EXHIBIT 99.2
CONTINGENT VALUE RIGHTS AGREEMENT
This CONTINGENT VALUE RIGHTS AGREEMENT, dated as of May 12, 2003 (this
"Agreement"), is entered into by and among Front Range Himalaya Corporation, a
Wyoming corporation (the "Company"), Frontier Oil Corporation, a Wyoming
corporation ("Frontier"), Xxxxx Corporation, a Delaware corporation ("Xxxxx"),
Front Range Merger Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company ("Front Range Merger Corporation"), Himalaya Merger
Corporation, a Delaware corporation and wholly-owned subsidiary of the Company
("Himalaya Merger Corporation"), and Xxxx X. Xxxx (the "Representative").
RECITALS:
WHEREAS, the Company, Frontier, Xxxxx, Front Range Merger Corporation and
Himalaya Merger Corporation have entered into an Agreement and Plan of Merger
dated as of March 30, 2003 (the "Merger Agreement"), pursuant to which at the
Effective Time (as defined below) (i) Front Range Merger Corporation will merge
with and into Frontier, with Frontier surviving the merger as a direct
wholly-owned subsidiary of the Company (the "Front Range Merger"), and (ii)
Himalaya Merger Corporation will merge with and into Xxxxx, with Xxxxx surviving
the merger as a direct wholly-owned subsidiary of the Company (together with the
Front Range Merger, the "Mergers");
WHEREAS, upon consummation of the Mergers, (i) each of Frontier and Xxxxx
will become a wholly owned subsidiary of the Company, which has been formed by
Frontier and Xxxxx solely for the purpose of the transactions contemplated by
the Merger Agreement, and (ii) the Company will be renamed Frontier Oil
Corporation;
WHEREAS, the Company shall duly authorize the creation and issuance to
Holly's stockholders and certain holders of options to purchase Xxxxx Common
Stock (as hereinafter defined) of contingent value rights (the "CVRs") as
hereinafter described; and
WHEREAS, all things necessary have been done to make the CVRs, when issued
pursuant to the Merger Agreement and hereunder, the valid obligations of the
Company and to make this Agreement a valid agreement of the Company, in
accordance with its terms.
NOW, THEREFORE, for and in consideration of the premises and the
consummation of the transactions referred to above, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders (as
hereinafter defined), as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
(a) For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular;
(ii) all accounting terms used herein and not expressly
defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles, and the term
"generally accepted accounting principles" means such accounting
principles as are generally accepted in the United States at the
time of any computation;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not
to any particular Article, Section or other subdivision; and
(iv) unless the context otherwise requires, words describing
the singular number shall include the plural and vice versa, words
denoting any gender shall include all genders and words denoting
natural Persons shall include corporations, partnerships and other
Persons and vice versa.
(b) The following terms shall have the meanings ascribed to them as
follows:
"Act," when used with respect to any Holder, has the meaning specified in
Section 1.2.
"Affiliate" of a Person means a Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person.
"Assignment of Claims Act" means the Assignment of Claims Act, 31 U.S.C.
Section 3727.
"Assumed Tax Benefit" means an amount equal to the Income Tax benefit that
would be allowed to the Company Group (not giving effect to any Income Tax
benefit of additional basis to the Company Group of Xxxxx Common Stock)
attributable to (i) the incurrence or payment of the Claims Expenses and the CVR
Payment Amount, or (ii) the deduction allowable to the Company in respect of
Realized Non-Cash Proceeds described in clause (c) of the definition of Tax
Assumptions, computed as set forth in Section 2.5 hereof.
"Assumed Tax Liability" means an amount equal to the Income Tax liability
of the Company Group (not giving effect to any deductions attributable to the
incurrence or payment of Claims Expenses or the CVR Payment Amount) attributable
to the receipt of Litigation Proceeds and any Non-Cash Proceeds includible in
the gross income of the Company, computed as set forth in Section 2.5 hereof.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the secretary
or an assistant secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Representative.
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"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in Dallas, Texas are authorized or obligated by law
or executive order to remain closed.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (b) certificates of deposit with maturities of six months
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
commercial bank organized and in existence under the laws of the United States
and having capital and surplus in excess of $500 million, (c) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (a) and (b) above entered into with any financial
institution meeting the qualifications specified in clause (b) above, (d)
commercial paper having the highest rating obtainable from Xxxxx'x Investors
Service, Inc. or Standard & Poor's Ratings Services and in each case maturing
within 180 days after the date of acquisition, (e) investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation organized and in existence under the laws of the United States or
any foreign country recognized by the United States with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according to
Xxxxx'x Investor Service, Inc. or "A-1" (or higher) according to Standard &
Poor's Ratings Services, and (f) money market mutual funds substantially all of
the assets of which are of the type described in the foregoing clauses (a)
through (e) above.
"Cash Proceeds" means all cash compensation, payments, penalties, interest
and other damages, if any, recovered or received by Xxxxx Subsidiaries or any of
their Affiliates and attributable to the resolution of the Litigation, whether
such compensation, penalties, interest or other damages are recovered at trial,
upon appeal or in settlement.
"Claims Expenses" means the sum of all direct expenses paid after March
29, 2003 by the Company, Xxxxx Subsidiaries and their Affiliates in prosecuting
the Litigation, including any amounts paid to or on behalf of the Representative
pursuant to Section 3.4 of this Agreement and excluding any payment of Firm
Expenses.
"Claims Expense Threshold Date" means the first date on which the
aggregate Claims Expenses paid by the Company, Xxxxx and their Subsidiaries
after March 29, 2003 exceed $2,500,000.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission of the United
States of America.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Common Stock" means the common stock, par value $0.01 per share,
of the Company.
"Company Group" means the Company and each member of the relevant
affiliated, combined, consolidated or unitary group of the Company for Income
Tax purposes.
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"Control" (including the terms "controlled", "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock, including the
power to dispose of or vote such stock, as trustee or executor, by contract or
otherwise.
"Converted Stock Options" means all options to purchase shares of Company
Common Stock into which an option to purchase Xxxxx Common Stock was converted
pursuant to Section 2.5(b) of the Merger Agreement.
"CVRs" means the contingent value rights to be issued by the Company
pursuant to the Merger Agreement and this Agreement.
"CVR Payment Amount" means, as of any CVR Payment Date, an amount of cash
(if positive) with respect to each CVR equal to the quotient of (A) the sum of
(u) the aggregate amount of Litigation Proceeds actually received by the Xxxxx
Subsidiaries or their Affiliates, minus (v) two times the Claims Expenses, minus
(w) the Assumed Tax Liability with respect to all Litigation Proceeds and
Non-Cash Proceeds includible in the Company's gross income actually received
through the date of the Litigation Proceeds Certificate applicable to such CVR
Payment Date, plus (x) the Assumed Tax Benefit with respect to all Realized
Non-Cash Proceeds received and Claims Expenses paid or incurred through the date
of the Litigation Proceeds Certificate applicable to such CVR Payment Date and
all CVR Payment Amounts paid through and including such CVR Payment Date, minus
(y) an amount equal to 10% of the remainder of (u) minus (v), and minus (z) the
aggregate amount of all CVR Payment Amounts required to have been put into an
account for the benefit of the Holders pursuant to Section 5.1(e) prior to such
CVR Payment Date, divided by (B) the total number of CVRs outstanding on the CVR
Payment Date for such CVR Payment Amount. After the calculation of the initial
CVR Payment Amount, any calculation of a CVR Payment Amount shall be made on a
cumulative basis as provided for in Section 2.6(a) of this Agreement.
