which obligate Holly or
any of its Subsidiaries to issue, transfer or sell any shares of capital stock
or other securities of Holly or any of its Subsidiaries. For the avoidance of
doubt, the Total Holly Common Stock Number shall not be affected by the number
of Holly Dissenting Shares, if any.
SECTION 5.19 Contingent Value Rights Agreement. As promptly as reasonably
practicable following the date hereof, and prior to the filing of the
Registration Statement pursuant to Section 5.8, Parent, Frontier and Holly
shall enter into a Contingent Value Rights Agreement (the "CVR Agreement") by
and among Parent, Frontier, Holly and the one or more persons hereafter
designated by Holly in the CVR Agreement (the "Representatives"), which CVR
Agreement shall provide, among other terms and conditions, (i) that the
Representatives shall be empowered, subject to any limitations imposed by the
Assignment of Claims Act, to approve the terms and conditions of any settlement
of the Jet Fuel Claims proposed by Parent (provided the Representatives shall
have no such approval right from and after the first date on which the Claims
Expenses equal or exceed $2,500,000 (the "Costs Threshold Date")), (ii) that
Parent shall cause the Holly Subsidiaries to prosecute the Jet Fuel Claims in
good faith (it being understood, however, that Parent shall be entitled to
settle the Jet Fuel Claims, without any approval from the Representatives or
any holder of CVRs, at any time from and after the Costs Threshold Date), (iii)
that the Board of Directors of Parent shall approve any settlement of the Jet
Fuel Claims, (iv) for the reasonable compensation of the Representatives by
Parent for their service as such, (v) that Parent shall indemnify the
Representatives from and against any loss, liability or expense incurred by
them arising out of or in connection with their service as Representatives,
(vi) for a procedure to value any in-kind Recovery and for the payment to the
holders of CVRs of such value in cash, (vii) that CVRs shall be
nontransferable, except upon death or by operation of law, (viii) for the
appointment of successors to the Representatives if the Representatives resign
or become unable to carry out their obligations and duties under the CVR
Agreement, (ix) that the consent of the holders of a majority of the CVRs shall
be necessary to amend the CVR Agreement or the CVRs after the Effective Time in
any manner adverse to the holders of CVRs, (x) that the amount of the Recovery
shall also be reduced by any offsets or other claims recovered by the United
States against the Holly Subsidiaries arising directly under the contracts that
gave rise to the Jet Fuel Claims, but shall not be reduced for any other
offsets or other claims by the United States against the Holly Subsidiaries or
their affiliates, and (xi) that Parent shall provide each holder of a Parent
Stock Option who was a holder of a Holly Stock Option immediately prior to the
Effective Time with written notice of the payment of any amount to the holders
of CVRs not less than ten days prior to the date that any such payment is made.
ARTICLE 6
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Mergers. The respective obligations of each party to effect the Mergers shall
be subject to the fulfillment or waiver in writing by mutual agreement of the
parties at or prior to the Closing Date of the following conditions:
(a) (i) The Holly Requisite Vote shall have been obtained and (ii) the
Frontier Requisite Vote shall have been obtained.
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(b) (i) The waiting period (and any extension thereof) applicable to the
consummation of the Mergers shall have expired or been terminated under the
HSR Act, and (ii) any mandatory waiting period or required consent under any
other applicable United States federal or state competition or antitrust law
or regulation shall have expired or been obtained except where the failure
to observe such waiting period or obtain a consent referred to in this
clause (ii) would not reasonably be expected to delay or prevent the
consummation of either or both Mergers or have a material adverse effect on
the expected benefits of the transactions contemplated by this Agreement to
Parent.
(c) None of the parties hereto shall be subject to any decree, order or
injunction of a United States federal or state court of competent
jurisdiction, which prohibits the consummation of either or both Mergers,
and no statute, rule or regulation shall have been enacted by any
governmental authority which prohibits or makes unlawful the consummation of
either or both Mergers.
(d) The Registration Statement shall have become effective and no stop
order with respect thereto shall be in effect and no proceedings for that
purpose shall have been commenced or threatened by the SEC.
(e) The shares of Parent Common Stock to be issued pursuant to the
Mergers and the shares of Parent Common Stock reserved for issuance pursuant
to Parent Stock Options shall have been authorized for listing on the NYSE,
subject to official notice of issuance.
SECTION 6.2 Conditions to Obligation of Holly to Effect the Mergers. The
obligation of Holly to effect the Mergers shall be subject to the fulfillment
or waiver in writing by Holly at or prior to the Closing Date of the following
conditions:
(a) Frontier shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Frontier
contained in this Agreement and in any document delivered in connection
herewith (i) to the extent qualified by Frontier Material Adverse Effect or
any other materiality qualification shall be true and correct and (ii) to
the extent not qualified by Frontier Material Adverse Effect or any other
materiality qualification shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified
date), and Holly shall have received a certificate of Frontier, executed on
its behalf by its Chairman of the Board, President and Chief Executive
Officer, dated the Closing Date, certifying to such effect.
(b) Holly shall have received the opinion of Vinson & Elkins L.L.P. or
other nationally recognized tax counsel, acting as counsel to Holly, in form
and substance reasonably satisfactory to Holly, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated the
Closing Date, a copy of which shall be furnished to Frontier, to the effect
that (i) the Holly Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and/or the
Mergers, taken together, will constitute an exchange described in Section
351 of the Code, (ii) no gain or loss will be recognized by Holly, and no
gain or loss will be recognized by the stockholders of Holly as a result of
the exchange of Holly Common Stock for shares of Parent Common Stock
pursuant to the Holly Merger, except that gain, if any, will be recognized
on the receipt of cash consideration in the Holly Merger, the receipt of
cash in lieu of Parent Common Stock and the receipt of CVRs and/or payments
thereon. In rendering such opinion, such counsel shall be entitled to
receive and rely upon customary representations of officers of Parent,
Holly, Merger Sub Two, Frontier and Merger Sub One as to such matters as
such counsel may reasonably request.
SECTION 6.3 Conditions to Obligation of Frontier to Effect the
Mergers. The obligations of Frontier to effect the Mergers shall be subject to
the fulfillment or waiver in writing by Frontier at or prior to the Closing
Date of the following conditions:
(a) Holly shall have performed in all material respects its covenants
and agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties
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of Holly contained in this Agreement and in any document delivered in
connection herewith (i) to the extent qualified by Holly Material Adverse
Effect or any other materiality qualification shall be true and correct and
(ii) to the extent not qualified by Holly Material Adverse Effect or any
other materiality qualification shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified
date), and Frontier shall have received a certificate of Holly, executed on
its behalf by the Chairman of the Board and Chief Executive Officer of
Holly, dated the Closing Date, certifying to such effect.
(b) Frontier shall have received the opinion of Andrews & Kurth L.L.P.
or other nationally recognized tax counsel, acting as counsel to Frontier,
in form and substance reasonably satisfactory to Frontier, on the basis of
certain facts, representations and assumptions set forth in such opinion,
dated the Closing Date, a copy of which will be furnished to Holly, to the
effect that (i) the Frontier Merger will be treated for federal income tax
purposes as a reorganization within the meaning of section 368(a) of the
Code and/or the Mergers, taken together, will constitute an exchange
described in Section 351 of the Code and (ii) no gain or loss will be
recognized by Frontier or the stockholders of Frontier to the extent they
receive Parent Common Stock in exchange for Frontier Common Stock pursuant
to the Frontier Merger. In rendering such opinion, such counsel shall be
entitled to receive and rely upon representations of officers of Parent,
Frontier, Merger Sub One, Holly and Merger Sub Two as to such matters as
such counsel may reasonably request.
(c) Frontier shall have received the Total Holly Common Stock Number
Certificate pursuant to Section 5.18.
(d) Holly shall have completed the acquisition of the Woods Cross
refinery from ConocoPhillips pursuant to, and on substantially the terms and
conditions set forth in, the relevant purchase agreement, as amended,
contained in the Holly Reports.
ARTICLE 7
TERMINATION
SECTION 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written
agreement of Holly and Frontier approved by action of their respective Boards
of Directors in their respective discretion for any reason, including due to
the number of Holly Dissenting Shares exceeding 5% of the Total Holly Common
Stock Number or the number of Frontier Dissenting Shares exceeding 5% of the
total number of shares of Frontier Common Stock outstanding immediately prior
to the Effective Time.
SECTION 7.2 Termination by Frontier or Holly. At any time prior to the
Effective Time, this Agreement may be terminated by Holly or Frontier, in
either case by action of its Board of Directors, if:
(a) the Mergers shall not have been consummated by October 31, 2003;
provided, however, that the right to terminate this Agreement pursuant to
this clause (a) shall not be available to any party whose failure or whose
affiliates' failure to perform or observe in any material respect any of its
obligations under this Agreement in any manner shall have been the principal
cause of, or resulted in, the failure of the Mergers to occur on or before
such date; or
(b) the Holly Requisite Vote shall not have been obtained at a meeting
(including adjournments and postponements) of Holly's stockholders that
shall have been duly convened for the purpose of obtaining the Holly
Requisite Vote; or
(c) the Frontier Requisite Vote shall not have been obtained at a
meeting (including adjournments and postponements) of Frontier's
stockholders that shall have been duly convened for the purpose of obtaining
the Frontier Requisite Vote; or
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(d) a United States federal or state court of competent jurisdiction or
United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken
any other action (including the enactment of any statute, rule, regulation,
decree or executive order) permanently restraining, enjoining or otherwise
prohibiting either or both Mergers and such order, decree, ruling or other
action (including the enactment of any statute, rule, regulation, decree or
executive order) shall have become final and non-appealable; provided,
however, that the party seeking to terminate this Agreement pursuant to this
clause (d) shall have complied with Section 5.5 and with respect to other
matters not covered by Section 5.5 shall have used its reasonable best
efforts to remove such injunction, order or decree.
SECTION 7.3 Termination by Holly. At any time prior to the Effective Time,
this Agreement may be terminated by Holly, by action of its Board of Directors,
if:
(a) (i) there has been a breach by Frontier of any representation,
warranty, covenant or agreement set forth in this Agreement or if any
representation or warranty of Frontier shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) would not be
satisfied and (ii) such breach is not curable, or, if curable, is not cured
within 30 days after written notice of such breach is given to Frontier by
Holly; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.3(a) shall not be available to Holly if it, at
such time, is in material breach of any representation, warranty, covenant
or agreement set forth in this Agreement such that the conditions set forth
in Section 6.3(a) shall not be satisfied;
(b) prior to obtaining the Frontier Requisite Vote, the Board of
Directors of Frontier shall have withdrawn, modified, withheld or changed,
in a manner adverse to Holly, such Board's approval or recommendation of
this Agreement or the transactions contemplated hereby, or recommended a
Frontier Superior Proposal, or resolved to do any of the foregoing; or
(c) prior to obtaining the Holly Requisite Vote, Holly is the
Withdrawing Party pursuant to Section 5.4(b) (it being understood that Holly
shall not have the right to terminate this Agreement pursuant to this
Section 7.3(c) unless and until Holly shall have paid Frontier all amounts
due under Section 7.5(a)).
SECTION 7.4 Termination by Frontier. At any time prior to the Effective
Time, this Agreement may be terminated by Frontier, by action of its Board of
Directors, if:
(a) (i) there has been a breach by Holly of any representation, warranty
covenant or agreement set forth in this Agreement or if any representation
or warranty of Holly shall have become untrue, in either case such that the
conditions set forth in Section 6.3(a) would not be satisfied and (ii) such
breach is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given by Frontier to Holly; provided,
however, that the right to terminate this Agreement pursuant to this Section
7.4(a) shall not be available to Frontier if it, at such time, is in
material breach of any representation, warranty, covenant or agreement set
forth in this Agreement such that the conditions set forth in Section 6.2(a)
shall not be satisfied;
(b) prior to obtaining the Holly Requisite Vote, the Board of Directors
of Holly shall have withdrawn, modified, withheld or changed, in a manner
adverse to Frontier, such Board's approval or recommendation of this
Agreement or the transactions contemplated hereby, or recommended a Holly
Superior Proposal, or resolved to do any of the foregoing; or
(c) prior to obtaining the Frontier Requisite Vote, Frontier is the
Withdrawing Party pursuant to Section 5.4(b) (it being understood that
Frontier shall not have the right to terminate this Agreement pursuant to
this Section 7.4(c) unless and until Frontier shall have paid Holly all
amounts due under Section 7.5(b)).
SECTION 7.5 Effect of Termination.
(a) If this Agreement is terminated
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(i) by Holly or Frontier, after the public announcement (made prior to
the closing of the polls for the vote of Holly stockholders for the purpose
of obtaining the Holly Requisite Vote) of a Holly Acquisition Proposal,
pursuant to Section 7.2(b);
(ii) by Frontier pursuant to Section 7.4(b); or
(iii) by Holly pursuant to Section 7.3(c);
then Holly shall pay Frontier the Holly Termination Amount (as defined below)
and, in addition, reimburse Frontier for all expenses incurred by Frontier in
connection with this Agreement up to the Reimbursement Maximum Amount (as
defined below) prior to or upon termination of this Agreement. All payments
under this Section 7.5(a) shall be made in cash by wire transfer to an account
designated by Frontier at the time of such termination (or, in the case of a
termination pursuant to Section 7.3(c), prior to such termination). The term
"Holly Termination Amount" shall mean $15,000,000. The term "Reimbursement
Maximum Amount" shall mean $1,000,000. In addition, Holly shall reimburse
Frontier for all expenses incurred by Frontier in connection with this
Agreement up to the Reimbursement Maximum Amount if this Agreement has been
terminated pursuant to Section 7.2(b) even if Frontier is not entitled to any
Holly Termination Amount under this Section 7.5(a). Holly acknowledges that the
agreements contained in this Section 7.5(a) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Frontier would not enter into this Agreement; accordingly, if Holly
fails promptly to pay any amount due pursuant to this Section 7.5(a), and, in
order to obtain such payment, Frontier commences a suit which results in a
judgment against Holly for the payment set forth in this Section 7.5(a), Holly
shall pay to Frontier its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the Holly Termination
Amount and other amounts to be reimbursed to Frontier under this Section 7.5(a)
from the date payment was required to be made until the date of such payment at
the prime rate of Union Bank of California, N.A. in effect on the date such
payment was required to be made plus one percent (1%). If this Agreement is
terminated pursuant to a provision that calls for a payment to be made under
this Section 7.5(a), it shall not be a defense to Holly's obligation to pay
hereunder that this Agreement could have been terminated under a different
provision or could have been terminated at an earlier or later time.
(b) If this Agreement is terminated
(i) by Holly or Frontier, after the public announcement (made prior to
the closing of the polls for the vote of Frontier Stockholders for the
purpose of obtaining the Frontier Requisite Vote) of a Frontier Acquisition
Proposal, pursuant to Section 7.2(c);
(ii) by Holly pursuant to Section 7.3(b); or
(iii) by Frontier pursuant to Section 7.4(c);
then Frontier shall pay Holly the Frontier Termination Amount (as defined
below) and, in addition, reimburse Holly for all expenses incurred by Holly in
connection with this Agreement up to the Reimbursement Maximum Amount prior to
or upon the termination of this Agreement. All payments under this Section
7.5(b) shall be made in cash by wire transfer to an account designated by Holly
at the time of such termination (or, in the case of a termination pursuant to
Section 7.4(c), prior to such termination). The term "Frontier Termination
Amount" shall mean $15,000,000. In addition, Frontier shall reimburse Holly for
all expenses incurred by Holly in connection with this Agreement up to the
Reimbursement Maximum Amount if this Agreement has been terminated pursuant to
Section 7.2(c) even if Holly is not entitled to any Frontier Termination Amount
under this Section 7.5(b). Frontier acknowledges that the agreements contained
in this Section 7.5(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Holly would not enter into
this Agreement; accordingly, if Frontier fails promptly to pay any amount due
pursuant to this Section 7.5(b), and, in order to obtain such payment, Holly
commences a suit which results in a judgment against Frontier for the payment
set forth in this Section 7.5(b), Frontier shall pay to Holly its costs and
expenses (including attorneys' fees) in connection with such suit, together
with interest on the Frontier Termination Amount and other amounts to be
reimbursed to Holly under this Section 7.5(b) from the date payment was
required to be made until the date
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of such payment at the prime rate of Canadian Imperial Bank of Commerce in
effect on the date such payment was required to be made plus one percent (1%).
If this Agreement is terminated pursuant to a provision that calls for a
payment to be made under this Section 7.5(b), it shall not be a defense to
Frontier's obligation to pay hereunder that this Agreement could have been
terminated under a different provision or could have been terminated at an
earlier or later time.
SECTION 7.6 Effect of Vote. Any right to terminate this Agreement provided
under Section 7.1, Section 7.2(a), Section 7.2(d), Section 7.3(a) or Section
7.4(a) hereunder shall be effective notwithstanding whether the Holly Requisite
Vote or the Frontier Requisite Vote has been obtained. Any right to terminate
this Agreement provided under Section 7.2(b) or Section 7.4(b) hereunder shall
be effective notwithstanding whether the Frontier Requisite Vote has been
obtained. Any right to terminate this Agreement provided under Section 7.2(c)
or Section 7.3(b) hereunder shall be effective notwithstanding whether the
Holly Requisite Vote has been obtained.
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.1 Survival. (a) In the event of termination of this Agreement
and the abandonment of the Mergers pursuant to Article 7, all rights and
obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to Section 5.11 and Section 7.5 and except for the
provisions of this Section 8.1, Section 8.2, Section 8.3, Section 8.4, Section
8.6, Section 8.7, Section 8.8, Section 8.9, Section 8.10, Section 8.11, Section
8.12, Section 8.13 and Section 8.16 and the Confidentiality Agreement; provided
that nothing herein shall relieve any party from any liability for any willful
and material breach by such party of any of its covenants or agreements set
forth in this Agreement and, subject to Section 8.12, all rights and remedies
of such nonbreaching party under this Agreement in the case of such a breach,
at law or in equity, shall be preserved. The parties hereto agree that, if this
Agreement has been terminated in a manner giving rise to a payment obligation
under Section 7.5, any remedy or amount payable pursuant to Section 7.5 or
Section 5.11 shall be the sole and exclusive remedy of the party receiving
payment thereunder unless the other party is in material and willful breach of
any of its covenants and agreements set forth in this Agreement.
(b) None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Mergers; provided, however, that Article 2,
this Article 8 and the agreements contained in Section 5.11 through Section
5.14 shall survive the consummation of the Mergers, unless otherwise provided
herein.
SECTION 8.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission or by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
(a) if to Frontier:
Frontier Oil Corporation
10000 Memorial Drive, Suite 600
Houston, Texas 77024
Facsimile: (713) 688-0616
Attn: James R. Gibbs
with a copy to:
Andrews & Kurth L.L.P.
600 Travis Street
Suite 4200
Houston, Texas 77002
Facsimile: (713) 220-4285
Attn: Robert V. Jewell
Geoffrey K. Walker
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(b) if to Holly:
Holly Corporation
100 Crescent Court, Suite 1600
Dallas, Texas 75201
Facsimile: (214) 871-3523
Attn: General Counsel
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Facsimile: (214) 999-7857
Attn: Alan J. Bogdanow
A. Winston Oxley
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 8.3 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Except for
the provisions of Article 2 and as provided in Section 5.12 and Section 5.13,
notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto any claims, rights, remedies, obligations or
liabilities under or by reason of this Agreement. Without limiting the
generality of the foregoing, no holder of shares of Holly Common Stock, Holly
Stock Options or Holly Stock-Based Awards nor any Holly employee shall have any
claim, right or remedy under or by reason of this Agreement in the event that
the Mergers are not consummated for any reason whatsoever.
SECTION 8.4 Entire Agreement. This Agreement (which constitutes a
"Definitive Transaction Agreement" as defined in the Confidentiality
Agreement), the Confidentiality Agreement (other than Sections 3, 7 and 9
thereof, which are hereby suspended and shall be of no further force or effect
during the term of this Agreement and after the Effective Time, but shall come
back into effect if this Agreement is terminated without the consummation of
the Mergers), the exhibits to this Agreement, the Holly Disclosure Letter, the
Frontier Disclosure Letter and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto. EACH PARTY
HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT, NEITHER FRONTIER NOR HOLLY MAKES ANY OTHER REPRESENTATIONS OR
WARRANTIES AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES
MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL
AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND
DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO ANY OTHER PARTY OR ANY OTHER
PARTY'S REPRESENTATIVES OF ANY DOCUMENT OR OTHER INFORMATION WITH RESPECT TO
ANY ONE OR MORE OF THE FOREGOING.
SECTION 8.5 Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection
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with the Mergers by the stockholders of Holly or Frontier, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
SECTION 8.6 Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
SECTION 8.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall be deemed to be one and the same instrument.
SECTION 8.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
SECTION 8.9 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the singular
number shall include the plural and vice versa, and words denoting any
gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa.
(b) The words "include", "includes" and "including" are not limiting.
(c) The phrase "to the knowledge of" and similar phrases relating to
knowledge of Holly or Frontier, as the case may be, shall mean the actual
knowledge of its executive officers.
(d) "Material Adverse Effect" with respect to Holly or Frontier shall
mean a material adverse effect with respect to (A) the business, assets and
liabilities (taken together), results of operations, condition (financial or
otherwise) or prospects of a party and its Subsidiaries on a consolidated
basis or (B) the ability of the party to consummate the transactions
contemplated by this Agreement or fulfill the conditions to closing set
forth in Article 6, except to the extent (in the case of either clause (A)
or clause (B) above) that such adverse effect results from (i) general
economic, regulatory or political conditions or changes therein in the
United States or the other countries in which such party operates; (ii)
financial or securities market fluctuations or conditions; (iii) changes in,
or events or conditions affecting, the petroleum refining industry
generally; (iv) the announcement or pendency of the Mergers or compliance
with the terms and conditions of Section 5.1 hereof; or (v) stockholder
class action or other litigation arising from allegations of a breach of
fiduciary duty relating to this Agreement. "Holly Material Adverse Effect"
and "Frontier Material Adverse Effect" mean a Material Adverse Effect with
respect to Holly and Frontier, respectively.
(e) "Person" or "person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or other entity or
organization, including any government and any agency or instrumentality
thereof.
(f) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
of which such party directly or indirectly owns or controls at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization, or any organization of which such party is a general partner.
SECTION 8.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to
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constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder. The failure of
any party to this Agreement to assert any of its rights under this Agreement
shall not constitute a waiver of such rights.
SECTION 8.11 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
SECTION 8.12 Enforcement of Agreement; Limitation on Damages. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with its specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
Delaware Court, this being in addition to any other remedy to which they are
entitled at law or in equity. IN NO EVENT SHALL ANY PARTY BE LIABLE IN RESPECT
OF THIS AGREEMENT FOR PUNITIVE OR EXEMPLARY DAMAGES.
SECTION 8.13 Obligation of Merger Sub One and Merger Sub Two. Whenever
this Agreement requires any of Parent, Merger Sub One or Merger Sub Two (or any
successors) to take any action prior to the Effective Time, such requirement
shall be deemed to include an undertaking on the part of each of Frontier and
Holly to cause such action to be taken and a guarantee of the performance
thereof.
SECTION 8.14 Extension; Waiver. At any time prior to the Effective Time,
each party may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
SECTION 8.15 Definitions. The following capitalized terms are used in this
document with the meanings set forth in the indicated sections of this
Agreement:
Action................... Section 5.12(a)
Agreement................ First Sentence
AMEX..................... Section 2.5(c)
Assumed Tax Rate......... Section 2.2(b)(iii)
Average Price............ Section 2.5(a)
Cash Consideration....... Section 2.2(b)(ii)
Certificates of Merger... Section 1.3(b)
Claims Expenses.......... Section 2.2(b)(iii)
Closing.................. Section 1.3(a)
Closing Date............. Section 1.3(a)
Code..................... Recitals
Confidentiality Agreement Section 5.6
Consulting Agreement..... Section 5.13(d)
Costs Threshold Date..... Section 5.19
CVR...................... Section 2.2(b)(iii)
CVR Agreement............ Section 5.19
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DGCL.................................... Section 1.2
D&O Insurance........................... Section 5.12(c)
Delaware Courts......................... Section 8.6
Delaware Secretary...................... Section 1.3(b)
Disclosure Letter....................... Section 8.16
Dissenting Shares Cash Adjustment Amount Section 2.2(b)(iv)
ERISA................................... Section 3.11(b)
Effective Time.......................... Section 1.3(b)
Employee Agreements..................... Section 5.13(d)(ii)
Environmental Laws...................... Section 3.13(a)(i)
Environmental Permits................... Section 3.13(a)(iii)
Exchange Act............................ Section 3.6(b)
Exchange Agent.......................... Section 2.4(a)
Exchange Fund........................... Section 2.4(a)
Frontier................................ First sentence
Frontier Acquisition.................... Section 7.5(b)
Frontier Acquisition Proposal........... Section 5.3(a)
Frontier Bargaining Agreements.......... Section 4.12(a)
Frontier Certificate.................... Section 2.1(c)
Frontier Certificate of Merger.......... Section 1.3(b)
Frontier Common Stock................... Recitals
Frontier Designees...................... Section 5.16(a)
Frontier Disclosure Letter.............. ARTICLE 4
Frontier Dissenting Shares.............. Section 2.1(e)
Frontier Material Adverse Effect........ Section 8.9(d)
Frontier Material Contracts............. Section 4.19(a)
Frontier Merger......................... Recitals
Frontier Merger Consideration........... Section 2.1(b)
Frontier Permits........................ Section 4.5
Frontier Plans.......................... Section 4.11(b)
Frontier Preferred Stock................ Section 4.3
Frontier Real Properties................ Section 4.13(a)(i)
Frontier Reports........................ Section 4.7
Frontier Represented Employees.......... Section 4.12(b)
Frontier Requisite Vote................. Section 4.20
Frontier Rule 145 Affiliates............ Section 5.10(b)
Frontier Rule 145 Agreement............. Section 5.10(b)
Frontier Stock Option................... Section 2.6(a)
Frontier Stock Plans.................... Section 4.3
Frontier Superior Proposal.............. Section 5.3(a)
Frontier Surviving Corporation.......... Section 1.2(a)
Frontier Termination Amount............. Section 7.5(b)
Hazardous Materials..................... Section 3.13(a)(ii)
Holly................................... First Sentence
Holly Acquisition....................... Section 7.5(a)
Holly Acquisition Proposal.............. Section 5.2(a)
Holly Bargaining Agreements............. Section 3.12(a)
Holly Certificate....................... Section 2.2(c)
Holly Certificate of Merger............. Section 1.3(b)
Holly Common Stock...................... Recitals
Holly Designees......................... Section 5.16(a)
Holly Disclosure Letter................. ARTICLE 3
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Holly Dissenting Shares............. Section 2.2(c)
Holly Material Adverse Effect....... Section 8.9(d)
Holly Material Contracts............ Section 3.19(a)
Holly Merger........................ Recitals
Holly Merger Consideration.......... Section 2.2(c)
Holly Permits....................... Section 3.5
Holly Plans......................... Section 3.11(b)
Holly Preferred Stock............... Section 3.3
Holly Real Properties............... Section 3.13(a)(v)
Holly Reports....................... Section 3.7
Holly Represented Employees......... Section 3.12(b)
Holly Requisite Vote................ Section 3.20
Holly Rule 145 Affiliates........... Section 5.10(a)
Holly Rule 145 Agreement............ Section 5.10(a)
Holly Stock-Based Award............. Section 2.5(c)
Holly Stock Option.................. Section 2.5(b)
Holly Stock Plans................... Section 3.3
Holly Superior Proposal............. Section 5.2(a)
Holly Surviving Corporation......... Section 1.2(b)
Holly Termination Amount............ Section 7.5(a)
HSR Act............................. Section 3.6(b)
Income Tax.......................... Section 2.2(b)(iii)
Indemnified Parties................. Section 5.12(a)
Indemnified Party................... Section 5.12(a)
IRS................................. Section 3.10(b)
Jet Fuel Claims..................... Section 2.2(b)(iii)
Liens............................... Section 1.1(b)
Material Adverse Effect............. Section 8.9(d)
Mergers............................. Recitals
Merger Sub One...................... First sentence
Merger Sub One Common Stock......... Section 1.1(b)
Merger Sub Two...................... First sentence
Merger Sub Two Common Stock......... Section 1.1(b)
Parent.............................. First Sentence
Parent Board........................ Section 5.16(a)
Parent Bylaws....................... Section 1.1(a)
Parent Charter...................... Section 1.1(a)
Parent Common Stock................. Section 1.1(a)
Parent Stock-Based Award............ Section 2.5(c)
Parent Stock Option................. Section 2.5(b)
Non-Withdrawing Party............... Section 5.4(b)
NYSE................................ Section 2.5(a)
Offsite Non-Frontier Real Properties Section 4.13(a)(ii)
Offsite Non-Holly Real Properties... Section 3.13(a)(vi)
Option Exchange Ratio............... Section 2.5(a)
PBGC................................ Section 3.11(h)
Pension Plan........................ Section 3.11(g)
Person.............................. Section 8.9(e)
Proxy Statement/Prospectus.......... Section 5.8
Recovery............................ Section 2.2(b)(iii)
Registration Rights Agreement....... Section 5.10(a)
Registration Statement.............. Section 5.8
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Regulatory Filings.................. Section 3.6(b)
Reimbursement Maximum Amount........ Section 7.5(a)
Release............................. Section 3.13(a)(iv)
Representatives..................... Section 5.19
Rule 145 Agreement.................. Section 5.10(b)
SEC................................. Section 3.7
Securities Act...................... Section 3.6(b)
Severance Agreements................ Section 5.13(d)
Severance Payments.................. Section 5.13(d)
Stock-Based Awards.................. Section 2.5(a)
Stock Consideration................. Section 2.2(b)(i)
Stock Option........................ Section 2.5(a)
Stock Plan.......................... Section 2.5(a)
Subsidiary.......................... Section 8.9(f)
Tax................................. Section 3.10(d)
Tax Return.......................... Section 3.10(d)
Taxes............................... Section 3.10(d)
Total Holly Common Stock Certificate Section 5.18
Total Holly Common Stock Number..... Section 5.18
WBCA................................ Section 1.2
Withdrawing Party................... Section 5.4(b)
Wyoming Secretary................... Section 1.3(b)
SECTION 8.16 Disclosure Letters. The parties acknowledge and agree that
(a) the Holly Disclosure Letter and the Frontier Disclosure Letter (each a
"Disclosure Letter") may include certain items and information solely for
informational purposes for the convenience of the other party and (b) the
disclosure by either party of any matter in its Disclosure Letter shall not be
deemed to constitute an acknowledgment by such party that the matter is
required to be disclosed by the terms of this Agreement or that the matter is
material. If any Disclosure Letter discloses in any section or schedule thereof
an item or information in such a way as to make its relevance to the disclosure
required by another section or schedule thereof readily apparent, the matter
shall be deemed to have been disclosed in such other schedule, notwithstanding
the omission of an appropriate cross-reference to such other schedule.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
FRONTIER OIL CORPORATION
By: /s/ James R. Gibbs
-----------------------------
Name: James R. Gibbs
Title: Chairman of the Board,
President and Chief
Executive Officer
FRONT RANGE HIMALAYA CORPORATION
By: /s/ James R. Gibbs
-----------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
FRONT RANGE MERGER CORPORATION
By: /s/ James R. Gibbs
-----------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
HIMALAYA MERGER CORPORATION
By: /s/ James R. Gibbs
-----------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
HOLLY CORPORATION
By: /s/ C. Lamar Norsworthy, III
------------------------------
Name: C. Lamar Norsworthy, III
Title: Chairman of the Board
and Chief Executive
Officer
A-58
AMENDMENT TO THE MERGER AGREEMENT
Reference is made to the Agreement and Plan of Merger dated as of March 30,
2003, among Frontier Oil Corporation, Front Range Himalaya Corporation, Front
Range Merger Corporation, Himalaya Merger Corporation and Holly Corporation
(the "Merger Agreement").
