As filed with the Securities and Exchange Commission on April 27, 2011

Registration No. 333-172978

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 1

to

Form S-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

HOLLY CORPORATION

(Exact name of registrant as specified in its charter)

 

 

100 Crescent Court, Suite 1600

Dallas, Texas 75201-6915

(214) 871-3555

(Address, including ZIP Code, and telephone number) Including area code, of registrant’s principal executive offices)

 

 

 

 

Denise C. McWatters

Vice President, General Counsel and Secretary

Holly Corporation

100 Crescent Court, Suite 1600

Dallas, Texas 75201-6915

(214) 871-3555

(Name, address, including ZIP code, and telephone number, Including area code, of agent for service)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed joint proxy statement/prospectus.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

o  Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

 

o  Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the Registration Statement shall become effective on such dates as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

PRELIMINARY — SUBJECT TO COMPLETION — DATED APRIL 27, 2011

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

Holly Corporation (“Holly”) and Frontier Oil Corporation (“Frontier”) have agreed to a “merger of equals” business combination (the “merger”) and have entered into an Agreement and Plan of Merger, dated as of February 21, 2011 (the “merger agreement”). Pursuant to the terms of the merger agreement, a wholly owned subsidiary of Holly will merge with and into Frontier, with Frontier surviving as a wholly owned subsidiary of Holly. Upon completion of the merger, Holly will be the parent company of Frontier and Holly’s name will be changed to HollyFrontier Corporation.

 

Upon completion of the merger, Frontier shareholders will receive 0.4811 shares of Holly common stock for each share of Frontier common stock that they own (the “exchange ratio”). The exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. Based on the closing price of Holly common stock on the New York Stock Exchange (the “NYSE”) on February 18, 2011, the last trading day before public announcement of the merger, the 0.4811 exchange ratio represented approximately $26.99 in value for each share of Frontier common stock. Based on the closing price of Holly common stock on the NYSE on [ • ], 2011, the last trading day before the date of this joint proxy statement/prospectus, the 0.4811 exchange ratio represented approximately $[ • ] in value for each share of Frontier common stock. Holly stockholders will continue to own their existing Holly shares. Holly common stock and Frontier common stock are currently traded on the NYSE under the symbols “HOC” and “FTO,” respectively. We urge you to obtain current market quotations of Holly and Frontier common stock.

 

We intend for the merger to qualify as a reorganization for U.S. federal income tax purposes. Accordingly, Frontier shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes upon the exchange of shares of Frontier common stock for shares of Holly common stock pursuant to the merger, except with respect to cash received in lieu of fractional shares of Holly common stock.

 

Based on the estimated number of shares of Holly and Frontier common stock that will be outstanding immediately prior to the closing of the merger, we estimate that, upon such closing, former Holly stockholders will own approximately 51.0% of the combined company following the merger and former Frontier shareholders will own approximately 49.0% of the combined company following the merger.

 

Holly and Frontier will each hold special meetings of their respective stockholders in connection with the proposed merger. At the Holly special meeting, Holly stockholders will be asked to vote on the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger and on the proposal to approve and adopt Holly’s amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of Holly capital stock and change the name of Holly to “HollyFrontier Corporation.” At the Frontier special meeting, Frontier shareholders will be asked to vote on the proposal to approve the merger agreement.

 

We cannot complete the merger unless the Holly stockholders approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger and the Frontier shareholders approve the merger agreement, in each case as described above. Your vote is very important, regardless of the number of shares that you own. Whether or not you expect to attend your special meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the Holly or Frontier special meeting, as applicable.

 

The Holly board of directors unanimously recommends that the Holly stockholders vote “FOR” the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, “FOR” the proposal to approve and adopt Holly’s amended and restated certificate of incorporation and “FOR” the proposal to approve the adjournment of the Holly special meeting, if necessary or appropriate, to permit further solicitation of proxies. The Frontier board of directors unanimously recommends that the Frontier shareholders vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to approve the adjournment of the Frontier special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

The obligations of Holly and Frontier to complete the merger are subject to the satisfaction or waiver of several conditions. The accompanying joint proxy statement/prospectus contains detailed information about Holly, Frontier, the special meetings, the merger agreement and the merger. You should read this joint proxy statement/prospectus carefully and in its entirety before voting, including the section entitled “Risk Factors” beginning on page 16.

 

We look forward to the successful combination of Holly and Frontier.

 

Sincerely,

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated [ • ], 2011 and is first being mailed to Holly stockholders and Frontier shareholders on or about [ • ], 2011.

 

Holly Corporation
100 Crescent Court
Suite 1600
Dallas, Texas 75201-6915
(214) 871-3555

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [ • ], 2011

 

To the Stockholders of Holly Corporation:

 

We are pleased to invite you to attend the special meeting of stockholders of Holly Corporation, a Delaware corporation (“Holly”), which will be held at The Crescent Club, 200 Crescent Court, 17th Floor, Dallas, Texas 75201, on [ • ], 2011, at [ • ] a.m., local time, for the following purposes:

 

 

Holly will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof. Please refer to the joint proxy statement/prospectus of which this notice is a part for further information with respect to the business to be transacted at the Holly special meeting.

 

The Holly board of directors has fixed the close of business on [ • ], 2011 as the record date for the Holly special meeting. Only Holly stockholders of record at that time are entitled to receive notice of, and to vote at, the Holly special meeting or any adjournment or postponement thereof. A complete list of such stockholders will be available for inspection by any Holly stockholder for any purpose germane to the special meeting during ordinary business hours for the ten days preceding the Holly special meeting at Holly’s offices at the address on this notice. The eligible Holly stockholder list will also be available at the Holly special meeting for examination by any stockholder present at such meeting.

 

Completion of the merger is conditioned on approval of the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, but it is not conditioned on approval and adoption of Holly’s amended and restated certificate of incorporation. Approval of the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger requires the approval of a majority of the votes cast at the Holly special meeting, assuming a quorum. Approval of the proposal to approve and adopt Holly’s amended and restated certificate of incorporation requires the affirmative vote of the holders of a majority of the shares of Holly common stock outstanding and entitled to vote at the special meeting. Approval of the adjournment of the Holly special

meeting to a later date or dates, if necessary or appropriate, to permit further solicitation of proxies requires the approval of a majority of the votes cast at the Holly special meeting.

 

The Holly board of directors has unanimously approved the merger and the merger agreement and unanimously recommends that Holly stockholders vote “FOR” the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, “FOR” the proposal to approve and adopt Holly’s amended and restated certificate of incorporation and “FOR” the proposal to approve the adjournment of the Holly special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

Your vote is very important. Whether or not you expect to attend the Holly special meeting in person, to ensure your representation at the Holly special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (i) accessing the internet site listed on the Holly proxy card, (ii) calling the toll-free number listed on the Holly proxy card or (iii) submitting your Holly proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Holly stock who is present at the Holly special meeting may vote in person, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before the Holly special meeting in the manner described in the accompanying document. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the bank, broker or other nominee.

 

The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement and the other matters to be considered at the Holly special meeting. We urge you to carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your shares of Holly common stock, please contact Holly’s proxy solicitor:

 

Georgeson, Inc.
199 Water Street, 26^th Floor
New York, New York 10038
(866) 482-4943

 

By Order of the Holly Board of Directors,

 

Denise C. McWatters
Vice President, General Counsel and Secretary

 

Dallas, Texas

[ • ], 2011

 

Frontier Oil Corporation
10000 Memorial Drive, Suite 600
Houston, TX 77024-3411
(713) 688-9600

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On [ • ], 2011

 

To the Shareholders of Frontier Oil Corporation:

 

We are pleased to invite you to attend the special meeting of shareholders of Frontier Oil Corporation, a Wyoming corporation (“Frontier”), which will be held at the offices of Andrews Kurth LLP, 600 Travis, Suite 4200, Houston, Texas 77002, on [ • ], 2011, at [ • ], local time, for the following purposes:

 

 

Frontier will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof. Please refer to the joint proxy statement/prospectus of which this notice is a part for further information with respect to the business to be transacted at the Frontier special meeting.

 

The Frontier board of directors has fixed the close of business on [ • ], 2011 as the record date for the Frontier special meeting. Only Frontier shareholders of record at that time are entitled to receive notice of, and to vote at, the Frontier special meeting or any adjournment or postponement thereof. A complete list of such shareholders will be available for inspection by any Frontier shareholder for any purpose germane to the special meeting during ordinary business hours for the ten days preceding the Frontier special meeting at Frontier’s headquarters, 10000 Memorial Drive, Suite 600, Houston, Texas 77024. The eligible Frontier shareholder list will also be available at the Frontier special meeting for examination by any shareholder present at such meeting.

 

Approval of the merger agreement requires the approval of a majority of the votes cast at the Frontier special meeting, assuming a quorum. Approval of the adjournment of the Frontier special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation of proxies requires the approval of a majority of the votes cast at the Frontier special meeting.

 

The Frontier board of directors has unanimously adopted the merger agreement and unanimously recommends that Frontier shareholders vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to approve the adjournment of the Frontier special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

Your vote is very important. Whether or not you expect to attend the Frontier special meeting in person, to ensure your representation at the Frontier special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (i) accessing the internet site listed on the Frontier proxy card, (ii) calling

the toll-free number listed on the Frontier proxy card or (iii) submitting your Frontier proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Frontier stock who is present at the Frontier special meeting may vote in person, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before the Frontier special meeting in the manner described in the accompanying document. If your shares are held in a Frontier plan or in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction card furnished by the plan trustee or administrator, or record holder, as appropriate.

 

The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement. We urge you to carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your shares of Frontier common stock, please contact Frontier’s proxy solicitor:

 

Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
(212) 750-5833

 

By Order of the Frontier Board of Directors,

 

J. Currie Bechtol
Vice President-General Counsel & Secretary

 

Houston, Texas
[ • ], 2011

ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates important business and financial information about Holly and Frontier from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus free of charge by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

 

Investors may also consult Holly’s or Frontier’s website for more information about Holly or Frontier, respectively. Holly’s website is www.hollycorp.com. Frontier’s website is www.frontieroil.com. Information included on these websites is not incorporated by reference into this joint proxy statement/prospectus.

 

If you would like to request any documents, please do so by [ • ], 2011 in order to receive them before the special meetings.

 

For a more detailed description of the information incorporated by reference in this joint proxy statement/prospectus and how you may obtain it, see “Where You Can Find More Information” beginning on page 129.

 

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

 

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Holly, constitutes a prospectus of Holly under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Holly common stock to be issued to Frontier shareholders in connection with the merger. This joint proxy statement/prospectus also constitutes a joint proxy statement for both Holly and Frontier under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting of Holly stockholders and a notice of meeting with respect to the special meeting of Frontier shareholders.

 

You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [ • ], 2011. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither our mailing of this joint proxy statement/prospectus to Holly stockholders or Frontier shareholders nor the issuance by Holly of shares of common stock pursuant to the merger will create any implication to the contrary.

 

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this joint proxy statement/prospectus regarding Holly has been provided by Holly and information contained in this joint proxy statement/prospectus regarding Frontier has been provided by Frontier.

 

All references in this joint proxy statement/prospectus to “Holly” refer to Holly Corporation, a Delaware corporation; all references in this joint proxy statement/prospectus to “Merger Sub” refer to North Acquisition, Inc., a Wyoming corporation and wholly owned subsidiary of Holly formed for the sole purpose of effecting the merger; all references in this joint proxy statement/prospectus to “Frontier” refer to Frontier Oil Corporation, a Wyoming corporation; unless otherwise indicated or as the context requires, all references in this joint proxy statement/prospectus to “we,” “our” and “us” refer to Holly and Frontier collectively; and, unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of February 21, 2011, by and among Holly Corporation, North Acquisition, Inc. and Frontier Oil Corporation, a copy of which is included as Annex A to this joint proxy statement/prospectus. Holly and Frontier, subject to and following completion of the merger, are sometimes referred to in this joint proxy statement/prospectus as the “combined company.”

TABLE OF CONTENTS

 

 

The following are some questions that you, as a Holly stockholder or a Frontier shareholder, may have regarding the merger and the other matters being considered at the special meetings and the answers to those questions. Holly and Frontier urge you to carefully read the remainder of this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes in their entirety because the information in this section does not provide all of the information that might be important to you with respect to the merger and the other matters being considered at the special meetings.

 

 

 

 

 

 

SUMMARY

The Companies

 

The Merger

	•	approval of the merger agreement by a majority of the votes cast at the Frontier special meeting;
	•	approval of the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger requires the affirmative vote of holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Holly special meeting, assuming a quorum;
	•	the expiration or earlier termination of the waiting period (and any extension thereof) applicable to the merger under the HSR Act;
	•	the expiration of any mandatory waiting period and receipt of any required consent under any other applicable United States federal or state antitrust laws, except where the failure to observe such waiting period or obtain such consent would not reasonably be expected to delay or prevent the consummation of the merger or have a material adverse effect on the expected benefits of the transactions contemplated by the merger agreement to Holly;
	•	absence of any injunction, decree, order, statute, rule or regulation by a court or other governmental entity that makes unlawful or prohibits the consummation of the merger;
	•	effectiveness of the registration statement of which this joint proxy statement/prospectus forms a part and the absence of a stop order or proceedings threatened or initiated by the SEC for that purpose;
	•	authorization for the listing on the NYSE of the shares of Holly common stock to be issued in connection with the merger and upon conversion of the Frontier restricted stock and the shares of Holly common stock reserved for issuance pursuant to Holly stock options, subject to official notice of issuance; and
	•	the entry into and effectiveness of a new credit facility, on the terms as set forth in the merger agreement and the schedules thereto, subject only to the consummation of the merger.

	•	the representations and warranties of the other party, other than the representations related to the shares of capital stock authorized, issued and outstanding or reserved for issuance and the absence of any outstanding voting debt, (i) to the extent qualified by material adverse effect, will be true and correct, and (ii) to the extent not qualified by material adverse effect, will be true and correct except where the failure to be true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a material adverse effect on such party as of the date of the merger agreement and as of the closing date (other than those representations and warranties that were made only as of a specified date, which need only be true and correct as of such specified date);
	•	the representations and warranties of the other party relating to the shares of capital stock authorized, issued and outstanding or reserved for issuance and the absence of any outstanding voting debt will be true and correct in all respects (other than de minimis inaccuracies) as of the date of the merger agreement and as of

		the closing date (except to the extent such representations or warranties were made only as of a specified date, in which case, as of such specified date);

	•	the other party having performed, in all material respects, its covenants and agreements under the merger agreement required to be performed on or prior to the closing date;
	•	receipt of a certificate executed by the other party’s chairman of the board, president and chief executive officer as to the satisfaction of the conditions described in the preceding three bullets; and
	•	receipt of a tax opinion from the party’s tax counsel as described in the section titled “The Merger Agreement — Conditions to Completion of the Merger,” including an opinion that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code.

 

The Meetings

	•	a proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger;
	•	a proposal to approve and adopt Holly’s amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of Holly capital stock and change the name of Holly to “HollyFrontier Corporation;” and
	•	a proposal to approve the adjournment of the Holly special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the first proposal listed above.

	•	a proposal to approve the merger agreement, which is further described in the sections titled “The Merger” and “The Merger Agreement,” beginning on pages 33 and 90, respectively; and
	•	a proposal to approve the adjournment of the Frontier special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the foregoing proposal.

