Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On November 16,
2016, Tesoro Corporation, a Delaware corporation (the
Company
), entered into an Agreement and Plan of Merger (the
Merger Agreement
) with Western Refining, Inc., a Delaware corporation
(
Western
), Tahoe Merger Sub 1, Inc., a Delaware corporation and wholly owned subsidiary of the Company (
Merger Sub 1
), and Tahoe Merger Sub 2, LLC, a Delaware limited liability company and wholly owned
subsidiary of the Company (
Merger Sub 2
), pursuant to which Merger Sub 1 will merge with and into Western (the
First Merger
and, if a second merger election as discussed below is not made, the
Merger
), with Western surviving the First Merger as a wholly owned subsidiary of the Company.
Subject to the terms and conditions set
forth in the Merger Agreement, upon consummation of the First Merger, each share of Western common stock, par value $0.01 per share (each, a
Western Share
) issued and outstanding immediately prior to the effective time of the
First Merger (excluding Western Shares owned by the Company or Western or any of their respective direct or indirect wholly owned subsidiaries that are not held on behalf of third parties) will be converted into and become exchangeable for, at the
election of the holder of such Western Share, either (a) $37.30 in cash or (b) 0.4350 shares of common stock, par value $0.16
2
⁄
3
per share, of the
Company (
Company Shares
), in each case without interest.
Cash elections will be subject to proration if cash elections are made in
respect of more than approximately 10.8 million Western Shares. Stock elections are not subject to proration. Western Shares in respect of which no cash election or stock election is validly made will be deemed to be Western Shares in respect
of which stock elections have been made.
The Merger Agreement permits either the Company or Western to require that the surviving corporation of the
First Merger (i.e., Western) be merged with and into Merger Sub 2 immediately following the effective time of the First Merger, with Merger Sub 2 being the surviving company from the second merger (the
Second Merger
and, if the
second merger election is made, collectively with the First Merger, the
Merger
) if the requiring party reasonably believes, based on legal advice, that the Second Merger is necessary to enable the Merger to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
The completion of the Merger is subject to certain
customary mutual conditions, including (i) the receipt of the required approvals from Westerns and the Companys stockholders, (ii) the Companys registration statement on Form S-4 having become effective under the
Securities Act of 1933, (iii) the Company Shares issuable in connection with the First Merger having been approved for listing on the New York Stock Exchange, subject to official notice of issuance, (iv) the expiration or termination
of the waiting period under the Hart-Scott-Rodino Act, (v) the absence of any governmental order or law prohibiting the consummation of the Merger or the other transactions contemplated by
the Merger Agreement and (vi) there not having been imposed a burdensome condition in connection with the expiration or termination of the waiting period applicable under the Hart-Scott-Rodino Act. The obligation of each party to consummate the
Merger is also conditioned upon (i) compliance by the other party in all material respects with its pre-closing obligations under the Merger Agreement and (ii) the accuracy of the representations and warranties of the other party as of the
date of the Merger Agreement and as of the closing (subject to customary materiality qualifiers). Westerns obligation to complete the Merger is additionally subject to its receipt of a tax opinion to the effect that the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
The Company and Western have made customary
representations, warranties and covenants in the Merger Agreement. Subject to certain exceptions, the Company and Western have agreed, among other things, to covenants relating to (i) the conduct of their respective businesses during the
interim period between the execution of the Merger Agreement and the consummation of the First Merger, (ii) the use of their respective reasonable best efforts, subject to certain exceptions, to obtain governmental and regulatory approvals,
(iii) obligations to facilitate the Western stockholders consideration of, and voting upon, the adoption of the Merger Agreement and certain related matters as applicable and the Companys stockholders consideration of, and
voting upon, the issuance of Company Shares in the First Merger and certain related matters as applicable, (iv) the recommendation by the board of directors of Western in favor of the adoption by its stockholders of the Merger Agreement,
subject to certain exceptions, (v) the recommendation by the board of directors of the Company in favor of the issuance of Company Shares in the First Merger, subject to certain exceptions, (vi) non-solicitation obligations of Western and
the Company relating to alternative acquisition proposals and (vii) the use of reasonable best efforts by the Company to take certain steps to obtain debt financing at the closing of the Merger to the extent the proceeds thereof are needed to
pay the cash consideration and all other cash amounts required to be paid in connection with the closing of the Merger.
The Merger Agreement permits the
Company to continue paying a regular quarterly dividend of up to $0.55 per Company Share and permits Western to continue paying a regular quarterly dividend of up to $0.38 per share.