1. Amendment to Merger Agreement. The undersigned hereby agree to amend
the Merger Agreement by replacing the form of Parent bylaws attached as Exhibit
B to the Merger Agreement in its entirety with the form of Parent bylaws
attached as Exhibit B hereto.
2. Effect of Amendment. This Amendment to the Merger Agreement (this
"Amendment") shall be effective only for the specific purposes set forth
herein, and, except as modified by this Amendment, the terms, covenants and
provisions of the Merger Agreement are hereby ratified and confirmed and shall
continue in full force and effect.
3. Governing Law; Waiver of Jury Trial. THIS AMENDMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AMENDMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE MERGER AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR THE MERGER AGREEMENT.
4. Counterparts; Facsimiles. This Amendment may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument. A signature
transmitted by facsimile shall be treated for all purposes by the parties
hereto as an original, shall be binding upon the party transmitting such
signature without limitation.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to the Merger
Agreement to be duly executed as of May 12, 2003.
FRONTIER OIL CORPORATION HOLLY CORPORATION
By: /s/ James R. Gibbs By: /s/ Matthew P. Clifton
---------------------------------- ----------------------------------
Name: James R. Gibbs Name: Matthew P. Clifton
Title: Chairman of the Board, Title: President
President and Chief
Executive Officer
FRONT RANGE MERGER CORPORATION HIMALAYA MERGER CORPORATION
By: /s/ James R. Gibbs By: /s/ James R. Gibbs
---------------------------------- ----------------------------------
Name: James R. Gibbs
Title: President and Chief Name: James R. Gibbs
Executive Officer Title: President and Chief
Executive Officer
FRONT RANGE HIMALAYA CORPORATION
By: /s/ James R. Gibbs
----------------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
A-59
ANNEX B
CONTINGENT VALUE RIGHTS AGREEMENT
This CONTINGENT VALUE RIGHTS AGREEMENT, dated as of May 12, 2003 (this
"Agreement"), is entered into by and among Front Range Himalaya Corporation, a
Wyoming corporation (the "Company"), Frontier Oil Corporation, a Wyoming
corporation ("Frontier"), Holly Corporation, a Delaware corporation ("Holly"),
Front Range Merger Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company ("Front Range Merger Corporation"), Himalaya Merger
Corporation, a Delaware corporation and wholly-owned subsidiary of the Company
("Himalaya Merger Corporation"), and Jack P. Reid (the "Representative").
RECITALS:
WHEREAS, the Company, Frontier, Holly, Front Range Merger Corporation and
Himalaya Merger Corporation have entered into an Agreement and Plan of Merger
dated as of March 30, 2003 (the "Merger Agreement"), pursuant to which at the
Effective Time (as defined below) (i) Front Range Merger Corporation will merge
with and into Frontier, with Frontier surviving the merger as a direct
wholly-owned subsidiary of the Company (the "Front Range Merger"), and (ii)
Himalaya Merger Corporation will merge with and into Holly, with Holly
surviving the merger as a direct wholly-owned subsidiary of the Company
(together with the Front Range Merger, the "Mergers");
WHEREAS, upon consummation of the Mergers, (i) each of Frontier and Holly
will become a wholly owned subsidiary of the Company, which has been formed by
Frontier and Holly solely for the purpose of the transactions contemplated by
the Merger Agreement, and (ii) the Company will be renamed Frontier Oil
Corporation;
WHEREAS, the Company shall duly authorize the creation and issuance to
Holly's stockholders and certain holders of options to purchase Holly Common
Stock (as hereinafter defined) of contingent value rights (the "CVRs") as
hereinafter described; and
WHEREAS, all things necessary have been done to make the CVRs, when issued
pursuant to the Merger Agreement and hereunder, the valid obligations of the
Company and to make this Agreement a valid agreement of the Company, in
accordance with its terms.
NOW, THEREFORE, for and in consideration of the premises and the
consummation of the transactions referred to above, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders (as
hereinafter defined), as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
(a) For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(i) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(ii) all accounting terms used herein and not expressly defined shall
have the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "generally
B-1
accepted accounting principles" means such accounting principles as are
generally accepted in the United States at the time of any computation;
(iii) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(iv) unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, words denoting
any gender shall include all genders and words denoting natural Persons
shall include corporations, partnerships and other Persons and vice
versa.
(b) The following terms shall have the meanings ascribed to them as
follows:
"Act," when used with respect to any Holder, has the meaning specified in
Section 1.2.
"Affiliate" of a Person means a Person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned Person.
"Assignment of Claims Act" means the Assignment of Claims Act, 31 U.S.C.
Section 3727.
"Assumed Tax Benefit" means an amount equal to the Income Tax benefit that
would be allowed to the Company Group (not giving effect to any Income Tax
benefit of additional basis to the Company Group of Holly Common Stock)
attributable to (i) the incurrence or payment of the Claims Expenses and the
CVR Payment Amount, or (ii) the deduction allowable to the Company in respect
of Realized Non-Cash Proceeds described in clause (c) of the definition of Tax
Assumptions, computed as set forth in Section 2.5 hereof.
"Assumed Tax Liability" means an amount equal to the Income Tax liability of
the Company Group (not giving effect to any deductions attributable to the
incurrence or payment of Claims Expenses or the CVR Payment Amount)
attributable to the receipt of Litigation Proceeds and any Non-Cash Proceeds
includible in the gross income of the Company, computed as set forth in Section
2.5 hereof.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the secretary
or an assistant secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Representative.
"Business Day" means any day other than a Saturday, Sunday or a day on which
banking institutions in Dallas, Texas are authorized or obligated by law or
executive order to remain closed.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (b) certificates of deposit with maturities of six months
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
commercial bank organized and in existence under the laws of the United States
and having capital and surplus in excess of $500 million, (c) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (a) and (b) above entered into with any
financial institution meeting the qualifications specified in clause (b) above,
(d) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services and in each case
maturing within 180 days after the date of acquisition, (e) investments in
commercial paper, maturing not more than 180 days after the date of
acquisition, issued by a corporation organized and in existence under the laws
of the United States or any foreign country recognized by the United States
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investor Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Services, and (f) money market mutual
funds substantially all of the assets of which are of the type described in the
foregoing clauses (a) through (e) above.
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"Cash Proceeds" means all cash compensation, payments, penalties, interest
and other damages, if any, recovered or received by Holly Subsidiaries or any
of their Affiliates and attributable to the resolution of the Litigation,
whether such compensation, penalties, interest or other damages are recovered
at trial, upon appeal or in settlement.
"Claims Expenses" means the sum of all direct expenses paid after March 29,
2003 by the Company, Holly Subsidiaries and their Affiliates in prosecuting the
Litigation, including any amounts paid to or on behalf of the Representative
pursuant to Section 3.4 of this Agreement and excluding any payment of Firm
Expenses.
"Claims Expense Threshold Date" means the first date on which the aggregate
Claims Expenses paid by the Company, Holly and their Subsidiaries after March
29, 2003 exceed $2,500,000.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission of the United
States of America.
"Company" has the meaning set forth in the first paragraph of this Agreement.
"Company Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"Company Group" means the Company and each member of the relevant
affiliated, combined, consolidated or unitary group of the Company for Income
Tax purposes.
"Control" (including the terms "controlled", "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock,
including the power to dispose of or vote such stock, as trustee or executor,
by contract or otherwise.
"Converted Stock Options" means all options to purchase shares of Company
Common Stock into which an option to purchase Holly Common Stock was converted
pursuant to Section 2.5(b) of the Merger Agreement.
"CVRs" means the contingent value rights to be issued by the Company
pursuant to the Merger Agreement and this Agreement.
"CVR Payment Amount" means, as of any CVR Payment Date, an amount of cash
(if positive) with respect to each CVR equal to the quotient of (A) the sum of
(u) the aggregate amount of Litigation Proceeds actually received by the Holly
Subsidiaries or their Affiliates, minus (v) two times the Claims Expenses,
minus (w) the Assumed Tax Liability with respect to all Litigation Proceeds and
Non-Cash Proceeds includible in the Company's gross income actually received
through the date of the Litigation Proceeds Certificate applicable to such CVR
Payment Date, plus (x) the Assumed Tax Benefit with respect to all Realized
Non-Cash Proceeds received and Claims Expenses paid or incurred through the
date of the Litigation Proceeds Certificate applicable to such CVR Payment Date
and all CVR Payment Amounts paid through and including such CVR Payment Date,
minus (y) an amount equal to 10% of the remainder of (u) minus (v), and minus
(z) the aggregate amount of all CVR Payment Amounts required to have been put
into an account for the benefit of the Holders pursuant to Section 5.1(e) prior
to such CVR Payment Date, divided by (B) the total number of CVRs outstanding
on the CVR Payment Date for such CVR Payment Amount. After the calculation of
the initial CVR Payment Amount, any calculation of a CVR Payment Amount shall
be made on a cumulative basis as provided for in Section 2.6(a) of this
Agreement.
"CVR Payment Date" means any date that any CVR Payment Amount is paid by the
Company to the Holders, which shall be established pursuant to Section 2.4.
"CVR Register" and "CVR Registrar" have the respective meanings specified in
Section 2.3(b).
B-3
"Effective Time" means the effective time of the Mergers.
"Firm Expenses" has the meaning specified in Section 2.4(e) of this
Agreement.
"Holder" means a Person in whose name a CVR is registered in the CVR
Register.
"Holly Common Stock" means the common stock, par value $0.01 per share, of
Holly.
"Income Tax" means any federal, state or local income tax (including any
state or local franchise tax imposed on or with respect to net income).
"IRS" means the Internal Revenue Service.
"Litigation" means the litigation and claims that Holly Subsidiaries have
filed or asserted against the United States as described on Exhibit A to this
Agreement and any similar future lawsuits, claims or appeals brought by the
Company, Holly, Holly Subsidiaries or their Affiliates related to the sale of
jet fuel by Holly or any Holly Subsidiary to the United States prior to March
30, 2003.
"Litigation Proceeds" means the sum of any and all Cash Proceeds, Realized
Non-Cash Proceeds and Setoffs.
"Litigation Proceeds Certificate" has the meaning specified in Section
2.4(a) of this Agreement.
"Merger Agreement" has the meaning set forth in the recitals to this
Agreement.
"Non-Cash Proceeds" means all non-cash compensation, payments, penalties,
interest and other damages, if any, recovered or received by Holly Subsidiaries
or any of their Affiliates and attributable to the resolution of the
Litigation, whether such compensation, penalties, interest or other damages are
recovered at trial, upon appeal or in settlement.
"Officer's Certificate" means a certificate signed by the chairman of the
Board of Directors or the president, any vice president, the controller, the
treasurer, the secretary or any assistant secretary, in each case of the
Company, in his or her capacity as such an officer, and delivered to the
Representative.
"Opinion of Counsel" means a written opinion of counsel, who shall be
selected by the Representative and reasonably acceptable to the Company.
"Option Holder" means any holder of a Converted Stock Option.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, business trust, association, joint-stock company,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Realized Non-Cash Proceeds" means (i) all cash payments received in respect
of Non-Cash Proceeds and (ii) the fair market value (as determined pursuant to
Section 2.4) of any Non-Cash Proceeds that would not reasonably be expected to
be realized by receipt of cash in the foreseeable future.
"Representative" means the Person named as the "Representative" in the first
paragraph of this Agreement, until a successor Representative shall have become
such pursuant to the applicable provisions of this Agreement, and thereafter
"Representative" shall mean such successor Representative.
"Resolution" has the meaning specified in Section 2.4(e) of this Agreement.
B-4
"Setoff" means any dollar amount deducted from what would otherwise be Cash
Proceeds, Realized Non-Cash Proceeds or Non-Cash Proceeds on account of any
claims or counterclaims asserted by the United States, pursuant to 31 U.S.C.
(S) 3728 or otherwise, that are not directly related to the Litigation, whether
such offsets are recovered at trial, upon appeal or in settlement. Any Setoff
shall be deemed received when deducted from what would otherwise be Cash
Proceeds, Realized Non-Cash Proceeds or Non-Cash Proceeds.
"Subsidiary" when used with respect to any Person means any corporation or
other organization, whether incorporated or unincorporated, of which such
Person directly or indirectly owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such Person is a general partner.
"Successor Representative" means any successor Representative appointed
pursuant to Section 3.5(e)
"Surviving Person" has the meaning set forth in Section 7.1(a)(1).
"Tax Assumptions" means (i) if there is no Tax Determination, the following
assumptions or (ii) if there is a Tax Determination, the following assumptions
as modified by such Tax Determination:
(a) Cash Proceeds and Setoffs will be includible in full in the Company's
gross income as ordinary income.
(b) Non-Cash Proceeds will not be includible in the Company's gross
income except to the extent that (i) the Company determines such Non-Cash
Proceeds are includible in the Company's gross income and so indicates in
the Litigation Certificate issued with respect to the receipt of such
Non-Cash Proceeds, and (ii) in the event the Representative delivers a
Notice of Objection regarding the inclusion of such Non-Cash Proceeds in the
Company's gross income, there is a Resolution that such Non-Cash Proceeds
are includible in the Company's gross income.
(c) Realized Non-Cash Proceeds will be includible in the Company's gross
income to the extent the amount of such Realized Non-Cash Proceeds exceeds
the amount of the associated Non-Cash Proceeds previously included in the
Company's gross income, if any. Realized Non-Cash Proceeds will give rise to
a deduction to the Company to the extent the amount of such Realized
Non-Cash Proceeds is less than the amount of the associated Non-Cash
Proceeds previously includible in the Company's gross income, if any.
(d) The payment of Claims Expenses will be deductible in full as an
ordinary expense.
(e) Payments of the CVR Payment Amount will not be deductible except that
(i) Section 483(a) of the Code will apply to payments of the CVR Payment
Amount (other than payments with respect to CVRs issued on exercise of
employee options or otherwise in a compensatory transaction) and payments of
the CVR Payment Amount will be deductible to the extent treated by Section
483(a) of the Code as interest expense; and (ii) payments of the CVR Payment
Amount with respect to CVRs issued on exercise of employee options or
otherwise in a compensatory transaction will be deductible in full.
(f) The Income Tax liability attributable to the assumed inclusion in
gross income as ordinary income of all or a portion of the Litigation
Proceeds and any Non-Cash Proceeds includible in the gross income of the
Company and the Income Tax benefit of any deduction assumed to be allowed
shall be (i) the product of the amount of such income or deduction and the
highest statutory rate of federal Income Tax applicable to corporations for
the year in which the Litigation Proceeds (or Non-Cash Proceeds) are
received or payments for Claim Expenses or the CVR Payment Amount are made
or incurred plus (ii) the product of such income or deduction and the net
highest statutory combined marginal rate of state and local Income Tax of
the relevant member or members of the Company Group in applicable state and
local jurisdictions for the year in which the Litigation Proceeds (or
Non-Cash Proceeds) are received or payments for Claim Expenses or the CVR
Payment Amount are made or incurred, net of the federal Income Tax benefit
(calculated based on the rate in clause (i)) of such state or local Income
Tax. The relevant member or members of the Company
B-5
Group shall be the member or members that is or are assumed to include the
Litigation Proceeds (or Non-Cash Proceeds) in income or is or are assumed to
be allowed a deduction.
(g) If the Assumed Tax Liability or the Assumed Tax Benefit cannot be
computed at the time the Litigation Proceeds Certificate is required to be
delivered pursuant to Section 2.4 hereof because of the absence of
information as to tax rates or other factors described in the definition of
Assumed Tax Liability or the definition of Assumed Tax Benefit, as the case
may be, the Company Group shall compute a tentative Assumed Tax Liability or
a tentative Assumed Tax Benefit, as the case may be, based on such
assumptions, which are consistent with respect to the Assumed Tax Liability
and the Assumed Tax Benefit, that in the reasonable opinion of the Company
Group would protect the Company Group against any risk of loss. The payment
of the CVR Payment Amount shall be based on such tentative Assumed Tax
Liability or such tentative Assumed Tax Benefit computation, as the case may
be. As soon as feasible, but in no event later than 12 months after the end
of the taxable year in which the CVR Payment Amount is paid based on the
tentative Assumed Tax Liability and Assumed Tax Benefit, the Company Group
shall recompute the Assumed Tax Liability or the Assumed Tax Benefit, as the
case may be, and pay to the Holders any excess of the re-computed CVR
Payment Amount over the CVR Payment Amount that was initially calculated
plus interest as provided in Section 2.4(g) hereof. In no event, however,
shall the Holders be obligated or required to refund to the Company or any
of its Affiliates any excess of the CVR Payment Amount that was initially
calculated over the re-computed CVR Payment Amount, but the Company shall be
entitled to treat any excess CVR Payment Amounts paid to the Holders as a
prepayment against future CVR Payment Amounts, if any.
"Tax Determination" means, with respect to the Company or any of its
Subsidiaries,
(a) the receipt of a private letter ruling from the IRS;
(b) the expiration of 30 days after official IRS acceptance of a Waiver
of Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment on IRS Form 870 or 870-AD (or any successor
comparable form or the expiration of a comparable period with respect to any
comparable agreement or form under the laws of other jurisdictions), unless,
within such period, the Company gives notice to the Representative of the
Company's intention to attempt to recover all or part of any amount paid or
to be paid pursuant to the Waiver or comparable form by the filing of a
timely claim for refund;
(c) a decision, judgment, decree, or other order by a court of competent
jurisdiction that has become final and is not subject to further judicial
review (by appeal or otherwise);
(d) the execution of a closing agreement under section 7121 of the Code
or the official acceptance by the IRS of an offer in compromise under
section 7122 of the Code, or comparable agreements under the laws of other
jurisdictions;
(e) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund disallowed in whole or
part by the IRS or any other taxing authority with which a claim for refund
could be or was filed;
(f) a change in applicable Income Tax law rendering one or more of the
Tax Assumptions inaccurate;
(g) any other final disposition of the tax liability for such period by
reason of the expiration of the applicable statute of limitations; or
(h) the mutual agreement of the Company and the Representative;
to the effect that Litigation Proceeds or Non-Cash Proceeds are or are not
includible in gross income in whole or in part, or more or less deduction is
allowed in respect of payments of the CVR Payment Amount than is provided for
in the Tax Assumptions; provided that no such Tax Determination shall be deemed
to be made unless (i) it is made prior to date on which any Litigation Proceeds
or Non-Cash Proceeds are received by the Company or its Subsidiaries, or (ii)
if made after such date, it has the effect of increasing the CVR Payment
B-6
Amount. In the event of the occurrence of a Tax Determination after the date
that any Litigation Proceeds or Non-Cash Proceeds are received, the Company, as
soon as practicable, shall recompute the CVR Payment Amount, and pay to the
Holders any excess of the recomputed CVR Payment Amount over the CVR Payment
Amount that was initially calculated, plus interest as provided in Section
2.4(g) hereof.
Section 1.2 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments, executed by the requisite percentage of the Holders in
accordance with this Agreement, are delivered to the Representative and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Unless otherwise expressly provided to the
contrary herein, the Act of the Holders of a majority of the outstanding
CVRs shall constitute the Act of the Holders.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner that the
Representative deems sufficient.
(c) The ownership of CVRs shall be proved by the CVR Register.
Section 1.3 Notices to Representative and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with:
(a) the Representative by any Holder or the Company shall be sufficient
for every purpose hereunder if in writing and delivered personally, or
mailed first-class postage prepaid or sent by a nationally recognized
overnight courier to the Representative addressed to him at 2411 Loma Drive,
Artesia, New Mexico 88210, or at any other address previously furnished in
writing to the Holders and the Company by the Representative; or
(b) the Company by the Representative or by any Holder shall be
sufficient for every purpose hereunder if in writing and delivered
personally, telecopied or mailed first-class postage prepaid or sent by a
nationally recognized overnight courier to the Company addressed to it at
10000 Memorial Drive, Suite 600, Houston, Texas 77024, Attention: Chief
Executive Officer, facsimile (713) 688-0616 or at any other address
previously furnished in writing to the Representative and the Holders by the
Company.
Section 1.4 Notice to Holders. Where this Agreement provides for notice to
Holders, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his, her or its address as it appears in
the CVR Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders.
Section 1.5 Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
Section 1.6 Successors and Assigns. All covenants and agreements in this
Agreement by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.7 Benefits of Agreement. Nothing in this Agreement, express or
implied, shall give to any Person (other than the parties hereto, the Holders
and their successors and permitted assigns hereunder) any
B-7
benefit or any legal or equitable right, remedy or claim under this Agreement
or under any covenant or provision herein contained, all such covenants and
provisions being for the sole benefit of the parties hereto, the Holders and
their successors and permitted assigns.
Section 1.8 Governing Law. This Agreement and the CVRs shall be governed
by and construed in accordance with the laws of the State of Texas.
Section 1.9 Legal Holidays. In the event that a CVR Payment Date shall not
be a Business Day, then (notwithstanding any provision of this Agreement to the
contrary) any payment required to be made in respect of the CVRs on such date
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the applicable CVR Payment
Date.
Section 1.10 Severability Clause. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Agreement,
but this Agreement shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein. Upon such
determination that any term or other provision is invalid, illegal or
unenforceable, the court or other tribunal making such determination is
authorized and instructed to modify this Agreement so as to effect the original
intent of the parties as closely as possible so that the transactions and
agreements contemplated herein are consummated as originally contemplated to
the fullest extent possible.
Section 1.11 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to constitute but one and the same
instrument.
Section 1.12 Effectiveness. This Agreement shall be deemed terminated and
of no force or effect, and the parties hereto shall have no liability
hereunder, if the Merger Agreement is terminated in accordance therewith prior
to the Closing (as therein defined).
Section 1.13 Entire Agreement. This Agreement and the Merger Agreement
represent the entire understanding of the parties hereto with reference to the
transactions and matters contemplated hereby and thereby and this Agreement
supercedes any and all other oral or written agreements hereto made except for
the Merger Agreement. If and to the extent that any provision of this Agreement
is inconsistent or conflicts with the Merger Agreement, this Agreement shall
govern and be controlling.
ARTICLE II
CONTINGENT VALUE RIGHTS
Section 2.1 Issuance of CVRs.
(a) At the Effective Time, the Company shall, pursuant to the Merger
Agreement, issue to each holder of Holly Common Stock outstanding
immediately prior to the Effective Time (other than those who have perfected
their appraisal rights) one CVR for each share of Holly Common Stock held by
such holder immediately prior to the Effective Time.
(b) The Company shall, pursuant to the Merger Agreement, issue to each
Person who exercises a Converted Stock Option prior to the first CVR Payment
Date one CVR for each share of Holly Common Stock into which the
corresponding exchanged option to purchase Holly Common Stock was
exercisable immediately prior to the Effective Time. No CVRs shall be issued
to any such holder of a Converted Stock Option who does not exercise such
Converted Stock Option prior to the first CVR Payment Date.
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Section 2.2 Nontransferable. The CVRs shall not be assignable or otherwise
transferable by Holders, except by will, upon death or by operation of law.
Section 2.3 No Certificate; Registration; Registration of Transfer; Change
of Address.
(a) The CVRs shall not be evidenced by a certificate or other instrument.
(b) The Company shall cause to be kept at the Company's principal office
a register (the register maintained in such office and in any other office
designated pursuant to this Section 2.3 being herein sometimes referred to
as the "CVR Register") in which the Company shall provide for the
registration of CVRs. The Secretary of the Company is hereby initially
appointed "CVR Registrar" for the purpose of registering CVRs and transfers
of CVRs as herein provided.
(c) Subject to the restriction on transferability set forth in Section
2.2, every request made to the Company to transfer a CVR must be in writing
and accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company and the CVR Registrar, duly executed by the
Holder thereof, his attorney duly authorized in writing, personal
representative or survivor and setting forth in reasonable detail the
circumstances relating to the transfer. Upon receipt of such written notice
by the Company, the CVR Registrar shall, subject to his reasonable
determination that the transfer instrument is in proper form and the
transfer otherwise complies with the other terms and conditions herein,
register the transfer of the CVRs in the CVR Register. All transfers of CVRs
registered in the CVR Register shall be the valid obligations of the
Company, evidencing the same right, and shall entitle the transferee to the
same benefits and rights under this Agreement, as those held by the
transferor. No transfer of a CVR shall be valid until registered in the CVR
Register and any transfer not duly registered in the CVR Register will be
void ab initio.
(d) A Holder may make a written request to the CVR Registrar or the
Company to change such Holder's address of record in the CVR Register. The
written request must be duly executed by the Holder. Upon receipt of such
written notice by the CVR Registrar or the Company, the CVR Registrar shall
promptly record the change of address in the CVR Register.
Section 2.4 Payment Procedures.
(a) As promptly as practicable but in no event later than 30 days after
each receipt by Holly Subsidiaries or any of their Affiliates of any
Litigation Proceeds or any Non-Cash Proceeds, the Company shall deliver to
the Representative a certificate (the "Litigation Proceeds Certificate")
setting forth in reasonable detail (i) the amount of any Cash Proceeds and
Realized Non-Cash Proceeds received by the Holly Subsidiaries or their
Affiliates, (ii) a detailed description of Non-Cash Proceeds received by the
Company, if any, and the amount of any such Non-Cash Proceeds that the
Company has determined are includible in gross income of the Company for
federal income tax purposes, (iii) the fair market value of any Realized
Non-Cash Proceeds described in clause (ii) of the definition thereof and the
methodology used, and calculations made, to determine such fair market
value, (iv) an itemized list in reasonable detail of the Claims Expenses,
(v) detailed computations of the Assumed Tax Liability and Assumed Tax
Benefit, (vi) any assumptions underlying the determination of any item used
in making the necessary calculations of the CVR Payment Amount, (vii) any
financial or other documentation reasonably necessary to sufficiently
support the calculation of the CVR Payment Amount, (viii) the amount of any
Setoffs and (ix) the calculation of the CVR Payment Amount, if any, through
the date of such Litigation Proceeds Certificate; provided, however, that if
any Litigation Proceeds or Non-Cash Proceeds are received prior to the
Effective Time, the Company shall deliver to the Representative the
Litigation Proceeds Certificate within 30 days of the Effective Time.
(b) Within 30 days of delivery of the Litigation Proceeds Certificate,
the Representative shall give written notice specifying whether he agrees
with or objects (a "Notice of Agreement" and a "Notice of Objection",
respectively) to the Litigation Proceeds Certificate, the CVR Payment Amount
and the CVR Payment Amount calculation.
