-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qya+7KYgDTYTfdzR1dAOywIG1pDefS4B5LlFad4vOBwU1X3bUhgBe2Dfu5yG7puP 43bWmzVx+o8+pBQAwbdwCw== 0000950134-99-005433.txt : 19990615 0000950134-99-005433.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950134-99-005433 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLY CORP CENTRAL INDEX KEY: 0000048039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 751056913 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03876 FILM NUMBER: 99644662 BUSINESS ADDRESS: STREET 1: 100 CRESCENT COURT STREET 2: STE 1600 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2148713555 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL APPLIANCE CORP DATE OF NAME CHANGE: 19680508 10-Q 1 FORM 10-Q FOR QUARTER ENDED APRIL 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999 -------------------- OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 1-3876 ------ HOLLY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1056913 - --------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Crescent Court, Suite 1600 Dallas, Texas 75201-6927 - ----------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 871-3555 ----------------------- - ------------------------------------------------------- ------------------------ Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 8,253,514 shares of Common Stock, par value $.01 per share, were outstanding on June 8, 1999. 2 HOLLY CORPORATION INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - April 30, 1999 (Unaudited) and July 31, 1998 3 Consolidated Statement of Income (Unaudited) - Three Months and Nine Months Ended April 30, 1999 and 1998 4 Consolidated Statement of Cash Flows (Unaudited) - Nine Months Ended April 30, 1999 and 1998 5 Consolidated Statement of Comprehensive Income (Unaudited) - Three Months and Nine Months Ended April 30, 1999 and 1998 6 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 6. Exhibits and Reports on Form 8-K 22 This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to the Company's expectations or beliefs as to future events. These types of statements are "forward-looking" and are subject to uncertainties. See "Factors Affecting Forward-Looking Statements" on page 12. 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOLLY CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Thousands, Except Per Share Amounts)
Unaudited April 30, July 31, 1999 1998 ----------- ---------- ASSETS Current assets Cash and cash equivalents $ 3,458 $ 2,602 Accounts receivable: Product 45,437 33,346 Crude oil resales 64,715 49,033 ----------- ---------- 110,152 82,379 Inventories: Crude oil and refined products 51,388 46,754 Materials and supplies 10,325 12,081 Reserve for lower of cost or market (2,993) (2,993) ----------- ---------- 58,720 55,842 Income taxes receivable -- 653 Prepayments and other 13,942 12,911 ----------- ---------- Total current assets 186,272 154,387 Properties, plants and equipment, at cost 343,314 325,993 Less accumulated depreciation, depletion and amortization (166,263) (152,696) ----------- ---------- 177,051 173,297 Investments and advances to joint ventures 4,788 5,510 Other assets 12,624 16,663 ----------- ---------- $ 380,735 $ 349,857 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 126,468 $ 109,139 Accrued liabilities 14,306 13,392 Income taxes payable 2,820 288 Current maturities of long-term debt 13,746 5,175 Borrowings under credit agreement -- 11,600 ----------- ---------- Total current liabilities 157,340 139,594 Deferred income taxes 24,573 25,573 Long-term debt, less current maturities 61,762 70,341 Long-term borrowings under credit agreement 17,300 -- Commitments and contingencies Stockholders' equity Preferred stock, $1.00 par value - 1,000,000 shares authorized; none issued -- -- Common stock, $.01 par value - 20,000,000 shares authorized; 8,650,282 shares issued 87 87 Additional capital 6,132 6,132 Retained earnings 115,322 109,686 --------- ---------- 121,541 115,905 Common stock held in treasury, at cost - 396,768 shares (569) (569) Accumulated other comprehensive income - net unrealized loss on securities available for sale (1,212) (987) ----------- ---------- Total stockholders' equity 119,760 114,349 ----------- ---------- $ 380,735 $ 349,857 =========== ==========
See accompanying notes. 3 4 HOLLY CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Thousands, Except Per Share Amounts)
Unaudited Unaudited Three Months Ended Nine Months Ended April 30, April 30, ------------------------ ----------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenues Refined products $ 140,586 $ 132,787 $ 398,440 $ 433,554 Oil and gas 755 1,213 2,287 5,822 Miscellaneous 183 208 547 537 --------- --------- --------- --------- 141,524 134,208 401,274 439,913 Costs and expenses Cost of refined products 116,865 115,638 343,255 391,855 Recovery of inventory market writedowns (5,762) -- -- -- General and administrative 6,491 3,674 16,731 10,432 Depreciation, depletion and amortization 7,045 6,652 19,670 17,900 Exploration expenses, including dry holes 425 620 1,145 2,224 --------- --------- --------- --------- 125,064 126,584 380,801 422,411 --------- --------- --------- --------- Income from operations 16,460 7,624 20,473 17,502 Other Equity in earnings of joint ventures 200 448 1,336 1,357 Interest income 43 40 136 560 Interest expense (2,035) (2,092) (5,948) (6,354) Transaction costs of terminated merger -- (770) -- (770) --------- --------- --------- --------- (1,792) (2,374) (4,476) (5,207) --------- --------- --------- --------- Income before income taxes 14,668 5,250 15,997 12,295 Income tax provision (benefit) Current 4,715 300 6,671 (973) Deferred 1,166 1,977 (272) 6,068 --------- --------- --------- --------- 5,881 2,277 6,399 5,095 --------- --------- --------- --------- Net income $ 8,787 $ 2,973 $ 9,598 $ 7,200 ========= ========= ========= ========= Income per common share (basic and diluted) $ 1.06 $ .36 $ 1.16 $ .87 Cash dividends paid per share $ .16 $ .15 $ .48 $ .45 Average number of shares of common stock outstanding (in thousands) 8,254 8,254 8,254 8,254
See accompanying notes. 4 5 HOLLY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands)
Unaudited Nine Months Ended April 30, ---------------------- 1999 1998 -------- -------- Cash flows from operating activities Net income $ 9,598 $ 7,200 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 19,670 17,900 Deferred income taxes (272) 6,068 Equity in earnings of joint venture (1,336) (1,357) Dry hole costs and leasehold impairment 256 707 (Increase) decrease in operating assets Accounts receivable (27,773) 35,641 Inventories (2,878) 6,683 Income taxes receivable 653 (238) Prepayments and other (1,650) (3,069) Increase (decrease) in operating liabilities Accounts payable 17,329 (37,175) Accrued liabilities 914 1,976 Income taxes payable 2,532 (112) Turnaround expenditures -- (18,784) Other, net (2,179) (23) -------- -------- Net cash provided by operating activities 14,864 15,417 Cash flows from financing activities Increase in borrowings under credit agreement 5,700 4,800 Payment of long-term debt (8) (8) Debt issuance costs -- (547) Cash dividends (3,962) (3,714) -------- -------- Net cash provided by financing activities 1,730 531 Cash flows from investing activities Additions to properties, plants and equipment (17,913) (29,416) Investment in equity securities -- (2,978) Distributions from joint venture 2,175 -- -------- -------- Net cash used for investing activities (15,738) (32,394) -------- -------- Cash and cash equivalents Increase (decrease) for the period 856 (16,446) Beginning of year 2,602 20,042 -------- -------- End of period $ 3,458 $ 3,596 ======== ======== Supplemental disclosure of cash flow information Cash paid during period for Interest $ 4,336 $ 4,328 Income taxes $ 3,408 $ 360