 

Summary Historical Consolidated Financial Data

		Years Ended December 31,
		2010				2009				2008				2007				2006
		(In millions, except per share data)
Sales and other revenues		$	8,323			$	4,834			$	5,860			$	4,791			$	4,023
Total operating costs and expenses			8,060				4,754				5,665				4,325				3,661
Operating income			263				80				196				466				362
Interest expense			74				40				24				1				1
Income tax provision			59				7				64				165				137
Income from continuing operations			133				36				124				334				247
Net income			133				53				127				334				267
Net income attributable to Holly Corporation stockholders		$	104			$	20			$	121			$	334			$	267
Earnings per share attributable to Holly Corporation stockholders:
Basic:		$	1.95			$	0.39			$	2.40			$	6.09			$	4.68
Diluted:		$	1.94			$	0.39			$	2.38			$	5.98			$	4.58

		As of December 31,
		2010				2009				2008				2007				2006
		(In millions)
Cash and cash equivalents		$	229			$	125			$	41			$	94			$	154
Total assets			3,701				3,146				1,874				1,664				1,238
Long-term debt(1)			811				707				342				—				—
Total Holly Corporation stockholders’ equity			697				619				542				594				466

(1)		Includes long-term debt of HEP of $482 million, $379 million and $342 million as of December 31, 2010, 2009 and 2008, respectively, which is non-recourse to Holly.

		Years Ended December 31,
		2010				2009				2008				2007				2006
		(In millions, except per share data)																As Adjusted(1)
Revenues		$	5,885			$	4,237			$	6,499			$	5,189			$	4,796
Operating costs and expenses			5,801				4,343				6,147				4,589				4,229
Operating income (loss)			84				(105	)			351				600				567
Interest expense and other financing costs, net of interest and investment income			30				26				10				(13	)			(6	)
Provision (benefit) for income taxes			16				(48	)			116				211				198
Net income (loss)		$	38			$	(84	)		$	226			$	402			$	375
Earnings (loss) per share:
Basic:		$	0.36			$	(0.81	)		$	2.19			$	3.77			$	3.36
Diluted:		$	0.36			$	(0.81	)		$	2.18			$	3.73			$	3.33

		As of December 31,
		2010				2009				2008				2007				2006
		(In millions)
Cash and cash equivalents		$	559			$	425			$	484			$	297			$	405
Total assets			2,169				2,148				2,006				1,706				1,463
Total long-term debt			348				347				347				150				150
Shareholders’ equity			987				944				1,039				881				715

(1)		In the fourth quarter of 2009, Frontier adopted a change in accounting principle for inventory from a FIFO (first-in, first-out) basis to a LIFO (last-in, last-out) basis. The prior period presented has been adjusted to reflect the period specific effects of applying the new accounting principle.

		Year Ended
		December 31, 2010
		(In millions, except per
		share data)
Statement of Income Data:
Sales and other revenues		$	14,208
Income from operations		$	395
Income tax provision		$	95
Net income attributable to common stockholders		$	174
Earnings per share attributable to common stockholders — basic		$	1.66
Earnings per share attributable to common stockholders — diluted		$	1.65

		December 31, 2010
		(In millions)
Balance Sheet Data:
Cash, cash equivalents and investments in marketable securities		$	763
Total assets		$	8,229
Long-term debt(1)		$	1,179
Total stockholders’ equity		$	3,693

(1)		Includes $482 million in long-term debt of HEP which is non-recourse to Holly.

 

Unaudited Comparative Per Share Data

		Year Ended
Holly — Historical		December 31, 2010
Earnings per share:
Basic		$	1.95
Diluted		$	1.94
Book value per share of common stock		$	13.09
Cash dividends		$	0.60

		Year Ended
Frontier — Historical		December 31, 2010
Earnings per share:
Basic		$	0.36
Diluted		$	0.36
Book value per share of common stock		$	9.33
Cash dividends		$	—

		Year Ended
Holly Unaudited Pro Forma Combined Amounts		December 31, 2010
Earnings per share:
Basic		$	1.66
Diluted		$	1.65
Pro forma book value per share of common stock		$	35.28
Cash dividends		$	0.60

		Year Ended
Frontier Unaudited Pro Forma Equivalent Per Share Data(a)		December 31, 2010
Earnings per share:
Basic		$	0.80
Diluted		$	0.79
Pro forma book value per share of common stock		$	16.97
Cash dividends		$	0.29

(a)		The Frontier unaudited pro forma equivalent per share financial information is computed by multiplying the Holly unaudited pro forma combined amounts by the exchange ratio (0.4811 shares of Holly common stock for each share of Frontier common stock) so that the per share amounts are equated to the respective values for one share of Frontier common stock.

 

Comparative Market Prices

										Implied Value for
										Each Share of
		Holly Common				Frontier Common				Frontier Common
		Stock				Stock				Stock
February 18, 2011		$	56.11			$	28.12			$	26.99
[ • ], 2011		$	[ • ]			$	[ • ]			$	[ • ]

 

This joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus contain forward-looking statements within the meaning of the federal securities laws that are not limited to historical facts, but reflect Holly’s and/or Frontier’s current beliefs, expectations or intentions regarding future events. Words such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, Holly’s and Frontier’s expectations with respect to the synergies, costs and other anticipated financial impacts of the proposed transaction; future financial and operating results of the combined company; the combined company’s plans, objectives, expectations and intentions with respect to future operations and services; approval of the proposed transaction by stockholders and by governmental regulatory authorities; the satisfaction of the closing conditions to the proposed transaction; and the timing of the completion of the proposed transaction.

 

All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of Holly and Frontier and are difficult to predict. These risks and uncertainties also include those set forth under “Risk Factors,” beginning on page 16, as well as, among others, risks and uncertainties relating to:

 

 

Holly and Frontier caution that the foregoing list of factors is not exclusive. Additional information concerning these and other risk factors is contained in Holly’s and Frontier’s most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K, and other SEC filings. All subsequent written and oral forward-looking statements concerning Holly, Frontier, the proposed transaction or other matters and attributable to Holly or Frontier or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements speak only as of the date made and, other than as required by law, neither Holly nor Frontier undertake any obligation to update publicly or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

 

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section entitled “Special Note Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger and the proposal to approve and adopt Holly’s amended and restated certificate of incorporation, in the case of Holly stockholders, or for the proposal to approve the merger agreement, in the case of Frontier shareholders. In addition, you should read and consider the risks associated with each of the businesses of Holly and Frontier because these risks will also affect the combined company following the merger. These risks can be found in the Annual Reports on Form 10-K for the fiscal year ended December 31, 2010 for each of Holly and Frontier, as such risks may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, to the extent incorporated by reference into this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 129.

 

The exchange ratio is fixed and will not be adjusted in the event of any change in either Holly’s or Frontier’s stock price.

 

Upon closing of the merger, each share of Frontier common stock will be converted into the right to receive 0.4811 shares of Holly common stock. This exchange ratio will not be adjusted for changes in the market price of either Holly common stock or Frontier common stock between the date of signing the merger agreement and completion of the merger. Changes in the price of Holly common stock prior to the merger will affect the value of Holly common stock that Frontier common shareholders will receive on the date of the merger. The exchange ratio will be adjusted appropriately to fully reflect the effect of any reorganization, reclassification, recapitalization, stock split, split-up, stock dividend or stock distribution (including any dividend or distribution of securities convertible into Holly common stock or Frontier common stock), combination or exchange of shares with respect to, or rights issued in respect of, Holly common stock or Frontier common stock between the date of signing the merger agreement and completion of the merger.

 

The prices of Holly common stock and Frontier common stock at the closing of the merger may vary from their prices on the date the merger agreement was executed, on the date of this joint proxy statement/prospectus and on the date of each stockholders meeting. As a result, the value represented by the exchange ratio will also vary. For example, based on the range of closing prices of Holly common stock during the period from February 18, 2011, the last trading day before public announcement of the merger, through [ • ], 2011, the latest practicable trading date before the date of this joint proxy statement/prospectus, the exchange ratio represented a value ranging from a high of $[ • ] to a low of $[ • ] for each share of Frontier common stock.

 

In addition, the merger might not be completed until a significant period of time has passed after the respective special stockholder meetings. Because the exchange ratio will not be adjusted to reflect any changes in the market value of Holly common stock or Frontier common stock, the market value of the Holly common stock issued in connection with the merger and the Frontier common stock surrendered in connection with the merger may be higher or lower than the values of those shares on earlier dates. Stock price changes may result from, among other things, changes in the business, operations or prospects of Holly or Frontier prior to or following the merger, litigation or regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of Holly and Frontier. Neither Holly nor Frontier is permitted to terminate the merger agreement solely because of changes in the market price of either company’s common stock.

 

Current Holly and Frontier stockholders will have a reduced ownership and voting interest in the combined company after the merger.

 

Based on the estimated number of shares of Frontier common stock and Frontier equity awards that will be outstanding immediately prior to the closing of the merger, we estimate that Holly will issue or reserve for issuance

approximately 51,608,956 million shares of Holly common stock to Frontier shareholders in the merger (including shares of Holly common stock to be issued in connection with outstanding Frontier equity awards). As a result of these issuances, current Holly and Frontier stockholders are expected to hold approximately 51% and 49%, respectively, of the combined company’s outstanding common stock immediately following completion of the merger.

 

Holly and Frontier stockholders currently have the right to vote for their respective directors and on other matters affecting the applicable company. When the merger occurs, each Frontier shareholder that receives shares of Holly common stock will become a stockholder of Holly (proposed to be renamed HollyFrontier Corporation) with a percentage ownership of the combined company that will be smaller than the shareholder’s percentage ownership of Frontier. Correspondingly, each Holly stockholder will remain a stockholder of Holly (proposed to be renamed HollyFrontier Corporation) with a percentage ownership of the combined company that will be smaller than the stockholder’s percentage of Holly prior to the merger. As a result of these reduced ownership percentages, Holly stockholders will have less voting power in the combined company than they now have with respect to Holly, and Frontier shareholders will have less voting power in the combined company than they now have with respect to Frontier.

 

The merger is subject to the receipt of consents and clearances from regulatory authorities that may impose conditions that could have an adverse effect on Holly, Frontier or the combined company or, if not obtained, could prevent completion of the merger.

 

Before the merger may be completed, applicable waiting periods must expire or terminate under antitrust and competition laws. In deciding whether to grant antitrust or regulatory clearances, the relevant governmental entities will consider the effect of the merger on competition within their relevant jurisdiction. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. The merger agreement may require Holly and/or Frontier to comply with conditions imposed by regulatory entities and, in certain circumstances, either company may refuse to close the merger on the basis of those regulatory conditions. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the merger or imposing additional material costs on or materially limiting the revenues of the combined company following the merger. In addition, neither Holly nor Frontier can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. For a more detailed description of the regulatory review process, see the section entitled “The Merger — Regulatory Clearances Required for the Merger” beginning on page 85.

 

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company.

 

Holly and Frontier are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. The combined company’s success after the merger will depend in part upon the ability of Holly and Frontier to retain key management personnel and other key employees. Current and prospective employees of Holly and Frontier may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the ability of each of Holly and Frontier to attract or retain key management and other key personnel. Accordingly, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of Holly and Frontier to the same extent that Holly and Frontier have previously been able to attract or retain their own employees.

 

Holly and Frontier may be unable to obtain in the anticipated timeframe, or at all, an acceptable credit facility in an amount sufficient to fund the combined business after the merger.

 

Completion of the merger is contingent upon, among other things, the combined company being able to enter into a credit facility, on the terms as set forth in the merger agreement and the schedules thereto, to be effective immediately following consummation of the merger. Holly and Frontier can provide no assurance that acceptable debt financing will be obtained on reasonable terms or at all or that the financing will not contain terms, conditions

or restrictions that would be detrimental to the combined company after completion of the merger. Obtaining the financing is dependent on numerous factors, including market conditions, credit availability from financial institutions and both companies’ financial performance. See “The Merger — Credit Agreements” beginning on page 87.

 

Satisfying the conditions to, and completion of, the merger may take longer than, and could cost more than, Holly and Frontier expect. Any delay in completing or any additional conditions imposed in order to complete the merger may materially and adversely affect the synergies and other benefits that Holly and Frontier expect to achieve from the merger and the integration of their respective businesses.

 

In addition to the required regulatory clearances, the merger is subject to a number of other conditions beyond Holly’s and Frontier’s control that may prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger could cause the combined company not to realize some or all of the synergies that we expect to achieve if the merger is successfully completed within its expected time frame. See “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 100.

 

Failure to complete the merger could negatively impact the future business and financial results of Holly and Frontier.

 

Neither Holly nor Frontier can make any assurances that it will be able to satisfy all of the conditions to the merger or succeed in any litigation brought in connection with the merger. If the merger is not completed, the financial results of Holly and/or Frontier may be adversely affected and Holly and/or Frontier will be subject to several risks, including but not limited to:

 

 

If the merger is not completed, Frontier and Holly cannot assure their stockholders that these risks will not materialize and will not materially and adversely affect the business, financial results and stock prices of Frontier or Holly.

 

Several lawsuits have been filed against Holly and Frontier challenging the merger, and an adverse ruling may prevent the merger from being completed.

 

Frontier and the members of Frontier’s board of directors were named as defendants, and in some cases Holly and Merger Sub were named as aiders and abetters, in several lawsuits brought by Frontier shareholders challenging the proposed merger and seeking, among other things, injunctive relief to enjoin the defendants from completing the merger on the agreed-upon terms, compensatory damages, and costs and disbursements relating to the lawsuits. To date, such shareholder actions have been filed in Harris County, Texas, Laramie County, Wyoming, the U.S. District Court for the Northern District of Texas and the U.S. District Court for the Southern District of Texas. On March 25, 2011, the lawsuits pending in the District Courts of Harris County, Texas were consolidated, and interim class counsel was appointed on April 12, 2011.

 

One of the conditions to the closing of the merger is that no decree, order or injunction shall be in effect that prevents completion of the merger. Consequently, if a settlement or other resolution is not reached in the lawsuits

referenced above and the plaintiffs secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting the defendants’ ability to complete the merger, then such injunctive or other relief may prevent the merger from becoming effective within the expected timeframe or at all.

 

If the merger does not qualify as a reorganization under Section 368(a) of the Code, the shareholders of Frontier may be required to pay substantial U.S. federal income taxes.

 

As a condition to the completion of the merger, each of Vinson & Elkins L.L.P, tax counsel to Holly, and Andrews Kurth LLP, tax counsel to Frontier, will have delivered the tax opinion described in the section titled “The Merger Agreement — Conditions to Completion of the Merger,” dated as of the closing date of the merger, including an opinion that the merger will be treated for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. These opinions will be based on certain assumptions and representations as to factual matters from Holly and Frontier, as well as certain covenants and undertakings by Holly and Frontier. If any of the assumptions, representations, covenants or undertakings is incorrect, incomplete, inaccurate or is violated in any material respect, the validity of the conclusions reached by counsel in their opinions would be jeopardized. In addition, an opinion of counsel represents counsel’s best legal judgment but is not binding on the IRS or any court, so there can be no certainty that the IRS will not challenge the conclusions reflected in the opinions or that a court will not sustain such a challenge. If the IRS or a court determines that the merger should not be treated as a “reorganization,” a holder of Frontier common stock would recognize taxable gain or loss upon the exchange of Frontier common stock for Holly common stock pursuant to the merger. See “Material U.S. Federal Income Tax Consequences” beginning on page 105.