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(c) If the Representative delivers a Notice of Agreement and any CVR
Payment Amount is payable, the Company shall (i) establish a CVR Payment
Date with respect to such CVR Payment Amount that is within 15 days of the
date of the Notice of Agreement and (ii) not less than ten days prior to
such CVR Payment Date, give written notice to each Option Holder of the CVR
Payment Amount that will be paid to Holders on such CVR Payment Date. On
such CVR Payment Date, the Company shall then promptly cause the CVR Payment
Amount to be delivered to each of the Holders by check mailed to the address
of each Holder as reflected in the CVR Register as of the close of business
on the last Business Day prior to such CVR Payment Date.
(d) If the Representative delivers a Notice of Objection within such
30-day period, the Company shall hold an amount of cash equal to the CVR
Payment Amount, if any, set forth in the Litigation Proceeds Certificate in
a separate bank account invested in Cash Equivalents until a Resolution is
obtained pursuant to the procedures set forth in Section 2.4(e).
(e) If the Representative delivers a Notice of Objection within such
30-day period, the Representative shall as promptly as practicable following
delivery of the Notice of Objection deliver to the Company a certificate
(the "Representative Objection Certificate") setting forth in reasonable
detail each of the objections to the calculations, valuations,
methodologies, lists, computations, assumptions and other information,
including, without limitation, the Company's determination that any Non-Cash
Proceeds are includible in the Company gross income or the fair market value
of any Realized Non-Cash Proceeds described in clause (ii) of the definition
thereof (collectively, the "Determinations") that the Representative has to
the Litigation Proceeds Certificate. If the Company does not agree with the
Representative's objections to the Litigation Proceeds Certificate, then
within ten days of the delivery by the Representative of the Representative
Objection Certificate, the Company and the Representative shall submit the
portions of the Determinations set forth in the Litigation Proceeds
Certificate that are in dispute to a mutually agreed upon independent public
accounting firm of national standing that shall have expertise in income and
franchise tax matters and the valuation of assets and properties (the
"Firm"). If the Company and the Representative cannot agree upon the Firm,
then the Company and the Representative agree that the Firm shall be Grant
Thornton International, provided, that Grant Thornton International has not
billed the Company for professional services within the three-year period
immediately prior to the date of the Litigation Proceeds Certificate. The
Firm shall be instructed to determine whether the Determinations set forth
in the Litigation Proceeds Certificate that are in dispute are correct. If
the Firm determines that such Determinations are correct, the CVR Payment
Amount shall be as set forth in the Litigation Proceeds Certificate, and the
Representative shall be deemed to have delivered a Notice of Agreement with
respect to such Litigation Proceeds Certificate. If the Firm determines that
any of the Determinations set forth in the Litigation Proceeds Certificate
are incorrect in any respect that causes the CVR Payment Amount determined
by the Company to be less than the CVR Payment Amount determined by the
Firm, the Firm's resulting calculation of the CVR Payment Amount shall be
binding on the parties hereto (a "Resolution"), and in addition to the CVR
Payment Amount determined by the Firm, the Company shall pay to the Holders
interest on such differential calculated from the date that the
Representative delivered its Notice of Objection at an interest rate equal
to the rate actually earned by the Company pursuant to the investment of
such funds in Cash Equivalents. All costs and expenses billed by the Firm in
connection with the performance of its duties described herein ("Firm
Expenses") shall be paid by the Company; provided, however, that if the
Company's determination of the CVR Payment Amount is:
(i) greater than or equal to 95% of the CVR Payment Amount determined
by the Firm, then 100% of the Firm Expenses shall be deducted from the
CVR Payment Amount;
(ii) greater than or equal to 85% of the CVR Payment Amount
determined by the Firm, but less than 95% of the CVR Payment Amount
determined by the Firm, then 50% of the Firm Expenses shall be deducted
from the CVR Payment Amount; or
(iii) less than 85% of the CVR Payment Amount determined by the Firm,
then the Company shall not be reimbursed for any portion of the Firm
Expenses.
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(f) If the Representative does not deliver a Notice of Agreement or a
Notice of Objection to the Litigation Proceeds Certificate within the 30-day
period described above, the Representative shall be deemed to have delivered
a Notice of Agreement with respect to such Litigation Proceeds Certificate,
and, if any CVR Payment Amount is payable, the Company shall (i) establish a
CVR Payment Date with respect to such CVR Payment Amount that is within 15
days following the last day of such 30-day period and (ii) not less than ten
days prior to such CVR Payment Date, give written notice to each Option
Holder of the CVR Payment Amount that will be paid to Holders on such CVR
Payment Date. On such CVR Payment Date, the Company shall then promptly
cause the CVR Payment Amount to be delivered to each of the Holders by check
mailed to the address of each Holder as reflected in the CVR Register as of
the close of business on the last Business Day prior to such CVR Payment
Date. If the Representative delivers a Notice of Objection with respect to
such Litigation Proceeds Certificate within the 30-day period described
above, after a Resolution is obtained, the Company shall (i) establish a CVR
Payment Date with respect to such CVR Payment Amount that is within 15 days
of the date of such Resolution and (ii) not less than ten days prior to such
CVR Payment Date, give written notice to each Option Holder of the CVR
Payment Amount that will be paid to Holders on such CVR Payment Date. On
such CVR Payment Date, the Company shall then promptly cause the CVR Payment
Amount to be delivered to each of the Holders by check mailed to the address
of each Holder as reflected in the CVR Register as of the close of business
on the last Business Day prior to such CVR Payment Date.
(g) As promptly as practicable but in no event later than 30 days after
the recomputation of the Assumed Tax Liability and the Assumed Tax Benefit
pursuant to paragraph (g) of the definition of "Tax Assumptions" herein or
the occurrence of a Tax Determination after the date on which the Litigation
Proceeds were received, the Company shall pay to the Holders any excess of
the re-computed CVR Payment Amount over the CVR Payment Amount that was
initially calculated plus interest for the period over which the payment was
deferred at an interest rate equal to the rate actually earned by the
Company pursuant to the investment of such funds in Cash Equivalents. Along
with such payment, the Company shall provide to the Holders a Litigation
Proceeds Certificate setting forth the re-calculation of the CVR Payment
Amount. The standards and procedures applicable to Litigation Proceeds
Certificates and the calculation of the CVR Payment Amount set forth in this
Section 2.4 shall apply in full force to any Litigation Proceeds Certificate
delivered pursuant to this paragraph (g).
Section 2.5 Agreements With Respect to Income Tax.
(a) The Assumed Tax Liability shall (i) if there is no Tax Determination,
be computed based on the Tax Assumptions and (ii) if there is a Tax
Determination to the effect that Litigation Proceeds or Non-Cash Proceeds
are or are not includible in gross income in whole or in part, be computed
on the basis of the Tax Assumptions as such Tax Assumptions are modified by
such Tax Determination.
(b) The Assumed Tax Benefit shall (i) if there is no Tax Determination,
be computed based on the Tax Assumptions and (ii) if there is a Tax
Determination to the effect that more or less deduction is allowed with
respect to the payment of Claims Expenses or the CVR Payment Amount than is
provided for in the Tax Assumptions, be computed on the basis of the Tax
Assumptions as such Tax Assumptions are modified by such Tax Determination.
Section 2.6 Payments on CVRs.
(a) In the event that Holly Subsidiaries or their Affiliates receive
payments of Litigation Proceeds on more than one date, then the CVR Payment
Amount with respect to any such Litigation Proceeds shall be paid with
respect to each such receipt of Litigation Proceeds and the procedures
described in Section 2.4 shall apply to each such receipt of Litigation
Proceeds. The calculation of the CVR Payment Amount following the
calculation of the initial CVR Payment Amount shall be made on a cumulative
basis to reflect the receipt of all Litigation Proceeds, the payment of all
Claims Expenses, the prior payment of any CVR Payment Amounts and the
calculation of all Assumed Tax Liabilities and Assumed Tax Benefits from the
date of this Agreement to the date of determination of each such subsequent
CVR Payment Amount (it
B-11
being understood, however, that in no event shall the Holders be obligated
or required to refund to the Company or any of its Affiliates any portion of
any CVR Payment Amount previously paid to the Holders). By way of example,
Exhibit B to this Agreement sets forth a hypothetical example of how to
calculate CVR Payment Amounts if Non-Cash Proceeds, Cash Proceeds, and
Realized Non-Cash Proceeds are received by the Holly Subsidiaries or their
Affiliates on more than one date.
(b) The determination by the Company and the Representative of any CVR
Payment Amount pursuant to the procedures set forth in Section 2.4, absent a
mathematical error, shall be final and binding on the Company and each
Holder.
(c) Except in the specific cases specified in this Agreement, no interest
shall accrue on any amounts payable on the CVRs to any Holder.
(d) The Company shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from the CVR Payment Amount otherwise payable pursuant
to this Agreement such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
or paid over to or deposited with the relevant governmental entity, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the Holder in respect of which such deduction and
withholding was made.
ARTICLE III
THE REPRESENTATIVE
Section 3.1 Certain Duties and Responsibilities.
(a) The Representative undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement. The Representative
shall exercise such of the rights and powers vested in him by this
Agreement, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs; provided, however, that the Representative shall not be
liable for any acts or omissions except to the extent that the
Representative has engaged in willful misconduct or bad faith.
(b) No provision of this Agreement shall be construed to relieve the
Representative from liability for his own willful misconduct or bad faith,
except that no provision of this Agreement shall require the Representative
to expend or risk his own funds or otherwise incur any financial liability
in the performance of any of his duties hereunder or in the exercise of any
of his rights or powers.
Section 3.2 Certain Rights of Representative. The Representative
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement, and no implied covenants or obligations shall be read
into this Agreement against the Representative. In addition:
(a) the Representative shall have the right, and is hereby authorized on
behalf of the Holders, to approve or reject in writing any settlement of any
aspect or portion of the Litigation entered into by Holly Subsidiaries or
their Affiliates prior to the Claims Expense Threshold Date;
(b) the Representative may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or
other paper or document believed by him to be genuine and to have been
signed or presented by the proper party or parties;
(c) whenever the Representative shall deem it desirable that a matter be
proved or established prior to taking, suffering or omitting any action
hereunder, the Representative may, in the absence of bad faith or willful
misconduct on his part, rely upon an Officer's Certificate;
B-12
(d) the Representative may engage and consult with counsel of his
selection and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by him hereunder in good faith and in
reliance thereon;
(e) the Representative may engage and consult with tax experts, valuation
firms and other experts and third parties that he, in his sole and absolute
discretion, deems appropriate or necessary to enable him to discharge his
duties hereunder;
(f) the permissive rights of the Representative to do things enumerated
in this Agreement shall not be construed as a duty;
(g) the Representative shall not be required to give any note or surety
in respect of the execution of the such powers or otherwise in respect of
the premises; and
(h) the initial Representative may be a Holder.
Section 3.3 Not Responsible for Recitals or Issuance of CVRs. The recitals
contained herein shall be taken as the statements of the Company, and the
Representative assumes no responsibility for their correctness. The
Representative makes no representations as to the validity or sufficiency of
this Agreement or the CVRs. The Representative shall not be accountable or
liable for the use or application by the Company of the Litigation Proceeds or
Non-Cash Proceeds.
Section 3.4 Compensation, Reimbursement and Indemnification of the
Representative. The Company agrees:
(a) to pay to the Representative at least $4,000 on the first day of each
month following the Effective Time;
(b) except as otherwise expressly provided herein, to pay the
Representative, upon the request of the Representative, all reasonable
expenses and disbursements incurred or to be incurred by the Representative
in accordance with any provision of this Agreement (including, without
limitation, the reasonable compensation and the expenses and disbursements
of his counsel, tax experts, valuation firms and other experts and third
parties as contemplated in Section 3.2); and
(c) to indemnify the Representative and hold him harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses and reasonable
disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable compensation and the expenses and disbursements
of his counsel, tax experts, valuation firms and other experts and third
parties as contemplated in Section 3.2) that may be imposed on, asserted
against or incurred by him under this Agreement, and the Representative
shall be so indemnified under this Agreement for his own ordinary or gross
negligence, but the Representative does not have the right to be indemnified
under this Agreement for his own willful misconduct or bad faith.
Section 3.5 Resignation and Removal; Appointment of Successor.
(a) The Representative may resign at any time by giving written notice
thereof to the Company.
(b) The Representative may be removed at any time by Act of the Holders
of a majority of the outstanding CVRs that is delivered to the
Representative and the Company.
(c) If at any time the Representative shall become incapable of acting,
any Holder of a CVR may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of
the Representative and the appointment of a successor Representative.
(d) In the event that the Representative resigns, is removed or becomes
incapable of acting, then the Representative shall not be entitled to any
compensation payable pursuant to Section 3.4 from and after the date of his
resignation or removal.
B-13
(e) If the Representative shall resign, be removed or become incapable of
acting, the Company, by a Board Resolution, shall promptly appoint a
qualified successor Representative who is a Holder and not an officer of the
Company. If, within 90 days after such resignation, removal or incapability,
or the occurrence of such vacancy, a successor Representative shall not have
been appointed by the Company, the Holders of the CVRs may appoint any
Person who is willing to serve as successor Representative by the Act of the
Holders of a majority of the outstanding CVRs delivered to the Company. The
successor Representative so appointed shall, forthwith upon his acceptance
of such appointment in accordance with this Section 3.5(e), become the
successor Representative. If no successor Representative shall have been so
appointed by the Company or the Holders of the CVRs and so accepted his or
her appointment, the Holder of any CVR may on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Representative.
(f) The Company shall give notice of each resignation and each removal of
a Representative and each appointment of a successor Representative by
mailing written notice of such event by first-class mail, postage prepaid,
to the Holders as their names and addresses appear in the CVR Register. Each
notice shall include the name and address of the successor Representative.
If the Company fails to send such notice within ten days after acceptance of
appointment by a successor Representative, the successor Representative
shall cause the notice to be mailed at the expense of the Company.
Section 3.6 Acceptance of Appointment by Successor. Every successor
Representative appointed hereunder shall execute, acknowledge and deliver to
the Company and to the retiring Representative an instrument accepting such
appointment and a counterpart of this Agreement, and thereupon such successor
Representative, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Representative; but, on request of the Company or the successor Representative,
such retiring Representative shall execute and deliver an instrument
transferring to such successor Representative all the rights, powers and trusts
of the retiring Representative.
Section 3.7 Assignment of Claims Act; Assignment of Litigation. If any of
the rights or duties granted to the Representative pursuant to this Agreement
are deemed to constitute a prohibited assignment of the Litigation under the
Assignment of Claims Act or otherwise deemed to violate the Assignment of
Claims Act, the rights and duties of the Representative under this Agreement
shall be amended to the fullest extent necessary so as to not violate the
Assignment of Claims Act. The Company shall not, and will not permit its
Affiliates to, "assign" (within the meaning of the Assignment of Claims Act)
any interest in the Litigation.
ARTICLE IV
HOLDERS' LISTS AND REPORTS BY REPRESENTATIVE AND COMPANY
Section 4.1 Company to Furnish Representative with Names and Addresses of
Holders. The Company shall furnish or cause to be furnished to the
Representative (a) in such form as the Representative may reasonably require,
the names and addresses of the Holders within 15 days of the Effective Time,
and (b) at such times as the Representative may request in writing, within five
days after receipt by the Company of any such request, a list, in such form as
the Representative may reasonably require, of the names and the addresses of
the Holders as of a date not more than 15 days prior to the time such list is
furnished.
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ARTICLE V
COVENANTS
Section 5.1 Prosecution of Litigation by Company; Settlement; Periodic
Reports.
(a) The Company shall, and shall cause the Holly Subsidiaries to,
prosecute the Litigation in good faith. In any settlement to resolve the
Litigation, the Company shall, and shall cause Holly and its Subsidiaries
to, seek in good faith a settlement of the Litigation for Cash Proceeds or
Non-Cash Proceeds that will become Realized Non-Cash Proceeds as described
in clause (i) of the definition thereof in as short a period of time after
the settlement is entered as is reasonably practicable. At the time that any
settlement of the Litigation is entered into, the Company and the
Representative shall seek in good faith to agree on the amount, or a
methodology for determining the amount, of any Cash Proceeds, Setoffs,
Realized Non-Cash Proceeds or Non-Cash Proceeds resulting from the
settlement and of the appropriate treatment thereof for purposes of
calculating the Assumed Tax Liability.
(b) The Company shall not settle any aspect or portion of the Litigation
prior to the Claims Expense Threshold Date without obtaining the prior
written consent of the Representative (which may be denied by the
Representative in his sole and absolute discretion) and the prior approval
of the specific terms of such settlement by the Board of Directors. The
Company shall not settle any aspect or portion of the Litigation after the
Claims Expense Threshold Date without obtaining the prior approval of the
specific terms of such settlement by the Board of Directors. The Company
shall afford the Representative (i) reasonable access to information
concerning the Litigation that is in the possession, custody or control of
the Company and its Affiliates and (ii) the reasonable assistance of the
officers, employees, counsel and experts of the Company and its Affiliates
for purposes of performing the Representative's duties under this Agreement.
(c) Until the Litigation has been settled or is final and not subject to
further judicial review (by appeal or otherwise), the Company shall deliver
to the Representative by the last Business Day of each fiscal quarter of the
Company a report describing the status of the Litigation, which report shall
describe in summary fashion, the total Claim Expenses incurred through the
date of such report, the status of all pending court proceedings related to
the Litigation, whether any new claims or proceedings have been brought by
Holly Subsidiaries or their Affiliates related to the Litigation, the status
of any counterclaims brought by the United States related to the Litigation,
any Setoffs asserted by the United States against Holly Subsidiaries or
their Affiliates and the status of any settlement negotiations among Holly
Subsidiaries and their Affiliates and the United States with respect to the
Litigation. Upon request by the Representative to the Company, the Company
shall provide the Representative with such additional detail as shall be
reasonably necessary to enable him to satisfy his obligations hereunder.
(d) The Company in good faith shall convert or cause to be converted any
Non-Cash Proceeds to cash as promptly as reasonable practicable after
receiving any such Non-Cash Proceeds.
(e) The Company shall hold an amount of cash equal to the aggregate
amount of any CVR Payment Amount payable pursuant to this Agreement in a
separate bank account invested in Cash Equivalents until such cash has been
paid to the Holders.
Section 5.2 Payment of CVR Payment Amount. The Company shall duly and
promptly pay each Holder the CVR Payment Amount in the manner provided for in
Section 2.4 and in accordance with the terms of this Agreement.
Section 5.3 Tax Reporting. Neither the Company nor any of its Affiliates
shall take any position in any tax return, report or other tax filing
inconsistent with any of the Tax Assumptions (other than clause (d) of the
definition thereof), except to the extent required by a Tax Determination.
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ARTICLE VI
AMENDMENTS
Section 6.1 Amendments Without Consent of Holders.
(a) Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Representative, in the Representative's sole and
absolute discretion, at any time and from time to time, may enter into one
or more amendments hereto, for any of the following purposes:
(i) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
herein;
(ii) to evidence the succession of another Person as a successor
Representative and the assumption by any successor of the covenants and
obligations of the Representative herein;
(iii) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions as the Board of Directors and the
Representative shall consider to be for the protection of the Holders;
provided that in each case, such provisions shall not adversely affect
the interests of the Holders; or
(iv) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Agreement; provided that in each case, such
provisions shall not adversely affect the interests of the Holders.
(b) Promptly after the execution by the Company and the Representative of
any amendment pursuant to the provisions of this Section 6.1, the Company
shall mail a notice thereof by first class mail to the Holders at their
addresses as they shall appear on the CVR Register, setting forth in general
terms the substance of such amendment.
Section 6.2 Amendments with Consent of Holders.
(a) With the consent of the Holders of not less than a majority of the
outstanding CVRs, by Act of such Holders delivered to the Company and the
Representative, the Company, when authorized by a Board Resolution, and the
Representative may enter into one or more amendments hereto for the purpose
of adding, eliminating or changing any provisions of this Agreement if such
addition, elimination or change is in any way adverse to the interest of the
Holders.
(b) It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such Act shall approve the substance thereof.
(c) Promptly after the execution by the Company and the Representative of
any amendment pursuant to the provisions of this Section 6.2, the Company
shall mail a notice thereof by first class mail to the Holders at their
addresses as they shall appear on the CVR Register, setting forth in general
terms the substance of such amendment.
Section 6.3 Execution of Amendments. In executing any amendment permitted
by this Article, the Representative shall be entitled to receive, and shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement. The
Representative may, but is not obligated to, enter into any such amendment that
affects the Representative's own rights, privileges, covenants or duties under
this Agreement or otherwise.
Section 6.4 Effect of Amendments. Upon the execution of any amendment
under this Article, this Agreement shall be modified in accordance therewith,
such amendment shall form a part of this Agreement for all purposes and every
Holder shall be bound thereby.
B-16
ARTICLE VII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 7.1 Company May Consolidate, Etc.
(a) The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) in case the Company shall consolidate with or merge into any
other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety (the "Surviving
Person") shall expressly assume payment of amounts on all the CVRs and
the performance of every duty and covenant of this Agreement on the part
of the Company to be performed or observed; and
(2) the Company has delivered to the Representative an Officer's
Certificate, stating that such consolidation, merger, conveyance,
transfer or lease complies with this Article VII and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
(b) For purposes of this Section 7.1, "convey, transfer or lease its
properties and assets substantially as an entirety" shall mean properties
and assets contributing in the aggregate at least 80% of the Company's total
consolidated revenues as reported in the Company's last available periodic
financial report (quarterly or annual, as the case may be) filed with the
Commission.
Section 7.2 Successor Substituted. Upon any consolidation of or merger by
the Company with or into any other Person, or any conveyance, transfer or lease
of the properties and assets substantially as an entirety to any Person in
accordance with Section 7.1, the Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if the Surviving Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Agreement and the CVRs.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FRONT RANGE HIMALAYA CORPORATION
By: /s/ Julie H. Edwards
-----------------------------
Name: Julie H. Edwards
-----------------------------
Title: Vice President, Chief
Financial Officer
-----------------------------
FRONTIER OIL CORPORATION
By: /s/ Julie H. Edwards
-----------------------------
Name: Julie H. Edwards
-----------------------------
Title: Executive Vice President -
Finance & Administration
-----------------------------
HOLLY CORPORATION
By: /s/ Matthew P. Clifton
-----------------------------
Name: Matthew P. Clifton
-----------------------------
Title: President
-----------------------------
FRONT RANGE MERGER CORPORATION
By: /s/ Julie H. Edwards
-----------------------------
Name: Julie H. Edwards
-----------------------------
Title: Vice President, Chief
Financial Officer
-----------------------------
HIMALAYA MERGER CORPORATION
By: /s/ Julie H. Edwards
-----------------------------
Name: Julie H. Edwards
-----------------------------
Title: Vice President, Chief
Financial Officer
-----------------------------
/s/ Jack P. Reid
-------------------------------
Jack P. Reid,
Representative
B-18
EXHIBIT A
DESCRIPTION OF LITIGATION
In September 2002, Holly, through its Subsidiaries, Navajo Refining Company,
L.P., a Delaware limited partnership, and Montana Refining Company, a Montana
partnership (the "Subsidiary Plaintiffs"), filed suit against the Federal
Government in the United States Court of Federal Claims, Case No. 02-1220C,
Navajo Refining Company, L.P. and Montana Refining Company, a Partnership,
Plaintiffs, vs. The United States, Defendant (the "Federal Claims Lawsuit"),
with respect to claims which total approximately $210 million relating to jet
fuel sales by the Subsidiary Plaintiffs to the Defense Fuel Supply Center in
the years 1982 through 1995. These claims had been filed by the Subsidiary
Plaintiffs in May and June 2001 and were denied by the Department of Defense in
November 2001. In September 2002, the Subsidiary Plaintiffs filed additional
claims with the Department of Defense under the Contract Disputes Act asserting
that additional amounts totaling approximately $88 million are due to the
Company with respect to jet fuel sales to the Defense Fuel Supply Center in the
years 1995 through 1999 (the "1995-1999 Jet Fuel Claims"). In November 2002,
the Department of Defense issued final decisions rejecting the 1995-1999 Jet
Fuel Claims. Following these decisions, the Subsidiary Plaintiffs in November
2002 filed an amended complaint in the United States Court of Federal Claims to
add the 1995-1999 Jet Fuel Claims to the Subsidiary Plaintiff's pending suit
which was filed in September 2002 and related originally to claims for the
years 1982 through 1995. As a result of the amendment, the total amount sought
in the Subsidiary Plaintiff's suit for all years from 1982 through 1999 is
approximately $298 million. In January 2003, the Federal Government filed a
motion for partial summary judgment in this suit, and in February 2003, the
Subsidiary Plaintiff's filed a cross motion for partial summary judgment.
Exhibit B
EXAMPLE OF CALCULATION OF CVR PAYMENTS
IF LITIGATION PROCEEDS ARE RECEIVED ON MORE THAN ONE DATE
Below is a hypothetical calculation of CVR Payment Amounts using the certain
assumption:
CVR Payment Date
-----------------------------------------------------------------------------------
December 31, 2004 December 31, 2005 December 31, 2006
----------------------- ---------------------- -----------------------
December 31, Current Cumulative Current Cumulative Current Cumulative
2003 Year to Date Year to Date Year to Date
------------ ----------- ----------- ---------- ----------- ----------- -----------
Litigation Proceeds.... $ 0 $20,000,000 $20,000,000 $1,000,000 $21,000,000 $20,000,000 $41,000,000
Two Times Claims
Expenses.............. $ 500,000 $ 500,000 $ 1,000,000 $2,000,000 $ 3,000,000 $ 1,000,000 $ 4,000,000
Assumed Tax Liability.. $8,800,000 $ 8,000,000 $16,800,000 $ 400,000 $17,200,000 $ 0 $17,200,000
Assumed Tax Benefit of
Payment of Claims
Expenses.............. $ 100,000 $ 100,000 $ 200,000 $ 400,000 $ 600,000 $ 200,000 $ 800,000
Assumed Tax Benefit of
CVR Payment Amount
Under Section 483..... $ 0 $ 7,188 $ 7,188 $ 0 $ 7,188 $ 492,593 $ 499,781
Assumed Tax Benefit of
Receipt of Realized
Non-Cash Proceeds
Less Than Amount
Previously Included in
Income................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 800,000 $ 800,000
10% of Remainder of
Litigation Proceeds
minus Two Times
Claims Expenses....... 0 $ 1,900,000 $ 1,900,000 $ 0 $ 1,900,000 $ 1,800,000 $ 3,700,000
---------- ----------- ----------- -----------
Cumulative CVR Payment
Amounts............... $ 0 $ 507,188 $ 507,188 $18,199,781
Cumulative Payments
Made on Prior CVR
Payment Dates......... $ 0 $ 0 $ 507,188 $ 507,188
---------- ----------- ----------- -----------
CVR Payment Amount
Payable on CVR
Payment Date.......... $ 0 $ 507,188 $ 0 $17,692,593
Assumptions:
(1) During 2003 (i) Non-Cash Proceeds are received, the Company determines that
$22,000,000 is includible in the Company's gross income with respect to
such Non-Cash Proceeds and so indicates on the Litigation Certificate, and
the Representative does not object thereto, and (ii) $250,000 of Claims
Expenses are incurred.
(2) On December 31, 2004, $20,000,000 of Cash Proceeds are received. During
2004, $250,000 of Claims Expenses are incurred.
(3) On December 31, 2005, $1,000,000 of Cash Proceeds are received. During
2005, $1,000,000 of Claims Expenses are incurred.
(4) On December 31, 2006, the Non-Cash Proceeds received in 2003 are converted
into $20,000,000 of Realized Cash Proceeds resulting in a no additional
Assumed Tax Liability and an Assumed Tax Benefit equal to the product of
(i) the excess of the amount includible in gross income in 2003 with
respect to the Non-Cash Proceeds ($22,000,000) over the amount of Realized
Non-Cash Proceeds associated with such Non-Cash Proceeds ultimately
received ($20,000,000), and (ii) the assumed marginal income tax rate.
During 2006, $500,000 of Claims Expenses are incurred.
(5) Assumed Tax Liability and Assumed Tax Benefit based upon an assumed
combined federal, state and local marginal income tax rate of 40%.
(6) The Assumed Tax Benefit of the Section 483 interest payments is based upon
an assumed Applicable Federal Rate of 1.82%.
B-20
ANNEX C
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FRONT RANGE HIMALAYA CORPORATION
Pursuant to the provisions of W.S. 17-16-1006 and W.S. 17-16-1007 of the
Wyoming Business Corporation Act, the undersigned Corporation adopts the
following Amended and Restated Articles of Incorporation as of this date:
FIRST: The name of the Corporation is Front Range Himalaya Corporation.
SECOND: The Corporation was originally incorporated under the name of Front
Range Himalaya Corporation, and the original Articles of Incorporation of the
Corporation were filed with the Secretary of State on March 28, 2003.