See accompanying notes. 5 6 HOLLY CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Dollars in thousands)
Unaudited Unaudited Three Months Ended Nine Months Ended April 30, April 30, ------------------- -------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Net income $ 8,787 $ 2,973 $ 9,598 $ 7,200 Other comprehensive income Unrealized gain (loss) on securities available for sale 374 784 (375) 784 Income tax provision (benefit) 149 313 (150) 313 ------- ------- ------- ------- 225 471 (225) 471 ------- ------- ------- ------- Total comprehensive income $ 9,012 $ 3,444 $ 9,373 $ 7,671 ======= ======= ======= =======
See accompanying notes. 6 7 HOLLY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Presentation of Financial Statements In the opinion of the Company, the accompanying consolidated financial statements, which have not been audited by independent accountants (except for the consolidated balance sheet as of July 31, 1998), reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's consolidated financial position as of April 30, 1999, the consolidated results of operations and comprehensive income for the three months and nine months ended April 30, 1999 and 1998, and consolidated cash flows for the nine months ended April 30, 1999 and 1998. Certain notes and other information have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1998. References herein to the "Company" are for convenience of presentation and may include obligations, commitments or contingencies that pertain solely to one or more affiliates of the Company. Results of operations for the first nine months of fiscal 1999 are not necessarily indicative of the results to be expected for the full year. Note B - Adoption of New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company is adopting all three statements in the current fiscal year ending July 31, 1999. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. In this Form 10-Q, the Company has added a separate statement of comprehensive income to conform with the new requirements of SFAS No. 130. SFAS No. 131 establishes new standards for reporting information about operating segments in annual financial statements and requires selected operating segment information to be reported in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement becomes effective for the Company's financial statements beginning with the fiscal year ending July 31, 1999 at which time prior period segment information presented for comparative purposes is required. Interim period information is not required until the second year of application, at which time comparative information is required. Because interim period information is not required under this statement for the Company's current fiscal year, the 7 8 HOLLY CORPORATION requirements of this statement are not reflected in this Report. Because this statement addresses how supplemental financial information is disclosed in annual and interim reports, the adoption will have no impact on the Company's financial condition or results of operations. SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets, and eliminates certain disclosures that are no longer useful. This statement becomes effective for the Company's financial statements beginning with the fiscal year ending July 31, 1999 at which time restatement of prior period disclosures presented for comparative purposes is required unless the information is not readily available. Because interim period information is not required under this statement, the requirements of this statement are not reflected in this Report. Because this statement addresses how supplemental financial information is disclosed in annual reports, the adoption will have no impact on the Company's financial condition or results of operations. Note C - Earnings Per Share The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for net income as required by SFAS No. 128:
Three Months Ended April 30, 1999 ---------------------------------------------------------- Per Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- --------- (in thousands, except per share amounts) Income per common share - basic Net income $ 8,787 8,254 $ 1.06 Effect of dilutive stock options - - - ---------- ------------- --------- Income per common share - assuming dilution Net income $ 8,787 8,254 $ 1.06 ========== ============= =========
8 9 HOLLY CORPORATION
Three Months Ended April 30, 1998 ---------------------------------------------------------- Per Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- --------- (in thousands, except per share amounts) Income per common share - basic Net income $ 2,973 8,254 $ .36 Effect of dilutive stock options - 9 - ---------- ------------- --------- Income per common share - assuming dilution Net income $ 2,973 8,263 $ .36 ========== ============= =========
Nine Months Ended April 30, 1999 ---------------------------------------------------------- Per Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- --------- (in thousands, except per share amounts) Income per common share - basic Net income $ 9,598 8,254 $ 1.16 Effect of dilutive stock options - - - ---------- ------------- --------- Income per common share - assuming dilution Net income $ 9,598 8,254 $ 1.16 ========== ============= =========
Nine Months Ended April 30, 1998 ---------------------------------------------------------- Per Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- --------- (in thousands, except per share amounts) Income per common share - basic Net income $ 7,200 8,254 $ .87 Effect of dilutive stock options - 3 - ---------- ------------- --------- Income per common share - assuming dilution Net income $ 7,200 8,257 $ .87 ========== ============= =========