 

The merger agreement contains provisions that could discourage a potential competing acquiror of either Holly or Frontier.

 

The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict each of Holly’s and Frontier’s ability to solicit, initiate, or knowingly induce, encourage or facilitate competing third-party proposals for the acquisition of their company’s stock or assets. In addition, the other party generally has an opportunity to offer to modify the terms of the merger in response to any competing acquisition proposals before the board of directors of the company that has received a third-party proposal may withdraw or qualify its recommendation with respect to the merger. In some circumstances, upon termination of the merger agreement, one of the parties will be required to pay a termination fee of $80 million to the other party. See “The Merger Agreement — No Solicitation of Alternative Proposals” beginning on page 94, “The Merger Agreement — Termination of the Merger Agreement” beginning on page 101 and “The Merger Agreement — Expenses and Termination Fees; Liability for Breach” beginning on page 102.

 

These provisions could discourage a potential third-party acquiror that might have an interest in acquiring all or a significant portion of Holly or Frontier from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger or might result in a potential third-party acquiror proposing to pay a lower price to the stockholders than it might otherwise have proposed to pay because of the added expense of the $80 million termination fee that may become payable in certain circumstances.

 

If the merger agreement is terminated and either Holly or Frontier determines to seek another business combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.

 

Holly’s and Frontier’s executive officers and directors have interests in the merger that may be different from, or in addition to, the interests of Holly and Frontier stockholders generally.

 

Holly’s and Frontier’s executive officers and directors have interests in the merger that may be different from, or in addition to, the interests of Holly and Frontier stockholders generally. Holly’s executive officers and Frontier’s executive officers negotiated the terms of the merger agreement. The executive officers of Holly and Frontier have arrangements with Holly or Frontier, as applicable, that provide for severance benefits if their employment is terminated under certain circumstances following the completion of the merger. In addition, certain of Holly’s and

Frontier’s compensation and benefit plans and arrangements provide for payment or accelerated vesting or distribution of certain rights or benefits upon completion of the merger. Executive officers and directors of Frontier also have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the merger.

 

Upon completion of the merger, Mr. Clifton will serve as Executive Chairman of the board of directors of the combined company, Mr. Jennings will serve as the President and Chief Executive Officer of the combined company, and Mr. Aron will serve as the Executive Vice President and Chief Financial Officer of the combined company. Immediately following the effective time of the merger, the board of directors of the combined company will consist of fourteen members, including the current seven directors of Holly and the current seven directors of Frontier.

 

The Holly and Frontier boards of directors were aware of these interests at the time each approved the merger and the transactions contemplated by the merger agreement. These interests may cause Holly’s and Frontier’s directors and executive officers to view the merger proposal differently and more favorably than you may view it. See “The Merger — Interests of Holly Directors and Executive Officers in the Merger” and “The Merger — Interests of Frontier Directors and Executive Officers in the Merger” beginning on pages 76 and 80, respectively, for more information.

 

The failure to integrate successfully the businesses of Holly and Frontier in the expected time frame would adversely affect the combined company’s future results following the merger.

 

The merger involves the integration of two companies that have previously operated independently. The success of the merger will depend, in large part, on the ability of the combined company following the merger to realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from combining the businesses of Holly and Frontier. To realize these anticipated benefits, the businesses of Holly and Frontier must be successfully integrated. This integration will be complex and time-consuming. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in the combined company not achieving the anticipated benefits of the merger.

 

Potential difficulties that may be encountered in the integration process include the following:

 

 

Any of these difficulties in successfully integrating the businesses of Holly and Frontier, or any delays in the integration process, could adversely affect the combined company’s ability to achieve the anticipated benefits of the merger and could adversely affect the combined company’s business, financial results, financial condition and stock price. Even if the combined company is able to integrate the business operations of Holly and Frontier successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that Holly and Frontier currently expect from this integration or that these benefits will be achieved within the anticipated time frame.

The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the merger.

 

Following the merger, the size of the business of the combined company will increase significantly beyond the current size of either Holly’s or Frontier’s business. The combined company’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the merger.

 

The combined company is expected to incur substantial expenses related to the merger and the integration of Holly and Frontier.

 

The combined company is expected to incur substantial expenses in connection with the merger and the integration of Holly and Frontier. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, billing, payroll, pricing, revenue management, maintenance, marketing and benefits. While Holly and Frontier have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses likely will result in the combined company taking significant charges against earnings following the completion of the merger, and the amount and timing of such charges are uncertain at present.

 

Uncertainty about the merger and diversion of management could harm the combined company following the merger.

 

The merger could result in current and prospective employees experiencing uncertainty about their future with the combined company following the merger. These uncertainties may impair the ability of the combined company to retain, recruit or motivate key personnel. In addition, completion of the merger and integrating the companies’ operations will require a significant amount of time and attention from management of the two companies. The diversion of management’s attention away from ongoing operations could adversely affect business relationships of the combined company following the merger.

 

Covenants in the debt agreements of Holly and Frontier contain, and any future financing agreements of the combined company may contain, operating and financial restrictions that might constrain the business and financing activities of the combined company following the merger.

 

The operating and financial restrictions and covenants in Holly’s and Frontier’s debt agreements, including Holly’s and Frontier’s senior notes, and any future financing agreements of the combined company following the merger, including the new revolving credit facility to be entered into simultaneously with the closing of the merger, could adversely affect the combined company’s ability to finance future operations or capital needs or to engage, expand or pursue its business activities. The terms of the new revolving credit facility (including with respect to interest rates, collateral, restrictive covenants, events of default, guarantees and prepayment provisions) will be negotiated and are not currently known. Depending upon the terms of the new credit facility, if the combined company fails to satisfy the covenants set forth in the new credit facility or another event of default occurs under the facility, the maturity of the loans outstanding thereunder could be accelerated or the combined company could be prohibited from borrowing for its future working capital needs and issuing letters of credit. The combined company might not have, or be able to obtain, sufficient funds to make these immediate payments. Should the combined company desire to undertake a transaction that is prohibited by the covenants in its new credit facility, senior notes or other debt agreements, the combined company will need to obtain consent under such debt agreements or refinance them. Such refinancing may not be possible or may not be available on commercially acceptable terms. In addition, although the terms of the new revolving credit facility will be negotiated and are not currently known, the

combined company’s obligations under the new credit facility are anticipated to be secured by certain assets of the combined company. If the combined company is unable to repay its indebtedness under the new credit facility when due, the lenders could seek to foreclose on such assets. Any of these outcomes could have a material adverse effect on the business, financial condition and results of operations of the combined company.

 

The application of the acquisition method of accounting may result in the combined company following the merger recording a material amount of goodwill, which could result in material future impairment charges and negatively affect the combined company’s financial results.

 

As discussed further under “Accounting Treatment,” applicable acquisition accounting rules require that, to the extent the purchase price exceeds the net fair value of Frontier’s tangible and intangible assets and liabilities, the combined company would record such excess as goodwill on its consolidated balance sheet. Goodwill is not amortized, but is tested for impairment at least annually. Impairment charges could be recorded in the combined company’s results of operations as a result of, among other items, a significant decline in the fair value of certain tangible or intangible assets, unfavorable trends in forecasted results of operations and cash flows and the uncertain economic environment, as well as other uncertainties. There can be no assurance that a material impairment charge will not occur in one or more future periods. Any such charges may materially and negatively affect the combined company’s financial results.

 

The combined company’s ability to use Frontier’s state net operating loss carryforwards and state tax credits to offset future taxable income for certain state income tax purposes may be limited as a result of the merger, or if taxable income does not reach sufficient levels.

 

As of December 31, 2010, Frontier had estimated remaining state NOLs of approximately $143.1 million in Kansas (of which $23.5 million expires after 2018 and the remainder after 2019), $47.1 million in Colorado (of which $6.8 million expires after 2028 and the remainder after 2029) and $11.1 million in Nebraska (of which $2.1 million expires after 2013 and the remainder after 2014), each of which is anticipated to be carried forward to reduce income taxes payable in future years. The state of Colorado has placed a limit on the amount of NOLs that can be utilized in each of the years 2011, 2012 and 2013 to $250,000. As of December 31, 2010, Frontier had approximately $30.9 million of Kansas income tax credits available to be taken over the years 2011 through 2019.

 

The combined company’s ability to utilize the Frontier NOLs and tax credits may be further limited if Frontier undergoes an “ownership change,” as defined in Section 382 of the Code and as such term is used in Section 383 of the Code (each of Kansas, Colorado and Nebraska state laws incorporate the Section 382 limitations, relating to limitations of NOLs, and Kansas state law incorporates the Section 383 limitations relating to limitations of tax credits). An ownership change could be triggered by substantial changes in the ownership of the outstanding stock of Frontier. An ownership change would occur if certain shareholders increase their aggregate percentage ownership of Frontier stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change. The merger is currently expected to result in an ownership change of Frontier for purposes of Section 382 and Section 383 of the Code.

 

Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOLs of the corporation that experiences an ownership change. The limitation imposed by Section 382 of the Code for any post-ownership change year generally would be determined by multiplying the value of such corporation’s stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may under certain circumstances be increased by built-in gains or reduced by built-in losses in the assets held by such corporation at the time of the ownership change. The combined company’s use of NOLs arising after the date of an ownership change would not be limited unless the combined company were to experience a subsequent ownership change.

 

Section 383 of the Code generally limits certain tax credits to an amount determined on the basis of the tax liability that is attributable to the portion of taxable income that does not exceed, generally, the Section 382 limitation.

The combined company’s ability to use the NOLs will also depend on the amount of taxable income generated in future periods. As discussed above, the NOLs may expire before the combined company can generate sufficient taxable income to utilize the NOLs.

 

Holly’s and Frontier’s businesses are and will be subject to the risks described above. In addition, Holly and Frontier are, and will continue to be, subject to the risks described in Holly’s and Frontier’s Annual Reports on Form 10-K for the fiscal year ended December 31, 2010, as such risks may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, to the extent incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 129.

 

Holly Corporation, a Delaware corporation, together with its subsidiaries, is an independent petroleum refiner in the United States that produces high value light products such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. Holly owns and operates through its subsidiaries a 100,000 bpsd refinery located in Artesia, New Mexico, a 125,000 bpsd refinery in Tulsa, Oklahoma and a 31,000 bpsd refinery in Woods Cross, Utah. Holly also owns and operates an asphalt company, which manufactures and markets asphalt products from various terminals in Arizona, New Mexico and Texas. In addition, Holly owns a 75% interest in a 12-inch refined products pipeline project from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal facilities in the Cedar City, Utah, and North Las Vegas areas. Furthermore, a subsidiary of Holly owns a 34% interest (including the general partner interest) in HEP, which owns and operates logistical assets, including approximately 2,500 miles of petroleum product and crude oil pipelines located principally in west Texas and New Mexico; ten refined product terminals; a jet fuel terminal; eight refinery loading rack facilities; a refined products tank farm facility; on-site crude oil tankage at Holly’s refineries; on-site refined product tankage at Holly’s Tulsa refinery, and a 25% interest in a 95-mile crude oil pipeline joint venture. Holly offers its products primarily in the Southwestern, Rocky Mountain, and Mid-Continent regions of the United States. Holly was founded in 1947 and is based in Dallas, Texas.

 

Holly’s common stock is traded on the NYSE under the symbol “HOC.”

 

The principal executive offices of Holly are located at 100 Crescent Court, Suite 1600, Dallas, Texas 75201-6915, and Holly’s telephone number is (214) 871-3555. Additional information about Holly and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” on page 129.

 

Frontier Oil Corporation, a Wyoming corporation, together with its subsidiaries, engages in crude oil refining and the wholesale marketing of refined petroleum products. Frontier operates refineries in Cheyenne, Wyoming and El Dorado, Kansas with a total annual average crude oil capacity of approximately 187,000 barrels per day. The Cheyenne refinery markets its refined products primarily in the eastern slope of the Rocky Mountain region, which encompasses eastern Colorado (including the Denver metropolitan area), eastern Wyoming and western Nebraska. The El Dorado refinery markets its products in Colorado, Wyoming, Nebraska, Montana, Utah, Kansas, Oklahoma, Iowa, Missouri, North Dakota and South Dakota. The company was formerly known as Wainoco Oil Corporation and changed its name to Frontier Oil Corporation in April 1998. Frontier Oil Corporation was founded in 1949 and is headquartered in Houston, Texas.

 

Frontier’s common stock is traded on the New York Stock Exchange under the symbol “FTO.”

 

The principal executive offices of Frontier are located at 10000 Memorial Drive, Suite 600, Houston, Texas 77024, and Frontier’s telephone number is (713) 688-9600. Additional information about Frontier and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” on page 129.

 

North Acquisition, Inc., a wholly owned subsidiary of Holly Corporation, is a Wyoming corporation that was formed on February 17, 2011 for the sole purpose of effecting the merger. In the merger, North Acquisition, Inc. will be merged with and into Frontier, with Frontier surviving as a wholly owned subsidiary of Holly.

 

This joint proxy statement/prospectus is being provided to the Holly stockholders as part of a solicitation of proxies by the Holly board of directors for use at the Holly special meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides Holly stockholders with information they need to know to be able to vote or instruct their vote to be cast at the Holly special meeting.

 

The special meeting of Holly stockholders will be held at The Crescent Club, 200 Crescent Court, 17^th Floor, Dallas, Texas 75201, on [ • ], 2011, at [ • ] a.m., local time.

 

At the Holly special meeting, Holly stockholders will be asked to consider and vote on the following:

 

 

Completion of the merger is conditioned on approval of the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, but it is not conditioned on approval and adoption of Holly’s amended and restated certificate of incorporation.

 

At a special meeting held on February 21, 2011, the Holly board of directors determined that the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger and the approval and adoption of Holly’s amended and restated certificate of incorporation, are in the best interests of Holly and its stockholders. Accordingly, the Holly board of directors unanimously recommends that Holly stockholders vote “FOR” the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, “FOR” the proposal to approve and adopt Holly’s amended and restated certificate of incorporation and “FOR” the proposal to approve the adjournment of the Holly special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

Holly stockholders should carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes in their entirety for more detailed information concerning the merger and the transactions contemplated by the merger agreement.

 

The record date for the Holly special meeting is [ • ], 2011. Only record holders of shares of Holly common stock at the close of business on such date are entitled to notice of, and to vote at, the Holly special meeting or any adjournment or postponement thereof. At the close of business on the record date, the only outstanding voting securities of Holly were common stock, and [ • ] shares of Holly common stock were issued and outstanding. A list of the Holly stockholders of record who are entitled to vote at the Holly special meeting will be available for inspection by any Holly stockholder for any purpose germane to the special meeting during ordinary business hours for the ten days preceding the Holly special meeting at Holly’s executive offices at 100 Crescent Court, Suite 1600,

Dallas, Texas 75201 and will also be available at the Holly special meeting for examination by any stockholder present at such meeting.

 

Each share of Holly common stock outstanding on the record date of the Holly special meeting is entitled to one vote on each proposal and any other matter coming before the Holly special meeting.

 

At the close of business on the record date of the Holly special meeting, Holly directors and executive officers and their affiliates were entitled to vote [ • ] shares of Holly common stock or approximately [ • ]% of the shares of Holly common stock outstanding on that date. We currently expect that Holly directors and executive officers and their affiliates will vote their shares in favor of all Holly proposals, but none of them has entered into any agreement obligating him or her to do so.