I, the undersigned Julie H. Edwards, do hereby certify that the Board of
Directors of said Corporation by unanimous written consent on the 5th day of
May, 2003, and the shareholders by unanimous written consent on the 5th day of
May, 2003, adopted a resolution to amend and restate the original Articles of
Incorporation in their entirety as follows:
ARTICLE ONE
The corporate name of the Corporation is Front Range Himalaya Corporation.
ARTICLE TWO
The term of existence of the Corporation shall be perpetual.
ARTICLE THREE
The street address of the Corporation's registered office is 1720 Carey
Avenue, Suite 200, Cheyenne, Wyoming 82001, and the name of its registered
agent at that office is Hirst & Applegate, P.C.
ARTICLE FOUR
The purpose or purposes of the Corporation is to transact any and/or all
lawful business for which corporations may be incorporated under the Wyoming
Business Corporation Act (as amended from time to time, the "WBCA") and, in
general, to have and exercise all the powers conferred by the laws of Wyoming
upon corporations formed under the WBCA and to do any and all of the things
hereinafter set forth to the same extent as natural persons might or could do.
ARTICLE FIVE
The number of directors to be elected at the annual meeting of shareholders
or at a special meeting called for the election of directors shall not be less
than three nor more than fifteen, the exact number to be fixed by the Bylaws.
C-1
ARTICLE SIX
The aggregate number of shares of all classes of stock which the Corporation
shall have authority to issue is 75,000,000 shares consisting of and divided
into:
(i) one class of 74,500,000 shares of Common Stock, par value $.01 per
share; and
(ii) one class of 500,000 shares of Preferred Stock, par value $.01 per
share, which may be divided into and issued in series, as hereinafter
provided.
The following is a statement of the designations, voting powers,
preferences, and relative, participating, optional and other special rights,
and qualifications, limitations, or restrictions thereon, of the classes of
stock of the Corporation.
PART I
PREFERRED STOCK
1. Rank; Authorization of Directors to Determine Certain Rights. The
Preferred Stock may be issued from time to time in one or more series and in
such amounts as may be determined by the Board of Directors. The voting powers,
designations, preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations, or restrictions
thereof, if any, of the Preferred Stock of each series shall be such as are
fixed by the Board of Directors, authority so to do being hereby expressly
granted, and as are stated and expressed in a resolution or resolutions adopted
by the Board of Directors providing for the issue of such series of Preferred
Stock (herein called the "Directors' Resolution"). The Directors' Resolution as
to any series shall (1) designate the series, (2) fix the dividend rate, if
any, of such series, establish whether dividends shall be cumulative or
non-cumulative, fix the payment dates for dividends on shares of such series
and the date or dates, or the method of determining the date or dates, if any,
from which dividends on shares of such series shall be cumulative, (3) fix the
amount or amounts payable on shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, and (4) state the price or prices or rate or rates, and
adjustments, if any, at which, the time or times and the terms and conditions
upon which, the shares of such series may be redeemed at the option of the
Corporation or at the option of the holder or holders of shares of such series
or upon the occurrence of a specified event, and state whether such shares may
be redeemed for cash, property or rights, including securities of the
Corporation or another entity; and such Directors' Resolutions may (i) limit
the number of shares of such series that may be issued, (ii) provide for a
sinking fund for the purchase or redemption of shares of such series and
specify the terms and conditions governing the operations of any such fund,
(iii) grant voting rights to the holders of shares of such series, (iv) impose
conditions or restrictions upon the creation of indebtedness of the Corporation
or upon the issuance of additional Preferred Stock or other capital stock
ranking on a parity therewith, or prior thereto, with respect to dividends or
distributions of assets upon liquidation, (v) impose conditions or restrictions
upon the payment of dividends upon, or the making of other distributions to, or
the acquisition of, shares ranking junior to the Preferred Stock or to any
series thereof with respect to dividends or distributions of assets upon
liquidation, (vi) state the time or times, the price or prices or the rate or
rates of exchange and other terms, conditions and adjustments upon which shares
of any such series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence of a specified
event, shares of any other series of Preferred Stock or any other class or
classes of stock or other securities of the Corporation, and (vii) grant such
other special rights and impose such qualifications, limitations or
restrictions thereon as shall be fixed by the Board of Directors, to the extent
not inconsistent with this Article Six and to the full extent now or hereafter
permitted by the laws of the State of Wyoming.
Except as by law expressly provided, or except as may be provided in any
Directors' Resolution, the Preferred Stock shall have no right or power to vote
on any question or in any proceeding or to be represented at, or to receive
notice of, any meeting of shareholders of the Corporation.
C-2
Preferred Stock that is redeemed, purchased, converted or retired by the
Corporation shall assume the status of authorized but unissued Preferred Stock,
without designation, and may thereafter, subject to the provisions of any
Directors' Resolution providing for the issue of any particular series of
Preferred Stock, be reissued in the same manner as authorized but unissued
Preferred Stock.
2. Dividends.
(a) Amount; Time. The Preferred Stock at the time outstanding shall be
entitled to receive, as and when declared by the Board of Directors, out of
any funds of the Corporation legally available therefor, dividends at the
rate fixed by the Board of Directors (pursuant to Section 1 of Part I of
this Article Six), and no more, payable on such date or dates in each year
as the Board of Directors shall determine.
(b) Cumulative Dividends. Dividends on Preferred Stock may be cumulative,
noncumulative or partially cumulative. Cumulations of dividends shall not
bear interest.
(c) Priority Over Common; Restriction on Purchases of Common. No dividend
shall be declared or paid on Common Stock, and no Common Stock shall be
purchased by the Corporation, unless all cumulative or partially cumulative
dividends on outstanding Preferred Stock for all past dividend periods and
for the current dividend period shall have been declared and paid.
3. Liquidation Preference. In the event of dissolution, liquidation or
winding-up of the Corporation (whether voluntary or involuntary), after payment
or provision for payment of debts but before any distribution to the holders of
Common Stock, the holders of each series of Preferred Stock then outstanding
shall be entitled to receive the amount fixed by the Board of Directors
(pursuant to Section 1 of Part I of this Article Six) plus a sum equal to all
cumulative but unpaid dividends (whether or not earned or declared) to the date
fixed for distribution, and no more. All remaining assets shall be distributed
pro rata among the holders of Common Stock. If the assets distributable among
the holders of Preferred Stock are insufficient to permit full payment to them,
the entire assets will be distributed among the holders of the Preferred Stock
in proportion to their respective liquidation preferences.
PART II
COMMON STOCK
1. Rank. The Common Stock is subject and subordinate to any and all of the
rights, privileges, preferences and priorities of the Preferred Stock of the
Corporation as set forth in this Article Six. All shares of Common Stock shall
be of equal rank and shall be identical in all respects.
2. Liquidation, Dissolution or Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding-up of the affairs of the
Corporation and after the holders of the Preferred Stock shall have received
payment for each share of Preferred Stock equal to the redemption price
therefor (as established by the Board of Directors), the remaining assets of
the Corporation available for distribution to shareholders shall be divided and
distributed among the holders of the Common Stock based on the ratio which the
number of shares of Common Stock owned by each such holder bears to the
aggregate number of issued and outstanding shares of Common Stock.
3. Voting. The holders of shares of Common Stock shall possess full voting
power in the election of directors and for all other purposes, and each holder
of Common Stock shall at every meeting of the shareholders be entitled to one
vote for each share of Common Stock standing in such holder's name on the books
of the Corporation on the record date for determining shareholders entitled to
vote at such meeting.
C-3
4. Dividends. Subject to any prior dividend rights of the holders of the
Preferred Stock as described in Part I of this Article Six, the holders of
Common Stock shall be entitled to receive, on a share-for-share basis, as and
when declared by the Board of Directors, out of the funds of the Corporation
legally available therefor, such dividends (payable in cash, stock or
otherwise) as may be declared from time to time by the Board of Directors.
5. Redemption. The shares of Common Stock shall not be subject to
redemption by the Corporation.
PART III
PROVISIONS APPLICABLE TO ALL CLASSES OF STOCK
1. Issue and Sale of Stock.
(a) The Board of Directors shall have the power and authority at any time
and from time to time to issue, sell or otherwise dispose of any authorized
and unissued shares of any class of stock of the Corporation to such persons
or parties, including the holders of any class of stock, for such
consideration (not less than the par value, if any, thereof) and upon such
terms and conditions as the Board of Directors in its discretion may deem
for the best interests of the Corporation.
(b) No holder of stock of the Corporation shall be entitled to purchase
or subscribe for any part of any unissued stock of the Corporation or any
additional stock to be issued whether or not by reason of any increase of
the authorized capital stock of the Corporation, or any bonds, certificates
of indebtedness, debentures or other securities convertible into stock or
such additional authorized issuance of new stock, but rather such stock,
bonds, certificates of indebtedness, debentures and other securities may be
issued and disposed of pursuant to resolution of the Board of Directors to
such persons, firms, corporations or associations, and upon such terms as
may be deemed advisable by the Board of Directors in the exercise of their
discretion.
2. Registered Owner. The Corporation shall be entitled to treat the person
in whose name any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to,
or interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable laws.
ARTICLE SEVEN
Except as may be provided in the Bylaws of the Corporation, the Board of
Directors is expressly authorized to make, alter, amend or repeal the Bylaws,
without any action on the part of the shareholders, but the Bylaws made by the
Board of Directors and the powers conferred thereby may be altered or repealed
by the shareholders.
ARTICLE EIGHT
(a) No director of the Corporation shall be liable to the Corporation or any
of its shareholders for monetary damages for any action taken, or any failure
to take any action, as a director, except that this Article Eight does not
eliminate or limit the liability of a director for: (i) the amount of financial
benefit received by a director to which he or she is not entitled, (ii) an
intentional infliction of harm on the Corporation or its shareholders, (iii) an
unlawful distribution in violation of W.S. 17-16-833 of the WBCA, or (iv) an
intentional violation of criminal law. If the WBCA hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the WBCA. No amendment to or repeal of this
C-4
Article Eight shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
(b) The Corporation shall indemnify, in accordance with and to the fullest
extent now or hereafter permitted by Wyoming law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, without limitation, an action by or in the right
of the Corporation), by reason of the fact that he or she is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability or expense, including reasonable attorneys' fees,
actually and reasonably incurred by such person in respect thereof, except
liability for (i) receipt of a financial benefit to which he or she is not
entitled, (ii) an intentional infliction of harm on the Corporation or its
shareholders, (iii) an unlawful distribution in violation of W.S. 17-16-833 of
the WBCA, or (iv) an intentional violation of criminal law. If the WBCA
hereafter is amended to authorize providing greater indemnification of a
director, officer, employee or agent of the Corporation, then the
indemnification of such person, in addition to the indemnification for
liability provided herein, shall be provided to the fullest extent permitted by
the amended WBCA. No amendment to or repeal of this Article Eight shall apply
to or have any effect on the rights to indemnification of any person pursuant
to this Article Eight for or with respect to any acts or omissions of such
person occurring prior to such amendment or repeal.
(c) Expenses, including attorneys' fees, incurred by a director or officer
in defending any threatened or pending civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay the
amount if it shall ultimately be determined that he or she is not entitled to
be indemnified by the Corporation as authorized in this Article Eight.
(d) The indemnification and advancement of expenses authorized by this
Article Eight shall not be exclusive of any other rights to which any director,
officer, employee or agent may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to any action in
his or her official capacity and as to action in another capacity while holding
the office, and continues as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(e) The Corporation may purchase and maintain insurance providing coverage
for any person who is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him or
her and incurred by him or her in any capacity or arising out of his or her
status, whether or not the Corporation would have the power or obligation to
indemnify him or her against liability under the provisions of this Article
Eight.
ARTICLE NINE
The Corporation elects not to be subject to or governed by: (i) the
restrictions contained in W.S. 17-18-104(b) of the Wyoming Management Stability
Act (as amended from time to time, the "WMCA"); (ii) the shareholder takeover
protection provisions listed in W.S. 17-18-105 through 17-18-111 of the WMCA;
and (iii) Article 3 of the WMCA.
THIRD: The number of shares of the Corporation outstanding at the time of
adoption and entitled to vote thereon was two (2) shares of Common Stock.
FOURTH: Two (2) shares voted for such amendment and no shares voted against
such amendment.
C-5
IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated
Articles of Incorporation to be signed by its Assistant Secretary this 5th day
of May, 2003.
FRONT RANGE HIMALAYA CORPORATION
By: /s/ JULIE H. EDWARDS
-----------------------------
Name: Julie H. Edwards
Title: Assistant Secretary
STATE OF TEXAS
COUNTY OF HARRIS
I, Bernice Bludau, a Notary Public, do hereby certify that on this 6th day
of May, 2003, personally appeared before me Julie H. Edwards, who, being by me
first duly sworn, declared that she is the Assistant Secretary of Front Range
Himalaya Corporation, that she signed the foregoing document as such officer of
the Corporation, and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of
May, 2003.
/s/ BERNICE BLUDAU
-----------------------------
Notary Public in and for
Harris County, Texas
C-6
ANNEX D
AMENDED AND RESTATED BYLAWS
OF
FRONT RANGE HIMALAYA CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1. The Corporation will maintain its executive offices in Houston,
Texas, or such other place as determined by the Board of Directors of the
Company.
Section 2. The Corporation may have other offices at such places both
within and without the State of Wyoming as the Board of Directors may from time
to time determine.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of the shareholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Wyoming, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meetings of shareholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the shareholders shall elect directors and transact such other
business as may properly be brought before the meeting. Written notice of each
annual meeting stating the place, date and hour of the meeting shall be given
to each shareholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 3. Special Meetings. Special meetings of shareholders, for any
purpose or purposes, may be called by the Chairman of the Board or the
President of the Corporation and shall be called by the President or Secretary
of the Corporation at the request of a majority of the Board of Directors.
Written notice of a special meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each shareholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder entitled to vote at the meeting.
D-1
Section 5. Advance Notice. No business may be transacted at an annual
meeting of shareholders, other than business that is either (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee thereof), (b)
otherwise properly brought before the annual meeting by or at the direction of
the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any shareholder of the
Corporation (i) who is a shareholder of record on the date of the giving of the
notice provided for in this Section 5 and on the record date for the
determination of shareholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 5. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, such shareholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a shareholder's notice must be received at the principal
executive offices of the Corporation not less than ninety (90) days nor more
than one hundred twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders of the Corporation;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the shareholder, in order to be timely, must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or public disclosure
(as defined below) of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a shareholder's notice as
described above. For purposes of this second paragraph of Section 5, "public
disclosure" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press, PR Newswire, Bloomberg or comparable national
news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended.
To be in proper written form, a shareholder's notice must set forth as to
each matter such shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of such shareholder, (iii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such
business by such shareholder and any material interest of such shareholder in
such business and (v) a representation that such shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures
set forth in this Section 5; provided, however, that once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 5 shall be deemed to preclude discussion by any
shareholder of any such business. If the chair of an annual meeting determines
that business was not properly brought before the annual meeting in accordance
with the foregoing procedures, the chair shall declare that the business was
not properly brought before the meeting and such business shall not be
transacted.
At a special meeting of shareholders, only such business shall be conducted
as shall have been set forth in the notice relating to the meeting. At any
meeting, matters incident to the conduct of the meeting may be voted upon or
otherwise disposed of as the chair of the meeting shall determine to be
appropriate.
Section 6. Voting. Unless otherwise required by law, the Articles of
Incorporation or these Bylaws, (i) any question brought before any meeting of
shareholders shall be decided by the vote of the holders of a majority of the
shares represented and entitled to vote thereat, and (ii) each shareholder
represented at a meeting of shareholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
shareholder. Such votes may be cast in person or by proxy, but no proxy shall
be voted on or after three (3)
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years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the chair of a meeting of shareholders, in
his or her discretion, may require that any votes cast at such meeting shall be
cast by written ballot.
Section 7. List of Shareholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make a complete list of the shareholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each shareholder and
the number of shares registered in the name of each shareholder. Such list
shall be open to the examination of any shareholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any shareholder of the Corporation
who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of shareholders.
ARTICLE III.
DIRECTORS
Section 1. Number and Election of Directors. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors. Unless otherwise provided in the Articles of Incorporation, the
number of directors which shall constitute the whole Board of Directors shall
be fixed from time to time exclusively by resolution of the Board of Directors
adopted by the affirmative vote of at least a majority of the total number of
authorized directors most recently fixed by the Board of Directors. No
reduction in the authorized number of members of the Board of Directors shall
have the effect of removing any director from office before that director's
term of office expires. Directors need not be residents of the State of Wyoming
or shareholders of the Corporation.
Section 2. Vacancies. Vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
members of the Board of Directors may be filled only by a majority of the total
members of the Board of Directors. Each director, including a director elected
to fill a vacancy or a newly created directorship, shall hold office until the
next election of directors and until his or her successor is elected and
qualified or until his or her earlier death, resignation or removal from
office. Any director or the entire Board of Directors may be removed from
office at any time but only by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all
outstanding shares of capital stock of the Corporation then entitled to vote in
an election of directors of the Corporation voting as a single class. Except as
may otherwise be provided by law, cause for removal shall exist only if the
director whose removal is proposed has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal or has been adjudged by a court of competent jurisdiction to be liable
for negligence or misconduct in the performance of his or her duty to the
Corporation in a matter of substantial importance to the Corporation, and such
adjudication is no longer subject to direct appeal.
Section 3. Nominations. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of shareholders of the
Corporation either by or at the direction of the Board of Directors or by any
shareholder of record entitled to vote in the election of directors at such
meeting who has complied with the notice procedures set forth in this Section
3. A shareholder who desires to nominate a person for election to the Board of
Directors at a meeting of shareholders of the Corporation and who is eligible
to make such nomination must give timely written notice of the proposed
nomination to the Secretary of the
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Corporation. To be timely, a shareholder's notice given pursuant to this
Section 3 must be received at the principal executive offices of the
Corporation not less than ninety (90) nor more than one hundred twenty (120)
days prior to the anniversary date of the immediately preceding annual meeting
of shareholders of the Corporation; provided, however, that in the event that
the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the shareholder, in order to
be timely, must be so received not later than the close of business on the
tenth (10/th/) day following the day on which such notice of the date of the
annual meeting was mailed or public disclosure (as defined below) of the date
of the annual meeting was made, whichever first occurs. In no event shall the
public disclosure of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above. For
purposes of the preceding sentence, "public disclosure" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press, PR
Newswire, Bloomberg or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as
amended. Such shareholder's notice to the Secretary of the Corporation shall
set forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of capital stock of the
Corporation which are then beneficially owned by such person, (iv) any other
information relating to such person that is required by law or regulation to be
disclosed in solicitations of proxies for the election of directors of the
Corporation and (v) such person's written consent to being named as a nominee
for election as a director and to serve as a director if elected and (b) as to
the shareholder giving the notice, (i) the name and address, as they appear in
the stock records of the Corporation, of such shareholder, (ii) the class and
number of shares of capital stock of the Corporation which are then
beneficially owned by such shareholder, (iii) a description of all arrangements
or understandings between such shareholder and each nominee for election as a
director and any other person or persons (naming such person or persons)
relating to the nomination proposed to be made by such shareholder, and (iv)
any other information required by law or regulation to be provided by a
shareholder intending to nominate a person for election as a director of the
Corporation. At the request of the Board of Directors, any person nominated by
or at the direction of the Board of Directors for election as a director of the
Corporation shall furnish to the Secretary of the Corporation the information
concerning such nominee which is required to be set forth in a shareholder's
notice of a proposed nomination. No person shall be eligible for election as a
director of the Corporation unless nominated in compliance with the procedures
set forth in this Section 3. The chair of a meeting of shareholders of the
Corporation shall refuse to accept the nomination of any person not made in
compliance with the procedures set forth in this Section 3, and such defective
nomination shall be disregarded.
Section 4. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as
are not by statute or by the Corporation's Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the shareholders.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Wyoming. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Chief Executive Officer or any two directors.
Notice thereof stating the place, date and hour of the meeting shall be given
to each director either by mail not less than forty-eight (48) hours before the
time of the meeting, by telephone, electronic facsimile or telegram not less
than twenty-four (24) hours before the time of the meeting, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate under the circumstances.
Section 6. Quorum. Except as may be otherwise specifically provided by
law, the Corporation's Articles of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire number of members
of the Board of Directors (including any directorships that are then vacant)
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a
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quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, then the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 7. Actions of Board. Unless otherwise provided by the
Corporation's Articles of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all of the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Corporation's Articles of Incorporation or these Bylaws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 8 of this Article III shall constitute presence in person at such
meeting.
Section 9. Committees. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member
of a committee, and in the absence of a designation by the Board of Directors
of an alternate member to replace the absent or disqualified member, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he, she or they constitute a quorum, may, when specifically
authorized by the Board of Directors to do so, unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, shall have and may
exercise all of the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 10. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his, her or
their votes are counted for such purpose if (i) the material facts as to his,
her or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his, her or their relationship or interest and as
to the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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Section 12. Corporate Governance During Specified Period. Notwithstanding
anything to the contrary contained in this Article III, during the Specified
Period (as defined in Article X) the provisions set forth in Article X shall
govern and be controlling to the extent that any provision in this Article III
is inconsistent or conflicts with Article X.
ARTICLE IV.
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a Chairman of the Board, a Chief Executive
Officer, a President, a Chief Financial Officer and a Secretary. The Board of
Directors, in its discretion, may also choose a Treasurer and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited
by law, the Corporation's Articles of Incorporation or these Bylaws. The
officers of the Corporation need not be shareholders of the Corporation nor
need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each annual meeting of shareholders shall elect the officers of the
Corporation, who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors; and all officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries and other compensation of all
officers of the Corporation shall be fixed by the Board of Directors, or a
committee thereof.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chief Executive Officer, President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any
corporation in which the Corporation may own securities and at any such meeting
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities and which, as the owner thereof, the Corporation
might have exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.
Section 4. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the Board of Directors and shall perform such other duties,
if any, as may be specified by the Board from time to time.
Section 5. Chief Executive Officer. The Chief Executive Officer of the
Corporation shall be the chief executive officer of the Corporation, shall have
general direction of the business and affairs of the Corporation and general
supervision over its several officers, subject, however, to the control of the
Board of Directors, and shall see that all orders and resolutions of the Board
of Directors are carried into effect. The Chief Executive Officer may sign,
with the Secretary or Assistant Secretary, certificates representing shares of
stock of the Corporation. The Chief Executive Officer shall perform all duties
incident to the office of the Chief Executive Officer and such other duties as
from time to time may be assigned to him by the Board of Directors or as
prescribed by these Bylaws.
Section 6. President. The Chief Executive Officer of the Corporation shall
be the President of the Corporation. The President shall perform such duties
and have such powers as the Board of Directors may from time to time prescribe.
The President may sign, with the Secretary or Assistant Secretary, certificates
representing shares of stock of the Corporation.
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Section 7. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall be the chief financial officer of the Corporation. The Chief
Financial Officer shall perform such other duties and have such other powers as
the Board of Directors or the Chief Executive Officer may from time to time
prescribe. In the absence of a Treasurer, the Chief Financial Officer shall
have the duties and exercise the powers of the Treasurer.
Section 8. Vice Presidents. The Vice Presidents shall perform such duties
and have such authority as may be specified in these Bylaws or by the Board of
Directors or the Chief Executive Officer. In the absence of the Chief Executive
Officer, a Vice President designated by the Board of Directors shall have the
duties and exercise the powers of the Chief Executive Officer.
Section 9. Secretary. The Secretary shall keep the minutes of the
shareholders and of the Board of Directors meetings, authenticate records of
the Corporation and perform such duties and have such authority as may be
specified in these Bylaws or by the Board of Directors or the Chief Executive
Officer.
Section 10. Assistant Secretaries. The Assistant Secretary or Secretaries
shall, in the absence or disability of the Secretary, perform the duties and
exercise the authority of the Secretary and shall perform such other duties and
have such other authority as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
Section 11. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors or the Chief Executive Officer or the Chief Financial
Officer, taking proper vouchers for such disbursements, and shall render to the
Board of Directors when the Board of Directors so requires, an account of all
his transactions as Treasurer and of the financial condition of the Corporation.
Section 12. Assistant Treasurers. The Assistant Treasurer or Treasurers
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the authority of the Treasurer and shall perform such other duties and
have such other authority as the Board of Directors or the Chief Executive
Officer or the Chief Financial Officer may from time to time prescribe.
Section 13. Corporate Governance During Specified Period. Notwithstanding
anything to the contrary contained in this Article IV, during the Specified
Period (as defined in Article X) the provisions set forth in Article X shall
govern and be controlling to the extent that any provision in this Article IV
is inconsistent or conflicts with Article X.
ARTICLE V.
SHARES
Section 1. Form of Certificates. Every holder of shares in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chief Executive Officer, President or a Vice President and (ii) by
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such holder of shares in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
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Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Shares of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of shares shall be
made on the books of the Corporation only by the person named in the
certificate or by his or her attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI.
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Corporation's Articles of Incorporation or these Bylaws, to be given to any
director, member of a committee or shareholder, such notice may be given by
mail, addressed to such director, member of a committee or shareholder, at his
or her address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by electronic facsimile, telegram, telex, overnight
courier or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Corporation's Articles of Incorporation or these Bylaws, to be given to any
director, member of a committee or shareholder, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to limitations imposed by law and the provisions of the Corporation's
Articles of Incorporation, if any, may be declared by the Board of Directors at
any regular or special meeting, and may be paid in cash, in property, or in
shares of the capital stock. Before payment of any dividend, there may be set
aside out of any funds of the Corporation
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available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal, if any, shall be in such
form as the Board of Directors may prescribe.
ARTICLE VIII.
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other than
Those by or in the Right of the Corporation. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
respect thereof.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by such person in respect thereof.
Section 3. Expenses Payable in Advance. Expenses (including attorneys'
fees) incurred by a director or officer in defending any threatened or pending
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article VIII and a good faith affirmation by or on behalf
of such director or officer that he or she has met the standard of conduct
required by law or that liability has been eliminated by the Articles of
Incorporation.
Section 4. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in a
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent
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permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Section 1 or
Section 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the Wyoming Business
Corporation Act, or otherwise.
Section 5. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted
against such person and incurred by him or her in any such capacity, or arising
out of such person's status as such, whether or not the Corporation would have
the power or the obligation to indemnify such person against such liability
under the provisions of this Article VIII.
Section 6. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had the power and authority to indemnify
its directors and officers, so that any person who is or was a director or
officer of such constituent corporation, or is or was a director or officer of
such constituent corporation serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article VIII with
respect to the resulting or surviving corporation as such indemnification
relates to such person's acts while serving in any of the foregoing capacities
of such constituent corporation, as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director or officer of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries.
Section 7. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 8. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, the Corporation shall not be
obligated to indemnify any director or officer in connection with a proceeding
(or part thereof) initiated by such person unless such proceeding (or part
thereof) was authorized or consented to by the Board of Directors of the
Corporation.
Section 9. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
ARTICLE IX.
AMENDMENTS
Section 1. Amendments. Except as otherwise provided in Article X, any
action to alter, amend or repeal these Bylaws or to adopt new Bylaws shall
require the affirmative vote of at least a majority of the members of the
entire Board of Directors and may be adopted by the Board of Directors at any
regular or special meeting thereof.
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ARTICLE X.
CORPORATE GOVERNANCE DURING SPECIFIED PERIOD
Section 1. Defined Terms. As used in this Article X,
(a) "Effective Time" has the meaning set forth in the Merger Agreement.
(b) "Frontier Designees" has the meaning set forth in the Merger Agreement.
(c) "Holly Designees" has the meaning set forth in the Merger Agreement.
(d) "List A Directors" means (i) the Frontier Designees, (ii) any
individual recommended by the Nominating Committee and approved by the Board of
Directors to fill a vacancy among the List A Directors and (iii) any individual
elected to replace a List A Director at any meeting of the shareholders of the
Corporation held during the Specified Period or designated as a List A Director
pursuant to Section 4 of this Article X.
(e) "List B Directors" means (i) the Holly Designees, (ii) any individual
recommended by the Nominating Committee and approved by the Board of Directors
to fill a vacancy among the List B Directors and (iii) any individual elected
to replace a List B Director at any meeting of the shareholders of the
Corporation held during the Specified Period or designated as a List B Director
pursuant to Section 4 of this Article X.
(f) "Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of March 30, 2003, by and among Frontier Oil Corporation, the
Corporation, Front Range Merger Corporation, Himalaya Merger Corporation and
Holly Corporation.
(g) "Nominating Committee" means the members of the nominating and
corporate governance committee of the Corporation.
(h) "Specified Period" means the period of time commencing at the Effective
Time and ending immediately following the annual meeting of shareholders of the
Corporation to be held in 2005.
Section 2. Board of Directors.
(a) At the Effective Time, the Board of Directors shall consist of twelve
directors comprised of an equal number of List A Directors and List B
Directors. During the Specified Period, upon the affirmative vote of at least
66 2/3 percent of the members of the entire Board of Directors, including the
affirmative vote of at least one List A Director and one List B Director, the
Board of Directors may reduce the number of members of the Board of Directors;
provided that, the Board of Directors shall be comprised of an equal number of
List A Directors and List B Directors throughout the Specified Period.
