SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement.
/ / Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive proxy statement.
/ / Definitive additional materials.
/ / Soliciting material pursuant to Rule 14a-12.
HUNTWAY REFINING COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-1(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[HUNTWAY REFINING COMPANY LOGO]
MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
Dear stockholder:
You are cordially invited to attend a special meeting of stockholders of
Huntway Refining Company to be held at 10:00 a.m. local time on Wednesday,
May 30, 2001 at our principal executive offices located at 25129 The Old Road,
Suite 322, Newhall, California 91318.
The board of directors of Huntway has unanimously approved an Agreement and
Plan of Merger by and among Huntway, Valero Refining and Marketing Company and
HAC Company, a wholly-owned subsidiary of Valero Refining. The merger agreement
provides for the merger of HAC Company with and into Huntway, with Huntway
continuing as a wholly-owned subsidiary of Valero Refining. In the merger, you
will be entitled to receive $1.90 in cash, without interest, for each of your
shares of Huntway common stock. At the special meeting, you will be asked to
consider and vote upon the approval of the merger agreement and the merger.
The board of directors has determined that the merger agreement and the
transactions contemplated thereby, including the merger, are advisable and in
the best interests of Huntway and its stockholders. The board of directors
unanimously recommends that you vote in favor of the approval of the merger
agreement and the merger.
The accompanying proxy statement explains the proposed merger and provides
information concerning the special meeting. We have also enclosed a copy of our
2000 annual report, which includes our Form 10-K for the year ended
December 31, 2000 and our audited financial statements. Please read these
materials carefully. You may obtain additional information about us from
documents that we have filed with the Securities and Exchange Commission.
You should be aware that the NYSE has taken action to delist our common
stock, and we encourage you to read the section entitled "SUMMARY TERM SHEET --
Recent Development" on page 7 of the accompanying proxy statement.
YOUR VOTE IS VERY IMPORTANT. We cannot complete the merger unless holders of
at least a majority of all outstanding shares of Huntway common stock approve of
the merger agreement and the merger. Because approval of the merger agreement
and the merger is based on the affirmative vote of at least a majority of all
shares outstanding rather than of the number of votes cast, failure to vote your
shares will have the same effect as voting against the merger agreement and the
merger. Whether or not you plan to attend the special meeting, we urge you to
vote your shares by signing, dating and promptly returning the enclosed proxy
card to ensure that your shares will be voted at the meeting. Instructions
regarding voting by proxy are contained on the proxy card. If you attend the
meeting and prefer to vote in person, you may do so.
On behalf of the board of directors, we thank you for your continuing
support and urge you to vote FOR approval of the merger agreement and the
merger.
Sincerely,
[LOGO]
Warren J. Nelson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT, NOR HAVE THEY DETERMINED IF THE PROXY STATEMENT IS ADEQUATE OR
ACCURATE. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED
THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The accompanying proxy materials are dated April 23, 2001 and are first
being mailed to our stockholders on or about April 24, 2001.
HUNTWAY REFINING COMPANY
25129 THE OLD ROAD, SUITE 322
NEWHALL, CALIFORNIA 91381
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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DATE AND TIME: Wednesday, May 30, 2001 at 10:00 a.m. local time.
PLACE: 25129 The Old Road, Suite 322
Newhall, California 91381
ITEMS OF BUSINESS: (1) Consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated March 20, 2001, by and
among Huntway Refining Company, Valero Refining and
Marketing Company and HAC Company, and the merger
contemplated by such merger agreement. Valero Energy
Corporation is the parent company of Valero Refining.
The merger agreement provides for, among other things, the
merger of HAC, a wholly-owned subsidiary of Valero Refining,
with and into Huntway, with Huntway continuing as a
wholly-owned subsidiary of Valero Refining. The merger
agreement provides that the stockholders of Huntway will be
entitled to receive $1.90 in cash, without interest, for
each share of Huntway common stock owned by them.
(2) Transact such other business as may properly come before
the special meeting or any adjournment or postponement
thereof.
APPRAISAL RIGHTS: If you do not vote in favor of the merger agreement and the
merger, you have the right to seek appraisal of the fair
value of your shares if the merger is consummated and you
comply with the Delaware law procedures explained on
pages 39 to 42 of the accompanying proxy statement.
RECORD DATE: Only stockholders of record at the close of business on
April 16, 2001 are entitled to notice of and to vote at the
special meeting or any adjournment or postponement thereof.
VOTING BY PROXY: You may vote in person or by proxy. In order to assure that
your vote will be counted, whether or not you plan to attend
the special meeting, please vote by signing, dating and
returning the enclosed proxy card promptly in the enclosed
prepaid envelope. Instructions regarding voting by proxy are
contained on the proxy card.
Your vote is very important. Because the vote is based on
the number of shares outstanding rather than the number of
votes cast, failure to vote your shares will have the same
effect as voting against the merger agreement and the
merger.
By Order of the Board of Directors,
[LOGO]
Earl G. Fleisher
CHIEF FINANCIAL OFFICER AND SECRETARY
Newhall, California
April 23, 2001
TABLE OF CONTENTS
SUMMARY TERM SHEET.......................................... 1
ABOUT THE SPECIAL MEETING................................... 8
Why am I receiving these materials?..................... 8
What am I being asked to vote upon?..................... 8
What is our voting recommendation?...................... 8
When and where will the special meeting be held?........ 8
Who can vote and attend the meeting?.................... 8
What constitutes a quorum at the special meeting?....... 8
How can I vote shares held in my broker's name?......... 9
How do I vote?.......................................... 9
What happens if I do not vote?.......................... 9
Can I change my vote?................................... 9
What vote is required to approve the merger agreement
and the merger?........................................ 10
What should I do now?................................... 10
Should I send in my stock certificates now?............. 10
What rights do I have if I oppose the merger?........... 10
Are there any other matters that will be considered at
this special meeting?.................................. 10
How are we soliciting this proxy and who will bear the
costs?................................................. 11
Who can help answer my questions?....................... 11
THE PARTIES................................................. 12
THE MERGER.................................................. 13
Background of the Merger................................ 13
Recommendation of the Board of Directors; Fairness of
the Merger............................................. 16
Opinion of Financial Advisor............................ 18
Certain Effects of the Merger........................... 22
Conduct of the Business of Huntway if the Merger is Not
Consummated............................................ 23
Accounting Treatment.................................... 23
Financing of the Merger................................. 23
Regulatory Requirements................................. 23
Conflicts of Interest of Certain Persons in the Merger;
Certain Relationships.................................. 24
Material Federal Income Tax Consequences of the
Merger................................................. 25
Fees and Expenses....................................... 27
THE MERGER AGREEMENT........................................ 28
Completion of the Merger................................ 28
Merger Consideration.................................... 28
The Exchange Fund; Payment for Shares of Huntway Common
Stock.................................................. 28
Transfers of Huntway Common Stock....................... 29
Treatment of Options.................................... 29
Repayment and/or Purchase of Certain Indebtedness....... 29
Representations and Warranties.......................... 31
Covenants............................................... 32
Conditions to the Merger................................ 35
Termination............................................. 36
Termination Fee......................................... 37
Amendments and Waivers.................................. 38
Guarantee............................................... 38
i
RIGHT OF APPRAISAL.......................................... 39
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS................ 43
MARKET FOR HUNTWAY COMMON STOCK............................. 43
SECURITIES OWNERSHIP........................................ 44
DIRECTORS AND EXECUTIVE OFFICERS............................ 46
STOCKHOLDER PROPOSALS....................................... 48
WHERE YOU CAN FIND MORE INFORMATION......................... 48
ADDITIONAL INFORMATION...................................... 49
INDEPENDENT AUDITORS........................................ 49
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 49
OTHER BUSINESS.............................................. 50
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Section 262 of the Delaware General Corporation
Law
Annex C Opinion of Simmons & Company International
ii
[HUNTWAY REFINING COMPANY LOGO]
25129 THE OLD ROAD, SUITE 322
NEWHALL, CALIFORNIA 91381
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PROXY STATEMENT
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This proxy statement contains information related to the special meeting of
stockholders of Huntway Refining Company to be held on Wednesday, May 30, 2001
at 10:00 a.m. local time at our principal executives offices located at 25129
The Old Road, Suite 322, Newhall, California 91381, or at such other time and
place to which the special meeting may be adjourned or postponed. THE ENCLOSED
PROXY IS SOLICITED BY OUR BOARD OF DIRECTORS.
SUMMARY TERM SHEET
The following summary briefly describes the material terms of the merger of
HAC Company, a wholly-owned subsidiary of Valero Refining and Marketing Company,
with and into Huntway Refining Company, pursuant to an Agreement and Plan of
Merger entered into by Huntway. Valero Energy Corporation is the parent of
Valero Refining. While this summary describes the material terms that you should
consider when evaluating the merger agreement and the merger, we encourage you
to read the entire proxy statement and the documents attached to the proxy
statement, including the merger agreement attached as Annex A. We have included
below section references to direct you to a more complete description of the
topics addressed in this summary.
THE PROPOSED TRANSACTION
- - You are being asked to consider and vote upon a proposal to approve the merger
agreement and the merger. The merger agreement provides for HAC Company, a
wholly-owned subsidiary of Valero Refining, to be merged with and into
Huntway. As a result of the merger, Huntway will become a wholly-owned
subsidiary of Valero Refining.
- - As a result of the merger:
- you will receive cash in exchange for your shares of common stock and will
no longer have any interest in the future earnings or growth of Huntway;
- Huntway will no longer be a public company; and
- the common stock will no longer be listed on the New York Stock Exchange.
Please read "ABOUT THE SPECIAL MEETING" beginning on page 8 and "THE MERGER
- --Certain Effects of the Merger" beginning on page 22.
PAYMENT
- - If the merger is completed, you will receive $1.90 in cash for each of your
shares of common stock, unless you perfect your appraisal rights as described
below.
Please read "THE MERGER" beginning on page 13 and "THE MERGER AGREEMENT"
beginning on page 28.
APPRAISAL RIGHTS
- - If you do not vote in favor of the merger agreement and the merger and you
fulfill certain other procedural requirements, Delaware law entitles you to a
judicial appraisal of the fair value of your shares.
- - The judicially appraised value of your shares of common stock, which will be
paid to you if you seek an appraisal, may be more than, less than or equal to
the $1.90 per share to be paid in the merger.
For a more complete description of this appraisal right, please read "RIGHT
OF APPRAISAL" beginning on page 39.
RECOMMENDATION TO STOCKHOLDERS
- - Based upon the determination of the board of directors that the merger
agreement and the transactions contemplated thereby, including the merger, are
advisable and in the best interests of Huntway and its stockholders, the board
unanimously recommends to the stockholders of Huntway that they vote in favor
of approving the merger agreement and the merger.
Please read "THE MERGER -- Recommendation of the Board of Directors;
Fairness of the Merger" beginning on page 16 and "THE MERGER -- Conflicts of
Interest of Certain Persons in the Merger; Certain Relationships" beginning on
page 24.
OPINION OF FINANCIAL ADVISOR
- - In deciding to approve the merger agreement and the merger, the board of
directors received and considered the opinion of its financial advisor,
Simmons & Company International, that, as of the date of such opinion, and
based upon and subject to certain matters set forth in such opinion, the $1.90
per share cash consideration to be received by the stockholders of Huntway is
fair to such stockholders from a financial point of view.
We urge you to read "THE MERGER -- Opinion of the Financial Advisor"
beginning on page 18 and the full text of the opinion attached to this proxy
statement as Annex C.
THE SPECIAL MEETING
- - The special meeting will be held on Wednesday, May 30, 2001 at 10:00 a.m.
local time at our principal executive offices located at 25129 The Old Road,
Suite 322, Newhall, California 91381.
- - The merger agreement and the merger must be approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of common
stock.
- - You are entitled to vote at the special meeting if you owned shares of common
stock at the close of business on April 16, 2001, the record date for the
special meeting.
Please read "ABOUT THE SPECIAL MEETING" beginning on page 8.
VALERO REFINING AND MARKETING COMPANY AND HAC COMPANY
- - Valero Refining and Marketing Company is a Delaware corporation and a
wholly-owned subsidiary of Valero Energy Corporation. Valero Energy, a Fortune
500 company that is publicly-traded on the NYSE, is one of the largest and
most geographically diverse independent petroleum refining and marketing
companies in the United States.
- - HAC Company is a newly-formed Delaware corporation and a wholly-owned
subsidiary of Valero Refining, formed for the sole purpose of effecting the
merger.
Please read "THE PARTIES" on page 12.
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REPAYMENT AND/OR PURCHASE OF CERTAIN INDEBTEDNESS
- - BANK OF AMERICA. In connection with the merger, Valero Refining will put in
place a back-up letter of credit with respect to letters of credit outstanding
under our loan agreement with Bank of America, which will permit the
termination of such loan agreement subject to certain limited exceptions. We
have no outstanding indebtedness under the Bank of America loan agreement
other than letters of credit.
- - BOEING CAPITAL. In connection with the merger, Valero Refining will repay all
of the outstanding indebtedness under our senior debt facility with Boeing
Capital Corporation. The indebtedness owed to Boeing Capital will not be
prepayable at the time of the merger and as a result a prepayment fee will be
paid to Boeing Capital. The principal amount of indebtedness outstanding as of
March 31, 2001 under this senior debt facility was $12.3 million and we
anticipate that the prepayment fee will be approximately $290,000.
- - CONVERTIBLE NOTES. In connection with the merger, Valero Refining will
purchase all of our outstanding convertible notes for an amount equal to the
sum of (1) the amount that would have been payable in the merger for the
common stock underlying such convertible notes had such convertible notes been
fully converted into shares of common stock immediately prior to the closing
of the merger and (2) any accrued and unpaid interest on such notes as of the
closing of the merger. We anticipate that the aggregate purchase price for the
convertible notes to be paid by Valero Refining (excluding accrued and unpaid
interest thereon) will be approximately $27.6 million.
- - JUNIOR SUBORDINATED DEBENTURES. In connection with the merger, Valero Refining
will purchase all of our outstanding junior subordinated debentures for an
amount equal to the total principal and accrued and unpaid interest thereon as
of the closing of the merger. The total principal amount of indebtedness under
the junior subordinated debentures as of March 31, 2001 was $3.7 million.
- - RELEASE OF LIENS. It is contemplated that at the closing all liens related to
such indebtedness will be terminated and released.
- - CONSENTS. We have not obtained the consent and agreement of Bank of America,
Boeing Capital Corporation or the holders of the convertible notes or the
junior subordinated debentures to the repayments and/or purchases described
above. Such consents and agreements are a closing condition under the merger
agreement as described below. We have, however, obtained oral assurances that
such consents and agreements will be given.
Please read "THE MERGER AGREEMENT -- Repayment and/or Purchase of Certain
Indebtedness" beginning on page 29.
REGULATORY APPROVALS
- - No government or other regulatory approvals are required as a prerequisite to
the merger other than filings pursuant to federal securities laws and the
filing of the certificate of merger with the Secretary of State of the State
of Delaware.
Please read "THE MERGER -- Regulatory Requirements" on page 23.
MERGER FINANCING
- - Huntway estimates that approximately $28.5 million will be required to fund
the payment by Valero Refining of the merger consideration for the common
stock, assuming no stockholders perfect their appraisal rights under Delaware
law. In addition, Huntway estimates that an aggregate of approximately
$6.1 million will be required to be paid with respect to the economic value
(or spread) on our outstanding options for common stock and an aggregate of
3
approximately $43.4 million will be required by Valero Refining for the
repayments and/or purchases of indebtedness of Huntway contemplated to occur
upon the merger. The $43.4 million does not include accrued and unpaid
interest on the indebtedness, but does include the prepayment fee contemplated
to be paid under the loan agreement with Boeing Capital.
- - Valero Refining expects to have sufficient cash resources available at closing
to fund all required cash payments. Valero Refining expects to use
inter-company indebtedness and/or capital contributions from Valero Energy,
the parent of Valero Refining, to finance the transactions contemplated by the
merger agreement. Valero Refining does not need, nor does it expect to obtain,
commitments from lending institutions to specifically finance the cash
payments by it contemplated pursuant to the merger agreement.
- - Valero Energy has guaranteed all of the obligations and covenants of Valero
Refining and HAC set forth in the merger agreement, including the payment of
the merger consideration for the common stock. Valero Energy does not need,
nor does it expect to obtain, commitments from lending institutions in order
to provide Valero Refining with financing in connection with the merger.
Please read "THE MERGER -- Financing of the Merger" on page 23.
SURRENDER OF CERTIFICATES
- - Pursuant to the merger agreement, Valero Refining will deposit with a bank or
trust company an amount of cash necessary to pay the aggregate consideration
payable to the stockholders of Huntway in the merger. Promptly after the
effective time of the merger, each stockholder of record will be mailed a
letter of transmittal and detailed instructions specifying the procedures to
be followed in surrendering certificates representing common stock. SHARE
CERTIFICATES SHOULD NOT BE FORWARDED UNTIL RECEIPT OF THE LETTER OF
TRANSMITTAL.
- - Upon the proper surrender of a share certificate, you will receive a check
representing an amount of cash equal to $1.90 per share of common stock
formerly represented by the share certificate surrendered.
Please read "THE MERGER AGREEMENT -- The Exchange Fund; Payment for Shares
of Huntway Common Stock" beginning on page 28.
CONDITIONS TO THE MERGER
The obligations of Huntway, Valero Refining and HAC to consummate the merger
are subject to several conditions, including the following:
- approval of the merger agreement and the merger by the holders of at least
a majority of the shares of Huntway common stock outstanding and entitled
to vote on the merger agreement and the merger;
- absence of any law or regulation or judgment, injunction, order or decree
of any federal, state or foreign authority making the merger illegal or
otherwise prohibiting the consummation of the merger or the transactions
contemplated by the merger agreement;
- Bank of America having entered into an agreement providing for among other
things the termination of its loan agreement with Huntway upon the
effectiveness of a certain back-up letter of credit obtained by Valero
Refining;
- Boeing Capital having entered into an agreement providing for among other
things the repayment of the indebtedness outstanding thereunder; and
4
- each of the holders of our senior convertible notes and our junior
subordinated debentures outstanding immediately prior to the closing of
the merger having entered into an agreement providing for among other
things the purchase by Valero Refining of such notes and debentures.
The obligation of Valero Refining and HAC to consummate the merger is
subject to several additional conditions, including the following:
- Huntway having performed in all material respects its obligations
contained in the merger agreement required to be performed at or prior to
the effective time of the merger;
- the representations and warranties of Huntway contained in the merger
agreement (excluding all qualifications or exceptions relating to
materiality and/or a material adverse effect) being true and correct, in
each case (1) as of the date referred to in any representation or warranty
which addresses matters as of a particular date or (2) as to all other
representations and warranties, as of the date of the merger agreement and
as of the time of the merger, subject to exceptions for the effect of
actions taken by Huntway that are permitted under the merger agreement and
to other exceptions the aggregate effect of which shall not have had or be
reasonably likely to have a material adverse effect on Huntway;
- the release and termination of all liens and encumbrances under or related
to our existing bank and note indebtedness;
- the termination of various agreements with our creditors and collateral
agent;
- the transfer of the interest in our subsidiary not currently owned by us
to Valero Refining or its designee;
- written resignations, effective as of the merger, from each director of
Huntway;
- written resignations, effective as of immediately after the merger, from
each officer of Huntway or its subsidiary identified by Valero Refining;
- Chicago Title Insurance Company or another equivalent title insurance
company having issued a title insurance policy with extended coverage in
the amount of $25 million or more with respect to our owned real property
at Benicia, California, showing title to the owned real property vested in
Huntway, subject only to permitted liens;
- the acquisition by Huntway of certain property related to our Wilmington,
California refinery currently owned by Vulcan Materials Company which
Vulcan has contracted to sell to Huntway subject to certain conditions,
unless (1) there has been an amendment to the existing contract providing
that if the closing of the sale of such property to Huntway has not
occurred on or prior to a date no later than September 30, 2001, the
property shall be subdivided and a certain portion thereof sold to Huntway
or (2) a long-term lease or a long-term extension of the existing lease by
Huntway relating to a certain portion of such property has been entered
into, in either case upon terms that are reasonably satisfactory to Valero
Refining; and
- if Huntway has acquired the Wilmington, California property described
above on or before the closing of the merger, Chicago Title Insurance
Company or another equivalent title insurance company having issued a
title insurance policy with extended coverage in the amount of
$10 million or more with respect to such property, showing title to the
property vested in Huntway, subject only to permitted liens.
Please read "THE MERGER AGREEMENT -- Conditions to the Merger" beginning on
page 35.
5
EFFECTIVE TIME
- - The merger will become effective as of the date and time that a certificate of
merger is filed with the Secretary of State of the State of Delaware, which is
expected to occur as soon as practicable after the stockholders approve the
merger agreement and the merger at the special meeting and the closing
conditions described above are satisfied or waived.
Please read "THE MERGER AGREEMENT -- Completion of the Merger" on page 28.
TERMINATION AND TERMINATION FEE
- - The merger agreement may be terminated at any time prior to the effective time
of the merger by the mutual agreement of the parties.
- - The merger agreement may be terminated if the consummation of the merger has
not occurred on or before July 31, 2001, subject to a certain limited
exception.
- - Huntway may terminate the merger agreement in the event that our board of
directors has authorized us to enter into a definitive agreement with respect
to a superior proposal to acquire our company from a person other than Valero
Refining.
- - Upon the occurrence of certain events described on pages 36 and 37, including
a termination relating to a superior proposal as described above, Huntway must
pay Valero Refining a $1.75 million termination fee.
Please read "THE MERGER AGREEMENT -- Termination" beginning on page 36 and
"THE MERGER AGREEMENT -- Termination Fee" on page 37.
TAX CONSEQUENCES AND ACCOUNTING TREATMENT
- - The receipt of cash in the merger by you will be taxable to you for U.S.
federal income tax purposes in the same way as if you sold your shares in the
market for $1.90 per share in cash. Assuming you hold your shares as a capital
asset, you will recognize capital gain or loss on each share as a result of
the merger equal to the difference, if any, between $1.90 per share and your
adjusted tax basis in such share.
- - You will need to provide a substitute Form W-9 along with your letter of
transmittal or a tax withholding will be made from your merger consideration.
- - Because of the complexities of the tax laws, you are advised to consult your
own tax advisors concerning the applicable federal, state, local, foreign and
other tax consequences resulting from the merger.
- - The merger will be treated as a "purchase" for accounting purposes.
Please read "THE MERGER -- Material Federal Income Tax Consequences of the
Merger" beginning on page 25 and "THE MERGER -- Accounting Treatment" on
page 23.
6
RECENT DEVELOPMENT
- - On April 5, 2001, Huntway was notified that the NYSE was taking action to
delist the common stock from the NYSE. Huntway timely requested a review of
such determination. We anticipate that the common stock will continue to be
listed on the NYSE until at least our scheduled review date, which the NYSE
has informed us is June 6, 2001, as a request for a review ordinarily stays
delisting until the review is heard. We are considering our alternatives if
the NYSE does not reverse its determination to delist the common stock and if
prior to the effective time of any delisting the transaction with Valero
Refining has not closed.
------------------------
Throughout this proxy statement, the term "merger agreement" refers to the
Agreement and Plan of Merger dated March 20, 2001, by and among Huntway, Valero
Refining and HAC (a copy of which is included at the back of this proxy
statement as Annex A), the term "merger" refers to the merger of HAC, a
wholly-owned subsidiary of Valero Refining, with and into Huntway, with Huntway
continuing as a wholly-owned subsidiary of Valero Refining, and the term "merger
consideration" refers to the $1.90 per share in cash, without interest, to be
received by stockholders of Huntway in the merger. For ease of reference, we
sometimes refer in this document to Valero Refining and Marketing Company as
"Valero Refining," to HAC Company as "HAC," to Valero Energy Corporation as
"Valero Energy," and to Huntway Refining Company as "Huntway." We are also using
the term "common stock" to mean the common stock, par value $0.01 per share, of
Huntway.
7
ABOUT THE SPECIAL MEETING
Q: WHY AM I RECEIVING THESE MATERIALS? A: This proxy statement is being furnished to you and
the other stockholders of Huntway in connection with
the solicitation of proxies on behalf of the board of
directors for use at a special meeting of
stockholders to be held on May 30, 2001, or at any
adjournment or postponement thereof. This proxy
statement is first being mailed to our stockholders
on or about April 24, 2001.
Q: WHAT AM I BEING ASKED TO VOTE UPON? A: You are being asked to vote upon a proposal to
approve a merger agreement and the merger
contemplated thereby.
Q: WHAT IS OUR VOTING RECOMMENDATION? A: Our board of directors has:
- Unanimously determined that the merger agreement
and the transactions contemplated thereby,
including the merger, are advisable and in the best
interests of Huntway and its stockholders;
- Unanimously approved and adopted the form, terms
and provisions of the merger agreement and the
performance by Huntway of its obligations under the
merger agreement; and
- Unanimously recommended to the stockholders of
Huntway that they vote in favor of approving the
merger agreement and the merger contemplated
thereby.
Q: WHEN AND WHERE WILL THE SPECIAL A: The special meeting will take place at 10:00 a.m.
MEETING BE HELD? local time on Wednesday, May 30, 2001 at our
principal executive offices located at 25129 The Old
Road, Suite 322, Newhall, California 91381.
Q: WHO CAN VOTE AND ATTEND THE MEETING? A: All stockholders of record as of the close of
business on April 16, 2001, the record date for the
special meeting, are entitled to receive notice of
and to attend and vote at the special meeting, or any
postponement or adjournment thereof.
As of the record date, we had outstanding 15,004,771
shares of common stock.
Q: WHAT CONSTITUTES A QUORUM AT THE A: The presence in person or by proxy of holders of at
SPECIAL MEETING? least a majority of the outstanding common stock
entitled to vote at the special meeting constitutes a
quorum. Proxies received but marked as abstentions
and properly executed "broker non-votes" will be
included in the calculation of the number of shares
considered to be present and entitled to vote at the
meeting.
"Broker non-votes" result when, under the rules of
the New York Stock Exchange, brokers are precluded
from exercising their voting discretion with respect
to the
8
approval of non-routine matters, such as the proposal
to approve the merger agreement and the merger.
Absent specific instructions from the beneficial
owner of those shares, brokers are not empowered to
vote the shares with respect to the approval of those
proposals.
Q: HOW CAN I VOTE SHARES HELD IN MY A: If your broker holds your shares in its name (or in
BROKER'S NAME? what is commonly called "street name"), then you
should give your broker instructions on how to vote.
Otherwise, your shares will not be voted and you
will, in effect, be voting AGAINST the merger
agreement and the merger.
Q: HOW DO I VOTE? A: You can vote on the merger agreement and the merger
in two ways:
- By completing, dating and signing the enclosed
proxy card and returning it in the enclosed
postage-paid envelope; or
- By written ballot at the special meeting.
Please see your proxy card for specific instructions
on the above methods of voting.
All shares of common stock represented at the special
meeting by properly executed proxies received prior
to or at the special meeting, unless previously
revoked, will be voted at the special meeting in
accordance with the instructions on the proxies.
Unless contrary instructions are indicated, proxies
will be voted "FOR" the approval of the merger
agreement and the merger. In addition, the persons
designated on our proxy card will have the discretion
to vote on such matters as may properly come before
the special meeting.
Q: WHAT HAPPENS IF I DO NOT VOTE? A: Because approval of the merger agreement and merger
is based on the affirmative vote of at least a
majority of all shares outstanding rather than of the
number of votes cast, failure to vote your shares
using one of the two ways described above will have
the same effect as voting AGAINST the merger
agreement and the merger. Similarly, abstentions and
"broker non-votes" will have the same effect as a
vote AGAINST approval of the merger and the merger
agreement.
Q: CAN I CHANGE MY VOTE? A: Yes. You may change your vote at any time before the
vote at the special meeting. For shares held directly
in your name, you may do this by:
- Filing with the Secretary of Huntway a notice of
revocation;
- Sending in another duly executed and completed
proxy card bearing a later date; or
- Attending the special meeting and casting your vote
in person.
9
Your last vote is the vote that is counted. Simply
attending the meeting alone will not revoke your
proxy unless you vote at the meeting. For shares held
in "street name," you may change your vote only by
giving new voting instructions to your broker or
nominee.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE A: The merger agreement and the merger must be approved
MERGER AGREEMENT AND THE MERGER? by the affirmative vote of the holders of at least a
majority of the outstanding shares of our common
stock.
Holders of our common stock are entitled to one vote
per share.
Q: WHAT SHOULD I DO NOW? A: Please carefully review this proxy statement,
including the annexes, and consider how the merger
affects you. Then, vote your shares in one of the
ways described above so that your shares may be
represented and voted at the special meeting.
Q: SHOULD I SEND IN MY STOCK A: No. After the merger is completed, you will receive a
CERTIFICATES NOW? letter of transmittal and written instructions that
will tell you how to exchange your certificates for
$1.90 per share in cash. PLEASE DO NOT SEND IN YOUR
CERTIFICATES NOW OR WITH YOUR PROXY CARD. Hold your
certificates until you receive further instructions.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE A: If you wish, you may seek an appraisal of the fair
MERGER? value of your shares of common stock, but only if you
comply with all requirements of Delaware law
described on pages 39 to 42 and in Annex B of this
proxy statement. Based on the determination of the
Delaware Court of Chancery, the appraised fair value
of your shares of Huntway, which will be paid to you
if you seek an appraisal, may be more than, less than
or equal to the $1.90 per share to be paid in the
merger.
As explained below, a vote in favor of the merger
agreement and the merger means that the holder of
those shares will not have the right to seek
appraisal of the fair value of such shares.
Q: ARE THERE ANY OTHER MATTERS THAT WILL A: We do not know of any other matters that are to come
BE CONSIDERED AT THIS SPECIAL before the special meeting. If any other matters are
MEETING? properly presented at the special meeting for action,
including, among other things, consideration of a
motion to adjourn such meeting to another time and/or
place for the purpose of soliciting additional
proxies, allowing additional time for the
satisfaction of conditions to the merger or
otherwise, the persons named in the enclosed proxy
card and acting thereunder generally will have
discretion to vote on such matters in accordance with
their best judgment. Notwithstanding the foregoing,
the persons named in the enclosed proxy card will not
use their discretionary authority to use proxies
voting against
10
the merger agreement and the merger to vote in favor
of adjournment or postponement of the special
meeting.
Q: HOW ARE WE SOLICITING THIS PROXY AND A: We will bear the cost of preparing, assembling and
WHO WILL BEAR THE COSTS? mailing this proxy statement, the notice of special
meeting of stockholders and the enclosed proxy card.
We are requesting that banks, brokers and other
custodians, nominees and fiduciaries forward copies
of the proxy materials to their principals and
request authority for the execution of proxies. We
may reimburse such persons for their expenses in so
doing. In addition to the solicitation of proxies by
mail, our directors, officers and employees may,
without receiving any additional compensation,
solicit proxies by telephone, telefax, telegram,
other electronic means or in person. We have also
retained Corporate Investor Communications, Inc. to
assist in the solicitation of proxies at an estimated
cost of $6,000, plus reasonable costs and expenses,
including fees for making and receiving calls.
Q: WHO CAN HELP ANSWER MY QUESTIONS? A: If you have more questions about the special meeting
or the merger or would like additional copies of this
proxy statement or our 2000 annual report, you should
contact Earl G. Fleisher, the Chief Financial Officer
of Huntway, at 25129 The Old Road, Suite 322,
Newhall, California 91381, telephone (661) 254-1220.
If you need assistance in changing or revoking your
proxy or if you have other questions about the
special meeting, you may call Corporate Investor
Communications, Inc., our solicitation agent for the
merger, at (888) 369-0004.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY
STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
11
THE PARTIES
HUNTWAY REFINING COMPANY
We are a Delaware corporation, with our principal executive offices located
at 25129 The Old Road, Suite 322, Newhall, California 91381; telephone:
(661) 286-1582. We own and operate two crude oil refineries located in
California and also own a facility in Arizona that is currently being held for
future use as a refined products terminal.