 

No business may be transacted at the Holly special meeting unless a quorum is present. Stockholders who hold shares representing at least a majority of the shares entitled to vote at the Holly special meeting must be present in person or represented by proxy to constitute a quorum. If a quorum is not present, or if fewer shares are voted in favor of the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger than is required, to allow additional time for obtaining additional proxies, the special meeting may be adjourned if the approval of a majority of the votes cast at the special meeting is obtained. No notice of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At any adjourned meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned meeting.

 

All shares of Holly common stock represented at the Holly special meeting, including shares that are represented but that vote to abstain, will be treated as present for purposes of determining the presence or absence of a quorum. Broker non-votes will have no effect on determining the presence or absence of a quorum.

 

The required votes to approve the Holly proposals are as follows:

 

 

If you were a record holder of Holly stock at the close of business on the record date of the Holly special meeting, a proxy card is enclosed for your use. Holly requests that you vote your shares as promptly as possible by (i) accessing the internet site listed on the Holly proxy card, (ii) calling the toll-free number listed on the Holly proxy card or (iii) submitting your Holly proxy card by mail by using the provided self-addressed, stamped envelope. Information and applicable deadlines for voting through the internet or by telephone are set forth on the

enclosed proxy card. When the accompanying proxy is returned properly executed, the shares of Holly common stock represented by it will be voted at the Holly special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy card. Your internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card.

 

If a proxy is returned without an indication as to how the shares of Holly common stock represented are to be voted with regard to a particular proposal, the Holly common stock represented by the proxy will be voted in accordance with the recommendation of the Holly board of directors and, therefore, “FOR” the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, “FOR” the proposal to approve and adopt Holly’s amended and restated certificate of incorporation and “FOR” the proposal to adjourn the Holly special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

At the date hereof, the Holly board of directors has no knowledge of any business that will be presented for consideration at the Holly special meeting and that would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in Holly’s Notice of Special Meeting of Stockholders. If any other matter is properly presented at the Holly special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

 

Your vote is important. Accordingly, if you were a record holder of Holly common stock on the record date of the Holly special meeting, please sign and return the enclosed proxy card or vote via the internet or telephone whether or not you plan to attend the Holly special meeting in person. Proxies submitted through the specified internet website or by phone must be received by 11:59 p.m., eastern time, on [ • ], 2011.

 

If you hold shares of Holly common stock through a stock brokerage account or a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you, and you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Holly or by voting in person at the Holly special meeting unless you have a “legal proxy,” which you must obtain from your broker, bank or other nominee. Furthermore, brokers, banks or other nominees who hold shares of Holly common stock on behalf of their customers may not give a proxy to Holly to vote those shares without specific instructions from their customers.

 

If you are a Holly stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee may not vote your shares on any of the Holly proposals.

 

If you plan to attend the Holly special meeting and wish to vote in person, you will be given a ballot at the special meeting. If you are a registered stockholder, please be prepared to provide proper identification, such as a driver’s license, at the Holly special meeting. If your shares are held in “street name,” you must bring to the special meeting a proxy executed in your favor from the record holder (your broker, bank or other nominee) of the shares authorizing you to vote at the special meeting.

 

If you are the record holder of Holly common stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. You can do this by:

 

 

 

A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy.

 

Written notices of revocation and other communications with respect to the revocation of proxies should be addressed as follows:

 

Holly Corporation

100 Crescent Court, Suite 1600

Dallas, Texas 75201

Attention: Secretary

 

If your shares are held in “street name” through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or nominee in accordance with its established procedures. If your shares are held in the name of a broker, bank or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special meeting will not be effective unless you have obtained and present an executed proxy issued in your name from the record holder (your broker, bank or nominee).

 

Holly has appointed Broadridge Financial Solutions, Inc. (“Broadridge”) to serve as the Inspector of Election for the Holly special meeting. Broadridge will independently tabulate affirmative and negative votes and abstentions.

 

Holly is soliciting proxies for the Holly special meeting from its stockholders. In accordance with the merger agreement, Holly will pay its own cost of soliciting proxies, including the cost of mailing this joint proxy statement/prospectus, from its stockholders. In addition to solicitation of proxies by mail, proxies may be solicited by Holly’s officers, directors and regular employees, without additional remuneration, by personal interview, telephone or other means of communication.

 

Holly will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of Holly common stock. Holly may reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

 

To help assure the presence in person or by proxy of the largest number of stockholders possible, we have engaged Georgeson, Inc., a proxy solicitation firm (“Georgeson”), to solicit proxies on Holly’s behalf. We have agreed to pay Georgeson a proxy solicitation fee not to exceed $12,500. We will also reimburse Georgeson for its reasonable out-of-pocket costs and expenses.

 

Any adjournment of the Holly special meeting may be made from time to time if the approval of the holders of a majority of the votes cast at the Holly special meeting is obtained, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting (unless the adjournment is for more than 30 days or if a new record date is fixed). If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the proposal to issue shares of Holly common stock in connection with the merger, then Holly stockholders may be asked to vote on a proposal to adjourn the Holly special meeting so as to permit the further solicitation of proxies.

 

This joint proxy statement/prospectus is being provided to the Frontier shareholders as part of a solicitation of proxies by the Frontier board of directors for use at the Frontier special meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides Frontier shareholders with information they need to know to be able to vote or instruct their vote to be cast at the Frontier special meeting.

 

The special meeting will be held at the offices of Andrews Kurth LLP, 600 Travis, Suite 4200, Houston, Texas 77002, on [ • ], 2011, at [ • ], local time.

 

At the Frontier special meeting, Frontier shareholders will be asked to consider and vote on the following:

 

 

At a special meeting held on February 21, 2011, the Frontier board of directors unanimously adopted the merger agreement and the transactions contemplated thereby and determined that the merger and the other transactions contemplated thereby are in the best interests of Frontier and its shareholders. Accordingly, the Frontier board of directors unanimously recommends that Frontier shareholders vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to approve adjournment of the Frontier special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

Frontier shareholders should carefully read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes in their entirety for more detailed information concerning the merger and the transactions contemplated by the merger agreement.

 

The record date for the Frontier special meeting is [ • ], 2011. Only record holders of shares of Frontier common stock at the close of business on such date are entitled to notice of, and to vote at, the Frontier special meeting or any adjournment or postponement thereof. At the close of business on the record date, the only outstanding voting securities of Frontier were common stock, and [ • ] shares of Frontier common stock were issued and outstanding. A list of the Frontier shareholders of record who are entitled to vote at the Frontier special meeting will be available for inspection by any Frontier shareholder for any purpose germane to the special meeting during ordinary business hours for the ten days preceding the Frontier special meeting at Frontier’s executive offices and principal place of business at 10000 Memorial Drive, Suite 600, Houston, Texas 77024 and will also be available at the Frontier special meeting for examination by any shareholder present at such meeting.

 

Each share of Frontier common stock outstanding on the record date of the Frontier special meeting is entitled to one vote on each proposal and any other matter coming before the Frontier special meeting.

 

At the close of business on the record date of the Frontier special meeting, Frontier directors and executive officers and their affiliates were entitled to vote [ • ] shares of Frontier common stock or approximately [ • ]% of the shares of Frontier common stock outstanding on that date. We currently expect that Frontier directors and

executive officers and their affiliates will vote their shares in favor of both Frontier proposals, but none of them has entered into any agreement obligating him or her to do so.

 

No business may be transacted at the Frontier special meeting unless a quorum is present. Shareholders who hold shares representing at least a majority of the shares entitled to vote at the Frontier special meeting must be present in person or represented by proxy to constitute a quorum. If a quorum is not present, or if fewer shares are voted in favor of the proposal to approve the merger agreement than is required, to allow additional time for obtaining additional proxies, the special meeting may be adjourned if the approval of a majority of the votes cast at the special meeting is obtained. No notice of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned meeting.

 

Shares of Frontier common stock represented at the Frontier special meeting, including shares that are represented but that vote to abstain, will be treated as present for purposes of determining the presence or absence of a quorum. Broker non-votes will have no effect on determining the presence or absence of a quorum.

 

The required votes to approve the Frontier proposals are as follows:

 

 

If you were a record holder of Frontier stock at the close of business on the record date of the Frontier special meeting, a proxy card is enclosed for your use. Frontier requests that you vote your shares as promptly as possible by (i) accessing the internet site listed on the Frontier proxy card, (ii) calling the toll-free number listed on the Frontier proxy card or (iii) submitting your Frontier proxy card by mail by using the provided self-addressed, stamped envelope. Information and applicable deadlines for voting through the internet or by telephone are set forth on the enclosed proxy card. When the accompanying proxy is returned properly executed, the shares of Frontier common stock represented by it will be voted at the Frontier special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy card. Your internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card.

 

If a proxy is returned without an indication as to how the shares of Frontier common stock represented are to be voted with regard to a particular proposal, the Frontier common stock represented by the proxy will be voted in accordance with the recommendation of the Frontier board of directors and, therefore, “FOR” the proposal to approve the merger agreement and “FOR” the proposal to adjourn the Frontier special meeting, if necessary or appropriate, to permit further solicitation of proxies.

 

At the date hereof, the Frontier board of directors has no knowledge of any business that will be presented for consideration at the Frontier special meeting and that would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in Frontier’s Notice of Special Meeting of Shareholders. If any other matter is properly presented at the Frontier special meeting for consideration, it is

intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

 

Your vote is important. Accordingly, if you were a record holder of Frontier common stock on the record date of the Frontier special meeting, please sign and return the enclosed proxy card or vote via the internet or telephone whether or not you plan to attend the Frontier special meeting in person. Proxies submitted through the specified internet website or by phone must be received by 11:59 p.m., eastern time, on [ • ], 2011.

 

If you hold shares of Frontier common stock through a stock brokerage account or a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you, and you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Frontier or by voting in person at the Frontier special meeting unless you have a “legal proxy,” which you must obtain from your broker, bank or other nominee. Furthermore, brokers, banks or other nominees who hold shares of Frontier common stock on behalf of their customers may not give a proxy to Frontier to vote those shares without specific instructions from their customers.

 

If you are a Frontier shareholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee may not vote your shares on any of the Frontier proposals.

 

If you plan to attend the Frontier special meeting and wish to vote in person, you will be given a ballot at the special meeting. If you are a registered shareholder, please be prepared to provide proper identification, such as a driver’s license, at the Frontier special meeting. If your shares are held in “street name,” you must bring to the special meeting a proxy executed in your favor from the record holder (your broker, bank or other nominee) of the shares authorizing you to vote at the special meeting.

 

If you are the record holder of Frontier common stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. You can do this by:

 

 

A registered shareholder may revoke a proxy by any of these methods, regardless of the method used to deliver the shareholder’s previous proxy.

 

Written notices of revocation and other communications with respect to the revocation of proxies should be addressed as follows:

 

Frontier Oil Corporation

10000 Memorial Drive, Suite 600

Houston, Texas 77024

Attention: Secretary

 

If your shares are held in “street name” through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or nominee in accordance with its established procedures. If

your shares are held in the name of a broker, bank or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special meeting will not be effective unless you have obtained and present an executed proxy issued in your name from the record holder (your broker, bank or nominee).

 

Frontier has appointed [ • ] to serve as the Inspector of Election for the Frontier special meeting. [ • ] will independently tabulate affirmative and negative votes and abstentions.

 

Frontier is soliciting proxies for the Frontier special meeting from its shareholders. In accordance with the merger agreement, Frontier will pay its own cost of soliciting proxies, including the cost of mailing this joint proxy statement/prospectus, from its shareholders. In addition to solicitation of proxies by mail, proxies may be solicited by Frontier directors and officers, without additional remuneration, by personal interview, telephone or other means of communication.

 

Frontier will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of shares of Frontier common stock. Frontier may reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

 

To help assure the presence in person or by proxy of the largest number of shareholders possible, we have engaged Innisfree M&A Incorporated, a proxy solicitation firm (“Innisfree”), to solicit proxies on Frontier’s behalf. We have agreed to pay Innisfree a proxy solicitation fee not to exceed $17,500. We will also reimburse Innisfree for its reasonable out-of pocket costs and expenses.

 

Any adjournment of the Frontier special meeting may be made from time to time if the approval of a majority of the votes cast at the Frontier special meeting is obtained, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting (unless the adjournment is for more than 30 days or if a new record date is fixed). If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement, then Frontier shareholders may be asked to vote on a proposal to adjourn the Frontier special meeting so as to permit the further solicitation of proxies.

 

At the effective time of the merger, Merger Sub, a wholly owned subsidiary of Holly that was formed for the sole purpose of effecting the merger, will merge with and into Frontier. Frontier will survive the merger and become a wholly owned subsidiary of Holly. Upon completion of the merger, Holly’s name will be changed to HollyFrontier Corporation.

 

In the merger, each outstanding share of Frontier common stock will be converted into the right to receive 0.4811 shares of Holly common stock, with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. Holly stockholders will continue to hold their existing Holly shares.

 

Holly and Frontier are both independent refiners in strategically central regions of North America. Holly’s operations are focused in the Rocky Mountain, Southwest and Mid-Continent regions of the United States and northern Mexico, and Frontier’s are focused in the Rocky Mountain and Mid-Continent regions of the United States.

 

In March 2003, after several months of discussions and negotiations, Holly and Frontier entered into a merger agreement (the “2003 Merger Agreement”) that terminated following litigation between the parties relating to certain toxic tort lawsuits involving oil properties adjacent to the campus of Beverly Hills High School operated by predecessors to a Frontier subsidiary from 1985 to 1995 (the “Beverly Hills litigation”). In August 2003, Frontier filed a lawsuit in the Delaware Court of Chancery seeking damages based on allegations that, among other things, Holly had advised Frontier that it would not proceed with the proposed merger on the agreed terms and that Holly had repudiated the 2003 Merger Agreement. Holly filed an answer and counterclaim denying Frontier’s claims and asserting that, among other things, Frontier had breached certain representations contained in the 2003 Merger Agreement. In April 2005, the Court ruled, among other things, that Frontier had not proved that Holly had repudiated the 2003 Merger Agreement and that Holly had not proved that the Beverly Hills litigation would have, or would reasonably be expected to have, a material adverse effect on Frontier. Neither Holly nor Frontier sought an appeal, and the Court’s ruling became final.

 

Since 2003, each of the two companies has separately pursued and entered into strategic transactions and growth initiatives that their management teams believe have enhanced their competitive positions by increasing both the efficiency and scope of each company’s operations. Strategic transactions and growth initiatives completed by Holly in recent years have included the following:

 

 

 

Strategic transactions and growth initiatives completed by Frontier in recent years have included the following:

 

 

In October and November, 2010, an investment banker from Morgan Stanley who specializes in the energy sector had several discussions separately with Mr. Clifton (Holly’s Chairman of the Board and Chief Executive Officer) and Mr. Jennings (Frontier’s Chairman, President and Chief Executive Officer) regarding industry developments and strategic considerations. During these discussions, the investment banker suggested to each of Mr. Clifton and Mr. Jennings that it might be beneficial for Frontier and Holly to consider a possible business combination. These conversations were considered general and informal and the investment banker was not representing either party. These conversations indicated that the parties were open to general conversations about strategic possibilities and a possible future meeting.