"CVR Payment Date" means any date that any CVR Payment Amount is paid by
the Company to the Holders, which shall be established pursuant to Section 2.4.
"CVR Register" and "CVR Registrar" have the respective meanings specified
in Section 2.3(b).
"Effective Time" means the effective time of the Mergers.
"Firm Expenses" has the meaning specified in Section 2.4(e) of this
Agreement.
"Holder" means a Person in whose name a CVR is registered in the CVR
Register.
"Xxxxx Common Stock" means the common stock, par value $0.01 per share, of
Xxxxx.
"Income Tax" means any federal, state or local income tax (including any
state or local franchise tax imposed on or with respect to net income).
"IRS" means the Internal Revenue Service.
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"Litigation" means the litigation and claims that Xxxxx Subsidiaries have
filed or asserted against the United States as described on Exhibit A to this
Agreement and any similar future lawsuits, claims or appeals brought by the
Company, Xxxxx, Xxxxx Subsidiaries or their Affiliates related to the sale of
jet fuel by Xxxxx or any Xxxxx Subsidiary to the United States prior to March
30, 2003.
"Litigation Proceeds" means the sum of any and all Cash Proceeds, Realized
Non-Cash Proceeds and Setoffs.
"Litigation Proceeds Certificate" has the meaning specified in Section
2.4(a) of this Agreement.
"Merger Agreement" has the meaning set forth in the recitals to this
Agreement.
"Non-Cash Proceeds" means all non-cash compensation, payments, penalties,
interest and other damages, if any, recovered or received by Xxxxx Subsidiaries
or any of their Affiliates and attributable to the resolution of the Litigation,
whether such compensation, penalties, interest or other damages are recovered at
trial, upon appeal or in settlement.
"Officer's Certificate" means a certificate signed by the chairman of the
Board of Directors or the president, any vice president, the controller, the
treasurer, the secretary or any assistant secretary, in each case of the
Company, in his or her capacity as such an officer, and delivered to the
Representative.
"Opinion of Counsel" means a written opinion of counsel, who shall be
selected by the Representative and reasonably acceptable to the Company.
"Option Holder" means any holder of a Converted Stock Option.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, business trust, association, joint-stock company,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Realized Non-Cash Proceeds" means (i) all cash payments received in
respect of Non-Cash Proceeds and (ii) the fair market value (as determined
pursuant to Section 2.4) of any Non-Cash Proceeds that would not reasonably be
expected to be realized by receipt of cash in the foreseeable future.
"Representative" means the Person named as the "Representative" in the
first paragraph of this Agreement, until a successor Representative shall have
become such pursuant to the applicable provisions of this Agreement, and
thereafter "Representative" shall mean such successor Representative.
"Resolution" has the meaning specified in Section 2.4(e) of this
Agreement.
"Setoff" means any dollar amount deducted from what would otherwise be
Cash Proceeds, Realized Non-Cash Proceeds or Non-Cash Proceeds on account of any
claims or counterclaims asserted by the United States, pursuant to 31 U.S.C.
Section 3728 or otherwise, that are not directly related to the Litigation,
whether such offsets are recovered at trial, upon appeal or in
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settlement. Any Setoff shall be deemed received when deducted from what would
otherwise be Cash Proceeds, Realized Non-Cash Proceeds or Non-Cash Proceeds.
"Subsidiary" when used with respect to any Person means any corporation or
other organization, whether incorporated or unincorporated, of which such Person
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such Person
is a general partner.
"Successor Representative" means any successor Representative appointed
pursuant to Section 3.5(e)
"Surviving Person" has the meaning set forth in Section 7.1(a)(1).
"Tax Assumptions" means (i) if there is no Tax Determination, the
following assumptions or (ii) if there is a Tax Determination, the following
assumptions as modified by such Tax Determination:
(a) Cash Proceeds and Setoffs will be includible in full in the
Company's gross income as ordinary income.
(b) Non-Cash Proceeds will not be includible in the Company's gross
income except to the extent that (i) the Company determines such Non-Cash
Proceeds are includible in the Company's gross income and so indicates in
the Litigation Certificate issued with respect to the receipt of such
Non-Cash Proceeds, and (ii) in the event the Representative delivers a
Notice of Objection regarding the inclusion of such Non-Cash Proceeds in
the Company's gross income, there is a Resolution that such Non-Cash
Proceeds are includible in the Company's gross income.
(c) Realized Non-Cash Proceeds will be includible in the Company's
gross income to the extent the amount of such Realized Non-Cash Proceeds
exceeds the amount of the associated Non-Cash Proceeds previously included
in the Company's gross income, if any. Realized Non-Cash Proceeds will
give rise to a deduction to the Company to the extent the amount of such
Realized Non-Cash Proceeds is less than the amount of the associated
Non-Cash Proceeds previously includible in the Company's gross income, if
any.
(d) The payment of Claims Expenses will be deductible in full as an
ordinary expense.
(e) Payments of the CVR Payment Amount will not be deductible except
that (i) Section 483(a) of the Code will apply to payments of the CVR
Payment Amount (other than payments with respect to CVRs issued on
exercise of employee options or otherwise in a compensatory transaction)
and payments of the CVR Payment Amount will be deductible to the extent
treated by Section 483(a) of the Code as interest expense; and (ii)
payments of the CVR Payment Amount with respect to CVRs issued on exercise
of employee options or otherwise in a compensatory transaction will be
deductible in full.
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(f) The Income Tax liability attributable to the assumed inclusion
in gross income as ordinary income of all or a portion of the Litigation
Proceeds and any Non-Cash Proceeds includible in the gross income of the
Company and the Income Tax benefit of any deduction assumed to be allowed
shall be (i) the product of the amount of such income or deduction and the
highest statutory rate of federal Income Tax applicable to corporations
for the year in which the Litigation Proceeds (or Non-Cash Proceeds) are
received or payments for Claim Expenses or the CVR Payment Amount are made
or incurred plus (ii) the product of such income or deduction and the net
highest statutory combined marginal rate of state and local Income Tax of
the relevant member or members of the Company Group in applicable state
and local jurisdictions for the year in which the Litigation Proceeds (or
Non-Cash Proceeds) are received or payments for Claim Expenses or the CVR
Payment Amount are made or incurred, net of the federal Income Tax benefit
(calculated based on the rate in clause (i)) of such state or local Income
Tax. The relevant member or members of the Company Group shall be the
member or members that is or are assumed to include the Litigation
Proceeds (or Non-Cash Proceeds) in income or is or are assumed to be
allowed a deduction.