9 10 HOLLY CORPORATION Note D - Debt Beginning for the quarter ended January 31, 1999, the Company changed its classification of borrowings under its Credit Agreement to long-term since the Company intends to maintain this facility for more than one year. Amounts borrowed under this facility are not due until October 2000, the termination date of the Credit Agreement. Note E - Contingencies In December 1998, the Company completed the settlement of a suit filed in July 1993 by the United States Department of Justice ("DOJ"), on behalf of the United States Environmental Protection Agency ("EPA"), against the Company's subsidiary, Navajo Refining Company ("Navajo") alleging wastewater violations at the Navajo Refinery. Under the settlement agreement among Navajo, the DOJ and the State of New Mexico, the Company has paid a civil penalty in December 1998 of less than $2 million, which was reserved for in fiscal 1993, and is required by September 1999 to close the existing evaporation ponds of its wastewater treatment system and to utilize an alternative wastewater treatment system, which the Company is in the process of constructing. In August 1998, a lawsuit (the "Longhorn Suit") was filed in state district court in El Paso, Texas against the Company, two of its subsidiaries and an Austin, Texas law firm. The suit was filed by Longhorn Partners Pipeline, L.P. ("Longhorn Partners"), a Delaware limited partnership composed of Longhorn Partners GP, L.L.C. as general partner and affiliates of Exxon Pipeline Company, Amoco Pipeline Company, Williams Pipeline Company, Beacon Group Energy Investment Fund, L.P. and Chisholm Holdings as limited partners. The suit alleged damages against the Company and the law firm of $1,050,000,000 and injunctive relief based on claims of violations of the Texas Free Enterprise and Antitrust Act, unlawful interference with contractual relations, and conspiracy to abuse process. In early March 1999, Longhorn Partners filed an amended petition that did not include the Austin, Texas law firm as a defendant, did not include injunctive relief as a requested remedy, and did not include the Environmental Suit described below as a basis of the suit. As set forth in the amended petition, the Longhorn Suit asserts claims of violations of the Texas Free Enterprise and Antitrust Act, unlawful interference with existing and prospective contractual relations, and conspiracy to abuse process based in part on alleged support by the Company of lawsuits brought by ranchers in West Texas to challenge the use of existing pipeline easements and rights-of-way for the pipeline transportation of refined products. In May 1999, the Company filed a motion asking the state district court in El Paso to exercise its discretion to transfer the venue of the suit to a state district court in Dallas, Texas; a hearing on this motion is scheduled for July 1999. The Company believes that the Longhorn Suit is wholly without merit and plans to defend itself vigorously. The Company also plans to pursue at the appropriate time any affirmative remedies that may be available to it relating to the Longhorn Suit. 10 11 HOLLY CORPORATION As originally filed, the Longhorn Suit related principally to the alleged involvement of subsidiaries of the Company and the named law firm in a federal lawsuit (the "Environmental Suit") in Austin, Texas filed by ranchers and joined by the Barton Springs-Edwards Aquifer Conservation District, the City of Austin and the Lower Colorado River Authority. The Environmental Suit resulted in a preliminary injunction issued by the Federal Court in August 1998 requiring preparation of an environmental impact statement under the National Environmental Policy Act before Longhorn Partners could use an existing crude oil pipeline and a newly constructed pipeline to transport refined petroleum products across Texas, including areas overlying the Edwards Aquifer in Central Texas. Following lengthy negotiations, the parties to that suit entered into a settlement agreement, which was approved by the Federal Court in March 1999, under which an environmental assessment of the Longhorn Pipeline is being carried out by the Environmental Protection Agency and the Department of Transportation pursuant to an agreed procedure. Under this settlement, Longhorn Partners is prohibited from using the pipeline to transport petroleum products while the environmental assessment process specified in the settlement agreement is being carried out. The agreement further provides that the injunction against use of the Longhorn Pipeline shall be extended if the initial environmental assessment process results in a determination that a full environmental impact statement should be prepared with respect to the environmental consequences of the pipeline. 11 12 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts included in this Form 10-Q, including without limitation statements in this Item 2 under the headings "Results of Operations" and "Liquidity and Capital Resources" are forward-looking statements. Such statements are subject to risks and uncertainties, including but not limited to risks and uncertainties with respect to the actions of actual or potential competitive suppliers of refined petroleum products in the Company's markets, the demand for and supply of crude oil and refined products, the spread between market prices for refined products and crude oil, the possibility of constraints on the transportation of refined products, the possibility of inefficiencies or shutdowns in refinery operations, governmental regulations and policies, the availability and cost of financing to the Company, the effectiveness of capital investments and marketing strategies by the Company, the outcome of material litigation against the Company, the accuracy of technical analysis and evaluations relating to the Year 2000 Problem, and the abilities of third-party suppliers to the Company to avoid adverse effects of the Year 2000 Problem on their capacities to supply the Company. Because of these and other risks and uncertainties, actual results may vary materially from those estimated, anticipated or projected. Although the Company believes that the expectations reflected by the forward-looking statements contained in this Quarterly Report are reasonable based on information currently available to the Company, no assurances can be given that such expectations will prove to be correct. This summary discussion of risks and uncertainties that may cause actual results to differ from those indicated in forward-looking statements should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1998 and in conjunction with the discussion below under the heading "Liquidity and Capital Resources." All forward-looking statements included in this Form 10-Q and all subsequent oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth above. 12 13 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations Net income for the third quarter ended April 30, 1999 was $8.8 million as compared to $3.0 million for the third quarter of the prior year. For the nine months ended April 30, 1999, net income was $9.6 million as compared to $7.2 million for the same period of fiscal 1998. The results for the third quarter of 1999 reflect the full reversal of after-tax charges to earnings totalling $3.5 million for reductions in market values of crude oil and refined products inventories in the first two quarters. Without the benefit of the recovery of inventory values in the third quarter, net income for the third quarter ended April 30, 1999 would have been $5.3 million. The increase in income during the third quarter of fiscal 1999 was principally due to the aforementioned recovery of inventory charges and to improved refinery margins, as compared to the same quarter of the prior year. Refinery margins increased significantly in April 1999 as product prices increased in the California refined products market, which impacts product pricing for Navajo Refining Company, at a greater rate than crude prices. Refined product margins during this quarter also exceeded those in the corresponding quarter of 1998. Increased sales volume of 4% during the quarter also contributed to improved income