 

On November 3, 2010, at a meeting of the Holly board of directors in Dallas, Texas, Mr. Clifton advised the Holly board of directors of his conversations with the Morgan Stanley investment banker, and the suggestion of potential for a business combination with Frontier. He noted that in view of the relative stock trading prices of Holly and Frontier, a potential merger between the two might be feasible and beneficial to both companies. The matter was left open for future discussion and the board authorized Mr. Clifton to explore on a preliminary basis the possibility of a potential business combination.

 

On December 2, 2010, Mr. Jennings telephoned Mr. Clifton to suggest they meet over lunch to discuss a possible strategic transaction. Mr. Clifton agreed, and a meeting was scheduled for December 9, 2010.

 

On December 9, 2010, Mr. Clifton met with Mr. Jennings in Dallas. At this meeting, Messrs. Clifton and Jennings discussed their views regarding the potential strategic and financial benefits of a merger between Holly and Frontier, based solely on publicly available information. In addition, they discussed their views on the industry’s prospects, the economy as a whole and the potential benefits of a business combination in terms of size and diversification. They agreed that a combined company would be stronger and better capitalized, with desirable geographical locations and a strong combined balance sheet. Mr. Jennings noted that the combined company and HEP might have further growth opportunities by offering suitable assets to HEP. Lastly, Messrs. Clifton and Jennings agreed that, except as Frontier may have current or future liabilities or obligations relating to the Beverly Hills litigation, the prior litigation between Holly and Frontier related to the 2003 Merger Agreement should play no role in the discussions of any potential merger. Messrs. Clifton and Jennings concluded the meeting with an agreement to continue preliminary discussions.

 

On December 10, 2010, the executive committee of the Frontier board of directors, consisting of Messrs. Jennings, Bech and Loyd, discussed the potential strategic benefits of a business combination with Holly. The executive committee identified certain matters for future review and due diligence, including regarding structure, operations, management and personnel. The committee concluded that Mr. Jennings should continue conversations with Holly and call a meeting of the full board of directors to discuss the potential transaction if warranted by appropriate progress in the discussions.

 

On December 13, 2010, Mr. Jennings telephoned Mr. Clifton to schedule a meeting with Mr. Clifton to further discuss a potential combination of Holly and Frontier.

On December 17, 2010, Messrs. Clifton and Jennings had a follow-up meeting in Dallas to continue discussions. Each outlined his views on what roles their respective executive management teams might have in the combined company and agreed on the need for management continuity in connection with integrating the two companies. Both agreed that a business combination between the two companies remained a mutually desirable prospect as a merger of equals at market, such as a 30-day average closing price of the common stock of the two companies. Mr. Jennings noted financing-related benefits that might come from a stronger combined balance sheet and ability to access more trade credit with suppliers.

 

Beginning in late December 2010 through January 2011, Mr. Jennings discussed with each of the Frontier directors a potential transaction with Holly. Mr. Jennings and the other directors agreed that any potential transaction would be a stock transaction and true merger of equals, and that the board of directors would meet to discuss terms if discussions progressed further.

 

On January 6, 2011, Messrs. Clifton and Jennings exchanged emails to arrange a meeting between Messrs. Jennings and Lamp (Holly’s President) on January 10, 2011.

 

On January 7, 2011, a special meeting of the Holly board of directors was held in Dallas at which Mr. Clifton advised the directors of his meetings with Mr. Jennings. After a discussion regarding potential strategic and financial benefits of a transaction with Frontier, the Holly board of directors unanimously indicated support for management to continue discussions and due diligence regarding a possible combination with Frontier as a merger of equals. Mr. Clifton agreed to do so and provide the Holly board of directors with regular updates. After the meeting, Mr. Clifton phoned Mr. Jennings and advised him that the Holly board of directors was supportive of exploring a potential combination with Frontier, and they revisited their discussion on the expected roles for their respective management teams.

 

On January 7, 2011, Holly engaged Vinson & Elkins L.L.P. as its legal advisor to assist in the potential merger. Young Conaway Stargatt & Taylor, LLP was later engaged as Delaware legal counsel.

 

On January 10, 2011, Messrs. Jennings and Lamp met in Dallas to discuss the potential combination between Holly and Frontier, including industry matters, refinery safety, process safety and capital allocation. Mr. Lamp provided a mission and values statement he had developed for Holly.

 

On January 11, 2011, Messrs. Jennings and Clifton spoke by telephone regarding the candidates for executive positions for the combined company, especially Mr. Lamp as chief operating officer and Mr. Aron (Frontier’s Executive Vice President and Chief Financial Officer) as chief financial officer. They also indicated general support from their respective boards for the early stage of discussions.

 

On January 12, 2011, Messrs. Jennings, Aron and Bechtol (Frontier’s Vice President-General Counsel and Secretary) met with attorneys from Andrews Kurth LLP in Houston, Texas regarding the structuring of the potential transaction, potential timeline and governance. Frontier engaged Andrews Kurth as its legal advisor to assist in the potential transaction.

 

On January 14, 2011, Messrs. Clifton and Jennings met in Houston to continue their previous discussions. Both Messrs. Clifton and Jennings agreed that the transaction should be structured as a merger of equals based on relative trading prices at market with no premium. They discussed the structure of the combined company’s board and agreed it should consist of an equal number of Holly and Frontier directors who qualified as “independent” under the rules of the New York Stock Exchange, other than two management directors. The two non-independent directors would be Mr. Clifton, who would be Executive Chairman of the board of directors of the combined company, and Mr. Jennings, who would be President and Chief Executive Officer and a director of the combined company. In addition, Messrs. Clifton and Jennings agreed that the executive officers of the combined company would consist of both Holly and Frontier executive officers. Messrs. Clifton and Jennings concluded the meeting by confirming their mutual belief that a combination of the two companies could be strategically compelling and financially beneficial to the shareholders of both companies.

 

On January 14 and 15, 2011, members of Frontier management had discussions by telephone with representatives of Citi and representatives of Credit Suisse, respectively, regarding their acting as Frontier’s financial

advisors and regarding the preliminary terms of the proposed merger with Holly. Following those discussions, Frontier decided to engage Citi and Credit Suisse as its financial advisors.

 

On January 16, 2011, the parties and their respective legal counsel worked to finalize the proposed terms of a mutual confidentiality agreement that included a two year “standstill” agreement under which each of Holly and Frontier agreed not to propose a takeover or combination transaction to the other or its stockholders without the consent of the other’s board. On January 17, 2011, Holly and Frontier executed the confidentiality agreement.

 

On January 17, 2011, after the confidentiality agreement was executed, Ms. McWatters (Holly’s Vice President, General Counsel and Secretary), Mr. Bechtol and their respective legal counsel spoke by teleconference to discuss the process for due diligence and negotiation of definitive agreements.

 

In mid-January, members of Holly management had several separate discussions with representatives of Morgan Stanley and Deutsche Bank to discuss their acting as Holly’s financial advisors and to review with Morgan Stanley and Deutsche Bank the preliminary terms of the proposed merger with Frontier. Each of Morgan Stanley and Deutsche Bank was thereafter engaged as a financial advisor to Holly.

 

On January 20, 2011, Messrs. Jennings, Aron and Bechtol met in the offices of Andrews Kurth together with representatives of Frontier’s legal and financial advisors to discuss the likely process and timeline for reviewing and negotiating the proposed merger.

 

Beginning on or about January 20, 2011, Holly and Frontier provided due diligence documents and discussed the scope of due diligence information that would be appropriate to share for purposes of evaluating a possible strategic combination. The senior executives of both companies agreed to restrict knowledge of the discussions to a limited number of individuals within each company. Between January 20, 2011 and February 21, 2011, both companies and their respective legal counsel conducted due diligence primarily by reviewing documents and participating in teleconferences. Additionally, Ms. McWatters and Mr. Bechtol, together with attorneys from Vinson & Elkins and Andrews Kurth, held regular teleconferences to coordinate exchange of due diligence materials by the parties and to address ongoing due diligence questions and requests.

 

On January 24, 2011, Morgan Stanley and Deutsche Bank met with Messrs. Clifton, Lamp, Shaw (Holly’s Senior Vice President and Chief Financial Officer), Ms. McWatters and Vinson & Elkins in Dallas to review the expected timing of the proposed merger, various due diligence matters raised by Morgan Stanley and Deutsche Bank, and other planning issues with respect to the negotiation and review of the proposed merger.

 

Also on January 24, 2011, the Holly board of directors held a special meeting in Dallas. At the meeting, Vinson & Elkins briefed the board on the legal obligations of the directors and other legal considerations in connection with the proposed merger. Mr. Clifton updated the Holly board of directors on the status of the negotiations of the proposed merger with Frontier and on his discussions with Morgan Stanley and Deutsche Bank. The legal due diligence process, antitrust filings and requirements, and an anticipated timeline were also discussed. After a discussion, the Holly board of directors authorized members of Holly management to continue negotiations with Frontier, including delivery of a draft merger agreement.

 

On January 25, 2011, Vinson & Elkins sent an initial draft of a merger agreement to Andrews Kurth. From then until February 21, 2011, the parties and their legal counsel negotiated the terms of the merger agreement and related documents, and exchanged drafts of the merger agreement and related documents.

 

On January 31, 2011, Messrs. Clifton, Lamp, Damiris and Shaw, Ms. McWatters and Messrs. Jennings, Aron and Bechtol met in Dallas, together with Holly’s and Frontier’s respective legal and financial advisors. At the meeting, each senior management team made a presentation regarding its company’s refineries, assets, operations, budgets, capital expenditures and other business matters.

 

Between January 31, 2011 and February 9, 2011, Messrs. Jennings and Lamp had ongoing discussions by telephone to discuss matters relating to operations in connection with the proposed merger.

 

On February 4, 2011, the Frontier board of directors held a special meeting in Houston, together with members of Frontier’s management and legal and financial advisors. Mr. Jennings provided an overview of the potential transaction, to be structured as a merger of equals, and the progress of the transaction to date. Andrews Kurth

advised the board regarding its fiduciary duties in connection with considering a possible business combination, and the importance of board review and deliberations. Andrews Kurth also presented an overview of the draft merger agreement as proposed by Holly, which had been previously distributed to the board. The board discussed the terms to be negotiated in the merger agreement, including the non-solicitation provisions and size of the break-up fee. Frontier’s financial advisors discussed with the board certain financial aspects relating to the potential merger.

 

On February 7, 2011, the Holly board of directors held a special meeting in Dallas. At the meeting, Mr. Clifton updated the Holly board of directors on ongoing discussions with Frontier regarding the proposed merger. At the meeting, the Holly board, Mr. Shaw, Ms. McWatters, and Vinson & Elkins discussed the senior management meeting on January 31, 2011 and the business and legal due diligence processes and findings, including those relating to litigation and labor and employment matters, Frontier’s debt structure, and the results of the preliminary antitrust review. Also, at the meeting, representatives of each of Morgan Stanley and Deutsche Bank advised the Holly board of directors of the procedures that their respective firms expected to follow in advising the Holly board of directors about the possible fairness, from a financial point of view, of the exchange ratio to Holly and the expected time to complete their respective financial analyses. The participants at the meeting also discussed the expected timing for the transaction and related matters. At the conclusion of the meeting, the Holly board of directors authorized Holly management to continue negotiations with Frontier.

 

On February 9, 2011, Messrs. Lamp and Damiris met with Messrs. Purdy (Frontier’s Vice President of Commercial Operations) and Stump (Frontier’s Vice President of Refining Operations) in Denver, Colorado to discuss Holly’s and Frontier’s operations, permits, environmental compliance and refinery facilities. Additional follow-up discussions continued through February 18, 2011, regarding these matters.

 

On February 11, 2011, the Frontier board of directors held a telephonic meeting with management and its legal advisor, Andrews Kurth. The board received an update from members of management regarding operational due diligence, including capital expenditures, permits and the integration of Holly’s recently acquired Tulsa facilities. The board directed management to conduct further due diligence and report back regarding their review and conclusions as part of proceeding with discussions.

 

On February 14, 2011, Messrs. Clifton and Jennings, at Mr. Jennings’s request, discussed questions from Frontier regarding projected capital expenditures and environmental matters relating to Holly’s refineries in Tulsa.

 

On February 16, 2011, the Holly board of directors held a special meeting in Dallas to receive updates on the proposed merger with Frontier. At the meeting, Vinson & Elkins briefed the directors on the applicable legal standards in the context of evaluating a business combination transaction of the type being considered, provided an update regarding legal due diligence, including due diligence relating to the Beverly Hills litigation, and summarized the terms of the proposed merger agreement, including termination rights and break-up fees under the merger agreement. Also, at the meeting, members of Holly senior management described their views of the strategic rationale for the proposed merger and compared the proposed merger to other growth possibilities. In addition, Holly’s financial advisors discussed with the Holly board of directors certain financial aspects relating to the potential merger and related financial analyses. The board also discussed at length the debt structure of Frontier and post-closing operational matters, such as accounting system transitions and management structure. During a recess of the special meeting in conference rooms near the location of the special meeting, the Holly outside directors met with Mr. Jennings, and Messrs. Bech and Myers, both Frontier outside directors, met with Mr. Clifton, regarding governance, operations and the proposed merger.

 

On February 17, 2011, Mr. Jennings telephoned Mr. Clifton and expressed concern regarding the movements in each company’s stock price during the past week. Mr. Jennings noted that when comparing the 30-day average closing stock price of each company (which was the formula previously discussed in the parties’ negotiations to arrive at the exchange ratio for the proposed merger) to the closing market price of each company at the end of the prior trading day, the Frontier shareholders would effectively be receiving a discount of approximately 7% for their shares (after giving effect to a planned special dividend to Frontier shareholders in the amount of $0.24 per share), and that Frontier was unlikely to enter into the transaction on those terms.

 

In the morning on February 18, 2011, the Holly board of directors held a special meeting in Dallas. At the meeting, Mr. Clifton informed the directors of his conversation with Mr. Jennings on February 17, 2011 regarding

recent movements in Frontier’s and Holly’s stock prices. Representatives from Morgan Stanley and Deutsche Bank and Holly management then engaged in a detailed discussion with the directors regarding the calculation of the exchange ratio, the movements in the stock prices of the two companies and possible reasons for the fluctuations in pricing. After this discussion, the Holly financial advisors noted that as a result of recent increases in Frontier’s stock price relative to Holly’s trading price, it was likely that Frontier would seek an increase in the consideration payable to Frontier shareholders, which consideration had been based on a 30-day average closing price. In addition to a discussion of the merger consideration, the Holly board of directors engaged in an extended discussion regarding the timing of the merger and was updated on the legal due diligence process.

 

On February 18, 2011, the Frontier board of directors held a meeting in Houston. Andrews Kurth and management provided an overview of open issues in the merger agreement, including the financing for the combined company. The board received a due diligence report from legal counsel and management, including an overview of Holly and HEP, real property, employee benefits and other matters, and an in-depth presentation regarding environmental due diligence and compliance. Management discussed plans for operational enhancements, and reported that the two companies placed a high value on operational safety and environmental compliance during their discussions. Frontier’s financial advisors then updated the board as to certain financial aspects of the potential merger and reviewed the relative stock price of Frontier and Holly, including the recent increase in Frontier’s stock price relative to Holly’s stock price and compared the ratio of their current stock prices to the ratio of their respective 30-day average closing stock prices. Members of the board and Frontier’s management and financial advisors discussed the rationale for seeking an increase in the consideration to be received by Frontier’s shareholders. The board also considered financing for the combined company and engaged in discussions with management regarding expected availability of financing. After considering the information presented and discussed, including recent trading prices, the board authorized Mr. Jennings to engage in additional negotiations with Holly to seek to increase the exchange ratio.