(g) If the Assumed Tax Liability or the Assumed Tax Benefit cannot
be computed at the time the Litigation Proceeds Certificate is required to
be delivered pursuant to Section 2.4 hereof because of the absence of
information as to tax rates or other factors described in the definition
of Assumed Tax Liability or the definition of Assumed Tax Benefit, as the
case may be, the Company Group shall compute a tentative Assumed Tax
Liability or a tentative Assumed Tax Benefit, as the case may be, based on
such assumptions, which are consistent with respect to the Assumed Tax
Liability and the Assumed Tax Benefit, that in the reasonable opinion of
the Company Group would protect the Company Group against any risk of
loss. The payment of the CVR Payment Amount shall be based on such
tentative Assumed Tax Liability or such tentative Assumed Tax Benefit
computation, as the case may be. As soon as feasible, but in no event
later than 12 months after the end of the taxable year in which the CVR
Payment Amount is paid based on the tentative Assumed Tax Liability and
Assumed Tax Benefit, the Company Group shall recompute the Assumed Tax
Liability or the Assumed Tax Benefit, as the case may be, and pay to the
Holders any excess of the re-computed CVR Payment Amount over the CVR
Payment Amount that was initially calculated plus interest as provided in
Section 2.4(g) hereof. In no event, however, shall the Holders be
obligated or required to refund to the Company or any of its Affiliates
any excess of the CVR Payment Amount that was initially calculated over
the re-computed CVR Payment Amount, but the Company shall be entitled to
treat any excess CVR Payment Amounts paid to the Holders as a prepayment
against future CVR Payment Amounts, if any.
"Tax Determination" means, with respect to the Company or any of its
Subsidiaries,
(a) the receipt of a private letter ruling from the IRS;
(b) the expiration of 30 days after official IRS acceptance of a
Waiver of Restrictions on Assessment and Collection of Deficiency in Tax
and Acceptance of Overassessment on IRS Form 870 or 870-AD (or any
successor comparable form or the expiration of a comparable period with
respect to any comparable agreement or form under the laws of other
jurisdictions), unless, within such period, the Company gives
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notice to the Representative of the Company's intention to attempt to
recover all or part of any amount paid or to be paid pursuant to the
Waiver or comparable form by the filing of a timely claim for refund;
(c) a decision, judgment, decree, or other order by a court of
competent jurisdiction that has become final and is not subject to further
judicial review (by appeal or otherwise);
(d) the execution of a closing agreement under section 7121 of the
Code or the official acceptance by the IRS of an offer in compromise under
section 7122 of the Code, or comparable agreements under the laws of other
jurisdictions;
(e) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund disallowed in whole or
part by the IRS or any other taxing authority with which a claim for
refund could be or was filed;
(f) a change in applicable Income Tax law rendering one or more of
the Tax Assumptions inaccurate;
(g) any other final disposition of the tax liability for such period
by reason of the expiration of the applicable statute of limitations; or
(h) the mutual agreement of the Company and the Representative;
to the effect that Litigation Proceeds or Non-Cash Proceeds are or are not
includible in gross income in whole or in part, or more or less deduction
is allowed in respect of payments of the CVR Payment Amount than is
provided for in the Tax Assumptions; provided that no such Tax
Determination shall be deemed to be made unless (i) it is made prior to
date on which any Litigation Proceeds or Non-Cash Proceeds are received by
the Company or its Subsidiaries, or (ii) if made after such date, it has
the effect of increasing the CVR Payment Amount. In the event of the
occurrence of a Tax Determination after the date that any Litigation
Proceeds or Non-Cash Proceeds are received, the Company, as soon as
practicable, shall recompute the CVR Payment Amount, and pay to the
Holders any excess of the recomputed CVR Payment Amount over the CVR
Payment Amount that was initially calculated, plus interest as provided in
Section 2.4(g) hereof.
Section 1.2 Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments, executed by the requisite percentage of the Holders in
accordance with this Agreement, are delivered to the Representative and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Unless otherwise expressly
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provided to the contrary herein, the Act of the Holders of a majority of
the outstanding CVRs shall constitute the Act of the Holders.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner that the
Representative deems sufficient.
(c) The ownership of CVRs shall be proved by the CVR Register.
Section 1.3 Notices to Representative and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with:
(a) the Representative by any Holder or the Company shall be
sufficient for every purpose hereunder if in writing and delivered
personally, or mailed first-class postage prepaid or sent by a nationally
recognized overnight courier to the Representative addressed to him at
0000 Xxxx Xxxxx, Xxxxxxx, Xxx Xxxxxx 00000, or at any other address
previously furnished in writing to the Holders and the Company by the
Representative; or
(b) the Company by the Representative or by any Holder shall be
sufficient for every purpose hereunder if in writing and delivered
personally, telecopied or mailed first-class postage prepaid or sent by a
nationally recognized overnight courier to the Company addressed to it at
00000 Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, Attention: Chief
Executive Officer, facsimile (000) 000-0000 or at any other address
previously furnished in writing to the Representative and the Holders by
the Company.
Section 1.4 Notice to Holders. Where this Agreement provides for notice to
Holders, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his, her or its address as it appears in
the CVR Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders.
Section 1.5 Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
Section 1.6 Successors and Assigns. All covenants and agreements in this
Agreement by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.7 Benefits of Agreement. Nothing in this Agreement, express or
implied, shall give to any Person (other than the parties hereto, the Holders
and their successors and permitted assigns hereunder) any benefit or any legal
or equitable right, remedy or claim under this Agreement or under any covenant
or provision herein contained, all such covenants and provisions being for the
sole benefit of the parties hereto, the Holders and their successors and
permitted assigns.
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Section 1.8 Governing Law. This Agreement and the CVRs shall be governed
by and construed in accordance with the laws of the State of Texas.
Section 1.9 Legal Holidays. In the event that a CVR Payment Date shall not
be a Business Day, then (notwithstanding any provision of this Agreement to the
contrary) any payment required to be made in respect of the CVRs on such date
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the applicable CVR Payment
Date.
Section 1.10 Severability Clause. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provision had never been contained herein. Upon such determination that any term
or other provision is invalid, illegal or unenforceable, the court or other
tribunal making such determination is authorized and instructed to modify this
Agreement so as to effect the original intent of the parties as closely as
possible so that the transactions and agreements contemplated herein are
consummated as originally contemplated to the fullest extent possible.
Section 1.11 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to constitute but one and the same
instrument.
Section 1.12 Effectiveness. This Agreement shall be deemed terminated and
of no force or effect, and the parties hereto shall have no liability hereunder,
if the Merger Agreement is terminated in accordance therewith prior to the
Closing (as therein defined).