(b) During the Specified Period, in addition to any voting requirement
imposed by applicable law, the Corporation's Article of Incorporation or these
Bylaws, any action of the Board of Directors or any committee thereof shall
require the affirmative vote of at least one List A Director and one List B
Director. During the Specified Period, without the affirmative vote of at least
66 2/3 percent of the members of the entire Board of Directors, including the
affirmative vote of at least one List A Director and one List B Director,
(i) the Chairman of the Board of Directors at the Effective Time and the
President and Chief Executive Officer of the Corporation at the Effective
Time may not be terminated or otherwise removed from such positions;
(ii) the powers and duties of the Chairman of the Board of Directors at
the Effective Time and of the President and Chief Executive Officer of the
Corporation at the Effective Time may not be diminished;
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(iii) the Board of Directors may not propose any amendment to the
Articles of Incorporation of the Corporation for submission to the
shareholders of the Corporation that would have the effect of eliminating,
limiting, restricting, avoiding or otherwise modifying the effect of the
provisions set forth in this Article X;
(iv) the Corporation may not sell, lease, assign, transfer, exchange or
otherwise dispose of all or substantially all of the assets of the
Corporation (including the capital stock or assets of its direct and
indirect subsidiaries), in a single transaction or a series of related
transactions, to any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a
"Person"); and
(v) the Corporation may not agree to or consummate any transaction or
series of related transactions that would result in the acquisition by any
Person of beneficial ownership of 25% or more of either (x) the then
outstanding shares of common stock of the Corporation or (y) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors.
(c) During the Specified Period, without the affirmative vote of all
members of the Board of Directors, the Board of Directors shall not take any
action (including, without limitation, any action to alter, amend or repeal
Article X of these Bylaws or to adopt new Bylaws) or fail to take any action
that would have the effect of eliminating, limiting, restricting, avoiding or
otherwise modifying the effect of the provisions set forth in this Article X
(e.g., by creating a holding company structure if the articles or certificate
of incorporation or other governing documents of such holding company do not
contain equivalent provisions). To the extent that any provision of these
Bylaws is inconsistent or conflicts with this Article X, this Article X shall
govern and be controlling.
Section 3. Committees of Board of Directors.
(a) During the Specified Period, each committee of the Board of Directors
shall consist of four directors comprised of an equal number of List A
Directors and List B Directors thereon. During the Specified Period, the Board
of Directors shall maintain an audit committee, a compensation committee, an
executive committee, a nominating and corporate governance committee and a
safety and environmental committee, each such committee to perform the
functions traditionally performed by such committees except to the extent that
such functions are inconsistent or conflict with this Article X.
(b) The Board of Directors shall have the power to remove any member of any
committee thereof.
Section 4. Recommendations, Nominations and Designations of Directors.
(a) During the Specified Period, the Nominating Committee shall have the
power and authority, and is entrusted with the responsibility, to recommend to
the Board of Directors (i) from the candidates suggested by the List A
Directors and List B Directors, as provided below in this subsection (a), (x)
candidates for election to the Board of Directors at any annual or special
meeting of the shareholders of the Corporation, such slate of candidates to be
comprised of an equal number of List A Directors and List B Directors, and (y)
candidates to fill any vacancies occurring in the Board of Directors and (ii)
except for vacancies occurring in the members of the Nominating Committee,
candidates to fill any vacancies occurring in the members of any committee of
the Board of Directors. The List A Directors shall suggest to the Nominating
Committee candidates for election to the Board of Directors as List A Directors
or to fill vacancies in the List A Directors, as the case may be, as promptly
as reasonably practicable before any annual or special meeting of the
shareholders of the Corporation for the election of directors or after any
vacancy occurs in the List A Directors. The List B Directors shall suggest to
the Nominating Committee candidates for election to the Board of Directors as
List B Directors or to fill vacancies in the List B Directors, as the case may
be, as promptly as reasonably practicable before any annual or special meeting
of the shareholders of the Corporation for the election of directors or after
any vacancy occurs in the List B Directors. The Nominating Committee shall only
consider the candidates suggested by the List A Directors or
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List B Directors as provided above. If a suggested candidate is not approved by
the Nominating Committee for recommendation to the Board of Directors, then the
List A Directors or List B Directors, as the case may be, shall promptly
suggest a replacement candidate for the suggested candidate not so approved.
(b) During the Specified Period, the Nominating Committee shall endeavor in
good faith to recommend a candidate to fill any vacancy occurring in the Board
of Directors or the members of any committee thereof (for which the Nominating
Committee has responsibility) as promptly as reasonably practicable after such
vacancy occurs and a list of suggested candidates is received from the List A
Directors or List B Directors, as applicable.
(c) During the Specified Period, the Nominating Committee shall endeavor in
good faith to only recommend for election to the Board of Directors or to fill
vacancies on the Board of Directors or any committee thereof (for which the
Nominating Committee has responsibility) candidates who are qualified to serve
on the Board of Directors or the applicable committee thereof. The Nominating
Committee's assessment as to the qualifications of candidates for election to,
or to fill vacancies on, the Board of Directors shall include, without
limitation, consideration of each candidates ability to perform his or her
duties as part of an effective, functioning board of directors and also
consideration of the independence, financial expertise, skills, experience, and
diversity needs of the Board of Directors. During the Specified Period, a
candidate to fill a vacancy on any committee of the Board of Directors may only
be from the directors who have the same designation (either as a List A
Director or List B Director) as the director to be replaced by such candidate.
(d) During the Specified Period, the Board of Directors shall have the
power to nominate candidates recommended by the Nominating Committee for
election to the Board of Directors at any annual or special meeting of the
shareholders of the Corporation. No director on the Board of Directors shall
unreasonably withhold his or her approval of any candidate recommended by the
Nominating Committee as a nominee for election to the Board of Directors. In
the event that, during the Specified Period, a person is validly designated as
a nominee in accordance with this subsection (d) and shall thereafter become
unable or unwilling to stand for election to the Board of Directors, the
Nominating Committee shall identify and recommend a substitute nominee for
consideration by the Board of Directors in accordance with subsections (a) and
(c). If, during the Specified Period, an individual is elected as a director of
the Corporation at any meeting of the shareholders who was not nominated
pursuant to, or who was nominated in violation of, the provisions of this
Section 4, such individual will be deemed to have the status, as a List A
Director or List B Director, of the former director he or she was elected in
lieu of. If, during the Specified Period, multiple individuals are elected as
directors of the Corporation at any meeting of the shareholders who were not
nominated pursuant to, or who were nominated in violation of, the provisions of
this Section 4 and it is not possible to determine whom they were elected in
lieu of, their status as List A Directors or List B Directors shall be
determined by the entire Board of Directors, such that the Board of Directors
thereafter has an equal number of List A Directors and List B Directors.
(e) During the Specified Period, the Board of Directors shall have the
power to fill any vacancies occurring in the Board of Directors or any
committee thereof (other than the Nominating Committee for which the Nominating
Committee shall not have any power to recommend directors to fill any vacancies
occurring therein) with candidates recommended by the Nominating Committee to
fill any such vacancies. No director on the Board of Directors shall
unreasonably withhold his or her approval of any candidate recommended by the
Nominating Committee to fill any such vacancy. During the Specified Period, the
Board of Directors shall have the power to identify and approve candidates to
fill any vacancies occurring in the members of the Nominating Committee. During
the Specified Period, a candidate to fill a vacancy in the members of the
Nominating Committee may only be from the directors who have the same
designation (either as a List A Director or List B Director) as the director to
be replaced by such candidate. The Board of Directors shall endeavor in good
faith to fill any vacancy occurring in the Board of Directors or any committee
thereof as promptly as reasonably practicable after such vacancy occurs.
(f) To the extent that any candidate recommended by the Nominating
Committee for election to the Board of Directors is an incumbent director,
during the Specified Period each such candidate who is approved by the
D-13
Board of Directors as a nominee for election to the Board of Directors shall
retain his or her designation as either a List A Director or a List B Director.
During the Specified Period, the Nominating Committee shall recommend to the
Board of Directors the designation, as either a List A Director or List B
Director, of any recommended candidate for election to the entire Board of
Directors who is not then an incumbent director, such that an equal number of
List A Directors and List B Directors are recommended for election to the Board
of Directors. Any candidate for election to the Board of Directors who is not
an incumbent director and who is approved by the Board of Directors as a
nominee for election to the Board of Directors shall have the designation as a
List A Director or List B Director that is recommended by the Nominating
Committee based on the suggestions of the List A Directors and List B Directors
provided pursuant to subsection (a). During the Specified Period, a candidate
recommended to fill a vacancy in the Board of Directors or in the members of
any committee thereof shall have the same designation (either as a List A
Director or List B Director) as the director to be replaced by such candidate.
Section 5. Officers.
(a) During the Specified Period, the Chairman of the Board shall (i)
preside at all meetings of the Board of Directors, (ii) in the event that the
Chief Executive Officer shall be unable to serve due to temporary illness or
other disability or shall resign or be terminated, act in place and stead of
the Chief Executive Officer until the Chief Executive Officer shall resume his
or her duties or another person shall be appointed by the Board of Directors as
Chief Executive Officer, and (iii) perform such other duties, if any, as may be
specified by the Board of Directors from time to time.
(b) During the Specified Period, the Chief Executive Officer shall (i)
exercise those duties specified in Article IV, Section 5 hereof, (ii) in the
event the Chairman of the Board shall be unable to serve due to temporary
illness or other disability or shall resign or be terminated, act in place and
stead of the Chairman of the Board until the Chairman of the Board shall resume
his or her duties or another person shall be appointed by the Board of
Directors as Chairman of the Board, and (iii) perform such other duties, if
any, as may be specified by the Board of Directors from time to time.
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[LOGO]
CREDIT | FIRST CREDIT SUISSE FIRST BOSTON LLC
SUISSE | BOSTON
Eleven Madison Avenue Tel 1 212 325 2000
New York, NY 10010-3629 www.csfb.com
ANNEX E
March 30, 2003
Board of Directors
Holly Corporation
100 Crescent Court, Suite 1600
Dallas, Texas 75201
Members of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of shares of common stock, par value $.01 per
share (the "Holly Common Stock"), of Holly Corporation ("Holly") of the Merger
Consideration (as defined below) contemplated by the Agreement and Plan of
Merger (the "Merger Agreement"), to be entered into by and among Frontier Oil
Corporation ("Frontier"), Front Range Himalaya Corporation, a new holding
company ("New Parent"), Front Range Merger Corporation, a direct wholly owned
subsidiary of New Parent ("Front Range Merger Sub"), Himalaya Merger
Corporation, a direct wholly owned subsidiary of New Parent ("Himalaya Merger
Sub") and Holly. The Merger Agreement provides for, among other things, the
merger of Front Range Merger Sub with Frontier (the "Frontier Merger") and the
merger of Himalaya Merger Sub with Holly (the "Holly Merger" and, together with
the Frontier Merger, the "Mergers"). Upon consummation of the Mergers, Frontier
and Holly will become wholly owned subsidiaries of New Parent. In the Frontier
Merger, each outstanding share of common stock, without par value (the
"Frontier Common Stock"), of Frontier will be converted into the right to
receive one share of common stock, par value $.01 per share (the "New Parent
Common Stock"), of New Parent. In the Holly Merger, each outstanding share of
Holly Common Stock will be converted into the right to receive (i) one share of
New Parent Common Stock (the "Stock Consideration"), (ii) an amount of cash
equal to the quotient of $172,500,000 divided by the Total Holly Common Stock
Number (as defined in the Merger Agreement) (the "Cash Consideration"), and
(iii) one contingent value right ("CVR") representing the right of the holder
thereof to receive an amount of cash based on a specified portion of any
recoveries relating to certain jet fuel claims of Holly or certain of its
subsidiaries as described in the Merger Agreement (the "CVR Consideration" and,
together with the Stock Consideration and the Cash Consideration, the "Merger
Consideration").
In arriving at our opinion, we have reviewed a draft of the Merger Agreement
dated March 30, 2003 and certain other related agreements, as well as certain
publicly available business and financial information relating to Holly and
Frontier. We have also reviewed certain other information relating to Holly and
Frontier, including financial forecasts, provided by or discussed with Holly
and Frontier, and have met with the managements of Holly and Frontier to
discuss the business and prospects of Holly and Frontier, respectively. We have
also considered certain financial and stock market data of Holly and Frontier,
and we have compared that data with similar data for other publicly held
companies in businesses we deemed similar to those of Holly and Frontier, and
we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have been
effected or announced. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market
criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the publicly available financial forecasts that we have reviewed,
the managements of Holly and Frontier have advised us, and we have assumed,
that such forecasts represent reasonable estimates and judgments as to the
future financial performance of Holly and Frontier, respectively. With respect
to the non-publicly available financial forecasts that we have reviewed, the
managements of Holly and Frontier have advised us, and we have assumed, that
such forecasts represent the best currently available estimates and judgments
of the
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[LOGO]
CREDIT FIRST
SUISSE BOSTON
Board of Directors
Holly Corporation
March 30, 2003
Page 2
managements of Holly and Frontier as to the future financial performance of
Holly and Frontier, respectively. In addition, we have relied upon, without
independent verification, the assessment of the management of Holly as to the
strategic benefits and potential cost savings (including the amount, timing and
achievability thereof) anticipated to result from the Mergers. The management
of Holly has informed us, and we have assumed, that the Holly Merger and the
Frontier Merger will be treated as tax-free reorganizations for federal income
tax purposes and/or the Mergers will be treated as a tax-free exchange for
federal income tax purposes. We have assumed that the Merger Agreement, when
executed, will conform to the draft reviewed by us in all respects material to
our analysis. We also have assumed, with your consent, that in the course of
obtaining necessary regulatory and third party approvals and consents for the
Mergers, no modification, delay, limitation, restriction or condition will be
imposed that will have an adverse effect on Holly, Frontier or New Parent or
the contemplated benefits of the Mergers and that the Mergers will be
consummated in accordance with the terms of the Merger Agreement, without
waiver, modification or amendment of any material term, condition or agreement
therein. In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Holly or Frontier, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon information
made available to us as of the date hereof, and upon financial, economic,
market and other conditions as they exist and can be evaluated on the date
hereof. We are not expressing any opinion as to what the value of New Parent
Common Stock or the CVRs actually will be when issued to the holders of Holly
Common Stock pursuant to the Mergers or the prices at which shares of New
Parent Common Stock will trade at any time. Our opinion does not address the
relative merits of the Mergers as compared to other business strategies that
might be available to Holly, nor does it address the underlying business
decision of Holly to proceed with the Mergers. In addition, our opinion does
not address any aspect or implication of any agreement between any stockholder
of Holly and Frontier or any of its affiliates in connection with the Merger
Agreement or the transactions contemplated thereby. We were not requested to,
and did not, solicit third party indications of interest in acquiring all or
any part of Holly.
We have acted as financial advisor to Holly in connection with the Mergers and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Mergers. In the past, we and our
affiliates have provided investment banking and financial services to Holly and
Frontier unrelated to the Mergers for which we have received compensation, and
we may, in the future, provide investment banking and financial services to
Holly, Frontier or New Parent for which we would expect to receive
compensation. We or one or more of our affiliates may, with your consent,
provide or arrange, or seek to provide or arrange, financing for Frontier or
New Parent in connection with the Mergers. In the ordinary course of our
business, we and our affiliates may actively trade the debt and equity
securities of Holly and Frontier for our and our affiliates' own accounts and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Holly in connection with its consideration of the Mergers and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote or act on any matter relating to the Mergers.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Merger Consideration is fair, from a financial point of view, to
the holders of Holly Common Stock.
Very truly yours,
/s/ CREDIT SUISSE FIRST BOSTON LLC
E-2
File No. 333-105186
ANNEX F
PETRIE PARKMAN & Co.
600 Travis, Suite 7400
Houston, Texas 77002
713/650-3383 . Fax: 713/650-8461
March 28, 2003
Board of Directors
Frontier Oil Corporation
10000 Memorial Drive
Suite 600
Houston, TX 77024-3411
Members of the Board:
Frontier Oil Corporation, a Wyoming corporation ("Frontier"), Front Range
Himalaya Corporation, a Wyoming corporation ("Parent"), Front Range Merger
Corporation, a Delaware corporation and a direct wholly owned subsidiary of
Parent ("Merger Sub One"), Himalaya Merger Corporation, a Delaware corporation
and direct wholly owned subsidiary of Parent ("Merger Sub Two"), and Holly
Corporation, a Delaware corporation ("Holly"), propose to enter into an
agreement and plan of merger (the "Merger Agreement"), which provides for,
among other things, (a) the merger of Merger Sub One with and into Frontier
with Frontier continuing as the surviving corporation and becoming a wholly
owned subsidiary of Parent (the "Frontier Merger"), and in such merger each
outstanding share of common stock, without par value, of Frontier ("Frontier
Common Stock") (other than Frontier Dissenting Shares, treasury stock held by
Frontier or shares of Frontier Common Stock owned by Parent, Frontier, Merger
Sub One, Merger Sub Two, any wholly owned Frontier Subsidiary or any wholly
owned Parent Subsidiary) being converted into one (1) share of Parent Common
Stock ("Frontier Merger Consideration"), and (b) the merger of Merger Sub Two
with and into Holly with Holly continuing as the surviving corporation and
becoming a wholly owned subsidiary of Parent (the "Holly Merger"), and in such
merger each outstanding share of common stock, par value $.01 per share, of
Holly ("Holly Common Stock") (other than Holly Dissenting Shares, treasury
stock held by Holly or shares of Holly Common Stock owned by Parent, Holly,
Merger Sub One, Merger Sub Two, any wholly owned Holly Subsidiary or any wholly
owned Parent Subsidiary) being converted into the right to receive (i) one (1)
share of Parent Common Stock (the "Stock Consideration"), (ii) an amount of
cash (the "Cash Consideration") equal to the quotient of (x) $172,500,000
divided by (y) the Total Holly Common Stock Number determined as of the
Effective Time and (iii) a contingent value right representing the right to
receive a portion of the net cash recovery by the Holly Subsidiaries and their
affiliates in the lawsuit filed by the Holly Subsidiaries against the United
States in the United States Court of Federal Claims relating to jet fuel sales
by the Holly Subsidiaries to the Defense Fuel Supply Center, and the claims
filed against the Department of Defense under the Contract Disputes Act, as
more fully provided in Section 2.2(b)(iii) of the Merger Agreement. All terms
not otherwise defined herein have the meanings ascribed to them in the Merger
Agreement.
You have requested our opinion as to whether the Frontier Merger
Consideration to be received by the Frontier stockholders in the Frontier
Merger (after taking into account the Holly Merger) is fair, from a financial
point of view, to the stockholders of Frontier.
DENVER LONDON
475 Seventeenth Street, Suite 1100 35 Abbotsbury Road
Denver, Colorado 80202 London W14 8EL
303/292-3877 . Fax: 303/292-4284 4420/7460-0902 . Fax: 4420/7460-0906
F-1
Board of Directors
Frontier Corporation
March 28, 2003
Page 2
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial information
relating to Frontier, including its Annual Report on Form 10-K and
related audited financial statements for the fiscal years ended December
31, 2002, December 31, 2001, December 31, 2000, December 31, 1999 and
December 31, 1998;
2. reviewed certain publicly available business and financial information
relating to Holly, including (i) its Annual Report on Form 10-K and
related audited financial statements for the fiscal years ended July 31,
2002, July 31, 2001, July 31, 2000, July 31, 1999 and July 31, 1998, and
(ii) its Quarterly Report on Form 10-Q and related unaudited financial
statements for the fiscal quarters ended January 31, 2003 and October
31, 2002;
3. reviewed certain historical and projected financial and operating data
of (i) Frontier prepared by the management and staff of Frontier with
the management of Frontier and Holly, and (ii) Holly prepared by the
management and staff of Holly with the management of Holly and Frontier;
4. discussed the current operations and prospects of Frontier and Holly
with the management and staff of Frontier and Holly;
5. reviewed the historical market prices and trading history of the
Frontier Common Stock and the Holly Common Stock;
6. compared recent stock market capitalization indicators for Frontier and
Holly with recent stock market capitalization indicators for certain
other publicly-traded independent refining and marketing companies;
7. compared the financial terms of the Frontier Merger and the Holly Merger
with the financial terms of other transactions that we deemed to be
relevant;
8. discussed current and historical accounting matters and audits of
Frontier and Holly with their respective independent auditors;
9. reviewed a draft dated March 27, 2003 of the Merger Agreement; and
10. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we have
deemed necessary or appropriate.
In connection with our opinion, we have assumed and relied upon, without
assuming any responsibility for, or independently verifying, the accuracy and
completeness of any information supplied or otherwise made available to us by
Frontier and Holly. We have further relied upon the assurances of the
management of Frontier and Holly that they are not aware of any facts that
would make the information, in light of the circumstances in which it was
provided or obtained, incomplete or misleading in any material respect. With
respect to projected financial and operating data, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Frontier and Holly, as the case
may be, relating to the future financial and operational performance of
Frontier and Holly. With respect to: (i) the costs associated with current and
projected future liabilities for environmental matters, and (ii) the risks
associated with Longhorn Pipeline, we have assumed that they have been
reasonably assessed on bases reflecting the best currently available estimates
and judgments of the management of Frontier and Holly, as the case may be. We
have not made an independent evaluation or appraisal of the assets or
liabilities of Frontier, Holly or any of their respective subsidiaries, nor,
have we been furnished with any such evaluations or appraisals. In addition, we
have not assumed any obligation to conduct, nor have we conducted, any physical
inspection of the facilities of either Frontier, Holly or any of their
respective subsidiaries.
F-2
Board of Directors
Frontier Corporation
March 28, 2003
Page 3
In developing our opinion, we have assumed that the Merger Agreement
executed and delivered by the parties will contain financial and economic terms
and otherwise be substantially similar to the draft Merger Agreement reviewed
by us. We have further assumed that the transactions will be consummated on the
terms and conditions contemplated in the Merger Agreement. Our opinion does not
address the relative merits of the transaction as compared to other business
strategies that might be available to Frontier, nor does it address the
underlying business decision of Frontier to proceed with the transactions
contemplated by the Merger Agreement. In addition, our opinion assumes the
legal, tax, regulatory and accounting consequences that have been disclosed to
us. We have been advised by the management of Frontier, and we have assumed
that Frontier has received advice on such matters from qualified persons.
Our opinion relates solely to the fairness from a financial point of view of
the Frontier Merger Consideration (after taking into account the Holly Merger)
to the stockholders of Frontier. This opinion is for the information of the
Board of Directors of Frontier and does not constitute a recommendation to any
holder of Frontier Common Stock or Holly Common Stock as to how such
stockholder should vote on the Merger. In addition, we have not been asked to
consider, and our opinion does not address, the prices at which the Frontier
Common Stock or the Holly Common Stock will trade following the announcement,
or the prices at which the Parent Common Stock will trade following
consummation, of the transactions contemplated by the Merger Agreement. As you
are aware, we have been retained by Frontier in connection with the Frontier
Merger and will receive a fee from Frontier for our services, a substantial
portion of which is contingent upon the consummation of the Frontier Merger or
Frontier receiving any payment from another party as a result of the
termination or the cancellation of Frontier's efforts to effect the
transactions contemplated by the Merger Agreement. In addition, Frontier has
agreed to indemnify us for certain liabilities arising out of our engagement.
In the ordinary course of business, we or our affiliates may trade in the debt
or equity securities of Frontier or Holly for the accounts of our customers or
for our own account and, accordingly, may at any time hold a long or short
position in such securities. In the past, certain of our professionals have
provided investment banking and financial services to Frontier and Holly, and
we may, in the future, provide investment banking and financial services to
Parent for which we would expect to receive compensation.
Our opinion is rendered on the basis of conditions in the securities markets
as they exist and can be evaluated on the date hereof and the conditions and
prospects, financial or otherwise, of Frontier and Holly as they have been
represented to us as of the date hereof or as they were reflected in the
materials and discussions described above. It should be understood that
subsequent developments may affect the conclusion expressed in this opinion and
we disclaim any undertaking or obligation to advise any person of any change in
any matter affecting this opinion which may come or be brought to our attention
after the date of this opinion. This opinion is not to be used for any other
purpose, or be reproduced, disseminated, quoted from or referred to at any
time, in whole or in part, without our prior written consent; provided,
however, that this opinion may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of Frontier Common Stock
in connection with the Frontier Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Frontier Merger Consideration to be received by the Frontier
stockholders in the Frontier Merger (after taking into account the Holly
Merger) is fair, from a financial point of view, to the stockholders of
Frontier.
Very truly yours,
PETRIE PARKMAN & CO., INC.
By: /s/ JON C. HUGHES
-----------------------------
F-3
ANNEX G
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 30,
2003, by and among Front Range Himalaya Corporation, a Wyoming corporation (the
"Company"), and the parties hereto that have executed and delivered to the
Company counterparts hereof that have been accepted by the Company as evidenced
by the Company's listing such parties on Exhibit A hereto (collectively, the
"Initial Holders").
W I T N E S S E T H:
WHEREAS, the Company, Front Range Corporation, a Wyoming corporation, Holly
Corporation, a Delaware corporation, and certain other parties have entered
into an Agreement and Plan of Merger (the "Merger Agreement") dated as of March
30, 2003, pursuant to which each of the Initial Holders shall receive a number
of shares of Common Stock, par value $0.01 per share ("Common Stock"), of the
Company to be determined as set forth therein;
WHEREAS, in order to induce each of the Initial Holders to enter into a Rule
145 Agreement (as defined in the Merger Agreement), the Company has agreed to
grant certain registration rights to the Initial Holders with respect to such
shares of Common Stock as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
As used herein, the following terms have the indicated meanings, unless the
context otherwise requires:
"Commission" means the Securities and Exchange Commission.
"Effective Time" has the meaning set forth in the Merger Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Holder" means an Initial Holder or any permitted transferee thereof who
owns Registrable Shares.
"Majority in Interest" means Holders who hold a majority of the Registrable
Shares.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or other entity or organization, including
any government and any agency or instrumentality thereof.
"Registrable Shares" means all shares of Common Stock received by the
Holders pursuant to the Merger Agreement (including any Common Stock issuable
upon the exercise of Parent Stock Options (as defined in the Merger Agreement),
together with any securities issued or issuable by the Company with respect to
any such shares of Common Stock by way of a stock dividend or other
distribution or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization. Any Registrable
Shares will cease to be such when (i) a registration statement covering the
sale of such Registrable Shares has become effective under the Securities Act
and such securities have been disposed of in accordance with such effective
registration statement, (ii) such Registrable Shares have been distributed by
the Holders to the public pursuant to Rule 144 or 145 (or any similar provision
then in force) under the Securities Act, (iii) such Registrable Shares
G-1
may be resold to the public without restriction under the Securities Act in
accordance with Rule 144(k), (iv) such Registrable Shares have been otherwise
transferred by the Holders, new certificates representing the transferred
securities not bearing a legend restricting further transfer have been
delivered by the Company to the transferees thereof and the subsequent
disposition of such securities shall not require registration or qualification
of such securities under the Securities Act or any similar state law then in
force, or (v) such securities have ceased to be outstanding.
"Registration Statement" has the meaning set forth in the Merger Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. Shelf Registration.
The Company agrees that it shall file with the Commission on Form S-3 (or
any successor form) a shelf registration statement pursuant to Rule 415 of the
Securities Act (a "Shelf Registration") covering the offer and resale by the
Holders of all the Registrable Shares and shall use its reasonable best efforts
to cause the Shelf Registration to be declared effective by the Commission
promptly after the Effective Time. The offer and resale of such shares shall be
pursuant to a plan of distribution as proposed by a Majority in Interest and
approved by the Company, which approval will not be unreasonably withheld;
provided that such plan of distribution shall not include an underwritten
public offering. The Company shall be required to maintain the effectiveness of
the Shelf Registration for a period of two years from the Effective Time.
3. Registration Procedures.
Pursuant to the Company's covenant herein to effect a Shelf Registration,
the Company will, subject to the provisions of this Agreement, use its
reasonable best efforts to effect the registration in a manner that permits the
sale of the Registrable Securities covered thereby in accordance with the
intended method or methods of disposition. The Company shall:
(a) use its reasonable best efforts to prepare and file with the
Commission a Form S-3 registration statement (or any successor form) with
respect to the Registrable Shares as soon as possible after the Commission
declares the Registration Statement effective;
(b) use its reasonable best efforts to have all comments that the
Commission may have with respect to the Shelf Registration resolved with the
Commission prior to the Effective Time;
(c) use its reasonable best efforts to file with the Commission
immediately after the Effective Time a Form 8-K Report (or any successor
form) required in connection with the Mergers (as defined in the Merger
Agreement) ("Form 8-K"), including the financial statements required by Item
2 and Item 7 of Form 8-K;
(d) use its reasonable best efforts to cause the Shelf Registration to
be declared effective by the Commission promptly after the Effective Time;
(e) (i) prepare and file with the Commission such amendments,
post-effective amendments and supplements to the Shelf Registration as may
be necessary to keep the Shelf Registration effective for a period of two
years from the Effective Time, and (ii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
the Shelf Registration during the applicable period in accordance with the
intended methods of disposition by the Holders set forth in the Shelf
Registration or prospectus supplement.