 

After the end of the trading day on February 18, 2011 (which was the last trading day prior to the expected execution date of the merger agreement), Messrs. Clifton and Jennings discussed by telephone the ongoing movements in both companies’ stock prices. They further discussed the fact that an exchange ratio based on the 30-day average closing price would represent a discount of approximately 13% for Frontier shares based on the closing stock price of each company on that day (after giving effect to the planned special dividend). Mr. Jennings informed Mr. Clifton that Frontier and its board of directors were not comfortable entering into a transaction at more than a small discount to the current market price.

 

Later in the day on February 18, 2011, the Holly board of directors reconvened in Dallas to receive an update from Mr. Clifton regarding his telephone conversation with Mr. Jennings and their discussions around the exchange ratio for the proposed merger with Frontier. Members of management and representatives from each of Morgan Stanley and Deutsche Bank engaged in a detailed discussion with the Holly board regarding the recent movements in the relative stock prices of the two companies. The possibility of agreeing to an increase in the planned special dividend to Frontier shareholders was also discussed generally by the board. After the discussion, the board instructed Mr. Clifton to telephone Mr. Jennings to propose an exchange ratio representative of the five-day average closing price.

 

Mr. Clifton relayed the proposal to Mr. Jennings and noted the closeness of Holly’s increased exchange ratio to the ratio of the two companies’ trading prices over the prior 12 months. Mr. Jennings agreed to discuss the revised proposal with members of the board of directors later that evening. After such conversation, the Holly board of directors reconvened, and Mr. Clifton briefed the directors of the results of the conversation. After discussion, the Holly board of directors authorized Holly management to continue its negotiations with Frontier and to provide timely updates. Later that night, Messrs. Clifton and Jennings spoke by telephone about the proposal and what might be an acceptable exchange ratio to both parties. Messrs. Clifton and Jennings discussed that agreeing to an increase in the planned special dividend might be a solution. They agreed to talk again in the morning after both had considered the matter further.

 

On February 19, 2011, Messrs. Clifton and Jennings discussed further the proposed exchange ratio and the concept of an increased special cash dividend from Frontier to its shareholders. They tentatively agreed, subject to the review and approval of their respective boards and agreement on definitive documentation, to an exchange ratio of 0.4811 of a share of Holly common stock per share of Frontier common stock and an increase in the special cash

dividend from $0.24 to $0.28 per share, which would reflect a discount to the current market price of Frontier shares of approximately 3%, including the economic effect of the Frontier special dividend.

 

Over the weekend of February 19-20, 2011, Holly and Frontier and their respective legal counsel worked to finalize the negotiation of the merger agreement and amendments to agreements relating to the retention of senior executives. In particular, Messrs. Clifton and Jennings had several telephone discussions and exchanged emails regarding the terms on which Messrs. Jennings and Aron would waive certain rights with respect to the vesting of equity and cash compensation following the merger, the terms on which Mr. Jennings would extend the term of his retention agreement, and the terms on which Messrs. Clifton, Lamp and Shaw would waive certain rights with respect to the vesting of equity compensation following the merger. See “— Interests of Holly Directors and Executive Officers in the Merger — Waiver Agreements” and “— Interests of Frontier Directors and Executive Officers in the Merger — Retention and Assumption Agreements” for a description of the written retention agreements and waiver agreements and “— Interests of Holly Directors and Executive Officers in the Merger” and “— Interests of Frontier Directors and Executive Officers in the Merger” for a discussion of the interests of the Holly directors and executive officers and Frontier directors and executive officers, respectively, in the merger.

 

On the morning of February 21, 2011, members of the Frontier board of directors held a special telephonic meeting with members of Frontier’s management and legal and financial advisors. The board discussed the terms of the merger agreement with members of Frontier’s management and legal advisors. In addition, the board received an update on the agreement of Messrs. Jennings and Aron to waive certain rights with respect to the vesting of equity and cash compensation following the merger. Mr. Jennings discussed with the board the expected availability of financing for the combined company. Citi and Credit Suisse reviewed with the Frontier board their respective financial analyses with respect to the 0.4811 exchange ratio provided for in the merger agreement. Andrews Kurth advised the board regarding its approvals of the merger agreement and related transactions, and the board scheduled a further meeting in the afternoon of the same day.

 

On the afternoon of February 21, 2011, the Frontier board of directors held a special telephonic meeting with members of Frontier’s management and legal and financial advisors. At this meeting, Citi and Credit Suisse each rendered to the Frontier board of directors an oral opinion, confirmed by delivery of a written opinion dated February 21, 2011, to the effect that, as of that date and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth in such opinions, the 0.4811 exchange ratio provided for in the merger agreement was fair, from a financial point of view, to holders of Frontier common stock. Following discussion with legal advisors, the Frontier board unanimously approved and authorized the execution of the merger agreement and recommended the merger agreement for approval by Frontier’s shareholders. The Frontier board also authorized the payment of a $0.28 per share special dividend and a $0.06 per share quarterly dividend to Frontier shareholders.

 

On February 21, 2011, the Holly board of directors held a special meeting in Dallas. At the meeting, Vinson & Elkins summarized the principal terms of the final draft of the merger agreement, updated the Holly board on the legal due diligence on the settlement of the Beverly Hills litigation, and informed the Holly board of the remaining unresolved matters, which were limited to confirming items listed in disclosure schedules and certain due diligence questions. Also at this meeting, the Holly board discussed with members of Holly senior management and its legal and financial advisors the potential benefits and other considerations related to the proposed merger to Holly and its stockholders. Also at the meeting, Vinson & Elkins further briefed the Holly directors on their obligations in respect of deliberations regarding the proposed merger, and representatives of each of Morgan Stanley and Deutsche Bank, on behalf of their respective firms, rendered to the Holly board of directors their respective oral opinions (each subsequently confirmed in writing) to the effect that, as of such date and based on and subject to the various assumptions, qualifications and limitations described in their respective opinion, the exchange ratio of 0.4811 shares of Holly common stock to be issued in exchange for each outstanding share of Frontier common stock pursuant to the merger was fair, from a financial point of view, to Holly. After further discussions, the Holly board authorized members of Holly management to resolve the few remaining open items with Frontier and unanimously voted to recommend that the Holly stockholders approve the issuance of shares of Holly common stock and the amendment of Holly’s certificate of incorporation as contemplated by the merger agreement.

Following the board meeting, on February 21, 2011, members of Holly senior management and Frontier senior management, advised by their respective legal counsel, executed the merger agreement and related agreements.

 

Early in the morning on February 22, 2011, Holly and Frontier issued a joint press release announcing the merger.

 

In approving the merger agreement and recommending approval of the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, the Holly board of directors consulted with members of Holly’s management, as well as with Holly’s legal and financial advisors, and also considered a number of factors that the Holly board of directors viewed as supporting its decisions. The principal factors that the Holly board of directors viewed as supporting its decisions are:

 

 

 

In addition to considering the factors described above, the Holly board of directors also considered the following factors:

 

 

 

The Holly board of directors weighed the foregoing against a number of potentially negative factors, including:

 

 

This discussion of the information and factors considered by Holly’s board of directors in reaching its conclusions and recommendation includes the principal factors considered by the board, but is not intended to be exhaustive and may not include all of the factors considered by the Holly board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the other transactions contemplated by the merger agreement, and the complexity of these matters, the Holly board of directors did not find it useful and did not attempt to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the other transactions contemplated by the merger agreement, and to make its recommendation to Holly stockholders. Rather, the Holly board of directors viewed its decisions as being based on the totality of the information presented to it and the factors it considered, including its discussions with, and questioning of, members of Holly’s management and outside legal and financial advisors. In addition, individual members of the Holly board of directors may have assigned different weights to different factors.

 

Certain of Holly’s directors and executive officers have financial interests in the merger that are different from, or in addition to, those of Holly’s stockholders generally. The Holly board of directors was aware of and considered these potential interests, among other matters, in evaluating the merger and in making its recommendation to Holly stockholders. For a discussion of these interests, see “— Interests of Holly Directors and Executive Officers in the Merger.”

 

The Holly board of directors unanimously approved the merger and the merger agreement and determined that the merger and the other transactions contemplated by the merger agreement, including the issuance of shares of Holly common stock to Frontier shareholders in connection with the merger, are in the best interests of Holly and its stockholders. Accordingly, the Holly board of directors unanimously recommends that the Holly stockholders vote “FOR” the proposal to approve the issuance of shares of Holly common stock to Frontier shareholders pursuant to the merger.

 

Opinion of Morgan Stanley & Co. Incorporated

 

Holly retained Morgan Stanley to provide it with financial advisory services in connection with the transaction. Holly selected Morgan Stanley to act as one of its financial advisors based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of the business and affairs of Holly. At the meeting of the Holly board of directors on February 21, 2011, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of such date, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in its written opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Holly.

 

The full text of the written opinion of Morgan Stanley, dated February 21, 2011, which discusses, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex B and incorporated by reference into this section of the joint proxy statement/prospectus. The summary of the Morgan Stanley fairness opinion provided in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Holly stockholders are urged to read the opinion carefully and in its entirety. The Morgan Stanley opinion is directed to the Holly board of directors, in its capacity as such, and addresses only the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement as of the date of the opinion. The Morgan Stanley opinion does not address any other aspect of the merger and does not constitute a recommendation to any Holly or Frontier stockholder as to how any such stockholder should vote with respect to the proposed merger or any other matter.

 

For the purposes of its opinion, Morgan Stanley, among other things:

 

 

 

For purposes of its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by Frontier and Holly, and formed a substantial basis for Morgan Stanley’s opinion. With respect to the financial forecasts prepared by the managements of Frontier and Holly, respectively, as well as certain adjustments thereto and extrapolations therefrom prepared with guidance from Holly management and which have been approved for Morgan Stanley’s use by Holly management, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Frontier and Holly, as applicable, of the future financial performance of Frontier and Holly, respectively. Morgan Stanley relied upon, without independent verification, the assessment by the managements of Frontier and Holly of: (i) the strategic, financial and other benefits expected to result from the merger; (ii) the timing and risks associated with the integration of Frontier and Holly; (iii) their ability to retain key employees of Frontier and Holly, respectively; and (iv) the validity of, and risks associated with, Frontier’s and Holly’s existing and future technologies, products, services and business models. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code, as contemplated by the merger agreement. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley noted that the merger agreement contemplated that the parties may agree upon alternative structures to effect the business combination contemplated by the merger agreement; however, for purpose of its opinion, Morgan Stanley assumed with Holly’s consent that no such alternative structure would be implemented.

 

In its opinion, Morgan Stanley noted that it is not a legal, tax or regulatory advisor and that as a financial advisor it relied upon, without independent verification, the assessment of Holly and Frontier and their respective legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Holly’s or Frontier’s officers, directors or employees, or any class of such persons, relative to the consideration to be paid to the holders of shares of Frontier’s common stock in the transaction. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Frontier or Holly, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, February 21, 2011. Events occurring after February 21, 2011 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion. Morgan Stanley’s opinion did not in any manner address the prices at which Holly common stock or Frontier common stock would trade either prior to or following consummation of the merger.

 

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its opinion, dated as of February 21, 2011. Some of these summaries include information in tabular format. In order to understand fully the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.

 

Historical Exchange Ratio Analysis

 

Morgan Stanley reviewed the stock price performance of Frontier and Holly during various periods ending on February 18, 2011, the last full trading day prior to the rendering of Morgan Stanley’s opinion dated February 21, 2011. Morgan Stanley then calculated the daily historical exchange ratios during the period between February 15, 2008 and February 18, 2011 implied by dividing the Frontier closing price for the relevant date by the Holly closing price for such date. Morgan Stanley then calculated the average, minimum or maximum of the resulting exchange

ratios, as applicable, across certain periods within the three-year time range. Morgan Stanley compared the exchange ratio of 0.4811 provided for in the merger agreement with historical exchange ratios for such dates and periods. The following table lists the implied exchange ratios for these dates and periods:

 

 

The exchange ratio of 0.4811 provided for in the merger agreement reflects an implied discount of 4.0% to the market exchange ratio on February 18, 2011 (0.5012), or an implied discount of 3.0% to the market exchange ratio on February 18, 2011, as adjusted for a special catch-up cash dividend (which was assumed to be $0.28/share per the merger agreement), the concept of which was publicly discussed by Frontier management prior to the announcement of the merger agreement and expected to be paid to Frontier shareholders in March 2011 (as adjusted for such a dividend, 0.4962).

 

Equity Research Analyst Price Targets

 

Morgan Stanley reviewed selected public market trading price targets for Frontier common stock prepared and published by 11 equity research analysts that published or confirmed price targets for Frontier after February 1, 2011 and prior to February 18, 2011. For purposes of this analysis, Morgan Stanley assumed that the analysts who published research reports after February 1, 2011 and prior to February 18, 2011 and who did not adjust their prior stock price targets, were deemed to have confirmed their pre-existing price targets. Morgan Stanley reviewed the most recent price target published by each analyst. These targets reflect each analyst’s estimate of the future public market trading price of Frontier common stock at the time the price target was published. At February 18, 2011, the range of selected equity analyst price targets for Frontier common stock was from approximately $19 to $33 per share (or approximately $17 to $30 per share if discounted for an illustrative twelve months at an 11% cost of equity). Morgan Stanley noted that the Frontier closing price on February 18, 2011 was $28.12 per share.

 

Morgan Stanley also reviewed selected public market trading price targets for Holly common stock prepared and published by nine equity research analysts that published or confirmed price targets for Holly after February 1, 2011 and prior to February 18, 2011. Price targets were assumed to be confirmed if the analyst published estimates after February 1, 2011 and prior to February 18, 2011. Morgan Stanley reviewed the most recent price target published by each analyst. These targets reflect each analyst’s estimate of the future public market trading price of Holly common stock at the time the price target was published. At February 18, 2011, the range of selected equity analyst price targets for Holly common stock was from approximately $40 to $77 per share (or approximately $36 to $69 per share if discounted for an illustrative twelve months at an 11% cost of equity). Morgan Stanley noted that the Holly closing price on February 18, 2011 was $56.11 per share.

 

Morgan Stanley calculated the exchange ratio implied by the analyst price targets for Holly and Frontier (only with respect to such analysts that published price targets for both Holly and Frontier) by dividing the Frontier price target by the Holly price target provided by the same analyst. This analysis implied a range of exchange ratios of 0.4151 to 0.5167 based on price targets published or confirmed after February 1, 2011 and prior to February 18, 2011. Price targets were assumed to be confirmed if the analyst published estimates after February 1, 2011 and prior to February 18, 2011. Morgan Stanley noted that the merger agreement provided for an exchange ratio of 0.4811.

 

The public market trading price targets published by securities research analysts do not necessarily reflect current market trading prices for shares of Frontier common stock and shares of Holly common stock and these estimates are subject to uncertainties, including the future financial performance of Frontier and Holly and future financial market conditions.

Comparable Company Analysis

 

Morgan Stanley compared certain financial information of each of Holly and Frontier with publicly available consensus earnings and EBITDA estimates for other companies that shared similar business characteristics to Holly and Frontier, respectively. The companies used in this comparison were:

 

Alon USA Energy, Inc.

CVR Energy, Inc.

Delek US Holdings, Inc.

Frontier Oil Corporation

Holly Corporation

Sunoco, Inc.

Tesoro Corporation

Valero Energy Corporation

Western Refining, Inc.