The Merger Agreement contains certain termination rights that may be exercised by either the Company or Western, including in the event that (i) both
parties agree by mutual written consent to terminate the Merger Agreement, (ii) the Merger is not consummated by November 16, 2017 (the
Outside Date
), (iii) the approval required from either the Companys or
Westerns stockholders is not obtained or (iv) any law or order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger having become final and non-appealable. In addition, in certain circumstances, Western
may terminate the Merger Agreement (i) in order to enter into an unsolicited alternative acquisition proposal that constitutes a Company Superior Proposal (as that term is defined in the Merger Agreement), subject to Western having
first complied with
certain match right obligations, (ii) if the Companys board of directors changes or adversely modifies (or has been deemed to have changed or adversely modified) its recommendation
that the Company stockholders vote in favor of the issuance of Company Shares in connection with the Merger (the
Company Recommendation
), subject to the Company having first complied with certain match right obligations if the
change of Company Recommendation is in response to a Parent Intervening Event (as such term is defined in the Merger Agreement) or (iii) if the Company breaches any of its representations, warranties, covenants or agreements
contained in the Merger Agreement such that the closing condition relating thereto would not be satisfied (subject to cure periods in certain circumstances). The Company may additionally terminate the Merger Agreement (i) in order to enter into
an unsolicited alternative acquisition proposal that constitutes a Parent Superior Proposal (as that term is defined in the Merger Agreement), subject to the Company having first complied with certain match right obligations,
(ii) if Westerns board of directors changes or adversely modifies (or has been deemed to have changed or adversely modified) its recommendation that Westerns stockholders vote in favor of the adoption of the Merger Agreement (the
Western Recommendation
), subject to Western having first complied with certain match right obligations if the change of Western Recommendation is in response to a Company Intervening Event (as such term is defined in
the Merger Agreement) or (iii) if Western breaches any of its representations, warranties, covenants or agreements contained in the Merger Agreement such that the closing condition relating thereto would not be satisfied (subject to cure
periods in certain circumstances).
If the Merger Agreement is terminated (i) by the Company as a result of (a) a Western Recommendation change
prior to the Western stockholder approval having been obtained or (b) a willful and material breach by Western or its representatives of its non-solicitation obligations relating to alternative acquisition proposals, or (ii) by Western as
a result of Western entering into a definitive agreement with respect to a Company Superior Proposal (as such term is defined in the Merger Agreement), then Western will be obligated to pay the Company a termination fee equal to $120
million in cash (the
Termination Fee
).
Furthermore, if (i) the Merger Agreement is terminated (a) by the Company or Western
due to the First Merger not having been consummated by the Outside Date or due to the required approval by Westerns stockholders not having been obtained, or (b) by the Company if Western has breached any of its representations,
warranties, covenants or agreements contained in the Merger Agreement (other than a willful and material breach by Washington or its representatives of its non-solicitation obligations relating to alternative acquisition proposals), (ii) an
alternative acquisition proposal for more than 50% of Westerns total voting power or total assets has been publicly announced after the date of the Merger Agreement and not publicly unconditionally withdrawn prior to the Western stockholder
meeting,
and
(iii) within 12 months following the date of such termination, (a) the board of directors of Western recommends in favor of an alternative acquisition proposal for more than 50% of Westerns total voting power or
total assets, (b) Western enters into an agreement providing for the consummation of such an alternative acquisition proposal or (c) an alternative acquisition proposal is consummated, then Western will be obligated to pay the Company the
Termination Fee (net of any no vote fee paid).
If the Merger Agreement is terminated (i) by Western as a result of (a) a Company Recommendation change
prior to the Company stockholder approval having been obtained or (b) a willful and material breach by the Company or its representatives of its non-solicitation obligations relating to alternative acquisition proposals, or (ii) by the
Company to enter into a definitive agreement with respect to a Parent Superior Proposal (as such term is defined in the Merger Agreement), then the Company will be obligated to pay Western a fee equal to $240 million in cash (the
Reverse Termination Fee
).
Furthermore, if (i) the Merger Agreement is terminated (a) by the Company or Western due to the
First Merger not having been consummated by the Outside Date or due to the required approval by the Companys stockholders not having been obtained, or (b) by Western if the Company has breached any of its representations, warranties, or
covenants contained in the Merger Agreement (other than a willful and material breach by the Company or its representatives of its non-solicitation obligations in respect of alternative acquisition proposals), (ii) an alternative acquisition
proposal for more than 50% of the Companys total voting power or total assets has been publicly announced after the date of the Merger Agreement and not publicly unconditionally withdrawn prior to the Companys stockholder meeting,
and
(iii) within 12 months following the date of such termination, (a) the board of directors of the Company recommends in favor of an alternative acquisition proposal for more than 50% of the Companys total voting power or
total assets, (b) the Company enters into an agreement providing for the consummation of such an alternative acquisition proposal, or (c) an alternative acquisition proposal is consummated, then the Company will be obligated to pay Western
the Reverse Termination Fee (net of any no vote fee paid).