Our two California refineries produce liquid asphalt products and light-end
products from crude oil primarily obtained from onshore and offshore California
production sources. The liquid asphalt is sold to hot mix asphalt producers,
material supply companies, contractors and government agencies, principally for
use in road paving in California. The light-end products consist of intermediate
refinery feedstocks and are sold to other refiners for further processing into
gasoline, diesel fuel and jet fuel.
For additional information regarding us and our business, see "WHERE YOU CAN
FIND MORE INFORMATION" and "ADDITIONAL INFORMATION" on pages 48 and 49,
respectively.
VALERO REFINING AND MARKETING COMPANY
Valero Refining and Marketing Company is a Delaware corporation and a
wholly-owned subsidiary of Valero Energy Corporation, a Fortune 500 company
listed on the New York Stock Exchange.
Valero Energy, the parent corporation of Valero Refining, is one of the
largest and most geographically diverse independent petroleum refining and
marketing companies in the United States. Valero Energy currently owns and
operates six refineries in Texas, California (including a refinery adjacent to
our Benicia, California facility), Louisiana and New Jersey and is recognized
throughout the industry as a leader in the production of premium,
environmentally clean products such as reformulated gasoline, CARB Phase II
gasoline, low-sulfur diesel and oxygenates. Valero Energy markets its products
in the United States through an extensive wholesale bulk and rack marketing
network, and in California through approximately 85 Valero branded retail and
270 other retail distributor locations.
Pursuant to the merger agreement, Valero Energy has guaranteed all of the
obligations and covenants of Valero Refining and HAC set forth in the merger
agreement, including the payment of the merger consideration.
The principal executive offices of Valero Refining and Valero Energy are
located at One Valero Place, San Antonio, Texas 78212; telephone:
(210) 370-2000.
HAC COMPANY
HAC Company is a Delaware corporation and wholly-owned subsidiary of Valero
Refining formed in March 2001 for the purposes of engaging in the merger. HAC
has not carried on any activities to date other than those incident to its
formation and the negotiation and execution of the merger agreement.
The principal executive offices of HAC are located at One Valero Place, San
Antonio, Texas 78212; telephone: (210) 370-2000.
12
THE MERGER
BACKGROUND OF THE MERGER
The management and board of directors of Huntway have considered and
evaluated on a periodic basis since at least June 1999 a wide range of strategic
alternatives for Huntway and its businesses with a view toward maximizing value
to its stockholders. To this end, from time to time prior to May 10, 2000,
certain members of the board met or held discussions with investment bankers to
discuss the strategic alternatives available to Huntway.
At the May 10, 2000 regular meeting of the board of directors, Warren
J. Nelson, our President and Chief Executive Officer, as the lead representative
of a group of Huntway officers, indicated that such group intended to make a
proposal to acquire Huntway.
On June 13, 2000, the board of directors formed a special committee
consisting of Brian Hogan, Harris Kaplan and J.C. McFarland (1) to consider
strategic alternatives for Huntway as a means of maximizing stockholder value,
including asset purchases or sales, stock repurchases, public offerings or
private placements of securities, or a sale of Huntway to a third party for cash
or securities and (2) to consider and respond to any proposal that might
ultimately be made by the management group. The special committee elected
Mr. McFarland to serve as its chairman, retained Baker Botts L.L.P. as its legal
counsel and, after considering several proposals from investment banks, engaged
Simmons & Company International to serve as its financial advisor.
From June 13, 2000 to February 21, 2001, the special committee held 18
meetings (most by telephone) and communicated informally numerous other times.
On September 5, 2000, the special committee met in person with Simmons to
review the initial evaluation by Simmons of various strategic alternatives,
including: (1) maintaining the status quo; (2) increasing the public float by a
public offering of shares; (3) recapitalizing Huntway and paying a special
dividend to stockholders; (4) growing through acquisitions for cash
consideration; (5) growing through acquisitions or mergers for stock
consideration; and (6) selling Huntway to a strategic buyer, financial buyer,
management group or existing large stockholder for cash and/or stock. Simmons
concluded that a sale of Huntway presented the best opportunity to maximize
stockholder value and liquidity.
At the September 5 meeting, the special committee made no decision to pursue
a specific strategic alternative, but requested that Simmons focus on possible
transactions involving a sale of Huntway, and then reviewed with Simmons parties
that might be interested in pursuing such a transaction. The special committee
asked Simmons initially to contact 10 of the most likely interested parties,
including Valero Energy, to determine their interest. The number contacted
eventually was expanded to a total of 20 parties. Huntway subsequently entered
into confidentiality and standstill agreements with the management group and
nine other interested parties and delivered to them a descriptive memorandum
containing information regarding Huntway. Valero Energy signed its
confidentiality agreement on September 27, 2000 and received its memorandum on
October 2, 2000.
On October 27, 2000, the special committee asked each of the interested
parties, including Valero Energy, to submit by November 10, 2000 a written
indication of interest in a possible acquisition of Huntway.
On November 10, 2000, the special committee received non-binding indications
of interest from Valero Energy, the management group and two other interested
parties. The indication of interest of Valero Energy was in the range of $2.45
to $2.50 per share.
On November 13, 2000, the special committee met with Simmons to review the
relative strengths and weaknesses of each of the four indications of interest.
The special committee
13
authorized Simmons to invite each of the four interested parties, including
Valero Energy, to receive a presentation by Huntway management, visit a data
room and conduct due diligence. After all of the interested parties had visited
the data room and received a management presentation and a proposed form of cash
merger agreement, one of the interested parties indicated that it no longer
intended to pursue a transaction with Huntway.
On January 16, 2001, the special committee through Simmons asked the
interested parties to submit definitive offers by February 13, 2001.
On February 8, 2001, Huntway publicly released its earnings for the year
2000. The price of the common stock, which had been in the range of $0.63 to
$1.06 per share during the preceding 90 days, rose rapidly to as high as $1.74
per share and closed at $1.35 per share on February 13.
On February 13, 2001, Valero Energy submitted a cash offer of $1.45 per
share and its comments on the proposed form of cash merger agreement. The
special committee also received a written status update from the management
group, and the remaining interested party requested an extension of time to
submit a proposal, which it subsequently submitted on February 20.
On February 15, 2001, the special committee met with Simmons to review the
Valero Energy offer and as well to discuss the status of the management group
and the interested party that had requested a time extension. The special
committee deferred further action until its scheduled meeting on February 21,
the date of the next regular meeting of the board.
On February 21, 2001, the special committee met in advance of the meeting of
the board of directors. Simmons reviewed and compared the proposals of the
interested parties, and also discussed its analysis of the strategic
alternatives available to Huntway. Simmons advised the special committee of
discussions it had held with Valero Energy since the previous special committee
meeting, including those with respect to the disparity between the Valero Energy
offer and its preliminary indication of interest submitted on November 10, 2000,
and of its evaluation of the potential for negotiating better terms with Valero
Energy. The presentation of Simmons included discussions of (1) the financial
characteristics and prospects of Huntway, (2) the current valuation of Huntway,
(3) the strategic alternatives available to Huntway and the feasibility of each
alternative, (4) the process undertaken by Simmons to solicit proposals by third
parties to acquire Huntway, (5) the proposals received as a result of the
process, (6) contractual issues Simmons had identified in the comments of Valero
Energy on the cash merger agreement proposed by Huntway and (7) possible next
steps. Baker Botts discussed with the special committee the various
recommendations that the special committee could make to the full board of
directors. The special committee concluded that pursuing a sale of Huntway was
the best strategic alternative available. The special committee also concluded
that it was unlikely that an acceptable transaction could be negotiated with the
management group, and thus that the decision as to how to proceed should be made
by the full board.
The full board of directors met immediately following the special committee
meeting on February 21, 2001. All directors attended the meeting in person,
other than Harris Kaplan, who attended the meeting telephonically.
Mr. McFarland, the chairman of the special committee, presented to the board the
report and conclusions of the special committee. Mr. Nelson confirmed that the
management group was not further pursuing a transaction. Mr. McFarland informed
the board of the proposals resulting from the auction process undertaken by the
special committee. Following full discussion by the board of the report and
conclusions of the special committee, Kirkland & Ellis, counsel to Huntway,
advised the board on its legal duties and responsibilities. Simmons then made a
presentation to the board that was similar to the one made at the preceding
special committee meeting. Representatives of Simmons and Kirkland & Ellis
reviewed in particular with the board, and the board discussed in particular,
the proposed terms of the Valero Energy bid. The board discussed with Simmons
among other things the potential synergies that could be
14
realized by Valero Energy as a result of a purchase of Huntway by Valero Energy
and the potential value of those synergies. After full discussion and due
consideration, the board determined that a transaction with Valero Energy
presented the best strategic alternative for Huntway, provided acceptable terms
could be negotiated.
On February 22, 2001, Simmons contacted Valero Energy to request that it
increase its offer to an enterprise value of $80 million or approximately $1.96
per share. Valero Energy indicated that it would take the proposed price under
consideration.
On February 26, 2001 Valero Energy contacted Simmons to inform them that
Valero Energy would not meet the proposed $80 million enterprise value but would
be willing to increase its offer to an enterprise value of $75 million or
approximately $1.82 per share, although this value would require approval by the
executive committee of the Valero Energy board. Later that day, after further
negotiations between Valero Energy and Simmons, Valero Energy ultimately agreed
to an enterprise value of $77.5 million or approximately $1.90 per share.
On February 27, 2001, the Huntway board held a special meeting to review the
proposed transaction and to consider the proposed $1.90 price per share.
Mr. Kaplan, who had acted as the liaison of the board with Simmons since the
February 21 board meeting, reviewed with the board the negotiations that had
occurred between Simmons and Valero Energy since the prior meeting of the board.
Following full discussion by the board and based on the indication of Simmons to
Mr. Kaplan that Simmons would deliver a fairness opinion at the $1.90 proposed
per share price, the board unanimously agreed that a sale of Huntway to Valero
Energy at $1.90 per share should be actively pursued.
The executive committee of the board of Valero Energy met on February 28,
2001 and approved the $1.90 per share price.
Between March 6 and March 20, 2001, representatives of Valero Energy,
Huntway, Simmons and Kirkland & Ellis negotiated the definitive terms of the
merger agreement and various related documents, including in-person negotiations
throughout March 6, March 7 and the morning of March 8, 2001. During this
period, Mr. Nelson made contacts with Bank of America, Boeing Capital, certain
holders of its convertible notes and the holders of its junior subordinated
debentures to discuss the proposed transaction with Valero Energy and to
ascertain whether such parties would support the transaction under its proposed
terms. With respect to Boeing Capital, Mr. Nelson negotiated a prepayment fee of
approximately $290,000. Also in this interim period, Huntway negotiated with
Andre Danesh, as trustee of the Andre Danesh 1997 IRRV Trust, which negotiations
concluded on March 19 and resulted in the Trust entering into an amendment to
the option agreements held by the Trust for cash consideration of $200,000.
On March 16, 2001, the board met to receive an update on the negotiations
that had taken place since the prior board meeting and to consider approval of
the transaction with Valero Energy. Kirkland & Ellis made a detailed
presentation regarding among other things the terms and conditions of the merger
agreement and related documents. Simmons delivered its oral fairness opinion to
the board, which was later confirmed in writing, that as of that date and based
upon and subject to the assumptions, limitations and qualifications set forth in
the opinion, the consideration to be received by Huntway stockholders in the
merger was fair, from a financial point of view, to the Huntway stockholders.
Following extensive discussion and consideration, the board by the unanimous
vote of all directors concluded that the merger agreement and the merger were
fair to, and in the best interests of, the Huntway stockholders and approved the
merger agreement and the merger and certain other matters related thereto,
subject to the favorable resolution of negotiations with Andre Danesh, which as
noted above were resolved on March 19.
15
On March 20, 2001, following conclusion of the Danesh negotiations, the
board held a telephonic meeting and approved the amendment negotiated with
Mr. Danesh and authorized the execution and delivery of the merger agreement and
related documents. A definitive merger agreement and other documents were
executed that afternoon, and a press release announcing the transaction was
issued by Huntway and Valero Energy after the close of trading that day.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
At a special meeting of the Board of directors on March 16, 2001, at which
all directors of Huntway were present, the board unanimously concluded that the
terms and provisions of the merger agreement and the merger were fair to and in
the best interests of Huntway and its stockholders and, subject to satisfactory
resolution of issues relating to the Andre Danesh 1997 IRRV Trust options,
approved the merger agreement and recommended that the stockholders approve the
merger agreement and the transactions contemplated thereby.
In reaching its decision to approve and recommend the Valero Refining offer
of $1.90 per share, the board considered a variety of factors, including without
limitation the following, each of which, individually and in the aggregate, in
the opinion of the board, supported such determination:
- TERMS OF THE MERGER AGREEMENT. The board considered the financial and
other terms of the merger agreement. The board also considered the
financial condition of Valero Energy and the fact that the obligations of
Valero Refining and HAC under the merger agreement, which are guaranteed
by Valero Energy, are not subject to any financing condition.
- FAIRNESS OPINION OF SIMMONS. The board considered the financial
presentation of Simmons and its opinion delivered to the board to the
effect that, as of the date of its opinion and based upon and subject to
certain matters stated therein, the $1.90 per share cash consideration to
be received by Huntway stockholders in the merger is fair from a financial
point of view. A copy of the opinion of Simmons, with a discussion of the
information reviewed, assumptions made and matters considered by Simmons,
is attached to this proxy statement as Annex C. You should read this
opinion in its entirety as well as the other information described under
"-- Opinion of Financial Advisor" beginning on page 18 below.
- MARKET PRICE AND PREMIUM. The board considered:
- The fact that the $1.90 per share price offered by Valero Refining
represented a premium of approximately 17% over the closing price of
the common stock on March 15, 2001, and approximately 31% over the
average closing prices of the common stock during the period beginning
February 9, 2001 (the first trading day following public release of the
2000 earnings of Huntway) and ending March 15, 2001.
- The history of the trading of the common stock on the NYSE during the
12 months ended February 8, 2001, with the average closing price during
such period being approximately $1.02 per share of common stock, and
the premium represented by the merger consideration to the prices
reflected in such history.
- The fact that the closing price of the common stock has not equaled or
exceeded the merger consideration since June 1, 1998, when Huntway
converted from partnership to corporate form, other than during three
brief periods: on one trading day during July 1998, when the closing
price reached a high of $1.94; on twelve trading days in February and
March 1999, when the closing price reached a high of $2.13; and on
seven trading days in September 1999, when the closing price reached a
high of $2.00.
- The fact that the closing price of the common stock has steadily
declined since June 1, 1998 (other than during the three brief periods
described above and during the period
16
since February 8, 2001), notwithstanding a trend of improved annual
earnings since that time.
- The volatility in the price of the common stock.
- LIQUIDITY OF COMMON STOCK. The board considered the thin trading market
and the lack of liquidity of the common stock.
- NYSE NON-COMPLIANCE. The board considered the fact that the market
capitalization of Huntway failed to meet the continued listing
requirements of the NYSE and the unlikelihood that the NYSE would continue
the listing of the common stock.
- POSSIBLE DECLINE IN MARKET PRICE OF COMMON STOCK. The board considered the
alternatives available to Huntway, and the probability that if Huntway
remained an independent public corporation, the price that could be
received by holders of shares of the common stock in the open market or in
another transaction would be less than the $1.90 per share merger
consideration.
- RESULT OF THE AUCTION PROCESS. The board considered that the auction
process conducted by Simmons resulted in only two proposals and one
indication of interest and that at the time the board took final action on
the merger only one of the foregoing was firm.
- NATURE OF THE HUNTWAY BUSINESS. The board considered:
- the existing competitive and market positions of Huntway, including the
nature of the industry in which Huntway operates; and
- the dependence of Huntway on hedging for a significant part of its
recent profits, and the unlikelihood that Huntway will be able to
continue to obtain hedges on terms as favorable.
- AVAILABILITY OF APPRAISAL RIGHTS. The board considered the fact that
appraisal rights would be available to the holders of common stock under
Delaware law.
In view of the wide variety of factors considered in connection with its
evaluation of the merger, the board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. The determination to approve the
merger was made after consideration of all of the factors as a whole. In
addition, individual members of the board may have given different weights to
different factors.
The board considered the potential drawbacks or risks relating to the
merger, including the following:
- The consummation of the merger will preclude stockholders from
participating in the future growth of Huntway.
- The fact that an all-cash transaction would be taxable to Huntway
stockholders for income tax purposes.
- The possibility that, notwithstanding the provisions of the merger
agreement allowing Huntway under certain circumstances to furnish
information to and conduct negotiations with a third party, and ultimately
terminate the merger agreement and enter into an agreement relating to a
superior proposal for a business combination or acquisition of Huntway,
the termination fee payable upon such termination might discourage other
parties that might have an interest in a business combination with, or an
acquisition of, Huntway.
In considering the recommendation of the board with respect to the merger
agreement and the merger, stockholders should be aware that the members of the
board are equity and/or option
17
holders in Huntway. The board members believe that their interests as
stockholders in considering the merger agreement and the merger are
substantially the same as the interests of the other stockholders of Huntway.
OPINION OF FINANCIAL ADVISOR
Simmons has acted as financial adviser to the special committee and the
board of directors of Huntway with respect to evaluating strategic alternatives
for Huntway and developing potential acquirors for Huntway. The board of
directors instructed Simmons, in its role as financial advisor, to evaluate the
fairness, from a financial point of view, of the merger consideration to be
received by the holders of Huntway common stock (the "Public Stockholders")
pursuant to the merger.
On March 16, 2001, Simmons delivered its oral opinion to the board of
directors to the effect that, as of such date and based upon and subject to
certain matters discussed with the board of directors, the merger consideration
to be received by the Public Stockholders pursuant to the transaction in
accordance with the merger agreement was fair to the Public Stockholders from a
financial point of view. Simmons confirmed its opinion in writing (the
"Opinion") on March 20, 2001.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX C TO THIS PROXY STATEMENT AND IS INCORPORATED IN THIS DOCUMENT
BY REFERENCE. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
STOCKHOLDERS OF HUNTWAY ARE URGED TO READ THE OPINION IN ITS ENTIRETY. IN
ARRIVING AT ITS OPINION, SIMMONS DID NOT ASCRIBE A SPECIFIC VALUE TO HUNTWAY,
BUT RATHER MADE ITS DETERMINATION AS TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION TO BE RECEIVED BY HUNTWAY STOCKHOLDERS IN THE
TRANSACTION ON THE BASIS OF THE FINANCIAL AND COMPARATIVE ANALYSES DESCRIBED
BELOW. SIMMONS' OPINION IS FOR THE USE AND BENEFIT OF THE BOARD OF DIRECTORS AND
WAS RENDERED TO THE BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF
THE MERGER. THE OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION
OF HUNTWAY TO ENGAGE IN THE TRANSACTION CONTEMPLATED BY THE MERGER AGREEMENT.
MOREOVER, IT DOES NOT CONSTITUTE A RECOMMENDATION BY SIMMONS TO ANY STOCKHOLDER
AS TO HOW THE STOCKHOLDERS SHOULD VOTE ON THE MERGER OR THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT.
In connection with its Opinion, Simmons has, among other things:
(1) reviewed the merger agreement and related documents; (2) reviewed certain
publicly available business and financial information relating to Huntway that
it deemed relevant; (3) reviewed certain other information relating to Huntway,
including financial forecasts and operating data prepared by management of
Huntway and provided to Simmons relating to its business, earnings, cash flow,
assets, liabilities and prospects; (4) reviewed certain financial and stock
market data of Huntway and compared that data with similar data for certain
other publicly traded companies that it deemed to be relevant; (5) compared the
proposed financial terms of the transaction contemplated by the merger agreement
with the financial terms of other transactions that it deemed to be relevant;
(6) reviewed the public float and historical daily trading volume of the common
stock of Huntway; and (7) reviewed the results of efforts to solicit indications
of interest and proposals from third parties with respect to an acquisition of
Huntway. In addition, Simmons had discussions with the management of Huntway
concerning the business, operations, assets, financial condition and prospects
of Huntway, and performed such other financial studies and analyses and took
into account such other matters as it deemed necessary, including its assessment
of general economic, market and monetary conditions.
In arriving at its Opinion, Simmons, with the consent of the board of
directors, assumed and relied upon the accuracy and completeness of all the
foregoing information and did not
18
independently verify any of such information. With respect to such financial
forecasts, Simmons utilized certain information set forth therein and assumed
that such information was reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Huntway as to
the future financial performance of Huntway. Simmons did not conduct a physical
inspection of any of the assets, operations or facilities of Huntway and did not
make or receive any independent evaluation or appraisal of any assets or
liabilities (contingent or otherwise) of Huntway. Simmons' Opinion is
necessarily based upon market, economic and other conditions as they existed and
could be evaluated on, and the information made available to it as of, the date
of its Opinion.
In preparing its Opinion for the board of directors, Simmons performed a
variety of financial and comparative analyses, including those described below.
The summary of the analyses performed by Simmons, as set forth below, does not
purport to be a complete description of the analyses underlying Simmons'
Opinion. The preparation of a fairness opinion is a complex analytic 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, such an opinion is not readily susceptible to
partial or summary description. No company or transaction used in such analyses
as a comparison is identical to Huntway or the transactions contemplated by the
merger agreement, nor is an evaluation of the results of such analyses entirely
mathematical; rather, it involves complex considerations and judgments
concerning financial and operational characteristics and other factors that
could affect the public trading or other values of the companies or transactions
being analyzed. The estimates contained in such 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 such analyses. In
addition, analyses relating to the value of the business or securities do not
purport to be appraisals or to reflect the prices at which businesses, companies
or securities actually may be sold. Accordingly, such analyses and estimates are
subject inherently to substantial uncertainty.
In arriving at its Opinion, Simmons made qualitative judgments as to the
significance and relevance of each analysis and factor considered by it.
Accordingly, Simmons believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering all
analyses and factors, could create an incomplete view of the processes
underlying such analyses and its Opinion. In its analyses, Simmons made numerous
assumptions with respect to general business, economic, market and financial
conditions, as well as other matters, many of which are beyond the control of
Huntway and involve the application of complex methodologies and experienced and
educated judgment.
VALUATION ANALYSIS. Simmons' valuation of Huntway was based upon an
assessment of Huntway as an independent, free standing enterprise without the
benefit of any cost savings or operating synergies that may result from the
merger. In determining its valuation of Huntway, Simmons used the following
methodologies: comparable company trading analysis, comparable transactions
analysis and discounted cash flow analysis. The reference Enterprise Value Range
suggested by each of these methodologies was used to generate a Reference
Enterprise Value Range for Huntway. Enterprise Value was defined to be the total
value of the Company as if it were unencumbered by any convertible or other
debt, leases, minority interests or preferred stock and assumes a normal level
of working capital. The suggested Reference Enterprise Value Range for Huntway
was adjusted for appropriate balance sheet assets and liabilities to arrive at a
per share common equity value range for Huntway (the "Per Share Equity Value
Range"). The Per Share Equity Value Range was then used to evaluate the merger
consideration to be received by the Public Stockholders in the merger. The
implied valuation ranges derived using the various valuation methodologies
described above all supported the conclusion that the merger consideration to be
19
received by the Public Stockholders in the merger is fair, from a financial
point of view, to such stockholders. The various valuation analyses are
summarized below:
(1) COMPARABLE COMPANY TRADING ANALYSIS. Using publicly available
information, Simmons compared selected public market trading multiples for
Huntway with respective corresponding multiples of certain similar publicly
traded companies. Simmons selected a group of companies from the universe of
possible companies based on its views as to the comparability of the financial
and operating characteristics of independent refining companies to Huntway. With
respect to each such analysis, Simmons made such comparisons with the following
companies (the "Comparable Companies"): Crown Central Petroleum Corporation,
Frontier Oil Corporation, Giant Industries, Inc., Holly Corporation,
Sunoco, Inc., Tesoro Petroleum Corporation, Tosco Corporation, Ultramar Diamond
Shamrock Corporation, and Valero Energy Corporation.
Using publicly available information, Simmons calculated and analyzed the
common equity market value multiples of certain historical and projected
financial criteria (such as net income and Leveraged After Tax Cash Flow,
defined as net income plus depreciation plus other non-cash items) and the
Enterprise Value multiples of certain historical and projected financial
criteria (such as earnings before interest, taxes, depreciation and amortization
("EBITDA")). The Enterprise Value of each company was obtained by adding the
market value of its common equity to the sum of the book value of any debt,
preferred stock and minority interest, minus excess cash. Simmons placed the
most emphasis on net income and EBITDA multiples. The appropriate trailing
twelve month ("TTM") and projected year EBITDA multiple ranges were determined
to be 3.0x to 5.0x and 4.0x to 5.0x, respectively. The appropriate TTM and
projected year net income multiple ranges were determined to be 6.0x to 10.0x
and 5.0x to 7.0x, respectively. The appropriate TTM and projected year Leveraged
After Tax Cash Flow multiple ranges were determined to be 2.0x to 5.0x and 2.5x
to 4.5x, respectively. This methodology yielded valuations that imply an
Enterprise Value Range of $50 million to $60 million for Huntway.
Because of the inherent differences between the businesses, operations,
financial conditions and prospects of Huntway and the businesses, operations,
financial conditions and prospects of the companies included in the Comparable
Companies, Simmons believed that it was inappropriate to, and therefore, did
not, rely solely on the quantitative results of the analysis, and accordingly,
also made qualitative judgements concerning differences between the financial
and operating characteristics of Huntway and companies in the Comparable
Companies group that would affect the public trading values of Huntway and the
Comparable Companies.
(2) COMPARABLE TRANSACTIONS ANALYSIS. Simmons reviewed publicly available
information with respect to selected transactions in which refineries or
independent refining companies were acquired ("Comparable Transactions").
Simmons examined twenty-three such transactions that have occurred since
April 8, 1993.
For each transaction, relevant transaction multiples were analyzed
including, (i) a transaction value, defined as the total value paid for and debt
assumed of the refinery, related facilities and inventories of the refining
company ("Transaction Value"), divided by EBITDA, (ii) Transaction Value divided
by the refinery's crude oil processing capacity, as measured by the number of
barrels of crude oil that the refinery can process in a single day ("Capacity")
and (iii) Transaction Value divided by the Capacity times the Nelson Complexity
Factor of the refinery ("Nelson Capacity"). The appropriate TTM, 3-year average,
5-year average and projected EBITDA multiple range was determined to be 3.5x to
5.0x. The appropriate Capacity multiple range was determined to be $1,000 per
barrel to $1,500 per barrel. The appropriate Nelson Capacity multiple range was
determined to be $140 per barrel to $275 per barrel. This methodology yielded
valuations that imply an Enterprise Value Range of $40 million to $55 million
for Huntway.
20
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations, financial
conditions and prospects of Huntway and the Comparable Transactions analyzed,
Simmons believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly, also made
qualitative judgments concerning differences between the characteristics of
Huntway and the assets and companies included in the Comparable Transactions
that would affect the acquisition values of Huntway and such Comparable
Transactions.
(3) DISCOUNTED CASH FLOW ANALYSIS. Simmons prepared an after-tax unlevered
free cash flow model for Huntway utilizing information and projections provided
by Huntway. Simmons used discount rates of 10% to 14% and terminal EBITDA
multiples of 3.5x to 5.0x. The discount rates and terminal EBITDA multiples were
based on Simmons' review of the financial terms of similar transactions in the
refining sector. The unlevered after tax free cash flows and the terminal values
were discounted to present values. This methodology yielded valuations that
imply an Enterprise Value Range of $50 million to $60 million for Huntway.
(4) VALUATION CONCLUSION. Considering each of the foregoing analyses, among
other things, Simmons concluded that a relevant suggested Reference Enterprise
Value Range for Huntway was $50 million to $60 million. This Reference
Enterprise Value Range of Huntway was based on an assessment of the company as
an independent, free-standing enterprise without the benefit of any cost savings
or operating synergies that may result from the merger. Adjusting this range by
an aggregate $30.5 million on the low end and an aggregate $6.8 million on the
high end for excess cash, stock options proceeds, convertible debt and other
debt, and using 18.887 million shares outstanding on the low end and
34.725 million shares outstanding on the high end, implied a Per Share Equity
Value Range of $1.04 per share to $1.53 per share.
PREMIUM ANALYSES. In order to determine the magnitude of the premium
implicit in the merger consideration, Simmons compared the merger consideration
to different Huntway per share common stock prices or average prices, including:
(i) the closing sales price of Huntway common stock on the NYSE on March 19,
2001(the "March 19 Closing Price") of $1.69 per share; (ii) the closing sales
price of Huntway common stock price prior to the announcement of fourth quarter,
2000 earnings on February 8, 2001 (the "February 8 Closing Price") of $1.03 per
share; and (iii) the average of the closing sales prices of Huntway common stock
for the 30 trading days ending on March 19, 2001 prior to the announcement of
the Merger (the "Pre-Announcement Date Average Trading Price") of $1.41 per
share. Simmons found that the merger consideration represented a premium of
12.4% over the March 19 Closing Price, 84.5% over the February 8 Closing Price
and 34.8% over the Pre-announcement Date Average Trading Price.
Simmons is an internationally recognized investment-banking firm
specializing in the energy industry and, as part of its investment banking
business, is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions. The special committee selected Simmons
as its financial adviser because of Simmons' experience and expertise. In the
ordinary course of its business, Simmons may trade in the debt and equity
securities of Huntway and Valero Energy (and may, after the completion of the
merger, trade in the debt and equity securities of Valero Energy) for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Pursuant to the terms of the engagement of Simmons, Huntway has paid or has
agreed to pay Simmons for its financial advisory services in connection with the
transactions contemplated by the Merger Agreement: (i) an aggregate of $625,000
through and including the date of mailing of this proxy statement; and (ii) an
additional fee of approximately $530,000 upon the merger closing. In addition,
Huntway has agreed to reimburse Simmons for its reasonable out-of-pocket
expenses,
21
including the fees and expenses of its legal counsel, incurred in connection
with the engagement and to indemnify Simmons against certain liabilities or to
contribute to payments Simmons may be required to make in respect thereof.
CERTAIN EFFECTS OF THE MERGER
If the merger is consummated, Huntway will become a wholly-owned subsidiary
of Valero Refining and you will no longer have any interest in, and will not be
a stockholder of, Huntway. Therefore, you will not benefit from any future
earnings or growth of Huntway or benefit from any increase in the value of
Huntway, but you will also no longer bear the risk of any decrease in value of
Huntway. Instead, you will have the right to receive upon consummation of the
merger $1.90 in cash for each of your shares of common stock. The benefit to the
holders of common stock of the transaction is the payment of a premium, in cash,
above the market value for such stock prior to the announcement of the merger
agreement. This cash payment assures that all stockholders will receive the same
amount for their shares. The detriment of the merger to such holders is their
inability to participate as continuing stockholders in the possible future
growth of Huntway.
Immediately prior to the effective time of the merger, each outstanding
employee and director option to purchase shares of common stock will become
fully vested and exercisable. In addition, each such option shall upon the
merger be deemed to constitute an option to acquire, on the same terms and
conditions (subject to certain exceptions) as were applicable under such option
immediately prior to the merger, the same merger consideration as the holder of
such option would have been entitled to receive pursuant to the merger agreement
had such holder exercised such option in full immediately prior to the merger.
At the closing of the merger, Valero Refining will pay to each holder of such
outstanding options who has previously delivered certain written instructions to
Huntway, an amount equal to the difference between $1.90 and the exercise price
of the applicable option, multiplied by the number of shares subject to the
option, less any amounts required to be withheld or deducted.