levels relative to the third quarter of 1998. For the nine months ending April 30, 1999, overall refining margins were less than the comparable period of fiscal 1998, as product prices decreased at a slightly greater rate than crude prices. Fifteen percent higher sales volumes for the first nine months of the current fiscal year more than offset these reduced margins, as compared to the same nine month period of fiscal 1998, when such volumes were reduced due to a turnaround. Earnings in the current year were favorably impacted by the initiation of pipeline and terminalling revenues resulting from the Company's alliance with FINA, Inc., a comprehensive supply network of refined products in the Company's markets, and by transportation service income resulting from a West Texas crude oil gathering system which the Company purchased in June 1998. Items negatively impacting earnings in both the third quarter and first nine months of the current year were lower oil and gas income due to decreased prices for oil and gas and a reduction in scope of the Company's oil and gas program, an increase in general and administrative expenses relating principally to legal proceedings, and an increase in depreciation and amortization expense in the current year resulting primarily from the prior year's turnaround expenditures. 13 14 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity and Capital Resources This discussion should be read in conjunction with the discussion under the heading "Additional Factors That May Affect Future Results" included in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1998. Cash and cash equivalents increased during the nine months ended April 30, 1999 by only $.9 million, as new borrowings under the three year Credit and Reimbursement Agreement ("Credit Agreement") increased $5.7 million to offset capital investment, dividends paid and a working capital increase, net of cash flow generated from operations. The Company expects most of the working capital increase to contribute to cash flow during the fourth quarter as the increase related principally to higher receivables due to increased sales prices of refined products as well as seasonal increases during the third quarter. At April 30, 1999, the Company had $32.7 million of unused borrowing capacity available under the Credit Agreement. The Company believes that this source of funds, together with future cash flows from operations, should provide sufficient resources and flexibility to enable the Company to satisfy its liquidity needs, capital requirements, debt service obligations, and the payment of dividends for the foreseeable future. Net cash provided by operating activities amounted to $14.9 million for the first nine months of fiscal 1999, as compared to $15.4 million for the same period of the prior year. The decrease in cash provided by operating activities in the current year was principally due to changes in working capital items offset by expenditures incurred in the prior year relating to the Navajo Refinery turnaround in fiscal 1998. 14 15 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cash flows provided by financing activities amounted to $1.7 million in the first nine months of fiscal 1999, as compared to $.5 million in the same period of the prior year. In October 1997, the Company entered into the Credit Agreement. The Company increased its net borrowings under the Credit Agreement by $5.7 million during the first nine months of the current year to an outstanding balance of $17.3 million as of April 30, 1999. The Company also has a $5.2 million principal payment on the Company's 10.16% Senior Notes due in June 1999, which it expects to fund from cash flow and borrowings under the Credit Agreement. Cash flows used for investing activities were $15.7 million in the first nine months of fiscal 1999, as compared to $32.4 million in the same period of the prior year. All amounts expended were on capital projects. The Company expects to spend approximately $29 million on capital projects during 1999. This spending level incorporates both refinery improvement, pipeline and transportation projects and oil and gas exploration and production activities. This net negative cash flow for investing activities was reduced in the first nine months of fiscal 1999 by $2.2 million of distributions to the Company from the Rio Grande joint venture. The Company has leased from Mid-America Pipeline Company more than 300 miles of 8" pipeline running from Chavez County to San Juan County, New Mexico (the "Leased Pipeline"). The Company has completed a 12" pipeline from the Navajo Refinery to the Leased Pipeline and is in the process of completing terminalling facilities in Bloomfield. Although portions of the construction project have been completed, several alternatives are still being pursued to address terminalling needs in the Albuquerque area. When the project, including the Albuquerque portion, is completed, these facilities will allow the Company to use the Leased Pipeline to transport petroleum products from the Navajo Refinery to Albuquerque and markets in northwest New Mexico. The Leased Pipeline and recently constructed facilities will be available in early fiscal 2000 for the transport of petroleum products to certain markets in northwest New Mexico. 15 16 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The new pipeline capacity and related terminalling facilities should allow the Company to increase volumes, through refinery expansion or otherwise, that are shipped into existing and new markets and could allow the Company to shift volumes among markets in response to increased competition in particular markets. The Company is in the process of constructing for approximately $5 million, 65 miles of new pipeline between Lovington and Artesia, NM, to permit the delivery of isobutane (and/or other LPGs) to El Paso as well as to increase the Company's ability to access additional raw materials. Longhorn Partners Pipeline, L.P. ("Longhorn Partners"), a partnership composed of Longhorn Partners GP, L.L.C. as general partner and affiliates of Exxon Pipeline Company, Amoco Pipeline Company, Williams Pipeline Company, Beacon Group Energy Investment Fund, L.P. and Chisholm Holdings as limited partners, is in the process of reversing an existing crude oil pipeline and constructing a connecting pipeline for the transportation of petroleum products from Gulf Coast refineries to a newly constructed terminal in El Paso. It had been reported that Longhorn had planned to transport initially 72,000 BPD of gasoline to the West Texas markets starting in October 1998 on the reversed existing crude oil pipeline. It had also been reported that once fully operational the pipeline would have the ultimate capacity to transport 225,000 BPD of refined products from Houston to terminals in Midland and El Paso. Use of this pipeline is currently prohibited by an injunction issued by the Federal District Court in Austin, Texas and by the terms of a settlement agreement recently approved by that court in a lawsuit (the "Environmental Suit") that had been brought to require a full environmental review of the Longhorn Pipeline before it could be placed in operation. This new pipeline could significantly increase