Section 1.13 Entire Agreement. This Agreement and the Merger Agreement
represent the entire understanding of the parties hereto with reference to the
transactions and matters contemplated hereby and thereby and this Agreement
supercedes any and all other oral or written agreements hereto made except for
the Merger Agreement. If and to the extent that any provision of this Agreement
is inconsistent or conflicts with the Merger Agreement, this Agreement shall
govern and be controlling.
ARTICLE II
CONTINGENT VALUE RIGHTS
Section 2.1 Issuance of CVRs.
(a) At the Effective Time, the Company shall, pursuant to the Merger
Agreement, issue to each holder of Xxxxx Common Stock outstanding
immediately prior to the Effective Time (other than those who have
perfected their appraisal rights) one CVR for each share of Xxxxx Common
Stock held by such holder immediately prior to the Effective Time.
(b) The Company shall, pursuant to the Merger Agreement, issue to
each Person who exercises a Converted Stock Option prior to the first CVR
Payment Date one CVR for each share of Xxxxx Common Stock into which the
corresponding exchanged option to purchase Xxxxx Common Stock was
exercisable immediately prior to the Effective Time. No CVRs shall be
issued to any such holder of a Converted Stock
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Option who does not exercise such Converted Stock Option prior to the
first CVR Payment Date.
Section 2.2 Nontransferable. The CVRs shall not be assignable or otherwise
transferable by Holders, except by will, upon death or by operation of law.
Section 2.3 No Certificate; Registration; Registration of Transfer; Change
of Address.
(a) The CVRs shall not be evidenced by a certificate or other
instrument.
(b) The Company shall cause to be kept at the Company's principal
office a register (the register maintained in such office and in any other
office designated pursuant to this Section 2.3 being herein sometimes
referred to as the "CVR Register") in which the Company shall provide for
the registration of CVRs. The Secretary of the Company is hereby initially
appointed "CVR Registrar" for the purpose of registering CVRs and
transfers of CVRs as herein provided.
(c) Subject to the restriction on transferability set forth in
Section 2.2, every request made to the Company to transfer a CVR must be
in writing and accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company and the CVR Registrar, duly
executed by the Holder thereof, his attorney duly authorized in writing,
personal representative or survivor and setting forth in reasonable detail
the circumstances relating to the transfer. Upon receipt of such written
notice by the Company, the CVR Registrar shall, subject to his reasonable
determination that the transfer instrument is in proper form and the
transfer otherwise complies with the other terms and conditions herein,
register the transfer of the CVRs in the CVR Register. All transfers of
CVRs registered in the CVR Register shall be the valid obligations of the
Company, evidencing the same right, and shall entitle the transferee to
the same benefits and rights under this Agreement, as those held by the
transferor. No transfer of a CVR shall be valid until registered in the
CVR Register and any transfer not duly registered in the CVR Register will
be void ab initio.
(d) A Holder may make a written request to the CVR Registrar or the
Company to change such Holder's address of record in the CVR Register. The
written request must be duly executed by the Holder. Upon receipt of such
written notice by the CVR Registrar or the Company, the CVR Registrar
shall promptly record the change of address in the CVR Register.
Section 2.4 Payment Procedures.
(a) As promptly as practicable but in no event later than 30 days
after each receipt by Xxxxx Subsidiaries or any of their Affiliates of any
Litigation Proceeds or any Non-Cash Proceeds, the Company shall deliver to
the Representative a certificate (the "Litigation Proceeds Certificate")
setting forth in reasonable detail (i) the amount of any Cash Proceeds and
Realized Non-Cash Proceeds received by the Xxxxx Subsidiaries or their
Affiliates, (ii) a detailed description of Non-Cash Proceeds received by
the Company, if any, and the amount of any such Non-Cash Proceeds that the
Company has determined are includible in gross income of the Company for
federal income tax
11
purposes, (iii) the fair market value of any Realized Non-Cash Proceeds
described in clause (ii) of the definition thereof and the methodology
used, and calculations made, to determine such fair market value, (iv) an
itemized list in reasonable detail of the Claims Expenses, (v) detailed
computations of the Assumed Tax Liability and Assumed Tax Benefit, (vi)
any assumptions underlying the determination of any item used in making
the necessary calculations of the CVR Payment Amount, (vii) any financial
or other documentation reasonably necessary to sufficiently support the
calculation of the CVR Payment Amount, (viii) the amount of any Setoffs
and (ix) the calculation of the CVR Payment Amount, if any, through the
date of such Litigation Proceeds Certificate; provided, however, that if
any Litigation Proceeds or Non-Cash Proceeds are received prior to the
Effective Time, the Company shall deliver to the Representative the
Litigation Proceeds Certificate within 30 days of the Effective Time.
(b) Within 30 days of delivery of the Litigation Proceeds
Certificate, the Representative shall give written notice specifying
whether he agrees with or objects (a "Notice of Agreement" and a "Notice
of Objection", respectively) to the Litigation Proceeds Certificate, the
CVR Payment Amount and the CVR Payment Amount calculation.
(c) If the Representative delivers a Notice of Agreement and any CVR
Payment Amount is payable, the Company shall (i) establish a CVR Payment
Date with respect to such CVR Payment Amount that is within 15 days of the
date of the Notice of Agreement and (ii) not less than ten days prior to
such CVR Payment Date, give written notice to each Option Holder of the
CVR Payment Amount that will be paid to Holders on such CVR Payment Date.
On such CVR Payment Date, the Company shall then promptly cause the CVR
Payment Amount to be delivered to each of the Holders by check mailed to
the address of each Holder as reflected in the CVR Register as of the
close of business on the last Business Day prior to such CVR Payment Date.
(d) If the Representative delivers a Notice of Objection within such
30-day period, the Company shall hold an amount of cash equal to the CVR
Payment Amount, if any, set forth in the Litigation Proceeds Certificate
in a separate bank account invested in Cash Equivalents until a Resolution
is obtained pursuant to the procedures set forth in Section 2.4(e).