(f) furnish to each Holder of Registrable Shares such number of copies
of the Shelf Registration, each amendment and supplement thereto, the
prospectus included in the Shelf Registration (including each preliminary
prospectus), any documents incorporated by reference therein and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such
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Holder (it being understood that, subject to Section 4 and the requirements
of the Securities Act and applicable state securities laws, the Company
consents to the use of the prospectus and any amendment or supplement
thereto by each Holder in connection with the offering and sale of the
Registrable Shares covered by the registration statement of which such
prospectus, amendment or supplement is a part);
(g) use commercially reasonable efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the Holders reasonably request to the extent such
registration or qualification is required; use reasonable best efforts to
keep each such registration or qualification (or exemption therefrom)
effective during the period in which the Shelf Registration is required to
be kept effective; and do any and all other acts and things which may be
reasonably necessary or advisable to enable each Holder to consummate the
disposition of the Registrable Shares owned by such Holder in such
jurisdictions (provided, however, that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (ii) consent
to general service of process in any such jurisdiction);
(h) promptly notify each Holder and (if requested by any Holder) confirm
such notice in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed and, with respect to a registration
statement or any post-effective amendment, when the same has become
effective, (ii) of the issuance by any state securities or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Shares under state securities or
"blue sky" laws or the initiation of any proceedings for that purpose, and
(iii) of the happening of any event which makes any statement made in a
registration statement or related prospectus untrue in any material respect
or which requires the making of any changes in such registration statement,
prospectus or documents so that they will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, as
soon as practicable thereafter, prepare and file with the Commission and
furnish a supplement or amendment to such prospectus so that, as thereafter
deliverable to the purchasers of such Registrable Shares, such prospectus
will not contain any untrue statement of a material fact or omit a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(i) make generally available to the Company's securityholders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of a registration statement, which
earnings statement shall cover said 12-month period, and which requirement
will be deemed to be satisfied if the Company timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and
otherwise complies with Rule 158 under the Securities Act;
(j) if reasonably requested by any Holder, promptly incorporate in a
prospectus supplement or post-effective amendment such information as any
Holder reasonably requests to be included therein (relating to the naming of
additional Holders therein or specifying the number of Registrable Shares
held by each such Holder), and promptly make all required filings of such
prospectus supplement;
(k) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement
(in the form in which it was incorporated), deliver a copy of each such
document to each Holder upon such Holder's written request;
(l) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing securities sold under any
registration statement, and enable such securities to be in such
denominations and registered in such names as such Holders may request and
keep available and make available to the Company's transfer agent prior to
the effectiveness of such registration statement a supply of such
certificates;
(m) promptly make available for inspection by any Holder and any
attorney, accountant or other agent or representative retained by any such
Holder (collectively, the "Inspectors"), all publicly available documents of
the Company (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility;
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(n) use its reasonable best efforts to cause the Registrable Shares
included in any registration statement to be (i) listed on each securities
exchange, if any, on which securities of the same type issued by the Company
are then listed, or (ii) authorized to be quoted and/or listed (to the
extent applicable) on the Nasdaq National Market if the Registrable Shares
so qualify;
(o) provide a CUSIP number for the Registrable Shares included in any
registration statement not later than the effective date of such
registration statement;
(p) cooperate with each Holder participating in the disposition of such
Registrable Shares and their respective counsel in all reasonable respects
in connection with any filings required to be made with the National
Association of Securities Dealer, Inc. ("NASD");
(q) during the period when the prospectus is required to be delivered
under the Securities Act, file within the required time periods all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act;
(r) notify each Holder promptly of any request by the Commission for an
amendment or supplement to such registration statement or prospectus or for
additional information; and
(s) advise each Holder, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for such purpose and promptly
use all commercially reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
4. Suspension of Dispositions.
Each Holder agrees that, upon receipt of any notice (a "Suspension Notice")
from the Company of the happening of any event of the kind described in Section
3(h)(iii), such Holder will forthwith discontinue disposition of Registrable
Shares pursuant to any prospectus until such Holder's receipt of the copies of
the supplemented or amended prospectus, or until it is advised in writing (the
"Advice") by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings, which are
incorporated by reference in the prospectus, and, if so directed by the
Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Shares current at the time of receipt of such notice.
The Company shall use its reasonable best efforts and take such actions as are
necessary to render the Advice as soon as practicable.
5. Rule 145.
The Company covenants that it will, for a period beginning upon the first
anniversary of the Effective Time and ending upon the second anniversary of the
Effective Time, file any reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action
as the Holders may reasonably request to the extent required from time to time
to enable the Holders to sell Registrable Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 145
under the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such reporting requirements. If
any Holder proposes to sell Registrable Shares pursuant to Rule 145, the
Company shall cooperate with such Holder to enable such sale to be made in
accordance with applicable laws, rules and regulations, the requirements of the
Company's transfer agent, and the reasonable requirements of the broker, if
any, through which the sales are proposed to be executed.
6. Registration Expenses.
All expenses incident to the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and filing
fees, messenger and delivery expenses, printing expenses, internal
G-4
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), all fees and
expenses associated with filings required to be made with the NASD, as may be
required by the rules and regulations of the NASD, fees and expenses of
compliance with securities or "blue sky" laws (including reasonable fees and
disbursements of counsel in connection with "blue sky" qualifications of the
Registrable Shares), rating agency fees, the fees and expenses incurred in
connection with the listing of the securities to be registered on all
securities exchanges on which similar securities issued by the Company are then
quoted or listed, fees and disbursements of counsel for the Company and its
independent certified public accountants, and the fees and expenses of any
other Persons retained by the Company, in connection with the registration
hereunder (collectively, the "Registration Expenses") will be borne by the
Company, but not including fees and expenses of counsel for the Holders and any
underwriting, broker or dealer discounts or commissions attributable to the
sale of Registrable Shares (which are hereinafter referred to as "Selling
Expenses"). All Selling Expenses shall be borne solely by the Holders.
7. Indemnification.
(a) Indemnification by the Company. The Company will indemnify and hold
harmless the Holders, their officers, directors, agents (including without
limitation counsel) and employees and each Person who controls the Holders
(within the meaning of the Securities Act or the Exchange Act) (each, a
"Controlling Person") from and against any and all losses, claims, damages and
liabilities ("Losses") (including without limitation any investigation, legal
or other expenses reasonably incurred in connection with, and, subject to
Section 7(d) any amount paid in settlement of, any action, suit or proceeding
or any claim asserted) to which the Holders may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such Losses arise out of,
are based upon, relate to or result from (a) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment or supplement thereto or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading or
(b) any violation by the Company of the Securities Act or the Exchange Act, or
other federal or state law applicable to the Company and relating to any action
or inaction required of the Company in connection with such registration. The
Company shall reimburse the Holders or such officer, director, agent (including
without limitation counsel), employee or Controlling Person for any legal or
other expenses reasonably incurred by such Person in connection with
investigating or defending against any Losses as they are incurred; provided,
however, that the Company will not be liable to a Holder for any Losses if any
such Losses arise out of or are based upon any alleged untrue statement or
alleged omission made in such registration statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for
use therein. Such indemnity will remain in full force and effect regardless of
any investigation made by or on behalf of the Holders or such officer,
director, agent (including without limitation counsel), employee or Controlling
Person, and will survive the transfer of such securities by the Holders. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of the Securities Act or the Exchange Act) to the same extent
customarily requested by such Persons in similar circumstances. Reimbursement
will be made periodically during the course of investigation when bills are
received or expenses incurred, subject to the Holders' obligation to reimburse
the Company pursuant to the Wyoming Business Corporation Act. Notwithstanding
anything to the contrary in this Section 7, the Company shall not be liable for
any untrue statement or omission in any preliminary prospectus if the Company,
sufficiently in advance of Holder's delivery of such preliminary prospectus,
notified Holder of any untrue statement or omission contained therein and
furnished Holder with a corrected preliminary prospectus.
(b) Indemnification by Holder of Registrable Securities. If any Holder
sells Registrable Securities under a prospectus that is part of a registration
statement, then such Holder (the "Indemnifying Holder"), agrees, severally, and
not jointly and severally, to indemnify and hold harmless the Company, its
directors and each officer who signed such registration statement, each Person
who controls the Company (within the meaning of
G-5
the Securities Act and Exchange Act) under the same circumstances as the
foregoing indemnity from the Company to the Holders to the extent, but only to
the extent, that such Losses arise out of or are based upon any untrue
statement of a material fact or omission of a material fact that was made in
the prospectus, any preliminary prospectus, the registration statement, or any
amendment or supplement thereto, in reliance upon and in conformity with
written information relating to the Indemnifying Holder furnished to the
Company by the Indemnifying Holder expressly for use therein. In no event will
the aggregate liability of the Indemnifying Holder exceed the amount of the net
proceeds received by the Indemnifying Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. Such indemnity will
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or such officer, director, employee or Controlling
Person, and will survive the transfer of such securities by the Indemnifying
Holder. The Company and the Holders will be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
customarily furnished by such Persons in similar circumstances. Notwithstanding
anything to the contrary in this Section 7, no Holder selling Registrable
Shares shall be liable for any untrue statement or omission in any preliminary
prospectus or registration statement if prior to the registration becoming
effective or prior to the filing of any amendment or supplement thereto, such
Holder has furnished information in writing to the Company expressly for use in
such registration statement or prospectus or any amendment thereof or
supplement thereto correcting such untrue statement or omission and such
information is not contained in the prospectus or such supplement or amendment.
(c) Contribution. If the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which Section 7(a) or
7(b) would otherwise apply by its terms (other than by reason of exceptions
provided in Section 7(a) or 7(b), then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, will have a several, and not joint
and several, obligation to contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party, on the one hand, and indemnified party, on the other hand,
will be determined by reference to, among other things, whether any action in
question, including without limitation any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact,
has been taken or made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses will be deemed to include any legal or other fees or
expenses incurred by such party in connection with any investigation or
proceeding, to the extent such party would have been indemnified for such
expenses if the indemnification provided for in Section 7(a) or 7(b) was
available to such party. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 7(c), no
Holder shall be required to contribute an amount greater than the dollar amount
by which the proceeds received by such Holder with respect to the sale of any
Registrable Securities exceeds the amount of damages which such Holder has
otherwise paid or been required to pay by reason of any and all untrue or
alleged untrue statements of material fact or omissions or alleged omissions of
material fact made in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto related to such sale
of Registrable Securities.
(d) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification (provided that the
failure to give such notice shall not limit the right of such Person except to
the extent that the indemnifying party is materially prejudiced thereby) and
(ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder has the right to employ
separate counsel and to participate in the
G-6
defense of such claim, but the fees and expenses of such counsel will be at the
expense of such Person and not of the indemnifying party unless (A) the
indemnifying party has agreed to pay such fees or expenses, (B) the
indemnifying party has failed to promptly assume the defense of such claim and
employ counsel reasonably satisfactory to such Person, (C) upon the advice of
counsel of the Person to be indemnified, a conflict of interest may exist
between such Person and the indemnifying party with respect to such claims or
(D) the indemnified party's counsel shall have advised the indemnified party
that there are defenses available to the indemnified party that are different
from or in addition to those available to the indemnifying party and that the
indemnifying party is not able to assert on behalf of or in the name of the
indemnified party (in which case, if the Person notifies the indemnifying party
in writing that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party will not have the right to
assume the defense of such claim on behalf of such Person). If such defense is
not assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). Unless otherwise consented to by
the indemnified party in writing, no indemnifying party will consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving to all such indemnified parties of a full
and unconditional release from all liability in respect to such claim or
litigation. Any indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim. As used in this Section, the
terms "indemnifying party," "indemnified party" and other terms of similar
import are intended to include only the Company (and its officers, directors,
employees and each Control Person of the Company as set forth above) on the one
hand, and the Holders (and their officers, directors, agents (including without
limitation counsel) employees and each Control Person of each Holder as set
forth above) on the other hand, as applicable.
8. Miscellaneous.
(a) Binding Effect; Assignability. Unless otherwise provided herein, the
provisions of this Agreement shall be binding upon and accrue to the benefit of
the parties hereto and their respective heirs and legal representatives and
permitted transferees, successors and assigns. Each Holder may assign all or
any part of its rights under this Agreement to any other Holder to whom such
Holder sells, transfers or assigns such Registrable Shares. In the event that
the Holder shall assign its rights pursuant to this Agreement in connection
with the transfer of less than all its Registrable Shares to another Holder,
the Holder shall also retain his rights with respect to its remaining
Registrable Shares.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by the Company and each of the Holders.
(c) Applicable Law. The internal laws of the State of Texas (without
regard to choice of law provisions thereof) shall govern the interpretation,
validity and performance of the terms of this Agreement.
(d) Notices. All notices provided for herein shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by facsimile
or by registered or certified mail, postage prepaid:
(i) if to the Company, to:
Front Range Himalaya Corporation
10,000 Memorial Drive, Suite 600
Houston, Texas 77024
Attention: President
Telecopier: (713) 688-0616
(ii) if to the Holders, to the respective addresses set forth below each
Holder's name on the signature pages hereto.
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(e) Counterparts. This Agreement may be executed and delivered in one or
more counterparts (including by facsimile transmission), each of which shall be
deemed to be an original and all of which together shall be deemed to be one
instrument.
(f) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect.
(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
FRONT RANGE HIMALAYA CORPORATION
By: -----------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
HOLLY AFFILIATES:
/s/: C. LAMAR NORSWORTHY, III
-----------------------------
C. Lamar Norsworthy, III
/s/: MATTHEW P. CLIFTON
-----------------------------
Matthew P. Clifton
/s/: W. JOHN GLANCY
-----------------------------
W. John Glancy
/s/: WILLIAM J. GRAY
-----------------------------
William J. Gray
/s/: MARCUS R. HICKERSON
-----------------------------
Marcus R. Hickerson
/s/: THOMAS K. MATTHEWS, II
-----------------------------
Thomas K. Matthews, II
/s/: ROBERT G. MCKENZIE
-----------------------------
Robert G. McKenzie
/s/: JACK P. REID
-----------------------------
Jack P. Reid
/s/: PAUL T. STOFFEL
-----------------------------
Paul T. Stoffel
/s/: NONA BARRETT
-----------------------------
Nona Barrett
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Betty Simmons East Texas Trust
under agreementdated 8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
Margaret Simmons East Texas Trust
underagreement dated 8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
Suzanne Simmons East Texas Trust
under agreementdated 8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
Betty Simmons Nueces County Trust
underagreement dated 8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
Margaret Simmons Nueces County
Trust underagreement dated
8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
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Suzanne Simmons Nueces County
Trust underagreement dated
8-1-1941
By: Brown Brothers Harriman Trust
Company of Texas, trustee
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Authorized Person
NBN Capital Limited Partnership
By: NBN Asset Management Company,
L.L.C., its general partner
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Manager
NBN Asset Management Company,
L.L.C.
By: /s/ HARRY J. MARTIN
-----------------------------
Harry J. Martin
Manager
IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
FRONTIER AFFILIATES:
/s/ JAMES R. GIBBS
-----------------------------
James R. Gibbs
/s/ JULIE H. EDWARDs
-----------------------------
Julie H. Edwards
/s/ W. REED WILLIAMs
-----------------------------
W. Reed Williams
/s/ DOUGLAS Y. BECH
-----------------------------
Douglas Y. Bech
/s/ G. CLYDE BUCK
-----------------------------
G. Clyde Buck
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/s/ T. MICHAEL DOSSEY
-----------------------------
T. Michael Dossey
/s/ JAMES H. LEE
-----------------------------
James H. Lee
/s/ PAUL B. LOYD, Jr.
-----------------------------
Paul B. Loyd, Jr.
/s/ CARL W. SCHAFER
-----------------------------
Carl W. Schafer
/s/ JAMES S. PALMER
-----------------------------
James S. Palmer
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EXHIBIT A
Name of Initial Holder
C. Lamar Norsworthy, III
Matthew P. Clifton
W. John Glancy
William J. Gray
Marcus R. Hickerson
Thomas K. Matthews, II
Robert G. McKenzie
Jack P. Reid
Paul T. Stoffel
Nona Barrett
Betty Simmons East Texas Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
Margaret Simmons East Texas Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
Suzanne Simmons East Texas Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
Betty Simmons Nueces County Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
Margaret Simmons Nueces County Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
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Suzanne Simmons Nueces County Trust under agreement dated 8-1-1941
By: Brown Brothers Harriman Trust Company of Texas, trustee
Harry J. Martin
Authorized Person
NBN Capital Limited Partnership
By: NBN Asset Management Company, L.L.C.
its general partner
Harry J. Martin, manager
NBN Asset Management Company, L.L.C.
By: Harry J. Martin
Manager
James R. Gibbs
Julie H. Edwards
W. Reed Williams
Douglas Y. Bech
G. Clyde Buck
T. Michael Dossey
James H. Lee
Paul B. Loyd, Jr.
Carl W. Schafer
James S. Palmer
G-14
ANNEX H
FORM OF HOLLY HOLDER SUPPORT AGREEMENT
This HOLLY HOLDER'S SUPPORT AGREEMENT (this "Agreement"), dated as of March
30, 2003, is by and between Frontier Oil Corporation, a Wyoming corporation
("Frontier"), and the undersigned holder (the "Holder") of shares or options to
acquire shares of common stock of Holly Corporation, a Delaware corporation
(the "Holly"). Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the Merger Agreement referenced below.
RECITALS
A. Frontier, Holly and other parties have entered into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement") pursuant
to which Merger Sub Two will merge (the "Merger") with and into Holly, with
Holly surviving the Merger, on the terms and subject to the conditions set
forth in the Merger Agreement;
B. As of the date hereof, Holder "beneficially owns" (as such term is
defined in Rule 13d-3 under the Exchange Act) and Holder is entitled to dispose
of (or to direct the disposition of) and to vote (or to direct the voting of)
the number of shares of Common Stock, par value $0.01 per share, of Holly (the
"Common Stock") set forth beneath the Holder's name on the signature page
hereto, as such shares may be adjusted by stock dividend, stock split,
recapitalization, combination, merger, consolidation, reorganization or other
change in the capital structure of Holly affecting the Common Stock (such
shares of Common Stock, together with any other shares of Common Stock the
voting power over which is acquired by Holder during the period from and
including the date hereof through and including the date on which this
Agreement is terminated in accordance with its terms, are collectively referred
to herein as Holder's "Subject Shares");
C. As a condition to the willingness of Frontier to enter into the Merger
Agreement, and as an inducement and in consideration therefor, Frontier has
required that Holder agree, and Holder has agreed, to enter into this Agreement.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. Voting Agreement And Irrevocable Proxy.
(a) Agreement to Vote the Subject Shares. Holder, solely in Holder's
capacity as a stockholder of Holly, hereby agrees that during the period
commencing on the date hereof and continuing until the termination of this
Agreement (such period, the "Voting Period"), at any meeting (or any
adjournment or postponement thereof) of the holders of any class or classes of
the capital stock of Holly, however called, or in connection with any written
consent of the holders of any class or classes of the capital stock of Holly,
Holder shall vote (or cause to be voted) Holder's Subject Shares (i) in favor
of the approval and adoption of the terms of the Merger Agreement and each of
the other transactions contemplated by the Merger Agreement (and any actions
required in furtherance thereof) at every meeting of the stockholders of Holly
(or in connection with any written consent) at which such matters are
considered and at every adjournment thereof, (ii) against any action, proposal,
transaction or agreement that would result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of
Holly or any of its subsidiaries under the Merger Agreement or of Holder under
this Agreement, and (iii) except as otherwise agreed to in writing in advance
by Frontier, against the following actions or proposals (other than the
transactions contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving Holly or any of its subsidiaries and any Holly
Acquisition Proposal; (B) any sale, lease or transfer of a significant part of
the assets (other than sales of current assets in the ordinary course of
business) of Holly or any of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of Holly or any of its
subsidiaries (each of the actions in clauses (A) or (B), a "Business
Combination"); and (C)(1) any change in the persons who
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constitute the board of directors of Holly that is not approved in advance by
at least a majority of the persons who were directors of Holly as of the date
of this Agreement (or their successors who were so approved); (2) any change in
the present capitalization of Holly or any amendment of Holly's certificate of
incorporation or bylaws; (3) any other material change in Holly's corporate
structure or business; or (4) any other action or proposal involving Holly or
any of its subsidiaries that is intended, or could reasonably be expected, to
prevent, impede, interfere with, delay, postpone, or adversely affect the
transactions contemplated by the Merger Agreement. Any such vote shall be cast
or consent shall be given in accordance with such procedures relating thereto
as shall ensure that it is duly counted for purposes of determining that a
quorum is present and for purposes of recording the results of such vote or
consent. Holder agrees not to enter into any agreement, letter of intent,
agreement in principle or understanding with any person that violates or
conflicts with or could reasonably be expected to violate or conflict with the
provisions and agreements contained in this Agreement or the Merger Agreement.
For the avoidance of doubt, this Agreement is intended to constitute a voting
agreement entered into under Section 218(a) of the Delaware General Corporation
Law for the duration of the Voting Period.
(b) Grant of Irrevocable Proxy. Holder hereby appoints Frontier and any
designee of Frontier, and each of them individually, such Holder's proxy and
attorney-in-fact, with full power of substitution and resubstitution, to vote
or act by written consent during the Voting Period with respect to Holder's
Subject Shares in accordance with Section 1(a). This proxy is given to secure
the performance of the duties of Holder under this Agreement. Holder shall
promptly cause a copy of this Agreement to be deposited with Holly at its
principal place of business. Holder shall execute such other instruments as may
be necessary to effectuate the intent of this proxy.
(c) Nature of Irrevocable Proxy. The proxy and power of attorney granted
pursuant to Section 1(b) by Holder shall be irrevocable during the term of this
Agreement, shall be deemed to be coupled with an interest sufficient in law to
support an irrevocable proxy and shall revoke all prior proxies granted by
Holder. The power of attorney granted herein is a durable power of attorney and
shall survive the dissolution, bankruptcy, death or incapacity of Holder. For
the avoidance of doubt, the proxy and power of attorney is granted pursuant to
Section 212(b) of the Delaware General Corporation Law, is coupled with an
interest and is granted to Frontier a party to this voting agreement which is
created under Section 218(a) of the Delaware General Corporation Law and is
intended to be valid during the Voting Period, which the parties understand and
agree may be more than eleven months from the date hereof.
2. Covenants. Except for pledges in existence as of the date hereof,
Holder agrees that, except as contemplated by the terms of this Agreement,
Holder shall not (a) sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other agreement
with respect to, or consent to, the sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of Holder's Subject
Shares; (b) grant any proxies or powers of attorney in respect of the Subject
Shares, deposit any of Holder's Subject Shares into a voting trust or enter
into a voting agreement with respect to any of Holder's Subject Shares; (c)
exercise any Holly Stock Options or fail to give any requested or required
consent to the conversion of any Holly Stock Options into Parent Stock Options
as provided for in and pursuant to the Merger Agreement; or (d) take any action
that would have the effect of preventing, impeding, interfering with or
adversely affecting Holder's ability to perform Holder's respective obligations
under this Agreement. Notwithstanding the foregoing, nothing herein shall
prevent Holder from assigning or transferring any Subject Shares beneficially
owned by Holder to any spouse, parent, child, trust, trust beneficiary, estate,
family partnership, partner, foundation (whether family, private or public) or
other charitable organization (a "Permitted Transferee") if such Permitted
Transferee agrees in writing to hold any Subject Shares subject to all of the
provisions of this Agreement as Holder hereunder. Holder further agrees to
timely execute and deliver a Holly Rule 145 Agreement as contemplated by the
Merger Agreement.
3. Representations and Warranties of Holders. Holder hereby represents and
warrants to Frontier as follows:
(a) Due Authority. Holder has the capacity to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. If Holder
is an entity, Holder is duly organized and
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validly existing under the laws of the jurisdiction of its organization, and
Holder has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Holder have, if Holder is an entity,
been duly authorized by all necessary action on the part of Holder, and,
assuming its due authorization, execution and delivery by Frontier,
constitutes a valid and binding obligation of Holder, enforceable against
Holder in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by equitable principles.
(b) Ownership of Shares. Holder legally or beneficially owns (within
the definition of Rule 13d-3 under the Exchange Act) the number of shares of
Common Stock set forth beneath Holder's name on the signature page hereto.
The number of shares of Common Stock set forth beneath Holder's name on the
signature page hereto are all of the shares of Common Stock legally or
beneficially owned by Holder. Holder has sole voting power and sole power of
disposition, in each case with respect to all of shares of Common Stock set
forth beneath Holder's name on the signature page hereto, with no
limitations, qualifications or restrictions on such rights, subject only to
applicable securities laws and the terms of this Agreement and as otherwise
noted on the signature page hereto. Also set forth on the signature page
hereto is the number of shares of Common stock issuable pursuant to stock
options held by Holder.
(c) No Conflicts. (i) No filing with any governmental authority, and no
authorization, consent or approval of any other person is necessary for the
execution of this Agreement by Holder and the consummation by Holder of the
transactions contemplated hereby (it being understood that nothing herein
shall prevent Holder's compliance with Section 13(d) of the Exchange Act)
and (ii) none of the execution and delivery of this Agreement by Holder, the
consummation by Holder of the transactions contemplated hereby or compliance
by Holder with any of the provisions hereof shall (A) result in, or give
rise to, a violation or breach of or a default under any of the terms of any
material contract, understanding, agreement or other instrument or
obligation to which Holder is a party or by which Holder or any of Holder's
Subject Shares or assets may be bound, or (B) violate any applicable order,
writ, injunction, decree, judgment, statute, rule or regulation which could
reasonably be expected to adversely affect Holder's ability to perform
Holder's obligations under this Agreement.
(d) Reliance by Frontier. Holder understands and acknowledges that
Frontier is entering into the Merger Agreement in reliance upon the
execution and delivery of this Agreement by Holder.
4. Representations and Warranties of Frontier. Frontier hereby represents
and warrants to Holder as follows:
(a) Due Organization, etc. Frontier is a corporation duly organized and
validly existing under the laws of the jurisdiction of its incorporation.
Frontier has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by Frontier has been duly authorized by
all necessary action on the part of Frontier and, assuming its due
authorization, execution and delivery by Holder, constitutes a valid and
binding obligation of Frontier, enforceable against Frontier in accordance
with its terms, except to the extent that its enforceability may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
(b) Conflicts. (i) No filing with any governmental authority, and no
authorization, consent or approval of any other person is necessary for the
execution of this Agreement by Frontier and the consummation by Frontier of
the transactions contemplated hereby and (ii) none of the execution and
delivery of this Agreement by Frontier, the consummation by Frontier of the
transactions contemplated hereby shall (A) conflict with or result in any
breach of the organizational documents of Frontier, (B) result in a
violation or breach of or a default under any of the terms of any material
contract, understanding,
H-3
agreement or other instrument or obligation to which Frontier is a party or
by which Frontier or any of its assets may be bound, or (C) violate any
applicable order, writ, injunction, decree, judgment, statute, rule or
regulation which could reasonably be expected to adversely affect Frontier's
ability to perform its obligations under this Agreement.
(c) Reliance by Holder. Frontier understands and acknowledges that
Holder is entering into this Agreement in reliance upon the execution and
delivery of the Merger Agreement by Frontier.
5. Miscellaneous.
(a) Holder Capacity. If Holder is or becomes during the term hereof a
director or officer of Holly, Holder does not make any agreement or
understanding herein in Holder's capacity as such director or officer. Holder
executes this Agreement solely in Holder's capacity as the record holder or
beneficial owner of Holder's Subject Shares and nothing herein shall limit or
affect any actions previously or hereafter taken by Holder in Holder's capacity
as an officer or director of Holly. Without limiting the foregoing, nothing in
this Agreement shall limit or affect the ability of a director or officer of
Holly to take any action as may be advisable or necessary in the discharge of
his or her fiduciary duties as such director or officer, and without regard to
whether he or she is, without limitation, (i) a trustee or co-trustee of one or
more Holders, (ii) an officer, consultant or other representative of a trustee
or co-trustee of one or more Holders, or (iii) a beneficiary of one or more
Holders.
(b) Publication. Holder hereby permits Frontier to publish and disclose in
the Proxy Statement/Prospectus (including all documents and schedules filed
with the Securities and Exchange Commission) Holder's identity and ownership of
shares of Common Stock and the nature of Holder's commitments, arrangements,
and understandings pursuant to this Agreement.
(c) Further Actions. Each of the parties hereto agrees that it will use
its reasonable best efforts to do all things necessary to effectuate this
Agreement.
(d) Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements and understandings, oral and written, with
respect thereto.
(e) Binding Effect; Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their Permitted
Transferees, heirs, estates and successors. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto, except by will or by the laws of descent and distribution,
without the prior written consent of each of the other parties, except that
Frontier may assign and transfer its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary of Frontier. Nothing in this
Agreement, expressed or implied, is intended to confer on any person, other
than the parties hereto, any rights or remedies.
(f) Amendments, Waivers, etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by all of the relevant
parties hereto.