the supply of products in the Company's principal markets. In August 1998, a lawsuit (the "Longhorn Suit") was filed by Longhorn Partners in state district court in El Paso, Texas against the Company and two of its subsidiaries. The suit in its present form, after the filing by Longhorn Partners of an amended petition, seeks damages against the Company alleged to total up to $1,050,000,000 based on claims of violations of the Texas Free Enterprise and Antitrust Act, unlawful interference with existing and prospective contractual relations, and conspiracy to abuse process. Although the original version of Longhorn Partners' claims in this case appeared to be based principally on alleged Company involvement in the institution of the Environmental Suit, the current version of the Longhorn Suit is not based on the Environmental Suit but rather appears to be based in part on alleged Company involvement in the filing of lawsuits brought by ranchers in West Texas to challenge the use of existing pipeline easements and rights-of-way for the pipeline transportation of refined 16 17 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) products. The Company believes the Longhorn Suit is wholly without merit and the Company plans to defend itself vigorously. The Company also plans to pursue at the appropriate time any affirmative remedies that may be available to it relating to the Longhorn Suit. In April 1999, the Williams Companies and Equilon Enterprises LLC (a joint venture of Texaco Inc. and the Royal Dutch/Shell Group) announced a 1,010-mile pipeline, called the "Aspen Pipeline," to carry gasoline and other refined fuels from Texas to Utah. It was announced that the pipeline will have a capacity of 65,000 BPD and shipments will begin in late 2000. In addition to the pipeline, product terminals will be built, including a terminal in Albuquerque, New Mexico. This venture could result in an increase in the supply of products to some of the Company's markets. In December 1998, the Company completed the settlement of a suit filed in July 1993 by the United States Department of Justice ("DOJ"), on behalf of the United States Environmental Protection Agency ("EPA"), against the Company's subsidiary, Navajo Refining Company ("Navajo") alleging wastewater violations at the Navajo Refinery. Under the settlement agreement among Navajo, the DOJ and the State of New Mexico, the Company has paid a civil penalty in December 1998 of less than $2 million, which was reserved for in fiscal 1993, and is required by September 1999 to close the existing evaporation ponds of its wastewater treatment system and to utilize an alternative wastewater treatment system, which the Company is in the process of constructing. Risk Management The Company uses certain strategies to reduce some commodity price and operational risks. The Company does not attempt to eliminate all market risk exposures when the Company believes that the exposure relating to such risk would not be significant to the Company's future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. 17 18 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company's profitability depends largely on the spread between market prices for refined products and prices of crude oil. A substantial or prolonged decrease in this spread could have a significant negative effect on the Company's earnings, financial condition and cash flows. At times, the Company utilizes petroleum commodity futures contracts to minimize a portion of its exposure to price fluctuations associated with crude oil and refined products. Such contracts are used solely to help manage the price risk inherent in purchasing crude oil in advance of the delivery date and as a hedge for fixed-price sales contracts of refined products and do not increase the market risks to which the Company is exposed. Gains and losses on contracts are deferred and recognized in cost of refined products when the related inventory is sold or the hedged transaction is consummated. At April 30, 1999, the Company has outstanding unsecured debt of $75.5 million and secured borrowings of $17.3 million under its Credit Agreement. The Company does not have significant exposure to changing interest rates on its unsecured debt because the interest rates are fixed and such debt now represents less than 40% of the Company's total capitalization. As the interest rates on borrowings under the Credit Agreement are reset frequently based on either the bank's daily effective prime rate, or the LIBOR rate, interest rate market risk is very low. Additionally, the Company invests any available cash only in investment grade, highly liquid investments with maturities of three months or less. As a result, the interest rate market risk implicit in these cash investments is low, as the investments mature within three months. A ten percent change in the market interest rate over the next year would not materially impact the Company's earnings or cash flow, as the interest rates on the Company's long-term debt are fixed and the Company's borrowings under the Credit Agreement and cash investments are at current market rates, and such a change in interest rates would therefore not have a material effect on the value of such debt or cash investments. The Company's operations are subject to normal hazards of operations, including fire, explosion and weather-related perils. The Company maintains various insurance coverages, including business interruption insurance, subject to certain deductibles. The Company is not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable or premium costs, in the judgement of the Company, do not justify such expenditures. 18 19 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Year 2000 Problem The Year 2000 Problem is the result of older computer systems using a two-digit format rather than a four-digit format to define the applicable year with the result that such computer systems may be unable to interpret properly dates beyond the year 1999. This inability could lead to a failure of information systems and disruptions of business and financial operations. Year 2000 risks exist both in information technology ("IT") systems that employ computer hardware and software and in non-IT systems such as embedded computer chips or microcontrollers that control the operation of the equipment in which they are installed. Computer failures because of the Year 2000 problem could affect the Company either because of failures of computers used in the Company's operations and record-keeping or because of computer failures that adversely affect third parties that are suppliers to or customers of the Company. Partly with the assistance of outside consultants, the Company has taken steps to identify key financial, informational and operational systems that may be affected by the Year 2000 Problem. Based on certifications by third-party suppliers of the Company's principal IT systems, the Company believes that its principal IT systems either are now unaffected by the Year 2000 Problem or are the subject of currently scheduled replacement or upgrading that will make these systems free of Year 2000 issues. Under the Company's current plans, all IT systems believed by the Company to have significance to the