(e) If the Representative delivers a Notice of Objection within such
30-day period, the Representative shall as promptly as practicable
following delivery of the Notice of Objection deliver to the Company a
certificate (the "Representative Objection Certificate") setting forth in
reasonable detail each of the objections to the calculations, valuations,
methodologies, lists, computations, assumptions and other information,
including, without limitation, the Company's determination that any
Non-Cash Proceeds are includible in the Company gross income or the fair
market value of any Realized Non-Cash Proceeds described in clause (ii) of
the definition thereof (collectively, the "Determinations") that the
Representative has to the Litigation Proceeds Certificate. If the Company
does not agree with the Representative's objections to the Litigation
Proceeds Certificate, then within ten days of the delivery by the
Representative of the Representative Objection Certificate, the Company
and the Representative shall submit the portions of the Determinations set
forth in the Litigation Proceeds Certificate that are
12
in dispute to a mutually agreed upon independent public accounting firm of
national standing that shall have expertise in income and franchise tax
matters and the valuation of assets and properties (the "Firm"). If the
Company and the Representative cannot agree upon the Firm, then the
Company and the Representative agree that the Firm shall be Xxxxx Xxxxxxxx
International, provided, that Xxxxx Xxxxxxxx International has not billed
the Company for professional services within the three-year period
immediately prior to the date of the Litigation Proceeds Certificate. The
Firm shall be instructed to determine whether the Determinations set forth
in the Litigation Proceeds Certificate that are in dispute are correct. If
the Firm determines that such Determinations are correct, the CVR Payment
Amount shall be as set forth in the Litigation Proceeds Certificate, and
the Representative shall be deemed to have delivered a Notice of Agreement
with respect to such Litigation Proceeds Certificate. If the Firm
determines that any of the Determinations set forth in the Litigation
Proceeds Certificate are incorrect in any respect that causes the CVR
Payment Amount determined by the Company to be less than the CVR Payment
Amount determined by the Firm, the Firm's resulting calculation of the CVR
Payment Amount shall be binding on the parties hereto (a "Resolution"),
and in addition to the CVR Payment Amount determined by the Firm, the
Company shall pay to the Holders interest on such differential calculated
from the date that the Representative delivered its Notice of Objection at
an interest rate equal to the rate actually earned by the Company pursuant
to the investment of such funds in Cash Equivalents. All costs and
expenses billed by the Firm in connection with the performance of its
duties described herein ("Firm Expenses") shall be paid by the Company;
provided, however, that if the Company's determination of the CVR Payment
Amount is:
(i) greater than or equal to 95% of the CVR Payment Amount
determined by the Firm, then 100% of the Firm Expenses shall be
deducted from the CVR Payment Amount;
(ii) greater than or equal to 85% of the CVR Payment Amount
determined by the Firm, but less than 95% of the CVR Payment Amount
determined by the Firm, then 50% of the Firm Expenses shall be
deducted from the CVR Payment Amount; or
(iii) less than 85% of the CVR Payment Amount determined by
the Firm, then the Company shall not be reimbursed for any portion
of the Firm Expenses.
(f) If the Representative does not deliver a Notice of Agreement or
a Notice of Objection to the Litigation Proceeds Certificate within the
30-day period described above, the Representative shall be deemed to have
delivered a Notice of Agreement with respect to such Litigation Proceeds
Certificate, and, if any CVR Payment Amount is payable, the Company shall
(i) establish a CVR Payment Date with respect to such CVR Payment Amount
that is within 15 days following the last day of such 30-day period and
(ii) not less than ten days prior to such CVR Payment Date, give written
notice to each Option Holder of the CVR Payment Amount that will be paid
to Holders on such CVR Payment Date. On such CVR Payment Date, the Company
shall then promptly cause the CVR Payment Amount to be delivered to each
of the Holders by check mailed to the address of each Holder as reflected
in the CVR Register as of the close of business on the
13
last Business Day prior to such CVR Payment Date. If the Representative
delivers a Notice of Objection with respect to such Litigation Proceeds
Certificate within the 30-day period described above, after a Resolution
is obtained, the Company shall (i) establish a CVR Payment Date with
respect to such CVR Payment Amount that is within 15 days of the date of
such Resolution and (ii) not less than ten days prior to such CVR Payment
Date, give written notice to each Option Holder of the CVR Payment Amount
that will be paid to Holders on such CVR Payment Date. On such CVR Payment
Date, the Company shall then promptly cause the CVR Payment Amount to be
delivered to each of the Holders by check mailed to the address of each
Holder as reflected in the CVR Register as of the close of business on the
last Business Day prior to such CVR Payment Date.
(g) As promptly as practicable but in no event later than 30 days
after the recomputation of the Assumed Tax Liability and the Assumed Tax
Benefit pursuant to paragraph (g) of the definition of "Tax Assumptions"
herein or the occurrence of a Tax Determination after the date on which
the Litigation Proceeds were received, the Company shall pay to the
Holders any excess of the re-computed CVR Payment Amount over the CVR
Payment Amount that was initially calculated plus interest for the period
over which the payment was deferred at an interest rate equal to the rate
actually earned by the Company pursuant to the investment of such funds in
Cash Equivalents. Along with such payment, the Company shall provide to
the Holders a Litigation Proceeds Certificate setting forth the
re-calculation of the CVR Payment Amount. The standards and procedures
applicable to Litigation Proceeds Certificates and the calculation of the
CVR Payment Amount set forth in this Section 2.4 shall apply in full force
to any Litigation Proceeds Certificate delivered pursuant to this
paragraph (g).
Section 2.5 Agreements With Respect to Income Tax.
(a) The Assumed Tax Liability shall (i) if there is no Tax
Determination, be computed based on the Tax Assumptions and (ii) if there
is a Tax Determination to the effect that Litigation Proceeds or Non-Cash
Proceeds are or are not includible in gross income in whole or in part, be
computed on the basis of the Tax Assumptions as such Tax Assumptions are
modified by such Tax Determination.
(b) The Assumed Tax Benefit shall (i) if there is no Tax
Determination, be computed based on the Tax Assumptions and (ii) if there
is a Tax Determination to the effect that more or less deduction is
allowed with respect to the payment of Claims Expenses or the CVR Payment
Amount than is provided for in the Tax Assumptions, be computed on the
basis of the Tax Assumptions as such Tax Assumptions are modified by such
Tax Determination.
Section 2.6 Payments on CVRs.
(a) In the event that Xxxxx Subsidiaries or their Affiliates receive
payments of Litigation Proceeds on more than one date, then the CVR
Payment Amount with respect to any such Litigation Proceeds shall be paid
with respect to each such receipt of Litigation Proceeds and the
procedures described in Section 2.4 shall apply to each such receipt of
Litigation Proceeds. The calculation of the CVR Payment Amount following
the calculation of the initial CVR Payment Amount shall be made on a
cumulative basis
14
to reflect the receipt of all Litigation Proceeds, the payment of all
Claims Expenses, the prior payment of any CVR Payment Amounts and the
calculation of all Assumed Tax Liabilities and Assumed Tax Benefits from
the date of this Agreement to the date of determination of each such
subsequent CVR Payment Amount (it being understood, however, that in no
event shall the Holders be obligated or required to refund to the Company
or any of its Affiliates any portion of any CVR Payment Amount previously
paid to the Holders). By way of example, Exhibit B to this Agreement sets
forth a hypothetical example of how to calculate CVR Payment Amounts if
Non-Cash Proceeds, Cash Proceeds, and Realized Non-Cash Proceeds are
received by the Xxxxx Subsidiaries or their Affiliates on more than one
date.
(b) The determination by the Company and the Representative of any
CVR Payment Amount pursuant to the procedures set forth in Section 2.4,
absent a mathematical error, shall be final and binding on the Company and
each Holder.
(c) Except in the specific cases specified in this Agreement, no
interest shall accrue on any amounts payable on the CVRs to any Holder.