(g) Specific Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to
which they are entitled at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
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(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(j) Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
(k) Headings. The descriptive headings of this Agreement are inserted for
convenience only, do not constitute a part of this Agreement and shall not
affect in any way the meaning or interpretation of this Agreement.
(l) Counterparts; Facsimiles. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument. A signature
transmitted by facsimile shall be treated for all purposes by the parties
hereto as an original, shall be binding upon the party transmitting such
signature without limitation.
(m) Termination. This Agreement shall terminate, and neither Frontier nor
Holder shall have any rights or obligations hereunder, and this Agreement shall
become null and void and have no effect upon the earliest to occur of (i) the
mutual consent of Frontier and Holder, (ii) the Effective Time, (iii) the
termination of the Merger Agreement pursuant to its terms or (iv) October 31,
2003; provided, further, that termination of this Agreement shall not prevent
any party hereunder from seeking any remedies (at law or in equity) against any
other party hereto for such party's breach of any of the terms of this
Agreement. Notwithstanding the foregoing, the provisions of Section 2(a) shall
survive the termination of this Agreement by reason of clause (ii) of the
preceding sentence until 90 days after the Effective Time and Sections 5(d),
5(e), 5(h) and 5(j) shall survive the termination of this Agreement for any
reason.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
FRONTIER OIL CORPORATION, a
Wyomingcorporation
By: -----------------------------
Name:
Title:
HOLDER
Printed Name:_________________
Number of Shares of Common
Stock owned:
------------------------------
Number of Shares of Common
Stock issuable upon
exercise of Stock Options
held:
------------------------------
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ANNEX I
FORM OF FRONTIER AFFILIATE'S SUPPORT AGREEMENT
This FRONTIER AFFILIATE'S SUPPORT AGREEMENT (this "Agreement"), dated as of
March 30, 2003, is by and between Holly Corporation, a Delaware corporation
(the "Holly"), and the undersigned holder (the "Affiliate") of shares or
options to acquire shares of common stock of Frontier Oil Corporation, a
Wyoming corporation ("Frontier"). Capitalized terms used and not defined herein
shall have the respective meanings ascribed to them in the Merger Agreement
referenced below.
RECITALS
A. Frontier, Holly and other parties have entered into an Agreement and
Plan of Merger, dated as of March 30, 2003 (the "Merger Agreement") pursuant to
which Merger Sub One will merge (the "Merger") with and into Frontier, with
Frontier surviving the Merger, on the terms and subject to the conditions set
forth in the Merger Agreement;
B. As of the date hereof, Affiliate "beneficially owns" (as such term is
defined in Rule 13d-3 under the Exchange Act) and Affiliate is entitled to
dispose of (or to direct the disposition of) and to vote (or to direct the
voting of) the number of shares of Common Stock, without par value per share,
of Frontier (the "Common Stock") set forth beneath the Affiliate's name on the
signature page hereto, as such shares may be adjusted by stock dividend, stock
split, recapitalization, combination, merger, consolidation, reorganization or
other change in the capital structure of Frontier affecting the Common Stock
(such shares of Common Stock, together with any other shares of Common Stock
the voting power over which is acquired by Affiliate during the period from and
including the date hereof through and including the date on which this
Agreement is terminated in accordance with its terms, are collectively referred
to herein as Affiliate's "Subject Shares");
C. As a condition to the willingness of Holly to enter into the Merger
Agreement, and as an inducement and in consideration therefor, Holly has
required that Affiliate agree, and Affiliate has agreed, to enter into this
Agreement.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. Voting Agreement And Irrevocable Proxy.
(a) Agreement to Vote the Subject Shares. Affiliate, solely in Affiliate's
capacity as a stockholder of Frontier, hereby agrees that during the period
commencing on the date hereof and continuing until the termination of this
Agreement (such period, the "Voting Period"), at any meeting (or any
adjournment or postponement thereof) of the holders of any class or classes of
the capital stock of Frontier, however called, or in connection with any
written consent of the holders of any class or classes of the capital stock of
Frontier, Affiliate shall vote (or cause to be voted) Affiliate's Subject
Shares (i) in favor of the approval and adoption of the terms of the Merger
Agreement and each of the other transactions contemplated by the Merger
Agreement (and any actions required in furtherance thereof) at every meeting of
the stockholders of Frontier (or in connection with any written consent) at
which such matters are considered and at every adjournment thereof, (ii)
against any action, proposal, transaction or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of Frontier or any of its subsidiaries under the Merger
Agreement or of Affiliate under this Agreement, and (iii) except as otherwise
agreed to in writing in advance by Holly, against the following actions or
proposals (other than the transactions contemplated by the Merger Agreement):
(A) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving Frontier or any of its subsidiaries and
any Holly Acquisition Proposal; (B) any sale, lease or transfer of a
significant part of the assets (other than sales of current assets in the
ordinary course of business) of Frontier or any of its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of
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Frontier or any of its subsidiaries (each of the actions in clauses (A) or (B),
a "Business Combination"); and (C)(1) any change in the persons who constitute
the board of directors of Frontier that is not approved in advance by at least
a majority of the persons who were directors of Frontier as of the date of this
Agreement (or their successors who were so approved); (2) any change in the
present capitalization of Frontier or any amendment of Frontier's certificate
of incorporation or bylaws; (3) any other material change in Frontier's
corporate structure or business; or (4) any other action or proposal involving
Frontier or any of its subsidiaries that is intended, or could reasonably be
expected, to prevent, impede, interfere with, delay, postpone, or adversely
affect the transactions contemplated by the Merger Agreement. Any such vote
shall be cast or consent shall be given in accordance with such procedures
relating thereto as shall ensure that it is duly counted for purposes of
determining that a quorum is present and for purposes of recording the results
of such vote or consent. Affiliate agrees not to enter into any agreement,
letter of intent, agreement in principle or understanding with any person that
violates or conflicts with or could reasonably be expected to violate or
conflict with the provisions and agreements contained in this Agreement or the
Merger Agreement. For the avoidance of doubt, this Agreement is intended to
constitute a voting agreement entered into under W.S. 17-16-731 of the Wyoming
Business Corporation Act for the duration of the Voting Period.
(b) Grant of Irrevocable Proxy. Affiliate hereby appoints Holly and any
designee of Holly, and each of them individually, such Affiliate's proxy and
attorney-in-fact, with full power of substitution and resubstitution, to vote
or act by written consent during the Voting Period with respect to Affiliate's
Subject Shares in accordance with Section 1(a). This proxy is given to secure
the performance of the duties of Affiliate under this Agreement. Affiliate
shall promptly cause a copy of this Agreement to be deposited with Frontier at
its principal place of business. Affiliate shall take such further action or
execute such other instruments as may be necessary to effectuate the intent of
this proxy.
(c) Nature of Irrevocable Proxy. The proxy and power of attorney granted
pursuant to Section 1(b) by Affiliate shall be irrevocable during the term of
this Agreement, shall be deemed to be coupled with an interest sufficient in
law to support an irrevocable proxy and shall revoke all prior proxies granted
by Affiliate. The power of attorney granted herein is a durable power of
attorney and shall survive the dissolution, bankruptcy, death or incapacity of
Affiliate. For the avoidance of doubt, the proxy and power of attorney is
granted pursuant to W.S. 17-16-731 of the Wyoming Business Corporation Act, is
coupled with an interest and is granted to Holly as a stockholder of Frontier
and a party to this voting agreement which is created under W.S. 17-16-731 of
the Wyoming Business Corporation Act and is intended to be valid during the
Voting Period, which the parties understand and agree may be more than eleven
months from the date hereof.
2. Covenants. Except for pledges in existence as of the date hereof,
Affiliate agrees that, except as contemplated by the terms of this Agreement,
Affiliate shall not (a) sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other agreement
with respect to, or consent to, the sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of Affiliate's
Subject Shares; (b) grant any proxies or powers of attorney in respect of the
Subject Shares, deposit any of Affiliate's Subject Shares into a voting trust
or enter into a voting agreement with respect to any of Affiliate's Subject
Shares; or (c) take any action that would have the effect of preventing,
impeding, interfering with or adversely affecting Affiliate's ability to
perform Affiliate's respective obligations under this Agreement.
Notwithstanding the foregoing, nothing herein shall prevent Affiliate from
assigning or transferring any Subject Shares beneficially owned by Affiliate to
any trust, estate, family partnership, foundation (whether family, private or
public) or other charitable organization (a "Permitted Transferee") if such
Permitted Transferee agrees in writing to hold any Subject Shares subject to
all of the provisions of this Agreement as Affiliate hereunder.
3. Representations and Warranties of Affiliates. Affiliate hereby
represents and warrants to Holly as follows:
(a) Due Authority. Affiliate has the capacity to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
Affiliate hereby represents and warrants to Holly as follows: If Affiliate
is an entity, Affiliate is duly organized and validly existing under the
laws of the
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jurisdiction of its organization, and Affiliate has all necessary power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by
Affiliate have, if Affiliate is an entity, been duly authorized by all
necessary action on the part of Affiliate, and, assuming its due
authorization, execution and delivery by Holly, constitutes a valid and
binding obligation of Affiliate, enforceable against Affiliate in accordance
with its terms, except to the extent that its enforceability may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights generally and by
equitable principles.
(b) Ownership of Shares. Affiliate legally or beneficially owns the
number of shares of Common Stock set forth beneath Affiliate's name on the
signature page hereto. The number of shares of Common Stock set forth
beneath Affiliate's name on the signature page hereto are all of the shares
of Common Stock legally or beneficially owned by Affiliate. Affiliate has
sole voting power and sole power of disposition, in each case with respect
to all of shares of Common Stock set forth beneath Affiliate's name on the
signature page hereto, with no limitations, qualifications or restrictions
on such rights, subject only to applicable securities laws and the terms of
this Agreement and as otherwise noted on the signature page hereto. Also set
forth on the signature page hereto is the number of shares of Common stock
issuable pursuant to stock options held by Affiliate.
(c) No Conflicts. (i) No filing with any governmental authority, and no
authorization, consent or approval of any other person is necessary for the
execution of this Agreement by Affiliate and the consummation by Affiliate
of the transactions contemplated hereby (it being understood that nothing
herein shall prevent Affiliate's compliance with Section 13(d) of the
Exchange Act) and (ii) none of the execution and delivery of this Agreement
by Affiliate, the consummation by Affiliate of the transactions contemplated
hereby or compliance by Affiliate with any of the provisions hereof shall
(A) result in, or give rise to, a violation or breach of or a default under
any of the terms of any material contract, understanding, agreement or other
instrument or obligation to which Affiliate is a party or by which Affiliate
or any of Affiliate's Subject Shares or assets may be bound, or (B) violate
any applicable order, writ, injunction, decree, judgment, statute, rule or
regulation which could reasonably be expected to adversely affect
Affiliate's ability to perform Affiliate's obligations under this Agreement.
(d) Reliance by Holly. Affiliate understands and acknowledges that
Holly is entering into the Merger Agreement in reliance upon the execution
and delivery of this Agreement by Affiliate.
4. Representations and Warranties of Holly. Holly hereby represents and
warrants to Affiliate as follows:
(a) Due Organization, etc. Holly is a corporation duly organized and
validly existing under the laws of the jurisdiction of its incorporation.
Holly has all necessary corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Holly has been duly authorized by all
necessary action on the part of Holly and, assuming its due authorization,
execution and delivery by Affiliate, constitutes a valid and binding
obligation of Holly, enforceable against Holly in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
(b) Conflicts. (i) No filing with any governmental authority, and no
authorization, consent or approval of any other person is necessary for the
execution of this Agreement by Holly and the consummation by Holly of the
transactions contemplated hereby and (ii) none of the execution and delivery
of this Agreement by Holly, the consummation by Holly of the transactions
contemplated hereby shall (A) conflict with or result in any breach of the
organizational documents of Holly, (B) result in a violation or breach of or
a default under any of the terms of any material contract, understanding,
agreement or other instrument or obligation to which Holly is a party or by
which Holly or any of its assets may be bound, or
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(C) violate any applicable order, writ, injunction, decree, judgment,
statute, rule or regulation which could reasonably be expected to adversely
affect Holly's ability to perform its obligations under this Agreement.
(c) Reliance by Affiliate. Holly understands and acknowledges that
Affiliate is entering into this Agreement in reliance upon the execution and
delivery of the Merger Agreement by Holly.
5. Miscellaneous.
(a) Affiliate Capacity. If Affiliate is or becomes during the term hereof
a director or officer of Frontier, Affiliate does not make any agreement or
understanding herein in Affiliate's capacity as such director or officer.
Affiliate executes this Agreement solely in Affiliate's capacity as the record
holder or beneficial owner of Affiliate's Subject Shares and nothing herein
shall limit or affect any actions taken by Affiliate in Affiliate's capacity as
an officer or director of Frontier.
(b) Publication. Affiliate hereby permits Holly to publish and disclose in
the Proxy Statement/Prospectus (including all documents and schedules filed
with the Securities and Exchange Commission) Affiliate's identity and ownership
of shares of Common Stock and the nature of Affiliate's commitments,
arrangements, and understandings pursuant to this Agreement.
(c) Further Actions. Each of the parties hereto agrees that it will use
its best efforts to do all things necessary to effectuate this Agreement.
(d) Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter contained herein and
supersedes all prior agreements and understandings, oral and written, with
respect thereto.
(e) Binding Effect; Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their Permitted
Transferees, heirs, estates and successors. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto, except by will or by the laws of descent and distribution,
without the prior written consent of each of the other parties, except that
Holly may assign and transfer its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary of Holly. Nothing in this Agreement,
expressed or implied, is intended to confer on any person, other than the
parties hereto, any rights or remedies.
(f) Amendments, Waivers, etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, except upon the
execution and delivery of a written agreement executed by all of the relevant
parties hereto.
(g) Specific Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to
which they are entitled at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
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(j) Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
(k) Headings. The descriptive headings of this Agreement are inserted for
convenience only, do not constitute a part of this Agreement and shall not
affect in any way the meaning or interpretation of this Agreement.
(l) Counterparts; Facsimiles. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument. A signature
transmitted by facsimile shall be treated for all purposes by the parties
hereto as an original, shall be binding upon the party transmitting such
signature without limitation.
(m) Termination. This Agreement shall terminate, and neither Holly nor
Affiliate shall have any rights or obligations hereunder, and this Agreement
shall become null and void and have no effect upon the earliest to occur of (i)
the mutual consent of Holly and Affiliate, (ii) the Effective Time, (iii) the
termination of the Merger Agreement pursuant to its terms or (iv) October 31,
2003; provided, further, that termination of this Agreement shall not prevent
any party hereunder from seeking any remedies (at law or in equity) against any
other party hereto for such party's breach of any of the terms of this
Agreement. Notwithstanding the foregoing, the provisions of Section 2(a) shall
survive the termination of this Agreement by reason of clause (ii) of the
preceding sentence until 90 days after the Effective Time and Sections 5(d),
5(e), 5(h) and 5(j) shall survive the termination of this Agreement for any
reason.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
HOLLY CORPORATION, a Delaware
corporation
By: -----------------------------
Name:
Title:
AFFILIATE
Printed Name:_________________
Number of Shares of Common
Stock owned:
------------------------------
Number of Shares of Common
Stock issuable upon
exercise of Stock Options
held:
------------------------------
I-6
ANNEX J
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(S) 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to (S)(S) 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter, shall notify each of the holders of
any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include in
such notice a copy of this section. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or
after the
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effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
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Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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ANNEX K
ARTICLE 13 OF THE WYOMING BUSINESS CORPORATION ACT
DISSENTERS' RIGHTS
17-16-1301. Definitions.
(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving, new, or acquiring corporation
by merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when and
in the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is fair
and equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
17-16-1302. Right to dissent.
(a) A shareholder is entitled to dissent from, and to obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the
consolidation by W.S. 17-16-1103 or 17-16-1111 or the articles of
incorporation and the shareholder is entitled to vote on the merger or
consolidation; or
(B) The corporation is a subsidiary that is merged with its parent
under W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one (1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
K-1
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
17-16-1303. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one (1) person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(ii) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
17-16-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-1302 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in W.S. 17-16-1322.
17-16-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and shall not vote his shares in favor of
the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his shares under this article.
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17-16-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days after
the corporate action was taken, and shall:
(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the notice required by subsection (a) of this
section is delivered; and
(v) Be accompanied by a copy of this article.
17-16-1323. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in W.S. 17-16-1322
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to W.S. 17-16-1322(b)(iii), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
17-16-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
17-16-1325. Payment.
(a) Except as provided in W.S. 17-16-1327, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with W.S. 17-16-1323 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
K-3
(ii) A statement of the corporation's estimate of the fair value of the
shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
17-16-1326. Failure to take action.
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
17-16-1327. After-acquired shares.
(a) A corporation may elect to withhold payment required by W.S. 17-16-1325
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated, and a statement of the dissenter's right to demand payment
under W.S. 17-16-1328.
17-16-1328. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under W.S. 17-16-1325, or reject the
corporation's offer under W.S. 17-16-1327 and demand payment of the fair value
of his shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325 or
offered under W.S. 17-16-1327 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325 within
sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) of
this section within thirty (30) days after the corporation made or offered
payment for his shares.
17-16-1330. Court action.
(a) If a demand for payment under W.S. 17-16-1328 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair
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value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty (60) day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in the amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for:
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under W.S. 17-16-1327.
17-16-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under W.S. 17-16-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
K-5
ANNEX L
FRONTIER OIL CORPORATION
2003 STOCK PLAN
SECTION 1. Purpose of the Plan.
Front Range Himalaya Corporation, a Wyoming corporation (the "Company"),
hereby establishes this Frontier Oil Corporation 2003 Stock Plan (the "Plan")
effective as of May 31, 2003 (the "Establishment Date"). At the Establishment
Date, the Company is owned 50% by Frontier Oil Corporation, a Wyoming
corporation ("Frontier"), and 50% by Holly Corporation, a Delaware corporation
("Holly"). This Plan has been approved by the Board of Directors of the Company
as of the Establishment Date (the "Initial Board of Directors"). In addition
the reservation of the number of shares of Company common stock for issuance
pursuant to the Plan as described in the Plan has been approved by the
shareholders of the Company as of the Establishment Date.
The Company, Frontier, Holly and two wholly owned subsidiaries of the
Company (Front Range Merger Corporation and Himalaya Merger Corporation) have
entered into an Agreement and Plan of Merger dated March 30, 2003 (the "Merger
Agreement"), providing for the merger of Front Range Merger Corporation with
and into Frontier with Frontier the surviving corporation (the "Frontier
Merger"), and providing for the merger of Himalaya Merger Corporation with and
into Holly with Holly the surviving corporation (the "Holly Merger" and,
together with the Frontier Merger, the "Merger"). At the effective time of the
Merger (the "Effective Time"), each of Frontier and Holly will become a wholly
owned subsidiary of the Company, the Company's name will be changed to
"Frontier Oil Corporation" and Frontier's name will be changed to "Frontier Oil
Holdings, Inc."
The purpose of the Plan is to effectuate relevant provisions of the Merger
Agreement and, at and after the Effective Time, (i) to promote the interests of
the Company by providing eligible persons the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest in the
Company, (ii) to attract and retain the services of individuals who are
essential for the growth of the Company, and (iii) to assume, amend and merge
all previous plans or agreements pursuant to which any stock option, restricted
stock or other stock-based award has been granted prior to the Effective Time
to any officer, employee, director or consultant of Frontier, Holly, or any of
their respective Subsidiaries (as defined below).
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Affiliate" shall mean (i) any entity that, directly or through one or more
intermediaries, is controlled by the Company, Frontier or Holly, (ii) any
entity in which the Company, Frontier or Holly has a significant equity
interest, as determined by the Committee, and (iii) any "parent corporation" of
the Company, Frontier or Holly (as defined in Section 424(e) of the Code) and
any subsidiary.
"Award" shall mean any Option, Restricted Stock, Phantom Stock Award or
other Stock-Based Award issued pursuant to the Plan or any Prior Plan.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean a change in ownership or control of the
Company after the Effective Time, which shall be considered to have occurred
upon any of the following:
(a) the consummation of any transaction (including without limitation,
any merger, consolidation, tender offer, or exchange offer) the result of
which is that any individual or person is or becomes the
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"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the 1934 Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding securities;
(b) the individuals who constitute the Board as of the Effective Time
("Incumbent Board") cease for any reason to constitute at least a majority
of the members of the Board, provided that any person becoming a director
after the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
two-thirds of the directors then comprising the Incumbent Board (other than
any individual whose initial assumption of office occurs as a result of
either (a) an actual or threatened election contest or (b) an actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board;
(c) the sale, lease, transfer, conveyance or other disposition
(including by merger or consolidation) in one transaction or a series of
related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries, taken as a whole; or
(d) the adoption of a plan relating to the liquidation or dissolution of
the Company.
For avoidance of doubt, the Merger and the consummation of all other actions
and transactions contemplated by the Merger Agreement shall not constitute a
Change in Control.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations thereunder.
"Committee" shall mean the Board or, at any time that a committee of two or
more persons has been appointed by the Board to administer the Plan, such
committee; provided, however with respect to any Award made after the Effective
Time to the chief executive officer, any of the four highest compensated
officers other than the chief executive officer, or any other person who may be
a "covered employee" as defined in Section 162(m) of the Code, "Committee"
shall mean the compensation committee of the Board composed solely of two or
more outside directors as such term is defined in Treasury Regulation Section
1.162-27(e)(3)(i).
"Consultant" shall mean any individual, other than a Director or an
Employee, who renders consulting or advising services to the Company or an
Affiliate for a fee.
"Director" shall mean a "non-employee director" of the Company, as defined
in Rule 16b-3.
"Effective Time" shall mean the date and time when the Merger pursuant to
the Merger Agreement shall become effective.
"Employee" shall mean any employee of the Company or an Affiliate or any
person who has been extended an offer of employment by the Company or an
Affiliate.
"Establishment Date" shall mean the date so designated in Section 1 of this
Plan.
"Fair Market Value" shall mean, with respect to Shares, the closing sales
price of a Share on the applicable date (or if there is no trading in the
Shares on such date, on the next preceding date on which there was trading) as
reported in The Wall Street Journal (or other reporting service approved by the
Committee). In the event the Shares are not publicly traded at the time a
determination of its fair market value is required to be made hereunder, the
determination of fair market value shall be made in good faith by the Committee.
"Frontier" shall mean Frontier Oil Corporation, a Wyoming Corporation as it
exists prior to the Effective Time.
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"Frontier Dry Powder" shall mean the number of shares of Frontier common
stock authorized for issuance pursuant to a Frontier Prior Plan and approved by
Frontier shareholders, which have not been issued or reserved for issuance
pursuant to an outstanding Frontier Option prior to the Effective Time.
"Frontier Option" shall mean any Option issued pursuant to a Frontier Prior
Plan.
"Frontier Prior Plan(s)" shall mean the Frontier Oil Corporation Employee
Stock Option Plan, the Frontier Oil Corporation 1999 Stock Plan and any other
plan or Award Agreement pursuant to which an Option, Restricted Stock or any
other Stock-Based Award has been issued by Frontier or any of its Subsidiaries
and is outstanding at the Effective Time.
"Frontier Restricted Stock" shall mean any Restricted Stock issued pursuant
to a Frontier Prior Plan if the Effective Time occurs within the Restricted
Period and the stock continues to be Restricted Stock immediately after the
Effective Time.
"Holly" shall mean Holly Corporation, a Delaware corporation, as it exists
prior to the Effective Time.
"Holly Dry Powder" shall mean the number of shares of Holly common stock
authorized for issuance pursuant to a Holly Prior Plan and approved by Holly
shareholders, which have not been issued or reserved for issuance pursuant to
an outstanding Holly Option prior to the Effective Time.
"Holly Option" shall mean any Option issued under a Holly Prior Plan.
"Holly Prior Plan(s)" shall mean the Holly Corporation Stock Option Plan,
the Holly Corporation Long-Term Incentive Plan as Amended and Restated
(formerly designated the Holly Corporation 2000 Stock Option Plan) and any
other plan or Award Agreement pursuant to which an Option, Restricted Stock or
any other Stock-Based Award has been issued by Holly or any of its Subsidiaries
and is outstanding at the Effective Time.
"Holly Stock-Based Award" shall mean any Stock-Based Award issued pursuant
to the Holly Prior Plan.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated March
30, 2003, by and among Frontier Oil Corporation, Front Range Himalaya
Corporation, Front Range Merger Corporation, Himalaya Merger Corporation and
Holly Corporation, as in effect immediately prior to Effective Time.
"Option" shall mean an option granted under the Plan or any Prior Plan.
Options granted under the Plan may be either "incentive stock options" for
purposes of Section 422 of the Code or nonqualified stock options.
"Option Exchange Ratio" shall have the meaning set forth in Section 2.5 of
the Merger Agreement.
"Participant" shall mean any Director, Employee or Consultant granted an
Award under the Plan or a Prior Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
"Phantom Stock Award" means a right granted to a Participant under Section
7(b) of the Plan.
"Prior Plan(s)" shall mean a Holly Prior Plan or a Frontier Prior Plan.
"Restricted Period" shall mean the period with respect to which any
Restricted Stock remains subject to forfeiture by the Participant.
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"Restricted Stock" shall mean any share of common stock which is subject to
a "substantial risk of forfeiture" as such term is defined in the regulations
issued pursuant to Section 83 of the Code.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the 1934
Act, or any successor rule or regulation thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission, or any successor
thereto.
"Shares" or "Common Stock" shall mean the common stock of the Company, par
value $0.01 per share, and such other securities or property as may become the
subject of Awards under the Plan.
"Stock-Based Award" shall mean any plan or agreement pursuant to which any
stock appreciation rights, phantom stock, restricted stock, restricted stock
units, deferred stock units, dividend equivalents or other equity-based
compensation (other than an option) has been issued.
"Subsidiary" shall mean any "subsidiary corporation" of the Company as
defined in Section 424 of the Code.
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the Committee
shall constitute a quorum, and the acts of the members of the Committee who are
present at any meeting thereof at which a quorum is present, or acts
unanimously approved by the members of the Committee in writing, shall be the
acts of the Committee. Subject to the terms of the Plan and applicable law, and
in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type of Option to be granted to
a Participant; (iii) determine the number of Shares to be covered by any
Option; (iv) determine the terms and conditions of any Option; (v) determine
whether, to what extent, and under what circumstances Options may be settled or
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited, or suspended and the method or methods by which Options
may be settled, exercised, canceled, forfeited, or suspended; (vi) determine
whether, to what extent, and under what circumstances cash, Shares, other
securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election
of the holder thereof or of the Committee; (vii) interpret and administer the
Plan, the Prior Plans and any Award Agreement; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (ix) make
any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Award, any shareholder and any Employee. The Committee may, subject to any
applicable law, regulatory securities exchange or other similar restrictions
delegate to one or more officers of the Company, the authority to grant Options
to Employees who are not officers of the Company. The Committee may impose such
limitations and restrictions in addition to any required
restrictions/limitations as the Committee may determine in its sole discretion.
Any grant made pursuant to such delegation shall be subject to all of the
provisions of the Plan concerning Option grants.
SECTION 4. Shares Available for Options and Awards.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the total number of Shares reserved for Awards under the Plan or Prior
Plans shall be 7,900,000 in the aggregate. The Shares reserved under the
Plan for issuance pursuant to Holly Options shall be equal to the product of
(i) 1,388,800 multiplied by (ii) the Option Exchange Ratio. The Shares
reserved under the Plan for issuance pursuant to Frontier Options shall be
3,408,125. The Shares reserved under the Plan for issuance in exchange for
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Frontier Restricted Stock shall be 205,632. The Shares reserved for issuance
pursuant to Section 7 shall be the greater of:
(i) the number of Shares approved by the shareholders of the Company
after the Effective Time for issuance pursuant to Section 7 under the
Plan; or
(ii) the sum of (A) the product of the Holly Dry Powder times the
Option Exchange Ratio and (B) the Frontier Dry Powder.
If any Award is exercised, paid, forfeited, terminated or canceled without
the delivery of Shares or other consideration, then the Shares covered by such
Award, to the extent of such payment, exercise, forfeiture, termination or
cancellation, shall again be Shares with respect to which Options may be
granted under the Plan. Shares withheld by the Company to satisfy tax
withholding or other payment obligations shall be considered delivered under
the Plan and shall not again be available for exercise.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to
be appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all
of (i) the number and type of Shares (or other securities or property) with
respect to which Options may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, (iii) the
individual annual grant limits with respect to Options and (iv) the grant or
exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award.
SECTION 5. Eligibility.
Any Employee, Director or Consultant shall be eligible to be designated a
Participant.
SECTION 6. Awards Under Prior Plans
(a) Holly Stock Based Awards. At the Effective Time each Holly
Stock-Based Award, whether vested or unvested, which is outstanding
immediately prior to the Effective Time shall be canceled in consideration
for a cash payment by Holly (i) computed according to the relevant terms of
the Holly Stock-Based Award under the relevant Holly Prior Plan or (ii) if
consented to by the holder of the Holly Stock-Based Award, at a per-share
price equal to the average of the volume weighted sales prices per share of
the Holly common stock on the American Stock Exchange, Inc. as set forth in
the Merger Agreement. Such Holly Stock-Based Awards shall not be subject to
or administered by this Plan.