Company's operations or financial condition will be Year 2000 compliant by September 1999. The Company has made an inventory of non-IT systems embedded in equipment used in the Company's operations and has assessed the extent to which these non-IT systems could fail because of the Year 2000 Problem and thereby cause significant problems for the Company's operations, financial condition or liquidity. The Company has identified, based on information and/or certifications from suppliers or other third parties, the types of non-IT systems that appear to be significantly at risk of failure due to the Year 2000 Problem; the Company is currently in the process of remediating items of equipment possibly or certainly containing at-risk chips and ranking such equipment in order of the consequences of a failure on the Company's operations; the Company plans by September 1999 to have completed repairs or replacements of those pieces of equipment that have been identified for which a failure would be expected to create serious problems for Company operations. Because of the nature of the non-IT systems, there can be no assurance that the Company has correctly identified all non-IT systems that are subject to failure because of the Year 2000 Problem or that all non-IT systems significant to the Company's operations will be repaired or replaced as necessary prior to the end of 1999. Any failure of non-IT systems because of the year 2000 problem could reduce production levels or potentially shut down the refinery operations of the Company. 19 20 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) To the extent possible the Company plans to test or receive certifications with respect to all significant IT and non-IT systems by September 30, 1999. The Company has begun contingency planning to respond to the possible effects of the Year 2000 Problem on third parties that are important to the Company's operations. The Company is communicating regularly on this issue with critical third parties, such as suppliers of power or telecommunications services to the Company's operational facilities, third-party carriers of raw materials and refined products, and major customers. As problems of third parties are identified during the preparation of the contingency plan, the Company will take any steps available to mitigate the impact on the Company of a failure in a third party caused by the Year 2000 Problem. The contingency plan will be completed by September 30, 1999. The cost to the Company of dealing with the Year 2000 Problem is not expected to be material. Although a portion of the time of IT personnel and related management has been and will be employed in evaluating the problem, taking corrective actions and preparing contingency plans, the Company does not believe that other IT projects or operations have been or will be adversely affected. Monetary costs expected to be involved in dealing with the Year 2000 Problem are not expected to be significant: all costs to the Company of review, analysis and corrective action (excluding IT system upgrades that were scheduled to be implemented without regard to the Year 2000 Problem) are expected to total less than $750,000. Based on the analysis performed to this point, the Company believes that the most important risk of the Year 2000 Problem to the Company's results of operations and financial condition is that third-party suppliers important to the operations of the Company's principal operating assets, the Navajo refinery at Artesia and Lovington, New Mexico and the Montana refinery near Great Falls, Montana, would for a period of time be unable to perform their normal roles because of difficulties created by the Year 2000 Problem for the third parties and/or for persons supplying the third parties. The greatest risk for the Company would be in the case of the Company's principal or sole sources for essential inputs -- for example power to operate the refinery. If such a provider were to be unable to continue supplying the refinery because of the Year 2000 Problem, the Company would be forced to suspend the affected operations until the provider could solve the problem or in some cases until an alternative supply could be arranged. The Company has begun, and intends to continue until the year 2000, regular contacts with critical suppliers to determine their evaluations of their vulnerability to the Year 2000 Problem. In the event that a particular supplier appears to be vulnerable, the Company will seek to obtain alternative supplies to the extent they are available. However, in the case of some inputs, alternative supplies may not realistically be available even if the supply problem is identified months in advance. In other cases, an unexpected third-party failure could occur in spite of extensive prior communications 20 21 HOLLY CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) with key suppliers and the only feasible remedy to the Company for a substantial period might be emergency corrective action by the affected third party if the third party were capable of taking such action. Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Risk Management" under "Management's Discussion and Analysis of Financial Condition and Results of Operations." 21 22 HOLLY CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings In August 1998, a lawsuit was filed by Longhorn Partners Pipeline, L.P. in state district court in El Paso, Texas against the Company and two of its subsidiaries. The suit seeks damages against the Company alleged to total up to $1,050,000,000 based on claims of violations of the Texas Free Enterprise and Antitrust Act, unlawful interference with existing and prospective contractual relations, and conspiracy to abuse process. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note E to the Consolidated Financial Statements for a further discussion of this lawsuit. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Index to Exhibits on page 24. (b) Reports on Form 8-K: None. 22 23 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOLLY CORPORATION -------------------------------------- (Registrant) Date: June 11, 1999 By /s/ David F. Chavenson --------------- ------------------------------------ David F. Chavenson Vice President, Treasurer, Controller and Chief Financial Officer (Duly Authorized Principal Financial and Accounting Officer) 23 24 HOLLY CORPORATION INDEX TO EXHIBITS (Exhibits are numbered to correspond to the exhibit table in Item 601 of Regulation S-K) Exhibit Number Description ------- ----------- 10.1 - Employment Agreement, effective as of April 1, 1999, between David F. Chavenson and Holly Corporation. 27 - Financial Data Schedule EX-10.1 2 EMPLOYMENT AGREEMENT - DAVID F. CHAVENSON 1 EXHIBIT 10.1 [HOLLY CORPORATION LETTERHEAD] March 24, 1999 Mr. David F. Chavenson 4417 Longfellow Drive Plano, Texas 75093 Re: Employment Agreement for Chief Financial Officer Position Dear Dave: We are looking forward to having you join Holly's management team. I hope this letter addresses all of the points of our previous discussion and, as such, this letter is presented as a formal contract offer. I apologize for the delay in getting this to you and I assure you we don't normally move this slowly. If you agree to the proposed terms, your signature below will signify full acceptance of this offer. 