(d) The Company shall be entitled to deduct and withhold, or cause
to be deducted or withheld, from the CVR Payment Amount otherwise payable
pursuant to this Agreement such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts
are so withheld or paid over to or deposited with the relevant
governmental entity, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the Holder in respect of
which such deduction and withholding was made.
ARTICLE III
THE REPRESENTATIVE
Section 3.1 Certain Duties and Responsibilities.
(a) The Representative undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. The
Representative shall exercise such of the rights and powers vested in him
by this Agreement, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs; provided, however, that the
Representative shall not be liable for any acts or omissions except to the
extent that the Representative has engaged in willful misconduct or bad
faith.
(b) No provision of this Agreement shall be construed to relieve the
Representative from liability for his own willful misconduct or bad faith,
except that no provision of this Agreement shall require the
Representative to expend or risk his own funds or otherwise incur any
financial liability in the performance of any of his duties hereunder or
in the exercise of any of his rights or powers.
Section 3.2 Certain Rights of Representative. The Representative
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement, and no
15
implied covenants or obligations shall be read into this Agreement against the
Representative. In addition:
(a) the Representative shall have the right, and is hereby
authorized on behalf of the Holders, to approve or reject in writing any
settlement of any aspect or portion of the Litigation entered into by
Xxxxx Subsidiaries or their Affiliates prior to the Claims Expense
Threshold Date;
(b) the Representative may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or
other paper or document believed by him to be genuine and to have been
signed or presented by the proper party or parties;
(c) whenever the Representative shall deem it desirable that a
matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Representative may, in the absence of bad faith or
willful misconduct on his part, rely upon an Officer's Certificate;
(d) the Representative may engage and consult with counsel of his
selection and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by him hereunder in good faith and in
reliance thereon;
(e) the Representative may engage and consult with tax experts,
valuation firms and other experts and third parties that he, in his sole
and absolute discretion, deems appropriate or necessary to enable him to
discharge his duties hereunder;
(f) the permissive rights of the Representative to do things
enumerated in this Agreement shall not be construed as a duty;
(g) the Representative shall not be required to give any note or
surety in respect of the execution of the such powers or otherwise in
respect of the premises; and
(h) the initial Representative may be a Holder.
Section 3.3 Not Responsible for Recitals or Issuance of CVRs. The recitals
contained herein shall be taken as the statements of the Company, and the
Representative assumes no responsibility for their correctness. The
Representative makes no representations as to the validity or sufficiency of
this Agreement or the CVRs. The Representative shall not be accountable or
liable for the use or application by the Company of the Litigation Proceeds or
Non-Cash Proceeds.
Section 3.4 Compensation, Reimbursement and Indemnification of the
Representative. The Company agrees:
(a) to pay to the Representative at least $4,000 on the first day of
each month following the Effective Time, plus applicable New Mexico gross
receipts taxes;
16
(b) except as otherwise expressly provided herein, to pay the
Representative, upon the request of the Representative, all reasonable
expenses and disbursements incurred or to be incurred by the
Representative in accordance with any provision of this Agreement
(including, without limitation, the reasonable compensation and the
expenses and disbursements of his counsel, tax experts, valuation firms
and other experts and third parties as contemplated in Section 3.2); and
(c) to indemnify the Representative and hold him harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses and reasonable
disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable compensation and the expenses and disbursements
of his counsel, tax experts, valuation firms and other experts and third
parties as contemplated in Section 3.2) that may be imposed on, asserted
against or incurred by him under this Agreement, and the Representative
shall be so indemnified under this Agreement for his own ordinary or gross
negligence, but the Representative does not have the right to be
indemnified under this Agreement for his own willful misconduct or bad
faith.
Section 3.5 Resignation and Removal; Appointment of Successor.
(a) The Representative may resign at any time by giving written
notice thereof to the Company.
(b) The Representative may be removed at any time by Act of the
Holders of a majority of the outstanding CVRs that is delivered to the
Representative and the Company.
(c) If at any time the Representative shall become incapable of
acting, any Holder of a CVR may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Representative and the appointment of a successor
Representative.
(d) In the event that the Representative resigns, is removed or
becomes incapable of acting, then the Representative shall not be entitled
to any compensation payable pursuant to Section 3.4 from and after the
date of his resignation or removal.
(e) If the Representative shall resign, be removed or become
incapable of acting, the Company, by a Board Resolution, shall promptly
appoint a qualified successor Representative who is a Holder and not an
officer of the Company. If, within 90 days after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor
Representative shall not have been appointed by the Company, the Holders
of the CVRs may appoint any Person who is willing to serve as successor
Representative by the Act of the Holders of a majority of the outstanding
CVRs delivered to the Company. The successor Representative so appointed
shall, forthwith upon his acceptance of such appointment in accordance
with this Section 3.5(e), become the successor Representative. If no
successor Representative shall have been so appointed by the Company or
the Holders of the CVRs and so accepted his or her appointment, the Holder
of any CVR
17
may on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor
Representative.
(f) The Company shall give notice of each resignation and each
removal of a Representative and each appointment of a successor
Representative by mailing written notice of such event by first-class
mail, postage prepaid, to the Holders as their names and addresses appear
in the CVR Register. Each notice shall include the name and address of the
successor Representative. If the Company fails to send such notice within
ten days after acceptance of appointment by a successor Representative,
the successor Representative shall cause the notice to be mailed at the
expense of the Company.
Section 3.6 Acceptance of Appointment by Successor. Every successor
Representative appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Representative an instrument accepting such
appointment and a counterpart of this Agreement, and thereupon such successor
Representative, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Representative;
but, on request of the Company or the successor Representative, such retiring
Representative shall execute and deliver an instrument transferring to such
successor Representative all the rights, powers and trusts of the retiring
Representative.
Section 3.7 Assignment of Claims Act; Assignment of Litigation. If any of
the rights or duties granted to the Representative pursuant to this Agreement
are deemed to constitute a prohibited assignment of the Litigation under the
Assignment of Claims Act or otherwise deemed to violate the Assignment of Claims
Act, the rights and duties of the Representative under this Agreement shall be
amended to the fullest extent necessary so as to not violate the Assignment of
Claims Act. The Company shall not, and will not permit its Affiliates to,
"assign" (within the meaning of the Assignment of Claims Act) any interest in
the Litigation.
ARTICLE IV
HOLDERS' LISTS AND REPORTS BY REPRESENTATIVE AND COMPANY
Section 4.1 Company to Furnish Representative with Names and Addresses of
Holders. The Company shall furnish or cause to be furnished to the
Representative (a) in such form as the Representative may reasonably require,
the names and addresses of the Holders within 15 days of the Effective Time, and
(b) at such times as the Representative may request in writing, within five days
after receipt by the Company of any such request, a list, in such form as the
Representative may reasonably require, of the names and the addresses of the
Holders as of a date not more than 15 days prior to the time such list is
furnished.
