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Frontier Oil Corp. v. Holly Corp.4/29/2005
0% of the "value" receive by FTO from the sale of "Holly Corporation's Pipeline and Terminal" assets to a third party or to a new MLP formed by FTO in excess of $250 MM, but less than $350 MM, plus 40% of the "value" receive by FTO in excess of $350 MM.
In the event that FTO does not sell "Holly Corporation's Pipeline and Terminal" assets to a third party or a newly formed MLP within 18 months from the date of the merger, the CVR holder will receive a payment equal to $4 per share.
Edwards liked this plan. From July 29 through August 5, the parties worked hard to adapt the July 29 Proposal into a form that would be acceptable to all involved. Indeed, Edwards recalls "the last half of July as a blur of conversations and different things [they] were trying . . . to . . . solve the problem." Similarly, Clifton's desperation to close the deal is reflected in an e-mail sent to Edwards on August 1:
I can't stress how important it is to get a proposal ASAP. If we blow another week I don't know if it will stay together. Again, I'll go anywhere, any time to try to resolve outstanding issues. . . . Let's keep it going to see if we can get there. Even I am losing patience.
U. The Denver Agreement
The parties came to an agreement on August 5, 2003 in Denver (the "Denver Agreement"). The meeting was among Holly and Frontier's senior management and financial advisors, but without lawyers. The Denver Agreement differed from the July 29 Proposal: Holly stockholders could elect to receive all stock or all cash; the cash portion of the deal was raised from $172.5 million to $210 million; Holly shareholders would receive a contingent value right equal, in the aggregate, to 35% of the consideration which Frontier would receive from the MLP to the extent that it exceeded $280 million. Under this deal Holly stockholders could elect to receive $28.25 in Frontier stock, or $27 in cash, subject to a $210 million cash limit. Assuming full proration, this was an increase of approximately $2 per share for the Holly stockholders over the March 30 deal.
At the conclusion of the meeting, both sides agreed to take the Denver Agreement back to their respective boards. Norsworthy committed to support the transaction before the Holly Board. According to George C. Morris, III, Frontier's financial advisor from Petrie Parkman, "[Gibbs] looked across the table to [Norsworthy] and said 'Lamar, do we have a deal? Is this a deal that you'll do?' And [Norsworthy] said 'Yes, that's a deal I'll do.'" The parties then called their lawyers to discuss the terms of the deal and to begin the document preparation process. According to Morris, at the end of the meeting " verybody was feeling very good, because it was a very stressful situation going into this thing, but now everybody felt relieved that we had solved the problem." That feeling would not last long.
V. On the Road to Banff
The night of August 5, Norsworthy would fly from Denver to Calgary. Upon his arrival, he was driven to Banff-a ride of about two hours. During this ride, Norsworthy began to have second thoughts about the Denver Agreement:
I was sitting in the back thinking about it. And I don't know why I was so dumb that it didn't occur to me earlier; but the more I though about it, I felt, you know, this thing feels kind of funny, that you've got a deal here where you're inducing stockholders to take Frontier stock and all of the liability of Beverly Hills, if there is any, and you're structuring such a way that the insiders maybe can get all cash and outsiders, who don't know anything about it, are going to end up with Frontier stock, and is this the right kind of thing to do .
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