1. POSITION, AUTHORITY, AND RESPONSIBILITIES. You will commence duties effective April 1, 1999 as Chief Financial Officer. As Chief Financial Officer you shall have full authority and responsibility for all traditional treasury functions, with the Accounting Department and Controller functions reporting directly to you. You shall report to the President and Chief Executive Officer, the Board of Directors of Holly (the "Board") and such other officers of Holly as the Board may designate. You shall also perform such other duties on behalf of Holly and its subsidiaries as may from time to time be authorized or directed by the Board or the President and CEO. Your principal office for the performance of your duties under this Agreement will originally be located within the greater metropolitan area of Dallas-Fort Worth, Texas. You shall remain employed until terminated under the provisions of this agreement ("Employment Period"). 2. COMPENSATION. (a) Base Salary. During the Employment Period, Holly shall pay you a base salary at the rate of One Hundred Eighty Thousand Dollars ($180,000.00) per annum ("Base Salary"), payable in accordance with Holly's executive payroll policy. Such Base Salary shall be reviewed annually, and shall be subject to such annual increases, if any, as determined by the Compensation Committee of the Board, within its sole discretion. 2 Mr. David F. Chavenson March 24, 1999 Page Two (b) Other Benefits. During the Employment Period, you shall be entitled to participate, on terms at least as favorable as any other Holly executive, in Holly's employee benefit plans generally available to senior executives of Holly (all such benefits being hereinafter referred to as the "Employee Benefits"). A summary description of Holly's Employee Benefits and their respective qualification periods is attached. Regardless of the terms of the standard vacation benefits offered to other newly employed executives, you will be granted no less than two weeks vacation for calendar year 1999. In addition to those enumerated, you would be eligible to participate in our executive Annual Bonus Program, future grants pursuant to the Holly Stock Option Plan and a monthly car allowance of $350 per month. These plans are subject to revision in accordance with their terms and employment benefit law. (c) Expense Reimbursement. During the Employment Period, Holly shall reimburse you for all proper expenses incurred by you in the performance of your duties hereunder in accordance with Holly's policies and procedures. These expenses shall include dues and fees for professional activities related to conducting your duties under this Agreement. 3. TERMINATION. As with all other officers, you will serve at the pleasure of the Board of Directors, subject to the following limitations: (a) Death. In the unlikely event of your death, this Agreement shall automatically terminate and your rights and the rights of your heirs, executors and administrators to compensation and other benefits under this Agreement shall cease, except for compensation which shall have accrued to the date of death, including accrued Base Salary. (b) Disability. Holly may, at its option, terminate this Agreement upon written notice to you if you, because of physical or mental incapacity or disability, fail to perform the essential functions of your position with or without reasonable accommodation for a continuous period of ninety (90) days or any one hundred twenty (120) days out of any 12-month period ("Disability"). Upon such termination, all obligations of Holly hereunder shall cease, except for compensation which shall have accrued to the date of termination, including accrued Base Salary. (b) Cause. (i) During the first three years of employment, Holly may, at its option, terminate your employment under this Agreement for Cause (as hereinafter defined) without triggering any duties to provide the severance payments detailed below in paragraph 3(d). (ii) If Holly terminates your employment for Cause, you shall only be entitled to accrued Base Salary through the date of the termination of your employment; and other Employee Benefits to which you are entitled upon the termination of your employment with Holly, in accordance with the terms of the plans and programs of Holly. 3 Mr. David F. Chavenson March 24, 1999 Page Three (iii) Any such termination for Cause shall be authorized by the Board. You shall be given written notice by Holly (the "Cause Notice"). The Cause Notice shall state the particular action(s) or inaction(s) giving rise to termination for Cause. You shall have 30 days after the Cause Notice is given to cure the particular action(s) or inaction(s), to the extent a cure is possible. If you effect a cure to the satisfaction of the Board, the Cause Notice shall be deemed rescinded. (iv) As used in this Agreement, the term "Cause" means any one or more of the following: (A) any refusal to perform your material duties under this Agreement or to perform specific directives of the Board or material directives of the CEO which are consistent with the scope and nature of your duties and responsibilities as set forth herein; (B) any intentional act of fraud, embezzlement or theft in connection with your duties hereunder, or any conviction of a felony or of any crime involving moral turpitude, fraud, embezzlement, theft or misrepresentation; (C) any conduct by you which constitutes gross negligence or willful misconduct resulting in a material loss to Holly or any of its subsidiaries, or significant damage to the reputation of Holly or any of its subsidiaries; (D) any material breach by you of any one or more of the covenants contained in Section 1 hereof; (E) any conduct by you that constitutes a significant violation of any statutory or common law duty of loyalty owed to Holly or any of its subsidiaries. (v) The exercise of the right of Holly to terminate this Agreement pursuant to this Section 3(c) shall not abrogate the rights or remedies of Holly or you in respect of the breach giving rise to such termination. (d) Without Cause. If, during the first three years of employment, Holly terminates your employment without Cause, Disability or Death: (i) concurrent with such termination, you shall be entitled to receive the payments and benefits specified by Section 3(c)(ii); and, (ii) Holly shall pay you as severance payments an amount equivalent to one hundred and eighty thousand dollars, less appropriate income and payroll taxes, to be paid in twelve equal monthly installments in the same manner as normal monthly salary payments, and 4 Mr. David F. Chavenson March 24, 1999 Page Four Holly for twelve months following your separation date, shall provide either (a) medical coverage under the terms of Holly's medical plan in which you were enrolled at the time of the Holly's termination decision or (b) equivalent medical coverage under COBRA (so long as under either option you shall maintain payments and co-payment[s] as required by the medical plan or COBRA), provided, however, such severance payments and medical coverage shall be conditioned on your signing a severance agreement containing a general release of any and all claims