ARTICLE V
COVENANTS
Section 5.1 Prosecution of Litigation by Company; Settlement; Periodic
Reports.
(a) The Company shall, and shall cause the Xxxxx Subsidiaries to,
prosecute the Litigation in good faith. In any settlement to resolve the
Litigation, the Company shall, and shall cause Xxxxx and its Subsidiaries
to, seek in good faith a settlement of the Litigation for Cash Proceeds or
Non-Cash Proceeds that will become Realized Non-Cash Proceeds as described
in clause (i) of the definition thereof in as short a period of time
18
after the settlement is entered as is reasonably practicable. At the time
that any settlement of the Litigation is entered into, the Company and the
Representative shall seek in good faith to agree on the amount, or a
methodology for determining the amount, of any Cash Proceeds, Setoffs,
Realized Non-Cash Proceeds or Non-Cash Proceeds resulting from the
settlement and of the appropriate treatment thereof for purposes of
calculating the Assumed Tax Liability.
(b) The Company shall not settle any aspect or portion of the
Litigation prior to the Claims Expense Threshold Date without obtaining
the prior written consent of the Representative (which may be denied by
the Representative in his sole and absolute discretion) and the prior
approval of the specific terms of such settlement by the Board of
Directors. The Company shall not settle any aspect or portion of the
Litigation after the Claims Expense Threshold Date without obtaining the
prior approval of the specific terms of such settlement by the Board of
Directors. The Company shall afford the Representative (i) reasonable
access to information concerning the Litigation that is in the possession,
custody or control of the Company and its Affiliates and (ii) the
reasonable assistance of the officers, employees, counsel and experts of
the Company and its Affiliates for purposes of performing the
Representative's duties under this Agreement.
(c) Until the Litigation has been settled or is final and not
subject to further judicial review (by appeal or otherwise), the Company
shall deliver to the Representative by the last Business Day of each
fiscal quarter of the Company a report describing the status of the
Litigation, which report shall describe in summary fashion, the total
Claim Expenses incurred through the date of such report, the status of all
pending court proceedings related to the Litigation, whether any new
claims or proceedings have been brought by Xxxxx Subsidiaries or their
Affiliates related to the Litigation, the status of any counterclaims
brought by the United States related to the Litigation, any Setoffs
asserted by the United States against Xxxxx Subsidiaries or their
Affiliates and the status of any settlement negotiations among Xxxxx
Subsidiaries and their Affiliates and the United States with respect to
the Litigation. Upon request by the Representative to the Company, the
Company shall provide the Representative with such additional detail as
shall be reasonably necessary to enable him to satisfy his obligations
hereunder.
(d) The Company in good faith shall convert or cause to be converted
any Non-Cash Proceeds to cash as promptly as reasonable practicable after
receiving any such Non-Cash Proceeds.
(e) The Company shall hold an amount of cash equal to the aggregate
amount of any CVR Payment Amount payable pursuant to this Agreement in a
separate bank account invested in Cash Equivalents until such cash has
been paid to the Holders.
Section 5.2 Payment of CVR Payment Amount. The Company shall duly and
promptly pay each Holder the CVR Payment Amount in the manner provided for in
Section 2.4 and in accordance with the terms of this Agreement.
Section 5.3 Tax Reporting. Neither the Company nor any of its Affiliates
shall take any position in any tax return, report or other tax filing
inconsistent with any of the Tax
19
Assumptions (other than clause (d) of the definition thereof), except to the
extent required by a Tax Determination.
ARTICLE VI
AMENDMENTS
Section 6.1 Amendments Without Consent of Holders.
(a) Without the consent of any Holders, the Company, when authorized
by a Board Resolution, and the Representative, in the Representative's
sole and absolute discretion, at any time and from time to time, may enter
into one or more amendments hereto, for any of the following purposes:
(i) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein;
(ii) to evidence the succession of another Person as a
successor Representative and the assumption by any successor of the
covenants and obligations of the Representative herein;
(iii) to add to the covenants of the Company such further
covenants, restrictions, conditions or provisions as the Board of
Directors and the Representative shall consider to be for the
protection of the Holders; provided that in each case, such
provisions shall not adversely affect the interests of the Holders;
or
(iv) to cure any ambiguity, to correct or supplement any
provision herein that may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect
to matters or questions arising under this Agreement; provided that
in each case, such provisions shall not adversely affect the
interests of the Holders.
(b) Promptly after the execution by the Company and the
Representative of any amendment pursuant to the provisions of this Section
6.1, the Company shall mail a notice thereof by first class mail to the
Holders at their addresses as they shall appear on the CVR Register,
setting forth in general terms the substance of such amendment.
Section 6.2 Amendments with Consent of Holders.
(a) With the consent of the Holders of not less than a majority of
the outstanding CVRs, by Act of such Holders delivered to the Company and
the Representative, the Company, when authorized by a Board Resolution,
and the Representative may enter into one or more amendments hereto for
the purpose of adding, eliminating or changing any provisions of this
Agreement if such addition, elimination or change is in any way adverse to
the interest of the Holders.
20
(b) It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such Act shall approve the substance thereof.
(c) Promptly after the execution by the Company and the
Representative of any amendment pursuant to the provisions of this Section
6.2, the Company shall mail a notice thereof by first class mail to the
Holders at their addresses as they shall appear on the CVR Register,
setting forth in general terms the substance of such amendment.
Section 6.3 Execution of Amendments. In executing any amendment permitted
by this Article, the Representative shall be entitled to receive, and shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement. The
Representative may, but is not obligated to, enter into any such amendment that
affects the Representative's own rights, privileges, covenants or duties under
this Agreement or otherwise.
Section 6.4 Effect of Amendments. Upon the execution of any amendment
under this Article, this Agreement shall be modified in accordance therewith,
such amendment shall form a part of this Agreement for all purposes and every
Holder shall be bound thereby.
ARTICLE VII
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 7.1 Company May Consolidate, Etc.
(a) The Company shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless:
(1) in case the Company shall consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person that
acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety (the "Surviving
Person") shall expressly assume payment of amounts on all the CVRs and the
performance of every duty and covenant of this Agreement on the part of
the Company to be performed or observed; and
(2) the Company has delivered to the Representative an
Officer's Certificate, stating that such consolidation, merger,
conveyance, transfer or lease complies with this Article VII and that all
conditions precedent herein provided for relating to such transaction have
been complied with.
(b) For purposes of this Section 7.1, "convey, transfer or lease its
properties and assets substantially as an entirety" shall mean properties
and assets contributing in the aggregate at least 80% of the Company's
total consolidated revenues as reported in the Company's last available
periodic financial report (quarterly or annual, as the case may be) filed
with the Commission.
21
Section 7.2 Successor Substituted. Upon any consolidation of or merger by
the Company with or into any other Person, or any conveyance, transfer or lease
of the properties and assets substantially as an entirety to any Person in
accordance with Section 7.1, the Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if the Surviving Person had been named as
the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Agreement and the CVRs.