Additionally, if the Merger Agreement is terminated by the Company or Western due to the
required approval by Westerns stockholders not having been obtained at the Western stockholders meeting, Western will be obligated to pay to the Company an amount equal to $41,100,000, and if the Merger Agreement is terminated by the Company
or Western due to the required approval by the Companys stockholders not having been obtained, the Company will be obligated to pay to Western an amount equal to $41,100,000 (such fee, whether paid by the Company or Western, the
No
Vote Fee
). The amount of any No Vote Fee paid by the Company or Western will be credited to and reduce any future obligation of Western to pay the Termination Fee or the Company to pay the Reverse Termination Fee, respectively.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety
by the actual Merger Agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.
Financing the Merger
In connection with the
Merger, the Company entered into a financing commitment letter (the
Commitment Letter
) with Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC for a 364-day senior unsecured bridge facility in an aggregate principal
amount not to exceed $2.15 billion (the
Bridge Facility
), for the purposes of financing a
portion of the cash consideration payable under the terms of the Merger Agreement and to repay or redeem certain of Western and its subsidiaries indebtedness. Any undrawn commitments under
the Bridge Facility will automatically be terminated on the date of the closing. The Bridge Facility will be subject to representations, warranties and covenants that, subject to certain agreed modifications, will be are substantially similar to the
Companys existing revolving credit agreement, which was previously filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the United States Securities and Exchange Commission (
SEC
) on
September 30, 2016 (the
Existing Credit Agreement
).
The Company expects to replace some or all of the Bridge Facility prior to
the closing of the Merger with permanent financing comprised of debt, including a term loan facility. There can be no assurance that the permanent financing will be completed.
The Commitment Letter also contemplates certain amendments to the Companys Existing Credit Agreement in connection with the Merger, and to the extent
the proposed amendments to the Existing Credit Agreement are not obtained, a senior secured backstop credit facility (
Backstop Facility
) in an amount up to $2.0 billion for purposes of refinancing the Existing Credit Agreement.
The funding of the Bridge Facility and the effectiveness of the Backstop Facility is subject to the Companys compliance with customary terms and
conditions precedent as set forth in the Commitment Letter, including, among others, (i) the execution and delivery by the Company of definitive documentation consistent with the Commitment Letter and (ii) that the Merger shall have been,
or substantially simultaneously with the funding under the Bridge Facility and the effectiveness of the Backstop Facility shall be, consummated in accordance with the terms of the Merger Agreement.
The aggregate proceeds of the debt financing, together with the available cash of the Company, will be sufficient for the Company to pay the aggregate cash
consideration, refinance certain indebtedness of Western and its subsidiaries, and pay all related fees and expenses payable in connection with the Merger.
The foregoing description of the Commitment Letter does not purport to be complete and is subject to, and qualified in its entirety by reference to the actual
Commitment Letter, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Voting
Agreements
On November 16, 2016, concurrently with the execution of the Merger Agreement, the Company, Merger Sub 1, Merger Sub 2 and Western
entered into three separate voting agreements (each, a
Voting Agreement
) with (i) Paul L. Foster and Franklin Mountain Investments, LP, (ii) Jeff A. Stevens, and (iii) Scott D. Weaver (each, a
Stockholder
and collectively, the
Stockholders
) pursuant to each of which, among other things and subject to the terms and conditions therein, the Stockholder(s) party thereto have agreed to vote all of the
Western Shares beneficially owned by them (the
Covered Shares
) in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, including the Merger, and to not vote in
favor of any alternative acquisition proposal or other action or agreement that would reasonably be expected to adversely affect the Merger.
The Voting Agreements also generally prohibit the Stockholders from transferring the Covered Shares. The Voting
Agreements terminate upon the earlier of the termination of the Merger Agreement and the time the Merger becomes effective.
The foregoing description of
the Voting Agreements does not purport to be complete and is qualified in its entirety by reference to the actual Voting Agreements, copies of which are filed as Exhibits 10.2, 10.3, and 10.4 to this Current Report on Form 8-K and
incorporated herein by reference.
The Merger Agreement, Commitment Letter and Voting Agreements have been included to provide investors with information
regarding their terms. They are not intended to provide any other factual information about the Company, Western or their respective subsidiaries or affiliates or to modify or supplement any factual disclosures about the Company or Western included
in their public reports filed with the SEC. The representations, warranties and covenants contained in the Merger Agreement, the Commitment Letter and Voting Agreements were made only for purposes of such agreements and as of specific dates, were
solely for the benefit of the respective parties to such agreements, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk
between the respective parties to such agreements instead of establishing these matters as facts, and may be subject to standards of materiality that differ from those applicable to investors. Investors should not rely on the representations,
warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or of any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter
of representations and warranties may change after the date of the Merger Agreement, the Commitment Letter and the Voting Agreements, which subsequent information may or may not be fully reflected in the Companys public disclosures.