against Holly. (e) Termination by Company after Three Years of Employment. Beginning on the first day of the fourth year of your employment, with the single and sole exception of a potential duty to offer you a change of control agreement, you will be employed at-will and nothing in this Agreement will limit Holly's ability to terminate your employment at the pleasure of the Board of Directors or as otherwise authorized by the Board of Directors. (f) Voluntary Termination By Executive. You may voluntarily terminate your employment with Holly on 30 days notice. If, during the Employment Period, you voluntarily terminate your employment hereunder you shall be entitled to the payments specified by Section 3(c)(ii) above. (g) Justifiable Termination by Executive Under Specific Circumstances. If before the first day of the fourth year of employment you terminate your employment within 40 days following the uncured occurrence of either of the below listed Justifiable Circumstances, then you will be eligible to receive the benefits listed under Paragraph 3(d) above. (i) For the Purpose of this subsection, Justifiable Circumstances shall be limited to the following: (A) Involuntary permanent relocation to an office location which is located more than 50 miles from the Dallas, Texas central business district. (B) Involuntary significant material reduction in the duties of the Chief Financial Officer position and/or involuntary transfer from the Chief Financial Officer position. (iii) In order to qualify for any benefits under this subsection, you must notify Holly in writing within thirty days of the occurrence of a Justifiable Circumstance, stating that you believe a Justifiable Circumstance has occurred, identifying the Justifiable Circumstance and stating when you believe it occurred, and stating that you will exercise your rights under this subsection if the occurrence is not cured. Regardless of when that notice is received, Holly will have until the 40th day following the alleged occurrence to cure the circumstance. 5 Mr. David F. Chavenson March 24, 1999 Page Five 4. CHANGE OF CONTROL. (a) Change in Control Agreement. Holly agrees that continued loyalty and efficiency in the face of a potential change of control will be needed despite the personal and professional hardships a change of control might bring. Currently Holly does not offer its executives "Change of Control" Agreements. If in the future Holly offers other senior executives a "change of control" agreement, Holly will also offer such an agreement to you. While Holly reserves the right to offer different bottom line amounts to its senior executives, Holly agrees to offer any agreement to you based on the same general terms, ratios or formulas as offered other senior executives, provided that under any formula that takes years of service into consideration, you shall be granted an extra five years of service, above and beyond actual service. Any such agreement will require you to sign a severance agreement with a full and final release of claims as a condition of payment. Additionally, you will also be granted five years of additional service for purposes of Holly's qualified defined benefit retirement plan ("Retirement Plan"); provided however, that this specific grant of five years additional service for Retirement Plan purposes will not occur unless allowed by law, legally permissible under the terms of the Retirement Plan and capable of being implemented under state and federal law without altering the Retirement Plan obligations or actuarial accounting requirements regarding benefits which are or might become due to other employees under Holly's Retirement Plan. (b) Interplay of Severance with Change in Control Agreement. If there is a change of control and you are subsequently terminated without Cause during the Initial Term of this Agreement, you may not receive benefits under both a change in control agreement and the severance payments arrangement outlined above in paragraph 3(d); if you are covered by an applicable change in control agreement, you will not be covered by the severance payments arrangement outlined in paragraph 3(d) unless you give written notice to Holly within 21 days of your notice of the decision to terminate your employment that you elect to receive benefits under the severance payments arrangement in paragraph 3(d) and not to receive any benefits under the applicable change in control agreement. 5. CONFIDENTIALITY. You shall not, at any time during the Employment Period or thereafter, make use of or disclose, directly or indirectly, any (i) trade secret or other confidential or secret information of Holly or of any of its subsidiaries or (ii) other technical, business, proprietary or financial information of Holly or of any of its subsidiaries not available to the public generally or to the competitors of Holly or to the competitors of any of its subsidiaries ("Confidential Information"), except to the extent that such Confidential Information (a) becomes a matter of public record; (b) is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency; or (c) is necessary to perform your duties under this Agreement. This section of the Agreement shall survive and continue in full force and effect in accordance with its terms, notwithstanding any termination of the Employment Period. 6 Mr. David F. Chavenson March 24, 1999 Page Six 6. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between you and Holly with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or between you and Holly, written or oral, which may have related in any manner to the subject matter hereof. 7. CHOICE OF LAW, VENUE AND FORUM. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without regard to principles of conflict of laws. You agree that any dispute between you and Holly related to this agreement, including all claims related to your employment, shall be heard in Dallas County, Texas, before either an arbitrator of the parties choosing, or in the Court of appropriate jurisdiction. Notwithstanding any prior statement in this section, in the event of dispute regarding this Agreement or any item related to the relationship between you and Holly, you agree to final, binding, confidential and enforceable arbitration. Any arbitration conducted under this provision shall be resolved and settled in accordance with the rules and procedures of the American Arbitration Association for Labor Arbitration at the complaining party's written request, which must be filed within 180 days of the act or occurrence upon which the claim is based. CONCLUSION Dave, if you have any questions, please feel free to contact me. Otherwise, your signature below will finalize this Agreement and begin a new relationship as our Chief Financial Officer. Sincerely, /s/ MATTHEW P. CLIFTON Matthew P. Clifton President AGREED TO AND ACCEPTED THIS 29 DAY OF MARCH, 1999. /s/ DAVID F. CHAVENSON ----------------------------- DAVID F. CHAVENSON EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUL-31-1999 APR-30-1999 3,458 0 110,152 0 58,720 186,272 343,314 166,263 380,735 157,340 79,062 0 0 87 119,673 380,735 400,727 401,724 343,255 364,070 0 0 5,948 15,997 6,399 9,598 0 0 0 9,598 1.16 1.16
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