Each option held by the Andre Danesh 1997 IRRV Trust shall upon the merger
be deemed to constitute an option to acquire, on the same terms and conditions
(subject to certain exceptions) as were applicable under such option immediately
prior to the merger, the same merger consideration as the holder of such option
would have been entitled to receive pursuant to the merger agreement had such
holder exercised such option in full immediately prior to the merger.
As a result of the merger, Huntway will be a privately held corporation, and
there will be no public market for its common stock, which stock is currently
registered under the Securities Exchange Act of 1934. After the merger, the
common stock will be delisted from the New York Stock Exchange, the registration
of the common stock under the Exchange Act will be terminated, Huntway will be
relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act and its officers, directors and beneficial
owners of more than 10 percent of the common stock, subject to certain
limitations, will be relieved of the reporting requirements and "short-swing"
trading provisions under Section 16 of the Exchange Act. Further, Huntway will
no longer be subject to the periodic reporting requirements of the Exchange Act
and will cease filing information with the SEC.
The officers and directors of HAC will become the officers and directors of
Huntway immediately after the merger. The certificate of incorporation of
Huntway will be amended to read in its entirety as the certificate of
incorporation of HAC and the bylaws of Huntway will be amended to read in their
entirety as the bylaws of HAC.
22
CONDUCT OF THE BUSINESS OF HUNTWAY IF THE MERGER IS NOT CONSUMMATED
If the merger is not consummated, we expect to continue to operate our
business substantially as presently operated. We would, however, encourage you
to read "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in our Form 10-K for the year ended December 31, 2000
which is incorporated into this proxy statement by reference.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on the estimated fair values at the
effective time of the merger (with the excess purchase price after such
allocation being recorded as goodwill).
FINANCING OF THE MERGER
Huntway estimates that approximately $28.5 million will be required to fund
the payment by Valero Refining of the merger consideration for the common stock,
assuming no stockholders perfect their appraisal rights under Delaware law. In
addition, Huntway estimates that an aggregate of approximately $6.1 million will
be required to be paid with respect to the economic value (or spread) on our
outstanding options for common stock and an aggregate of approximately
$43.4 million will be required by Valero Refining for the repayments and/or
purchases of indebtedness of Huntway contemplated to occur upon the merger. The
$43.4 million does not include accrued and unpaid interest on the indebtedness,
but does include the prepayment fee contemplated to be paid under the loan
agreement with Boeing Capital.
Valero Refining expects to have sufficient cash resources available at
closing to fund all required cash payments. Valero Refining expects to use
inter-company indebtedness and/or capital contributions from Valero Energy, the
parent of Valero Refining, to finance the transactions contemplated by the
merger agreement. Valero Refining does not need, nor does it expect to obtain,
commitments from lending institutions to specifically finance the cash payments
by it contemplated pursuant to the merger agreement.
Valero Energy has guaranteed all of the obligations and covenants of Valero
Refining and HAC set forth in the merger agreement, including the payment of the
merger consideration for the common stock. Valero Energy does not need, nor does
it expect to obtain, commitments from lending institutions in order to provide
Valero Refining with financing in connection with the merger.
REGULATORY REQUIREMENTS
Other than approvals, filings or notices required pursuant to federal
securities law and the filing of the certificate of merger with the Secretary of
State of the State of Delaware, no other government or regulatory approvals,
filings or notices are required in connection with the merger. However, at any
time before or after the merger, the Department of Justice or the Federal Trade
Commission could take action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the merger or
seeking divestiture of substantial assets of Huntway and Valero Refining or
their subsidiaries. Private parties and state attorneys general may also bring
an action under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the merger on antitrust grounds will not be made
or, if such a challenge is made, of the result.
23
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
You should be aware that the executive officers and directors of Huntway
have interests in the merger that are different from, or in addition to, their
interests as stockholders of Huntway generally. The Huntway board was aware of
these interests and considered them, among other matters, in approving the
merger and the merger agreement.
COMMON STOCK. As of March 31, 2001, the executive officers and directors of
Huntway beneficially owned an aggregate of 1,315,933 shares, or 9%, of
outstanding common stock, which will be treated in the merger in the same manner
as shares of common stock held by other stockholders.
STOCK OPTIONS. Pursuant to the terms of the merger agreement, all options,
whether or not vested or exercisable, granted under the Huntway 1996 Employee
Incentive Option Plan and the Huntway 1998 Stock Incentive Plan to employees,
executive officers and directors will become fully vested and exercisable at the
effective time of the merger. In addition, Huntway has made an arrangement with
Valero Refining that will permit the economic value (or spread) of such options
to be paid at the closing of the merger in cash.
The following table shows the number of Huntway options held by Huntway
executive officers and directors whose vesting and exercisability will
accelerate as a result of the merger, the number of already vested and
exercisable options and the estimated value of all Huntway stock options held by
such persons.
NUMBER OF OPTIONS
THAT ACCELERATE AS A ALREADY VESTED AGGREGATE OPTION
RESULT OF THE AND EXERCISABLE SPREAD VALUE OF ALL
MERGER(1)(#) OPTIONS(#) OPTIONS(2)($)
-------------------- --------------- -------------------
Warren J. Nelson ........................... 100,000 895,000 $1,063,000
President, Chief Executive Officer and
Director
Earl G. Fleisher ........................... 0 187,500 $ 192,500
Chief Financial Officer
Terrance L. Stringer ....................... 0 405,000 $ 457,000
Executive Vice President of Supply,
Planning and Distribution
Lucian A. Nawrocki ......................... 0 382,500 $ 425,500
Executive Vice President, Asphalt Sales
William G. Darnell ......................... 0 282,500 $ 305,500
Vice President and General Manager,
Benicia
Juan Y. Forster ............................ 0 740,250 $ 856,350
Director
Brian D. Hogan ............................. 75,000 25,000(3) $ 90,000
Director
Harris Kaplan .............................. 75,000 175,000 $ 68,750
Director
J.C. McFarland ............................. 50,000 200,000 $ 68,750
Director
Richard Spencer ............................ 0 0 $ 0
Director
- ------------------
(1) Represents the number estimated to be unvested as of the date of the special
meeting.
(2) The estimated option spread value shown in this column assumes a value of
common stock equal to $1.90 per share.
(3) Option vests on May 5, 2001.
24
CONVERTIBLE NOTES. Lighthouse Investors, LLC currently holds $11 million
aggregate principal amount of our outstanding convertible notes. Richard
Spencer, a director of Huntway, is an affiliate of Lighthouse Investors, LLC and
has indirect pecuniary interests in such entity. As discussed in more detail on
page 30, Valero Refining has agreed to purchase all outstanding convertible
notes of Huntway, including the convertible notes held by Lighthouse Investors,
LLC.
NELSON EMPLOYMENT AGREEMENT. Mr. Nelson, our President and Chief Executive
Officer, has an employment agreement with Huntway that expires in March 2003,
but may be extended for additional one year terms prior to his sixty-fifth
birthday. The agreement provides that in the event of a "change of control," if
Mr. Nelson is involuntarily terminated without "cause" or terminates his
employment for "good reason" within twelve months following such change in
control, Mr. Nelson is entitled to among other things (1) a lump sum payment
equal to three times his then current base salary and target performance bonus
and (2) to the continuation of certain health and other benefits for a period of
three years following the then current term of his employment agreement, subject
to certain limitations. The proposed merger will constitute a "change of
control" under this employment agreement. Valero Refining has indicated it will
not continue the employment of Mr. Nelson after the merger, other than for a
brief transition period. In such event, the aggregate lump sum payable to
Mr. Nelson (before required tax withholdings) would be approximately $894,000.
In addition, Valero Refining is in discussions with Mr. Nelson regarding the
terms of a post-closing consulting agreement, which agreement is contemplated to
provide for total consulting payments of $150,000.
CHANGE IN CONTROL POLICY. We currently have a change in control policy for
our executive officers and certain key employees, including without limitation
Messrs. Fleisher, Stringer, Nawrocki and Darnell. In the event of a "change of
control," if a participating employee is involuntarily terminated without
"cause" or terminates his employment for "good reason" within twelve months
following such change in control, such employee is entitled to receive (1) a
lump sum payment equal to the current annual salary and target bonus of such
employee and (2) the continuation of certain health and other benefits for a
period of twelve months following termination. The proposed merger would
constitute a "change in control" under this policy. If the employment of all
four executive officers of Huntway who are subject to this policy were to be
involuntarily terminated without cause immediately after the effective time of
the merger, the aggregate lump sum payable to them upon the terminations (before
required tax withholdings) would be approximately $907,000.
INDEMNIFICATION; DIRECTORS AND OFFICER INSURANCE. Please refer to "THE
MERGER AGREEMENT -- Covenants -- Indemnification and Insurance of Huntway
Directors and Officers" for a discussion of indemnification and insurance rights
of our directors and officers following the merger.
EMPLOYEE MATTERS. Please refer to "THE MERGER AGREEMENT -- Covenants --
Employee Matters" for a discussion of the employee benefits to be provided to
our employees, including any executive officers, who remain employed by Huntway
following the merger.
Valero Refining is considering whether to continue the employment of
Lucian A. Nawrocki and William G. Darnell, who are executive officers of
Huntway, subsequent to the closing or a brief transition period after the
closing. Valero Refining is currently in discussions with each such executive
officer regarding the terms of post-closing employment.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
GENERAL. The following is a summary of the material United States federal
income tax consequences of the merger to Huntway stockholders. This summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended,
applicable current and proposed United States Treasury Regulations, judicial
authority, and administrative rulings and practice. Legislative, judicial
25
or administrative rules and interpretations are subject to change, possibly on a
retroactive basis, at any time, and, therefore, the following statements and
conclusions could be altered or modified. This summary only applies to shares of
Huntway common stock held as capital assets by a United States person (I.E., a
citizen or resident of the United States or a domestic corporation), and it does
not address all aspects of United States federal income taxation that may be
relevant to a particular Huntway stockholder in light of that Huntway
stockholder's personal investment circumstances, or to Huntway stockholders
subject to special treatment under the United States federal income tax laws
(for example, life insurance companies, tax-exempt organizations, financial
institutions, United States expatriates, foreign corporations and nonresident
alien individuals), Huntway stockholders who hold shares of Huntway common stock
as part of a hedging, "straddle," conversion or other integrated transaction, or
Huntway stockholders who acquired their shares of Huntway common stock through
the exercise of director or employee stock options or other compensation
arrangements. In addition, the discussion does not address any aspect of
foreign, state or local taxation or estate and gift taxation that may be
applicable to a Huntway stockholder.
CONSEQUENCES OF THE MERGER TO HUNTWAY STOCKHOLDERS. The receipt of the
merger consideration in the merger will be a taxable transaction for United
States federal income tax purposes (and also may be a taxable transaction under
applicable state, local and other income tax laws). In general, for United
States federal income tax purposes, a holder of Huntway common stock will
recognize gain or loss equal to the difference between such stockholder's
adjusted tax basis in Huntway's common stock converted in the merger, and the
amount of cash received. Gain or loss will be calculated separately for each
block of shares converted in the merger (I.E., shares acquired at the same cost
in a single transaction). The gain or loss will be capital gain or loss, and
will be short-term gain or loss if, at the effective time of the merger, the
shares of Huntway common stock so converted were held for one year or less. If
the shares were held for more than one year, the gain or loss will be long-term,
subject (in the case of stockholders who are individuals) to tax at a maximum
United States federal income tax rate of 20%.
BACKUP TAX WITHHOLDING. Under the United States federal income tax backup
withholding rules, unless an exemption applies, Valero Refining is generally
required to and will withhold 31% of all payments to which a Huntway stockholder
or other payee is entitled in the merger, unless the Huntway stockholder or
other payee provides a tax identification number (social security number in the
case of an individual, or employer identification number in the case of other
stockholders), and certifies under penalties of perjury that that number is
correct. Each Huntway stockholder and, if applicable, each other payee, should
complete and sign the substitute Form W-9 that will be a part of the letter of
transmittal to be returned to the exchange agent (or its agent) in order to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is otherwise proved in a manner
satisfactory to the exchange agent (or its agent). The exemptions provide that
certain Huntway stockholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding
requirements. In order for a foreign individual to qualify as an exempt
recipient, however, he or she must submit a signed statement (such as a
Certificate of Foreign Status on Form W-8) attesting to his or her exempt
status. Any amounts withheld will be allowed as a credit against the holder's
United States federal income tax liability for its fiscal year in which the
merger occurs.
INDIVIDUAL CIRCUMSTANCES MAY DIFFER. EACH HOLDER OF HUNTWAY COMMON STOCK
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED ABOVE AND THE PARTICULAR TAX EFFECTS TO SUCH STOCKHOLDER OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
26
FEES AND EXPENSES
Whether or not the merger is consummated and except as otherwise provided in
the merger agreement, all fees and expenses incurred in connection with the
merger will be the responsibility of the party incurring such fees and expenses,
except that Valero Refining will pay for all costs relating to the title policy,
title report and survey for our Benicia, California facility. Estimated fees
(other than the SEC filing fee, which is actual) and expenses to be incurred by
Huntway in connection with the merger are as follows:
Financial Advisor Fee and Expenses.......................... $1,200,000
SEC Filing Fee.............................................. $ 11,410
Legal Fees and Expenses..................................... $ 650,000
Printing and Mailing Expenses............................... $ 50,000
Miscellaneous............................................... $ 88,590
----------
Total....................................................... $2,000,000
These expenses will not reduce the merger consideration to be received by
our stockholders.
27
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached to this proxy statement as Annex A. This
summary is qualified in its entirety by reference to the full text of the merger
agreement.
COMPLETION OF THE MERGER
The merger agreement provides that the merger will become effective at such
time as a certificate of merger is duly filed with the Secretary of State of the
State of Delaware or at such later time as is agreed to by the parties and as is
specified in the certificate of merger. If the merger is approved at the special
meeting by the requisite stockholder vote, it is currently anticipated that the
merger will become effective as soon as practicable after the special meeting,
subject to satisfaction or waiver of the closing conditions in the merger
agreement other than stockholder approval; however, there can be no assurance as
to the timing of the consummation of the merger or that the merger will be
consummated.
MERGER CONSIDERATION
At the effective time of the merger, HAC will be merged with and into
Huntway, the separate corporate existence of HAC will cease and Huntway will
continue as a wholly-owned subsidiary of Valero Refining. In the merger, each
share of common stock (other than common stock held (1) in the treasury of
Huntway, (2) by stockholders who perfect appraisal rights or (3) if any, by
Valero Refining or HAC) will, by virtue of the merger and without any action on
the part of the holder thereof, be converted into the right to receive $1.90 per
share in cash, without interest. Each certificate representing shares of Huntway
common stock that have been converted under the terms of the merger agreement
will, after the effective time of the merger, evidence only the right to
receive, upon the surrender of such certificate, an amount of cash per share
equal to the merger consideration.
Each share of common stock owned by Valero Refining or HAC, if any, or held
in the treasury of Huntway will automatically be canceled and retired and no
payment will be made with respect thereto.
Stockholders who do not vote to approve the merger agreement and who
otherwise comply with the provisions of the Delaware General Corporation Law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares of Huntway common stock and payment in cash
therefor in lieu of the merger consideration. See "RIGHT OF APPRAISAL" beginning
on page 39 below.
THE EXCHANGE FUND; PAYMENT FOR SHARES OF HUNTWAY COMMON STOCK
Before the special meeting, Valero Refining will enter into an agreement
with a bank or trust company (the "exchange agent") selected by Valero Refining
and acceptable to Huntway, for the purpose of exchanging the common stock for
the merger consideration. At the effective time of the merger, Valero Refining
will cause to be deposited with the exchange agent, for the benefit of holders
of common stock that is converted into the merger consideration, an amount in
cash equal to the aggregate merger consideration (the "exchange fund").
As soon as practicable after the effective time of the merger, but in any
event within five business days thereafter, Valero Refining or the exchange
agent will mail to each record holder of shares of Huntway common stock
immediately prior to the effective time of the merger a letter of transmittal
and instructions for surrendering certificates formerly representing shares of
common stock. No stockholder should surrender any certificates until the
stockholder receives the letter of
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transmittal and other materials for such surrender. Upon surrender of a
certificate for cancellation to the exchange agent, together with a letter of
transmittal, duly executed and completed, and such other customary documents as
may be required pursuant to the instructions, the holder of such certificate
will be entitled to receive in exchange therefor the merger consideration for
each share of Huntway common stock formerly represented by such certificate,
without any interest thereon, less any required withholding of taxes, and the
certificate so surrendered will be canceled. The merger consideration will be
delivered by the exchange agent as promptly as practicable following surrender
of a certificate and delivery of a duly executed and completed letter of
transmittal and any other required documents. Cash payments may be made by check
unless otherwise required by a depositary institution in connection with the
book-entry delivery of securities.
If payment of the merger consideration is to be made to a person other than
the person in whose name the certificate surrendered is registered, it will be a
condition of payment that the certificate so surrendered be properly endorsed
(together with signature guarantees on such certificate and any related stock
power) or otherwise be in proper form for transfer and that the exchange agent
receives evidence that any applicable transfer or other taxes have been paid or
are not applicable.
YOU SHOULD NOT SEND YOUR CERTIFICATES NOW AND SHOULD SEND THEM ONLY PURSUANT
TO INSTRUCTIONS SET FORTH IN THE LETTER OF TRANSMITTAL WHICH WILL BE MAILED TO
STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME OF THE MERGER. IN
ALL CASES, THE MERGER CONSIDERATION WILL BE PAID ONLY IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THIS PROXY STATEMENT AND THE LETTER OF TRANSMITTAL.
One year following the effective time of the merger, the exchange agent may
return to Valero Refining any portion of the exchange fund that remains
undistributed to the holders of Huntway common stock (including the proceeds of
any investments thereof), and any holders of Huntway common stock who have not
theretofore complied with the above-described procedures to receive payment of
the merger consideration may look only to Valero Refining for payment.
TRANSFERS OF HUNTWAY COMMON STOCK
At the effective time of the merger, the stock transfer books of Huntway
will be closed, and there will be no further registration of transfers of shares
of Huntway common stock thereafter on the records of Huntway.
TREATMENT OF OPTIONS
Immediately prior to the effective time of the merger, each outstanding
employee and director option to purchase shares of common stock will become
fully vested and exercisable. In addition, each such option shall upon the
merger be deemed to constitute an option to acquire, on the same terms and
conditions (subject to certain exceptions) as were applicable under such option
immediately prior to the merger, the same merger consideration as the holder of
such option would have been entitled to receive pursuant to the merger agreement
had such holder exercised such option in full immediately prior to the merger.
At the closing of the merger, Valero Refining will pay to each holder of such
outstanding option who has previously delivered certain written instructions to
Huntway, an amount equal to the difference between $1.90 and the exercise price
of the applicable option, multiplied by the number of shares subject to the
option, less any amounts required to be withheld or deducted.
REPAYMENT AND/OR PURCHASE OF CERTAIN INDEBTEDNESS
BANK OF AMERICA LOAN AGREEMENT. Valero Refining has agreed to put in place
a back-up letter of credit from a financial institution acceptable to Bank of
America with respect to letters of
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credit outstanding under our loan agreement with Bank of America upon
consummation of the merger. Huntway and Valero Refining have agreed to use their
reasonable best efforts to cause Bank of America to enter into an agreement with
Huntway that provides for (1) Bank of America to take all actions necessary and
appropriate to cause the release and termination of all liens with respect to
such loan agreement and to join in the termination of certain collateral
documents at the closing, (2) the termination of such loan agreement and
(3) Bank of America to join in all actions necessary and appropriate to cause
the termination of an intercreditor agreement and certain collateral documents
upon the closing. As of March 31, 2001, Huntway has no outstanding indebtedness
under the loan agreement, other than letters of credit.
BOEING CAPITAL LOAN AGREEMENT. Huntway and Valero Refining have agreed to
use their reasonable best efforts to cause Boeing Capital Corporation to enter
into an agreement with Huntway (1) that permits the payment by Valero Refining
at the closing of all indebtedness and other amounts then outstanding or payable
under such loan agreement and (2) that provides, subject to the payment at the
closing of all indebtedness and other amounts then outstanding or payable under
such loan agreement, for (a) Boeing Capital to take all actions necessary and
appropriate to cause the release and termination of all liens with respect to
such loan agreement and to join in the termination of certain collateral
documents at the closing, (b) the termination of such loan agreement and the
surrender for cancellation of the notes issued thereunder upon the closing and
(c) Boeing Capital to join in all actions necessary and appropriate to cause the
termination of an intercreditor agreement and certain collateral documents upon
the closing. Valero Refining has also agreed to pay Boeing Capital a certain
prepayment fee related to the loan agreement. The principal amount of
indebtedness outstanding as of March 31, 2001 under the loan agreement was
$12.3 million and we anticipate that the prepayment fee will be approximately
$290,000.
CONVERTIBLE NOTES. Huntway and Valero Refining have agreed to use their
reasonable best efforts to cause each holder of a convertible note to enter into
an agreement with Huntway (1) that permits Valero Refining to purchase such
convertible note at or immediately prior to the closing for cash in an amount
equal to the sum of (a) the amount that would have been payable in the merger
for the common stock underlying such convertible note had such convertible note
been fully converted into shares of common stock immediately prior to the
closing and (b) any accrued and unpaid interest on such convertible note as of
the closing, but not including any prepayment premium or penalty, and (2) that
provides, subject to such payment at the closing, for among other things
(a) the termination of the indenture for the convertible notes and a related
agreement, (b) the due transfer of the underlying convertible note to Valero
Refining upon the closing, (c) the release and termination of all liens related
to the convertible notes and to join in the termination of certain collateral
documents at the closing and (d) holders of convertible notes to join in all
actions necessary and appropriate to cause the termination of an intercreditor
agreement and certain collateral documents at the closing. We anticipate that
the aggregate purchase price for the convertible notes to be paid by Valero
Refining (excluding accrued and unpaid interest thereon) will be approximately
$27.6 million.
JUNIOR SUBORDINATED DEBENTURES. Huntway and Valero Refining have agreed to
use their reasonable best efforts to cause each holder of a junior subordinated
debenture to enter into an agreement with Huntway (1) that permits Valero
Refining to purchase such junior subordinated debenture at or immediately prior
to the closing for cash in an amount equal to the total principal and accrued
and unpaid interest thereon as of the closing, but not including any prepayment
penalty or premium, and (2) that provides, subject to such payment at the
closing, for among other things the due transfer of the underlying junior
subordinated debenture to Valero Refining upon the closing. The total principal
amount of indebtedness under the junior subordinated debentures as of March 31,
2001 was $3.7 million.
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RELEASE OF LIENS. It is contemplated that at the closing all liens related
to such indebtedness will be terminated and released.
CONSENTS. Huntway has not obtained the consent and agreement of Bank of
America, Boeing Capital or the holders of the convertible notes or the junior
subordinated debentures to the repayments and/or purchases described above. Such
consents and agreements are a closing condition under the merger agreement as
described below. We have, however, obtained oral assurances that such consents
and agreements will be given.
REPRESENTATIONS AND WARRANTIES
Huntway has made customary representations and warranties to Valero
Refining, including representations and warranties relating to:
- corporate existence and power;
- corporate authorization and approvals;
- governmental authorization;
- non-contravention;
- capitalization;
- subsidiaries;
- SEC filings;
- financial statements and liabilities;
- information to be supplied;
- absence of certain changes;
- litigation;
- taxes;
- compliance with laws, licenses, permits and registrations;
- contracts;
- employee benefit plans;
- transactions with affiliates;
- intellectual property;
- environmental matters;
- real estate;
- required vote and board approval;
- finders' fees and opinion of financial advisor;
- employee matters;
- personal property;
- insurance;
- credit documents; and
- anti-takeover statutes.
Valero Refining, HAC and Valero Energy have also made customary
representations and warranties to Huntway, including representations and
warranties relating to:
- corporate existence and power;
- corporate authorization and approvals;
- governmental authorization;
- non-contravention;
- information to be supplied;
- finders' fees;
- financing of merger; and
- solvency and status.
None of the representations and warranties contained in the merger agreement
survives the completion of the merger or the termination of the merger
agreement.
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COVENANTS
Huntway and Valero Refining have agreed to certain covenants in the merger
agreement. A description of the covenants follows:
HUNTWAY INTERIM OPERATIONS. We have agreed that until the completion of the
merger, we will conduct our business in the ordinary course of business
consistent with past custom and practice and will use commercially reasonable
efforts to, among other things, preserve intact our business organization and
goodwill and keep available the services of our officers and key employees. We
have also agreed, with certain exceptions, that we will not prior to the
completion of the merger do any of the following without the prior written
consent of Valero Refining, which Valero Refining may not unreasonably delay or
withhold:
- amend our certificate of incorporation or bylaws;
- split, combine or reclassify any shares of our capital stock or declare
or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of any common stock or
redeem, repurchase or otherwise acquire or offer to redeem, repurchase or
otherwise acquire any Huntway equity or equity related securities or any
equity or equity related securities of our subsidiary;
- issue, deliver or sell or authorize the issuance, delivery or sale of,
any shares of our capital stock of any class or series or any securities
convertible into or exercisable for, or any rights, warrants or options
to acquire, any such capital stock or any such convertible or
exchangeable securities, other than in connection with the issuance of
common stock upon the exercise of any outstanding stock options and the
issuance of common stock upon the conversion of any outstanding
convertible note;
- amend in any material respect any term of any of our outstanding
securities in any manner adverse to Valero Refining;
- incur any capital expenditures or any obligations or liabilities in
respect thereof, except for (1) repair and maintenance capital
expenditures or any obligations or liabilities in respect thereof in the
ordinary course of business consistent with past custom and practice,
(2) other capital expenditures or any obligations or liabilities in
respect thereof contemplated by our capital expenditure budget for fiscal
2001 (subject to certain exceptions) or (3) other capital expenditures or
any obligations or liabilities in respect thereof incurred in the
ordinary course of business consistent with past custom and practice and
which, in the aggregate, do not exceed $100,000;
- acquire (whether pursuant to merger, stock or asset purchase or
otherwise) in one transaction or a series of related transactions any
equity interests or any business or division or acquire in one
transaction or a series of related transactions any assets having a cost
in excess of $50,000 (other than, among other things, inventory purchased
in the ordinary course of business consistent with past custom and
practice);
- sell, lease, encumber or otherwise dispose of any material assets, other
than (1) sales in the ordinary course of business consistent with past
custom and practice and (2) dispositions of assets related to
discontinued operations;
- incur (which shall be deemed to include entering into new or amended
credit agreements, lines of credit or similar arrangements) any
indebtedness for borrowed money or guarantee any such indebtedness or
issue or sell any debt securities or warrants or rights to acquire any
debt securities or guarantee any debt securities of others, except in the
ordinary course of business consistent with past custom and practice
(which shall include borrowings and the issuance of letters of credit
under our existing credit facilities within the
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borrowing capacity thereunder and the issuance of certain additional debt
securities with respect to our junior subordinated debentures in lieu of
cash interest thereon);
- except in the ordinary course of business consistent with past custom and
practice, amend, modify or terminate any material contract, agreement or
arrangement or otherwise waive, release or assign any material rights,
claims or benefits thereunder;
- increase the amount of compensation of any director, officer or employee
or make any increase in or commitment to increase any employee health,
welfare or retirement benefits, except as required by law, an existing
agreement or an existing policy or arrangement;
- grant any new severance or termination pay or rights to any director,
officer or employee or adopt any additional employee plans, except as
required by law, an existing agreement or an existing policy or
arrangement, or make any contribution to any existing such plan, except
in the ordinary course of business consistent with past custom and
practice or as required by law, or amend in any material respect any
employee plan except as may be required by law;
- change our methods of accounting in effect at December 31, 2000, except
as required by changes in GAAP or by Regulation S-X of the Securities
Exchange Act of 1934, as concurred in by our independent public
accountants, or our fiscal year;
- declare or pay or agree to declare or pay any dividends on any common
stock or any other capital stock of our company;
- cause to be issued under the loan agreement with Bank of America or
otherwise any new letter of credit or extend or renew any existing letter
of credit for our benefit, in either case with a maturity date after
August 31, 2001; or
- agree, resolve or commit to do any of the foregoing.
INDEMNIFICATION AND INSURANCE FOR HUNTWAY DIRECTORS AND OFFICERS. Valero
Refining and Huntway have agreed for six years after the merger:
- to indemnify our present and former officers and directors in respect of
actions taken or failures to take action prior to and including the
consummation of the merger, to the fullest extent permitted by law;
- to maintain officer and director liability insurance and excess liability
insurance covering those directors and officers currently covered by our
liability insurance policies with respect to actions taken or failures to
take action prior to and including the consummation of the merger, on
terms and conditions no less favorable than those in effect on the date
of the merger agreement under our existing policies; and
- to perform the indemnification agreements entered into in August 2000
with the members of the special committee of our board of directors.
EMPLOYEE MATTERS. In connection with the merger, Valero Refining has agreed
to honor and perform, and to cause Huntway to honor and perform, our written
severance, change of control and termination programs, policies, agreements and
plans, including without limitation the employment agreement of Warren J. Nelson
and our change of control policy for executive officers and certain key
employees.
For a period of one year after the merger, Valero Refining has agreed to
provide continuing employees of Huntway with compensation and benefits that are
no less favorable in the aggregate than those currently provided by us to such
employees; provided that the defined benefit pension plan of Valero Refining
will be deemed a comparable substitute for our Money Purchase Pension
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Plan. Valero Refining will recognize service with us and any predecessor
entities for all purposes (including, without limitation, for vesting,
eligibility to participate, severance and benefit accrual); provided that, with
respect to our Money Purchase Pension Plan, benefits under such plan shall be
frozen as of the effective time of the merger and, with respect to the defined
benefit pension plan of Valero Refining, past service with us shall count for
vesting purposes only and benefits under such plan will begin to accrue as of
the effective time of the merger only. Vesting schedules under our employee
plans, including the Profit Sharing and Tax Deferred Savings Plan (401(k) Plan)
and the Money Purchase Pension Plan, will not be accelerated or otherwise
affected by the transactions contemplated by the merger agreement and amounts
held by our employees in our 401(k) Plan and Money Purchase Pension Plan that
are unvested as of the effective time will vest in accordance with the vesting
schedule provided under such plans. With respect to welfare benefit plans,
Valero Refining has also agreed to, and to cause Huntway to, waive all
limitations as to preexisting conditions and all waiting or elimination periods
and service requirements applicable to employees of Huntway, except to the
extent preexisting conditions limitations, waiting or elimination periods or
service requirements were in effect immediately prior to the effective time of
the merger with respect to such employees under comparable employee welfare
benefit plans maintained by our company immediately prior to the effective time
of the merger.
Valero Refining has agreed to pay a retention bonus and severance payment to
our eligible employees who will not have employment with Huntway following the
closing of the merger and who are not otherwise entitled to a change in control
payment pursuant to our existing policies. The retention bonus is equal to
25 percent of the base salary of such employee and the severance payment is
equal to one month of the base salary of such employee for the first year (or
partial year) of service with us plus one week of the base salary of such
employee for each additional year (or partial year) of consecutive service with
us. Payment of the retention bonus and severance payment will be made in cash in
a lump sum at the later of the closing of the merger or the last date of service
with Huntway after closing, provided that such payment must be made on or before
60 days after the closing, subject to a limited exception.
NO SOLICITATION OF ACQUISITION PROPOSALS. We have agreed that we will not,
nor will we authorize or knowingly permit our directors, officers, employees,
investment bankers, attorneys, accountants, agents or other advisors or
representatives to, directly or indirectly:
- solicit, initiate or knowingly facilitate or encourage any offer or
proposal for or indication of interest in a merger, consolidation, stock
exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or other similar transaction or any purchase of
a majority or more of our assets or a majority or more of our common
stock or the ownership interest in our subsidiary (an "acquisition
proposal");
- participate in any discussions or negotiations regarding, or furnish to
anyone any information with respect to, or take any other action
knowingly to facilitate any inquiries or the making of any proposal that
constitutes, or reasonably could be expected to lead to, any acquisition
proposal;
- grant any waiver or release under any standstill or similar agreement
with respect to any class of our equity securities; or
- enter into any agreement with respect to an acquisition proposal.