 

For purposes of this analysis, Morgan Stanley used the median estimates of those estimates published publicly by equity research analysts for each company after February 1, 2011 and prior to February 18, 2011. In cases where there was limited information available on this basis, Morgan Stanley used the median of the two most recent estimates, when available (in either case, referred to here as “consensus estimates”).

 

Morgan Stanley analyzed the ratio of aggregate value, defined as market capitalization plus total debt, noncontrolling interest and preferred equity less cash and cash equivalents, to consensus estimates of EBITDA for calendar years 2011 and 2012 for each of these companies, referred to as AV/EBITDA multiple. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. For Holly, Morgan Stanley presented the AV/EBITDA multiple on both a consolidated and deconsolidated basis. The deconsolidated AV/EBITDA multiple estimated the hypothetical trading multiple of Holly’s refining operations by excluding the estimated contribution of Holly’s interests in HEP and the UNEV Pipeline, LLC (UNEV Pipeline) from both the aggregate value and EBITDA. Morgan Stanley observed a range of AV/EBITDA multiples for these companies based on 2011 consensus estimates of 4.4x to 7.8x and AV/EBITDA multiples for these companies based on 2012 consensus estimates of 4.3x to 7.1x.

 

Morgan Stanley also analyzed the ratio of stock price per share to the consensus estimates of EPS, or earnings per share, referred to as P/E, for calendar years 2011 and 2012. Morgan Stanley observed a range of P/E multiples for these companies of 9.5x to 25.0x for calendar year 2011 and of 8.9x to 17.2x for calendar year 2012.

 

Based on an analysis of the relevant metrics for each of the comparable companies, Morgan Stanley selected (i) reference ranges of AV/EBITDA multiples of 4.5x to 6.5x and P/E multiples of 10.0x to 12.0x for the comparable companies and applied these ranges of multiples to consensus estimates for calendar year 2011 EBITDA and EPS for Holly and Frontier, and (ii) reference ranges of AV/EBITDA multiples of 5.0x to 6.5x and P/E multiples of 11.0x to 14.5x and applied these ranges of multiples to consensus estimates for calendar year 2012 EBITDA and EPS for Holly and Frontier.

 

In the case of Holly, the value ranges implied by the AV/EBITDA multiples were adjusted to account for the value of Holly’s interests in HEP and the UNEV Pipeline. The AV/EBITDA multiples outlined above were only applied to EBITDA attributable to Holly’s refining operations, calculated as the consensus estimates for Holly’s EBITDA less the consensus estimates for HEP’s EBITDA less the estimated EBITDA contribution from Holly’s interest in the UNEV Pipeline, which was assumed to be transferred to HEP at year end 2011. Incremental value was added when calculating the price per share of Holly’s stock to reflect Holly’s interests in HEP and the UNEV Pipeline. Holly’s estimated value in the limited partnership interests of HEP was based on the public trading value of those limited partnership interests. Holly’s estimated value in the general partnership interests of HEP was based on the public trading values of comparable general partnership interests. Holly’s estimated value in the UNEV Pipeline was based on the forecasted capital contribution in the UNEV Pipeline as of December 31, 2010.

 

Similarly, Morgan Stanley only applied P/E multiples to the consensus estimates for 2011 EPS for Holly excluding the estimated contribution of UNEV Pipeline earnings for the second half of 2011 and the estimated value of Holly’s interest in the UNEV Pipeline was added when calculating the resulting price per share of Holly’s stock.

Based on the consensus estimates, the estimated value of Holly’s interests in HEP and the UNEV Pipeline and each company’s respective forecasted outstanding net debt as of December 31, 2010, with Holly’s net debt unconsolidated for HEP’s net debt, Morgan Stanley estimated the following implied value ranges for shares of Frontier and Holly, respectively, on a fully diluted basis:

 

 

Morgan Stanley noted that the Frontier closing price on February 18, 2011 was $28.12 per share and that Holly closing price on February 18, 2011 was $56.11 per share.

 

Morgan Stanley noted that such analyses indicated a range of implied exchange ratios of 0.3147 to 0.5923 based on AV/EBITDA multiples for calendar year 2011, 0.3355 to 0.5251 based on AV/EBITDA multiples for calendar year 2012, 0.3837 to 0.5469 based on P/E multiples for calendar year 2011, and 0.3299 to 0.5732 based on P/E multiples for calendar year 2012. Morgan Stanley noted that the merger agreement provided for an exchange ratio of 0.4811.

 

No company utilized in the comparable company analysis is identical to Holly or Frontier (other than the companies themselves, as applicable). In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Holly and Frontier, such as the impact of competition on the businesses of Holly and Frontier and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Holly and Frontier or the industry or in the financial markets in general.

 

Discounted Cash Flow Analysis

 

Morgan Stanley performed a discounted cash flow analysis, which is designed to estimate the value of a company by calculating the present value of estimated future cash flows of the company. Morgan Stanley calculated a range of equity values per fully diluted share for each of Holly and Frontier based on projections of cash flows for the calendar years 2011 through 2015 and an estimate to the terminal value after 2015.

 

For the purposes of the discounted cash flow analysis Morgan Stanley used certain financial forecasts prepared by the managements of Frontier and Holly, respectively, as well as certain adjustments thereto and extrapolations therefrom prepared with the guidance of Holly management and which had been approved for Morgan Stanley’s use by Holly management, which is referred to below as the “Holly management case.” Morgan Stanley also reviewed the potential impact of two additional sensitivity scenarios (each of which was prepared with guidance from Holly management) on the projected value of both Frontier and Holly cash flows. The first scenario, Holly management sensitivity case #1, assumed a wider light/heavy differential, a wider sweet/sour differential, a heavier/more sour crude slate (for Frontier only) and a wider lubes to WTI spread than the Holly management case in the estimated calendar years 2011 through 2015. The second scenario, Holly management sensitivity case #2, used the same assumptions as the Holly management sensitivity case #1 except for a wider light/heavy differential for the estimated calendar years 2011 through 2015.

 

In arriving at the estimated equity values per share of Frontier or Holly common stock, as applicable, Morgan Stanley estimated a range of terminal values by multiplying Frontier’s or Holly’s estimated mid-cycle EBITDA (based on the 2006-2010 average prices of selected commodities, when full year data were available) by EBITDA

multiples ranging from 4.5x to 6.0x. Morgan Stanley then discounted Frontier’s or Holly’s forecasted unlevered free cash flows, as applicable, defined as net operating profit after tax plus depreciation and amortization, other non-cash items and net proceeds from asset sales less changes in working capital, changes in other assets and liabilities and capital expenditures, and the estimated terminal value, in each case to a present value using discount rates ranging from 9.0% to 11.0%. These discount rates were based on Morgan Stanley’s judgment of the estimated range of Frontier’s or Holly’s weighted average cost of capital, as applicable.

 

In the case of Holly, Morgan Stanley’s discounted cash flow analysis excluded cash flows attributable to HEP. To estimate the implied Holly price per share Morgan Stanley included estimates for the value of Holly’s interests in HEP based on the public trading value of the limited partnership interests and the public trading values of comparable general partnership interests. These estimated values were added to the equity value implied by the discounted cash flow analysis to derive an estimated equity value for Holly.

 

Based on the foregoing analysis and the forecasted cash and cash equivalents and debt outstanding of Frontier as of December 31, 2010 the discounted cash flow analysis of Frontier yielded an implied value range for Frontier common stock of approximately $25 to $32 per share, on a fully diluted basis. Morgan Stanley noted that the Frontier closing price on February 18, 2011 was $28.12 per share. Based on the foregoing analysis and the forecasted unconsolidated cash and cash equivalents and debt outstanding of Holly as of December 31, 2010, the discounted cash flow analysis of Holly, including the incremental value associated with HEP, yielded an implied value range for Holly common stock of approximately $66 to $82 per share, on a fully diluted basis, based on the Holly management case. Morgan Stanley noted that the Holly closing price on February 18, 2011 was $56.11 per share.

 

Based on the foregoing analysis and the forecasted cash and cash equivalents and debt outstanding of Frontier as of December 31, 2010 the discounted cash flow analysis of Frontier yielded (i) an implied value range for Frontier common stock of approximately $32 to $39 per share, on a fully diluted basis, in the Holly management sensitivity case #1, and (ii) an implied value range for Frontier common stock of approximately $35 to $42 per share, on a fully diluted basis, in the Holly management sensitivity case #2. Morgan Stanley noted that Frontier closing price on February 18, 2011 was $28.12 per share. Based on the foregoing analysis and the forecasted unconsolidated cash and cash equivalents and debt outstanding of Holly as of December 31, 2010, the discounted cash flow analysis of Holly, including the incremental value associated with HEP, yielded (i) an implied value range for Holly common stock of approximately $75 to $92 per share, on a fully diluted basis, in the Holly management sensitivity case #1, and (ii) an implied value range for Holly common stock of approximately $77 to $94 per share, on a fully diluted basis, in the Holly management sensitivity case #2. Morgan Stanley noted that Holly closing price on February 18, 2011 was $56.11 per share.

 

Morgan Stanley noted that such discounted cash flow analysis for Frontier and Holly implied a range of exchange ratios of 0.3086 to 0.4769 based on the Holly management case. Based on the Holly management sensitivity case #1, the implied range of exchange ratios was 0.3528 to 0.5164 and in the Holly management sensitivity case #2, the range was 0.3713 to 0.5360. Morgan Stanley noted that the merger agreement provided for an exchange ratio of 0.4811.

 

Contribution Analysis

 

Morgan Stanley reviewed the relative contributions of Holly and Frontier to the following estimated financial and operating metrics of the combined company for 2010-2012, based on the Holly management case and the consensus estimates:

 

 

In the foregoing analysis, Holly’s EBITDA was adjusted to exclude the contribution from HEP and the UNEV Pipeline. When calculating the resulting equity value contribution for Holly, Morgan Stanley included estimates for

the value of Holly’s interests in HEP based on the public trading value of the limited partnership interests and the public trading values of comparable general partnership interests as well as an estimated value of Holly’s interest in the UNEV Pipeline based on the forecasted capital contribution as of December 31, 2010. To better align EBITDA for Frontier and Holly on an accounting basis, Morgan Stanley excluded approximately $25 million in amortization of turnaround costs from Frontier’s operating expenses in the Holly management case. Morgan Stanley also excluded UNEV Pipeline earnings contribution for the second half of 2011 from estimates of Holly’s net income and included an estimated value of Holly’s interest in the UNEV Pipeline based on the forecasted capital contribution as of December 31, 2010 when calculating Holly’s equity contribution.

 

Based on the foregoing, Morgan Stanley calculated implied exchange ratios, or exchange ratio ranges, as applicable, taking into account the impact of each company’s respective forecasted outstanding net debt as of December 31, 2010, with Holly’s net debt unconsolidated for HEP’s net debt, of:

 

 

Morgan Stanley noted that the merger agreement provided for an exchange ratio of 0.4811.

 

General

 

Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Holly or Frontier. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of Holly and Frontier. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

 

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, to Holly of the exchange ratio pursuant to the merger agreement and in connection with the delivery of its opinion to the Holly board of directors. These analyses do not purport to be appraisals or to reflect the prices at which shares of common stock of Holly or Frontier might actually trade.

 

Morgan Stanley’s opinion and its presentation to the Holly board of directors was one of many factors taken into consideration by the Holly board of directors in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Holly board of directors with respect to the exchange ratio or of whether the Holly board of directors would have been willing to agree to a different exchange ratio. The exchange ratio was determined through arm’s-length negotiations between Holly and Frontier and was approved by the Holly board of directors. Morgan Stanley provided advice to Holly during these negotiations. Morgan Stanley did not, however, recommend any specific exchange ratio to Holly or that any specific exchange ratio constituted the only appropriate consideration for the merger.

Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

 

Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of Holly, Frontier, or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.

 

Under the terms of its engagement letter, Morgan Stanley provided Holly with financial advisory services in connection with the merger for which it will be paid a fee of $5,125,000, a portion of which became payable at the time of public announcement of the merger and a substantial portion of which is contingent upon, and will become payable upon, completion of the merger. In addition, Holly may pay to Morgan Stanley an additional discretionary fee if Holly so determines in its sole discretion. Furthermore, Holly has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, Holly has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement. Morgan Stanley may seek to provide financial advisory and financing services to Holly in the future and would expect to receive fees for the rendering of these services.

 

Opinion of Deutsche Bank Securities Inc.

 

Deutsche Bank has acted as one of Holly’s financial advisors in connection with the merger. At the meeting of the Holly board of directors on February 21, 2011 Deutsche Bank delivered its oral opinion, subsequently confirmed in writing, to the Holly board of directors to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in the Deutsche Bank opinion, the exchange ratio was fair, from a financial point of view, to Holly.

 

The full text of the written opinion of Deutsche Bank, dated February 21, 2011, which sets forth the assumptions made, matters considered and limits on the review undertaken by Deutsche Bank in rendering its opinion, is included as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. Holly’s stockholders are encouraged to read the opinion in its entirety. Deutsche Bank expressed no opinion or recommendation as to how any holder of Holly common stock should vote with respect to the transactions contemplated by the merger agreement. The summary of the Deutsche Bank opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion included as Annex C.

 

In connection with its role as one of Holly’s financial advisors, and in arriving at its opinion, Deutsche Bank, among other things:

 

 

 

Deutsche Bank did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to it, concerning Holly or Frontier, including, without limitation, any financial information considered in connection with the rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche Bank, with Holly’s permission, assumed and relied upon the accuracy and completeness of all such information. Deutsche Bank did not conduct a physical inspection of any of the properties or assets, and did not prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities (including, without limitation, any contingent, derivative or off-balance-sheet assets and liabilities), of Holly or Frontier or any of their respective subsidiaries, nor did it evaluate the solvency or fair value of Holly or Frontier under any state or federal law relating to bankruptcy, insolvency or similar matters. With respect to financial forecasts and projections, including, without limitation, the analyses and forecasts of certain cost savings, operating efficiencies, revenue effects and financial synergies and other strategic benefits jointly prepared and expected by Frontier and Holly to be achieved as a result of the merger (collectively, the “Synergies”), made available to Deutsche Bank and used in its analyses, Deutsche Bank assumed with Holly’s permission that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Holly and Frontier as to the matters covered thereby. In rendering its opinion, Deutsche Bank expressed no view as to the reasonableness of such forecasts and projections, including, without limitation, the Synergies, or the assumptions on which they were based. Deutsche Bank’s opinion was necessarily based upon economic, market and other conditions, and the information made available to it, as of the date thereof. Deutsche Bank expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which it became aware after the date thereof.

 

For purposes of rendering its opinion, Deutsche Bank assumed with Holly’s permission that, in all respects material to its analysis, the merger would be consummated in accordance with its terms, without any material waiver, modification or amendment of any term, condition or agreement. Deutsche Bank also assumed at Holly’s direction that the merger would qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Deutsche Bank also assumed that all material governmental, regulatory, contractual or other approvals and consents required in connection with the consummation of the merger would be obtained and that in connection with obtaining any necessary governmental, regulatory, contractual or other approvals and consents, no material restrictions, terms or conditions would be imposed. Deutsche Bank is not a legal, regulatory, tax or accounting expert and has relied on the assessments made by Holly and its advisors with respect to such issues.