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22
FRONT RANGE HIMALAYA CORPORATION
By: /s/ XXXXX X. XXXXXXX
------------------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
FRONTIER OIL CORPORATION
By: /s/ XXXXX X. XXXXXXX
------------------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------------------
Title: Executive Vice President,
---------------------------------------
Finance and Administration
---------------------------------------
XXXXX CORPORATION
By: /s/ XXXXXXX X. XXXXXXX
------------------------------------------
Name: Xxxxxxx X. Xxxxxxx
----------------------------------------
Title: President
---------------------------------------
FRONT RANGE MERGER CORPORATION
By: /s/ XXXXX X. XXXXXXX
------------------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
HIMALAYA MERGER CORPORATION
By: /s/ XXXXX X. XXXXXXX
------------------------------------------
Name: Xxxxx X. Xxxxxxx
----------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
/s/ XXXX X. XXXX
-------------------------------------
Xxxx X. Xxxx,
Representative
EXHIBIT A
DESCRIPTION OF LITIGATION
In September 2002, Xxxxx, through its Subsidiaries, Navajo Refining
Company, L.P., a Delaware limited partnership, and Montana Refining Company, a
Montana partnership (the "Subsidiary Plaintiffs"), filed suit against the
Federal Government in the United States Court of Federal Claims, Case No.
02-1220C, Navajo Refining Company, L.P. and Montana Refining Company, a
Partnership, Plaintiffs, vs. The United States, Defendant (the "Federal Claims
Lawsuit"), with respect to claims which total approximately $210 million
relating to jet fuel sales by the Subsidiary Plaintiffs to the Defense Fuel
Supply Center in the years 1982 through 1995. These claims had been filed by the
Subsidiary Plaintiffs in May and June 2001 and were denied by the Department of
Defense in November 2001. In September 2002, the Subsidiary Plaintiffs filed
additional claims with the Department of Defense under the Contract Disputes Act
asserting that additional amounts totaling approximately $88 million are due to
the Company with respect to jet fuel sales to the Defense Fuel Supply Center in
the years 1995 through 1999 (the "1995-1999 Jet Fuel Claims"). In November 2002,
the Department of Defense issued final decisions rejecting the 1995-1999 Jet
Fuel Claims. Following these decisions, the Subsidiary Plaintiffs in November
2002 filed an amended complaint in the United States Court of Federal Claims to
add the 1995-1999 Jet Fuel Claims to the Subsidiary Plaintiff's pending suit
which was filed in September 2002 and related originally to claims for the years
1982 through 1995. As a result of the amendment, the total amount sought in the
Subsidiary Plaintiff's suit for all years from 1982 through 1999 is
approximately $298 million. In January 2003, the Federal Government filed a
motion for partial summary judgment in this suit, and in February 2003, the
Subsidiary Plaintiff's filed a cross motion for partial summary judgment.
EXHIBIT B
EXAMPLE OF CALCULATION OF CVR PAYMENTS
IF LITIGATION PROCEEDS ARE RECEIVED ON MORE THAN ONE DATE
Below is a hypothetical calculation of CVR Payment Amounts using the certain
assumption:
CVR PAYMENT DATE
DECEMBER 31, 2004 DECEMBER 31, 2005 DECEMBER 31, 2006
CUMULATIVE CUMULATIVE CUMULATIVE
DECEMBER 31, 2003 YEAR TO DATE YEAR TO DATE YEAR TO DATE
----------------- ---- ------- ---- ------- ---- -------
LITIGATION PROCEEDS $ 0 $20,000,000 $20,000,000 $ 1,000,000 $21,000,000 $20,000,000 $41,000,000
TWO TIMES CLAIMS EXPENSES $ 500,000 $ 500,000 $ 1,000,000 $ 2,000,000 $ 3,000,000 $ 1,000,000 $ 4,000,000
ASSUMED TAX LIABILITY $ 8,800,000 $ 8,000,000 $16,800,000 $ 400,000 $17,200,000 $ 0 $17,200,000
ASSUMED TAX BENEFIT OF
PAYMENT OF CLAIMS EXPENSES $ 100,000 $ 100,000 $ 200,000 $ 400,000 $ 600,000 $ 200,000 $ 800,000
ASSUMED TAX BENEFIT OF CVR
PAYMENT AMOUNT UNDER SECTION 483 $ 0 $ 7,188 $ 7,188 $ 0 $ 7,188 $ 492,593 $ 499,781
ASSUMED TAX BENEFIT OF RECEIPT
OF REALIZED NON-CASH PROCEEDS
LESS THAN AMOUNT PREVIOUSLY
INCLUDED IN INCOME $ 0 $ 0 $ 0 $ 0 $ 0 $ 800,000 $ 800,000
10% OF REMAINDER OF LITIGATION
PROCEEDS MINUS TWO TIMES CLAIMS
EXPENSES 0 $ 1,900,000 $ 1,900,000 $ 0 $ 1,900,000 $ 1,800,000 $ 3,700,000
----------- ----------- ----------- -----------
CUMULATIVE CVR PAYMENT AMOUNTS $ 0 $ 507,188 $ 507,188 $18,199,781
CUMULATIVE PAYMENTS MADE ON
PRIOR CVR PAYMENT DATES $ 0 $ 0 $ 507,188 $ 507,188
----------- ----------- ----------- -----------
CVR PAYMENT AMOUNT PAYABLE
ON CVR PAYMENT DATE $ 0 $ 507,188 $ 0 $17,692,593
ASSUMPTIONS:
(1) During 2003 (i) Non-Cash Proceeds are received, the Company determines
that $22,000,000 is includible in the Company's gross income with respect
to such Non-Cash Proceeds and so indicates on the Litigation Certificate,
and the Representative does not object thereto, and (ii) $250,000 of
Claims Expenses are incurred.
(2) On December 31, 2004, $20,000,000 of Cash Proceeds are received. During
2004, $250,000 of Claims Expenses are incurred.
(3) On December 31, 2005, $1,000,000 of Cash Proceeds are received. During
2005, $1,000,000 of Claims Expenses are incurred.
(4) On December 31, 2006, the Non-Cash Proceeds received in 2003 are converted
into $20,000,000 of Realized Cash Proceeds resulting in a no additional
Assumed Tax Liability and an Assumed Tax Benefit equal to the product of
(i) the excess of the amount includible in gross income in 2003 with
respect to the Non-Cash Proceeds ($22,000,000) over the amount of Realized
Non-Cash Proceeds associated with such Non-Cash Proceeds ultimately
received ($20,000,000), and (ii) the assumed marginal income tax rate.
During 2006, $500,000 of Claims Expenses are incurred.
(5) Assumed Tax Liability and Assumed Tax Benefit based upon an assumed
combined federal, state and local marginal income tax rate of 40%.
(6) The Assumed Tax Benefit of the Section 483 interest payments is based upon
an assumed Applicable Federal Rate of 1.82%.