The foregoing notwithstanding, Huntway may take any action described above
in respect of any person, but only if such person delivers an acquisition
proposal that, in the good faith judgment of our board of directors, either is a
superior proposal or could reasonably be expected to lead to the delivery of a
superior proposal within 75 days of delivery of such acquisition proposal or if
otherwise required in order to satisfy the fiduciary duties of our board of
directors as such
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duties would exist under applicable law in the absence of the restrictions set
forth above. In addition, prior to our taking such action in respect of such
person, such person must enter into a confidentiality agreement with us in form
and substance substantially similar to the confidentiality agreement entered
into by Valero Energy and Huntway.
Huntway has agreed to not enter into any binding agreement (other than such
a confidentiality agreement) with respect to any such acquisition proposal
without first paying a $1.75 million termination fee and terminating the merger
agreement.
If prior to the termination of the merger agreement in accordance with its
terms Huntway receives an inquiry or proposal from any person relating to an
acquisition proposal, Huntway must advise Valero Refining of the receipt of such
inquiry or proposal (and any change or modification thereto) promptly upon such
receipt. Huntway must also advise Valero Refining of the material terms and
conditions of such inquiry or proposal and any subsequent change or modification
thereto, but Huntway is not required to disclose the identity or source of such
inquiry or proposal or any agent or representative acting on behalf of such
person.
TITLE POLICIES. The cost of a certain title policy, title report and survey
with respect to our Benicia, California facility will be promptly paid when due
by Valero Refining or, if paid by our company, promptly reimbursed by Valero
Refining upon our request.
CONDITIONS TO THE MERGER
CLOSING CONDITIONS FOR EACH PARTY. The obligations of Huntway, Valero
Refining and HAC to complete the merger are subject to the satisfaction or
waiver of the following conditions:
- approval of the merger agreement and the merger by the holders of at
least a majority of the shares of Huntway common stock outstanding and
entitled to vote on the merger agreement and the merger;
- absence of any law or regulation or judgment, injunction, order or decree
of any federal, state or foreign authority making the merger illegal or
otherwise prohibiting the consummation of the merger or the transactions
contemplated by the merger agreement;
- Bank of America having entered into an agreement providing for among
other things the termination of its loan agreement with Huntway upon the
effectiveness of a certain back-up letter of credit obtained by Valero
Refining;
- Boeing Capital having entered into an agreement providing for among other
things the repayment of the indebtedness outstanding thereunder; and
- each of the holders of our senior convertible notes and our junior
subordinated debentures outstanding immediately prior to the closing of
the merger having entered into an agreement providing for among other
things the purchase by Valero Refining of such notes and debentures.
ADDITIONAL CLOSING CONDITION FOR VALERO REFINING'S BENEFIT. The obligation
of Valero Refining to complete the merger is subject to satisfaction or waiver
of the following additional conditions:
- Huntway having performed in all material respects its obligations
contained in the merger agreement required to be performed at or prior to
the effective time of the merger;
- the representations and warranties of Huntway contained in the merger
agreement (excluding all qualifications or exceptions relating to
materiality and/or a material adverse effect) being true and correct, in
each case (1) as of the date referred to in any representation or
warranty which addresses matters as of a particular date or (2) as to all
other representations and warranties, as of the date of the merger
agreement and as of the
35
time of the merger, subject to exceptions for the effect of actions taken
by Huntway that are permitted under the merger agreement and to other
exceptions the aggregate effect of which shall not have had or be
reasonably likely to have a material adverse effect on Huntway;
- the release and termination of all liens and encumbrances under or
related to our existing bank and note indebtedness;
- the termination of various agreements with our creditors and collateral
agent;
- the transfer of the interest in our subsidiary not currently owned by us
to Valero Refining or its designee;
- written resignations, effective as of the merger, from each director of
Huntway;
- written resignations, effective as of immediately after the merger, from
each officer of Huntway or its subsidiary identified by Valero Refining;
- Chicago Title Insurance Company or another equivalent title insurance
company having issued a title insurance policy with extended coverage in
the amount of $25 million or more with respect to our owned real property
at Benicia, California, showing title to the owned real property vested
in Huntway, subject only to permitted liens;
- the acquisition by Huntway of certain property related to our Wilmington,
California refinery currently owned by Vulcan Materials Company which
Vulcan has contracted to sell to Huntway subject to certain conditions,
unless (1) there has been an amendment satisfactory to Valero Refining to
the existing contract providing that if the closing of the sale of such
property to Huntway has not occurred on or prior to a date no later than
September 30, 2001, the property shall be subdivided and a certain
portion thereof sold to Huntway or (2) a long-term lease or a long-term
extension of the existing lease by Huntway relating to a certain portion
of such property has been entered into, in either case upon terms that
are reasonably satisfactory to Valero Refining; and
- if Huntway has acquired the Wilmington, California property described
above on or before the closing of the merger, Chicago Title Insurance
Company or another equivalent title insurance company having issued a
title insurance policy with extended coverage in the amount of
$10 million or more with respect to the property, showing title to the
property vested in Huntway subject only to permitted liens.
TERMINATION
Huntway and Valero Refining may mutually agree, at any time prior to the
completion of the merger, to terminate the merger agreement. In addition, either
Huntway or Valero Refining may terminate the merger agreement if:
(1) the merger has not been completed on or before July 31, 2001; however,
neither Huntway nor Valero Refining may terminate the merger agreement on
this basis if its breach of the merger agreement has resulted in the
merger not being completed by this date;
(2) after the parties have used reasonable best efforts to resist, resolve
or lift, as the case may be, there remains any law or regulation that
makes consummation of the merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any proper governmental
authority enjoining any of the parties from consummating the merger which
judgment, injunction order or decree has been entered and become final
and nonappealable; or
(3) the merger agreement and the merger are not approved by our
stockholders.
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Valero Refining may terminate the merger agreement if:
(4) we fail to perform any of our representations, warranties, covenants or
agreements under the merger agreement, in each case, such that Valero
Refining's and HAC's conditions to closing relating to such failure
cannot be satisfied, and such failure is incapable of being satisfied by
July 31, 2001.
Huntway may terminate the merger agreement if:
(5) Valero Refining and HAC breach or fail to perform any of their
representations, warranties, covenants or agreements under the merger
agreement, in each case, such that Huntway's conditions to closing
relating to such failure or breach cannot be satisfied, and such breach
or failure is incapable of being satisfied by July 31, 2001, or
(6) our board has authorized us to enter into a definitive agreement with
respect to a superior proposal, subject to payment of the termination fee
described in the next section below.
If the merger agreement is validly terminated, it will become void and have
no effect, without any liability of any party (or any stockholder, director,
officer, employee, agent, consultant or representative of that party) to the
other party. However, certain provisions thereof relating to among other things
the termination fee described in the next section below will continue in effect.
TERMINATION FEE
All costs and expenses incurred in connection with the merger agreement and
related transactions will be paid by the party incurring such costs or expenses,
subject to certain exceptions. Huntway, however, has agreed to pay Valero
Refining a $1.75 million termination fee if:
- Huntway terminates the merger agreement for the reason described in
paragraph (6) of the immediately preceding section;
- Huntway terminates the merger agreement for the reason described in
paragraph (3) of the immediately preceding section and within 180 days of
such termination we consummate an acquisition proposal with another
person;
- Valero Refining terminates the merger agreement for the reason described
in paragraph (3) of the immediately preceding section and within
180 days of such termination we consummate an acquisition proposal with
another person; or
- Huntway or Valero Refining terminates the merger agreement for the reason
described in paragraph (3) of the immediately preceding section and
(a) one or more of our directors or certain of our officers has failed to
vote any of his or her directly-owned (that is, not taking into account
common stock beneficially owned as a result of among other things any
such insider acting in a fiduciary or representative capacity) shares of
common stock outstanding on the record date for the stockholder meeting
in favor of approval of the merger agreement and the merger,
(b) stockholder approval would have been obtained but for such failure
and (c) the merger agreement is not terminable by Huntway as contemplated
by paragraph (5) of the immediately preceding section.
Any termination fee payable by Huntway must be paid to Valero Refining prior
to or concurrent with the termination of the merger agreement. However, any
termination fee payable as a result of Huntway consummating an acquisition
proposal with another person as contemplated within the second and third bullet
points above must be paid to Valero Refining no later than simultaneously with
the consummation of such acquisition proposal.
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AMENDMENTS AND WAIVERS
Subject to Delaware law, the parties may mutually agree to amend any
provision of the merger agreement at any time prior to the effective time of the
merger with the prior authorization of their respective board of directors.
After Huntway stockholders have approved the merger agreement, the parties may
not amend the merger agreement in a manner that would reduce or change the kind
of consideration stockholders will receive in the merger without further
approval of Huntway stockholders.
GUARANTEE
Valero Energy, the parent of Valero Refining, has guaranteed all of the
obligations and covenants of Valero Refining and HAC set forth in the merger
agreement, including the payment of the merger consideration. A copy of the
guarantee is attached to the merger agreement contained in Annex A of this proxy
statement.
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RIGHT OF APPRAISAL
Pursuant to Section 262 of the Delaware General Corporation Law, any holder
of our common stock who does not wish to accept the merger consideration may
dissent from the merger and elect to have the fair value of such stockholder's
shares of common stock (exclusive of any element of value arising from the
accomplishment or expectation of the merger) judicially determined and paid to
such stockholder in cash, together with a fair rate of interest, if any,
provided that such stockholder complies with the provisions of Section 262. The
following discussion is not a complete statement of the law pertaining to
appraisal rights under the Delaware General Corporation Law, and is qualified in
its entirety by the full text of Section 262, which is provided in its entirety
as Annex B to this proxy statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the shares of common
stock as to which appraisal rights are asserted. A person having a beneficial
interest in shares of common stock held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow properly the steps summarized below and in a timely manner to perfect
appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 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 proxy statement
shall constitute such notice to the holders of our common stock and the
applicable statutory provisions of the Delaware General Corporation Law are
attached to this proxy statement as Annex B. If you wish to exercise such
appraisal rights or wish to preserve the right to do so, you should review
carefully the following discussion and Annex B to this proxy statement, because
failure to comply with the procedures specified in Section 262 timely and
properly will result in the loss of appraisal rights. Moreover, because of the
complexity of the procedures for exercising the right to seek appraisal of
shares of common stock, we believe that if you consider exercising such rights,
you should seek the advice of counsel.
If you wish to exercise your right to demand appraisal under Section 262 of
the Delaware General Corporation Law:
- You must deliver to our Secretary a written demand for appraisal of your
shares before the vote on the merger agreement at the special meeting,
which demand will be sufficient if you reasonably inform us of your
identity and that you intend to demand the appraisal of your shares.
- You must not vote your shares of common stock in favor of the merger
agreement. A proxy that does not contain voting instructions will, unless
revoked, be voted in favor of the merger agreement. Therefore, if you vote
by proxy and wish to exercise appraisal rights, you must vote against the
merger agreement or abstain from voting on the merger agreement.
- You must continuously hold such shares from the date of making the demand
through the effective time of the merger. Accordingly, if you are a record
holder of shares of our common stock on the date the written demand for
appraisal is made, but thereafter transfer such shares prior to the
effective time of the merger, you will lose any right to appraisal in
respect of such shares.
None of voting (in person or by proxy) against, abstaining from voting on or
failing to vote on the proposal to approve the merger agreement will constitute
a written demand for appraisal within the meaning of Section 262. The written
demand for appraisal must be in addition to and separate from any such proxy or
vote.
39
Only a holder of record of shares of common stock issued and outstanding
immediately prior to the effective time of the merger is entitled to assert
appraisal rights with respect to the shares of common stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stock certificates, should specify the stockholder's name and mailing
address, the number of shares of common stock owned and that such stockholder
intends thereby to demand appraisal of such stockholder's common stock. 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 or tenancy in common, the demand should be executed by or on behalf of
all owners. An authorized agent, including one or more joint owners, may execute
a demand for appraisal on behalf of a stockholder; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more other beneficial owners while not exercising such rights with
respect to the shares held for one or more beneficial owners; in such case, the
written demand should set forth the number of shares as to which appraisal is
sought, and where no number of shares is expressly mentioned the demand will be
presumed to cover all shares held in the name of the record owner. If you hold
your shares in brokerage accounts or other nominee forms and you wish to
exercise appraisal rights, you are urged to consult with your brokers to
determine appropriate procedures for the making of a demand for appraisal by
such nominee.
If you elect to exercise appraisal rights pursuant to Section 262, you
should mail or deliver a written demand to: Huntway Refining Company, 25129 The
Old Road, Suite 322, Newhall, California 91381; Attention: Earl G. Fleisher,
Chief Financial Officer and Secretary.
Within 10 days after the effective time of the merger, Huntway, as the
surviving corporation, must send a notice of effectiveness of the merger to each
former stockholder of Huntway who has made a written demand for appraisal in
accordance with Section 262 and who has not voted in favor of the merger
agreement. Within 120 days after the effective time of the merger, but not
thereafter, either Huntway or any stockholder who has complied with the
requirements of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the shares of common stock
held by all stockholders who are entitled to appraisal rights. Huntway is under
no obligation to and has no present intent to file a petition for appraisal, and
stockholders seeking to exercise appraisal rights should not assume that Huntway
will file such a petition or that Huntway will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders who desire
to have their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. Inasmuch as Huntway has no obligation to file such a
petition, the failure of a stockholder to do so within the period specified
could nullify such stockholder's previous written demand for appraisal. In any
event, at any time within 60 days after the effective time of the merger (or at
any time thereafter with the written consent of Huntway), any stockholder who
has demanded appraisal has the right to withdraw the demand and to accept
payment of the merger consideration.
Pursuant to the merger agreement, Huntway has agreed to give Valero Refining
prompt notice of any demands for appraisal received by it and Valero Refining
shall have the right to participate in negotiations and proceedings with respect
to such demands to the extent permitted by law. Huntway may not, except with the
prior written consent of Valero Refining, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any such demands.
40
Within 120 days after the effective time of the merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from Huntway, upon written request, a statement setting
forth the aggregate number of shares not voted in favor of the merger agreement
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Huntway must mail such statement to
the stockholder within 10 days after receipt of such request or within 10 days
after expiration of the period for delivery of demands for appraisals under
Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Delaware Court
of Chancery must deliver a copy to Huntway, which will then be obligated within
20 days to provide the Delaware Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded
appraisal of their shares and with whom agreements as to the value of their
shares have not been reached by Huntway. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an 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. The costs of the action may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable. Upon application of a stockholder,
the Delaware Court of Chancery may also order that all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. IF YOU ARE CONSIDERING SEEKING APPRAISAL, YOU
SHOULD BE AWARE THAT THE FAIR VALUE OF YOUR SHARES AS DETERMINED UNDER
SECTION 262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE MERGER
CONSIDERATION YOU WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF YOU DID NOT
SEEK APPRAISAL OF YOUR SHARES. YOU SHOULD ALSO BE AWARE THAT INVESTMENT BANKING
OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is to take into account all relevant factors. In
WEINBERGER V. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In WEINBERGER, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Any 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
41
dividends or other distributions payable to holders of record of shares as of a
record date prior to the effective time of the merger).
Any stockholder may withdraw such stockholder's demand for appraisal and
accept the merger consideration by delivering to Huntway a written withdrawal of
such stockholder's demand for appraisal, except that (1) any such attempt to
withdraw made more than 60 days after the effective time of the merger will
require written approval of Huntway and (2) no appraisal proceeding in the
Delaware Court of Chancery shall be dismissed as to any stockholder without the
approval of the Delaware Court of Chancery, and such approval may be conditioned
upon such terms as the Delaware Court of Chancery deems just. If Huntway does
not approve a stockholder's request to withdraw a demand for appraisal when such
approval is required or if the Delaware Court of Chancery does not approve the
dismissal of an appraisal proceeding, the stockholder would be entitled to
receive only the appraised value determined in any such appraisal proceeding,
which value could be lower than the value of the merger consideration.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW WILL RESULT IN THE LOSS OF
YOUR STATUTORY APPRAISAL RIGHTS. CONSEQUENTLY, IF YOU WISH TO EXERCISE APPRAISAL
RIGHTS, YOU ARE URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE
SUCH RIGHTS.
42
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS
No provision has been made to grant unaffiliated stockholders of Huntway
access to corporate files of Huntway or any other party to the merger or to
obtain counsel or appraisal services at the expense of Huntway or any other such
party.
MARKET FOR HUNTWAY COMMON STOCK
COMMON STOCK MARKET PRICE INFORMATION
Our common stock is listed on the New York Stock Exchange under the symbol
"HWY." However, please read "SUMMARY TERM SHEET -- Recent Development" on
page 7 regarding the initiation of delisting procedures by the NYSE with respect
to the common stock. The following table shows, for the quarters indicated, the
high and low sale prices for our common stock as reported by the New York Stock
Exchange.
HUNTWAY
COMMON STOCK
-------------------
HIGH LOW
-------- --------
1998
Second Quarter (beginning June 1, the date of our conversion
to corporate form)........................................ $2.0000 $1.3750
Third Quarter............................................... $1.9375 $1.2500
Fourth Quarter.............................................. $1.8125 $1.0000
1999
First Quarter............................................... $2.1250 $1.5000
Second Quarter.............................................. $1.8750 $1.2500
Third Quarter............................................... $2.0000 $1.3750
Fourth Quarter.............................................. $1.8750 $0.9375
2000
First Quarter............................................... $1.5000 $1.0625
Second Quarter.............................................. $1.2500 $0.8125
Third Quarter............................................... $1.1250 $0.8125
Fourth Quarter.............................................. $1.0000 $0.6250
2001
First Quarter (January 1 through February 8, the trading day
prior to public release of our 2000 earnings)............. $1.0625 $0.8750
First Quarter (February 9 through March 31)................. $1.8500 $1.0900
Second Quarter (through April 20)........................... $1.8500 $1.8100
On March 20, 2001, the last full trading day prior to the day on which the
execution of the merger agreement was publicly announced, the closing sale price
for the our common stock on the New York Stock Exchange was $1.70. On April 20,
2001, the closing sale price for our common stock on the New York Stock Exchange
was $1.81.
The market price for our common stock is subject to fluctuation and
stockholders are urged to obtain current market sale prices.
DIVIDEND INFORMATION
We have never paid any dividends on our common stock and do not intend to
pay such dividends in the foreseeable future. We currently intend to retain any
future earnings for our development and growth. In addition, the agreements with
our principal lenders prohibit cash dividends until all obligations under those
agreements are paid in full.
43
SECURITIES OWNERSHIP
The following table sets forth certain information as of March 31, 2001,
concerning the beneficial ownership of our common stock by:
- each person who is the beneficial owner of more than 5 percent of our
common stock;
- each of our directors;
- our chief executive officer and four other highest paid executive
officers; and
- our directors and executive officers as a group.
Shares issuable upon exercise of options that are exercisable currently or
within the next 60 days (without regard to any acceleration thereof in
connection with the merger) are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons
beneficially owning such options, but have not been deemed to be outstanding for
the purpose of computing the percentage ownership or overall voting power of any
other person. Unless otherwise indicated, the address of each person or entity
listed below is Huntway's principal executive offices. Valero Energy, Valero
Refining and HAC are not currently the beneficial owner of any shares of
Huntway's common stock.
NUMBER OF
SHARES(1) PERCENT
---------- --------
Lighthouse Investors, LLC .................................. 7,955,469(2) 35.6
200 Seventh Avenue, Suite 105
Santa Cruz, CA 95062
First Chicago Equity Corporation ........................... 5,320,518(3) 35.5
One First National Plaza
Chicago, IL 60670
DDJ Capital Management, LLC ................................ 5,333,333(4) 26.2
141 Linden Street, Suite S-4
Wellesley, MA 02181
Andre Danesh ............................................... 3,226,227(5) 20.0
Allied Financial Corp.
1583 Beacon Street
Brookline, MA 02146
Contrarian Capital Advisors, L.L.C ......................... 2,223,475(6) 12.4
411 West Putnam Avenue, Suite 225
Greenwich, CT 06830
Earl G. Fleisher............................................ 213,700(7) 1.4
Juan Y. Forster............................................. 1,180,250(8) 7.5
Harris Kaplan............................................... 200,000(9) 1.2
J.C. McFarland.............................................. 282,000(10) 1.7
Warren J. Nelson............................................ 956,400(11) 6.0
Richard Spencer............................................. 7,950,882(2) 35.6
Brian D. Hogan.............................................. 25,000(12) *
William G. Darnell.......................................... 347,030(13) 2.3
Lucian A. Nawrocki.......................................... 424,754(14) 2.8
44
NUMBER OF
SHARES(1) PERCENT
---------- --------
Terrance L. Stringer........................................ 412,000(15) 2.7
All directors and executive officers as a group (10 11,917,016(16) 46.5
persons)....................................................
- ----------------
* Less than one percent.
(1) Except as otherwise indicated, beneficial ownership means the sole power to
vote and dispose of shares.
(2) Includes shares beneficially owned by other persons who, together with
Lighthouse Investors, LLC, have filed a statement with the Securities and
Exchange Commission pursuant to Section 13(d) of the Exchange Act
identifying themselves as a group. Such persons include Richard Spencer.
Also includes 7,333,333 shares which Lighthouse Investors, LLC has the right
to currently acquire through the conversion of our outstanding convertible
notes. According to the statement filed with the SEC, the power to vote and
dispose of 7,805,600 of the shares is shared.
(3) Includes shares beneficially owned by other persons who, together with First
Chicago Equity Corporation, have filed a statement with the SEC pursuant to
Section 13(d) of the Exchange Act identifying themselves as a group.
According to the statement filed with the SEC, the power to vote and dispose
of all such shares is shared.
(4) Consists of shares which B III Capital Partners, L.P. has the right to
currently acquire through the conversion of our outstanding convertible
notes.
(5) Includes shares beneficially owned by other persons. Such persons include
the Andre Danesh 1997 IRRV Trust. Also includes 1,146,059 shares which such
Trust has the right to currently acquire through the exercise of outstanding
stock options.
(6) Includes 1,833,333 shares which Contrarian Capital Fund I, L.P., Contrarian
Capital Fund, II, L.P. and persons for which Contrarian Capital Advisors,
L.L.C. acts as agent or provides direction have the right to currently
acquire through the conversion of our outstanding convertible notes.
(7) Includes 187,500 shares which Mr. Fleisher has the right to currently
acquire through the exercise of outstanding stock options.
(8) Includes 740,250 shares which Mr. Forster has the right to currently acquire
through the exercise of outstanding stock options.
(9) Includes 200,000 shares which Mr. Kaplan has the right to currently acquire
or acquire within 60 days through the exercise of outstanding stock options.
(10) Includes 225,000 shares which Mr. McFarland has the right to currently
acquire or acquire within 60 days through the exercise of outstanding stock
options.
(11) Includes 895,000 shares which Mr. Nelson has the right to currently acquire
through the exercise of outstanding stock options.
(12) Consists of 25,000 shares which Mr. Hogan has the right to acquire within
60 days through the exercise of outstanding stock options.
(13) Includes 282,500 shares which Mr. Darnell has the right to currently
acquire through the exercise of outstanding stock options.
(14) Includes 382,500 shares which Mr. Nawrocki has the right to currently
acquire through the exercise of outstanding stock options.
(15) Includes 405,000 shares which Mr. Stringer has the right to currently
acquire through the exercise of outstanding stock options.
(16) Includes 10,601,083 shares which directors and executive officers have the
right to currently acquire or acquire within 60 days.
45
DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the names, ages, positions with Huntway and business
experience of each of our directors and executive officers as of March 31, 2000,
is set forth below:
NAME AGE POSITION
- ---- -------- --------
Warren J. Nelson..................... 50 President, Chief Executive Officer and Director
Earl G. Fleisher..................... 50 Chief Financial Officer
Terrance L. Stringer................. 59 Executive Vice President, Supply, Planning and
Distribution
Lucian A. Nawrocki................... 55 Executive Vice President, Asphalt Sales
William G. Darnell................... 64 Vice President and General Manager/ Benicia
Juan Y. Forster...................... 64 Director
Brian D. Hogan....................... 56 Director
Harris Kaplan........................ 50 Director
J.C. McFarland....................... 54 Director
Richard Spencer...................... 48 Director
EXECUTIVE OFFICERS:
Warren J. Nelson has served as our President and Chief Executive Officer since
March 1, 2000 and our Executive Vice President and Chief Financial Officer since
prior to 1996 and until March 1, 2000. Mr. Nelson has been a director of our
company since June 1998.
Earl G. Fleisher has served as our Chief Financial Officer since March 1, 2000
and our Controller since prior to 1996.
Terrance L. Stringer has served as our Executive Vice President of Supply,
Planning and Distribution since prior to 1996.
Lucian A. Nawrocki has served as our Executive Vice President of Asphalt Sales
since prior to 1996.
William G. Darnell has served as our Vice President and General Manager of
Benicia since prior to 1996.
DIRECTORS:
Juan Y. Forster was our President and Chief Executive Officer since prior to
1996 and until March 1, 2000. Mr. Forster has been a director of our company
since June 1998.
Brian D. Hogan has been Of Counsel to the law firm of Kirkland & Ellis since
February 1, 2000. From 1975 to January 31, 2000, Mr. Hogan was a Partner at
Kirkland & Ellis. Mr. Hogan has been a director of our company since May 2000
and is Chairman of the Compensation Committee and a member of the Audit
Committee of our board.
Harris Kaplan has been President of Eastgate Management Corporation, an offshore
and domestic money management firm, since 1996. Mr. Kaplan was a member of the
management team of Nabors Industries, an oil service company, from prior to 1994
to 1996. Mr. Kaplan has been a director of our company since June 1998 and is a
member of the Audit Committee and the Compensation Committee of our board.
J.C. McFarland has been an independent consultant since 1997 after having served
as Chairman and Chief Executive Officer of McFarland Energy, Inc., an
exploration and production company,
46
from prior to 1994 to 1997. Mr. McFarland has been a director of our company
since June 1998 and is Chairman of the Audit Committee and a member of the
Compensation Committee of our board.
Richard Spencer has been Manager of Westcliff Management, LLC, a money
management firm, since prior to 1995. Mr. Spencer has been a director of our
company since June 1998.
In connection with a refinancing by our predecessor (Huntway Partners L.P.)
in 1997, the partnership agreed to use its best efforts to nominate and cause to
be elected as a director of Huntway at all times after the conversion of the
partnership to Huntway, one individual selected by B III Capital Partners, L.P.
and one individual selected by Lighthouse Investors, L.L.C. This agreement
expires with respect to B III or Lighthouse when such person no longer owns
Senior Subordinated Secured Convertible Notes with a principal amount of at
least $3.5 million or shares of common stock issued on conversion of such Notes
with a principal amount of at least $3.5 million or a combination of the two.
The individuals currently selected by B III and Lighthouse are Messrs. Kaplan
and Spencer, respectively.
47
STOCKHOLDERS PROPOSALS
As a result of the pending merger, we do not currently intend to hold an
annual meeting of stockholders in 2001. We are holding a special meeting as
contemplated by this proxy statement. If the merger is approved at the special
meeting and is consummated, we will have no public stockholders and there will
be no public participation in any future meetings of stockholders. However, if
the merger is not approved at the special meeting or is not consummated, our
public stockholders will continue to be entitled to attend and participate in
stockholder meetings and we anticipate that a 2001 annual meeting of
stockholders will be held as soon as practicable following the date the pending
merger is terminated. Any Huntway stockholder intending to submit a proposal for
inclusion in our proxy statement and form of proxy relating to the 2001 annual
meeting of stockholders, in the event that such meeting is held, must submit the
proposal in accordance with the requirements of Rule 14a-8 promulgated under the
Exchange Act. Thus, we must receive the proposal a reasonable time before we
begin to print our proxy materials, which we interpret to be 120 days before we
begin to print them. For any proposal that is not submitted for inclusion in our
proxy statement for any 2001 annual meeting, but is instead sought to be
presented directly at the 2001 annual meeting, stockholders must comply with the
notice requirements and procedures outlined in our bylaws. We have filed our
bylaws with, and a copy of our bylaws can be obtained from, the SEC.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information about us and
our financial condition by referring you to another document filed separately
with the SEC. This proxy statement incorporates by reference our Form 10-K
(including the audited financial statements and the discussions regarding our
results of operations and liquidity and capital resources therein) for the year
ended December 31, 2000. For your convenience, we have enclosed with this
mailing our 2000 annual report, which includes our Form 10-K for the year ended
December 31, 2000.
We also incorporate by reference the information contained in all other
documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this proxy statement and before the special
meeting. The information contained in any such document will be considered part
of this proxy statement from the date the document is filed and will supplement
or amend the information contained in this proxy statement.
Any statement contained in a document incorporated by reference in this
proxy statement will be deemed to be modified or superseded for purposes of this
proxy statement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference in this
proxy statement modifies or supersedes that statement. Any statement so modified
or superseded will not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement.
We undertake to provide by first class mail, without charge and within one
business day after receipt of any request, to any person to whom a copy of this
proxy statement has been delivered, an additional copy of our Form 10-K or a
copy of any or all of the other documents referred to above that have been
incorporated by reference in this proxy statement, other than exhibits to the
Form 10-K or such other documents (unless such exhibits are specifically
incorporated by reference therein). We will furnish any exhibit upon the payment
of a specified reasonable fee, which fee will be limited to our reasonable
expenses in furnishing such exhibit. Requests for such copies should be directed
to Huntway Refining Company, 25129 The Old Road, Suite 322, Newhall, California
91381; telephone number (661) 254-1220; Attention: Earl Fleisher, Chief
Financial Officer and Secretary.
48
ADDITIONAL INFORMATION
We are also currently subject to the information requirements of the
Exchange Act and in accordance therewith file periodic reports, proxy statements
and other information with the SEC relating to our business, financial
statements and other matters. You may read and copy (at prescribed rates) any
such reports, proxy statements and other information at the following locations
of the SEC:
450 Fifth Street, N.W. 500 West Madison Street 7 World Trade Center
Washington, D.C. 20549 Suite 1400 Suite 1300
Chicago, Illinois 60661 New York, New York 10048
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330.
Some of this information may also be accessed on the World Wide Web through
the SEC's Internet address at http://www.sec.gov. You can also inspect and copy
certain reports, proxy statements and other information at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INDEPENDENT AUDITORS
Our financial statements as of December 31, 2000, incorporated by reference
in this proxy statement, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report incorporated by reference from our Annual
Report on Form 10-K for the year ended December 31, 2000. It is expected that
representatives of Deloitte & Touche LLP will be present at the special meeting,
both to respond to appropriate questions of stockholders of Huntway and to make
a statement if they so desire.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain
forward-looking statements and information relating to Huntway that are based on
the beliefs of management as well as assumptions made by and information
currently available to Huntway. When used in this document or in material
incorporated by reference into this document, the words "anticipate," "believe,"
"estimate," "expect," "plan," "predict," "intend" and similar expressions, as
they relate to Huntway or its management are intended to identify
forward-looking statements. Such statements reflect the current view of Huntway
with respect to future events and are subject to certain risks, uncertainties
and assumptions. Many factors could cause the actual results, performance or
achievements of Huntway to be materially different from any future results,
performance or achievements that may be expressed or implied by such
forward-looking statements, including, among others,
- changes in general economic and business conditions;
- price and availability of crude oil;
- demand for liquid asphalt and light-end products;
- government and private funding for road reconstruction and repair; and
- other factors discussed elsewhere in our other filings with the SEC,
including our Form 10-K for the year ended December 31, 2000.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, planned or
intended. Huntway does not intend, or
49
assume any obligation, to update these forward-looking statements after the date
of this proxy statement or to reflect the occurrence of unanticipated events.
The information contained in this proxy statement speaks only as of the date
indicated on the cover of this proxy statement unless the information indicates
that another date applies.
OTHER BUSINESS
The board of directors does not know of any other matters to be presented
for action at the special meeting. If any other business should properly come
before the special meeting, including, among other things, consideration of a
motion to adjourn such meeting to another time and/or place for the purpose of
soliciting additional proxies, allowing additional time for the satisfaction of
conditions to the merger or otherwise, the persons named in the enclosed proxy
card intend to vote thereon in accordance with their best judgment on the
matter.
By Order of the Board of Directors,
[LOGO]
Earl G. Fleisher
CHIEF FINANCIAL OFFICER AND SECRETARY
Newhall, California
April 23, 2001
50
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MARCH 20, 2001
BY AND AMONG
HUNTWAY REFINING COMPANY,
VALERO REFINING AND MARKETING COMPANY
AND
HAC COMPANY
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TABLE OF CONTENTS
ARTICLE 1
THE MERGER.................................................. A-5
SECTION 1.01 The Merger..................................... A-5
SECTION 1.02 Closing of the Merger.......................... A-5
SECTION 1.03 Organizational Documents....................... A-6
SECTION 1.04 Directors and Officers......................... A-6
ARTICLE 2
CONVERSION OF SECURITIES AND RELATED MATTERS................ A-6
SECTION 2.01 Conversion of Capital Stock.................... A-6
SECTION 2.02 Exchange of Certificates for Merger
Consideration............................................... A-7
SECTION 2.03 Target Stock Options........................... A-8
SECTION 2.04 [Intentionally Omitted]........................ A-9
SECTION 2.05 Further Assurances............................. A-9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TARGET.................... A-9
SECTION 3.01 Corporate Existence and Power.................. A-9
SECTION 3.02 Corporate Authorization........................ A-9
SECTION 3.03 Governmental Authorization..................... A-9
SECTION 3.04 Non-Contravention.............................. A-10
SECTION 3.05 Capitalization................................. A-10
SECTION 3.06 Subsidiaries................................... A-10
SECTION 3.07 Target SEC Documents........................... A-11
SECTION 3.08 Financial Statements; Liabilities.............. A-11
SECTION 3.09 Information to Be Supplied..................... A-12
SECTION 3.10 Absence of Certain Changes..................... A-12
SECTION 3.11 Litigation..................................... A-12
SECTION 3.12 Taxes.......................................... A-12
SECTION 3.13 Compliance with Laws; Licenses, Permits and
Registrations.................................. A-13
SECTION 3.14 Contracts...................................... A-13
SECTION 3.15 Employee Benefit Plans......................... A-13
SECTION 3.16 Transactions with Affiliates................... A-14
SECTION 3.17 Intellectual Property.......................... A-14
SECTION 3.18 Environmental Matters.......................... A-14
SECTION 3.19 Real Estate.................................... A-15
SECTION 3.20 Required Vote; Board Approval.................. A-16
SECTION 3.21 Finders' Fees; Opinion of Financial Advisor.... A-16
SECTION 3.22 Employee Matters............................... A-16
SECTION 3.23 Personal Property.............................. A-17
SECTION 3.24 Insurance...................................... A-17
SECTION 3.25 Target Credit Documents........................ A-17
SECTION 3.26 Section 203 of the DGCL Not Applicable......... A-17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER..................... A-17
SECTION 4.01 Corporate Existence and Power.................. A-17
SECTION 4.02 Corporate Authorization; Approvals............. A-17
SECTION 4.03 Governmental Authorization..................... A-18
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SECTION 4.04 Non-Contravention.............................. A-18
SECTION 4.05 BuyerSub....................................... A-18
SECTION 4.06 Information to Be Supplied..................... A-18
SECTION 4.07 Finders' Fees.................................. A-19
SECTION 4.08 Financing of Merger............................ A-19
SECTION 4.09 Solvency and Status............................ A-19
ARTICLE 5
COVENANTS OF TARGET......................................... A-19
SECTION 5.01 Target Interim Operations...................... A-19
SECTION 5.02 Stockholder Meeting............................ A-21
SECTION 5.03 Acquisition Proposals; Board Recommendation.... A-21
ARTICLE 6
COVENANTS OF BUYER.......................................... A-22
SECTION 6.01 Director and Officer Liability................. A-22
SECTION 6.02 Employee Benefits.............................. A-23
SECTION 6.03 Title Policies................................. A-24
SECTION 6.04 Conduct of BuyerSub............................ A-24
ARTICLE 7
COVENANTS OF BUYER AND TARGET............................... A-24
SECTION 7.01 Reasonable Best Efforts........................ A-24
SECTION 7.02 Certain Filings; Cooperation in Receipt of
Consents.................................................... A-25
SECTION 7.03 Public Announcements........................... A-25
SECTION 7.04 Access to Information.......................... A-26
SECTION 7.05 Notices of Certain Events...................... A-26
SECTION 7.06 Repayment/Purchase of Target Indebtedness...... A-26
ARTICLE 8
CONDITIONS TO THE MERGER.................................... A-28
SECTION 8.01 Conditions to the Obligations of Each Party.... A-28
SECTION 8.02 Conditions to the Obligations of Target........ A-28
SECTION 8.03 Conditions to the Obligations of Buyer and
BuyerSub.................................................... A-29
ARTICLE 9
TERMINATION; AMENDMENTS AND WAIVERS......................... A-30
SECTION 9.01 Termination.................................... A-30
SECTION 9.02 Effect of Termination.......................... A-31
SECTION 9.03 Fees and Expenses.............................. A-31
SECTION 9.04 Waivers and Amendments......................... A-31
ARTICLE 10
DEFINITIONS................................................. A-32
SECTION 10.01 Certain Definitions........................... A-32
ARTICLE 11
MISCELLANEOUS............................................... A-38
SECTION 11.01 Notices....................................... A-38
SECTION 11.02 Survival of Representations and Warranties
after the Effective Time.................................... A-39
SECTION 11.03 Successors and Assigns........................ A-39
SECTION 11.04 Governing Law................................. A-39
SECTION 11.05 Counterparts; Effectiveness; Third Party
Beneficiaries............................................... A-39
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SECTION 11.06 Jurisdiction.................................. A-39
SECTION 11.07 Waiver of Jury Trial.......................... A-40
SECTION 11.08 Enforcement................................... A-40
SECTION 11.09 Entire Agreement.............................. A-40
SECTION 11.10 Severability.................................. A-40
SECTION 11.11 Construction.................................. A-40
SECTION 11.12 Headings...................................... A-40
SECTION 11.13 Incorporation of Exhibits and Schedules....... A-40
EXHIBITS
Exhibit A--Form of Option Exercise/Payment Direction
SCHEDULES
Target Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of March 20, 2001 (this "AGREEMENT")
by and among Huntway Refining Company, a Delaware corporation (including its
predecessor as appropriate, "TARGET"), Valero Refining and Marketing Company, a
Delaware corporation ("BUYER"), and HAC Company, a Delaware corporation and a
wholly-owned subsidiary of Buyer ("BUYERSUB"). Certain capitalized terms used
herein have the meanings set forth in Article 10.
RECITALS
This Agreement contemplates a transaction in which Target shall become a
wholly-owned Subsidiary of Buyer through a merger of BuyerSub with and into
Target, with Target continuing as the surviving corporation. The stockholders of
Target will receive cash in exchange for their capital stock in Target.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01 THE MERGER.
(a) At the Effective Time, BuyerSub shall be merged (the "MERGER") with and
into Target in accordance with the terms and conditions of this Agreement and
the DGCL, at which time the separate existence of BuyerSub shall cease and
Target shall continue its existence. In its capacity as the corporation
surviving the Merger, this Agreement sometimes refers to Target as the
"SURVIVING CORPORATION."
(b) As soon as practicable after satisfaction or, to the extent permitted
hereby, waiver of all conditions to the Merger set forth herein, Target shall
file a certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of
State of the State of Delaware (the "SECRETARY") and make all other filings or
recordings required by Section 251 of the DGCL in connection with the Merger.
The "EFFECTIVE TIME" shall be the date and time that the Certificate of Merger
is filed with the Secretary unless a later date and/or time is otherwise agreed
upon by the parties and specified in the Certificate of Merger, in which case,
the Effective Time shall be the date and time so specified.
(c) From and after the Effective Time, the Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.02 CLOSING OF THE MERGER.
(a) The closing of the Merger (the "CLOSING") shall be held at the offices
of Kirkland & Ellis, 777 South Figueroa Street, Los Angeles, California (or such
other place as agreed by the parties) within five Business Days after
satisfaction or, to the extent permitted hereby, waiver of the conditions set
forth in Article 8 (other than conditions with respect to actions the respective
parties are to take at the Closing itself), unless the parties hereto agree on
another date.
(b) It is contemplated that at the Closing Buyer shall among other things
(i) fully satisfy and discharge any indebtedness of Target under the Bank of
America Loan Agreement and obtain and cause to become effective a back-up letter
of credit to certain letters of credit issued for the benefit of Target pursuant
to the Bank of America Loan Agreement as contemplated by Section 7.06(a),
(ii) fully satisfy and discharge all of the indebtedness of Target under the
Boeing Capital Loan Agreement as contemplated by Section 7.06(b),
(iii) purchase all of the Convertible Notes as
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contemplated by Section 7.06(c) and (iv) purchase all of the Junior Subordinated
Debentures as contemplated by Section 7.06(d). As a result of the foregoing, it
is also contemplated that at Closing all Liens arising under the Target Credit
Documents shall be terminated and released.
SECTION 1.03 ORGANIZATIONAL DOCUMENTS. At the Effective Time (i) the
certificate of incorporation of Target shall be amended to read in its entirety
as the certificate of incorporation of BuyerSub in effect immediately prior to
the Effective Time (except that the name of the Surviving Corporation shall be
the name of Target as specified in its certificate of incorporation in effect
immediately prior to the Effective Time) and as so amended shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law and (ii) the by-laws of BuyerSub in
effect immediately prior to the Effective Time shall be the by-laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
SECTION 1.04 DIRECTORS AND OFFICERS. From and after the Effective Time
(until successors are duly elected or appointed and qualified), the directors
and officers of BuyerSub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation.
ARTICLE 2
CONVERSION OF SECURITIES AND RELATED MATTERS
SECTION 2.01 CONVERSION OF CAPITAL STOCK. At the Effective Time and by
virtue of the Merger and without any action on the part of Target, Buyer or
BuyerSub or their respective stockholders:
(a) Each share of common stock, $0.01 par value per share, of BuyerSub
(each, a "BUYERSUB COMMON SHARE") outstanding immediately prior to the Effective
Time shall be converted into and become one share of common stock of the
Surviving Corporation.
(b) Except as otherwise provided in Section 2.01(c) and Section 2.01(d),
each Target Common Share outstanding immediately prior to the Effective Time
shall be converted into cash in an amount equal to $1.90 (the "MERGER
CONSIDERATION"). All such Target Common Shares, when so converted, shall no
longer be outstanding, shall automatically be canceled and retired and shall
cease to exist. Each holder of a stock certificate formerly representing Target
Common Shares shall cease to have any rights with respect thereto at the
Effective Time, except the right to receive, without interest, the applicable
Merger Consideration in accordance with this Agreement, except as otherwise
provided in Section 2.01(c) and Section 2.01(d).
(c) Each Target Common Share held by Target as treasury stock or owned by
Buyer or any Buyer Subsidiary immediately prior to the Effective Time shall
automatically be canceled and retired and shall cease to exist, and no payment
shall be made in respect thereof.
(d) Each Target Common Share as to which a written demand for appraisal is
filed in accordance with Section 262 of the DGCL at or prior to the Target
Stockholder Meeting and not withdrawn at or prior to the Target Stockholder
Meeting and which is not voted in favor of the Merger shall be converted into
the right to receive payment from the Surviving Corporation with respect thereto
in accordance with Section 262 of the DGCL and shall not be converted into or
represent a right to receive the Merger Consideration (a "DISSENTING SHARE"),
unless and until the holder thereof shall have failed to perfect, or shall have
effectively withdrawn or lost the right to appraisal of and payment for such
Target Common Share under Section 262 of the DGCL, in which event and at such
time such Target Common Share shall be converted into the right to receive,
without interest, the Merger Consideration. Target shall give Buyer prompt
notice upon receipt by Target of any and all written demands for appraisal
rights, withdrawal of such demands and any other written communications
delivered to Target pursuant to Section 262 of the DGCL, and Target shall give
Buyer the opportunity, to the extent permitted by law, to participate in all
negotiations and
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proceedings with respect to such demands. Except with the prior written consent
of Buyer, Target shall not voluntarily make any payment with respect to any
demand for appraisal rights and shall not settle or offer to settle any such
demand. Each holder of Dissenting Shares who becomes entitled, pursuant to the
provisions of Section 262 of the DGCL, to payment for such Dissenting Shares
under the provisions of Section 262 of the DGCL shall receive payment thereof
from the Surviving Corporation and such Target Common Shares shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist.
SECTION 2.02 EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION.
(a) EXCHANGE AGENT. Promptly after the date hereof but in any event prior to
the Target Stockholder Meeting, Buyer shall appoint a bank or trust company
acceptable to Target (on terms acceptable to Target) as agent (the "EXCHANGE
"AGENT") for the benefit of the holders of Target Common Shares, for the purpose
of exchanging for the Merger Consideration pursuant to this Article 2
certificates ("CERTIFICATES") that immediately prior to the Effective Time
represent outstanding Target Common Shares. Buyer shall deliver to the Exchange
Agent upon the Closing the Merger Consideration to be paid in respect of Target
Common Shares converted into the Merger Consideration (that is, not including
any then Dissenting Shares) pursuant to this Article 2 (the "EXCHANGE FUND"). In
addition, in the event that any then Dissenting Share thereafter ceases to be a
Dissenting Share and the underlying Target Common Share is thereupon converted
into the Merger Consideration, Buyer thereupon shall deliver immediately to the
Exchange Agent for inclusion in the Exchange Fund the appropriate Merger
Consideration. Except as contemplated by subsections (d), (e), (f) and (g) of
this Section, the Exchange Fund shall not be used for any other purpose. The
Buyer shall pay all charges and expenses of the Exchange Agent.
(b) EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Time, but in any event not more than five Business Days after the date of the
Effective Time, Buyer shall send, or will cause the Exchange Agent to send, to
each holder of record of a Certificate or Certificates a letter of transmittal
and instructions (which shall be in customary form and specify that delivery
shall be effected, and risk of loss and title shall pass, only upon delivery of
Certificates to the Exchange Agent) for use in the exchange contemplated by this
Section. Upon surrender of a Certificate to the Exchange Agent, together with a
duly executed and completed letter of transmittal, the holder of such
Certificate shall be entitled to promptly receive in exchange therefor the
Merger Consideration as provided in this Article 2 in respect of the Target
Common Shares represented by such Certificate less such amounts, if any, as are
required to be deducted and withheld by the Surviving Corporation, Exchange
Agent or Buyer under the Code or any provision of state or local tax law. Until
surrendered as contemplated by this Section, each Certificate shall be deemed
upon and at any time after the Effective Time to represent only the right to
receive the appropriate Merger Consideration without interest as provided in
this Article 2, except for any Dissenting Share. If any Merger Consideration is
to be paid to a Person other than the Person in whose name the Certificate is
registered, it shall be a condition to such payment that in the judgment of the
Exchange Agent the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required as
a result of such payment to a Person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Buyer, the posting by such Person of a bond, in such reasonable amount as Buyer
may direct, as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will deliver in exchange for
such lost, stolen or destroyed Certificate, the appropriate Merger Consideration
as contemplated by this Article 2.
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(c) NO FURTHER OWNERSHIP RIGHTS IN TARGET COMMON SHARES. The Merger
Consideration paid upon surrender of Certificates in accordance with the terms
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to the Target Common Shares represented thereby. As of the Effective
Time, the stock transfer books of Target shall be closed and there shall be no
further registration of transfers on the stock transfer books of Target.
(d) RETURN OF MERGER CONSIDERATION. At any time after the first anniversary
of the date of the Closing, upon written demand by Buyer, the Exchange Agent
shall deliver to Buyer any portion of the Merger Consideration made available to
the Exchange Agent pursuant to this Section that then remains undistributed.
Holders of Certificates who have not complied with this Section prior to such
delivery to Buyer shall thereafter look only to Buyer for payment of the
appropriate Merger Consideration.
(e) NO LIABILITY. None of Buyer, the Surviving Corporation or the Exchange
Agent shall be liable to any Person in respect of any Target Common Shares for
any amounts paid to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any amounts remaining unclaimed by any holder
of Target Common Shares immediately prior to such time when such amounts would
otherwise escheat to or become the property of any Governmental Entity shall, to
the extent permitted by applicable law, become the property of Buyer, free and
clear of all claims or interest of any Person previously entitled thereto.
(f) WITHHOLDING RIGHTS. Each of the Surviving Corporation, the Exchange
Agent and Buyer shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable hereunder to any Person such amounts, if any, it
is required to deduct and withhold with respect to the making of such payment
under any provision of Federal, state, local or foreign income tax law. To the
extent that the Surviving Corporation, the Exchange Agent or Buyer so withholds
any such amounts, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of Target Common Shares in
respect of which such deduction and withholding was made by the Surviving
Corporation, the Exchange Agent or Buyer, as the case may be.
(g) INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest any and
all cash included in the Exchange Fund only in an insured money market account;
provided that no loss thereon or thereof shall affect the amounts payable by the
Buyer to the holders of Target Common Shares pursuant to this Article 2. Any
interest and other income resulting from such investment shall promptly be paid
to Buyer, and Buyer shall replace promptly any portion of the Exchange Fund
which the Exchange Agent loses through such investment.
SECTION 2.03 TARGET STOCK OPTIONS.
(a) As soon as possible following the date of this Agreement and pursuant to
the terms of the respective Target Option Plan, the Board of Directors of Target
(and, if appropriate, any committee administering any Target Option Plan) shall
adopt such resolutions and/or take such other actions as may be required or
appropriate in its sole discretion to effect the provisions of this Section.
Each stock option to purchase Target Common Shares (each, a "TARGET OPTION")
outstanding under either Target Option Plan immediately prior to the Effective
Time, whether or not vested or exercisable, shall become fully vested and
exercisable at the Effective Time (other than any portion of a Target Option
held by a member of the board of directors of Target that failed to vest as
originally scheduled due to such member not meeting applicable attendance
requirements) and shall be deemed to constitute an option to acquire, on the
same terms and conditions (other than as expressly provided in this Section) as
were applicable under such Target Option immediately prior to the Effective
Time, the same Merger Consideration as the holder of such Target Option would
have been entitled to receive pursuant to this Agreement had such holder
exercised such Target Option in full immediately prior to the Effective Time,
and the Buyer so acknowledges and agrees to the foregoing.
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(b) At the Closing, Buyer shall pay to each holder of a then outstanding
Target Option who has theretofore delivered to the Chief Financial Officer of
Target an executed Option Exercise/ Payment Direction an amount equal to the
excess of (x) the Merger Consideration multiplied by the number of Target Common
Shares purchasable pursuant to such Target Option immediately prior to the
Effective Time over (y) the aggregate exercise price for the Target Common
Shares purchasable pursuant to such Target Option immediately prior to the
Effective Time (in each case assuming such Target Option had been fully vested
and fully exercisable immediately prior to the Effective Time as contemplated by
the immediately preceding subsection), less any amounts as are required to be
deducted and withheld under the Code or any provision of state or local tax law
in connection with such payment (the "OPTION SPREAD PAYMENT"). The Option Spread
Payment shall be paid by Buyer in cash by certified check or wire transfer of
immediately available funds as directed in the respective Option
Exercise/Payment Direction. After the execution and delivery hereof, Target
shall make available to each of its employees and other Persons who hold Target
Options the opportunity to enter into and deliver an Option Exercise/Payment
Direction.
SECTION 2.04 [INTENTIONALLY OMITTED]
SECTION 2.05 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Target or BuyerSub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of Target or BuyerSub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
Target acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TARGET
Except as disclosed in the Target Disclosure Schedule, Target represents and
warrants to Buyer that:
SECTION 3.01 CORPORATE EXISTENCE AND POWER. Target is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate power required to carry on its business as
now conducted. Target is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or be in good standing,
individually or in the aggregate, would not have a Target Material Adverse
Effect. Target has heretofore made available to Buyer true, correct and complete
copies of its certificate of incorporation and by-laws as currently in effect.
SECTION 3.02 CORPORATE AUTHORIZATION; APPROVALS. The execution, delivery
and performance by Target of this Agreement and the consummation by Target of
the transactions contemplated hereby are within the corporate powers of Target
and, except for the Target Stockholder Approval, have been duly authorized by
all necessary corporate action. Assuming that this Agreement constitutes the
valid and binding obligation of Buyer and BuyerSub and that the Guarantee
constitutes the valid and binding obligation of Valero Energy Corporation, this
Agreement constitutes a valid and binding agreement of Target, enforceable in
accordance with its terms.
SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Target of this Agreement and the consummation by Target of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any Governmental Entity, other than the following: (a) the filing
of the Certificate of Merger in accordance with the DGCL; (b) compliance
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with any applicable requirements of the HSR Act; and (c) compliance with any
applicable requirements of the Exchange Act.
SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance by
Target of this Agreement and the consummation by Target of the transactions
contemplated hereby do not and will not (a) contravene or conflict with the
certificate of incorporation or by-laws of Target or the organization documents
of Target Subsidiary, (b) assuming that all of the consents, approvals and
filings contemplated by clauses (a) to and including (c) of Section 3.03 are
obtained and/or made and that Target Stockholder Approval occurs, contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Target or
the Target Subsidiary (except that no representation or warranty is made with
respect to any antitrust statute, regulation, rule or other such restriction),
(c) give rise to a right of termination, cancellation or acceleration (with or
without due notice or lapse of time or both) of any material right or obligation
of Target or the Target Subsidiary or to a loss of any material benefit or
status to which Target or the Target Subsidiary is entitled under any provision
of any agreement, contract or other instrument binding upon Target or the Target
Subsidiary or any license, franchise, permit or other similar authorization held
by Target or the Target Subsidiary or (d) result in the creation or imposition
of any Lien on any material asset of Target or the Target Subsidiary.
SECTION 3.05 CAPITALIZATION.
(a) The authorized capital stock of Target consists of 75,000,000 Target
Common Shares and 1,000,000 Target Preferred Shares. As of the execution and
delivery hereof, (i) 15,004,771 Target Common Shares are issued and outstanding
and 8,500 Target Common Shares are held in treasury and (ii) no Target Preferred
Shares are issued and outstanding or held in treasury. As of the execution and
delivery hereof, (i) Target Options to acquire an aggregate of 4,549,000 Target
Common Shares are outstanding under the Target Option Plans, (ii) the
Convertible Notes are outstanding, which Notes are convertible into 14,500,000
Target Common Shares as contemplated by the Convertible Notes Indenture and
(iii) the Danesh Options are outstanding, which Options are exercisable for an
aggregate of 1,146,059 Target Common Shares. All outstanding shares of the
capital stock of Target have been duly authorized and are validly issued, fully
paid and non-assessable.
(b) As of the date hereof, except as described in Section 3.05(a), there are
no outstanding (i) shares of capital stock or other voting securities of Target,
(ii) securities of Target convertible into or exchangeable for shares of capital
stock or voting securities of Target, (iii) options or other rights to acquire
from Target, or obligations of Target to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Target. There are no outstanding obligations of Target or
the Target Subsidiary to repurchase, redeem or otherwise acquire any Target
Common Shares. Except for the Convertible Notes, the Danesh Options and the
Target Options, neither the Merger nor any other transaction contemplated hereby
will accelerate the vesting of or have any other effect under any options or
other rights relating to the acquisition of equity or other equity-related
securities of Target.
SECTION 3.06 SUBSIDIARIES.
(a) Target Subsidiary is the only Subsidiary of Target. 99.9 percent of the
ownership interest in the Target Subsidiary is directly owned by Target and
0.1 percent is owned by Huntway Managing Partners. Target is the sole general
partner of Target Subsidiary and Huntway Managing Partners is the sole limited
partner. Target Subsidiary does not have any employees and has not conducted any
business or operations since December 31, 1993, other than the sale of certain
of its assets from time to time.
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(b) Target Subsidiary is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
all limited partnership power required to carry on its business as now
conducted. Target Subsidiary is duly qualified to do business as a foreign
limited partnership and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or be in good standing, individually or in the aggregate, would not have a
Target Material Adverse Effect. Target Subsidiary has heretofore made available
to Buyer true, correct and complete copies of its certificate of limited
partnership and agreement of limited partnership as currently in effect.
(c) All of the outstanding ownership interests in the Target Subsidiary have
been duly authorized and are validly issued. All of the outstanding ownership
interest owned directly by Target in the Target Subsidiary is owned free and
clear of any Lien and free of any other limitation or restriction, including any
limitation or restriction on the right to vote, sell or otherwise dispose of
such ownership interest, other than any of such under the Securities Act or any
state securities laws or any Liens related to the Target Credit Documents. There
are no outstanding (i) securities of Target or the Target Subsidiary convertible
into or exchangeable or exercisable for voting securities or ownership interests
in the Target Subsidiary, (ii) options, warrants or other rights to acquire from
Target or the Target Subsidiary, or obligations of Target or the Target
Subsidiary to issue, any voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable for any voting
securities or ownership interests in, the Target Subsidiary or
(iii) obligations of Target or the Target Subsidiary to repurchase, redeem or
otherwise acquire any outstanding securities of the Target Subsidiary or any
ownership interests in the Target Subsidiary.
SECTION 3.07 TARGET SEC DOCUMENTS.
(a) Target has made available to Buyer the Target SEC Documents filed prior
to the date hereof. Target has filed all reports, filings and other documents
required to be filed by it since December 31, 1999 under (i) the Exchange Act
with the SEC and (ii) the rules, regulations and other requirements of the New
York Stock Exchange ("NYSE") with the NYSE. Target has not filed any
registration statement or other document under the Securities Act since
December 31, 1999, and it has not been required to file any such registration
statement or document since December 31, 1999.
(b) As of its filing date, or as amended or supplemented prior to the date
hereof, each Target SEC Document filed prior to the date hereof complied in all
material respects with the applicable requirements of the Exchange Act.
(c) No Target SEC Document filed prior to the date hereof as of its filing
date, contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading; provided
that Section 3.09 shall be the sole and exclusive representation and warranty of
Target regarding the Proxy Statement.
SECTION 3.08 FINANCIAL STATEMENTS; LIABILITIES.
(a) The audited consolidated financial statements of Target included in the
Target 10-K and the unaudited consolidated financial statements of Target for
the twelve month period ended December 31, 2000, which unaudited financial
statements of Target have been prepared on a basis consistent with the Target
10-K other than for any exception as a result of a change in GAAP or applicable
law or regulation (collectively, including the notes thereto, the "FINANCIAL
STATEMENTS"), present fairly in all material respects and in conformity with
GAAP (except as may be indicated in the notes thereto) the consolidated
financial position of Target and the Target Subsidiary as of the dates thereof
and their consolidated results of operations and changes in financial position
for the
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respective periods then ended (subject to lack of footnote disclosure in the
case of the unaudited financial statements).
(b) Except as reflected or disclosed in the Financial Statements, there are
no material liabilities of Target or the Target Subsidiary of any kind
whatsoever, whether known or unknown, asserted or unasserted, accrued,
contingent, absolute, determined, determinable or otherwise, in each case, other
than:
(i) liabilities incurred since December 31, 1999 in the Ordinary Course
of Business;
(ii) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby;
(iii) obligations of Target and the Target Subsidiary under the
agreements, contracts, leases and licenses to which either or both is a
party;
(iv) obligations of Target and the Target Subsidiary to comply with all
applicable laws; and
(v) liabilities with respect to any disclosure contained in (A) the
Phase I reports for the Benicia California, Wilmington California or
Coolidge Arizona facilities of Target or the Target Subsidiary or (B) the
Phase I or Phase II reports for the Vulcan Property, true and complete
copies of which reports have been made available to Buyer by Target.
(c) True, correct and complete copies of the reports and other documentation
prepared monthly by the management of Target and referred to by management of
Target as the "Financial Reporting Packages" (the "FINANCIAL REPORTING
PACKAGES") for the months beginning with January 2000 and ending with
December 2000, have been made available to Buyer.
SECTION 3.09 INFORMATION TO BE SUPPLIED. The information to be supplied by
Target expressly for inclusion in the Proxy Statement will, at the time of the
mailing thereof and at the time of the Target Stockholder Meeting, not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act, except that no representation or
warranty is made by Target with respect to statements made based on information
supplied by Buyer specifically for inclusion therein.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Since December 31, 2000, except
as otherwise expressly contemplated by this Agreement, Target and the Target
Subsidiary have conducted their business in the Ordinary Course of Business and
there has not been any material damage, destruction or other loss (not covered
by insurance) affecting the business or assets of Target or the Target
Subsidiary.
SECTION 3.11 LITIGATION. There is no action, suit, investigation,
arbitration, grievance or proceeding pending against, or to the Knowledge of
Target threatened against, Target or the Target Subsidiary or any of their
respective assets or properties that could reasonably be expected, individually
or in the aggregate, to result in a Target Material Adverse Effect and, to the
Knowledge of Target, there are no existing facts or circumstances (including any
claims or demands) that could reasonably be expected to result in any of the
foregoing. There are no material orders, judgments, injunctions or decrees of
any Governmental Entity with respect to which Target or the Target Subsidiary,
or their respective assets, have been named or are a party.
SECTION 3.12 TAXES. (i) All income tax returns, statements, reports and
forms (collectively, the "TARGET RETURNS") required to be filed with any taxing
authority by, or with respect to, Target and the Target Subsidiary have been
filed in accordance with all applicable laws; (ii) Target and the Target
Subsidiary have timely paid all taxes shown as due and payable on the Target
Returns that
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have been so filed and, as of the time of filing, the Target Returns correctly
reflected in all material respects the facts regarding the income, business,
assets, operations, activities and the status of Target and the Target
Subsidiary, other than with respect to taxes for which adequate reserves are
reflected on the books and records of Target; and (iii) neither Target nor the
Target Subsidiary has been a member of an affiliated, consolidated, combined or
unitary group other than one of which Target was the common parent. To the
Knowledge of Target: (i) no deficiencies for any taxes have been asserted by any
Governmental Entity against Target or Target Subsidiary that remain unsettled at
the date hereof; (ii) no requests for waivers of the time to assess any such
taxes have been granted; and (iii) no tax returns of Target or Target Subsidiary
are currently being audited by any applicable taxing authority or threatened
with any such audit. All payments for withholding taxes, unemployment insurance
and other amounts required to be withheld and deposited or paid to any taxing
authorities have been so deposited or paid by Target or Target Subsidiary, as
applicable. Target (i) has not made or entered into, and does not own any asset
subject to, a consent filed pursuant to Section 341(f) of the Code or a "safe
harbor lease" subject to Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended before the Tax Reform Act of 1984, (ii) is not required to include in
income any amount for an adjustment pursuant to Section 481 of the Code and
(iii) is neither a party to nor obligated under any agreement or other
arrangement providing for the payment of any amount that would be an "excess
parachute payment" under Section 280G of the Code or subject to tax under
Section 4999 of the Code for which Buyer, BuyerSub or the Surviving Corporation
would have withholding liability. Neither Target nor the Target Subsidiary is
contesting the payment of any income or other taxes.
SECTION 3.13 COMPLIANCE WITH LAWS; LICENSES, PERMITS AND REGISTRATIONS.
(a) Neither Target nor the Target Subsidiary is in violation of, or has
violated, any applicable provision of any law, statute, ordinance, regulation,
judgment, injunction, order or consent decree, except where the violation
individually would not result in a cost to Target of more than $100,000 and the
violations in the aggregate would not have a Target Material Adverse Effect.
(b) Both the Target and the Target Subsidiary have all material permits,
licenses, approvals, authorizations of and registrations with and under all
Federal, state, local and foreign laws, and from all Governmental Entities,
required by Target and the Target Subsidiary to carry on their respective
businesses as currently conducted.
SECTION 3.14 CONTRACTS. Each material lease, license, contract, agreement
or obligation to which Target or the Target Subsidiary is a party or by which
either of them or any of their properties is bound is in all material respects
valid, binding and in full force and effect, and neither Target nor Target
Subsidiary is in material violation or breach thereunder. Neither Target nor the
Target Subsidiary is a party to any agreement that expressly and materially
limits the ability of Target or the Target Subsidiary to compete in or conduct
any line of business or compete with any person or in any geographic area or
during any period of time. Target has made available to Buyer true, correct and
complete copies of all Target Credit Documents and all of its material leases,
subleases, employment agreements, consulting agreements, hedging contracts,
crude oil purchase contracts, licenses, contracts and agreements.
SECTION 3.15 EMPLOYEE BENEFIT PLANS
(a) The section of the Target Disclosure Schedule corresponding to this
Section 3.15(a) contains an accurate and complete list of each Target Employee
Plan.
(b) Each Target Employee Plan that is intended to be qualified within the
meaning of Section 401(a) of the Code has received a determination from the IRS
that such Target Employee Plan is qualified under Section 401(a) of the Code.
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(c) Neither Target nor Target Subsidiary maintains, contributes to or has
any liability under or with respect to any "defined benefit plan" (as defined in
Section 3(35) of ERISA), or any "multiemployer plan" (as defined in
Section 3(37) of ERISA). No asset of Target or the Target Subsidiary is subject
to any lien under ERISA or the Code. There are no pending or threatened actions,
suits, investigations or claims with respect to any Target Employee Plan (other
than routine claims for benefits) which could result in liability to Buyer or
BuyerSub.
(d) In all material respects, (i) each of the Target Employee Plans has been
maintained, funded and administered, in both form and operation, in compliance
with its terms and in compliance with the applicable provisions of ERISA, the
Code and any other applicable laws, and (ii) all filings required for the Target
Employee Plans and all contributions to the Target Employee Plans have been
timely made. Target and the Target Subsidiary have complied with the health care
continuation requirements of Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code ("COBRA"), and Target and the Target Subsidiary have
no obligations under any Target Employee Plan or otherwise to provide health,
medical, dental or disability benefits to former employees of Target or the
Target Subsidiary or any other person, except as specifically required by COBRA.
(e) With respect to each Target Employee Plan, Target has made available to
Buyer true, complete and correct copies of, to the extent applicable: (i) the
current plan documents and summary plan descriptions, (ii) annual reports
(Form 5500 series) filed with the IRS (with applicable attachments) for the
previous two years, (iii) financial statements for the previous two years and
(iv) the most recent determination letter received from the IRS.
(f) On and after January 1, 1994, none of Target, Target Subsidiary, any
Affiliate of Target or Target Subsidiary, nor to the Knowledge of Target, any
plan fiduciary of any Target Employee Plan, has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA or any "prohibited transaction" (as
defined in Section 4975(c)(1) of the Code) which would subject Target, Buyer,
BuyerSub or the Surviving Corporation to any material taxes, penalties or other
liabilities resulting from such prohibited transaction and, to the Knowledge of
Target, no condition exists that would subject any of Target, Buyer, BuyerSub or
the Surviving Corporation to any material excise penalty tax or fine related to
any Target Employee Plan.
SECTION 3.16 TRANSACTIONS WITH AFFILIATES. Since December 31, 1999, there
have been no transactions, agreements, arrangements or understandings between
Target or the Target Subsidiary and any other Person that would be required to
be disclosed under Item 404 of Regulation S-K under the Securities Act.
SECTION 3.17 INTELLECTUAL PROPERTY. Neither Target nor the Target
Subsidiary owns any registration of any patent, trademark, service mark, trade
name, copyright, trade secret or other intellectual property, other than the
service mark "H" and the domain names "huntway.com" and "huntway.net" in the
case of Target. Each of Target and Target Subsidiary owns or has adequate rights
to use all of the intellectual property (i) used by it in its business and
(ii) necessary for the conduct of its business in the Ordinary Course of
Business. Subject to such exceptions as would be de minimis in the aggregate, to
the Knowledge of Target, (i) neither Target nor the Target Subsidiary has
infringed upon the intellectual property rights of any other Person nor
(ii) has any other Person infringed upon the intellectual property rights of
Target or the Target Subsidiary.
SECTION 3.18 ENVIRONMENTAL MATTERS. (i) To the Knowledge of Target, Target
and the Target Subsidiary are in compliance with all Environmental Requirements,
except for any noncompliance that would be de minimis in the aggregate; (ii) to
the Knowledge of Target, Target and Target Subsidiary have obtained and are in
compliance with all permits, licenses and other authorizations that are required
pursuant to Environmental Requirements for the occupation of their facilities
and the operation of their businesses and are in compliance with all other
limitations,
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conditions, standards, prohibitions and timetables imposed by Environmental
Requirements, except for any failure to obtain or any noncompliance that would
be de minimis in the aggregate; (iii) neither Target nor Target Subsidiary has
received any written notice, report or other information regarding any material
violation by Target or the Target Subsidiary of, or liabilities of Target or the
Target Subsidiary under, Environmental Requirements, other than any written
notice, report or other information with respect to a violation or liability
that has been remedied or satisfied; (iv) to the Knowledge of Target, neither
Target nor Target Subsidiary has received written notice of any past or present
circumstances that, if continued, are reasonably likely to materially interfere
with or prevent in any material manner compliance in the operation of their
businesses with any Environmental Requirements; (v) to the Knowledge of Target,
neither Target nor Target Subsidiary has handled or disposed of any Hazardous
Substance in violation of any Environmental Requirements, arranged for the
disposal of any Hazardous Substance in violation of Environmental Requirements
or exposed any employee or individual to any Hazardous Substance or condition in
violation of Environmental Requirements, except for any exceptions that would be
de minimis in the aggregate; and (vi) to the Knowledge of Target, neither Target
nor Target Subsidiary is a party to any written agreements, including but not
limited to indemnity or clean up agreements, relating to or arising out of
Environmental Requirements, with any third parties that are reasonably likely to
give rise to a material claim against Target or the Target Subsidiary.
SECTION 3.19 REAL ESTATE.
(a) The section of the Target Disclosure Schedule corresponding to this
Section 3.19(a) sets forth the address of all real property owned by Target or
the Target Subsidiary and used in the operation of the business of Target or the
Target Subsidiary as of the date hereof (the "OWNED REAL PROPERTY"). Target or
the Target Subsidiary, as applicable, holds good and marketable title to the
Owned Real Property, free and clear of all Liens except for any Permitted Liens
and any Liens with respect to the Target Credit Documents.
(b) The section of the Target Disclosure Schedule corresponding to this
Section 3.19(b) sets forth the address of all real property in which Target or
the Target Subsidiary holds a leasehold or subleasehold estate (the "LEASED REAL
PROPERTY"; the leases or subleases for such Leased Real Property being referred
to as the "LEASES"). With respect to each of the Leases: (i) such Lease is
legal, valid, binding, enforceable and in full force and effect; (ii) to the
Knowledge of Target, neither Target, the Target Subsidiary nor any other party
to the Lease is in breach or default under such Lease; (iii) Target or the
Target Subsidiary, as applicable, holds good and marketable title to the
leasehold interest thereunder; and (iv) neither Target nor Target Subsidiary
has, except for any Lien under the Target Credit Documents, assigned, subleased,
mortgaged, deeded in trust or otherwise transferred or encumbered such Lease, or
any interest therein.
(c) Neither Target nor Target Subsidiary has received any written notice to
the effect that (i) any betterment assessments have been levied against, or
condemnation or re-zoning proceedings are pending or threatened with respect to,
any of the Owned Real Property or the Leased Real Property (collectively, the
"TARGET REAL PROPERTIES") or the Vulcan Property, or (ii) any zoning, building
or similar law or regulation is or will be violated in any material respect by
the continued maintenance, operation or use of any buildings or other
improvements on any of the Target Real Properties or the Vulcan Property. There
are no outstanding abatement proceedings or appeals with respect to the
assessment of any Owned Real Property for the purposes of real property taxes
and, to the Knowledge of Target, there are no outstanding abatement proceedings
or appeals with respect to the assessment of any Leased Real Property for the
purposes of real property taxes; and neither Target nor Target Subsidiary is a
party to any agreement with any Governmental Entity with respect to such
assessments or tax rates on any Target Real Properties. To the Knowledge of
Target, each of Target and the Target Subsidiary has all material rights of
ingress, egress, docking, terminalling and other access necessary to operate its
facilities and to
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move its inventory, product and supplies on, off, through and over the Target
Real Properties in substantially the same manner in which it currently operates
and moves such inventory, product and supplies.
(d) Target has delivered to Buyer true, correct and complete copies of that
certain preliminary title report dated February 20, 2001 and known as Order
No. 1052644-KF for the Owned Real Property (the "TITLE REPORT"), with copies of
all exception documents referenced therein, and those certain preliminary title
reports dated September 19, 2000 and known as Order No. 201053712-X55 and dated
March 9, 2001 and known as Order No. 11053217-X55 for the Vulcan Property
(collectively, the "VULCAN TITLE REPORT"), with copies of all exception
documents referenced therein, which title reports were prepared by Chicago Title
Insurance Company (the "TITLE COMPANY"). In addition, Target has delivered to
Buyer a true, correct and complete copy of that certain draft survey of the
Vulcan Property dated March 14, 2001, prepared by Pacific Land
Consultants, Inc. and known as Job No. 01045 (the "SURVEY").
SECTION 3.20 REQUIRED VOTE; BOARD APPROVAL
(a) The only vote of the holders of any class or series of capital stock of
Target required by law, rule or regulation to approve this Agreement, the Merger
and/or any of the other transactions contemplated hereby is the affirmative vote
of the holders of a majority of the outstanding Target Common Shares on the
applicable record date in favor of the adoption of this Agreement (the "TARGET
STOCKHOLDER APPROVAL").
(b) The board of directors of Target has (i) determined that this Agreement
and the transactions contemplated hereby, including the Merger, are advisable
and in the best interests of Target and its stockholders, (ii) approved this
Agreement and the transactions contemplated hereby and (iii) subject to
Section 5.03, resolved to recommend to such stockholders that they vote in favor
of adopting and approving this Agreement and the Merger in accordance with the
terms hereof.
SECTION 3.21 FINDERS' FEES; OPINION OF FINANCIAL ADVISOR.
(a) Except for Simmons & Company International (the "FINANCIAL ADVISOR"),
there is no investment banker, broker, finder or other such intermediary which
has been retained by, or is authorized to act on behalf of, Target or the Target
Subsidiary with respect to the transactions contemplated by this Agreement.
Target has made available to Buyer a true and correct copy of the engagement
letter between Target and the Financial Advisor.
(b) Target has received the opinion of the Financial Advisor, dated as of
the date hereof, to the effect that, as of such date, the Merger Consideration
to be received by holders of Target Common Shares is fair to such holders (other
than, if applicable, Buyer and any Buyer Subsidiary) from a financial point of
view.
SECTION 3.22 EMPLOYEE MATTERS. There are no material labor-related
disputes of any kind asserted against Target in connection with its operations
pending before or, to the Knowledge of Target, threatened before, any federal,
state or local court or agency. There is no unfair labor practice charge or
complaint against Target actually pending or, to the Knowledge of Target,
threatened, before the National Labor Relations Board. There is no labor strike,
slowdown or stoppage actually pending or, to the Knowledge of Target, threatened
against Target. Target has not experienced any material labor disputes or any
material work stoppage due to labor disagreements within the past three years.
No attempt to organize Target employees has resulted in an election within the
past three years or, to the Knowledge of Target, is threatened against Target.
Target is not now, nor at any time within the past three years has Target been,
subject to any collective bargaining agreement, contract, letter of
understanding or other similar arrangement with any labor union or organization.
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SECTION 3.23 PERSONAL PROPERTY. Each of Target and Target Subsidiary, as
applicable, has good and valid title or a valid right to use all material
tangible personal property, equipment and fixtures held by Target or the Target
Subsidiary ("PERSONAL PROPERTY"), free and clear of all Liens except Permitted
Liens and any Liens related to the Target Credit Documents. Except for
exceptions related to the Coolidge, Arizona facility of the Target Subsidiary,
to the Knowledge of Target, the Personal Property is in good operating condition
and repair in accordance with normal and customary industry practices for items
of comparable age and use, ordinary wear and tear excepted. All product and
supply inventory held by Target is of a quality usable or salable (as
applicable) in the Ordinary Course of Business.
SECTION 3.24 INSURANCE. Target has heretofore made available to Buyer a
complete list as of the date hereof of all insurance policies maintained by
Target or Target Subsidiary and has made available to Buyer true, correct and
complete copies of all such policies, together with all riders and amendments
thereto. As of the date hereof, all such policies are in full force and effect
and all premiums due thereon prior to the date hereof have been paid. Target and
the Target Subsidiary have complied in all material respects with the terms of
such policies.
SECTION 3.25 TARGET CREDIT DOCUMENTS. The Target Disclosure Schedule sets
forth the outstanding principal balance due, owing and unpaid under each of the
Target Credit Documents, if any, and the interest rates payable on such
balances, in each case as of the date hereof. The Target Disclosure Schedule
also identifies each letter of credit and its amount issued pursuant to the
Target Credit Documents or otherwise as of the date hereof.
SECTION 3.26 SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of
Directors of Target has approved this Agreement, and such approval is sufficient
to render inapplicable to this Agreement and the transactions contemplated by
this Agreement the provisions of Section 203 of the DGCL. To the Knowledge of
Target, no other state takeover statute or similar statute or regulation applies
or purports to apply to this Agreement or the transactions contemplated by this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Target that:
SECTION 4.01 CORPORATE EXISTENCE AND POWER. Each of Buyer and BuyerSub is
a corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate power required
to carry on its business as now conducted. Buyer is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified or be in good standing, individually or in the aggregate, would not
have a Buyer Material Adverse Effect. Each of Buyer and BuyerSub has heretofore
made available to Target true and complete copies of its certificate of
incorporation, by-laws and/or other organizational documents as currently in
effect.
SECTION 4.02 CORPORATE AUTHORIZATION; APPROVALS. The execution, delivery
and performance by Buyer and BuyerSub of this Agreement and the consummation by
Buyer and BuyerSub of the transactions contemplated hereby are within the
corporate powers of Buyer and BuyerSub and have been duly authorized by all
necessary corporate action (including the approval of the board of directors of
each of Buyer and BuyerSub and of Buyer in its capacity as the sole stockholder
of BuyerSub). Assuming that this Agreement constitutes the valid and binding
obligation of Target, this Agreement constitutes a valid and binding agreement
of each of Buyer and BuyerSub, enforceable in accordance with its terms. No vote
of the holders of any of the
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outstanding capital stock or any other security of Buyer under the laws of the
state of its incorporation or any other applicable law or regulation, including
of any securities exchange or market or pursuant to the terms of the certificate
of incorporation, bylaws or other organizational document of Buyer, is necessary
to approve this Agreement or the transactions contemplated hereby.
SECTION 4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer and BuyerSub of this Agreement and the consummation by
Buyer and BuyerSub of the transactions contemplated hereby require no action by
or in respect of, or filing with, any Governmental Entity, other than the
following: (a) the filing of the Certificate of Merger in accordance with the
DGCL; (b) compliance with any applicable requirements of the HSR Act; and
(c) compliance with any applicable requirements of the Exchange Act.
SECTION 4.04 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer and BuyerSub of this Agreement and the consummation by Buyer and BuyerSub
of the transactions contemplated hereby do not and will not (a) contravene or
conflict with the certificate of incorporation or by-laws of Valero Energy
Corporation, Buyer or BuyerSub, (b) assuming that all of the consents, approvals
and filings contemplated by clauses (a) to and including (c) of Section 4.03 are
obtained and/or made, contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Valero Energy Corporation or any Subsidiary
thereof, including Buyer and BuyerSub (except that no representation or warranty
is made with respect to any antitrust statute, regulation, rule or other such
restriction), (c) give rise to a right of termination, cancellation or
acceleration (with or without due notice or lapse of time or both) of any
material right or obligation of Valero Energy Corporation or any Subsidiary
thereof, including Buyer and BuyerSub, or to a loss of any material benefit or
status to which Valero Energy Corporation or any Subsidiary thereof, including
Buyer and BuyerSub, is entitled under any provision of any agreement, contract
or other instrument binding upon Valero Energy Corporation or any Subsidiary
thereof, including Buyer and BuyerSub, or any license, franchise, permit or
other similar authorization held by Valero Energy Corporation or any Subsidiary
thereof, including Buyer and BuyerSub, or (d) result in the creation or
imposition of any Lien on any material asset of Valero Energy Corporation or any
Subsidiary thereof, including Buyer and BuyerSub, other than, in the case of
each of (b), (c) and (d), any such items that would not, individually or in the
aggregate, (x) have a Buyer Material Adverse Effect or (y) prevent or impair the
ability of Valero Energy Corporation, Buyer or BuyerSub to consummate the
transactions contemplated by this Agreement.
SECTION 4.05 BUYERSUB. Since the date of its incorporation, BuyerSub has
not engaged in any activities other than in connection with or as contemplated
by this Agreement. All of the issued and outstanding shares of capital stock of
BuyerSub have been duly authorized and are validly issued, fully paid and
nonassessable. Buyer holds of record and owns beneficially all of the
outstanding shares of each class of capital stock of BuyerSub. There are no
outstanding options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require the
BuyerSub to issue, sell or otherwise cause to become outstanding stock
appreciation, phantom stock, profit participation or similar rights with respect
to the BuyerSub.
SECTION 4.06 INFORMATION TO BE SUPPLIED. The information to be supplied by
Buyer expressly for inclusion in the Proxy Statement will at the time of the
mailing thereof and at the time of the Target Stockholder Meeting not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
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SECTION 4.07 FINDERS' FEES. Except as indicated in Section 3.21(a), there
is no investment banker, broker, finder or other intermediary who might be
entitled to any fee or commission from Buyer or any of its Affiliates with
respect to the consummation of the transactions contemplated by this Agreement.
SECTION 4.08 FINANCING OF MERGER. Buyer has the ability to fully finance
the transactions contemplated by this Agreement (including all of the
transactions contemplated by Section 7.06 and the required payments with respect
to the Danesh Options and the Target Options) and to fund the working capital
needs of the Surviving Corporation after the Merger, out of its available cash,
including cash of Target at Closing, liquid short-term investments, including
liquid short-term investments of Target at Closing, and/or committed revolving
credit facilities without any third-party consent or approval.
SECTION 4.09 SOLVENCY AND STATUS. Buyer is a solvent corporation and will
not be rendered insolvent as a result of the consummation of the transactions
contemplated by this Agreement. Buyer has a positive net worth and currently is
able to and does pay its liabilities as they mature. BuyerSub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement.
BuyerSub has no assets other than cash, has conducted no business or operations,
has incurred no liabilities or obligations, other than expenses related to its
incorporation and its continuing corporate existence and obligations under this
Agreement, and has not had any employees.
ARTICLE 5
COVENANTS OF TARGET
Target agrees that:
SECTION 5.01 TARGET INTERIM OPERATIONS. Except as set forth in the Target
Disclosure Schedule or as otherwise expressly contemplated or permitted hereby
(including as contemplated by Section 7.06 and below in this Section), without
the prior written consent of Buyer (which consent shall not be unreasonably
delayed or withheld), from the date hereof until the Effective Time, Target
shall, and shall cause the Target Subsidiary to, conduct its business in all
material respects in the Ordinary Course of Business and shall use commercially
reasonable efforts to (i) preserve intact its present business organization and
goodwill and keep available the services of its officers and key employees;
(ii) maintain in effect all material foreign, Federal, state and local licenses,
approvals and authorizations, including all material licenses and permits that
are required for Target or the Target Subsidiary to carry on its business;
(iii) confer on a regular basis with one or more representatives of Buyer to
report on material operational matters and any proposals to engage in material
transactions not disclosed on the Target Disclosure Schedule; (iv) promptly
notify Buyer of any material emergency or other material change in the business,
financial condition, results of operations or prospects of Target; (v) provide
Buyer with copies of (A) monthly financial statements of Target prepared on a
basis consistent (other than as may be required by GAAP or applicable law) with
the similar financial statements provided or made available to Buyer prior to
the date hereof and (B) the corresponding Financial Reporting Packages;
(vi) maintain and repair all of its material assets and properties in a manner
consistent with past practices; and (vii) promptly deliver to Buyer true,
correct and complete copies of any report, statement or schedule filed with the
SEC by Target subsequent to the date of this Agreement. Without limiting the
generality of the foregoing, except as set forth in the Target Disclosure
Schedule or as otherwise expressly contemplated or permitted by this Agreement
(including as contemplated by Section 7.06), from the date hereof until the
Effective Time, without the prior written consent of
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Buyer (which consent shall not be unreasonably delayed or withheld), Target
shall not, nor shall it permit the Target Subsidiary to:
(a) amend its certificate of incorporation or by-laws;
(b) split, combine or reclassify any shares of capital stock of Target or
the Target Subsidiary or declare or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any Target Common Shares or redeem, repurchase or otherwise acquire or offer to
redeem, repurchase or otherwise acquire any Target equity or equity related
securities or any equity or equity related securities of the Target Subsidiary;
(c) issue, deliver or sell or authorize the issuance, delivery or sale of,
any shares of Target capital stock of any class or series or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such capital stock or any such convertible or exchangeable
securities, other than in connection with the issuance of Target Common Shares
upon the exercise of any Target Options or Danesh Options and the issuance of
Target Common Shares upon the conversion of any Convertible Note;
(d) amend in any material respect any term of any outstanding security of
Target or the Target Subsidiary in any manner adverse to Buyer;
(e) other than in connection with transactions permitted by subsection
(f) below, incur any capital expenditures or any obligations or liabilities in
respect thereof, except for (i) repair and maintenance capital expenditures or
any obligations or liabilities in respect thereof in the Ordinary Course of
Business, (ii) other capital expenditures or any obligations or liabilities in
respect thereof contemplated by the capital expenditure budget for 2001 for
Target and the Target Subsidiary (the "TARGET BUDGET"), other than any capital
expenditures specifically identified on the Target Budget as being prohibited
without the prior written consent of Buyer (a true, correct and complete copy of
the Target Budget is included in or attached to the Target Disclosure Schedule)
or (iii) other capital expenditures or any obligations or liabilities in respect
thereof incurred in the Ordinary Course of Business of Target or the Target
Subsidiary and which, in the aggregate, do not exceed $100,000;
(f) acquire (whether pursuant to merger, stock or asset purchase or
otherwise) in one transaction or a series of related transactions any equity
interests of any Person or any business or division of any Person or acquire in
one transaction or a series of related transactions any assets having a cost in
excess of $50,000 (other than inventory purchased by Target in the Ordinary
Course of Business and any capital expenditure permitted under subsection
(e) above in this Section);
(g) sell, lease, encumber or otherwise dispose of any material assets, other
than (i) sales in the Ordinary Course of Business and (ii) dispositions of
assets related to discontinued operations of Target or the Target Subsidiary;
(h) incur (which shall be deemed to include entering into new or amended
credit agreements, lines of credit or similar arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of Target or the
Target Subsidiary or guarantee any debt securities of others, except in the
Ordinary Course of Business (which shall include borrowings and the issuance of
letters of credit under the existing credit facilities of Target within the
borrowing capacity thereunder as of the date hereof and the issuance of
additional debt securities as contemplated by Section 307(a) of the Junior
Subordinated Indenture);
(i) except in the Ordinary Course of Business, amend, modify or terminate
any material contract, agreement or arrangement of Target or the Target
Subsidiary or otherwise waive, release or assign any material rights, claims or
benefits of Target or the Target Subsidiary thereunder;
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(j) (i) except as required or contemplated by (x) law, (y) an agreement
existing on the date hereof and made available to Buyer as contemplated by
Section 3.14 or (z) a policy or arrangement described in the section of the
Target Disclosure Schedule corresponding to this Section, increase the amount of
compensation of any director, officer or employee or make any increase in or
commitment to increase any employee health, welfare or retirement benefits,
(ii) except as required by (x) law, (y) an agreement existing on the date hereof
and made available to Buyer as contemplated by Section 3.14 or (z) a policy or
arrangement described in the section of the Target Disclosure Schedule
corresponding to this Section, grant any new severance or termination pay or
rights to any director, officer or employee of Target or the Target Subsidiary,
(iii) adopt any additional Target Employee Plan or, except in the Ordinary
Course of Business or as required by law, make any contribution to any existing
such plan or (iv) except as may be required by law, amend in any material
respect any Target Employee Plan;
(k) change the Target (x) methods of accounting in effect at December 31,
2000, except as required by changes in GAAP or by Regulation S-X of the Exchange
Act, as concurred in by its independent public accountants, or (y) fiscal year;
(l) declare or pay or agree to declare or pay any dividends on any Target
Common Shares or any other capital stock of Target;
(m) cause to be issued under the Bank of America Loan Agreement or otherwise
any new letter of credit or extend or renew any existing letter of credit for
the benefit of Target or the Target Subsidiary, in either case with a maturity
date after August 31, 2001; or
(n) agree, resolve or commit to do any of the foregoing.
SECTION 5.02 STOCKHOLDER MEETING. Target shall cause the Target
Stockholder Meeting to be duly called and held as soon as reasonably practicable
for the purpose of obtaining the Target Stockholder Approval. Target shall set
the date for the Target Stockholder Meeting. Except in the event of the
occurrence of a Superior Proposal and during such time as there remains a
Superior Proposal or as otherwise required in order to satisfy the fiduciary
duties of the Target board of directors under applicable law, (i) the board of
directors of Target shall recommend approval and adoption by its stockholders of
this Agreement (the "TARGET RECOMMENDATION"), (ii) the board of directors of
Target shall not amend, modify, withdraw, condition or qualify the Target
Recommendation and (iii) Target shall use its reasonable best efforts to solicit
the Target Stockholder Approval.
SECTION 5.03 ACQUISITION PROPOSALS; BOARD RECOMMENDATION.
(a) Target agrees that after the date hereof it shall not, nor shall it
permit the Target Subsidiary to, nor shall it authorize or knowingly permit any
officer, director, employee, investment banker, attorney, accountant, agent or
other advisor or representative of Target or the Target Subsidiary, directly or
indirectly, to (i) solicit, initiate or knowingly facilitate or encourage the
submission of any Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action knowingly to facilitate any inquiries or the making
of any proposal that constitutes, or reasonably could be expected to lead to,
any Acquisition Proposal, (iii) grant any waiver or release under any standstill
or similar agreement with respect to any class of equity securities of Target or
(iv) enter into any agreement with respect to any Acquisition Proposal, other
than in the manner contemplated by Section 5.03(c); provided, however, that
Target may take any action described in the foregoing clauses (i), (ii),
(iii) or (iv) in respect of any Person, but only if: (x) such Person delivers an
Acquisition Proposal that, in the good faith judgment of the Target board of
directors, either is a Superior Proposal or could reasonably be expected to lead
to the delivery to Target of a Superior Proposal within 75 days of delivery to
Target of such Acquisition Proposal or if otherwise required in order to satisfy
the
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fiduciary duties of the Target board of directors as such duties would exist
under applicable law in the absence of this Section 5.03; and (y) prior to
Target taking such action in respect of such Person, such Person shall have
entered into a confidentiality agreement with Target in form and substance
substantially similar to the Confidentiality Agreement; provided further that
Target shall not enter into any binding agreement (other than such a
confidentiality agreement) with respect to any such Acquisition Proposal without
first complying with Section 5.03(c) and terminating this Agreement pursuant to
Section 9.01(c)(ii). Buyer acknowledges that prior to the date of this
Agreement, Target has solicited or caused to be solicited by the Financial
Advisor indications of interest and proposals for an Acquisition Proposal. If,
subsequent to the execution and delivery of this Agreement and prior to the
termination of this Agreement in accordance with its terms, Target receives an
inquiry or proposal from any Person relating to an Acquisition Proposal, Target
shall advise Buyer of the receipt of such inquiry or proposal (and any change or
modification thereto) promptly upon such receipt. Target shall also advise Buyer
of the material terms and conditions of such inquiry or proposal and any
subsequent change or modification thereto, but Target shall not be required to
disclose the identity or source of such inquiry or proposal or any agent or
representative acting on behalf of such Person.
(b) Unless the board of directors of Target has previously amended,
modified, withdrawn, conditioned or qualified or is concurrently therewith
amending, modifying, withdrawing, conditioning or qualifying the Target
Recommendation in accordance with Section 5.02, the board of directors of Target
shall not recommend any Acquisition Proposal to the Target stockholders.
Notwithstanding the foregoing, nothing contained in this Section 5.03 or
elsewhere in this Agreement shall prevent the board of directors of Target from
complying with Rule 14e-2 under the Exchange Act with respect to any Acquisition
Proposal or making any disclosure required by applicable law or stock exchange
rule or regulation.
(c) Pursuant to the terms of Section 9.01(c)(ii), Target may terminate this
Agreement in the event of a Superior Proposal or if otherwise required in order
to satisfy the fiduciary duties of the Target board of directors as such duties
would exist under applicable law in the absence of this Section 5.03; provided
that Target may not exercise its right to so terminate under
Section 9.01(c)(ii) and may not enter into a binding agreement (other than a
confidentiality agreement as contemplated by clause (y) in the first sentence
contained in Section 5.03(a)) with respect to such Superior Proposal, unless
prior to or concurrent with such termination Target shall have paid to Buyer the
Termination Fee as contemplated by Section 9.03.
ARTICLE 6
COVENANTS OF BUYER AND BUYERSUB
Buyer and BuyerSub agree that:
SECTION 6.01 DIRECTOR AND OFFICER LIABILITY.
(a) For the period of six years from and after the Effective Time, Buyer and
the Surviving Corporation jointly and severally shall indemnify, to the fullest
extent permitted by law, the present and former directors and officers of Target
and the Target Subsidiary (the "INDEMNIFIED PARTIES") in respect of actions
taken or failures to take action prior to and including the Effective Time in
connection with their duties as directors or officers of Target or the Target
Subsidiary (including the transactions contemplated hereby); provided that, in
the event any claim is asserted or made within such six-year period, all rights
to indemnification in respect of such claim shall continue until final
disposition of such claim. In the event any Indemnified Party becomes involved
in any such capacity in any action, proceeding or investigation in connection
with any such action or failure to take action, including the transactions
contemplated hereby, Buyer and the Surviving Corporation jointly and severally,
to the fullest extent permitted by law, will periodically advance expenses to
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such Indemnified Party for his legal and other out-of-pocket expenses (including
the cost of any investigation and preparation) incurred in connection therewith.
From and after the Effective Time, Buyer and the Surviving Corporation jointly
and severally shall indemnify each Indemnified Party against any and all
expenses, including attorneys fees, which are incurred by such Indemnified Party
in connection with any action brought by such Indemnified Party for
indemnification or advance of expenses as contemplated by this Section or under
the organizational documents of Target or under any indemnification agreement
between such Indemnified Party and the Target, regardless of whether such
Indemnified Party ultimately is determined to be entitled to such
indemnification or advance of expenses.
(b) For six years after the Effective Time, Buyer or the Surviving
Corporation shall maintain in effect director and officer liability insurance
and excess director and officer liability insurance covering the Persons who are
currently covered by the existing director and officer liability insurance and
the existing excess director and officer liability insurance of Target with
respect to actions taken or failures to take action prior to or including the
Effective Time, on terms and conditions no less favorable to such Persons than
those in effect on the date hereof under the existing director and officer
liability insurance and the existing excess director and officer liability
insurance of Target.
(c) Buyer shall cause the Surviving Corporation to perform the
indemnification agreements entered into, in August 2000, by Target with the
members of the Special Committee of the board of directors of Target, true,
complete and correct copies of which have been made available to Buyer.
(d) If Buyer or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any Person, then, and in each case, proper provision
shall be made so that the successors and assigns of Buyer or the Surviving
Corporation, as the case may be, honor the indemnification obligations set forth
in this Section.
(e) The obligations of the Surviving Corporation and Buyer under this
Section shall not be terminated or modified in such a manner as to adversely
affect any Person to whom this Section applies without the prior written consent
of such affected Person.
SECTION 6.02 EMPLOYEE BENEFITS.
(a) During the period commencing on the date of the Effective Time and
ending on the first anniversary thereof, Buyer shall provide (or shall cause the
Surviving Corporation to provide) employees of the Surviving Corporation or the
Target Subsidiary with compensation and benefits that are no less favorable in
the aggregate than those currently provided by Target and the Target Subsidiary
to such employees; provided that the defined benefit pension plan of Buyer (the
"BUYER PENSION PLAN") shall be deemed to be a comparable substitute for the
Money Purchase Pension Plan of Target for all purposes hereunder. Buyer has made
available to Target a true, correct and complete copy of the Buyer Pension Plan.
For purposes of any employee benefit plan, program or arrangement maintained for
any of such employees by Buyer or the Surviving Corporation, Buyer shall
recognize (or cause to be recognized) service with Target and the Target
Subsidiary and any predecessor entities (and any other service credited by
Target or the Target Subsidiary under similar benefit plans) for all purposes
(including, without limitation, for vesting, eligibility to participate,
severance and benefit accrual); provided that, with respect to the Money
Purchase Pension Plan of Target, benefits under such plan shall be frozen as of
the Effective Time and, with respect to the defined benefit pension plan of
Buyer, past service with Target and/or the Target Subsidiary shall count for
vesting purposes only. Benefits under the Buyer Pension Plan for the employees
of Target and the Target Subsidiary will begin accruing as of the Effective Time
only. Except as expressly provided in this Agreement, vesting schedules under
Target Employee Plans, including, without
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limitation, the Profit Sharing and Tax Deferred Savings Plan (401(k) Plan) and
Money Purchase Pension Plan of Target, shall not be accelerated or otherwise
affected by the transactions contemplated hereby and amounts held by employees
of Target in its Profit Sharing and Tax Deferred Savings Plan (401(k) Plan) and
Money Purchase Pension Plan that are unvested as of the Effective Time shall
vest in accordance with the vesting schedule provided under such Plans. To the
extent that Buyer establishes or causes to be established any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) for employees of the
Surviving Corporation or the Target Subsidiary, such plan or plans shall waive
all limitations as to preexisting conditions and all waiting or elimination
periods and service requirements applicable to such employees, except to the
extent preexisting conditions limitations, waiting or elimination periods or
service requirements were in effect immediately prior to the Effective Time with
respect to such employees under comparable employee welfare benefit plans
maintained by Target immediately prior to the Effective Time.
(b) From and after the Effective Time, Buyer shall honor and perform, and
shall cause the Surviving Corporation to honor and perform, in accordance with
their respective terms, the written severance, change in control and termination
programs, policies, agreements (including any change in control, termination,
severance agreements or employment agreements containing such type of
provisions) and plans of Target or the Target Subsidiary identified on the
Target Disclosure Schedule, true, correct and complete copies of which have been
made available to Buyer.
SECTION 6.03 TITLE POLICIES. The cost of the Title Policy, the Title
Report and the survey with respect to the Benicia, California facility of Target
shall be promptly paid when due by Buyer or, if paid by Target, promptly
reimbursed by Buyer upon request of Target.
SECTION 6.04 CONDUCT OF BUYERSUB. Buyer will take all action necessary to
cause BuyerSub to perform its obligations under this Agreement and to consummate
the Merger on the terms and conditions set forth in this Agreement.
ARTICLE 7
COVENANTS OF BUYER AND TARGET
The parties hereto agree that:
SECTION 7.01 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions hereof, each party will use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate the transactions contemplated by this
Agreement as promptly as practicable, provided that nothing in this Section
shall require Target to take any action which would be inconsistent with the
fiduciary duties of its board of directors as such duties would exist under
applicable law in the absence of this Section.
(b) In connection with and without limiting the foregoing, Buyer and Target
shall (i) take all action reasonably necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement or any of the other transactions contemplated hereby and (ii) if
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, this Agreement or any of the other transactions contemplated
hereby, take all action reasonably necessary to ensure that the Merger and the
other transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize or eliminate the effect of such statute or regulation on the Merger and
the other transactions contemplated by this Agreement.
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SECTION 7.02 CERTAIN FILINGS; COOPERATION IN RECEIPT OF CONSENTS.
(a) Promptly after the date hereof, Target shall prepare in cooperation with
Buyer and, after review and approval (which shall not be unreasonably withheld
or delayed) by Buyer, shall file with the SEC as contemplated by the Exchange
Act the Proxy Statement. Target shall mail the Proxy Statement to its
stockholders as promptly as reasonably practicable in compliance with the
Exchange Act and, if necessary, after the Proxy Statement shall have been so
mailed, promptly circulate amended, supplemental or supplemented proxy material,
and, if required in connection therewith, resolicit proxies.
(b) No amendment or supplement to the Proxy Statement will be made by Target
without the prior approval of Buyer, which approval will not be unreasonably
withheld or delayed. Each party will advise the other party promptly after it
receives notice thereof of any request by the SEC for amendment of the Proxy
Statement or comments of the SEC thereon and responses thereto or requests by
the SEC for additional information. If at any time prior to the Effective Time,
Target or Buyer discovers any information relating to either party, or any of
their respective Affiliates, officers or directors, that should be set forth in
an amendment or supplement to the Proxy Statement, so that such document 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 that discovers such
information shall promptly notify the other parties hereto and the parties shall
jointly prepare an appropriate amendment or supplement describing such
information which shall be promptly filed with the SEC and, to the extent
required by law or regulation, disseminated to the stockholders of Target.
(c) Target and Buyer shall cooperate with one another in (i) determining
whether any action by or in respect of, or filing with, any Governmental Entity
is required in connection with the consummation of the transactions contemplated
hereby and (ii) seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
and seeking promptly to obtain any such actions, consents, approvals or waivers.
Without limiting the generality of the foregoing, each of Buyer and Target shall
file any Notification and Report Forms and related material that it may be
required to file in connection with the transactions contemplated by this
Agreement with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the HSR Act, shall each use its
diligent efforts to obtain an early termination of the applicable waiting
period, and shall each make any further filings pursuant thereto that may be
necessary, proper or advisable. Each party shall permit the other party to
review any communication given by it to, and consult with each other in advance
of any meeting or conference with, any Governmental Entity and to the extent
permitted by the applicable Governmental Entity give the other party the
opportunity to attend and participate in such meetings and conferences, in each
case in connection with the transactions contemplated hereby.
SECTION 7.03 PUBLIC ANNOUNCEMENTS. No party shall issue any press release
or make any public announcement or disclosure relating to the subject matter of
this Agreement without the prior written approval of the other parties (for
purposes of which, approval by the Buyer shall be deemed to include approval by
BuyerSub), which approval shall not be unreasonably withheld or delayed, unless
such disclosure is required by applicable law or governmental, stock exchange or
securities market rule or regulation or by order of a court of competent
jurisdiction (in which case prior to making such disclosure the party which
proposes to make such disclosure shall give written notice to the other parties,
describing in reasonable detail the proposed content of such disclosure, and
shall provide each other party a reasonable opportunity to review and comment
upon the form and substance of such disclosure).
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SECTION 7.04 ACCESS TO INFORMATION. From the date hereof until the
Effective Time and subject to applicable law, Target shall (i) give to Buyer,
its counsel, financial advisors, auditors and other authorized representatives
reasonable access to the offices, properties, books and records of Target and
the Target Subsidiary, (ii) furnish or make available to Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and (iii) instruct the employees, counsel, financial advisors, auditors and
other authorized representatives of Target and the Target Subsidiary to
cooperate with the reasonable requests of Buyer in its investigation. Any
investigation pursuant to this Section shall be conducted at reasonable times in
such manner as not to interfere unreasonably with the conduct of the business of
Target. Buyer will hold, and will cause its respective officers, employees,
counsel, financial advisors, auditors and other authorized representatives to
hold, any nonpublic information obtained in any such investigation in confidence
in accordance with the Confidentiality Agreement.
SECTION 7.05 NOTICES OF CERTAIN EVENTS. Target and Buyer shall promptly
notify the other of the following: (i) any notice or other communication from
any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement; (ii) any notice
or other communication from any Governmental Entity in connection with the
transactions contemplated by this Agreement; (iii) any actions, suits, claims,
investigations or proceedings commenced or, to the Knowledge of Target or to the
knowledge of Buyer, as the case may be, threatened against, relating to or
involving or otherwise affecting Buyer or any of its Subsidiaries (including
BuyerSub), on the one hand, or Target or the Target Subsidiary, on the other
hand, which relate to the consummation of the transactions contemplated by this
Agreement; and (iv) any action, event or occurrence that would constitute a
breach of any representation, warranty, covenant or agreement of such party set
forth in this Agreement, provided that no such notification pursuant to
clause (iv) shall affect or be deemed to modify any representation or warranty
made by the party giving such notice.
SECTION 7.06 REPAYMENT/PURCHASE OF TARGET INDEBTEDNESS.
(a) BANK OF AMERICA LOAN AGREEMENT. Promptly following the execution and
delivery of this Agreement, Buyer shall obtain a commitment (which shall be
unconditional except for the occurrence of the Closing and other customary terms
and conditions) for a back-up letter of credit from a financial institution
acceptable to Bank of America (which back-up letter of credit shall be in a form
acceptable to Bank of America) with respect to the letters of credit outstanding
pursuant to the Bank of America Loan Agreement at the Closing, other than any
such letter of credit that is in connection with the Closing cancelled or
released to the satisfaction of Bank of America. Buyer shall thereupon deliver
to Target and Bank of America true and correct copies of such commitment. In
addition, promptly following the execution and delivery of this Agreement,
Target and Buyer shall use their reasonable best efforts to cause Bank of
America to enter into an agreement and/or instrument with Target in a form
reasonably satisfactory to Target and Buyer that provides, subject to the
back-up letter of credit contemplated by this subsection becoming effective at
the Closing and to the payment at the Closing of any indebtedness and other
amounts then outstanding or payable under the Bank of America Loan Agreement,
for (i) Bank of America to take all actions necessary and appropriate to cause
the Collateral Agent to release and terminate all Liens with respect to the Bank
of America Loan Agreement and to join in the termination of the Collateral
Documents at the Closing, (ii) the termination of the Bank of America Loan
Agreement and the surrender for cancellation of any note issued thereunder upon
the Closing and (iii) Bank of America to join in all actions necessary and
appropriate to cause the termination of the Intercreditor Agreement and the
Collateral Documents at the Closing (the "B OF A AGREEMENT"). Subject to the
performance of the B of A Agreement, Buyer shall cause the back-up letter of
credit contemplated by this subsection to become effective upon the Closing and
at the Closing shall fully satisfy and
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discharge or cause to be satisfied or discharged any and all of the indebtedness
and other amounts outstanding or payable under the Bank of America Loan
Agreement.
(b) BOEING CAPITAL LOAN AGREEMENT. Promptly following the execution and
delivery of this Agreement, Target and Buyer shall use their reasonable best
efforts to cause Boeing Capital to enter into an agreement and/or instrument
with Target in a form reasonably satisfactory to Target and Buyer (i) that
permits the payment by Buyer at the Closing of all indebtedness and other
amounts then outstanding or payable under the Boeing Capital Loan Agreement,
without any prepayment premium or penalty, other than such as would be required
under the express terms of the Boeing Capital Loan Agreement as a result of a
prepayment in full of all indebtedness thereunder on the applicable first
permitted prepayment date thereunder, and (ii) that provides, subject to the
payment at the Closing of all indebtedness and other amounts then outstanding or
payable under the Boeing Capital Loan Agreement, for (x) Boeing Capital to take
all actions necessary and appropriate to cause the Collateral Agent to release
and terminate all Liens with respect to the Boeing Capital Loan Agreement and to
join in the termination of the Collateral Documents at the Closing, (y) the
termination of the Boeing Capital Loan Agreement and the surrender for
cancellation of the notes issued thereunder upon the Closing and (z) Boeing
Capital to join in all actions necessary and appropriate to cause the
termination of the Intercreditor Agreement and the Collateral Documents at the
Closing (the "BC AGREEMENT"). Subject to the performance of the BC Agreement,
Buyer shall at the Closing fully satisfy and discharge or cause to be satisfied
or discharged all of the indebtedness and other amounts outstanding or payable
under the Boeing Capital Loan Agreement.
(c) CONVERTIBLE NOTES. Promptly following the execution and delivery of this
Agreement, Target and Buyer shall use their reasonable best efforts to cause
each holder of a Convertible Note to enter into an agreement and/or instrument
with Target in a form reasonably satisfactory to Target and Buyer (i) that
permits Buyer to purchase such Convertible Note at or immediately prior to the
Closing for cash in an amount equal to the sum of (x) the amount that would have
been payable in the Merger for the Target Common Shares underlying such
Convertible Note had such Convertible Note been fully converted into Target
Common Shares immediately prior to the Closing and (y) any accrued and unpaid
interest on such Convertible Note as of the Closing, but not including any
prepayment premium or penalty, and (ii) that provides, subject to such payment
at the Closing, for (u) the termination of the Exchange and Purchase Agreement
upon the Closing, (v) the due transfer of the underlying Convertible Note to
Buyer upon the Closing, (w) the termination of the Convertible Notes Indenture
(which agreement shall constitute a written consent contemplated by
Section 9.02 of the Convertible Notes Indenture), (x) the amendment of the
Convertible Notes Indenture to terminate and waive Article 4, other than
Sections 4.01, 4.02 and 4.04(c) thereof, and Article 5 of such Indenture
(including with respect to the Merger) at the Closing and until such time as the
Convertible Notes Indenture is terminated in accordance with its terms (which
agreement shall constitute a written consent contemplated by Section 9.02 of the
Convertible Notes Indenture), (y) the Collateral Agent to release and terminate
all Liens related to the Convertible Notes and to join in the termination of the
Collateral Documents at the Closing and (z) such Convertible Note holder to join
in all actions necessary and appropriate to cause the termination of the
Intercreditor Agreement and the Collateral Documents at the Closing (a "CN
AGREEMENT"). Subject to the performance of the respective CN Agreement, Buyer
shall at Closing make or cause to be made any and all payments contemplated by
this Section with respect to the Convertible Notes that are the subject of such
CN Agreement.
(d) JUNIOR SUBORDINATED DEBENTURES. Promptly following the execution and
delivery of this Agreement, Target and Buyer shall use their reasonable best
efforts to cause each holder of a Junior Subordinated Debenture to enter into an
agreement and/or instrument with Target in a form reasonably satisfactory to
Target and Buyer (i) that permits Buyer to purchase such Junior
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Subordinated Debenture at or immediately prior to the Closing for cash in an
amount equal to the total principal and accrued and unpaid interest thereon as
of the Closing, but not including any prepayment penalty or premium, and
(ii) that provides, subject to such payment at the Closing, for (x) the
termination of the Junior Subordinated Indenture (which agreement shall
constitute a consent contemplated by Section 802 of the Junior Subordinated
Indenture), (y) the due transfer of the underlying Junior Subordinated Debenture
to Buyer upon the Closing and (z) the amendment of the Junior Subordinated
Indenture to terminate and waive Article 4, other than Sections 401, 402 and 403
thereof, of such Indenture (including with respect to the Merger) at the Closing
and until such time as the Junior Subordinated Indenture is terminated in
accordance with its terms (which agreement shall constitute a consent
contemplated by Section 802 of the Junior Subordinated Indenture) (a "JD
AGREEMENT"). Subject to the performance of the respective JD Agreement, Buyer
shall at Closing make or cause to be made any and all payments contemplated by
this Section with respect to the Junior Subordinated Debentures that are the
subject of such JD Agreement.
(e) FEES AND EXPENSES. At Closing Buyer shall pay or cause to be paid all
then unpaid fees and expenses under the Intercreditor Agreement and the
Collateral Accounts Agreement due and payable by Target.
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of Target, Buyer and BuyerSub to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) The Target Stockholder Approval shall have been obtained.
(b) Any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated.
(c) No law or regulation that makes consummation of the Merger illegal or
otherwise prohibited shall exist and no judgment, injunction, order or decree of
any Governmental Entity having competent jurisdiction shall enjoin Target, Buyer
or BuyerSub from consummating the Merger.
(d) Any consents, waivers and agreements related to documents other than the
Target Credit Documents and identified in the section of the Target Disclosure
Schedule corresponding to Section 3.04 as being conditions to the Closing, shall
have been obtained.
(e) Bank of America shall have entered into the B of A Agreement and such
Agreement shall be performed by Bank of America in connection with the Closing.
Boeing Capital shall have entered into the BC Agreement and such Agreement shall
be performed by Boeing Capital in connection with the Closing. Each of the
holders of the Convertible Notes outstanding immediately prior to the Closing
shall have entered into a CN Agreement and such Agreement shall be performed by
each such holder in connection with the Closing. Each of the holders of Junior
Subordinated Debentures outstanding immediately prior to the Closing shall have
entered into a JD Agreement and such Agreement shall be performed by each such
holder in connection with the Closing.
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF TARGET. The obligations of
Target to consummate the Merger are subject to the satisfaction of the following
further conditions:
(a) Buyer and BuyerSub each shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior to
the time of the filing of the Certificate of Merger.
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(b) The representations and warranties of Buyer and BuyerSub contained in
Article 4 of this Agreement (which for these purposes shall exclude all
qualifications or exceptions relating to "materiality" and/or Buyer Material
Adverse Effect) shall be true and correct, in each case (i) as of the date
referred to in any representation or warranty which addresses matters as of a
particular date or (ii) as to all other representations and warranties, as of
the date of this Agreement and as of the time of filing the Certificate of
Merger, subject to exceptions the aggregate effect of which shall not have had
or be reasonably likely to have a Buyer Material Adverse Effect.
(c) Target shall have received a certificate of Buyer signed by the Chief
Executive Officer, President, Chief Financial Officer or Senior Vice President
of Buyer to the foregoing effect.
(d) Buyer and BuyerSub shall have delivered such other documents and
instruments as Target may reasonably request.
SECTION 8.03 CONDITIONS TO THE OBLIGATIONS OF BUYER AND BUYERSUB. The
obligations of Buyer and BuyerSub to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) Target shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the filing
of the Certificate of Merger.
(b) The representations and warranties of Target contained in Article 3 of
this Agreement (which for these purposes shall exclude all qualifications or
exceptions relating to "materiality" and/or Target Material Adverse Effect)
shall be true and correct, in each case (i) as of the date referred to in any
representation or warranty which addresses matters as of a particular date or
(ii) as to all other representations and warranties, as of the date of this
Agreement and as of the time of filing the Certificate of Merger, subject to
exceptions for the effect of actions taken by Target that are permitted under
this Agreement and to other exceptions the aggregate effect of which shall not
have had or be reasonably likely to have a Target Material Adverse Effect.
(c) Buyer shall have received a certificate of Target signed by the Chief
Executive Officer, President or Chief Financial Officer of Target to the
foregoing effect.
(d) The Collateral Agent shall have released and terminated all Liens under
or related to the Target Credit Documents.
(e) The Intercreditor Agreement shall have been terminated in accordance
with the terms thereof.
(f) The Collateral Accounts Agreement shall have been terminated in
accordance with its terms.
(g) The Lockbox Agreement shall have been terminated in accordance with its
terms.
(h) [INTENTIONALLY OMITTED]
(i) Buyer or its designee shall at the Closing acquire for no consideration
the interest in the Target Subsidiary not owned by Target, free and clear of all
Liens.
(j) Immediately prior to the Effective Time, Buyer shall have received from
each Person who is a director of Target his written resignation, effective as of
the Effective Time.
(k) Immediately prior to the Effective Time, Buyer shall have received from
each person who is an officer of Target or Target Subsidiary and who has been
identified to Target by Buyer for such purpose in writing at least five Business
Days prior to the Closing, his written resignation, effective as of immediately
after the Effective Time.
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(l) The Title Company or another title insurance company of substantially
equivalent reputation shall have issued an ALTA standard owner's form policy of
title insurance with extended coverage in the amount of $25 million or more with
respect to the Owned Real Property, showing title to the Owned Real Property
vested in Target subject only to Permitted Liens (the "TITLE POLICY").
(m) Target shall have acquired the Vulcan Property as contemplated by the
Vulcan Property Purchase Agreement; provided however that this closing condition
shall be deemed to be satisfied if (x) a long-term lease has been entered into
by Target relating to that portion of the Vulcan Property defined as the
"Refinery Land" in the Vulcan Property Purchase Agreement or a long-term
extension of the existing lease with respect to that portion of the Vulcan
Property defined as the "Refinery Land" in the Vulcan Property Purchase
Agreement has been entered into by Target, in either case upon terms that are
reasonably satisfactory to Buyer or (y) an amendment to the Vulcan Property
Purchase Agreement reasonably satisfactory to Buyer has been entered into by
Target which provides that if the closing of the sale of the Vulcan Property to
Target under the Vulcan Property Purchase Agreement has not occurred on or prior
to a date no later than September 30, 2001, the owner of the Vulcan Property
shall promptly subdivide the Vulcan Property and sell to Target at least that
portion of the Vulcan Property on which the Wilmington refinery of Target is
situated. Buyer shall promptly cooperate with Target in negotiating a long-term
lease and/or an extension of the term of the lease with respect to the Vulcan
Property and/or an amendment to the Vulcan Property Purchase Agreement as
contemplated by this subsection with the owner of the Vulcan Property upon the
request of Target.
(n) If Target has acquired the Vulcan Property on or before the Closing, the
Title Company or another title insurance company of substantially equivalent
reputation shall have issued an ALTA standard owner's form policy of title
insurance with extended coverage in the amount of $10 million or more with
respect to the Vulcan Property, showing title to the Vulcan Property vested in
Target subject only to Permitted Liens (the "VULCAN TITLE POLICY").
(o) Target shall deliver such other documents and instruments as Buyer may
reasonably request.
ARTICLE 9
TERMINATION; AMENDMENTS AND WAIVERS
SECTION 9.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Target Stockholder
Approval shall have been obtained:
(a) By mutual written agreement of Buyer and Target;
(b) By either Buyer or Target by written notice by the terminating party to
the other party, if:
(i) the Merger shall not have been consummated on or before July 31,
2001 (the "END DATE"); provided that the right to terminate this Agreement
under this Section 9.01(b)(i) shall not be available to any party whose
breach of any provision of this Agreement has resulted in the failure of the
Merger to occur on or before the End Date;
(ii) there shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or any judgment, injunction, order or
decree of any Governmental Entity having competent jurisdiction enjoining
Target, Buyer or BuyerSub from consummating the Merger shall have been
entered and shall have become final and nonappealable and, prior to such
termination, the parties shall have used reasonable best efforts to resist,
resolve or lift, as applicable, such law, regulation, judgment, injunction,
order or decree; or
(iii) at the Target Stockholder Meeting (including any adjournment or
postponement thereof), the Target Stockholder Approval shall not have been
obtained;
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(c) By Target (i) if a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of Buyer or BuyerSub set forth in
this Agreement shall have occurred which would cause the applicable condition
set forth in Section 8.02 not to be satisfied, and such condition shall be
incapable of being satisfied by the End Date or (ii) in the event that the
Target board of directors has authorized Target, subject to compliance with the
provisions of Section 5.03(c), to enter into a definitive agreement with respect
to a Superior Proposal; and
(d) By Buyer if a breach of or failure to perform any representation,
warranty, covenant or agreement on the part of Target set forth in this
Agreement shall have occurred which would cause the applicable condition set
forth in Section 8.03 not to be satisfied, and such condition shall be incapable
of being satisfied by the End Date.
SECTION 9.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, there shall be no liability or obligation on the part
of Buyer, Target, BuyerSub or any of their respective officers, directors,
stockholders, agents or Affiliates, except for any liability of a party then in
breach and except as set forth in Section 9.03, which shall be the sole and
exclusive remedy of the parties hereto in the event of such termination;
provided that the provisions of this Section 9.02, Sections 9.03 and 11.01
through 11.07, the final sentence of Section 7.04, Section 6.03 (to the extent
applicable) and Article X of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
SECTION 9.03 FEES AND EXPENSES.
(a) Except as set forth in this Section or as expressly provided otherwise
herein, all fees and expenses incurred in connection herewith and the
transactions contemplated hereby (including HSR Act filing fees, if any) shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
(b) If this Agreement is terminated (x) by Target pursuant to either
(i) Section 9.01(c)(ii) or (ii) Section 9.01(b)(iii) and if within 180 days of
such termination under Section 9.01(b)(iii) Target shall consummate an
Acquisition Proposal with another Person, (y) by Buyer pursuant to
Section 9.01(b)(iii) and if within 180 days of such termination under
Section 9.01(b)(iii) Target shall consummate an Acquisition Proposal with
another Person or (z) by Target or Buyer pursuant to Section 9.01(b)(iii) and if
(A) one or more Target Insiders fails to vote any of his Individually-Owned
Target Common Shares outstanding on the record date for the Target Stockholder
Meeting in favor of approval of this Agreement, (B) Target Stockholder Approval
would have been obtained but for such failure and (C) this Agreement is not
terminable by Target pursuant to Section 9.01(c)(i), then in any of the
foregoing cases Target shall pay to Buyer a termination fee equal to
$1.75 million (the "TERMINATION FEE").
(c) Any Termination Fee payable pursuant to Section 9.03(b) shall be paid by
wire transfer of immediately available funds to Buyer prior to or concurrent
with the termination of this Agreement; provided that any Termination Fee
payable pursuant to Section 9.03(b) as a result of Target consummating an
Acquisition Proposal with another Person as contemplated within clauses (x) and
(y) of Section 9.03(b) shall be paid no later than simultaneously with the
consummation of such Acquisition Proposal by wire transfer of immediately
available funds to Buyer.
SECTION 9.04 WAIVERS AND AMENDMENTS. Target, Buyer and BuyerSub may
mutually amend any provision of this Agreement at any time prior to the
Effective Time with the prior authorization of their respective boards of
directors, subject to the provisions of Section 251(d) of the DGCL. No amendment
of any provision of this Agreement shall be valid and binding unless the same
shall be in writing and signed by all of the parties hereto. No provision of
this Agreement may be waived except by an instrument in writing signed by the
party against whom the waiver is to be effective. No waiver by any party of any
default, misrepresentation or breach of warranty or
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covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence.
ARTICLE 10
DEFINITIONS
SECTION 10.01 CERTAIN DEFINITIONS.
(a) As used herein, the following terms have the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for, or indication of
interest in, (i) a merger, consolidation, stock exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving Target or the Target Subsidiary, or (ii) any purchase of a
majority or more of the assets of Target and the Target Subsidiary taken as a
whole or of a majority of the Target Common Shares or the ownership interest in
the Target Subsidiary, other than the transactions contemplated by this
Agreement.
"AFFILIATE" has the meaning set forth in Rule 501(b) under the Securities
Act of 1933.
"BANK OF AMERICA" means Bank of America, N.A.
"BANK OF AMERICA LOAN AGREEMENT" means the Business Loan Agreement dated as
of October 29, 1999 by and between Bank of America and Target, as amended.
"BOEING CAPITAL" means Boeing Capital Corporation.
"BOEING CAPITAL LOAN AGREEMENT" means the Loan Agreement dated as of
January 20, 1999 by and between Boeing Capital and Target, as amended.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which
banks are authorized by law to close in Los Angeles, California.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL ACCOUNTS AGREEMENT" means the Second Amended and Restated
Collateral Accounts Security Agreement dated as of October 29, 1999 by and among
Target, Target Subsidiary, Collateral Agent and Bank of America, as agent of the
Collateral Agent.
"COLLATERAL DOCUMENTS" shall have the meaning set forth in the Intercreditor
Agreement and shall include without limitation the Collateral Accounts
Agreement.
"COLLATERAL AGENT" means United States Trust Company of New York, as
collateral agent under the Collateral Accounts Agreement.
"CONFIDENTIALITY AGREEMENT" means the letter agreement by and between Valero
Energy Corporation and Target dated September 27, 2000.
"CONVERTIBLE NOTES" means the Senior Subordinated Secured Convertible Notes
due 2007 of Target and issued on October 15, 1997.
"CONVERTIBLE NOTES INDENTURE" means the Indenture dated as of October 15,
1997 with respect to the Convertible Notes, as amended.
"DANESH OPTIONS" means (i) that certain Option Agreement dated as of
March 13, 1996 by and between the Andre Danesh 1997 IRRV Trust (as assignee of
Andre Danesh) and Target with respect to 546,059 Target Common Shares and
(ii) that certain Option Agreement dated as of
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December 30, 1996 by and between the Andre Danesh 1997 IRRV Trust (as assignee
of Andre Danesh) and Target with respect to 600,000 Target Common Shares.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"ENVIRONMENTAL REQUIREMENTS" means all applicable and legally binding
Federal, state and local statutes, regulations, codes, rules, ordinances,
standards or law, or any legally binding judgment, order, writ, notice, decree,
permit, license, approval or injunction, enacted and in effect on or prior to
the date hereof relating to pollution or protection of human health or the
environment (including ambient air, surface water, groundwater, land surface or
subsurface strata and all those relating to the generation, manufacture,
processing, distribution, transportation, treatment, storage, disposal, release
or threatened release, or cleanup of any Hazardous Substances, including,
without limitation, the Clean Air Act, the Toxic Substance Control Act, the
Clean Water Act, the Oil Pollution Act of 1990, CERCLA, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act of
1970, as amended and in effect on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXCHANGE AND PURCHASE AGREEMENT" means the Exchange and Purchase Agreement
dated as of October 31, 1997 by and among Target and the investors in the
Convertible Notes, as amended.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL ENTITY" means any Federal, state or local governmental
authority, any transgovernmental authority or any court, administrative or
regulatory agency or commission or other governmental authority or agency,
domestic or foreign.
"GUARANTEE" means the Guarantee of Valero Energy Corporation immediately
following the signature page to this Agreement.
"HAZARDOUS SUBSTANCES" means any substances defined, regulated or listed as
hazardous, dangerous or toxic, or potentially hazardous, dangerous or toxic, or
defined as waste, pollutants or contaminants under the Environmental
Requirements, including, without limitation, any substance within the meaning of
Section 101 (14) of CERCLA, 42 U.S.C. Section 9601, ET SEQ., or defined or
listed as "HAZARDOUS WASTE," "HAZARDOUS SUBSTANCES," "HAZARDOUS MATERIALS,"
"TOXIC SUBSTANCES," "OIL," "CONTAMINANT" or "POLLUTANT" under any other
Environmental Requirements.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"HUNTWAY MANAGING PARTNERS" means Huntway Managing Partners, L.P.
"INDIVIDUALLY-OWNED TARGET COMMON SHARES" means Target Common Shares
outstanding on the record date for the Target Stockholders Meeting and then held
of record in the name of a Target Insider or then held by a bank, broker or
other such entity in the name of a Target Insider. For purposes of
clarification, and notwithstanding the prior sentence, Target Common Shares
beneficially owned by a Target Insider as a result of such Target Insider being
an officer of a corporation, a partner in a partnership, a member in a limited
liability company, attorney-in-fact, executor, administrator, trustee, guardian
or otherwise acting in a fiduciary or representative capacity shall not be
Individually-Owned Target Common Shares.
"INTERCREDITOR AGREEMENT" means the Second Amended and Restated
Intercreditor and Collateral Trust Agreement dated as of October 29, 1999 by and
among Bank of America, Boeing Capital, the holders of the Convertible Notes,
State Street Bank and Trust Company, as Trustee under the Convertible Note
Indenture, and the Collateral Agent.
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"IRS" means the United States Internal Revenue Service.
"JUNIOR SUBORDINATED DEBENTURES" means the Junior Subordinated Debentures
due 2005 of Target issued on December 12, 1996 and the securities issued
pursuant to Section 307 of the Junior Subordinated Indenture in payment of
interest accrued thereon.
"JUNIOR SUBORDINATED INDENTURE" means the Indenture dated as of
December 12, 1996 with respect to the Junior Subordinated Debentures, as
amended.
"KNOWLEDGE OF TARGET" means the actual knowledge, without special
investigation but after review of Article 3 with counsel to Target, of Warren J.
Nelson, the President and Chief Executive Officer, Earl G. Fleisher, the Chief
Financial Officer, Stephen P. Piatek, the General Counsel and Vice President,
Environmental, Terry Stringer, the Executive Vice President, Supply, Planning
and Distribution, Len Nawrocki, the Executive Vice President, Asphalt Sales,
Bill Darnell, Vice President and General Manager of the Benicia Refinery, Guy
Young, Benicia Refinery Manager, and Mike Miller, Wilmington Refinery Manager,
of Target.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.
"LOCKBOX AGREEMENT" means that certain Third Party Agreement Relating to
Lockbox Services (With Activation) entered into as of February 16, 2000 by and
among Bank of America, Target, the Target Subsidiary and the Collateral Agent.
"MATERIAL ADVERSE EFFECT" means with respect to any Person any material
adverse change in the business, financial condition, operations or results of
operations of such Person and its Subsidiaries, taken as a whole; provided,
however, that the following shall be excluded from the definition of "Material
Adverse Effect" and from the determination of whether a Material Adverse Effect
has occurred: (i) effects of conditions or events that are generally applicable
to the asphalt, light-end product or refinery industry, including effects of
changes in the price of crude oil and product prices, or effects of conditions
or events affecting capital, financial, banking or currency markets, (ii) the
impact of seasonality on the business, financial condition, operations or
results of operations (including any effect of adverse weather conditions),
(iii) effects of conditions or events that are generally applicable to crude oil
price hedging strategies, including effects of changes in the price of crude
oil, (iv) effects of conditions or events such as expiration and non-recurrence
of hedging activities or related to the failure to enter into hedging
arrangements, (v) changes in laws and regulations (including common law, rules
and regulations or the interpretation thereof) or applicable accounting
regulations and principles to the extent that such changes are pending or
proposed as of the date hereof and (vi) any change in the relationship of a
Person and its Subsidiaries with their respective employees, customers and
suppliers, which change results from the announcement of the transactions
described in this Agreement or the performance of this Agreement and the
covenants set forth herein. "BUYER MATERIAL ADVERSE EFFECT" means a Material
Adverse Effect with respect to Buyer. "TARGET MATERIAL ADVERSE EFFECT" means a
Material Adverse Effect with respect to Target.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of
Target or Target Subsidiary (as applicable) consistent with past custom and
practice.
"OPTION EXERCISE/PAYMENT DIRECTION" shall mean a notice of exercise and
payment direction in the form of Exhibit A attached hereto.
"PERMITTED LIENS" means with respect to real property of Target or the
Target Subsidiary the following: (i) mechanics', carriers', workmen's,
repairmen's or other like liens arising or incurred in the Ordinary Course of
Business, liens arising under original purchase price conditional sales
contracts, purchase money liens and equipments leases with third parties entered
into in the
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Ordinary Course of Business, liens for taxes and other governmental charges
which are not due and payable or which may thereafter be paid without penalty or
which are being contested in good faith, and liens relating to environmental or
safety conditions; (ii) imperfections of title, restrictions or encumbrances,
including easements, covenants, conditions and rights-of-way, which
imperfections of title, restrictions or encumbrances do not, individually or in
the aggregate, materially adversely impair the continued use and operation of
the assets to which they relate in the operation of the business of Target and
the Target Subsidiary; (iii) the exceptions identified on the Title Report (as
may be amended prior to the Closing with the prior written consent of Buyer and
Target) and the Vulcan Title Report (as may be amended prior to the Closing with
the prior written consent of Buyer and Target), other than exceptions with
respect to Security Pacific National Bank; (iv) conditions shown on the Survey
(as may be amended prior to the Closing with the prior written consent of Buyer
and Target) and conditions that would be shown on an accurate survey or upon a
personal inspection of the Owned Real Property; (v) existing leases, licenses
and similar agreements made available to Buyer as contemplated by Section 3.14
and the rights of lessors and sublessors thereunder; (vi) zoning, building and
other land use laws imposed by any governmental authority with appropriate
jurisdiction that are not violated by the current use or occupancy of the real
property to which they relate or the operation of the business of Target or the
Target Subsidiary thereon; and (vii) with respect to the Benicia refinery of
Target, any encroachments or the like on or with the property of Buyer or any of
its Affiliates. "PERMITTED LIENS" means with respect to personal property of
Target or the Target Subsidiary the following: (i) mechanics', carriers',
workmen's, repairmen's or other like liens arising or incurred in the ordinary
course of business, liens arising under original purchase price conditional
sales contracts, purchase money liens and equipments leases with third parties
entered into in the Ordinary Course of Business, liens for taxes and other
governmental charges which are not due and payable or which may thereafter be
paid without penalty or which are being contested in good faith, and liens
relating to environmental or safety conditions; (ii) imperfections of title,
restrictions or encumbrances, including covenants and conditions, which
imperfections of title, restrictions or encumbrances do not, individually or in
the aggregate, materially adversely impair the continued use and operation of
the assets to which they relate in the operation of the business of Target or
the Target Subsidiary; (iii) liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a like nature; (iv) liens securing reimbursement obligations with
respect to letters of credit which encumber only documents and other property
relating to such letters of credit and the products and proceeds thereof;
(v) liens incurred or deposits made in the Ordinary Course of Business in
connection with workers' compensation, unemployment insurance and other types of
social security; (vi) any interest or title of a lessor or sublessor in the
property subject to any capital lease obligation or operating lease made
available to Buyer after the date hereof or as contemplated by Section 3.14;
(vii) leases or subleases granted to others not interfering in any material
respect with the business of Target and the Target Subsidiary; (viii) liens in
favor of custom and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;
(ix) existing leases, licenses and similar agreements made available to Buyer
after the date hereof or as contemplated by Section 3.14; and (x) zoning,
building, fire, health, environmental and pollution control laws, ordinances,
rules and safety regulations and other similar restrictions that are not
violated by the current use of the property to which they relate.
"PERSON" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including any Governmental Entity.
"PROXY STATEMENT" means the proxy statement relating to the Target
Stockholder Meeting together with any amendments or supplements thereto,
including any information required to be provided to the stockholders of Target
pursuant to the DGCL.
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"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a limited liability company,
partnership or association, or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
general partner of such partnership or association or a majority of the voting
interests or the equity ownership of the limited liability company or other
business entity. "BUYER SUBSIDIARY" means a Subsidiary of Buyer and "TARGET
SUBSIDIARY" means Sunbelt Refining Company, L.P., a Delaware limited
partnership, the sole Subsidiary of Target.
"SUPERIOR PROPOSAL" means a written Acquisition Proposal not solicited in
violation of Section 5.03(a) that is on terms that a majority of the board of
directors of Target determines in good faith would or is reasonably likely to
result in a transaction, if consummated, that is more favorable to the Target
stockholders (taking into account, among other things, all legal, financial,
financing contingency, regulatory and other aspects of the proposal and the
identity of the offeror) than the transactions contemplated hereby.
"TARGET COMMON SHARE" means one share of Common Stock of Target, $0.01 par
value per share.
"TARGET CREDIT DOCUMENTS" means the (i) Bank of America Loan Agreement and
any note thereunder, (ii) Boeing Capital Loan Agreement and all notes
thereunder, (iii) Convertible Notes Indenture, (iv) Convertible Notes,
(v) Exchange and Purchase Agreement, (vi) Junior Subordinated Indenture,
(vii) Junior Subordinated Debentures, (viii) Intercreditor Agreement,
(ix) Collateral Documents and (x) Lockbox Agreement.
"TARGET DISCLOSURE SCHEDULE" means the schedule entitled "Target Disclosure
Schedule" heretofore delivered by the Target and initialed by the parties for
identification, which schedule is arranged in sections corresponding to the
lettered and numbered subsections contained in Section 3, Section 5.01 and
Section 8.03.
"TARGET EMPLOYEE PLAN" means each material "employee benefit plan" (as such
term is defined in Section 3(3) of ERISA) and each other employee benefit plan,
program or arrangement maintained, sponsored or contributed to by Target or any
of its Affiliates on behalf of any employee or former employee of Target or the
Target Subsidiary.
"TARGET INSIDERS" means (x) the directors of Target, (y) the executive
officers (as such term is defined under the Exchange Act) of Target and (z) the
General Counsel and Vice President, Environmental, of Target, in each case on
the record date with respect to the Target Stockholder Meeting.
"TARGET OPTION PLANS" means the 1998 Stock Incentive Plan and the 1996
Huntway Employee Incentive Option Plan, in each case as amended prior to the
date hereof.
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"TARGET PREFERRED SHARE" means one share of Preferred Stock of Target, $0.01
par value per share.
"TARGET SEC DOCUMENTS" means (i) the Target's annual reports on Form 10-K
for its fiscal years ended December 31, 1999 and December 31, 1998
(collectively, the "TARGET 10-K"), (ii) the Target's quarterly reports on
Form 10-Q (the "TARGET 10-Q") for its fiscal quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000, (iii) the proxy or information statements
of Target dated after or used after December 31, 1998 and (iv) all other
reports, filings, registration statements and other documents filed by Target
with the SEC after December 31, 1998 pursuant to the Exchange Act, in each case
together with all schedules and exhibits thereto and as subsequently amended.
"TARGET STOCKHOLDER MEETING" means the meeting at which the record holders
of Target Common Shares shall actually vote with respect to the adoption of this
Agreement.
"VULCAN PROPERTY" means that certain real estate contemplated to be
purchased (as opposed to leased or subleased) by Target which is the subject of
the Vulcan Property Purchase Agreement.
"VULCAN PROPERTY PURCHASE AGREEMENT" means that certain Purchase and Sale
Agreement and Joint Escrow Instructions dated February 1, 2001 by and between
Calmat Co. and Target.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
TERM SECTION
- ---- -------
Agreement............................ Introductory Paragraph
B of A Agreement..................... 7.06(a)
BC Agreement......................... 7.06(b)
Buyer................................ Introductory Paragraph
BuyerSub............................. Introductory Paragraph
BuyerSub Common Share................ 2.01(a)
Buyer Material Adverse Effect........ 10.01(a)
Buyer Pension Plan................... 6.02(a)
Buyer Subsidiary..................... 10.01(a)
Certificate of Merger................ 1.01(b)
Certificates......................... 2.02(a)
Closing.............................. 1.02(a)
CN Agreement......................... 7.06(c)
COBRA................................ 3.15(d)
Dissenting Share..................... 2.01(d)
Effective Time....................... 1.01(b)
End Date............................. 9.01(b)(i)
Exchange Agent....................... 2.02(a)
Exchange Fund........................ 2.02(a)
Financial Advisor.................... 3.21(a)
Financial Reporting Package.......... 3.08(c)
Financial Statements................. 3.08(a)
Guarantor............................ Signature Page
Indemnified Parties.................. 6.01(a)
JD Agreement......................... 7.06(d)
Leased Real Property................. 3.19(b)
Leases............................... 3.19(b)
Merger............................... 1.01(a)
Merger Consideration................. 2.01(b)
NYSE................................. 3.07(a)
Option Spread Payment................ 2.03(b)
Owned Real Property.................. 3.19(a)
A-37
TERM SECTION
- ---- -------
Personal Property.................... 3.23
Secretary............................ 1.01(b)
Survey............................... 3.19(d)
Surviving Corporation................ 1.01(a)
Target............................... Introductory Paragraph
Target Budget........................ 5.01(e)
Target Option........................ 2.03(a)
Target Recommendation................ 5.02
Target Real Properties............... 3.19(c)
Target Returns....................... 3.12
Target Stockholder Approval.......... 3.20(a)
Target Subsidiary.................... 10.01(a)
Termination Fee...................... 9.03(b)
Title Company........................ 3.19(d)
Title Policy......................... 8.03(m)
Title Report......................... 3.19(d)
Vulcan Title Policy.................. 8.03(o)
Vulcan Title Report.................. 3.19(d)
ARTICLE 11
MISCELLANEOUS
SECTION 11.01 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile or similar writing)
and shall be given,
if to Buyer or BuyerSub, to:
Valero Refining and Marketing Company
One Valero Place
San Antonio, TX 78212
Attention: Michael S. Ciskowski
Facsimile: (210) 370-2270
with a copy to:
Valero Energy Corporation
One Valero Place
San Antonio, TX 78212
Attention: Martin Loeber
Facsimile: (210) 370-2988
if to Target, to:
Huntway Refining Company
25129 The Old Road, Suite 322
Newhall, CA 91381
Attention: President and Chief Executive Officer
Facsimile: (661) 286-1588
A-38
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Donald E. Batterson
Facsimile: (312) 861-2200
or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (b) if given
by any other means, when delivered at the address specified in this Section.
SECTION 11.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AFTER THE
EFFECTIVE TIME. The representations and warranties contained herein and in any
certificate, instrument or other writing delivered pursuant hereto shall not
survive the Effective Time or, except as expressly contemplated by
Section 9.02, the termination of this Agreement.
SECTION 11.03 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other parties hereto. Any
purported transfer or assignment in violation hereof shall be null and void.
SECTION 11.04 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
SECTION 11.05 COUNTERPARTS; EFFECTIVENESS; THIRD PARTY BENEFICIARIES. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto. Except as set forth in Sections 2.01, 2.03, 6.01 and 6.02, no
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
SECTION 11.06 JURISDICTION. Each of Target, Buyer and BuyerSub irrevocably
agrees that any legal action or proceeding with respect to this Agreement or for
recognition and enforcement of any judgment in respect hereof brought by another
party hereto or its successors or assigns may be brought and determined in the
Chancery or other Courts of the State of Delaware, and each of Target, Buyer and
BuyerSub hereby irrevocably submits with regard to any such action or proceeding
for itself and in respect to its property, generally and unconditionally, to the
nonexclusive jurisdiction of the aforesaid courts. Each of Target, Buyer and
BuyerSub hereby irrevocably waives, and agrees not to assert, by way of motion,
as a defense, counterclaim or otherwise, in any action or proceeding with
respect to this Agreement, (a) any claim that it is not personally subject to
the jurisdiction of the above-named courts for any reason other than the failure
to lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in any such
court (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum,
(ii) the venue of such
A-39
suit, action or proceeding is improper and (iii) this Agreement, or the subject
matter hereof, may not be enforced in or by such courts.
SECTION 11.07 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.08 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. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 11.09 ENTIRE AGREEMENT. This Agreement (together with the exhibits
and schedules hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both oral and written, among the parties with respect to the
subject matter hereof; provided that this Agreement shall not supersede or in
any way modify the terms of the Confidentiality Agreement, which Agreement shall
remain in full force and effect.
SECTION 11.10 SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
SECTION 11.11 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any feder-al, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereun-der, unless the context otherwise requires. The
word "including" shall mean "including without limitation" unless the context
otherwise requires. As used in this Agreement (including any amendments hereto),
the masculine, feminine or neuter gender and the singular or plural number shall
be deemed to include the others whenever the context so requires.
SECTION 11.12 HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.13 INCORPORATION OF EXHIBITS AND SCHEDULES. The exhibits and
schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
* * * * *
A-40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
HUNTWAY REFINING COMPANY
By: /s/ Warren J. Nelson
--------------------------------------------
Its: President and Chief Executive Officer
--------------------------------------------
VALERO REFINING AND MARKETING COMPANY
By: /s/ Michael S. Ciskowski
--------------------------------------------
Its: Senior Vice President
--------------------------------------------
HAC COMPANY
By: /s/ Michael S. Ciskowski
--------------------------------------------
Its: Senior Vice President
--------------------------------------------
A-41
GUARANTEE
Capitalized terms used in this Guarantee shall have the meanings ascribed to
them in the foregoing Agreement and Plan of Merger (the "AGREEMENT").
The undersigned, Valero Energy Corporation ("GUARANTOR"), as an inducement
to Target to enter into and perform the Agreement, hereby unconditionally and
irrevocably guarantees the punctual performance and/or punctual payment as the
case may be (as, when and to the extent due) of all covenants and obligations
owed by Buyer or BuyerSub under or by virtue of the Agreement and any side
letter entered into by Buyer or BuyerSub in connection with the Agreement, and
agrees to pay any and all reasonable expenses (including reasonable counsel fees
and expenses) incurred by Target (or other holders of such rights) in enforcing
any rights under this Guarantee. The obligations of Guarantor under this
Guarantee are independent of the covenants and obligations of Buyer and BuyerSub
under the Agreement and under any side letter entered into by Buyer and BuyerSub
in connection with the Agreement and a separate action or actions may be brought
and prosecuted against Guarantor to enforce this Guarantee. By entering into
this Guarantee, Guarantor waives any and all rights and remedies to require that
any action be brought and concluded first against Buyer and/or BuyerSub for
failure to perform. This Guarantee shall not be avoided, released or affected by
any amendment or variation of the Agreement or of any side letter entered into
by Buyer or BuyerSub in connection with the Agreement occurring after the date
hereof, with or without notice to Guarantor. The liability of Guarantor under
this Guarantee shall be irrevocable, absolute and unconditional.
Guarantor hereby represents and warrants to Target as of the date hereof and
as of the Closing Date:
(a) Guarantor is a corporation duly incorporated and validly existing
under the laws of the state of Delaware.
(b) Buyer and BuyerSub are wholly-owned subsidiaries of Guarantor.
(c) This Guarantee has been duly authorized, executed and delivered by
Guarantor.
(d) This Guarantee is the legal, valid and binding obligation of
Guarantor enforceable against Guarantor in accordance with its terms.
(e) All consents, approvals, authorizations and orders necessary for the
execution, delivery and performance of this Guarantee and the consummation
of the transactions contemplated hereby have been obtained on the part of
Guarantor.
(f) The execution, delivery and performance of this Guarantee do not
and will not (i) contravene or conflict with the certificate of
incorporation or by-laws of Valero Energy Corporation, (ii) contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable
to Valero Energy Corporation or any Subsidiary thereof, (iii) constitute a
default under or give rise to a right of termination, cancellation or
acceleration (with or without due notice or lapse of time or both) of any
right or obligation of Valero Energy Corporation or any Subsidiary thereof,
or to a loss of any benefit or status to which Valero Energy Corporation or
any Subsidiary thereof, is entitled under any provision of any agreement,
contract or other instrument binding upon Valero Energy Corporation or any
Subsidiary thereof, or any license, franchise, permit or other similar
authorization held by Valero Energy Corporation or any Subsidiary thereof or
(iv) result in the creation or imposition of any Lien on any material asset
of Valero Energy Corporation or any Subsidiary thereof, other than, in the
case of each of (ii), (iii) and (iv), any such items that would not,
individually or in the aggregate, have a material adverse effect on Valero
Energy Corporation and its Subsidiaries taken as a whole or prevent or
impair the ability of Valero Energy Corporation to enter into this
Guarantee.
A-42
(g) The audited consolidated financial statements of Valero Energy
Corporation and its Subsidiaries as of and for the fiscal year ended
December 31, 2000, true, correct and complete copies of which financial
statements have been made available to Target by Valero Energy Corporation,
present fairly in all material respects and in conformity with GAAP (except
as may be indicated in the notes thereto) the consolidated financial
position of Valero Energy Corporation and its Subsidiaries as of the date
thereof and their consolidated results of operations and changes in
financial position for the period then ended.
VALERO ENERGY CORPORATION
By: /s/ Michael S. Ciskowski
----------------------------------------
Its: Senior Vice President
----------------------------------------
Dated: March 20, 2001
-------------------------------------------
A-43
EXHIBIT A
Form of Option Exercise/Payment Direction
OPTION EXERCISE/PAYMENT DIRECTION
HUNTWAY REFINING COMPANY
25129 THE OLD ROAD, SUITE 322
NEWHALL, CA 91381
[ ], 2001
[TO BE INSERTED: NAME AND
ADDRESS OF STOCK OPTION HOLDER]
Dear Huntway stock option holder:
As has been publicly announced, Huntway Refining Company ("HUNTWAY") has
entered into an Agreement and Plan of Merger dated as of March 20, 2001 (the
"Merger Agreement") pursuant to which a subsidiary of Valero Refining and
Marketing Company ("Buyer"), the parent company of which is Valero Energy
Corporation, will be merged with and into Huntway, with Huntway continuing as
the surviving corporation and as a wholly-owned subsidiary of Buyer. The merger
is subject to a number of closing conditions, including without limitation
Huntway stockholder approval. Under the Merger Agreement, the stockholders of
Huntway will be entitled to receive upon the merger an amount in cash equal to
$1.90 in exchange for each of their shares of Huntway common stock. The merger
is currently expected to close in [ ], 2001.
Pursuant to the terms of your stock options and the related Huntway stock
incentive/option plan, following the merger, your stock options will be
exercisable only for the consideration paid in the merger (that is, cash in an
amount equal to the cash paid per share of Huntway common stock in the merger,
without any interest thereon) instead of for Huntway common stock. As a
convenience to you, Huntway has made an arrangement with Buyer that will permit
you to be paid an amount equal to the economic value of your options as
described in the next paragraph (if and to the extent they remain outstanding
immediately prior to the merger) in connection with the closing under the Merger
Agreement. This arrangement will allow you to obtain earlier payment of such
economic value (which will not increase with the passage of time after the
merger) and to avoid among other things having to exercise your stock options at
or following the merger and pay the related option exercise price.
In the event that you take advantage of the arrangement contemplated by this
document, the amount that will be paid to you with respect to your stock options
as listed below will equal (that is, the economic value of your options will
equal) the excess of (x) $1.90 (the amount in cash paid per share of Huntway
common stock in the merger) multiplied by the number of shares of Huntway common
stock purchasable pursuant to your Huntway stock options that are outstanding
immediately prior to the merger over (y) the aggregate exercise price for the
shares of Huntway common stock purchasable pursuant to your Huntway stock
options that are outstanding immediately prior to the merger, in each case
assuming such stock options had been fully vested and fully exercisable
immediately prior to the merger, less any amounts as are required to be deducted
and withheld under any provision of Federal, state or local tax law in
connection with such payment. In the event that the Merger Agreement is amended
after the execution and delivery thereof by Huntway and Buyer to provide for an
increase in the amount of consideration to be paid per share of Huntway common
stock in the merger, such greater consideration provided for in the Merger
Agreement as so amended shall replace the amount identified under clause (x) in
the prior sentence. This economic value payment is required under the Merger
Agreement to be paid by Buyer in cash by certified check or wire transfer of
immediately available funds as you direct below, subject to your satisfaction of
the requirements set forth in this document.
A-44
TO TAKE ADVANTAGE OF THIS ARRANGEMENT, PLEASE COMPLETE AND SIGN THIS
DOCUMENT AS INDICATED BELOW AND DELIVER THIS DOCUMENT TO THE CHIEF FINANCIAL
OFFICER OF HUNTWAY AT THE ABOVE ADDRESS. IN ORDER FOR YOU TO BE PAID THE
APPROPRIATE ECONOMIC VALUE IN CONNECTION WITH THE CLOSING UNDER THE MERGER
AGREEMENT, YOU MUST DELIVER THE EXECUTED ORIGINAL OF THIS FORM TO HUNTWAY AS
INDICATED ON OR PRIOR TO [ ], 2001 OR SUCH LATER DATE AS HUNTWAY MAY
SUBSEQUENTLY INDICATE IN WRITING. WHEN DELIVERED TO HUNTWAY, THIS DOCUMENT MUST
BE ACCOMPANIED BY AN EXECUTED ORIGINAL OF EACH OF YOUR STOCK OPTION AGREEMENTS
LISTED BELOW.
Upon payment of the appropriate economic value as contemplated by this
document, it is understood that all of your Huntway stock options shall be
canceled, and by signing this document and delivering it to the Chief Financial
Officer of Huntway, you so agree to such cancellation.
Following is a list of each of the Huntway stock options you currently hold
and the respective current exercise price. You represent to Huntway that you own
the options listed below, free and clear of any and all liens, pledges, security
interests or other such encumbrances, and that you have the sole power and
authority to enter into and perform this agreement.
DATE OF OPTION NUMBER OF SHARES EXERCISE PRICE
- -------------- ---------------- --------------
[TO BE INSERTED]
If the Merger Agreement is terminated for any reason, Huntway will return
your original option agreements and this letter will be null and void.
Please contact the Chief Financial Officer of Huntway at (661) 254-1220 as
soon as possible if you are unable to locate your original executed copy of any
stock option agreement listed above or if you have any questions about or need
help in completing this document.
Huntway Refining Company
Acknowledged and Agreed by Huntway stock option holder:
- ------------------------------------
Signature
Print stock option holder name below:
- ------------------------------------
Address of stock option holder:
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
A-45
PAYMENT DIRECTION (CHECK ONLY ONE):
/ / Payment by certified check to be mailed on the date of the merger or on the
business day next following such date to the above printed address
/ / Payment by wire transfer on the date of the merger per the following
instructions:
[WIRE TRANSFER INSTRUCTION BLOCK]
IF YOU MAKE NO PAYMENT DIRECTION OR FAIL TO PROVIDE COMPLETE WIRE TRANSFER
INFORMATION, OR IN THE EVENT YOU PROVIDE CONFLICTING DIRECTIONS IN THE
OPINION OF HUNTWAY, PAYMENT WILL BE MADE TO YOU BY CERTIFIED CHECK AS
INDICATED ABOVE. PAYMENT WILL BE MADE ONLY TO THE OPTION HOLDER NAMED ABOVE
(OR HIS OR HER ESTATE).
A-46
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262 of the Delaware General Corporation Law provides:
(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 Section 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 Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 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 Section 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
Sections 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
B-1
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.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 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 Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten 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; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. 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
B-2
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 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
B-3
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 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.
B-4
ANNEX C
SIMMONS & COMPANY
INTERNATIONAL
- --------------------------------------------------------------------------------
March 20, 2001
The Board of Directors
Huntway Refining Company
25129 The Old Road, #322
Newhall, California 91381
Dear Sirs:
You have asked us to advise you with respect to the fairness to the stockholders
of Huntway Refining Company (the "Company") from a financial point of view of
the consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of March 20, 2001 (the "Acquisition
Agreement"), by and among the Company, Valero Refining and Marketing Company
(the "Acquiror"), and HAC Company (the "Sub"). The Acquisition Agreement
provides for the merger (the "Merger") of the Sub with and into the Company,
pursuant to which the Company will become a wholly-owned subsidiary of the
Acquiror and (i) each outstanding share of common stock, par value $0.01 per
share, of the Company (the "Common Shares") will be converted into the right to
receive $1.90 in cash, and (ii) all Senior Subordinated Secured Convertible
Notes due 2007 of the Company (the "Convertible Notes") will be purchased at or
immediately prior to the closing of the Merger for cash in an aggregate amount
equal to the sum of (x) the amount that would have been payable in the Merger
for the Common Shares underlying such Convertible Notes had such Convertible
Notes been fully converted into Common Shares immediately prior to the closing
of the Merger and (y) any then accrued and unpaid interest on such Convertible
Notes, but not including any prepayment premium or penalty.
In arriving at our opinion, we have reviewed the Acquisition Agreement and
related documents and certain publicly available business and financial
information relating to the Company. We have also reviewed certain other
information, including financial forecasts and operating data, provided to us by
the Company, and met with the Company's management to discuss the business and
prospects of the Company.
We have also considered certain financial and stock market data of the Company
and we have compared that data with similar data for other publicly held
companies in businesses similar to those of the Company and we have considered
the financial terms of certain other business combinations which have recently
been effected. We have considered the liquidity characteristics of the Common
Shares including the size of the Company's public float on an absolute basis and
700 LOUISIANA, SUITE 5000, HOUSTON, TX 77002-2753 (713) 236-9999 FAX: 223-7800
C-1
SIMMONS & COMPANY
INTERNATIONAL
relative to the public float of comparable companies, and the historic daily
trading volume of the Common Shares. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that we deemed relevant.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in all
material respects. With respect to the financial forecasts, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets of the Company. In connection
with our engagement, we approached third parties to solicit indications of
interest in a possible acquisition of the Company and held preliminary
discussions with certain of these parties prior to the date of the Acquisition
Agreement.
Our opinion is necessarily based upon economic, monetary, political, regulatory,
market and other conditions as they exist and can be evaluated on, and on the
information made available to us as of, the date of this opinion.
Simmons & Company International ("Simmons") is a nationally recognized
investment banking firm and is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, secondary distributions of listed
and unlisted securities and private placements.
We have acted as financial advisor to the Board of Directors of the Company in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We will also receive a fee for rendering this opinion.
Our opinion does not address the merits of the underlying decision by the
Company to engage in the Merger, and does not constitute a recommendation to any
holder of the Company's Common Shares as to how to vote on the approval and
adoption of the Acquisition Agreement or any matter related thereto.
It is understood that this letter is for the information of the Board of
Directors only as one element in the Board's consideration of the Merger and is
not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus, or proxy statement, or in any other written document used
in connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without Simmons' prior written consent. However, we
understand and agree that this letter will be reprinted in its entirety and may
be summarized in the proxy statement delivered by the Company to holders of the
Common Shares and that we will have the opportunity to review and comment on all
descriptions thereof in such proxy statement prior to any dissemination to the
stockholders of the Company. We expressly disclaim any undertaking or obligation
to advise any person of any change in any fact or matter affecting, or which may
affect, this opinion of which we become aware after the date hereof.
C-2
SIMMONS & COMPANY
INTERNATIONAL
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the $1.90 per share cash consideration to be received by the
stockholders of the Company is fair to such stockholders from a financial point
of view.
Very truly yours,
Simmons & Company International
By: /s/ George C. Morris III
-----------------------------------------
Managing Director
C-3
DETACH HERE
PROXY
HUNTWAY REFINING COMPANY
COMMON STOCK SPECIAL MEETING OF STOCKHOLDERS COMMON STOCK
TO BE HELD MAY 30, 2001
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Warren J. Nelson and Earl G. Fleisher,
or any one of them acting in the absence of the other, as attorneys and
proxies of the undersigned, with full power of substitution, for and in the
name of the undersigned, to represent the undersigned at the Special Meeting
of Stockholders of Huntway Refining Company, a Delaware corporation (the
"Company"), to be held at the Company's principal executive offices, 25129
The Old Road, Suite 322, Newhall, California 91318 at 10:00 a.m., local time
on May 30, 2001, and at any adjournment or postponement thereof, and to vote
all shares of stock of the Company standing in the name of the undersigned,
with all the powers the undersigned would possess if personally present at
such meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, the Proxy will be voted "FOR" Proposal 1 and
will be voted in the discretion of the proxies upon such other matters as may
properly come before the Special Meeting.
SEE REVERSE SEE REVERSE
SIDE (CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) SIDE
DETACH HERE
PLEASE MARK
/X/ VOTE AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To Approve the Agreement and Plan of Merger / / / / / /
dated March 20, 2001, by and among Huntway
Refining Company, Valero Refining and Marketing
Company and HAC Company, and the merger
contemplated by such Agreement and Plan of
Merger.
2. In their discretion, the proxies are authorized to vote upon all other
matters that may properly come before the Special Meeting.
CONTROL NUMBER
MARK HERE MARK HERE
FOR ADDRESS / / IF YOU PLAN / /
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
This Proxy is solicited on behalf
of the Board of Directors of the
Company. This Proxy, when
properly executed, will be voted
in the manner directed herein by
the undersigned. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
Signature: ______________ Date: _______ Signature: _____________ Date: ________