(b) Holly Stock Options. At the Effective Time each Holly Stock Option,
whether vested or unvested, shall cease to represent a right to acquire
shares of Holly and shall be converted into an Option to purchase Common
Stock on the same terms and conditions as were applicable under such Holly
Stock Option (but taking into account any changes thereto, including the
acceleration thereof, provided for in the Holly Prior Plans, in any Award
Agreement or in such Holly Stock Option by reason of the Merger Agreement or
the transactions contemplated thereby). The number of shares of Common Stock
which shall be subject to each such Option shall be the number of shares of
Holly common stock subject to each such Holly Stock Option multiplied by the
Option Exchange Ratio, rounded, if necessary, to the nearest whole share of
Common Stock, and such Option shall have an exercise price per share of
Common Stock (rounded to the nearest one hundredth of a cent) equal to the
exercise price per share of Holly common stock for such
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Holly Stock Option divided by the Option Exchange Ratio; provided, however,
that, in the case of any Holly Stock Option to which Section 421 of the Code
as of the Effective Time (after taking into account the effect of any
accelerated vesting thereof) applies by reason of its qualification under
Section 422 of the Code, the exercise price, the number of shares of Common
Stock subject to such Option and the terms and conditions of exercise of
such Option shall be determined in a manner consistent with the requirements
of Section 424(a) of the Code.
(c) Frontier Restricted Stock. At the Effective Time, each share of
Frontier Restricted Stock shall be converted to a Share of Common Stock
which Share shall be subject to the same restrictions and Restriction Period
as such Frontier Restricted Stock (but taking into account any changes
thereto, including the acceleration thereof, provided for in the Frontier
Prior Plans and any Award Agreement by reason of the Merger Agreement or the
transaction contemplated thereby, except to the extent any such change is
modified or acceleration is waived by agreement with the holder of Frontier
Restricted Stock prior to the Effective Time). Each share of Frontier
Restricted Stock shall be deemed to represent an equivalent number of shares
of Common Stock without any action on the part of the holder thereof;
provided, however, that if an exchange of Frontier stock certificates for
Common Stock certificates is required by law or applicable rule or
regulation, or is requested by any holder thereof, such exchange shall be
made as soon as practicable.
(d) Frontier Stock Option. As of the Effective Time, each Frontier
Stock Option, whether vested or unvested, shall cease to be a right to
acquire shares of Frontier and shall be converted into an Option to purchase
Common Stock on the same terms and conditions as are applicable under such
Frontier Stock Option (but taking into account any changes thereto,
including the acceleration thereof, provided for in the Frontier Prior Plans
or any Award Agreement, except to the extent that any such change is
modified or acceleration is waived by agreement with the holder of such
Frontier Stock Option prior to the Effective Time). The number of Shares of
Common Stock which shall be subject to each such Option shall be the number
of shares of Frontier common stock subject to each such Frontier Stock
Option and the exercise price per Share of Common Stock shall be equal to
the per share exercise price specified in such Frontier Stock Option.
(e) Notice to Award Holders. As soon as practicable after the Effective
Time each holder of a Frontier Stock Option, Frontier Restricted Stock, or
Holly Stock Option shall receive appropriate notices setting forth such
holder's rights pursuant to the respective Prior Plans and stating that such
Prior Plans have been assumed by the Company and shall continue in effect on
the same terms and conditions (subject to the adjustments and amendments
described herein) pursuant to this Plan.
SECTION 7. Other Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Participants to whom Options may be
granted after the Effective Time, the number of Shares to be covered by each
Option, the purchase price therefore and the conditions and limitations
applicable to the exercise of the Option, including the following terms and
conditions and such additional terms and conditions, as the Committee shall
determine, that are not inconsistent with the provisions of the Plan. The
time during which Shares attributable to Frontier Dry Powder or Holly Dry
Powder are available for Awards under this Section shall not extended beyond
the period when such shares would have been available under the respective
Frontier Prior Plan or Holly Prior Plan.
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee at the time the Option is
granted, but shall not be less than the Fair Market Value per Share on
such grant date.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part,
and the method or methods by which, and the form or forms (which may
include, without limitation, cash, check acceptable to the Company,
Shares already-owned for more than six months, outstanding Awards,
Shares that would otherwise be acquired upon
L-6
exercise of the Option, a "cashless-broker" exercise (through procedures
approved by the Committee), other securities or other property, or any
combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which payment of the exercise
price with respect thereto may be made or deemed to have been made.
(iii) Incentive Stock Options. The terms of any Option granted
under the Plan intended to be an incentive stock option shall comply in
all respects with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated thereunder.
Incentive stock options may be granted only to employees of the Company
and its Subsidiaries. To the extent the aggregate Fair Market Value of
the Shares (determined as of the date of grant) of an Option to the
extent exercisable for the first time during any calendar year (under
all plans of the Company and its Subsidiaries) exceeds $100,000, such
Option Shares in excess of $100,000 shall not be incentive stock options.
(iv) Limits. Subject to adjustment pursuant to Section 4(c), no
Employee may receive Options with respect to more than 1,000,000 Shares
during any calendar year. No Participant shall be issued Options with
respect to more Shares than are authorized for issuance pursuant to
Section 4(a).
(b) Phantom Stock Awards. The Committee is authorized to grant Phantom
Stock Awards to Participants, which are rights to receive cash at the end of
a specified deferral period, subject to the following terms and conditions:
(i) Award and Restrictions. Satisfaction of a Phantom Stock Award
shall occur upon expiration of the deferral period specified for such
Phantom Stock Award by the Committee (or, if permitted by the Committee,
as elected by the Participant). In addition, Phantom Stock Awards shall
be subject to such restrictions as the Committee may impose, which
restrictions may lapse at the expiration of the deferral period or at
earlier specified times (including based on achievement of performance
goals and/or future service requirements), separately or in combination,
in installments or otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in any
Award agreement evidencing the Phantom Stock Awards), all Phantom Stock
Awards that are at that time subject to deferral (other than a deferral
at the election of the Participant) shall be forfeited; provided that
the Committee may provide by rule or regulation or in any Award
agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Phantom Stock Awards shall be waived
in whole or in part in the even of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Phantom Stock Awards.
SECTION 8. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(i) Amendments to the Plan. Except as required by applicable law or
the rules of the principal securities market on which the Shares are
traded and subject to Section 8(ii) below, the Board or the Committee
may amend, alter, suspend, discontinue, or terminate the Plan without
the consent of any shareholder, Participant, other holder or beneficiary
of an Award, or other Person; provided, however, no such amendment may
be made without shareholder approval, if such amendment would (i)
materially increase the benefits accruing to Participants, or (ii)
increase the number of Shares authorized under the Plan except as
provided in 4(c) or (iii) permit reduction in the exercise price or
permit an "underwater" Option to be cancelled and replaced with a new
Award.
L-7
(ii) Amendments to Awards. The Committee may waive any conditions
or rights under, amend any terms of, or alter any Award theretofore
granted, provided no change, other than pursuant to Section 8(iii), in
any Award shall reduce the benefit to Participant without the consent of
such Participant. Notwithstanding the foregoing, with respect to any
Award intended to qualify as performance-based compensation under
Section 162(m) of the Code, no adjustment other than an acceleration of
vesting or payment upon the Participant's death, disability or Change of
Control shall be authorized to the extent such adjustment would cause
the Award to fail to so qualify.
(iii) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(c) of the Plan)
affecting the Company, any Affiliate, or the financial statements of the
Company or any Affiliate, or in recognition of changes in applicable
laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
SECTION 9. Change in Control.
To the extent provided in an Award Agreement, such Award may become fully
vested, any restrictions with respect to such Award may lapse, and any Options
may terminate immediately prior to a Change in Control (or such earlier time as
set by the Committee or as set forth in the Award Agreement). If provision is
made in writing in connection with a Change in Control for the continuation of
the Plan and/or the assumption of the Awards theretofore granted, or for the
substitution for such Awards of new awards covering the stock of a successor
entity, or the parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares and exercise prices, the Plan and Awards
theretofore granted shall continue in the manner and under the terms so
provided, unless the Award Agreement specifically provides to the contrary.
SECTION 10. General Provisions.
(a) No Rights to Awards. No Director, Employee, Consultant or other
Person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Employees, Consultants, or holders
or beneficiaries of Awards. The terms and conditions of Awards need not be
the same with respect to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or
under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that would
otherwise be issued pursuant to such Award, other Awards or other property)
of any applicable taxes required to be withheld by the Company in respect of
an Award, its exercise, the lapse of restrictions thereon, or any payment or
transfer under an Award or under the Plan and to take such other action as
may be necessary in the opinion of the Company to satisfy all obligations
for the payment of such taxes. In addition, the Committee may provide, in an
Award Agreement, that the Participant may direct the Company to satisfy such
Participant's tax obligation through the "constructive" tender of
already-owned Shares or the withholding of Shares otherwise to be acquired
upon the exercise or payment of such Award.
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment, free from any liability or
any claim under the Plan, unless otherwise expressly provided in the Plan or
in any Award Agreement.
L-8
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Wyoming and applicable federal law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or
if it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Person or Award and the
remainder of the Plan and any such Award shall remain in full force and
effect.
(f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance or transfer of such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the 1934 Act,
and any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(j) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee or as may be set forth in the Award
Agreement; provided, that in no event shall the term of any Award exceed a
period of 10 years from the date of its grant.
(k) Limits on Transfer of Awards.
(i) Except as provided in (iii) below or in any Award Agreement,
each Award, and each right under any Award, shall be exercisable only by
the Participant during the Participant's lifetime, or by the person to
whom the Participant's rights shall pass by will or the laws of descent
and distribution.
(ii) Except as provided in (iii) below or in any Award Agreement, no
Award and no right under any such Award may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate.
(iii) Notwithstanding anything in the Plan to the contrary, to the
extent specifically provided by the Committee, an Award (other than an
incentive stock option) may be transferred to immediate family members
or related family trusts, limited partnerships or similar entities on
such terms and conditions as the Committee may establish.
L-9
(l) Share Certificates. All certificates for Shares or other securities
of the Company or any Affiliate delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the SEC, any stock
exchange upon which such Shares or other securities are then listed, and any
applicable federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(m) Consideration for Grants. Options may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(n) Delivery of Shares or other Securities and Payment by Participant of
Consideration. No Shares or other securities shall be delivered pursuant to
any Award until payment in full of any amount required to be paid pursuant
to the Plan or the applicable Award Agreement (including, without
limitation, any exercise price, tax payment or tax withholding) is received
by the Company. Such payment may be made by such method or methods and in
such form or forms as the Committee shall determine, including, without
limitation, cash, Shares, other securities, other Awards or other property,
withholding of Shares, cashless exercise with simultaneous sale, or any
combination thereof; provided that the combined value, as determined by the
Committee, of all cash and cash equivalents and the Fair Market Value of any
such Shares or other property so tendered to the Company, as of the date of
such tender, is at least equal to the full amount required to be paid
pursuant to the Plan or the applicable Award Agreement to the Company.
(o) Performance Goals. To the extent that the Committee determines that
any Award granted pursuant to Section 7(b) shall constitute
performance-based compensation for purposes of Section 162(m) of the Code,
the grant or settlement of the Award shall, in the Committee's discretion,
be subject to the achievement of performance goals which shall consist of
one or more business criteria and a targeted level or levels of performance
with respect to each such criteria, as specified by the Committee. One or
more business criteria for the Company or any of its specified Subsidiaries,
divisions or business or geographical units shall be used by the Committee
in establishing performance goals. Such business criteria shall include on
an absolute or relative basis, earnings per share, increase in revenues,
increase in cash flow, increase in return on investment, return on assets,
return on capital, return on equity, gross margin, net income and earnings
(before or after taxes, interest, depreciation and amortization) and shall
be measured over a period of not less than one year and not more than ten
years, as specified by the Committee. Performance goals shall be established
not later than 90 days after the beginning of the performance period or at
such other date as may be required or permitted for "performance-based
compensation" under Section 162(m) of the Code. All determination by the
Committee as to the establishment and achievement of performance goals shall
be in writing in the case of any Award granted to a "covered employee" as
such term is defined in Section 162(m) of the Code.
SECTION 11. Establishment Date of the Plan.
The Plan was established and the reservation of shares of Company common
stock for issuance under the Plan was approved by the shareholders of the
Company on the Establishment Date, and the Plan is and shall be effective for
all purposes as of such date.
SECTION 12. Term of the Plan.
No Award shall be granted under the Plan after May 31, 2013. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award granted prior to such termination, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under such Award, shall extend
beyond such termination date.
L-10
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 17-16-202 of the Wyoming Business Corporation Act provides that a
corporation may include in its articles of incorporation a provision that
provides that no director shall be liable to the corporation or its
stockholders for monetary damages for any action taken, or any failure to take
any action, except liability for (i) receipt of a financial benefit to which he
or she is not entitled, (ii) an intentional infliction of harm on the
corporation or its stockholders, (iii) an unlawful distribution in violation of
W.S. 17-16-833 of the Wyoming Business Corporation Act, or (iv) an intentional
violation of criminal law. Parent's amended and restated articles of
incorporation provide such a limitation of liability for directors and also
provide that if the Wyoming Business Corporation Act is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director will be limited to the full extent permitted by law.
Section 17-16-202 of the Wyoming Business Corporation Act also provides that
a corporation may include in its articles of incorporation a provision that
permits or makes obligatory indemnification of a director for liability to any
person for any action taken, or failure to take any action, as a director,
except liability for (i) receipt of a financial benefit to which he or she is
not entitled, (ii) an intentional infliction of harm on the corporation or its
stockholders, (iii) an unlawful distribution in violation of W.S. 17-16-833 of
the Wyoming Business Corporation Act, or (v) an intentional violation of
criminal law. Parent's amended and restated articles of incorporation provide
for such indemnification in accordance with and to the fullest extent
authorized by law as now in effect or later amended.
Section 17-16-856 of the Wyoming Business Corporation Act provides that a
corporation may indemnify and advance expenses to a current or former officer
of the corporation who is a party to a proceeding to the same extent as a
director or, if he or she is an officer but not a director, to such further
extent as may be provided in the articles of incorporation, the bylaws, a
resolution of the board of directors or contract, except for (i) liability in
connection with a proceeding by or in the right of the corporation other than
for reasonable expenses incurred in connection with the proceeding; or (ii)
liability arising out of conduct that constitutes: (A) receipt of a financial
benefit to which the officer is not entitled, (B) an intentional infliction of
harm on the corporation or the stockholders, or (C) an intentional violation of
criminal law.
Parent's amended and restated articles of incorporation also provide for
advancement of expenses incurred by a director or officer in defending any
threatened or pending civil, criminal, administrative or investigative action,
suit or proceeding if Frontier receives an undertaking by the director or
officer to repay the amount if it is ultimately be determined that he or she is
not entitled to be indemnified by the corporation.
Parent's amended and restated bylaws provide for the indemnification to the
fullest extent permitted by law of any person who was or is a party, or
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director
or officer of Parent or is or was serving at the request of Parent as a
director, officer or employee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person. The bylaws also provide for
the advancement of expenses incurred by a director or officer in defending any
threatened or pending action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amounts if it is
ultimately determined that he or she is not entitled to indemnification and a
good faith affirmation by or on behalf of such director or officer that he or
she has met the standard of conduct required by law or that liability has been
eliminated by the articles of incorporation.
After the merger, Parent has agreed to indemnify each present and former
director and officer of Holly, Frontier or any of their subsidiaries, against
all costs or expenses, judgments, fines, losses, claims, damages or liabilities
in connection with any claim, action, suit, proceeding or investigation brought
within six years of the closing of the merger for acts or omissions, existing
or occurring before the merger, to the fullest extent permitted under
applicable law. Subject to agreed maximum premiums, for a period of six years
after the merger, Parent has agreed to maintain a policy of directors' and
officers' liability insurance for acts and omissions occurring before the
merger with coverage in an amount and scope at least as favorable as Holly's
and Frontier's existing directors' and officers' liability insurance coverage.
II-1
Item 21. Exhibits and Financial Statement Schedules
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 --Agreement and Plan of Merger dated as of March 30, 2003, as amended (attached as Annex A to
the joint proxy statement/prospectus that is a part of this registration statement)
3.1 --Amended and Restated Articles of Incorporation of Registrant (attached as Annex C to the joint
proxy statement/prospectus that is a part of this registration statement)
3.2 --Amended and Restated Bylaws of Registrant (attached as Annex D to the joint proxy statement/
prospectus, which is a part of this registration statement)
4.1 --Specimen certificate of Registrant common stock, par value $0.01 per share
4.2 --Registration Rights Agreement, dated as of March 30, 2003, by and among Registrant and the
parties listed on Exhibit A thereto (attached as Annex G to the joint proxy statement/prospectus
that is a part of this registration statement).
4.3 --Registration Rights Agreement, dated as of April 17, 2003, among Frontier Escrow Corporation,
as issuer, Registrant and Wells Fargo Bank, N.A., as trustee
4.4 --Indenture dated April 17, 2003, between Frontier Escrow Corporation, as issuer, and Wells
Fargo Bank, N.A., as trustee
4.5 --Purchase Agreement dated April 4, 2003, among Frontier Escrow Corporation, Frontier and Bear,
Stearns & Co. Inc., Lehman Brothers Inc. and BNP Paribas Securities Corp, as the initial purchasers.
4.6 --Indenture dated as of February 9, 1998, between Frontier and Chase Bank of Texas, National
Association, as Trustee relating to Frontier's 9 1/8% Senior Notes due 2006 (incorporated by
reference to Exhibit 4.8 to Registration Statement No. 333-47745 dated May 4, 1998)
4.7 --Indenture dated as of November 12, 1999, among Frontier and Chase Bank of Texas, National
Association, as Trustee relating to Frontier's 11 3/4% Senior Notes due 2009 (incorporated by
reference to Exhibit 4.1 to Form 8-K dated November 19, 1999)
5.1 --Opinion of Brown, Drew and Massey, LLP regarding the legality of the securities being
registered
8.1 --Opinion of Vinson & Elkins L.L.P. as to tax matters
8.2 --Opinion of Andrews & Kurth L.L.P. as to tax matters
10.1 --Contingent Value Rights Agreement, dated as of May 12, 2003, by and among Registrant,
Frontier, Holly and Jack P. Reid (attached as Annex B to the joint proxy statement/prospectus
that is a part of this registration statement)
10.2+ --2003 Stock Plan of Registrant (attached as Annex L to the joint proxy statement/prospectus that
is a part of this registration statement)
10.3+** --Form of Consulting Agreement between Holly and Matthew P. Clifton
10.4+** --Form of Consulting Agreement between Holly and W. John Glancy
10.5+** --Form of Executive Employment Agreement between Holly and David G. Blair
10.6+** --Form of Executive Employment Agreement between Holly and John A. Knorr
10.7+** --Form of Executive Employment Agreement between Holly and C. Lamar Norsworthy, III
10.8+** --Form of Executive Employment Agreement between Holly and Bruce R. Shaw
10.9+** --Form of Executive Employment Agreement between Holly and James G. Townsend
10.10+** --Form of Executive Employment Agreement between Holly and Gregory R. White
- --------
* Filed herewith
** To be filed by amendment
+ Indicates management contract or compensatory plan or arrangement
II-2
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.10+ --Executive Employment Agreement dated December 18, 2000, between Frontier and W. Reed
Williams (incorporated by reference to Exhibit 10.10 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.11+ --Executive Employment Agreement dated December 18, 2000, between Frontier and James R.
Gibbs (incorporated by reference to Exhibit 10.11 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.12+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Julie H.
Edwards (incorporated by reference to Exhibit 10.12 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.13+ --Executive Employment Agreement dated December 18, 2000, between Frontier and J. Currie
Bechtol (incorporated by reference to Exhibit 10.13 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.14+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Jon D.
Galvin (incorporated by reference to Exhibit 10.14 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.15+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Gerald B.
Faudel (incorporated by reference to Exhibit 10.15 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.16+ --Executive Employment Agreement dated February 28, 2001, between Frontier and Nancy J.
Zupan (incorporated by reference to Exhibit 10.16 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.17+ --Form of Amendment to Option and Restricted Stock Awards dated March 30, 2003, between
Frontier and the executive officers listed on Schedule A thereto.
10.18 --Asset Purchase and Sale Agreement among Frontier El Dorado Refining Company, as buyer,
Frontier, as Guarantor and Equilon Enterprises LLC, as seller, dated as of October 19, 1999
(incorporated by reference to Exhibit 10.1 to Form 8-K dated December 1, 1999).
10.19 --Amended and Restated Revolving Credit Agreement dated as of May 27, 2003, among
Frontier Oil and Refining Company, as borrower, Frontier Oil Corporation, the lenders named
therein, Union Bank of California, N.A., as administrative agent, documentation agent and lead
arranger, and BNP Paribas, as syndication agent (incorporated by reference to Exhibit 99.2 to
Form 8-K dated May 29, 2003).
10.20 --Crude Oil Supply Agreement dated October 15, 2002, between Baytex Energy Ltd. and
Frontier Oil and Refining Company (incorporated by reference to Exhibit 10.2 to Form 10-Q
for the fiscal quarter ended September 30, 2002)
12.1 --Frontier Oil Corporation and Subsidiaries Ratio of Earnings to Fixed Charges
12.2 --Holly Corporation and Subsidiaries Ratio of Earnings to Fixed Charges
23.1* --Consent of Ernst & Young LLP
23.2* --Consents of Deloitte & Touche LLP
23.3 --Consent of Brown, Drew and Massey, LLP (included in Exhibit 5.1)
23.4 --Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.1)
23.5 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.2)
99.1 --Consent of Credit Suisse First Boston LLC
99.2 --Consent of Petrie Parkman & Co.
99.3 --Form of Proxy Card of Holly
99.4 --Form of Proxy Card of Frontier
- --------
* Filed herewith
** To be filed by amendment
+ Indicates management contract or compensatory plan or arrangement.
II-3
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to the information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (h)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Front Range
Himalaya Corporation has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on August 6, 2003.
FRONT RANGE HIMALAYA CORPORATION
By: /s/ JAMES R. GIBBS
-----------------------------------
Name: James R. Gibbs
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
- ----------------------------- Chairman of the Board and August 6, 2003
C. Lamar Norsworthy, III Director
/s/ JAMES R. GIBBS President and Chief Executive August 6, 2003
- ----------------------------- Officer and Director
James R. Gibbs (principal executive officer)
/s/ JULIE H. EDWARDS Vice President and Chief August 6, 2003
- ----------------------------- Financial
Julie H. Edwards Officer and Director
(principal financial officer)
/s/ MATTHEW P. CLIFTON Vice President and Director August 6, 2003
- -----------------------------
Matthew P. Clifton
/s/ NANCY J. ZUPAN Vice President--Controller August 6, 2003
- ----------------------------- (principal accounting officer)
Nancy J. Zupan
II-6
EXHIBIT INDEX
Item 21. Exhibits and Financial Statement Schedules
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 --Agreement and Plan of Merger dated as of March 30, 2003, as amended (attached as Annex A to
the joint proxy statement/prospectus that is a part of this registration statement)
3.1 --Amended and Restated Articles of Incorporation of Registrant (attached as Annex C to the joint
proxy statement/prospectus that is a part of this registration statement)
3.2 --Amended and Restated Bylaws of Registrant (attached as Annex D to the joint proxy statement/
prospectus, which is a part of this registration statement)
4.1 --Specimen certificate of Registrant common stock, par value $0.01 per share
4.2 --Registration Rights Agreement, dated as of March 30, 2003, by and among Registrant and the
parties listed on Exhibit A thereto (attached as Annex G to the joint proxy statement/prospectus
that is a part of this registration statement).
4.3 --Registration Rights Agreement, dated as of April 17, 2003, among Frontier Escrow Corporation,
as issuer, Registrant and Wells Fargo Bank, N.A., as trustee
4.4 --Indenture dated April 17, 2003, between Frontier Escrow Corporation, as issuer, and Wells
Fargo Bank, N.A., as trustee
4.5 --Purchase Agreement dated April 4, 2003, among Frontier Escrow Corporation, Frontier and Bear,
Stearns & Co. Inc., Lehman Brothers Inc. and BNP Paribas Securities Corp, as the initial purchasers.
4.6 --Indenture dated as of February 9, 1998, between Frontier and Chase Bank of Texas, National
Association, as Trustee relating to Frontier's 9 1/8% Senior Notes due 2006 (incorporated by
reference to Exhibit 4.8 to Registration Statement No. 333-47745 dated May 4, 1998)
4.7 --Indenture dated as of November 12, 1999, among Frontier and Chase Bank of Texas, National
Association, as Trustee relating to Frontier's 11 3/4% Senior Notes due 2009 (incorporated by
reference to Exhibit 4.1 to Form 8-K dated November 19, 1999)
5.1 --Opinion of Brown, Drew and Massey, LLP regarding the legality of the securities being
registered
8.1 --Opinion of Vinson & Elkins L.L.P. as to tax matters
8.2 --Opinion of Andrews & Kurth L.L.P. as to tax matters
10.1 --Contingent Value Rights Agreement, dated as of May 12, 2003, by and among Registrant,
Frontier, Holly and Jack P. Reid (attached as Annex B to the joint proxy statement/prospectus
that is a part of this registration statement)
10.2+ --2003 Stock Plan of Registrant (attached as Annex L to the joint proxy statement/prospectus that
is a part of this registration statement)
10.3+** --Form of Consulting Agreement between Holly and Matthew P. Clifton
10.4+** --Form of Consulting Agreement between Holly and W. John Glancy
10.5+** --Form of Executive Employment Agreement between Holly and David G. Blair
10.6+** --Form of Executive Employment Agreement between Holly and John A. Knorr
10.7+** --Form of Executive Employment Agreement between Holly and C. Lamar Norsworthy, III
10.8+** --Form of Executive Employment Agreement between Holly and Bruce R. Shaw
10.9+** --Form of Executive Employment Agreement between Holly and James G. Townsend
10.10+** --Form of Executive Employment Agreement between Holly and Gregory R. White
- --------
* Filed herewith
** To be filed by amendment
+ Indicates management contract or compensatory plan or arrangement
II-7
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.10+ --Executive Employment Agreement dated December 18, 2000, between Frontier and W. Reed
Williams (incorporated by reference to Exhibit 10.10 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.11+ --Executive Employment Agreement dated December 18, 2000, between Frontier and James R.
Gibbs (incorporated by reference to Exhibit 10.11 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.12+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Julie H.
Edwards (incorporated by reference to Exhibit 10.12 to Frontier's annual report on Form 10-K
for the fiscal year ended December 31, 2001)
10.13+ --Executive Employment Agreement dated December 18, 2000, between Frontier and J. Currie
Bechtol (incorporated by reference to Exhibit 10.13 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.14+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Jon D.
Galvin (incorporated by reference to Exhibit 10.14 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.15+ --Executive Employment Agreement dated December 18, 2000, between Frontier and Gerald B.
Faudel (incorporated by reference to Exhibit 10.15 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.16+ --Executive Employment Agreement dated February 28, 2001, between Frontier and Nancy J.
Zupan (incorporated by reference to Exhibit 10.16 to Frontier's annual report on Form 10-K for
the fiscal year ended December 31, 2001)
10.17+ --Form of Amendment to Option and Restricted Stock Awards dated March 30, 2003, between
Frontier and the executive officers listed on Schedule A thereto.
10.18 --Asset Purchase and Sale Agreement among Frontier El Dorado Refining Company, as buyer,
Frontier, as Guarantor and Equilon Enterprises LLC, as seller, dated as of October 19, 1999
(incorporated by reference to Exhibit 10.1 to Form 8-K dated December 1, 1999).
10.19 --Amended and Restated Revolving Credit Agreement dated as of May 27, 2003, among Frontier
Oil and Refining Company, as borrower, Frontier Oil Corporation, the lenders named therein,
Union Bank of California, N.A., as administrative agent, documentation agent and lead arranger,
and BNP Paribas, as syndication agent (incorporated by reference to Exhibit 99.2 to Form 8-K
dated May 29, 2003).
10.20 --Crude Oil Supply Agreement dated October 15, 2002, between Baytex Energy Ltd. and Frontier
Oil and Refining Company (incorporated by reference to Exhibit 10.2 to Form 10-Q for the
fiscal quarter ended September 30, 2002)
12.1 --Frontier Oil Corporation and Subsidiaries Ratio of Earnings to Fixed Charges
12.2 --Holly Corporation and Subsidiaries Ratio of Earnings to Fixed Charges
23.1* --Consent of Ernst & Young LLP
23.2* --Consents of Deloitte & Touche LLP
23.3 --Consent of Brown, Drew and Massey, LLP (included in Exhibit 5.1)
23.4 --Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.1)
23.5 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.2)
99.1 --Consent of Credit Suisse First Boston LLC
99.2 --Consent of Petrie Parkman & Co.
99.3 --Form of Proxy Card of Holly
99.4 --Form of Proxy Card of Frontier
- --------
* Filed herewith
+ Indicates management contract or compensatory plan or arrangement
II-8