 

The Deutsche Bank opinion was approved and authorized for issuance by a fairness opinion review committee and was addressed to, and for the use and benefit of, the board of directors of Holly. The opinion was limited to the fairness, from a financial point of view, to the Company of the exchange ratio. Holly did not ask Deutsche Bank to, and the opinion of Deutsche Bank did not, address the fairness of the merger, or any consideration received in connection therewith, to the holders of any class of securities, creditors or other constituencies of Holly, nor did it address the fairness of the contemplated benefits of the merger. Deutsche Bank did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger. Deutsche Bank expressed no opinion as to the merits of the underlying decision by Holly to engage in the merger or the relative merits of the merger as compared to any alternative business strategies, nor did it

express an opinion or recommendation as to how any holder of Holly common stock should vote with respect to the merger. Deutsche Bank did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the officers, directors or employees of Holly or Frontier, or any class of such persons, in connection with the merger whether relative to the amounts to be received by any other person pursuant to the merger agreement or otherwise. The Deutsche Bank opinion did not in any manner address the prices at which Holly common stock or Frontier common stock will trade following the announcement or consummation of the merger.

 

Summary of Material Financial Analyses.  The following is a summary of the material financial analyses contained in the presentation that was made by Deutsche Bank to the Holly board of directors on February 21, 2011 and that were used by Deutsche Bank in connection with rendering its opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Deutsche Bank, nor does the order of analyses described represent relative importance or weight given to those analyses by Deutsche Bank. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Deutsche Bank’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 18, 2011, and is not necessarily indicative of current market conditions.

 

Historical Exchange Ratio Analysis.  Deutsche Bank reviewed the trading prices of Frontier common stock and Holly common stock for the period from February 18, 2008 through February 18, 2011. For each trading day during that period, Deutsche Bank derived the implied historical exchange ratio by dividing the closing price per share of Frontier common stock by the closing price per share of Holly common stock. The following table sets forth the average implied historical exchange ratios as of February 18, 2011 and for the specified periods ended February 18, 2011 and the premium represented by such ratio as compared to the exchange ratio of 0.4811x.

 

 

 

 

Historical Share Price Analysis.  Deutsche Bank noted that the low and high closing prices per share of Frontier common stock during the 52-week period ending on February 18, 2011 were $11.38 and $29.27, respectively. Deutsche Bank also noted that the low and high closing prices per share of Holly common stock during the same period were $23.32 and $61.91, respectively. Deutsche Bank noted that the range of implied exchange ratios during the 52-week period ending on February 18, 2011 was 0.3960x to 0.5650x as compared to the exchange ratio of 0.4811x.

 

Analyst Price Targets.  Deutsche Bank reviewed the price targets for Frontier common stock prepared and published by 11 equity research analysts who published price targets on or after February 1, 2011 and the price targets for Holly common stock prepared and published by nine equity research analysts who published price targets on or after February 1, 2011. These targets reflect each analyst’s estimate of the future public market trading price of Frontier common stock and Holly common stock and are not discounted to reflect present values.

Deutsche Bank noted that the range of undiscounted equity analyst price targets of Frontier common stock was between $19.00 and $33.00 per share and the range of undiscounted equity analyst price targets of Holly common stock was between $40.00 and $77.00 per share. Deutsche Bank calculated that the implied exchange ratio based on the price targets of the nine equity research analysts who published price targets for both Frontier and Holly ranged from 0.4151x to 0.5167x as compared to the exchange ratio of 0.4811x.

 

Selected Companies Analysis.  Deutsche Bank reviewed and compared certain financial information, ratios and public market multiples for Holly and Frontier to the corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the refining and related sectors (the “Selected Companies”):

 

 

Although none of the Selected Companies is directly comparable to Holly or Frontier, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Holly and Frontier.

 

In its analysis, Deutsche Bank derived and compared multiples for Frontier, Holly, Holly’s refining business on a standalone basis after removal of certain non-refining operations (HEP and UNEV pipeline), referred to herein as “Holly Refining,” and the Selected Companies, calculated as follows:

 

 

The multiples and ratios for each of the Selected Companies were calculated using the closing price of the Selected Companies’ common stock on February 18, 2011 and were based on the most recent publicly available information and information from Capital IQ. The multiples and ratios for Frontier and Holly were calculated using closing prices per share of Frontier common stock and Holly common stock on February 18, 2011 and were based on the median estimates from research analysts who published estimates on or after February 1, 2011. The multiples and ratios for Holly Refining were calculated using closing prices per share of Holly common stock on February 18, 2011 and the median estimates from research analysts who published estimates on or after February 1, 2011, subject to certain adjustments to account for the removal of non-refining operations.

This analysis indicated the following multiples:

 

 

 

 

Deutsche Bank selected representative ranges of financial multiples of the selected companies and applied these ranges of multiples to the relevant Frontier and Holly statistics. This analysis indicated the following ranges of implied values per share for Frontier common stock and implied values per share for Holly common stock:

 

 

Deutsche Bank also calculated the exchange ratios implied by dividing the low end of the implied equity value per share of Frontier common stock for each financial multiple by the high end of the implied equity value per share of Holly common stock for such financial multiple and the exchange ratios implied by dividing the high end of the implied equity value per share of Frontier common stock for each multiple by the low end of the implied equity value per share of Holly common stock for such financial multiple. This analysis indicated the following range of implied exchange ratios as compared to the exchange ratio of 0.4811x:

 

 

Discounted Cash Flow Analysis.  Deutsche Bank performed a discounted cash flow analysis to determine a range of implied present values per share of Frontier common stock based on projected unlevered free cash flows for Frontier on a standalone basis for the years ending December 31, 2011 through 2015, using estimates from Holly management. The analysis was based on a range of discount rates from 9.0% to 11.0% and a terminal value based on multiples ranging from 5.0x to 6.0x applied to Frontier’s mid-cycle EBITDA. The terminal multiple range was based on the average forward-looking EBITDA multiples for publicly traded corporations in the refining and related sectors during the period from 2006 to 2010. Frontier’s mid-cycle EBITDA was calculated by applying average product and input pricing spreads and average crude oil pricing differentials from 2006 to 2010 to Frontier’s forecasted operating configuration. This analysis indicated the following range of implied per share present values for Frontier common stock:

 

 

Deutsche Bank also performed a discounted cash flow analysis to determine a range of implied present values per share of Holly common stock based on projected unlevered free cash flows for Holly on a standalone basis for the years ending December 31, 2011 through 2015, using estimates from Holly management and the same

methodology described above. This analysis indicated the following range of implied per share present values for Holly common stock:

 

 

Deutsche Bank also calculated the exchange ratios implied by dividing the low end of the implied equity value per share of Frontier common stock by the corresponding high end of the implied equity value per share of Holly common stock and by dividing the high end of the implied equity value per share of Frontier common stock by the corresponding low end of the implied equity value per share of Holly. This analysis indicated the following range of implied exchange ratios as compared to the exchange ratio of 0.4811x:

 

 

Pro Forma Analysis.  Deutsche Bank performed an illustrative pro forma transaction analysis of the potential financial impact of the merger on Holly’s estimated EPS for fiscal years 2011 and 2012 under various scenarios including Synergies ranging from $15 to $45 million (of which only one-half are realized in 2011) and the potential refinancing or redemption of Frontier’s existing bonds. In this analysis, earnings estimates for Frontier and Holly were based on Holly management projections and consensus estimates. Based upon the Holly management estimates, Deutsche Bank’s analysis indicated a range of 3.2% dilution to 1.8% accretion in 2011 and a range of 0.3% dilution to 6.5% accretion in 2012. Based upon the consensus estimates, Deutsche Bank’s analysis indicated a range of 2.8% to 7.7% accretion in 2011 and a range of 0.4% dilution to 6.9% accretion in 2012.

 

Precedent Merger of Equals Transactions Analysis.  Deutsche Bank reviewed the premiums paid in 28 transactions announced as “merger of equals” transactions with a greater than 40% target ownership announced between April 22, 1996 and February 9, 2011. Deutsche Bank then calculated the premium reflected by the exchange ratio in each transaction over the average exchange ratio for the 30 days preceding announcement of the transaction. Deutsche Bank noted that the mean premium was 4.1%, the median premium was 2.6% and the premium for the merger was 11%.

 

General.  The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Deutsche Bank’s opinion. In arriving at its fairness determination, Deutsche Bank considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Deutsche Bank made its determination as to fairness on the basis of experience and professional judgment after considering the results of all of its analyses. No company (other than Holly or Frontier) or transaction used in the above analyses as a comparison is directly comparable to Holly or Frontier or the merger.

 

Deutsche Bank prepared these analyses for purposes of providing its opinion to the Holly board of directors as to the fairness to Holly from a financial point of view of the exchange ratio of 0.4811 shares of Holly common stock to be issued in the merger for each share of Frontier common stock. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results, including estimates of the Synergies, are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Holly, Frontier, Deutsche Bank or any other person assumes responsibility if future results are materially different from those forecast.

 

The exchange ratio of 0.4811 shares of Frontier common stock to be issued in the merger for each share of Holly common stock was determined through arm’s-length negotiations between Holly and Frontier and was approved by the Holly board of directors. Deutsche Bank provided advice to Holly during these negotiations. Deutsche Bank did not, however, recommend any specific exchange ratio to Holly or its board of directors or that any specific exchange ratio constituted the only appropriate exchange ratio for the merger.

As described above, the opinion from Deutsche Bank to the Holly board of directors were one of a number of factors taken into consideration by the Holly board of directors in making its determination to approve the merger agreement and the merger. The foregoing summary does not purport to be a complete description of the analyses performed by Deutsche Bank in connection with its fairness opinion and is qualified in its entirety by reference to the written opinion of Deutsche Bank included as Annex C.

 

The Holly board of directors engaged Deutsche Bank as a financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to its engagement letter with Holly, Deutsche Bank will be paid a transaction fee of $4,875,000 for its services as financial advisor to Holly in connection with the merger, a portion of which was paid upon delivery of its opinion and a substantial portion of which is payable contingent upon completion of the merger. In addition, Holly may pay to Deutsche Bank an additional discretionary fee if Holly so determines in its sole discretion. The engagement letter also provides that Holly may pay to Deutsche Bank a discretionary fee upon completion of the merger. Holly also agreed to reimburse Deutsche Bank for its reasonable and customary expenses, and to indemnify Deutsche Bank against certain liabilities, in connection with its engagement.

 

Deutsche Bank is an affiliate of Deutsche Bank AG (together with its affiliates, the “DB Group”). The DB Group may provide investment banking, commercial banking and other financial services to Holly, Frontier or their respective affiliates in the future for which Deutsche Bank would expect the DB Group to receive customary compensation. In the ordinary course of business, members of the DB Group may actively trade in the securities and other instruments and obligations of Frontier, Holly, or their respective affiliates for their own accounts and for the accounts of their customers. Accordingly, the DB Group may at any time hold a long or short position in such securities, instruments and obligations.

 

Holly does not as a matter of course make projections as to future performance available to the public and avoids making projections for extended periods due to the unpredictability of the underlying assumptions and estimates. However, in connection with its evaluation of the proposed merger, certain non-public financial projections regarding Holly’s and Frontier’s anticipated future operations were prepared by Holly for the years 2011 through 2015. In the case of Holly’s projections of Frontier’s future performance, Holly’s management based these projections in part on estimates of certain expected 2011 limited financial and operating data provided by Frontier to Holly. The projections were reviewed by the Holly board of directors and provided by management to Holly’s financial advisors in connection with the proposed merger. The projections were independently prepared by Holly management based on assumptions that Holly management believed to be reasonable at the time and were not provided to and were not reviewed by Frontier or its financial advisors prior to the announcement of the transaction.

 

The financial projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections, or GAAP. In addition, the projections were not prepared with the assistance of, or reviewed, compiled or examined by, an independent auditor. Neither Holly’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

 

Earnings for the independent refining industry are highly volatile. The financial projections were based on numerous variables and assumptions (including but not limited to those related to industry performance, competition, general business, economic, market and financial conditions) that are inherently uncertain and are beyond the control of Holly and Frontier. Financial projections for both Holly and Frontier are subject to many risks and uncertainties, including, but not limited to, the impact of general economic factors outside Holly’s control, volatility in crack spreads, crude oil differentials and other operating conditions and other risks and uncertainties relating to Holly’s and Frontier’s business (including their ability to achieve strategic goals, objectives and targets over applicable periods) and other factors described under “Special Note Regarding Forward-Looking Statements,” all

of which are subject to change. The projections also did not give effect to the merger. As a result, actual results may differ materially from those contained in the financial projections.

 

The inclusion of a summary of the financial projections in this joint proxy statement/prospectus should not be regarded as an indication that any of Holly, Frontier or their respective affiliates, officers, directors or other representatives consider the financial projections to be necessarily predictive of actual future events, and the financial projections should not be relied upon as such. None of Holly, Frontier or their respective affiliates, officers, directors or other representatives can give you any assurance that actual results will not differ materially from the financial projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the financial projections to reflect circumstances existing after the date the financial projections were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error. None of Holly, Frontier or their respective affiliates, officers, directors or other representatives has made or makes any representation to any stockholder or other person regarding Holly’s or Frontier’s ultimate performance compared to the information contained in the financial projections or that the projected results will be achieved. The summary of the financial projections included below is not being included to influence your decision whether to vote for the merger and the transactions contemplated in connection with the merger, but are being provided because the financial projections were considered in connection with the merger.

 

Holly has made no representations to Frontier, and Frontier has made no representations to Holly, in the merger agreement or otherwise, concerning the financial projections or the estimates on which they are based. Holly and Frontier urge all stockholders to review Holly’s and Frontier’s most recent SEC filings for a description of Holly’s and Frontier’s reported financial results.

 

The below projections for Holly’s EBITDA, net income and earnings per share are presented as the results from Holly’s refining segment operations, including the proportional contribution from UNEV Pipeline, LLC in 2011 (and assuming a pre-tax gain on the sale of Holly’s interest in UNEV Pipeline, L.L.C. to HEP in 2012), plus Holly’s proportional share of the earnings of HEP. Holly’s capital expenditures exclude the capital expenditures of HEP. In the below projections for Frontier, the amortization of turn-around costs is included in depreciation and amortization for the purposes of calculating EBITDA consistent with Frontier’s financial reporting for fiscal year 2010. In the below forecasts, operating cash flow of Holly and Frontier is defined as operating cash flow before the effects of changes in working capital, other assets and other liabilities. The operating cash flow of Holly includes the estimated general partner and limited partner distributions received by Holly from HEP in place of Holly’s proportional share of the earnings of HEP otherwise included in net income.

 

Holly Corporation Projections
(prepared by Holly Corporation)

 

Frontier Oil Corporation Projections
(prepared by Holly Corporation)

 

 

Earnings before interest, taxes, depreciation and amortization, which Holly refers to as EBITDA, is calculated as net income plus (i) interest expense, net of interest income, (ii) income tax provision, and (iii) depreciation and amortization. EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure performance. EBITDA is also used by Holly’s management for internal analysis and as a basis for financial covenants.

 

In evaluating the merger agreement and the merger, the Frontier board of directors consulted with members of Frontier’s management, as well as with Frontier’s legal and financial advisors, and also considered a number of factors. The principal factors that the Frontier board of directors viewed as supporting its decisions to adopt the merger agreement and recommend its approval by Frontier shareholders are:

 

 

 

In addition to considering the factors described above, Frontier’s board of directors also considered the following factors:

 

 

 

The Frontier board of directors weighed the foregoing against a number of potentially negative factors, including: