<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-37561
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
GIANT INDUSTRIES, INC. SAN JUAN REFINING COMPANY
GIANT INDUSTRIES ARIZONA, INC. CINIZA PRODUCTION COMPANY
GIANT EXPLORATION & PRODUCTION COMPANY GIANT FOUR CORNERS, INC.
GIANT STOP-N-GO OF NEW MEXICO, INC. GIANT MID-CONTINENT, INC.
PHOENIX FUEL CO., INC.
</TABLE>
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<S> <C> <C>
DELAWARE 86-0642718
ARIZONA 86-0218157
TEXAS 74-1501967
NEW MEXICO 85-0389396
NEW MEXICO 74-2759385
NEW MEXICO 74-2468207
ARIZONA 86-0739055
ARIZONA 86-0784398
ARIZONA 2911, 5541 86-0109486
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
23733 NORTH SCOTTSDALE ROAD
SCOTTSDALE, ARIZONA 85255
(602) 585-8888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
MORGAN GUST
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
GIANT INDUSTRIES, INC.
23733 NORTH SCOTTSDALE ROAD
SCOTTSDALE, ARIZONA 85255
(602) 585-8849
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
KAREN CIUPAK MCCONNELL
FENNEMORE CRAIG, P.C.
3003 NORTH CENTRAL, SUITE 2600
PHOENIX, ARIZONA 85213-2912
(602) 916-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment, please check the following box. [X]
If any of the securities being registered on this form are to be offered in
connection with the termination of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
[GIANT INDUSTRIES, INC. LOGO]
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING 9% SENIOR SUBORDINATED NOTES
DUE 2007 FOR 9% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 12, 1997, UNLESS EXTENDED.
Giant Industries, Inc., a Delaware corporation ("Giant" or the "Company"),
hereby offers (the "Registered Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal") relating to the Registered Exchange
Offer, to exchange $1,000 principal amount of its 9% Senior Subordinated Notes
due 2007 (the "Exchange Notes"), which will be registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to the Registration
Statement of which this Prospectus is a part, for $1,000 principal amount of its
outstanding 9% Senior Subordinated Notes due 2007 (the "Notes"), of which an
aggregate of $150,000,000 in principal amount is outstanding as of the date of
this Prospectus. The form and terms of the Exchange Notes are substantially
identical in all material respects to the form and terms of the Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions and with respect to the payment of additional interest under
circumstances relating to breaches of the Registration Rights Agreement (as
hereinafter defined) by the Company and the Subsidiary Guarantors (as
hereinafter defined)).
Interest on the Exchange Notes will be payable on March 1 and September 1 of
each year, commencing March 1, 1998. The Exchange Notes will mature on September
1, 2007 and will be redeemable, in whole or in part, at the option of the
Company at any time on or after September 1, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to September 1, 2000, the
Company may, at its option, redeem up to 35% of the aggregate principal amount
of the Exchange Notes originally issued with the net cash proceeds of one or
more Public Equity Offerings (as defined) at a redemption price equal to 109% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65% of the aggregate initial
principal amount of the Exchange Notes remain outstanding after giving effect to
each such redemption. Upon the occurrence of a Change of Control (as defined),
the holders of the Exchange Notes may require the Company to purchase the
Exchange Notes, in whole or in part, at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.
The Exchange Notes will be senior subordinated unsecured obligations of the
Company. The Exchange Notes will be subordinate in right of payment to all
Senior Indebtedness (as defined) of the Company, and will rank pari passu with
all Pari Passu Indebtedness (as defined) of the Company. The Company's
obligation to pay the principal of, premium, if any, and interest on the
Exchange Notes will be unconditionally guaranteed, jointly and severally on a
subordinated basis, by each of the Company's subsidiaries. As of June 30, 1997,
on a pro forma basis after giving effect to the sale of the Notes and the
application of the net proceeds therefrom, the Company and its subsidiaries
would have had approximately $7.3 million in aggregate principal amount of
Senior Indebtedness, $150.0 million in aggregate principal amount of the Notes
and $100.0 million in aggregate principal amount of Pari Passu Indebtedness
(consisting of $100.0 million in aggregate principal amount of the Company's
9 3/4% Senior Subordinated Notes due 2003 (the "9 3/4% Notes")) outstanding.
The Company will accept for exchange any and all Notes validly tendered on
or before 5:00 p.m., New York City time, on December 12, 1997, unless extended
(if and as extended, the "Expiration Date"). Tenders of Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See
"The Registered Exchange Offer."
The Exchange Notes are being offered hereunder to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. Based
on interpretations by the staff of the Securities and Exchange Commission (the
"SEC") set forth in no-action letters issued to third parties, the Company
believes the Exchange Notes issued pursuant to the Registered Exchange Offer in
exchange for Notes may be offered for resale, resold and otherwise transferred
by any holder thereof (other than broker-dealers, as set forth below, and any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Registered Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the SEC and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Holders of Notes wishing to
accept the Registered Exchange Offer must represent to the Company in the Letter
of Transmittal that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Registered Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from this Registered Exchange
Offer. No dealer-manager is being used in connection with this Registered
Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE TENDERING NOTES IN THE REGISTERED EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 10, 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the SEC. Copies of the
Registration Statement (with exhibits), as well as such reports and other
information, can be obtained by mail from the Public Reference Section of the
SEC, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, such materials can be inspected and copied at the
public reference facility referenced above and at the SEC's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. The
SEC maintains a web site (http://www.sec.gov) that contains registration
statements, reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
SEC. In addition, such material also may be inspected and copied at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005,
on which exchange the Common Stock, $0.01 par value of the Company is listed.
The Company has filed with the SEC a Registration Statement on Form S-4
(No. 333-37561), including any amendments thereto, under the Securities Act with
respect to the Exchange Notes offered hereby (the "Registration Statement").
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Exchange Notes, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements made in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement. Each such statement is qualified in
all respects by reference to such exhibit.
The following are incorporated herein by reference: (1) the Company's
Annual Report on Form 10-K for the year ended December 31, 1996; (2) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997; (3) the Company's Current Reports on Form 8-K filed June 12,
1997 and June 17, 1997; and (4) the audited financial statements, report thereon
and notes thereto of Bloomfield Refining Company as of December 31, 1994 and
1993, and for each of the three years ended December 31, 1994, contained in the
Company's Current Report on Form 8-K filed October 19, 1995. All other reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31,
1996 are also incorporated by reference.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the consummation of the Registered Exchange Offer made hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such document.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
GIANT INDUSTRIES, INC., AT ITS PRINCIPAL EXECUTIVE OFFICES, 23733 NORTH
SCOTTSDALE ROAD, SCOTTSDALE, ARIZONA 85255, ATTN: MORGAN GUST, SECRETARY,
TELEPHONE: (602) 585-8888. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY DECEMBER 5, 1997.
i
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the detailed information and consolidated financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
specified, references herein to pro forma information for a specified period
means information that gives pro forma effect to: (i) the Company's recent
acquisitions (the "1997 Acquisitions") of 96 service station/convenience stores
and related assets (the "Thriftway Stations") and Phoenix Fuel Co., Inc.
("Phoenix Fuel") as if such acquisitions had occurred at the beginning of such
period, and (ii) the sale of $150.0 million of the Notes at an interest rate of
9.0% and the application of the estimated net proceeds therefrom as if such
transactions had occurred at the beginning of such period. Certain terms used
herein are defined in the Glossary.
THE COMPANY
Giant is the leading refiner and one of the largest marketers of petroleum
products with operations in the fast-growing Four Corners area of the
southwestern United States. Giant owns and operates two high-conversion crude
oil refineries in northwestern New Mexico, with total throughput capacity of
approximately 44,600 bpd, and 149 Company-operated branded retail facilities in
New Mexico, Arizona, Colorado, and Utah. In May and June 1997, Giant acquired
through two separate transactions 96 of these service station/convenience stores
and Phoenix Fuel, Arizona's largest independent distributor of petroleum
products. On a pro forma basis for 1996, the Company's retail operations
marketed a volume of refined products equal to approximately 32% of its
refineries' sales volume. On a pro forma basis for 1996, the Company achieved
consolidated revenues of $785.8 million and EBITDA of $77.6 million. See
"Financial Performance" on page 3.
REFINING
Giant's refineries, separated by 120 miles, are operated in an integrated
manner and are the only active refineries in the Four Corners region. Management
believes that the technical capabilities of these two cracking refineries in
conjunction with high quality locally-available crude oil and NGL feedstock
result in refinery yields of high-value products comparable to those achieved by
larger, more complex refineries located outside this region. The Company
believes that its refined products meet all federally-mandated standards,
including 100% low sulfur diesel fuel, in all markets where it sells such
products. The refineries' yield of gasoline, diesel fuel and jet fuel has
exceeded 91% in each of the last five years. The Company's refineries have
achieved an average capacity utilization rate of approximately 94% over the last
five years.
The Four Corners region is characterized by long distances between
metropolitan areas, making transportation and terminalling costs a significant
competitive factor. The nearest competing refineries are located near El Paso,
Texas, Artesia, New Mexico and Amarillo, Texas, which are approximately 360, 370
and 400 miles, respectively, from the Company's refineries. As a result, Giant
has benefited from higher refining margins than those experienced by refiners in
the West Coast and Gulf Coast regions of the United States. Giant markets
substantially all of its refined products within a radius of approximately 150
miles from its refineries.
MARKETING AND DISTRIBUTION
The Company has been active in retail marketing in the Four Corners for
over two decades. In 1996, the Company's modern high-volume self-serve
station/convenience stores significantly exceeded national industry averages in
a number of operating and profitability measures, scoring above the top quartile
average in several of these performance measures. Approximately half of such
units were constructed since 1990. In 1996, Giant's service station/convenience
stores averaged monthly gasoline sales of 137,000 gallons, compared to a
national average of 82,000 gallons and a top quartile average of 106,000
gallons. Giant's higher sales volumes were achieved while maintaining fuel
margins substantially greater than industry averages. In 1996, Giant's service
station/convenience stores achieved average fuel margins of 20.1 cents per
gallon, compared to a national average of 13.1 cents per gallon and a top
quartile average of 14.5 cents per gallon. With regard to
1
<PAGE> 5
merchandise sales measures, Giant's service station/convenience stores recorded
average monthly merchandise sales of $74,000, compared to a national average of
$62,600. Management attributes this high level of performance to the Company's
focus on site location, access/design, automation, attractive merchandising and
an emphasis on value-added customer service.
For the six months ended June 30, 1997, the 96 Thriftway Stations acquired
in May 1997, which are typically smaller and located in less populated areas,
averaged monthly gasoline sales of approximately 50,000 gallons, fuel margins of
approximately 17 cents per gallon and merchandise sales margins of approximately
32%. Giant intends to implement low cost, high return store upgrades at a number
of the recently acquired locations.
Giant's retail operations provide an assured market outlet for a
significant portion of its refinery production. Retail gross profits have
increased steadily over the past five years as compared to the more volatile
refinery earnings, contributing to cash flow and earnings stability. In addition
to its retail units, Giant's marketing network includes Phoenix Fuel's wholesale
and cardlock (unmanned fleet fueling) operations. Giving pro forma effect to the
1997 Acquisitions, the percentage of the Company's 1996 EBITDA attributable to
this marketing network and long-term contracts with existing customers increased
to 28%.
SUPPLY
The Company currently obtains substantially all of its crude oil supply
from Four Corners producers. The Company believes it purchases all of the crude
oil produced in this area. The Company currently supplies all of its refineries'
crude oil requirements through its truck transports and 300-mile pipeline
gathering system. This pipeline system directly reaches local producing regions
and connects with the Four Corners and Texas-New Mexico common carrier crude oil
pipelines. The Company believes that local crude oil production currently
approximates 98% of local crude oil demand and that the supply of crude oil and
condensate in the Four Corners is improving as a result of enhanced recovery
programs and increased drilling activities by major oil companies.
BUSINESS STRATEGY AND STRENGTHS
The Company's strategy is to increase shareholder value by adhering to
three major objectives: (i) capture a significant portion of anticipated future
demand growth for refined products in its targeted markets; (ii) increase
efficiency and profitability through the sale of a greater portion of the
Company's refined products by its retail network; and (iii) expand its overall
market presence through selective acquisitions in contiguous markets and other
markets with attractive supply and demand characteristics.
The Company believes it is well-positioned to execute its strategy as a
result of the following factors:
Attractive Markets. The Company's two refineries serve the Four Corners
market. The Company's refining margins have historically been higher than West
and Gulf Coast margins as a result of several factors, including: (i) demand for
petroleum products in this market is growing faster than the national average;
(ii) Giant's refineries primarily process high quality crude oil, which has both
a high gravity and a low sulfur content, as well as condensate and NGLs, all of
which are locally available and require less processing than do lesser quality
feedstocks to produce similar yields of gasoline, diesel fuel and other high
value products; and (iii) the region has a widely-dispersed population
effectively served by Giant's truck transportation fleet, giving the Company the
flexibility to direct the sale of refined products into the highest value
markets on a daily basis. Giant believes its long history of operations in and
knowledge of this market represent competitive advantages in its efforts to
increase its retail sales in this market.
Integrated Marketing Network. The Company continues to increase its
control over refinery sales volumes by increasing the size and scope of its
retail network (which includes Phoenix Fuel's cardlock operations) through
acquisition, construction and upgrading, and by entering into longer-term supply
arrangements with existing wholesale and exchange customers. The 1997
Acquisitions increased the Company's percentage of refined products sold through
its retail network as compared to refinery sales volumes from 18% for 1996 to
32% for 1996 on a pro forma basis. The Company's long-term goal is to
2
<PAGE> 6
distribute a volume of refined products equal to approximately 50% of its
refineries' sales volume through its retail network.
Efficient Refining Operations. The Company acquired the Bloomfield
refinery and Meridian crude oil gathering operations in late 1995. Integrating
these acquisitions into the Company's existing refining operations has resulted
in production improvements and administrative, raw material, labor and
transportation cost reductions on a per barrel basis. As a result of the
increased configuration flexibility afforded by owning two refineries, the
Company also has been able to identify and implement cost-effective capital
projects to debottleneck refinery units, thus improving capacity, yields and
profit margins.
Demonstrated Acquisition Record. Since January 1, 1995, the Company has
consummated three substantial acquisitions in its core businesses. Each of these
acquisitions has been consistent with the Company's previously stated strategy
and has been accretive to earnings and cash flow on a pro forma basis in the
year in which such acquisition was made and in subsequent financial periods. As
a result of these acquisitions, the Company's total assets increased from $279.4
million at December 31, 1994 to $434.4 million at June 30, 1997. EBITDA
increased from $34.1 million in 1994 to $77.6 million on a pro forma basis in
1996. While the Company incurred debt to finance these acquisitions, management
demonstrated its commitment to use cash flow from operations and proceeds of
non-core asset sales to subsequently reduce these debt levels.
SIGNIFICANT ACQUISITIONS
Bloomfield Refinery. In October 1995, Giant purchased the 18,000 bpd
Bloomfield refinery and related pipeline and transportation assets for $55.0
million plus approximately $7.5 million for inventory, and contingent payments
over the following six-year period with a present value of no more than $25
million. The Bloomfield refinery contributed EBITDA of $24.2 million to Giant in
1996 and $10.7 million in the first six months of 1997.
Thriftway Retail. At the end of May 1997, Giant completed the acquisition
of 96 retail service station/ convenience stores and related assets located
primarily in the Four Corners for approximately $43 million. See
"Business -- The Thriftway Acquisition." On a pro forma basis, this acquisition
contributed EBITDA of $10.4 million to Giant in 1996 and $4.8 million in the
first six months of 1997.
Phoenix Fuel. In June 1997, Giant acquired Phoenix Fuel, Arizona's largest
independent petroleum products distributor, for approximately $30 million. See
"Business -- The Phoenix Fuel Acquisition." Phoenix Fuel markets approximately
16,000 bpd of wholesale fuel and approximately 2,000 bpd of cardlock fuel, and
operates a lubricants distribution business. On a pro forma basis, Phoenix Fuel
contributed EBITDA of $6.7 million to Giant in 1996 and $3.3 million in the
first six months of 1997.
FINANCIAL PERFORMANCE
The Company believes that barrels of petroleum products sold, refinery
margin and gross profit (defined as net revenues less cost of products sold,
which excludes depreciation and amortization), rather than net revenues, are the
key indicators of performance because of distortions to net revenues caused
primarily by changes in commodity prices. The Company's total refinery
throughput, refinery margin, gross profit and EBITDA for the periods indicated
are specified below on a historical and pro forma basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------ ------ ------- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Refinery throughput (mbbls/day)... 23.6 28.7 40.2 40.2 38.8 38.2 38.2
Refinery margin ($/bbl)........... $ 5.60 $ 5.13 $ 6.21 $ 6.21 $ 7.02 $ 6.46 $ 6.46
Company gross profit (millions)... $ 96.1 $ 98.6 $ 137.3 $ 189.5 $ 73.1 71.6 $ 92.8
Company EBITDA (millions)(1)...... 34.1 36.2 58.2 77.6 33.0 27.9 35.1
</TABLE>
- ---------------
(1) EBITDA for 1995 would have equaled $50.5 million had the Bloomfield refinery
acquisition been made at the beginning of 1995.
3
<PAGE> 7
THE NOTE OFFERING
The Notes.................... The Notes were sold by the Company to UBS
Securities, Donaldson Lufkin & Jenrette
Securities Corporation, BancAmerica Securities,
Inc. and Jefferies & Company, Inc. (collectively,
the "Initial Purchasers") on August 26, 1997, and
were subsequently resold to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act (the "Note Offering").
Registration Rights
Agreement.................. In connection with the Note Offering, the Company
entered into the Registration Rights Agreement,
which grants holders of the Notes certain
exchange and registration rights. The Registered
Exchange Offer is intended to satisfy such
exchange and registration rights, which generally
terminate upon the consummation of the Registered
Exchange Offer.
THE REGISTERED EXCHANGE OFFER
Securities Offered........... $150,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2007.
The Registered Exchange
Offer........................ $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Notes. As of the date hereof, $150,000,000
aggregate principal amount of Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date. Based on interpretations by the
staff of the SEC set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Registered Exchange Offer in exchange for Notes
may be offered for resale, resold and otherwise
transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes
for its own account pursuant to the Registered
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with
resales of Exchange Notes received in exchange
for Notes where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The
Company has agreed that for a period of 180 days
after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use
in connection with any such resale.
4
<PAGE> 8
Any holder who tenders in the Registered Exchange
Offer with the intention to participate, or for
the purpose of participating, in a distribution
of the Exchange Notes cannot rely on the position
of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Inc. (available June
5, 1991), Shearman & Sterling (available July 2,
1993) or similar no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with the resale of the Exchange Notes. Failure to
comply with such requirements in such instance
may result in such holder incurring liability
under the Securities Act for which the holder is
not indemnified by the Company.
Expiration Date.............. 5:00 p.m., New York City time, on December 12,
1997, unless the Registered Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which the
Registered Exchange Offer is extended.
Conditions to the
Registered Exchange
Offer...................... The Registered Exchange Offer is subject to
certain customary conditions, which may be waived
by the Company.
Procedures for
Tendering Notes............ Each holder of Notes wishing to accept the
Registered Exchange Offer must complete, sign and
date the relevant accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Notes and any other required
documentation to the Exchange Agent at the
address set forth in the Letter of Transmittal.
By executing the Letter of Transmittal, each
holder will represent to the Company that, among
other things, the holder or the person receiving
such Exchange Notes, whether or not such person
is the holder, is acquiring the Exchange Notes in
the ordinary course of business and that neither
the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Notes, tendering
holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Registered Exchange
Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Notes, either make
appropriate arrangements to register ownership of
the Notes in such beneficial owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
5
<PAGE> 9
Guaranteed Delivery
Procedures................. Holders of Notes who wish to tender their Notes
and whose Notes are not immediately available or
who cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Registered
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............ Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date pursuant to the procedures described under
"The Registered Exchange Offer -- Withdrawals of
Tenders."
Acceptance of Notes and
Delivery of Exchange
Notes...................... The Company will accept for exchange any and all
Notes that are properly tendered in the
Registered Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Registered
Exchange Offer will be delivered promptly
following the Expiration Date.
Federal Income Tax
Consequences of the
Registered Exchange
Offer...................... The issuance of the Exchange Notes to holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by holders of
the Notes upon receipt of the Exchange Notes. See
"Certain Federal Income Tax Consequences."
Effect on Holders of
Notes...................... As a result of the making of this Registered
Exchange Offer, the Company will have fulfilled
certain of its obligations under the Registration
Rights Agreement, and holders of Notes who do not
tender their Notes will generally not have any
further registration rights under the
Registration Rights Agreement or otherwise. Such
holders will continue to hold the untendered
Notes and will be entitled to all the rights and
subject to all the limitations applicable thereto
under the Indenture, except to the extent such
rights or limitations, by their terms, terminate
or cease to have further effectiveness as a
result of the Registered Exchange Offer. All
untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the
Registered Exchange Offer, the trading market for
the untendered Notes could be adversely affected.
Exchange Agent............... The Bank of New York (the "Exchange Agent").
THE EXCHANGE NOTES
Maturity Date................ September 1, 2007.
Interest Payment Dates....... March 1 and September 1, commencing March 1,
1998.
6
<PAGE> 10
Use of Proceeds.............. The Company will not receive any proceeds from
the Registered Exchange Offer. See "Use of
Proceeds."
Optional Redemption.......... The Exchange Notes are redeemable for cash, in
whole or in part, at the option of the Company at
any time on or after September 1, 2002, at the
redemption prices set forth herein plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior
to September 1, 2000, the Company may, at its
option, redeem up to 35% of the aggregate
principal amount of the Exchange Notes originally
issued with the net cash proceeds of one or more
Public Equity Offerings, at a redemption price
equal to 109% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65% of
the aggregate initial principal amount of the
Exchange Notes remains outstanding immediately
after giving effect to each such redemption.
Subsidiary Guarantees........ The Exchange Notes will be unconditionally
guaranteed (the "Guarantees"), jointly and
severally, on a senior subordinated basis, by
each of the Company's subsidiaries (the
"Subsidiary Guarantors"). The Guarantees will be
general unsecured subordinated obligations of the
Subsidiary Guarantors, and will rank pari passu
with all Pari Passu Indebtedness of the
Subsidiary Guarantors, including existing
guarantees of the 9 3/4% Notes. The Guarantees
may be released under certain circumstances. See
"Description of the Notes -- Subordination of
Exchange Notes; Subsidiary Guarantees."
Ranking...................... The Exchange Notes will be unsecured senior
subordinated obligations of the Company and will
rank subordinate to all existing and future
Senior Indebtedness and pari passu with all Pari
Passu Indebtedness of the Company and its
subsidiaries. As of June 30, 1997, on a pro forma
basis after giving effect to the sale of the
Notes and the application of the net proceeds
therefrom, the Company would have had
approximately $7.3 million in aggregate principal
amount of Senior Indebtedness, $150.0 million in
aggregate principal amount of the Notes and
$100.0 million in aggregate principal amount of
Pari Passu Indebtedness (consisting of the 9 3/4%
Notes) outstanding.
Change of Control............ Upon a Change of Control (as defined), the
Company will be required to offer to purchase all
of the Exchange Notes at 101% of the principal
amount thereof, plus accrued interest, if any, to
the date of purchase.
Restrictive Covenants........ The Indenture (as defined) contains certain
covenants that, among other things, restrict the
ability of the Company and its subsidiaries to
create liens, incur or guarantee debt, pay
dividends, sell certain assets or subsidiary
stock, engage in certain mergers, engage in
certain transactions with affiliates or alter the
Company's current line of business. In addition,
the Company is, subject to certain conditions,
obligated to offer to purchase a portion of the
Exchange Notes at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, with
the net cash proceeds of certain sales or other
dispositions of assets.
Registration Rights.......... Pursuant to a registration rights agreement
relating to the Notes and the Guarantees (the
"Registration Rights Agreement") by and among the
Company, the Subsidiary Guarantors and the
Initial
7
<PAGE> 11
Purchasers, the Company and the Subsidiary
Guarantors have agreed to use their best efforts
to (i) file within 60 days, and cause to become
effective within 120 days, of the date of
original issuance of the Notes, the Registration
Statement of which this Prospectus is a part
relating to the Registered Exchange Offer and
(ii) cause the Registered Exchange Offer to be
consummated within 150 days of the original
issuance of the Notes.
Under current interpretations of applicable law
by the staff of the SEC, holders of Exchange
Notes will be permitted to resell such securities
into the public market without further
registration or delivery of a prospectus, except
that any such holder who is a broker or dealer
would be required to deliver a copy of this
Prospectus in connection with any such resale.
The Company has agreed to keep such prospectus
current so as to enable brokers and dealers to
effect these resales for a period of 180 days
following completion of the Registered Exchange
Offer. Certain holders who participate in the
Registered Exchange Offer will not be permitted
to rely on the interpretations of the SEC staff.
For a discussion of the requirements that must be
met in order to rely on the interpretations, see
"Registration Rights."
In the event that any changes in law or the
applicable interpretations of the staff of the
SEC do not permit the Company and the Subsidiary
Guarantors to effect the Registered Exchange
Offer, or if the Registration Statement of which
this Prospectus is a part is not declared
effective within 120 days or consummated within
150 days following the original issue of the
Notes, or upon the request of any of the Initial
Purchasers, or if any holder of the Notes is not
permitted by applicable law to participate in the
Registered Exchange Offer or elects to
participate in the Registered Exchange Offer but
does not receive fully tradable Exchange Notes
pursuant to the Registered Exchange Offer, the
Company and the Subsidiary Guarantors will use
their best efforts to cause a shelf registration
statement with respect to the resale of the Notes
( the "Shelf Registration Statement") to become
effective within 150 days following the original
issue of the Notes (or within 30 days of the
request of any Initial Purchaser) and to keep the
Shelf Registration Statement effective for up to
two years from the date the Shelf Registration
Statement is declared effective by the SEC. In
such event, holders with Notes or Exchange Notes
registered under the Shelf Registration Statement
would be permitted to resell their Notes or
Exchange Notes into the public market, but only
if they delivered a copy of the prospectus
included in the Shelf Registration Statement in
connection with such resales.
The interest rate on the Notes is subject to
increase under certain circumstances if the
Company and the Subsidiary Guarantors are not in
compliance with their obligations under the
Registration Rights Agreement. See "Registration
Rights."
Absence of Public Market
for the Exchange Notes..... There is no public trading market for the
Exchange Notes and the Company does not intend to
apply for listing of the Exchange Notes on any
national securities exchange or for quotation of
the Exchange Notes on any automated dealer
quotation system. The Company has
8
<PAGE> 12
been advised by the Initial Purchasers that they
have acted as market makers for the Notes and
presently intend to make a market in the Exchange
Notes, although they are under no obligation to
do so and may discontinue any market-making
activities at any time without notice. Although
it is expected that the Exchange Notes will be
eligible for trading in the PORTAL market, no
assurance can be given as to the liquidity of the
trading market for the Exchange Notes or that an
active public market for the Exchange Notes will
develop. If an active trading market for the
Exchange Notes does not develop, the market price
and liquidity of the Exchange Notes may be
adversely affected. If the Exchange Notes are
traded, they may trade at a discount from the
initial offering price of the Notes, depending on
prevailing interest rates, the market for similar
securities, the performance of the Company and
other factors. See "Risk Factors -- Absence of
Public Market for the Notes."
RISK FACTORS
See "Risk Factors," beginning on page 13, for a discussion of some of the
factors that should be considered by prospective investors in evaluating an
investment in the Exchange Notes.
9
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial information presented below under Earnings
Statement Data, for each of the three years in the period ended December 31,
1996, has been derived from the historical audited consolidated financial
statements of the Company, which have been audited by Deloitte & Touche LLP,
independent auditors. The historical information for the six months ended June
30, 1996 and 1997 is unaudited. The unaudited information is taken from
unaudited financial statements that include all adjustments, which are only of a
normal recurring nature, which the Company considers necessary for a fair
presentation of the results of operations for these periods. Operating results
for the six months ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1997. The
information presented below should be read in conjunction with the Consolidated
Financial Statements and related notes thereto included elsewhere in this
Prospectus, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Unaudited Pro Forma Combined Financial Information" and
other financial information included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(2)
------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996(8) 1996 1997 1997(8)
------ ------ ------ ------- ------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA(1):
Net revenues........................... $291.6 $332.9 $499.2 $785.8 $239.7 $270.3 $403.2
Cost of products sold(3)............... 195.5 234.3 361.9 596.3 166.6 198.7 310.4
------ ------ ------ ------ ------ ------ ------
Gross profit........................... 96.1 98.6 137.3 189.5 73.1 71.6 92.8
Operating and selling, general and
administrative expenses.............. 63.8 64.7 79.9 115.0 40.3 43.9 59.1
Depreciation and amortization.......... 12.2 13.3 17.7 24.1 8.4 10.6 13.4
------ ------ ------ ------ ------ ------ ------
Operating income....................... 20.1 20.6 39.7 50.4 24.4 17.1 20.3
Interest expense(9).................... 11.8 11.5 12.3 23.4 6.6 6.0 12.1
Interest income........................ 1.8 2.3 0.8 3.1 0.2 0.2 1.4
------ ------ ------ ------ ------ ------ ------
Earnings from continuing operations
before income taxes.................. 10.1 11.4 28.2 30.1 18.0 11.3 9.6
Provision for income taxes............. 2.6 3.7 11.1 11.9 7.0 4.5 3.9
------ ------ ------ ------ ------ ------ ------
Earnings from continuing operations.... $ 7.5 $ 7.7 $ 17.1 $ 18.2 $ 11.0 $ 6.8 $ 5.7
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA(1):
EBITDA(4)(5)........................... $ 34.1 $ 36.2 $ 58.2 $ 77.6 $ 33.0 $ 27.9 $ 35.1
Capital expenditures(6)................ 19.9 75.1 36.2 18.0 84.5
Ratio of EBITDA to interest
expense(9)........................... 2.9x 3.1x 4.7x 3.3x 5.0x 4.7x 2.9x
Ratio of earnings to fixed
charges(7)........................... 1.7x 1.8x 3.0x 2.1x 3.3x 2.7x 1.7x
OPERATING DATA:(1)
Refining Division
Refinery throughput (mbbls/day)........ 23.6 28.7 40.2 40.2 38.8 38.2 38.2
Rated crude oil capacity utilized(2)... 92% 88% 90% 90% 86% 84% 84%
Refinery margin (dollars/bbl).......... $ 5.60 $ 5.13 $ 6.21 $ 6.21 $ 7.02 $ 6.46 $ 6.46
Retail Division(10)
Number of outlets at period end........ 51 52 53 149 55 149 149
Volume (million gallons)............... 115.9 107.4 105.8 146.3 50.1 56.9 80.7
Gross fuel margin (cents/gallon)....... 17.8 17.7 18.5 20.3 18.5 18.6 17.8
Merchandise sales...................... $ 42.7 $ 45.7 $ 49.1 $ 89.8 $ 23.9 $ 28.2 $ 46.9
Merchandise margins.................... 33% 33% 32% 32% 32% 32% 30%
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED(11)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities......................... $ 7.1 $ 53.7
Total assets................................................................ 434.4 484.2
Total long-term debt........................................................ 207.5 257.3
Stockholders' equity........................................................ 126.7 126.7
Net debt to net capitalization(12).......................................... 61.3% 61.6%
</TABLE>
- ---------------
(1) In October 1995, the Company acquired the Bloomfield refinery using the
purchase method of accounting. Earnings statement data and other financial
data as presented include the results of operations for the Company from
the date of acquisition forward. In May 1997 and June 1997, the Company
acquired the Thriftway Stations and Phoenix Fuel, respectively, using the
purchase method of accounting.
(2) Financial results for the first six months of 1997 were negatively impacted
by factors including a scheduled four week major maintenance turnaround at
the Bloomfield refinery and a decline in the West Coast product prices.
Financial results for the first six months of 1996 were positively impacted
by an attractive supply/demand situation as a result of introduction of a
new specification of gasoline in California, offset somewhat by reduced
sales volumes due to turnarounds on selected units at both of the Company's
refineries.
(3) Cost of products sold and operating expenses, as presented here, exclude
depreciation and amortization.
(4) Defined as earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA"). EBITDA is not intended to represent cash flow or
any other measure of financial performance in accordance with generally
accepted accounting principles. EBITDA is included herein because
management believes EBITDA provides additional information for measuring
the Company's ability to service debt and because the Indenture contains
certain covenants based on EBITDA. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion
of measures of financial performance in accordance with generally accepted
accounting principles.
(5) EBITDA for 1995 would have equaled $50.5 million had the Bloomfield
refinery acquisition been made at the beginning of the year.
(6) Capital expenditures include approximately $55 million for the purchase of
the Bloomfield refinery in 1995, $14 million for the construction,
remodeling or acquisition of 37 retail stations in 1996, $43 million for
the purchase of the Thriftway Stations in May 1997 and $30 million for the
purchase of Phoenix Fuel in June 1997.
(7) The ratio of earnings to fixed charges is computed by dividing (i) earnings
before income taxes plus fixed charges by (ii) fixed charges. Fixed charges
consist of interest on indebtedness, amortization of debt issue costs,
capitalized interest and the estimated interest component (one-third) of
rental and lease expense.
(8) The unaudited pro forma information for the year ended December 31, 1996
and the six months ended June 30, 1997 reflect the sale of $150.0 million
of the Notes at an interest rate of 9.0% and the application of the
estimated net proceeds therefrom, as well as the impact of the 1997
Acquisitions, as if the transactions had occurred at the beginning of 1996.
See "Use of Proceeds," "Capitalization" and "Unaudited Pro Forma Combined
Financial Information."
(9) Pro forma interest expense assumes (i) repayment of debt, as described in
"Use of Proceeds," had occurred at the beginning of 1996; (ii) issuance of
the Notes at a 9.0% interest rate; (iii) amortization of capitalized
issuance and related costs of approximately $3.2 million on a straight-line
basis over ten years; and (iv) the 1997 Acquisitions as if they had
occurred at the beginning of the period.
(10) Includes Travel Center.
11
<PAGE> 15
(11) As adjusted to give effect to the sale of $150.0 million of the Notes, the
application of the estimated net proceeds therefrom, and capitalization of
issuance and related costs of approximately $3.2 million, as if such events
had occurred on June 30, 1997. See "Use of Proceeds" and "Capitalization."
(12) Net debt as a percentage of net capitalization has been computed by
dividing net debt (total debt less cash and cash equivalents and marketable
securities) by net capitalization (total capitalization less cash and cash
equivalents and marketable securities).
12
<PAGE> 16
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of the Notes should carefully consider, among other things, the following
factors before making any decision regarding tendering their Notes pursuant to
the Registered Exchange Offer and receiving Exchange Notes.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness with significant debt service
requirements. At June 30, 1997, as adjusted to give effect to the sale of $150.0
million of the Notes and the application of the estimated net proceeds therefrom
as described in "Use of Proceeds," the Company's total debt was $257.3 million
and stockholders' equity was $126.7 million. The degree to which the Company is
leveraged has important consequences to holders of the Exchange Notes, including
the following: (i) the Company's ability to obtain additional financing in the
future, whether for working capital, capital expenditures, acquisitions or other
purposes, may be impaired; (ii) a substantial portion of the Company's cash flow
from operations is required to be dedicated to the payment of interest on its
debt, thereby reducing funds available to the Company for other purposes; (iii)
the Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (iv) the Company may be more vulnerable in the event
of a downturn in its business; and (v) to the extent of the Company's
outstanding debt under its Credit Agreement, the Company will be vulnerable to
increases in interest rates.
The ability of the Company to meet its debt service obligations, including
with respect to the Exchange Notes, will depend on the future operating
performance and financial results of the Company, which will be subject in part
to factors beyond the control of the Company. Although the Company believes that
its cash flow will be adequate to meet its interest payments, there can be no
assurance that the Company will continue to generate earnings in the future
sufficient to cover its fixed charges. If the Company is unable to generate
earnings in the future sufficient to cover its fixed charges and is unable to
borrow sufficient funds under either the Credit Agreement or from other sources,
it may be required to refinance all or a portion of its existing debt or to sell
all or a portion of its assets. There can be no assurance that a refinancing
would be possible, nor can there be any assurance as to the timing of any asset
sales or the proceeds which the Company could realize therefrom. In addition,
the terms of certain of the Company's debt restrict its ability to sell assets
and the Company's use of the proceeds therefrom.
COMPETITION
The industry in which the Company is engaged is highly competitive. Many of
the Company's competitors are large, integrated, major or independent oil
companies which, because of their more diverse operations, larger refineries,
stronger capitalization and better brand name recognition, may be better able
than the Company to withstand volatile industry conditions, including shortages
or excesses of crude oil or refined products or intense price competition at the
wholesale and retail level. Many of these competitors have financial and other
resources substantially greater than those of Giant. In addition, the Company
has benefitted in the past from the absence of product pipelines connecting
competing refineries into areas immediately adjacent to the Company's
refineries. The Company is aware of a number of proposals or industry
discussions regarding product pipeline projects that if or when undertaken and
completed could impact portions of its marketing areas. One of these projects,
the expansion of the ATA Line (formerly called the Emerald Line) into
Albuquerque, is being implemented and is reportedly scheduled for completion in
1997. Another of these announced projects, which would result in a refined
products pipeline from southeastern New Mexico to the Four Corners market, is
reportedly scheduled for completion in 1998. The various proposed projects
involve new construction of connecting pipelines and in some cases the reversal
of existing crude oil or NGL pipelines. The completion of some or all of these
projects would result in increased competition by increasing the amount of
refined products available in the Four Corners market areas. See
"Business -- Other Matters -- Competitive Conditions."
13
<PAGE> 17
RAW MATERIAL SUPPLY
The Company's refineries primarily process a mixture of crude oil,
condensate and NGLs. The locally produced, high quality crude oil known as Four
Corners Sweet is the primary feedstock for the refineries. Local supply is
primarily dependent on the level and success of exploration and drilling
activity in the Four Corners and Paradox Basin areas. Although the Company
currently obtains substantially all of its crude oil supply from the Four
Corners area, the refineries supplement their supply of crude oil with Alaska
North Slope ("ANS") crude oil, transported from the West Coast through the
Company's gathering system's interconnection with the Four Corners and Texas-New
Mexico pipeline systems, which together can transport approximately 65,000 bpd.
The Ciniza refinery also has access to West Texas Intermediate and other crude
oils by rail.
The Company believes that local crude oil production currently approximates
98% of aggregate local crude oil demand. The Company also believes that the
production of crude oil and condensate in the Four Corners is increasing as a
result of enhanced recovery programs and increased drilling activities by major
oil companies. Based on projections of local crude oil availability from the
field and current levels of usage of ANS (which are limited to approximately
1,500 bpd by the refineries' configurations), the Company believes an adequate
supply of crude oil and other feedstocks will be available from local producers,
crude oil sourced through common carrier pipelines and other sources to sustain
refinery operations for the foreseeable future at substantially the levels
currently being experienced. However, there is no assurance that this situation
will continue.
The Company continues to evaluate other supplemental crude oil supply
alternatives for its refineries on both a short-term and long-term basis. The
Company has considered making additional equipment modifications to increase its
ability to use alternative crude oils and NGLs and can install additional rail
facilities to enable the Company to access incremental crude and intermediate
feedstocks to supplement local supply sources. The Company understands that
production of ANS is declining and is aware of proposals that would, at some
time in the future, eliminate the shipping of ANS through the Four Corners
pipeline system. In such event, the Company has identified potential
opportunities to access other supplemental crude oil supplies via this pipeline.
In addition, the Four Corners area produces significant amounts of NGLs, most of
which are currently shipped out of the area by pipeline. The Company is
undertaking several projects at its refineries in 1997 to increase its ability
to process NGLs, which historically have been lower cost feedstocks than crude
oil. These 1997 projects should increase the amount of natural gasoline used by
the Company's refineries by approximately 2,500 barrels per day and will result
in the production of an equivalent number of barrels per day of additional
gasoline. Any significant long-term interruption in crude oil supply or the
crude oil transportation system, however, would have an adverse effect on
Giant's operations. See "Business -- Raw Material Supply."
If additional supplemental crude oil becomes necessary, the Company intends
to implement then available alternatives as necessary and as is most
advantageous under then prevailing conditions. The Company currently believes
that the most desirable strategy to supplement local crude oil supplies, on a
long-term basis, would be the delivery of supplemental crude oil from outside of
the Four Corners area by pipeline. Such crude oil may be of lesser quality than
locally available crude oils, and the Company believes such crude oil will
generally have a delivered cost greater than that of locally available crude
oil. Implementation of supplemental supply alternatives may result in additional
raw materials costs, operating costs, capital costs, or a combination thereof in
amounts which are not presently ascertainable by the Company but which will vary
depending on factors such as the specific alternative implemented, the quantity
of supplemental feedstocks required, and the date of implementation.
Implementation of some supply alternatives requires the consent or cooperation
of third parties and other considerations beyond the control of the Company.
VOLATILITY OF CRUDE OIL PRICES AND REFINING MARGINS
Although the 1997 Acquisitions are anticipated to increase the amount of
cash flow generated by the Company's retail operations, the Company's cash flow
from operations will continue to be primarily dependent upon producing and
selling quantities of refined products at refinery margins sufficient to cover
fixed and
14
<PAGE> 18
variable expenses. In recent years, crude oil costs and prices of refined
products have fluctuated substantially. These costs and prices depend on
numerous factors, including the demand for crude oil, gasoline and other refined
products, which in turn depend on, among other factors, changes in the economy,
the level of foreign and domestic production of crude oil and refined products,
the availability of imports of crude oil and refined products, the marketing of
alternative and competing fuels and the extent of government regulation.
Giant's crude oil requirements are supplied from sources which include
major oil companies, large independent producers and smaller local producers.
Crude oil supply contracts are generally relatively short-term contracts with
market-responsive pricing provisions. The prices received by Giant for its
refined products are affected by additional local factors such as product
pipeline capacity, local market conditions and the level of operations of West
Texas and New Mexico refineries. A large rapid increase in crude oil prices
would adversely affect the Company's operating margins if the increased cost of
raw materials could not be passed along to the Company's customers. The Company
generally does not hedge a significant portion of its refined product prices.
CONCENTRATION OF REFINERIES
All refining activities currently are conducted at the Company's two
refinery locations. The refineries are two of Giant's principal operating
assets. As a result, the operations of Giant, and its ability to service the
Exchange Notes, are subject to significant interruption if either or both of the
refineries were to experience a major accident, be damaged by severe weather or
other natural disaster, or otherwise be forced to shut down. Although Giant
maintains business interruption insurance against some types of risks in amounts
which Giant believes to be economically prudent, if the refineries were to
experience an interruption in supply or operations, Giant's business could be
materially adversely affected.
GOVERNMENT REGULATIONS, ENVIRONMENTAL RISKS AND TAXES
The Company's operations are subject to a variety of federal, state and
local environmental laws and regulations governing the discharge of pollutants
into the air and water, product specifications and the generation, treatment,
storage, transportation and disposal of solid and hazardous waste and materials.
Environmental laws and regulations which affect the Company's operations,
processes and margins have become and are becoming increasingly stringent.
Examples are the Clean Air Act Amendments and the additional environmental
regulations adopted by the United States Environmental Protection Agency ("EPA")
and state and local environmental agencies to implement the Clean Air Act
Amendments. Although the Company believes its refineries are able to process
currently used feedstocks at full capacity in substantial compliance with
existing environmental laws and regulations, the Company cannot predict the
nature, scope or effect of legislation or regulatory requirements that could be
imposed or how existing or future laws or regulations will be administered or
interpreted with respect to products or activities to which they have not been
previously applied. Compliance with more stringent laws or regulations, as well
as more vigorous enforcement policies of the regulatory agencies, could
adversely affect the financial position and the results of operations of the
Company and could require substantial expenditures by the Company. See
"Business -- Other Matters."
Also, the Company's operations are inherently subject to accidental spills,
discharges or other releases of petroleum or hazardous substances which may give
rise to liability to governmental entities or private parties under federal,
state or local environmental laws, as well as under common law. Accidental
discharges of contaminants have occurred from time to time during the normal
course of the Company's operations, including discharges associated with the
Company's refineries, pipeline and trucking operations, as well as discharges at
gasoline service stations and other petroleum product distribution facilities
currently and formerly operated by the Company. The Company has undertaken,
intends to undertake or has completed all investigative or remedial work thus
far requested by governmental agencies to address potential contamination by the
Company. Although the Company has invested substantial resources to prevent
future accidental discharges and to remediate contamination resulting from prior
discharges, there can be no assurance that accidental discharges will not occur
in the future, that future action will not be taken in connection with past
discharges, that governmental agencies will not assess penalties against the
Company in connection with any
15
<PAGE> 19
past or future contamination, or that third parties will not assert claims
against the Company for damages allegedly arising out of any past or future
contamination. See "Business -- Other Matters."
Giant and its operations and products are subject to taxes imposed by
federal, state, local and Native American governments. These taxes have
generally increased over time. There can be no certainty of the effect that
increases in these taxes, or the imposition of new taxes, could have on Giant,
or whether such taxes could be passed on to Giant's customers. The Company has
received several tax notifications and assessments from the Navajo Nation
relating to crude oil removed from properties located outside the boundaries of
the Navajo Reservation in an area of disputed jurisdiction, including a $1.8
million severance tax assessment issued to a subsidiary of Giant in November
1991. The Company has invoked its appeal rights. The Company may receive further
tax assessments before resolution of the Nation's taxing authority. See
"Business -- Other Matters."
CONTROLLING STOCKHOLDER
James E. Acridge, Chairman of the Board, President and Chief Executive
Officer of the Company, owns approximately 23% of the outstanding Company Common
Stock. Mr. Acridge has a substantial ability to control the Company and direct
its policies. Mr. Acridge has pledged substantially all of his shares of Common
Stock to various financial institutions as security for personal loans, the
proceeds of which were used for general purposes and not to finance the
acquisition of Company Common Stock. Mr. Acridge retains the right to direct the
voting and, subject to certain margin requirements, disposition of such shares
and the right to receive all dividends, subject to standard default provisions.
SUBORDINATION OF EXCHANGE NOTES
The payment of principal, interest and premium, if any, on the Exchange
Notes will be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness, whether outstanding at the date of the Indenture or
later incurred. In addition, such Senior Indebtedness may be secured by liens on
the Company's assets. In the event of a default in the payment of principal or
interest with respect to any Senior Indebtedness, the Indenture will prohibit
the Company and the Subsidiary Guarantors from making any payment with respect
to the principal of, premium, if any, interest on or other amounts owing on the
Exchange Notes unless and until such default has been cured or waived. In
addition, in the event of any other default permitting the acceleration of the
payment of Senior Indebtedness where notice of such default has been given to
the Company, the Indenture will prohibit the Company and the Subsidiary
Guarantors from making any payment with respect to the principal of, premium, if
any, interest on or other amounts owing on the Exchange Notes unless and until
such default has been cured or waived; provided, however, that under the
Indenture such other default will not prevent the making of payments on the
Exchange Notes for more than 179 days after notice of such default has been
given to the Company.
Upon any payment or distribution of the Company's assets to creditors upon
any dissolution, winding up, liquidation, reorganization, bankruptcy,
insolvency, receivership or other proceedings relating to the Company, whether
voluntary or involuntary, the holders of Senior Indebtedness will be entitled to
receive payment in full of all amounts due thereon before the holders of the
Exchange Notes will be entitled to receive any payment upon the principal of,
premium, if any, interest on or other amounts owing on the Exchange Notes. By
reason of such subordination, in the event of the insolvency of the Company,
holders of the Exchange Notes may recover less, ratably, than holders of Senior
Indebtedness and other creditors of the Company or may recover nothing.
The Company's operating income is generated by its subsidiaries. As a
result, funds necessary to meet the Company's debt service obligations,
including the payment of principal and interest on the Exchange Notes, are
provided by distributions or advances from its subsidiaries. Should the Company
fail to satisfy any payment obligation under the Exchange Notes, the holders
would have a direct claim therefor against the Subsidiary Guarantors pursuant to
the Guarantees. However, the Indenture will permit the Subsidiary Guarantors to
pledge their assets in order to secure Senior Indebtedness of the Company or
such Subsidiary Guarantor and to agree with lenders under any Bank Credit
Facility (as defined) or under Senior
16
<PAGE> 20
Indebtedness in effect on the date of issuance of the Exchange Notes to
restrictions on repurchases of the Exchange Notes and on the ability of the
Subsidiary Guarantors to make distributions, loans, other payments or asset
transfers to the Company or a Restricted Subsidiary. In addition, the Indenture,
subject to certain restrictions, permits the Subsidiary Guarantors to incur
additional Senior Indebtedness, which is senior to the Exchange Notes and the
obligations of the Subsidiary Guarantors under the Guarantees, as well as other
indebtedness which is pari passu with or subordinated to the Exchange Notes. As
a result, the payment of the Exchange Notes will be effectively (i) subordinated
to the Senior Indebtedness of the Company and the Subsidiary Guarantors and (ii)
pari passu with all Pari Passu Indebtedness of the Company and the Subsidiary
Guarantors, including the 9 3/4% Notes, and (iii) pari passu with certain other
liabilities of the Company and the Subsidiary Guarantors, including claims of
trade creditors and tort claimants. In addition, if the Guarantees were avoided
under fraudulent conveyance laws or other legal principles or, by the terms of
such Guarantees, the obligations thereunder were reduced as necessary to prevent
such avoidance, or the Guarantees were released, the claims of other creditors
of the Subsidiary Guarantors, including trade creditors, would to such extent
have priority as to the assets of such Subsidiary Guarantors over the claims of
the holders of the Exchange Notes. See "Description of the Exchange
Notes -- Subordination of Notes; Subsidiary Guarantees."
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Guarantees. To the
extent that a court were to find that the issuance or performance of a Guarantee
was a fraudulent conveyance for reasons that could include (x) that a Guarantee
was incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud
any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one of more creditors to the exclusion in
whole or in part of others, or (y) such Subsidiary Guarantor did not receive
fair consideration or reasonable equivalent value for issuing its Guarantee and
such Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by
reason of the issuance of such Guarantee, (iii) was engaged or about to engage
in a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business, or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could avoid or subordinate
such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other
things, a legal challenge of a Guarantee on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Subsidiary Guarantor as a result
of the issuance by the Company of the Exchange Notes. To the extent any
Guarantees were avoided as a fraudulent conveyance or held unenforceable for any
other reason, holders of the Exchange Notes would cease to have any claim in
respect of such Subsidiary Guarantor and would be creditors solely of the
Company and any Subsidiary Guarantor whose Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Exchange Notes
against the issuer of an invalid Guarantee would be subject to the prior payment
of all liabilities of such Subsidiary Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Exchange Notes relating to any voided
portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
the Guarantors may be considered insolvent if the sum of their debts, including
contingent liabilities, were greater than the fair market value of all of their
assets or if the present fair market value of their assets were less than the
amount that would be required to pay their probable liability on their existing
debts, including contingent liabilities, as they become absolute and mature.
Based upon financial and other information, the Company believes that the
Exchange Notes and the Guarantees are being incurred for proper purposes and in
good faith and that the Company and each Subsidiary Guarantor is solvent and
will be solvent upon issuing the Exchange Notes or its Guarantee, as the case
may be, will have sufficient capital for carrying on their business after such
issuance, and will be able to pay or refinance their debts as they mature. There
can be no assurance, however, that a court passing on such standards would agree
with the Company. See "Management's Discussion and Analysis of Financial
17
<PAGE> 21
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Description of the Exchange Notes."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will be new securities for which there currently is no
established trading market. The Company does not intend to apply for listing of
the Exchange Notes on any national securities exchange or for quotation of the
Exchange Notes on any automated dealer quotation system. Although the Initial
Purchasers have informed the Company that they have acted as market makers for
the Notes and presently intend to make a market in the Exchange Notes, the
Initial Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. The liquidity of any market for the
Exchange Notes will depend upon the number of holders of the Exchange Notes, the
interest of securities dealers in making a market in the Exchange Notes and
other factors. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. If an active trading market for
the Exchange Notes does not develop, the market price and liquidity of the
Exchange Notes may be adversely affected. If the Exchange Notes are traded, they
may trade at a discount from the initial offering price of the Notes, depending
upon prevailing interest rates, the market for similar securities, the
performance of the Company and certain other factors. The liquidity of, and
trading markets for, the Exchange Notes also may be adversely affected by
general declines in the market for non-investment grade debt. Such declines may
adversely affect the liquidity of, and trading markets for, the Exchange Notes,
independent of the financial performance of or prospects for the Company.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. There can be no assurance that the market, if
any, for the Exchange Notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on the holders of the Exchange Notes.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO REGISTERED EXCHANGE OFFER
PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Registered Exchange Offer will be made only after a timely receipt by the
Exchange Agent of such Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Notes
desiring to tender such Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery. Neither the Company nor the Exchange
Agent is under any duty to give notification of defects or irregularities with
respect to the tenders of Notes for exchange. Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Registered
Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Registered Exchange Offer,
certain registration rights under the Registration Rights Agreement will
terminate. See "The Registered Exchange Offer -- Consequences of Failure to
Exchange."
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Notes who tenders in the Registered Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. See "The Registered Exchange
Offer -- Consequences of Failure to Exchange."
ADVERSE EFFECT ON MARKET FOR NOTES
To the extent that Notes are tendered and accepted in the Registered
Exchange Offer, the liquidity of the market for the untendered and tendered but
unaccepted Notes could be substantially limited. See "The Registered Exchange
Offer -- Purposes of the Registered Exchange Offer."
18
<PAGE> 22
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking"
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements other than statements of historical
facts included in this Prospectus, including without limitation statements that
use terminology such as "estimate," "expect," "intend," "anticipate," "believe,"
"may," "will," "continue" and similar expressions, are forward-looking
statements. These forward-looking statements include, among other things, the
discussions of the Company's business strategy (including its intention to open
more service station/convenience stores) and expectations concerning the
Company's market position, future operations, margins, profitability, liquidity
and capital resources, expenditures for capital projects, attempts to reduce
costs, and integration of the 1997 Acquisitions. Although the Company believes
that the assumptions upon which the forward-looking statements contained in this
Prospectus are based are reasonable, any of the assumptions could prove to be
inaccurate and, as a result, the forward-looking statements based on those
assumptions also could be incorrect. All phases of the operations of the Company
involve risks and uncertainties, many of which are outside the control of the
Company and any one of which, or a combination of which, could materially affect
the results of the Company's operations and whether the forward-looking
statements ultimately prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations include, but
are not limited to: (i) continued or increased competitive pressures from
existing competitors and new entrants, including price-cutting strategies; (ii)
unanticipated costs related to the Company's growth and operating strategy;
(iii) loss or retirement of one or more key members of management; (iv)
inability to negotiate favorable terms with suppliers; (v) increases in interest
rates or the Company's cost of borrowing or a default under any material debt
agreements; (vi) inability to develop new service station/convenience stores in
advantageous locations; (vii) deterioration in general or regional economic
conditions; (viii) adverse state or federal legislation or regulation that
increases the costs of regulatory compliance, or adverse findings by a regulator
with respect to existing operations; (ix) adverse determinations in connection
with pending or future litigation or other material claims and judgments against
the Company; (x) inability to achieve profitable future sales levels or other
operating results; (xi) the unavailability of funds for capital expenditures;
(xii) governmental factors affecting the Company's operations, markets,
products, services and prices; (xiii) the impact of the mandated use of specific
formulations of gasolines on the Company's operations; (xiv) the adequacy of raw
material supplies; (xv) the ability of the Company to successfully abate various
tax assessments; (xvi) the potential effects of various pipeline projects as
they relate to the Company's market areas and future profitability; (xvii) the
performance of the businesses acquired in the 1997 Acquisitions; and (xviii)
other risks discussed in this Prospectus or detailed from time to time in the
Company's filings with the SEC.
19
<PAGE> 23
USE OF PROCEEDS
The Company will not receive any proceeds from the Registered Exchange
Offer. The net proceeds from the sale of the Notes (after deducting the expenses
of the Note Offering, including the Initial Purchasers' discount) were
approximately $146.8 million, and have been or will be used substantially as
follows:
(i) Approximately $92.5 million have been or will be used to repay
indebtedness ($73.6 million) and purchase service station/convenience
stores currently subject to capital lease obligations ($18.9 million),
which indebtedness and capital lease obligations have an average blended
interest rate of approximately 7.5% at June 30, 1997.
(ii) The remaining proceeds of approximately $54.3 million will be
used for general corporate purposes.
The indebtedness repaid consisted of approximately $66.0 million under the
Company's bank credit agreement and approximately $7.6 million of miscellaneous
obligations. These amounts reflect balances that were outstanding when the
proceeds of the Notes were received and reflect all payments to be made in
accordance with the terms of the respective loans and purchase options.
Pending application for such respective purposes, such proceeds may be
invested in "Permitted Financial Investments" as defined in "Description of the
Exchange Notes." For a description of the terms of indebtedness and capital
lease obligations repaid with proceeds from the sale of the Notes, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
20
<PAGE> 24
CAPITALIZATION
The following table sets forth the historical unaudited consolidated
capitalization of the Company as of June 30, 1997, and the as adjusted
consolidated capitalization which gives effect to the sale of $150.0 million of
the Notes and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents and marketable securities............. $ 7.1 $ 53.7
====== ======
Total debt:
Credit Agreement.............................................. $ 74.0 $ --
Capital lease obligations..................................... 22.9 4.0
9 3/4% Notes.................................................. 100.0 100.0
9% Senior Subordinated Notes.................................. -- 150.0
Other debt.................................................... 10.6 3.3
------ ------
Total debt................................................. 207.5 257.3
------ ------
Total common stockholders' equity............................... 126.7 126.7
------ ------
Total capitalization.................................. $334.2 $ 384.0
====== ======
</TABLE>
21
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial information presented below under Earnings Statement
Data and Balance Sheet Data for each of the three years in the period ended
December 31, 1996, has been derived from the historical audited consolidated
financial statements of the Company, which have been audited by Deloitte &
Touche LLP, independent auditors, and for each of the two years in the period
ended December 31, 1993, has been derived from the historical audited
consolidated financial statements of the Company. The information for the six
months ended June 30, 1996 and 1997 is unaudited. The unaudited information is
taken from unaudited financial statements that include all adjustments, which
are only of a normal recurring nature, which the Company considers necessary for
a fair presentation of the results of operations for these periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
The information presented below should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and other financial information included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(2)
---------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA(1):
Net revenues............................. $301.7 $313.2 $291.6 $332.9 $499.2 $239.7 $270.3
Cost of products sold(3)................. 220.3 209.8 195.5 234.3 361.9 166.6 198.7
------ ------ ------ ------ ------ ------ ------
Gross profit............................. 81.4 103.4 96.1 98.6 137.3 73.1 71.6
Operating and selling, general and
administrative expenses................ 53.5 60.6 63.8 64.7 79.9 40.3 43.9
Depreciation and amortization............ 12.6 11.4 12.2 13.3 17.7 8.4 10.6
------ ------ ------ ------ ------ ------ ------
Operating income......................... 15.3 31.4 20.1 20.6 39.7 24.4 17.1
Interest expense......................... 7.7 5.8 11.8 11.5 12.3 6.6 6.0
Interest income.......................... 0.6 1.5 1.8 2.3 0.8 0.2 0.2
------ ------ ------ ------ ------ ------ ------
Earning from continuing operations before
income taxes........................... 8.2 27.1 10.1 11.4 28.2 18.0 11.3
Provision for income taxes............... 1.1 9.6 2.6 3.7 11.1 7.0 4.5
------ ------ ------ ------ ------ ------ ------
Earnings from continuing operations...... $ 7.1 $ 17.5 $ 7.5 $ 7.7 $ 17.1 $ 11.0 $ 6.8
====== ====== ====== ====== ====== ====== ======
Earnings per common share from continuing
operations............................. $ 0.58 $ 1.43 $ 0.61 $ 0.68 $ 1.52 $ 0.98 $ 0.61
Cash dividends per common share.......... 0.20 0.20 0.10 0.10
BALANCE SHEET DATA:
Total assets............................. $233.3 $274.4 $279.4 $324.9 $324.0 $333.9 $434.4
Long-term debt........................... 86.9 117.3 116.1 142.7 113.1 130.5 202.4
Stockholders' equity..................... 98.6 105.9 109.7 109.7 122.1 119.8 126.7
Other Financial Data(1):
EBITDA(4)................................ $ 28.5 $ 44.3 $ 34.1 $ 36.2 $ 58.2 $ 33.0 $ 27.9
Capital expenditures(5).................. 8.3 9.3 19.9 75.1 36.2 18.0 84.5
Ratio of EBITDA to interest expense...... 3.7x 7.6x 2.9x 3.1x 4.7x 5.0x 4.7x
Ratio of earnings to fixed charges(6).... 1.8x 4.0x 1.7x 1.8x 3.0x 3.3x 2.7x
OPERATING DATA:
Refining Division
Refinery throughput (mbbls/day).......... 25.6 25.3 23.6 28.7 40.2 38.8 38.2
Rated crude oil capacity utilized(2)..... 101% 98% 92% 88% 90% 86% 84%
Refinery margin (dollars/bbl)............ $ 4.77 $ 6.69 $ 5.60 $ 5.13 $ 6.21 $ 7.02 $ 6.46
Retail Division(7)
Number of outlets at period end.......... 43 52 51 52 53 55 149
Volume (millions of gallons)............. 106.1 103.3 115.9 107.4 105.8 50.1 56.9
Gross fuel margin (cents/gallon)......... 14.1 16.7 17.8 17.7 18.5 18.5 18.6
Merchandise sales........................ $ 28.2 $ 32.5 $ 42.7 $ 45.7 $ 49.1 $ 23.9 $ 28.2
Merchandise margins...................... 34% 33% 33% 33% 32% 32% 32%
</TABLE>
22
<PAGE> 26
- ---------------
(1) In October 1995, the Company acquired the Bloomfield refinery. Earnings
statement data and other financial data as presented here for the
pre-acquisition periods of 1992 through September 1995 exclude the
operations of the Bloomfield refinery. In May 1997 and June 1997, the
Company acquired the Thriftway Stations and Phoenix Fuel, respectively.
(2) Financial results for the first six months of 1997 were negatively impacted
by factors including a scheduled four week major maintenance turnaround at
the Bloomfield refinery and a decline in West Coast product prices.
Financial results for the first six months of 1996 were positively impacted
by an attractive supply/demand situation as a result of introduction of a
new specification of gasoline in California, offset somewhat by reduced
sales volumes due to turnarounds on selected units at both of the Company's
refineries.
(3) Cost of products sold and operating expenses, as presented here, exclude
depreciation and amortization.
(4) Defined as earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA"). EBITDA is not intended to represent cash flow or
any other measure of financial performance in accordance with generally
accepted accounting principles. EBITDA is included herein because management
believes EBITDA provides additional information for measuring the Company's
ability to service debt and because the Indenture contains certain covenants
based on EBITDA. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of measures of
financial performance in accordance with generally accepted accounting
principles.
(5) Capital expenditures include approximately $55 million for the purchase of
the Bloomfield refinery in 1995, $14 million for the construction,
remodeling or acquisition of 37 retail stations in 1996, $43 million for the
purchase of the Thriftway Stations in May 1997 and $30 million for the
purchase of Phoenix Fuel in June 1997.
(6) The ratio of earnings to fixed charges is computed by dividing (i) earnings
before income taxes plus fixed charges by (ii) fixed charges. Fixed charges
consist of interest on indebtedness, amortization of debt issue costs,
capitalized interest and the estimated interest component (one-third) of
rental and lease expense.
(7) Includes Travel Center.
23
<PAGE> 27
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Over the period May 28, 1997 to May 31, 1997, the Company acquired 96
retail service station/ convenience stores, seven additional retail locations
for future development, certain petroleum transportation and maintenance assets,
options to acquire service station/convenience stores and other related assets.
On June 3, 1997, the Company acquired Phoenix Fuel.
The historical financial statements of the Thriftway Stations include the
results of operations for the 96 retail service station/convenience stores
acquired, the petroleum transportation and maintenance assets, and other related
assets acquired.
The historical financial statements for Giant, the Thriftway Stations and
Phoenix Fuel reflect fiscal years ending December 31. The following unaudited
pro forma combined condensed statements of earnings for the year ended December
31, 1996 and for the six months ended June 30, 1997 combine the historical
financial information for all three companies assuming the acquisitions were
consummated at the beginning of the earliest period presented, as well as the
sale of $150.0 million of the Notes at an interest rate of 9.0% and the
application of the estimated net proceeds therefrom as described in "Use of
Proceeds" assuming such transactions had occurred at the beginning of such
period. The following unaudited pro forma combined condensed statement of
earnings for the six months ended June 30, 1997 combines historical financial
information of the Thriftway Stations and Phoenix Fuel for the five months ended
May 31, 1997. The Company's historical financial information for the six months
ended June 30, 1997 includes the results of operations of the Thriftway Stations
and Phoenix Fuel for the month of June 1997.
The detailed assumptions used to prepare the unaudited pro forma combined
financial information are contained in the notes to unaudited pro forma combined
condensed statements of earnings. The unaudited pro forma combined financial
information reflects the use of the purchase method of accounting for the
acquisitions.
The unaudited pro forma combined financial information does not purport to
represent the results of operations that actually would have resulted had the
purchases occurred on January 1, 1996, nor should it be taken as indicative of
the future results of operations. The unaudited pro forma combined financial
information should be read in conjunction with the notes to unaudited pro forma
combined financial information and the separate historical financial statements
and notes thereto of the Company which are contained elsewhere herein.
24
<PAGE> 28
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
THRIFTWAY PHOENIX PRO FORMA PRO FORMA
GIANT STATIONS FUEL ADJUSTMENTS COMBINED
----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues................... $ 499,184 $ 140,434 $253,654 $ (36,596)(4) $ 785,756
(70,920)(5)
Cost of products sold.......... 361,864 110,637 231,259 (36,596)(4) 596,244
(70,920)(5)
----------- -------- -------- -------- -----------
Gross margin................... 137,320 29,797 22,395 189,512
----------- -------- -------- -------- -----------
Operating expenses............. 64,315 16,779 12,412 (762)(6) 93,881
1,137(3)
Depreciation and
amortization................. 17,673 2,488 1,145 820(8) 24,142
1,696(2)
320(10)
Selling, general and
administrative expenses...... 15,602 4,862 3,762 (3,112)(7) 21,114
----------- -------- -------- -------- -----------
Operating income............... 39,730 5,668 5,076 (99) 50,375
----------- -------- -------- -------- -----------
Interest expense............... (12,318) (527) (374) 3,279(1) (23,440)
(13,500)(10)
Interest and investment
income....................... 771 2,330(10) 3,101
----------- -------- -------- -------- -----------
Earnings from continuing
operations before income
taxes........................ 28,183 5,141 4,702 (7,990) 30,036
Provision for income taxes..... 11,132 732(9) 11,864
----------- -------- -------- -------- -----------
Earnings from continuing
operations................... $ 17,051 $ 5,141 $ 4,702 $ (8,722) $ 18,172
=========== ======== ======== ======== ===========
Earnings per common share...... $ 1.52 $ 1.62
=========== ===========
Weighted average number of
shares outstanding........... 11,220,380 11,220,380
=========== ===========
</TABLE>
25
<PAGE> 29
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
THRIFTWAY PHOENIX PRO FORMA PRO FORMA
GIANT STATIONS FUEL ADJUSTMENTS COMBINED
----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 270,261 $56,995 $121,441 $ (18,686)(4) $ 403,167
(26,844)(5)
Cost of products sold.............. 198,645 45,826 111,430 (18,686)(4) 310,371
(26,844)(5)
----------- ------- -------- -------- -----------
Gross margin....................... 71,616 11,169 10,011 92,796
----------- ------- -------- -------- -----------
Operating expenses................. 34,129 6,676 5,300 (392)(6) 46,187
474(3)
Depreciation and amortization...... 10,571 1,072 588 328(8) 13,390
671(2)
160(10)
Selling, general and administrative
expenses......................... 9,808 1,846 1,936 (680)(7) 12,910
----------- ------- -------- -------- -----------
Operating income................... 17,108 1,575 2,187 (561) 20,309
----------- ------- -------- -------- -----------
Interest expense................... (6,005) (255) (226) 1,122(1) (12,114)
(6,750)(10)
Interest and investment income..... 232 1,165(10) 1,397
----------- ------- -------- -------- -----------
Earnings before income taxes....... 11,335 1,320 1,961 (5,024) 9,592
Provision for income taxes......... 4,536 (688)(9) 3,848
----------- ------- -------- -------- -----------
Net earnings....................... $ 6,799 $ 1,320 $ 1,961 $ (4,336) $ 5,744
=========== ======= ======== ======== ===========
Earnings per common share.......... $ 0.61 $ .52
=========== ===========
Weighted average number of shares
outstanding...................... 11,084,336 11,084,336
=========== ===========
</TABLE>
26
<PAGE> 30
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF EARNINGS
The following is a summary of the assumptions, reclassifications and
adjustments reflected in the Unaudited Pro Forma Combined Condensed Statements
of Earnings:
(1) Represents the decrease in interest expense based on the repayment of
long-term debt of $54.0 million and capital leases of $18.9 million at an
average interest rate of 7.7% for the acquisition of the Thriftway Stations
and Phoenix Fuel.
(2) Represents the reversal of historical depreciation expense for the
Thriftway Stations and Phoenix Fuel and the recognition of depreciation
expense arising from purchase accounting adjustments as if the acquisitions
had occurred at the beginning of the earliest period presented.
(3) Represents consignment fees paid for fuel sales at certain Thriftway
service station/convenience store locations. Gross profit for these fuel
sales are included in the Thriftway Stations' historical financial
information.
(4) Represents the reclassification of federal excise taxes included in Phoenix
Fuel's revenues and cost of sales to conform with the Company's policy of
not recording such taxes in revenues.
(5) Represents the elimination of intercompany sales between the Company, the
Thriftway Stations and Phoenix Fuel.
(6) Represents the elimination of intercompany lease payments between the
Thriftway Stations and related entities that were not acquired.
(7) Represents the elimination of certain historical selling, general and
administrative corporate expense allocations related to the Thriftway
Stations not considered attributable to operations purchased and certain
Phoenix Fuel shareholder expenses attributable to its former shareholders.
(8) Represents amortization of an estimated $1 million of goodwill over twenty
years, an estimated $15 million of goodwill over thirty years and
amortization of $0.2 million of debt issuance costs over three years, the
term of the loan.
(9) Represents the income tax effect of the pro forma adjustments and the
income taxes on historical earnings of the Thriftway Stations and Phoenix
Fuel based upon the statutory rate of 39.5% which was in effect for the
periods shown.
(10) Represents interest expense on the Notes and Exchange Notes at an annual
rate of 9.0%, amortization of the issuance costs on the Notes, and interest
income on the remaining proceeds.
27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The profitability of the Company as a whole is primarily dependent on
producing and selling quantities of refined products at sufficient margins to
cover fixed and variable expenses. Purchases of crude oil supply are typically
made pursuant to relatively short-term, renewable contracts with numerous major
and independent oil producers, generally containing market-responsive pricing
provisions. The Company sells refined products directly to retail consumers
through the Company's network of retail units and to wholesale and commercial/
industrial customers. The Company's results of operations have not been
significantly impacted by seasonality of demand for refined products as (i)
seasonal decreases in demand for gasoline in the Company's primary market area
are generally offset by increases in demand in its secondary markets and (ii)
demand for diesel fuel in the Company's market area generally remains constant
throughout the year. The Company's results of operations are affected, however,
by regular maintenance and repair turnarounds at its two refineries. Such
turnarounds generally result in lower volumes of refined products produced
during the period in which a turnaround occurs. See "Business -- Refining and
Marketing -- Refining."
Outlook. Through the acquisition of the Bloomfield refinery and Meridian
crude gathering operations in late 1995 and the integration of these
acquisitions into the Company's existing refining operations, the Company has
improved production and reduced administrative, raw material, labor and
transportation expenses on a per barrel basis. Through the 1997 Acquisitions in
the second quarter of 1997, the Company has substantially increased its retail
operations and has continued to increase its control over refinery sales volumes
in its primary market area. The Company's future results of operations are
primarily dependent on producing and selling sufficient quantities of refined
products at margins sufficient to cover fixed and variable expenses.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Earnings from Continuing Operations Before Income Taxes. For the six
months ended June 30, 1997, earnings from continuing operations before income
taxes were $11.3 million, a decrease of $6.6 million from the $17.9 million
reported in the comparable 1996 period. The decrease is primarily the result of
a decline in refinery margins, partially attributable to a decline in West Coast
product prices, and higher depreciation and amortization costs in the 1997
period. In addition, 1997 earnings were negatively impacted by a major
maintenance turnaround at the Bloomfield refinery in the spring of 1997, which
curtailed production and reduced Bloomfield refinery sales volumes by 9% for the
six months. See "Business -- Refining." These decreases were offset in part by
contributions from the 1997 Acquisitions in the second quarter of 1997.
Revenues. Revenues for the six months ended June 30, 1997, increased
approximately $30.6 million or 13% to $270.3 million from $239.7 million in the
comparable 1996 period. The increase is primarily due to the 1997 Acquisitions
and a 2% increase in refinery weighted average selling prices, offset in part by
a 1% decline in refinery finished product sales volumes.
The volumes of refined products sold through the Company's retail units
increased approximately 14% during the first six months of 1997 primarily due to
the acquisition of the Thriftway Stations and a 2% increase in the volume of
finished product sold from the Company's other service station/convenience
stores. These increases were offset in part by a 5% decline in volumes from the
Company's travel center. See "Business -- Marketing and
Distribution -- Marketing."
Cost of Products Sold. For the six months ended June 30, 1997, cost of
products sold increased $31.9 million or 19% to $198.6 million from $166.7
million in the corresponding 1996 period. The increase is primarily due to the
1997 Acquisitions, along with a 6% increase in average crude oil costs, offset
in part by a 1% decline in refinery finished product sales volumes. In addition,
the liquidation of certain lower cost crude oil LIFO inventory layers in the
first quarter of 1996 reduced 1996 cost of products sold by approximately $2.1
million. There were no similar liquidations in 1997.
28
<PAGE> 32
Operating Expenses. For the six months ended June 30, 1997, operating
expenses increased approximately $2.8 million or 9% to $34.1 million from $31.3
million in the six months ended June 30, 1996. Approximately 73% of the increase
is due to the 1997 Acquisitions. The remaining increases are due to increases in
payroll and related costs, higher refinery fuel costs and increased retail
advertising costs. These increases were offset in part by a reduction in
refinery contract labor expenditures and utility costs.
Depreciation and Amortization. For the six months ended June 30, 1997,
depreciation and amortization increased approximately $2.2 million or 26% to
$10.6 million from $8.4 million in the same 1996 period. Approximately 21% of
the increase is due to the 1997 Acquisitions. The remaining increases are
primarily related to 1996 acquisitions, construction, remodeling and upgrades in
retail and refinery operations, along with the amortization of certain 1996
refinery unit turnaround costs.
Selling, General and Administrative Expenses. For the six months ended
June 30, 1997, selling, general and administrative expenses increased
approximately $0.8 million or 8% to $9.8 million from $9.0 million in the
corresponding 1996 period. The increase is primarily the result of higher
payroll and related costs, due in part to planning for and in anticipation of
future growth, and additional selling, general and administrative expenses
related to Phoenix Fuel. The increase was offset in part by higher 1996 expenses
relating to accruals for estimated severance tax assessments and environmental
liabilities.
Interest Expense, Net. For the six months ended June 30, 1997, net
interest expense (interest expense less interest income) decreased approximately
$0.6 million or 9% to $5.8 million from $6.4 million in the comparable 1996
period. The decrease is primarily due to a reduction in interest expense related
to the payment of approximately $32.0 million of long-term debt in 1996 from
operating cash flow and the sale of the Company's oil and gas operations, offset
in part by an increase in interest expense due to the increase in long-term debt
related to the 1997 Acquisitions.
Income Taxes. Income taxes for the six months ended June 30, 1997 and 1996
were computed in accordance with Statement of Financial Accounting Standards No.
109, resulting in effective tax rates of approximately 40% and 39%,
respectively.
Discontinued Operations. Substantially all of the Company's oil and gas
assets were sold in August 1996.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
The primary factors affecting the results of the Company's 1996 continuing
operations as compared to its 1995 continuing operations were the acquisition of
the Bloomfield refinery in the beginning of the fourth quarter of 1995, an
increase in 1996 refinery margins and the suspension of operations at the
Company's ethanol production plant during 1996.
In early 1996, the Company approved a plan of disposition for its oil and
gas assets. In August 1996, the Company completed the sale of substantially all
of these assets. The operations connected with these assets are classified as
discontinued operations in the Company's consolidated financial statements for
all years presented.
Earnings from Continuing Operations Before Income Taxes. Earnings from
continuing operations before income taxes were $28.2 million for the year ended
December 31, 1996, an increase of approximately $16.8 million from $11.4 million
for the year ended December 31, 1995. The increase was primarily the result of
the acquisition of the Bloomfield refinery and increases in average refinery
margins of approximately 21%. These increases were partially offset by increases
in operating and administrative costs.
Revenues. Revenues for the year ended December 31, 1996 increased $166.3
million or 50% to $499.2 million from $332.9 million in 1995. Finished product
sales of $130.3 million from the Bloomfield refinery accounted for approximately
78% of the increase. In addition, a 19% increase in Ciniza refinery weighted
average selling prices and a 10% increase in service station merchandise sales
contributed to increased revenues. Offsetting these increases was a decline in
third party sales from the Company's ethanol plant due to a temporary suspension
of operations during 1996.
29
<PAGE> 33
The increase in service station merchandise sales was the result of a 9%
increase in same store volumes and a net increase in sales during the year from
fourteen units that were acquired or constructed in the last 24 months over 13
units that were disposed of during the same period.
The volumes of refined products sold through retail units decreased
approximately 1% from 1995 levels due to a 15% decline in volumes sold from the
Company's travel center, offset in part by a 2% increase in service station
volumes. Management believes that travel center volumes declined because of
increased local competition due to the construction of several new truck stops
in the Company's market area in the past several years. Service station volumes
increased due to a net increase in sales volumes during the year from the 14
units that were acquired or constructed in the last 24 months over the 13 units
that were disposed of during the same period. This increase was offset by a
slight decline in same store volumes resulting from increased competition.
Average monthly sales volumes during the last two years for the 14 units
acquired or constructed was approximately 151,000 gallons per month compared to
104,000 gallons per month for the 13 units that have been disposed of.
Cost of Products Sold. For the year ended December 31, 1996, cost of
products sold increased $127.6 million or 54% to $361.9 million from $234.3
million in 1995. Cost of products sold of $101.0 million relating to the
Bloomfield refinery accounted for approximately 79% of the increase. Also
contributing to increased costs were an 18% increase in average crude oil costs
and a 12% increase in the cost of merchandise sales from the service stations.
These increases were partially offset by a decrease in costs relating to the
suspension of operations at the Company's ethanol plant and the liquidation of
certain lower cost crude oil LIFO inventory layers which resulted in a reduction
in cost of products sold of approximately $2.8 million in 1996 compared to a
similar reduction of approximately $0.5 million in 1995.
Operating Expenses. For the year ended December 31, 1996, operating
expenses increased $12.4 million or 24% to $64.3 million from $51.9 million in
1995. Operating expenses increased due to the acquisition of the Bloomfield
refinery (18%) and for other operations (12%). The 12% increase for other
operations was due to increases in payroll and related costs (6%), higher fuel
costs at the Ciniza refinery (1%) and various other expense increases (5%).
Partially offsetting these increases was a decrease of 6% due to the temporary
suspension of operations at the ethanol plant. Payroll and other costs increased
due to annual wage increases and, in the retail operations, due to expanded
programs such as twenty-four hour operations, the fuel pump island attendant
program, the pay at the pump program, deli operations, and store remodeling and
expansion.
Depreciation and Amortization. For the year ended December 31, 1996,
depreciation and amortization increased approximately $4.3 million or 32% to
$17.6 million from $13.3 million in 1995. The increase was primarily the result
of the acquisition of the Bloomfield refinery, along with the addition of
service station and transportation assets.
Selling, General and Administrative Expenses. For the year ended December
31, 1996, selling, general and administrative expenses increased approximately
$2.8 million or 22% to $15.6 million from $12.8 million in 1995. The increase
was primarily the result of expense accruals for incentive bonus plans (14%),
increases in payroll and related costs (5%), expense accruals for estimated
severance tax assessments (2%) and increases in various other general expense
categories (10%). These increases were partially offset by 1996 expense
reductions for decreases in estimated liabilities for self insured workers'
compensation and property and casualty claims and other items (9%).
Interest Expense (Income). For the year ended December 31, 1996, interest
expense increased approximately $0.8 million or 7% to $12.3 million from $11.5
million in 1995. The increase was primarily related to the addition of certain
variable rate long-term debt incurred to finance the acquisition of the
Bloomfield refinery, offset in part by a reduction in other long-term debt.
For the year ended December 31, 1996, interest and investment income
decreased approximately $1.4 million or 66% to $0.8 million from $2.2 million in
1995. The decrease was primarily due to a decrease in excess funds available for
investment related to the acquisition of the Bloomfield refinery in October 1995
and, in 1996, to the use of operating cash flows and the proceeds from the sale
of the Company's oil and gas assets for the payment of long-term debt and
capital expenditures.
30
<PAGE> 34
Income Taxes. Income taxes for the years ended December 31, 1996 and 1995
were computed in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, resulting in effective tax rates of approximately 39% and 32%,
respectively. The difference in the two rates was primarily due to alcohol fuel
tax credits generated from the operation of the Company's ethanol plant, which
suspended operations in October 1995, as well as coal seam gas tax credits in
1995.
Discontinued Operations. On August 30, 1996, the Company completed the
sale of substantially all of its oil and gas assets for $25.5 million. The
transaction was structured so that the Company retained only the oil and gas
properties that will generate future coal seam gas tax credits under Section 29
of the Internal Revenue Code. The reserves related to these properties will be
produced by the buyer and tax credits will be realized by the Company. The net
asset value assigned to these properties is approximately $4.3 million and is
included in other assets and liabilities in the accompanying Consolidated
Balance Sheet. The Company also retained an office building and some equipment.
Future coal seam gas tax credits, when earned, will be used to offset income
taxes payable.
Loss on the disposal of the oil and gas segment for 1996 is a loss on the
sale of the oil and gas properties of approximately $18,000, including a
provision for income taxes of $53,000, offset by earnings from operations of
approximately $5,000, including income tax benefits of $861,000. For 1995 and
1994, earnings (loss) from operations were $143,000, net of income taxes of
$154,000, and $(2,934,000), net of income tax benefit of $1,351,000,
respectively. A pre-tax charge for a reduction of the carrying value of crude
oil and natural gas properties of $3,395,000 was recorded in 1994.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
The primary factors affecting the results of the Company's 1995 continuing
operations as compared to its 1994 continuing operations were the acquisition of
the Bloomfield refinery in the beginning of the fourth quarter of 1995, a
decline in refinery margins, an increase in refinery sourced sales volumes from
the Ciniza refinery and the temporary suspension of operations at the Company's
ethanol production plant in October 1995.
Earnings from Continuing Operations Before Income Taxes. Earnings from
continuing operations before income taxes were $11.4 million for the year ended
December 31, 1995, an increase of $1.3 million from $10.1 million for the year
ended December 31, 1994. The increase was primarily the result of the
acquisition of the Bloomfield refinery, a 5% increase in Ciniza refinery
finished product sales volumes and a 16% increase in service station merchandise
sales. These increases were partially offset by a 10% decrease in Ciniza
refinery average margins and a decrease in third party sales volumes from the
ethanol plant.
Revenues. Revenues for the year ended December 31, 1995 increased $41.3
million or 14% to $332.9 million from $291.6 million in 1994. Finished product
sales of $29.5 million from the Bloomfield refinery accounted for approximately
71% of the increase. In addition, a 5% increase in Ciniza refinery finished
product sales volumes, a 4% increase in Ciniza refinery weighted average selling
prices and a 16% increase in service station merchandise sales contributed to
increased revenues. Offsetting these increases were a decline in third party
sales from the ethanol plant and an overall decline in other revenues from
retail operations.
The increase in Ciniza refinery finished product sales volumes in 1995 was
partially the result of a scheduled major maintenance turnaround started in
March and completed in April 1994 and an accident at the refinery in July 1994
that reduced production for a period of approximately 60 days. The increase in
service station merchandise sales was the result of increased same store sales
and the addition of six units. The overall decline in other revenues from retail
operations was primarily related to the sale of the Giant Express travel center
in November 1994.
The volumes of refined products sold through retail outlets decreased
approximately 7% from 1994 levels due to a 29% decrease in volumes sold from the
travel centers, primarily related to the sale of the Giant Express, and a slight
increase in service station volumes resulting in part from the addition of six
new units, offset by reduced volumes at some units due to increased competition
and the sale or remodeling of several units.
31
<PAGE> 35
Cost of Products Sold. For the year ended December 31, 1995, cost of
products sold increased $38.8 million or 20% to $234.3 million from $195.5
million for 1994. Cost of products sold of $22.4 million relating to the
Bloomfield refinery accounted for approximately 58% of the increase. Also
contributing to increased costs was an 8% increase in average crude oil costs
and a 5% increase in the volume of finished products sold from the Ciniza
refinery, along with a 15% increase in the cost of merchandise sales from the
service stations. The increase was partially offset by a decrease in costs
relating to the temporary suspension of operations at the ethanol plant and a
decrease in merchandise sales from the travel centers.
Operating Expenses. For the year ended December 31, 1995, operating
expenses increased approximately $0.1 million to $51.9 million from $51.8
million in 1994. Operating expenses increased approximately 5% due to the
acquisition of the Bloomfield refinery and 5% due to payroll and related costs
for other continuing operations. Partially offsetting these increases were
declines of approximately 4% due to the sale of the Giant Express, 2% due to the
temporary suspension of operations at the ethanol plant, 1% due to lower
purchased fuel costs for the Ciniza refinery and 3% due to various other expense
decreases.
Depreciation and Amortization. For the year ended December 31, 1995,
depreciation and amortization increased $1.1 million or 9% to $13.3 million from
$12.2 million in the corresponding 1994 period. The increase was primarily
related to the acquisition of the Bloomfield refinery and the separate purchase
of crude oil gathering operations in September 1995.
Selling, General and Administrative Expenses. For the year ended December
31, 1995, selling, general and administrative expense increased approximately
$0.9 million or 7% to $12.8 million from $11.9 million in 1994. The increase was
primarily the result of a reduction in 1994 first quarter expenses from the
recording of a $1.0 million insurance settlement relating to environmental costs
incurred in prior years and higher payroll costs in the 1995 period. Offsetting
these items was a reduction in expenses from no management incentive bonus being
accrued in 1995 and reductions in 1995 expenses for a decrease in the estimated
liability for self insured workers' compensation claims and an adjustment in the
estimated allowance for doubtful accounts.
Interest Expense (Income). For the year ended December 31, 1995, interest
expense decreased approximately $0.3 million or 3% to $11.5 million from $11.8
million in 1994. The decrease was primarily related to the reduction of certain
fixed rate long-term debt and the capitalization of interest in the 1995 period,
offset in part by the addition of certain variable rate long-term debt incurred
in part to finance the acquisition of the Bloomfield refinery.
For the year ended December 31, 1995, interest and investment income
increased approximately $0.5 million or 29% to $2.2 million from $1.7 million in
1994. The increase was primarily due to interest received on the refund of
income taxes paid in prior periods and higher interest rates. These increases
were partially offset by a decrease due to a decline in the amount of excess
funds available for investment.
Income Taxes. Income taxes for the years ended December 31, 1995 and 1994
were computed in accordance with SFAS No. 109, resulting in effective tax rates
of approximately 32% and 26%, respectively. The difference in rates was due in
part to the amounts of alcohol fuel tax credits generated in 1994 compared to
1995, relating to the temporary suspension of operations at the Company's
ethanol plant, as well as coal seam gas tax credits generated in each year, as
they relate to varying amounts of annual income.
Discontinued Operations. For the years ended December 31, 1995 and 1994,
the Company's oil and gas operations ("Giant E&P") recorded net earnings of $0.1
million and a net loss of $2.9 million, respectively. The improvement was
primarily due to a writedown in the carrying value of crude oil and natural gas
properties in the third quarter of 1994, and in 1995, to increases in crude oil
and natural gas production, along with an increase in crude oil selling prices,
offset in part by a decline in natural gas selling prices.
Revenues, including intercompany revenues of $5.3 million in 1995 and $4.1
million in 1994, totaled $8.4 million for the year ended December 31, 1995, an
increase of $2.4 million or 40% from the $6.0 million reported for the
comparable 1994 period. This increase is due to a 51% increase in crude oil
production, an 8% increase in average crude oil selling prices and a 15%
increase in natural gas production. These increases were offset in part by a 24%
decline in average natural gas selling prices.
32
<PAGE> 36
The increase in crude oil production was primarily the result of the
acquisition of various crude oil producing reserves during 1995. The increase in
natural gas production was due to a favorable 1994 year end adjustment of coal
seam gas reserves sold in 1992, determined pursuant to an annual redetermination
clause contained in the 1992 purchase and sale agreement, which resulted in the
addition of approximately 1,018 million cubic feet of natural gas reserves.
For the year ended December 31, 1995, operating costs and expenses
increased $1.2 million or 18% to $8.1 million from $6.9 million in 1994,
primarily due to increases in production.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
Operating cash flows for the first six months of 1997 decreased compared to
the first six months of 1996, primarily as the result of the differences in the
net changes in working capital items in each period and lower net earnings in
the first six months of 1997. Net cash provided by operating activities of
continuing operations totaled $6.5 million for the six months ended June 30,
1997, compared to $23.1 million for the comparable 1996 period.
WORKING CAPITAL
Working capital at June 30, 1997 consisted of current assets of $121.9
million and current liabilities of $79.9 million, or a current ratio of 1.53:1.
At December 31, 1996, the current ratio was 1.33:1 with current assets of $86.5
million and current liabilities of $65.0 million.
Current assets have increased since December 31, 1996, primarily due to
increases in accounts receivable, inventories and prepaid items, offset in part
by a decrease in cash and cash equivalents. Accounts receivable and prepaid
items have increased primarily as the result of the 1997 Acquisitions.
Inventories have increased due to the 1997 Acquisitions and a 78% increase in
crude oil inventory volumes. Current liabilities have increased due to an
increase in note payable and the current portion of long-term debt and accounts
payable, offset in part by a decrease in accrued expenses. Note payable and the
current portion of long-term debt have increased as a result of the acquisition
of Phoenix Fuel. Accounts payable have increased primarily as the result of the
1997 Acquisitions, offset in part by a decline in the cost of raw materials.
Accrued expenses have declined primarily due to the payment of a contingent
liability related to the Bloomfield refinery acquisition, offset in part by
increases resulting from the 1997 Acquisitions.
CAPITAL EXPENDITURES AND RESOURCES
Net cash used in investing activities for the purchase of property, plant
and equipment and other assets totaled approximately $18.5 million for the first
six months of 1997, including capacity enhancement projects, facility upgrades
and turnaround expenditures at the refineries; major remodeling expenditures at
two retail units, the acquisition of land for future retail operations and
continuing retail equipment and system upgrades; and transportation equipment
and facility upgrades.
During the second quarter of 1997, the Bloomfield refinery completed a
major, every four year, maintenance turnaround including certain debottlenecking
procedures that increased reformer capacity by approximately 500 bbls per day.
In March 1997, the Ciniza refinery completed a reformer and isomerization
unit turnaround including certain debottlenecking procedures that increased
reformer capacity by approximately 700 bbls per day and isomerization capacity
by approximately 1,000 bbls per day.
Over the period May 28, 1997 to May 31, 1997, the Company completed the
acquisition of 96 retail service station/convenience stores, seven additional
retail locations for future development, certain petroleum transportation and
maintenance assets, options to acquire service station/convenience stores and
other related assets.
33
<PAGE> 37
The consideration paid by the Company for 32 service station/convenience
stores, the seven retail locations for future development, the transportation
and maintenance assets, the options to acquire service station/convenience
stores and other related assets was approximately $19.1 million in cash, an
office building with a net book value of approximately $0.8 million and a truck
maintenance shop with a net book value of approximately $0.5 million. The
Company leased the remaining 64 service station/convenience stores and related
assets for a period of ten years and intends to purchase them pursuant to
options to purchase during the ten year period for approximately $22.9 million
in the aggregate. The leased service station/convenience stores are being
accounted for as capital leases and initially require annual lease payments of
approximately $2.6 million. These lease payments will be reduced as the
individual service station/convenience stores are purchased pursuant to the
options. The Company intends to use approximately $18.9 million of the net
proceeds from the offering of the Notes to purchase service station/convenience
stores pursuant to the exercise of these options. As a result of such purchases,
the annual lease payment will be reduced to approximately $0.5 million. In
addition, the Company has one-year options to purchase 45 additional units that
are located in Wyoming, Texas and Montana. See "Business -- The Thriftway
Acquisition."
In connection with the acquisition of the Thriftway Stations, the Company
entered into a consignment agreement to supply refined products to 16 service
station/convenience stores operated by Thriftway which are located in the Four
Corners area. The Company has options to purchase these service
station/convenience stores. The Company also entered into other long-term supply
arrangements to provide refined products to other service stations in the area
that will continue to be operated by Thriftway Marketing Corp.
On June 3, 1997, the Company acquired Phoenix Fuel, an independent
industrial/commercial petroleum products distributor, for approximately $30
million. Phoenix Fuel sells gasoline, diesel fuel, burner fuel, jet fuel,
aviation fuel and kerosene. In addition, Phoenix Fuel sells oils and lubricants
such as motor oil, hydraulic oil, gear oil, cutting oil and grease.
The Company funded the 1997 Acquisitions with $54.0 million of indebtedness
incurred under the Company's Credit Agreement, as more fully described below.
On a pro forma basis, assuming the 1997 Acquisitions occurred on January 1,
1996 and assuming the sale of $150.0 million of the Notes at an interest rate of
9.0% and the application of the net proceeds therefrom as described in "Use of
Proceeds," the Company's net revenues would have been $785.8 million and $403.2
million, net earnings from continuing operations would have been $18.2 million
and $5.7 million, and earnings from continuing operations per common share would
have been $1.62 and $0.52 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively. This unaudited pro forma financial
information does not purport to represent the results of operations that
actually would have resulted had the purchase occurred on the date specified,
nor should it be taken as indicative of the future results of operations.
The Company continues to investigate other strategic acquisitions as well
as capital improvements to its existing facilities. The Company is also actively
pursuing the possible sale or exchange of non-strategic or underperforming
assets.
Working capital, including that necessary for capital expenditures and debt
service, will be funded through cash generated from operating activities,
existing cash balances and, if necessary, future borrowings. Future liquidity,
both short and long-term, will continue to be primarily dependent on producing
and selling sufficient quantities of refined products at margins sufficient to
cover fixed and variable expenses.
CAPITAL STRUCTURE
At June 30, 1997 and December 31, 1996, the Company's long-term debt was
61.5% and 48.1% of total capital, respectively. The increase is primarily due to
an increase in long-term debt resulting from the 1997 Acquisitions and
borrowings under the Company's working capital facility, offset in part by an
increase in stockholders' equity due to net earnings which were offset in part
by the acquisition of shares of the Company's common stock accounted for as
treasury shares. The Company's net debt (long-term debt less cash and cash
equivalents) to total capitalization percentages were 60.6% and 45.1% at June
30, 1997 and December 31, 1996, respectively.
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<PAGE> 38
The Company's capital structure includes $100.0 million in aggregate
principal amount of the 9 3/4% Notes that mature in 2003. Repayment of the
9 3/4% Notes is jointly and severally guaranteed on an unconditional basis by
the Company's direct and indirect wholly-owned subsidiaries, subject to a
limitation designed to ensure that such guarantees do not constitute a
fraudulent conveyance. Except as otherwise allowed in the Indenture pursuant to
which the 9 3/4% Notes were issued, there are no restrictions on the ability of
such subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances. General provisions of applicable state law,
however, may limit the ability of any subsidiary to pay dividends or make
distributions to the Company in certain circumstances.
In October 1995, the Company entered into a Credit Agreement with a group
of banks under which $30.0 million was borrowed pursuant to a three-year
unsecured revolving term facility to provide financing for the purchase of the
Bloomfield refinery. This revolving term facility was repaid from cash on hand
and proceeds from the sale of the Company's oil and gas assets. The Credit
Agreement was amended effective May 23, 1997 to increase the borrowing
commitment under the unsecured capital expenditure facility portion of the
Credit Agreement to $70.0 million from $30.0 million and to extend the due date
to May 23, 2000 from October 4, 1998, for both the unsecured capital expenditure
facility and the unsecured working capital facility. The Company borrowed $54.0
million under this capital expenditure facility to fund the amounts paid with
respect to the 1997 Acquisitions. Additional borrowings under the capital
expenditure facility can be used to repurchase shares of the Company's common
stock and for acquisitions, capital expenditures and general corporate purposes,
but not for working capital expenditures. On May 23, 1999, the borrowing
commitment under the capital expenditure facility is required to be reduced by
$20.0 million. At June 30, 1997, direct borrowings under this facility were
$60.0 million. This facility has a floating interest rate that is tied to
various short-term indices. At June 30, 1997, this rate was approximately 6.5%
per annum. The Company has used $60.0 million of net proceeds from the offering
of the Notes to repay all outstanding indebtedness under this facility.
In addition, the Credit Agreement contains a three-year unsecured working
capital facility to provide working capital and letters of credit in the
ordinary course of business. The availability under this working capital
facility is the lesser of (i) $40.0 million, or (ii) the amount determined under
a borrowing base calculation tied to eligible accounts receivable and
inventories as defined in the Credit Agreement. At June 30, 1997, the lesser
amount was $40.0 million. This facility has a floating interest rate that is
tied to various short-term indices. At June 30, 1997, this rate was
approximately 6.5% per annum. Direct borrowings under this arrangement were
$14.0 million at June 30, 1997, and there were approximately $15.9 million of
irrevocable letters of credit outstanding, primarily to secure purchases of raw
materials. Borrowings under this facility are generally higher at month end due
to payments for raw materials and various taxes. The Company has used
approximately $6.0 million of net proceeds from the offering of the Notes to
repay all outstanding indebtedness under this facility.
The Credit Agreement contains certain covenants and restrictions which
require the Company to, among other things, maintain a minimum consolidated net
worth; minimum fixed charge coverage ratio; minimum funded debt to total
capitalization percentage; and places limits on investments, prepayment of
senior subordinated debt, guarantees, liens and restricted payments. The Credit
Agreement is guaranteed by substantially all of the Company's direct and
indirect wholly-owned subsidiaries. The Company is required to pay a quarterly
commitment fee based on the unused amount of each facility.
The Company's Board of Directors has authorized the repurchase of up to
1,500,000 shares of the Company's common stock. During the first six months of
1997, the Company repurchased 75,300 shares of its common stock at a weighted
average price of $14.40 per share including commissions. From the inception of
the stock repurchase plan, the Company has repurchased 1,198,800 shares at a
weighted average cost of $9.90.
On May 7, 1997, the Company's Board of Directors declared a cash dividend
on common stock of $0.05 per share payable to stockholders of record on July 24,
1997. This dividend was paid on August 6, 1997. Future dividends, if any, are
subject to the results of the Company's operations, existing debt covenants and
declaration by the Company's Board of Directors.
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<PAGE> 39
THE REGISTERED EXCHANGE OFFER
PURPOSE OF THE REGISTERED EXCHANGE OFFER
The Notes were sold by the Company on August 26, 1997, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act. In connection with the Note Offering, the Company
entered into the Registration Rights Agreement which requires, among other
things, that the Company will, at its cost, (i) by October 27, 1997, file a
registration statement (the "Registered Exchange Offer Registration Statement")
with the SEC with respect to the Registered Exchange Offer to exchange the Notes
for the Exchange Notes, which will have terms substantially identical in all
material respects to the Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions and with respect to the payment of
additional interest under circumstances relating to breaches of the Registration
Rights Agreement by the Company and the Subsidiary Guarantors), and (ii) use its
best efforts to cause the Registered Exchange Offer Registration Statement to be
declared effective under the Securities Act by December 24, 1997. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "holder" with respect to
the Registered Exchange Offer means any person in whose name the Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
Because the Registered Exchange Offer is for any and all Notes, the number
of Notes tendered and exchanged in the Registered Exchange Offer will reduce the
principal amount of Notes outstanding. Following the consummation of the
Registered Exchange Offer, holders of the Notes who did not tender their Notes
generally will not have any further registration rights under the Registration
Rights Agreement, and such Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Notes could be adversely affected. The Notes are currently eligible for sale
pursuant to Rule 144A through the PORTAL System of the National Association of
Securities Dealers, Inc. Because the Company anticipates that most holders of
Notes will elect to exchange such Notes for Exchange Notes due to the absence of
restrictions on the resale of Exchange Notes under the Securities Act, the
Company anticipates that the liquidity of the market for any Notes remaining
after the consummation of the Registered Exchange Offer may be substantially
limited.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
TERMS OF THE REGISTERED EXCHANGE OFFER
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about November 10, 1997, to all holders of Notes known to the
Company. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Notes validly tendered and not withdrawn prior to 5:00 p.m. New York City time
on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Notes
accepted in the Registered Exchange Offer. Holders may tender some or all of
their Notes pursuant to the Registered Exchange Offer. However, Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same in all material
respects as the form and terms of the Notes except that the Exchange Notes will
not contain terms with respect to transfer restrictions or with respect to the
payment of additional interest under circumstances relating to breaches of the
Registration Rights Agreement by the Company and the Subsidiary Guarantors. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indenture.
Holders of Notes do not have any appraisal or dissenter's rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Registered Exchange Offer. The Company intends to conduct the Registered
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder, including Rule 14e-1
thereunder.
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<PAGE> 40
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders for the purpose
of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Registered Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Registered Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the Registered Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December 12, 1997, unless the Company, in its sole discretion, extends the
Registered Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Registered Exchange Offer is extended.
To extend the Registered Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice, followed by a public
announcement thereof no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Registered Exchange Offer or to terminate the
Registered Exchange Offer if any of the conditions set forth below under
" -- Conditions" shall not have been satisfied, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent, or (ii) to amend
the terms of the Registered Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Registered Exchange Offer
is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, the Company will extend the Registered Exchange Offer
for a period of five to ten business days if the Registered Exchange Offer would
otherwise expire during such five to ten business-day period.
If the Company does not consummate the Registered Exchange Offer, or, in
lieu thereof, the Company does not file and cause to become effective the Shelf
Registration Statement within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Registration Rights."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Registered
Exchange Offer, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to Business Wire.
REGISTERED EXCHANGE OFFER PROCEDURES
Only a holder of Notes may tender such Notes in the Registered Exchange
Offer. To tender in the Registered Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Notes and any other required documents, to the Exchange Agent so as to be
received by the Exchange Agent at the address set forth below prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of the Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
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<PAGE> 41
By executing the Letter of Transmittal, each holder will make to the
Company the representation set forth below in the second paragraph under the
heading " -- Resale of Exchange Notes."
The tender by a holder and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or (ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or
any Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depositary for the purpose of facilitating the Registered
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Depositary's system may make book-entry
delivery of the Notes by causing the Depositary to transfer such Notes into the
Exchange Agent's account with respect to the Notes in accordance with the
Depositary's procedures for such transfer. Although delivery of the Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Depositary, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee and all other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Depositary does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes
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<PAGE> 42
not properly tendered or any Notes the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any defects, irregularities or conditions of tender as to
particular Notes. The Company's interpretation of the terms and conditions of
the Registered Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Notes,
none of the Company, the Exchange Agent or any other person shall incur any
liability for failure to give such notification. Tenders of Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent, or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depositary) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Registered Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Depositary to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the person withdrawing the tender, and
(iv) specify the name in which any such Notes are to be registered, if
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<PAGE> 43
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time or receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Registered Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Notes so withdrawn are validly retendered. Any Notes
which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Registered Exchange Offer. Properly withdrawn Notes may be retendered by
following one of the procedures described above under " -- Registered Exchange
Offer Procedures" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Registered Exchange Offer, the
Company shall not be required to accept for exchange, or to exchange Exchange
Notes for, any Notes, and may terminate or amend the Registered Exchange Offer
as provided herein before the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Registered Exchange Offer or materially impair the
contemplated benefits of the Registered Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Registered Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering holders, (ii) extend the Registered
Exchange Offer and retain all Notes tendered prior to the expiration of the
Registered Exchange Offer, subject, however, to the rights of Holders to
withdraw such Notes (see " -- Withdrawals of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Registered Exchange Offer and accept
all properly tendered Notes which have not been withdrawn. If such waiver
constitutes a material change to the Registered Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered holders, the Company
will extend the Registered Exchange Offer for a period of five to ten business
days if the Registered Exchange Offer would otherwise expire during such five to
ten business-day period.
EXCHANGE AGENT
The Bank of New York will act as Exchange Agent for the Registered Exchange
Offer.
All executed Letters of Transmittal should be directed to the Exchange
Agent at one of the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal for the Notes and requests for copies of Notice of Guaranteed
Delivery should be directed to the Exchange Agent, addressed as follows:
By mail:
The Bank of New York
101 Barclay Street, Floor 7 East
New York, New York 10286
Attn: Arwin Gibbons, Reorganization Section
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<PAGE> 44
By hand/overnight courier:
The Bank of New York
Corporate Trust Services Window, Street Level
101 Barclay Street
New York, New York 10286
Attn: Arwin Gibbons, Reorganization Section
By facsimile (eligible institutions only):
(212) 815-6339
For telephone inquiries:
(212) 815-5920
DELIVERY OF THE NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of the Registered Exchange Offer will be borne by the Company.
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone, facsimile or in person by
officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Registered Exchange Offer and will not make any payments to brokers or other
persons soliciting acceptances of the Registered Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Registered Exchange Offer. If, however,
certificates representing the Exchange Notes or the Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Notes
tendered, or if tendered Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Notes pursuant to the
Registered Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Registered Exchange Offer. The expenses of the Registered
Exchange Offer will be amortized over the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes issued
pursuant to the Registered Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than broker-dealers, as set forth below, and any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and
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<PAGE> 45
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes. Any holder who tenders in the Registered Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the Exchange Notes may not rely on the position of the staff of the SEC
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989),
Morgan Stanley & Co., Incorporated (available June 5, 1991), Shearman & Sterling
(available July 2, 1993) or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
By tendering in the Registered Exchange Offer, each holder will represent
to the Company that, among other things, (i) the Exchange Notes acquired
pursuant to the Registered Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is a holder, (ii) neither the holder nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and (iii) the holder and such other person
acknowledge that if they participate in the Registered Exchange Offer for the
purpose of distributing the Exchange Notes, (a) they must, in the absence of an
exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes and cannot rely on the no-action letters referenced above, and (b) failure
to comply with such requirements in such instance could result in such holder
incurring liability under the Securities Act for which such holder is not
indemnified by the Company. Further, by tendering in the Registered Exchange
Offer, each holder that may be deemed an "affiliate" (as defined under Rule 405
of the Securities Act) of the Company will represent to the Company that such
holder understands and acknowledges that the Exchange Notes may not be offered
for resale, resold or otherwise transferred by that holder without registration
under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the SEC with respect to resales of
the Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of making this Registered Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Notes that does not exchange that holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Registered
Exchange Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Registered Exchange Offer will remain restricted securities. Accordingly, such
Notes may be offered, resold, pledged or otherwise transferred only (i) to the
Company (upon redemption thereof or otherwise), (ii) pursuant to an effective
registration statement under the Securities Act, (iii) inside the United States
to a person whom the seller reasonably believes is a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144A, (iv) outside the United States in an
offshore transaction in accordance with Rule 904 under the Securities Act, or
(v) pursuant to an exemption from registration under the Securities Act provided
by Rule 144 thereunder (if available), in each case in accordance with any
applicable securities laws of any state of the United States.
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OTHER
Participation in the Registered Exchange Offer is voluntary and holders
should carefully consider whether to accept. Holders of the Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent Registered
Exchange Offers or otherwise. The Company has no present plans to acquire any
Notes that are not tendered in the Registered Exchange Offer or to file a
registration statement to permit resales of any untendered Notes.
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<PAGE> 47
BUSINESS
GENERAL
Giant Industries, Inc., a Delaware corporation ("Giant" or the "Company"),
through its wholly-owned subsidiary Giant Industries Arizona, Inc. ("Giant
Arizona"), is engaged in the refining and marketing of high quality petroleum
products. The Company is the leading refiner and one of the largest marketers of
petroleum products with operations in the fast-growing Four Corners area of the
southwestern United States where New Mexico, Arizona, Colorado and Utah join.
The Company sells refined products directly to retail consumers through the
Company's network of retail units and to wholesale and commercial/industrial
customers.
The Company owns and operates two high-conversion crude oil refineries in
northwestern New Mexico, Ciniza and Bloomfield, a 300-mile crude oil gathering
pipeline system based in Farmington, New Mexico, a finished product terminal in
Albuquerque, New Mexico, a fleet of crude oil and finished product truck
transports, a travel center on I-40 east of Gallup, New Mexico, and a chain of
148 retail service station/convenience stores in New Mexico, Colorado, Utah and
Arizona. It also owns and operates 9 bulk petroleum distribution plants, 22
cardlock fueling operations, and a lubricant storage and distribution facility.
In early 1996, the Company approved a plan of disposition for its oil and
gas operations. The decision was based upon management's review of the prospects
for this operation, which indicated that substantial new capital would be
necessary to further develop this business and reach an acceptable level of
profitability and integration. On August 30, 1996, the Company completed the
sale of substantially all of its oil and gas assets for $25.5 million. Certain
oil and gas assets with a net asset value of approximately $4.3 million
including a production payment, were retained by the Company. These assets
consist primarily of a working interest in certain natural gas properties that
qualify for the coal seam gas tax credits under Section 29 of the Internal
Revenue Code, an office building and some equipment.
BUSINESS STRATEGY AND STRENGTHS
The Company's strategy is to manage shareholder value by adhering to three
major objectives: (i) capture a significant portion of anticipated future demand
growth for refined products in its targeted markets; (ii) increase efficiency
and profitability through the sale of a greater portion of the Company's refined
products by the Company's retail network; (iii) expand its overall market
presence through selective acquisitions in contiguous markets and other markets
with attractive supply and demand characteristics.
THE THRIFTWAY ACQUISITION
At the end of May 1997, Giant acquired 96 retail service
station/convenience stores, seven additional retail locations for future
development, certain petroleum transportation and maintenance assets, options to
acquire service station/convenience stores and other related assets. These
assets were acquired from Thriftway Marketing Corp. ("Thriftway"), Clayton
Investment Company, and various related entities. The consideration paid by the
Company for the 32 service station/convenience stores, the seven retail
locations for future development, the transportation and maintenance assets, the
options to acquire service station/convenience stores and other related assets
was $19.1 million in cash, an office building with a net book value of
approximately $0.8 million and a truck maintenance shop with a net book value of
approximately $0.5 million. The Company leased the remaining 64 service
station/convenience stores and related assets for a period of 10 years and
intends to purchase them pursuant to options to purchase during this period for
approximately $22.9 million in the aggregate. The leased service
station/convenience stores are being accounted for as capital leases and
initially require annual lease payments of approximately $2.6 million, which
payments will be reduced as the individual service station/convenience stores
are purchased pursuant to the options. The Company intends to use approximately
$18.9 million of the net proceeds from the offering of the Notes to purchase
service station/convenience stores pursuant to the exercise of these options. As
a result of such purchase, the annual lease payment will be reduced to
approximately $0.5 million. In addition, Giant paid additional amounts for
finished product, merchandise and supply inventories associated with the service
stations acquired, which amounts approximated the sellers' cost of such
inventories.
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The Thriftway Stations sell various grades of gasoline, diesel fuel and
merchandise to the general public and are located in New Mexico, Arizona,
Colorado and Utah, in or adjacent to the Company's primary market area. In 1996,
the Thriftway Stations had fuel sales of approximately 41 million gallons and
merchandise sales of approximately $41 million (as compared to fuel sales of
approximately 106 million gallons and merchandise sales of approximately $49
million in the Company's existing retail operations). The service stations have
margins above national averages. In addition, through the acquisition of the
Thriftway Stations the Company added approximately 700 new employees. Giant is
using substantially all of the assets acquired in a manner consistent with their
previous operation. However, a small number of the service station/convenience
stores may be converted to cardlock operations or targeted for disposal.
Giant also entered into a consignment agreement with Thriftway to supply
finished product to 16 service station/convenience stores that Thriftway
operates on the Navajo, Ute and Zuni Reservations. Under this agreement, Giant
will receive the profits from the finished product sales and will pay Thriftway
annual consignment fees. Giant has options to purchase these service
station/convenience stores until May 2007. The Company also entered into
long-term supply arrangements with Thriftway to provide gasoline and diesel fuel
to other service stations in the area that Thriftway will continue to operate.
In addition, the Company has one-year options to purchase 45 additional
units from Thriftway that are located in Wyoming, Texas and Montana.
THE PHOENIX FUEL ACQUISITION
In June 1997, Giant acquired Phoenix Fuel for approximately $30 million.
Phoenix Fuel is Arizona's largest independent petroleum products distributor and
sells gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene.
In addition, it distributes oils and lubricants such as motor oil, hydraulic
oil, gear oil, cutting oil and grease.
Phoenix Fuel has nine bulk petroleum distribution plants, 22 cardlock
fueling operations, a lubricant storage and distribution facility, and a fleet
of 40 finished product truck transports. These assets are located throughout
Arizona. In 1996, Phoenix Fuel had sales of approximately $254 million and
EBITDA of more than $6 million. Phoenix Fuel's wholesale fuel volumes exceeded
200 million gallons, sales from its cardlock facilities were approximately 28
million gallons, and its lubricant sales were approximately 5 million gallons in
1996. Phoenix Fuel employs approximately 200 people. Giant operates Phoenix Fuel
as a wholly-owned subsidiary and in a manner consistent with its previous
operation.
REFINING
Giant owns and operates the only active refineries in the Four Corners. The
Ciniza refinery is located on 880 acres near Gallup, New Mexico and the
Bloomfield refinery is located on 285 acres near Farmington, New Mexico. The
refineries are separated by 120 miles in northwestern New Mexico and are
operated in an integrated fashion. The Four Corners area serves as the Company's
primary market for its refined products and as the primary source of its crude
oil and NGLs supplies.
Management believes that the technical capabilities of these two cracking
refineries in conjunction with high quality locally-available crude oil and NGL
feedstocks result in refinery yields of high-value products comparable to those
achieved by larger, more complex refineries located outside of the area. Both
refineries are equipped with fluid catalytic cracking, naphtha hydrotreating,
reforming, and LPG recovery units, as well as diesel hydrotreating and sulfur
recovery units to manufacture low sulfur diesel fuel. The Ciniza refinery
utilizes an alkylation process to manufacture high octane gasoline from its
catalytic cracking unit olefins. The Bloomfield refinery accomplishes this using
a catalytic polymerization unit. The Ciniza refinery also is equipped with
isomerization and cogeneration facilities. The Company believes that its refined
products meet all federally-mandated standards, including 100% low sulfur diesel
fuel, in all markets where it sells such products. The refineries' yield
gasoline, diesel fuel and jet fuel has exceeded 91% in each of the last five
years. With total feedstock capacity of 44,600 bpd, the Company's refineries
have achieved an average capacity utilization rate of approximately 94% over the
last five years.
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Set forth below is data with respect to refinery operations and the primary
refined products produced during the indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995(1) 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Feedstock throughput:(2)
Crude oil.............................. 20,800 20,300 19,100 23,700 34,800
NGLs and oxygenates.................... 4,800 5,000 4,500 5,000 5,400
------- ------- ------- ------- -------
Total.......................... 25,600 25,300 23,600 28,700 40,200
======= ======= ======= ======= =======
Crude oil throughput (as a % of total)... 81% 80% 81% 83% 87%
Rated crude oil capacity utilized........ 101% 98% 92% 88% 90%
Refinery margin ($/bbl).................. $ 4.77 $ 6.69 $ 5.60 $ 5.13 $ 6.21
Products:(2)
Gasoline............................... 16,100 16,300 15,200 18,500 24,900
Diesel fuel............................ 5,400 5,400 5,200 7,200 10,900
Jet fuel............................... 2,000 1,800 1,300 900 1,100
Other.................................. 2,100 1,800 1,900 2,100 3,300
------- ------- ------- ------- -------
Total.......................... 25,600 25,300 23,600 28,700 40,200
======= ======= ======= ======= =======
High Value Products:
Gasoline............................... 63% 65% 64% 65% 62%
Diesel fuel............................ 21% 21% 22% 25% 27%
Jet fuel............................... 8% 7% 6% 3% 3%
------- ------- ------- ------- -------
Total............................... 92% 93% 92% 93% 92%
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The 1995 operating data reflects the operations of the Bloomfield refinery
effective October 4, 1995.
(2) Average barrels per day
Each refinery operating unit requires regular maintenance and repair
shutdowns (referred to as "turnarounds") during which it is not in operation.
Turnaround cycles vary for different units. In general, refinery turnarounds are
managed so that some units continue to operate while others are down for
scheduled maintenance. Maintenance turnarounds are implemented using refinery
personnel as well as some additional contract labor. Turnaround work proceeds on
a continuous 24-hour basis to minimize unit down time. Giant has historically
expensed current maintenance charges and capitalized turnaround costs which are
then amortized over the estimated period until the next turnaround which is
generally 24 to 48 months depending on the unit involved.
In general, a major refinery turnaround is scheduled every four years. The
most recent major turnaround at the Ciniza refinery occurred during March and
April 1994, and the next major turnaround is scheduled for early in the second
quarter of 1998. A four-week major turnaround was completed at the Bloomfield
refinery during the second quarter of 1997. Unscheduled maintenance shutdowns
also occur, but the Company believes that the record of both refineries with
respect to unscheduled maintenance shutdowns is generally good compared with the
industry as a whole.
RAW MATERIAL SUPPLY
The Company's refineries primarily process a mixture of high gravity, low
sulfur crude oil, condensate and NGLs. The locally produced, high quality crude
oil known as Four Corners Sweet is the primary feedstock for the refineries.
Although the Company currently obtains substantially all of its crude oil supply
from the Four Corners area, the refineries supplement their supply of crude oil
with ANS crude oil, transported from the West Coast through the Company's
gathering system's interconnection with the Four Corners and Texas-New Mexico
pipeline systems, which together can transport approximately 65,000 barrels
46
<PAGE> 50
per day. The Ciniza refinery also has access to West Texas Intermediate and
other lesser known crude oils by rail, should the need arise and should economic
conditions allow the use of such alternate crude oils.
The Company believes that local crude oil production currently approximates
98% of aggregate local crude oil demand and that the supply of crude oil and
condensate in the Four Corners is improving as a result of enhanced recovery
programs and increased drilling activities by major oil companies in the area.
Based on projections of local crude oil availability from the field and current
levels of usage of ANS (which are limited to 1,500 bpd by the refineries'
configurations), the Company believes an adequate supply of crude oil and other
feedstocks will be available from local producers, crude oil sourced through
common carrier pipelines and other sources to sustain refinery operations for
the foreseeable future at substantially the levels currently being experienced.
However, there is no assurance that this situation will continue.
The Company continues to evaluate other supplemental crude oil supply
alternatives for its refineries on both a short-term and long-term basis. Among
other alternatives, the Company has considered making additional equipment
modifications to increase its ability to use alternative crude oils and NGLs and
can install additional rail facilities to enable the Company to provide
incremental crude oil and other intermediate feedstocks to supplement local
supply sources in the most cost effective manner. The Company understands that
production of ANS is declining and is aware of proposals that would, at some
time in the future, eliminate the shipping of ANS through the Four Corners
pipeline system. In such event, the Company has identified potential
opportunities for accessing other supplemental crude oil supplies via this
pipeline. In addition, the Four Corners area produces significant amounts of
NGLs, most of which are currently shipped out of the area by pipeline. The
Company is undertaking several projects at its refineries in 1997 to increase
its ability to utilize NGLs, which historically have been lower cost feedstocks
than crude oil. These 1997 projects should increase the amount of natural
gasoline used by the Company's refineries by approximately 2,500 barrels per day
and should result in the production of an equivalent number of barrels per day
of additional gasoline. Any significant long-term interruption in crude oil
supply or the crude oil transportation system, however, would have an adverse
effect on Giant's operations.
If additional supplemental crude oil becomes necessary, the Company intends
to implement then available alternatives as necessary and as is most
advantageous under then prevailing conditions. The Company currently believes
that the most desirable strategy to supplement local crude oil supplies, on a
long-term basis, would be the delivery of supplemental crude oil from outside of
the Four Corners area by pipeline. Such crude oil may be of lesser quality than
locally available crude oils, and the Company believes such crude oil will
generally have a delivered cost greater than that of locally available crude
oil. Implementation of supplemental supply alternatives may result in additional
raw material costs, operating costs, capital costs, or a combination thereof in
amounts which are not presently ascertainable by the Company but which will vary
depending on factors such as the specific alternative implemented, the quantity
of supplemental feedstocks required, and the date of implementation.
Implementation of some supply alternatives requires the consent or cooperation
of third parties and other considerations beyond the control of the Company.
Crude oil is acquired from a number of sources, including major oil
companies and large and small independent producers, under arrangements which
contain market-responsive pricing provisions. Many of these arrangements are
subject to cancellation by either party or have terms that are not in excess of
one year. In addition, these arrangements are subject to periodic renegotiation.
A portion of the refineries' purchases are structured as exchange agreements. In
such exchanges, purchases are made in conjunction with matching sales to the
supplier at other domestic locations, as may be negotiated periodically. The
effect of such arrangements is to make a portion of the cost of the refineries'
supply dependent upon market conditions in other locations, which may differ
from those pertaining to the Four Corners area.
In addition to crude oil, the Ciniza refinery currently can process
approximately 5,200 barrels per day of NGLs, consisting of natural gasoline,
normal butane and isobutane. NGLs are used as gasoline blending components and
to supply the isomerization and alkylation units. NGLs increase the percentage
of gasoline and the octane levels that the refinery can produce, which typically
increase the Company's refining margins. NGLs further enhance refinery margins
because the Company has historically been able to purchase NGLs at lower costs
per barrel than crude oil.
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An adequate supply of NGLs is available for delivery to the Ciniza
refinery, primarily through a Company-owned pipeline connecting the Ciniza
refinery to NGL fractionation plants operated by third parties. NGLs can also be
transported to the Ciniza refinery by rail or transport truck. The Company
currently acquires substantially all of its NGL feedstocks pursuant to two
long-term agreements with suppliers under which NGLs are made available to the
Company at the fractionation plants. These agreements contain market sensitive
pricing arrangements under which prices are adjusted on a monthly basis.
OXYGENATES
The Company owns a dry mill ethanol processing plant in Portales, New
Mexico. The ethanol plant has the capacity to produce approximately 14.0 million
gallons of ethanol per year, 137,000 tons of protein-enriched cattlefeed and
beverage quality carbon dioxide. Ethanol is an oxygenate which can be used as a
gasoline blending component. Oxygenates are oxygen-containing compounds that can
be used as a motor vehicle fuel supplement to reduce motor vehicle carbon
monoxide emissions. The use of gasoline containing oxygenates has been
government-mandated in a number of metropolitan areas near Giant's operations.
On October 2, 1995, the Company announced the suspension of operations at
the Portales facility due to high grain costs. The Company anticipates that it
will be able to purchase sufficient quantities of oxygenates from third parties
at acceptable prices during the period the plant's operations are suspended. The
Company is currently evaluating when to reopen the plant.
TRANSPORTATION
The Company currently supplies all of the refineries' crude oil
requirements through its truck transports and 300-mile pipeline gathering
system, which directly reaches local producing regions and connects with the
Four Corners and Texas-New Mexico common carrier crude oil pipelines. Access to
the common carrier pipelines reduces the potential impact of any local crude oil
supply interruption. The Ciniza refinery receives NGLs through a 13-mile Company
owned pipeline connected to a natural gas liquids fractionation plant.
MARKETING AND DISTRIBUTION
The Four Corners Market. The Company has been active in retail marketing
in the Four Corners for over two decades. This region is characterized by long
distances between metropolitan areas, making transportation and terminalling
costs a significant competitive factor. As a result of this transportation
advantage, Giant has benefited from higher refining margins than those
experienced in the West Coast and Gulf Coast regions of the United States. Giant
markets substantially all of its refined products within a radius of
approximately 150 miles from its refineries. The nearest competing refineries
are located near El Paso, Texas, Artesia, New Mexico and Amarillo, Texas, which
are approximately 360, 370 and 400 miles, respectively, from the Company's
refineries. Substantially all of the Company's products are distributed by
truck. The Company estimates that, during 1996, its gasoline production was
distributed 57% in New Mexico, 28% in Arizona, 10% in Colorado and 5% in Utah;
and its diesel production was distributed 56% in New Mexico, 29% in Arizona, 11%
in Colorado and 4% in Utah. The Company's truck transports support refinery
sales in its primary market as well as its secondary markets. These vehicles
hauled approximately 40% of the refineries' sales barrels in 1996.
Refined Product Sales. During 1996, the Company sold approximately 9.2
million barrels of gasoline and 3.9 million barrels of diesel fuel from its
refineries. The 1997 Acquisitions increased the Company's percentage of refined
products sold through its retail network as compared to refinery sales volumes
from 18% for 1996 to 32% for 1996 on a pro forma basis. In 1996, gasoline and
diesel deliveries made through product exchanges with large oil companies
accounted for approximately 24% of the volume sold by the refineries. The
remaining gasoline and diesel sales were made to wholesalers, retailers and
industrial/commercial customers. Supplementing sales barrels sourced from both
refineries were periodic purchases, for resale, of gasoline and diesel from
other sources. Specific economic and/or market conditions are the major factors
affecting the timing and volume of these resale transactions.
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<PAGE> 52
The Company's other refined products, including military jet fuels, are
marketed to various third party customers.
Marketing. At December 31, 1996, the Company operated 52 service
station/convenience stores located in New Mexico (36), Arizona (15) and Colorado
(1), and a Travel Center located on I-40 adjacent to the Ciniza refinery near
Gallup, New Mexico. These retail units sold approximately 105.8 million gallons
of gasoline and diesel fuel in 1996 compared to approximately 107.4 million
gallons in 1995, a 1 1/2% decrease. Merchandise sales increased approximately 7%
in 1996, to $49.1 million from $45.7 million. This increase was primarily due to
an aggressive remodeling program, improved merchandising and the addition of
higher volume units with increased merchandising capacity, which replaced lower
volume, underperforming units, which were sold.
Through the acquisition of the Thriftway Stations, the Company acquired an
additional 96 service station/convenience stores located in New Mexico (64),
Arizona (11), Colorado (19) and Utah (2). In 1996, the units acquired had fuel
sales of approximately 73 million gallons and merchandise sales of approximately
$57 million. The Company also acquired seven additional retail locations for
future development, options to purchase 16 service station/convenience stores on
the Navajo, Ute and Zuni Reservations until May 2007, and one-year options to
purchase 45 additional units that are located in Wyoming, Texas and Montana.
In addition, the Company expects to acquire other sites during 1997 to
continue the Company's retail expansion in areas that are consistent with its
strategic refining and marketing objectives. The Company also expects to rebuild
or remodel several stations in 1997.
In 1996, the Company's retail network consisted primarily of modern
high-volume self-serve station/ convenience stores that significantly exceeded
national industry averages in a number of operating and profitability measures,
scoring above the top quartile average in several of these performance measures.
Approximately half of such units were constructed since 1990. In 1996, Giant's
service station/convenience stores averaged monthly gasoline sales of 137,000
gallons, compared to a national average of 82,000 gallons and a top quartile
average of 106,100 gallons. Giant's higher sales volumes were achieved while
maintaining fuel margins substantially greater than industry averages. In 1996,
Giant's service station/convenience stores achieved average fuel margins of 20.1
cents per gallon, compared to a national average of 13.1 cents per gallon and a
top quartile average of 14.5 cents per gallon. With regard to merchandise sales
measures, Giant's service station/convenience stores recorded average monthly
merchandise sales of $74,000, compared to a national average of $62,600.
Management attributes this high level of performance to the Company's focus on
site location, access/design, automation, attractive merchandising and an
emphasis on value-added customer service. During 1996, the Company remodeled 28
units and continued its program to install credit card readers in dispensers at
its higher volume units. Card readers were installed at eight units and new
product dispensers were installed at two units. In addition, the Company
installed state-of-the-art integrated point of sale equipment at 19 units. The
program to upgrade dispensers and card readers is expected to continue during
1997.
The Company's service stations are augmented with convenience stores at
many locations, which provide items such as general merchandise, beverages, fast
foods, health and beauty aids and automotive products. In 1996, the Retail
Division expanded its proprietary fast food operations in three of its newly
constructed and remodeled units. "The Deli at Giant", now in eight stores,
offers a full-scale deli and fast food menu.
For the six months ended June 30, 1997, the Thriftway Stations, which are
typically smaller and located in less populous areas, averaged monthly gasoline
sales of approximately 50,000 gallons, fuel margins of approximately 17 cents
per gallon and merchandise sales margins of approximately 32%. Giant intends to
implement low cost, high return store upgrades at a number of the recently
acquired locations and to consolidate the eight existing brand names used at
these stores.
Through the acquisition of Phoenix Fuel, the Company acquired Arizona's
largest independent petroleum products distributor. Phoenix Fuel markets
approximately 16,000 bpd of wholesale fuel and approximately 2,000 bpd of
cardlock sales and operates a lubricants distribution business.
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The Company also owns and operates a Travel Center adjacent to the Ciniza
refinery on I-40. The Travel Center provides a direct market for a portion of
the Ciniza refinery's diesel production and allows diesel fuel to be sold at
virtually no incremental transportation cost. In the twelve months ended
December 31, 1996, the Company sold approximately 15.4 million gallons of diesel
fuel at the Travel Center (approximately 18% of the Ciniza refinery's total
diesel production). The Travel Center facility includes 18 high volume diesel
fuel islands, a large truck repair facility and a 29,000 square foot shopping
mall. It also contains a 265 seat full service restaurant, two large convenience
stores, a fast food diner, a 24-hour movie theater, a gift shop, a western wear
and boot shop, a hair salon and other accommodations such as showers, laundry,
security and lighted parking.
EMPLOYEES
The Company and its subsidiaries employed approximately 2,356 persons on
June 30, 1997, including approximately 2,093 full-time and approximately 263
part-time employees. Of these employees, approximately 447 were employed in the
Company's refining and wholesale marketing operations, 1,569 in retail
operations, 210 in Phoenix Fuel's operations, and 130 in
corporate/administrative operations. The Company currently has no labor union
employees.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. The
Company is a party to ordinary routine litigation incidental to its business.
For additional information see Note 15 to the Consolidated Financial Statements
regarding contingencies and the discussion of certain contingencies contained
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Other."
OTHER MATTERS
COMPETITIVE CONDITIONS
The industry in which the Company is engaged is highly competitive. Many of
the Company's competitors are large, integrated oil companies which, because of
their more diverse operations, larger refineries, stronger capitalization and
better brand name recognition, may be better able than the Company to withstand
volatile industry conditions, including shortages or excesses of crude oil or
refined products or intense price competition at the wholesale and retail level.
Many of these competitors have financial and other resources substantially
greater than those of Giant.
The principal competitive factors affecting the Company's refining and
marketing operations are the quality, quantity and delivered costs of crude oil,
NGLs and other refinery feedstocks, refinery processing efficiencies, refined
product mix, refined product selling prices and the cost of delivering refined
products to markets. Other competitive factors include the ability of
competitors to deliver refined products into the Company's primary market area
by pipeline. The Company's larger competitors have refineries which are located
outside the Four Corners area but which are larger and more efficient than the
Company's refineries and, as a result, have lower per barrel of crude oil
refinery processing costs. In addition to the major and larger integrated oil
companies, the Company competes with independent refiners in Southeastern New
Mexico, West Texas, the Texas Panhandle, Utah, Colorado and Southern California
for selling refined products. Refined products from the Texas and Southeastern
New Mexico refineries can be shipped to Albuquerque, New Mexico, primarily
through two common carrier pipelines, one originating in El Paso, Texas and the
second originating in Amarillo, Texas.
The Company is aware of a number of proposals or industry discussions
regarding product pipeline projects that if and when undertaken and completed
could impact portions of its marketing areas. One of these projects, the
expansion of the ATA Line (formerly called the Emerald Line) into Albuquerque,
is being implemented and is reportedly scheduled for completion in 1997. Another
of these announced projects, which would result in a refined products pipeline
from Southeastern New Mexico to the Four Corners market, is reportedly scheduled
for completion in 1998. The various proposed projects involve new construction
of
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connecting pipelines and in some cases the reversal of existing crude oil or
natural gas liquids pipelines. The completion of some or all of these projects
would result in increased competition by increasing the amount of refined
products available in the Four Corners market areas.
The principal competitive factors affecting the Company's retail marketing
business are location of service stations, product price, product quality,
appearance and cleanliness of service stations, and brand identification.
REGULATORY, ENVIRONMENTAL AND OTHER MATTERS AFFECTING REFINING AND MARKETING
General. The Company's refining and marketing operations are subject to a
variety of federal, state and local health and environmental laws and
regulations governing the discharge of pollutants into the air and water,
product specifications, and the generation, treatment, storage, transportation
and disposal of solid and hazardous waste and materials. The Company believes
its refineries are able to process currently used feedstocks in substantial
compliance with existing environmental laws and regulations. Environmental laws
and regulations have become and are becoming increasingly stringent, and the
Company is aware of regulations which will become effective in the future which
may affect the refining and marketing industry. The following currently appear
to be the most significant of such laws and regulations as they relate to the
Company's operations. Where possible, the Company has attempted to estimate a
range of its costs of compliance based upon its current understanding of such
laws and regulations. The current estimates of costs provided are preliminary
only and actual costs may differ significantly from these estimates.
The Company will be subject to additional environmental regulations adopted
by the Environmental Protection Agency ("EPA") and state and local environmental
agencies to implement the Clean Air Act Amendments of 1990 (the "Amendments").
Among other things, the Amendments require all major sources of hazardous air
pollutants, as well as certain other sources of air pollutants, to obtain state
operating permits. The permits must contain applicable federal and state
emission limitations and standards as well as satisfy other statutory
requirements. All sources subject to the permit program must pay an annual
permit fee. The Company believes that operating permits will be required at both
of its refineries and that it will be able to obtain these permits. Although
additional costs will be incurred in connection with these permits, the Company
does not believe these costs will be material.
The Amendments also require EPA to adopt emission standards for categories
of hazardous air pollutant sources. In accordance with this directive, EPA has
adopted emission standards that apply to hazardous air pollutants emitted by
petroleum refineries. The standards are applicable to emissions from, among
other things, process vents, storage vessels, equipment leaks, wastewater
operations and gasoline loading racks. The Company believes its compliance costs
may be approximately $3.0 million to $3.5 million, which will be incurred over a
period of approximately five years beginning in 1997.
EPA has adopted regulations requiring underground storage tanks that were
installed before December 1988 to be in compliance with specified standards by
December 1998. In particular, steel tanks, and associated steel piping, must be
protected against corrosion and devices must be in place to prevent tank spills
and overfills. Underground storage tanks that were installed after December 1988
already are subject to these requirements. The underground storage tanks at
approximately 40 sites (the majority of which were acquired in the 1997
Acquisitions) do not satisfy the 1998 standards. The Company anticipates that
necessary modifications will cost approximately $600,000, and that it will be in
compliance with the 1998 standards by their effective date (December 22, 1998).
The Arizona Legislature has mandated the use of reformulated gasolines in
Maricopa County, Arizona effective July 1997. The Company currently owns and
operates six service station/convenience stores in Maricopa County and, with the
Phoenix Fuel Acquisition, has acquired other retail/wholesale marketing
operations, some of which also are located in Maricopa County. The Company does
not currently manufacture reformulated gasoline because it is not mandated in
its primary market area. The Company could manufacture reformulated gasoline by
making certain capital improvements at its refineries. The Company does not
believe the mandate will have a material impact on current or future operations.
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The Company from time to time needs to obtain new environmental permits or
modifications to existing permits. Although there can be no assurance that the
Company will be able to obtain all required permits and permit modifications,
the Company does not presently anticipate any unusual problems in obtaining the
necessary permits and permit modifications, nor does it anticipate any
significant problems in connection with the renewal of existing permits prior to
their expiration.
Rules and regulations implementing federal, state and local laws relating
to health and the environment will continue to affect operations of the Company.
The Company cannot predict what additional health and environmental legislation
or regulations will be enacted or become effective in the future or how existing
or future laws or regulations will be administered or interpreted with respect
to products or activities to which they have not been applied previously.
Compliance with more stringent laws or regulations, as well as more vigorous
enforcement policies of regulatory agencies, could have an adverse effect on the
financial position and the results of operations of the Company and could
require substantial expenditures by the Company for the installation and
operation of pollution control or other environmental systems and equipment not
currently possessed by the Company.
As is the case with all companies engaged in similar industries, the
Company faces significant exposure from actual or potential claims and lawsuits
involving environmental matters. These matters include soil and water
contamination, air pollution and personal injuries or property damage allegedly
caused by substances manufactured, handled, used, released or disposed of by the
Company. Future expenditures related to health and environmental matters cannot
be reasonably quantified in many circumstances for various reasons, including
the speculative nature of remediation and cleanup cost estimates and methods,
imprecise and conflicting data regarding the hazardous nature of various types
of substances, the number of other potentially responsible parties involved,
various defenses which may be available to the Company and changing
environmental laws and interpretations of environment laws.
Notices of Violations. Notices of Violations and similar governmental
notices ("NOVs") are issued by governmental authorities and may allege
violations of environmental requirements. The Company has received a NOV, dated
February 9, 1993, from the New Mexico Environment Department ("NMED") alleging
that the Company failed to comply with certain notification requirements
contained in one of the permits applicable to the Ciniza refinery's land
treatment facility. As a result, the Company has submitted a proposal for
closure of the land treatment facility. Although there can be no assurance that
such will be the case, the Company anticipates that NMED will approve the
proposal later this year. NMED has indicated that it probably will not require
the Company to undertake any cleanup activities if the land treatment facility
is closed, although periodic monitoring and site maintenance could be required.
The Company has not disposed of any hazardous waste at the land treatment
facility since 1990.
The Company has received other NOVs from time to time. The Company has
responded or intends to respond to all such matters. The Company does not
believe any such matters to be material.
Discharges and Releases. Refining, pipeline, trucking and marketing
operations are inherently subject to accidental spills, discharges or other
releases of petroleum or hazardous substances which may give rise to liability
to governmental entities or private parties under federal, state or local
environmental laws, as well as under common law. Accidental discharges of
contaminants have occurred from time to time during the normal course of the
Company's operations, including discharges associated with the Company's
refineries, pipeline and trucking operations. The Company has undertaken,
intends to undertake or has completed all investigative or remedial work thus
far required by governmental agencies to address potential contamination by the
Company.
The Company anticipates that it will incur remediation costs from time to
time in connection with current and former gasoline service stations and other
petroleum product distribution facilities operated by the Company. The Company's
experience has been that such costs generally do not exceed $100,000 per
location, and a portion of such costs may be subject to reimbursement from state
underground storage tank funds.
The Company has discovered hydrocarbon contamination adjacent to a 55,000
barrel crude oil storage tank that was located in Bloomfield, New Mexico. The
Company believes that all or a portion of the tank and
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the 5.5 acres owned by the Company on which the tank was located may have been a
part of a refinery owned by various other parties that ceased operations
approximately thirty-five years ago. The Company completed a site investigation
in 1995, which indicates that contaminated groundwater may extend approximately
300 feet south of the property boundary. Without admitting liability for the
contamination, the Company intends to conduct remediation activities under the
oversight of the New Mexico Oil Conservation Division ("OCD"). The Company has
approximately $250,000 accrued as an environmental reserve in relation to this
site, of which approximately $200,000 still remains.
Although the Company has invested substantial resources to prevent future
accidental discharges and to remediate contamination resulting from prior
discharges, there can be no assurance that accidental discharges will not occur
in the future, that future action will not be taken in connection with past
discharges, that governmental agencies will not assess penalties against the
Company in connection with any past or future contamination, or that third
parties will not assert claims against the Company for damages allegedly arising
out of any past or future contamination.
Farmington Property/Lee Acres Landfill. In 1973, the Company constructed
the Farmington refinery which was operated until 1982. The Company became aware
of soil and shallow groundwater contamination at this facility in 1985. The
Company hired environmental consulting firms to investigate the contamination
and undertake remedial action. The consultants identified several areas of
contamination in the soils and shallow groundwater underlying the Farmington
property. A consultant to the Company has indicated that contamination
attributable to past operations at the Farmington property has migrated off the
refinery property, including a hydrocarbon plume that appears to extend no more
than 1,800 feet south of the refinery property. Remediation activities are
ongoing by the Company under OCD's supervision. The Company has reserved
approximately $1 million for possible environmental expenditures relating to its
Farmington property, of which approximately $700,000 still remains.
The Farmington property is located adjacent to the Lee Acres Landfill (the
"Landfill"), a closed landfill formerly operated by San Juan County which is
situated on lands owned by the United States Bureau of Land Management ("BLM").
Industrial and municipal wastes were disposed of in the Landfill by numerous
sources. During the period that it was operational, the Company disposed of
office trash, maintenance shop trash, used tires and water from the Farmington
refinery's evaporation pond at the Landfill.
The Lee Acres Landfill was added to the National Priorities List as a
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
Superfund site in 1990. In connection with this listing, EPA defined the site as
the Landfill and the Landfill's associated groundwater plume. EPA excluded any
releases from the Farmington refinery itself from the definition of the site. In
May 1991, EPA notified the Company that it may be a potentially responsible
party under CERCLA for the release or threatened release of hazardous
substances, pollutants or contaminants at the Landfill.
In September 1996, BLM made its proposed plan of action for the Landfill
available to the public. Remediation alternatives examined by BLM in connection
with the development of its proposed plan ranged in projected cost from no cost
to approximately $14.5 million. BLM is proposing the adoption of a remedial
action alternative that it believes would cost approximately $3.9 million to
implement. BLM's $3.9 million cost estimate is based on certain assumptions
which may or may not prove to be correct and is contingent on confirmation that
remedial actions, once implemented, are adequately addressing Landfill
contamination. BLM has received public comment on its proposed plan. The Company
understands that BLM, EPA and NMED intend to consult to select the final remedy
for the site.
Based on current information, the Company does not believe it needs to
record a liability in relation to the BLM's proposed plan. In 1989, a consultant
to the Company estimated, based on various assumptions, that the Company's
potential liability could be approximately $1.2 million. This figure was based
upon estimated Landfill remediation costs significantly higher than those being
proposed by BLM. The figure also was based on the consultant's evaluation of
such factors as available clean-up technology, BLM's involvement at the site and
the number of other entities that may have had involvement at the site. The
consultant, however, did not conduct an analysis of any potential legal defenses
and arguments including possible setoff rights. Potentially responsible party
liability is joint and several, such that a responsible party may be liable for
all of the clean-up
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costs of a site even though the party was responsible for only a small part of
such costs. Actual liability, if any, may differ significantly from the
consultant's estimate.
BLM may assert claims against the Company and others for reimbursement of
investigative, cleanup and other costs incurred by BLM in connection with the
Landfill and surrounding areas. It is also possible that the Company will assert
claims against BLM in connection with contamination that may be originating from
the Landfill. Private parties and other governmental entities may also assert
claims against BLM, the Company and others for property damage, personal injury
and other damages allegedly arising out of any contamination originating from
the Landfill and the Farmington property. Parties also may request judicial
determination of their rights and responsibilities, and the rights and
responsibilities of others, in connection with the Landfill and the Farmington
property. Currently, however, there is no outstanding litigation against the
Company by BLM or any other party.
Bloomfield Refinery. In connection with the acquisition of the Bloomfield
refinery, the Company assumed certain environmental obligations, including
Bloomfield Refining Company's ("BRC") obligations under an Administrative Order
issued by EPA in 1992 pursuant to RCRA (the "Order"). The Order required BRC to
investigate and propose measures for correcting any releases of hazardous waste
or hazardous constituents at or from the Bloomfield refinery. The Company has
established an environmental reserve of $2.25 million in connection with this
matter, of which approximately $2.0 million remains.
Rights-Of-Way. Certain irregularities in title may exist with respect to a
limited number of the Company's rights-of-way or franchises for its crude oil
pipeline gathering system. The Company, however, has continued its use of the
entirety of its pipeline gathering system. As of this date, no claim stemming
from any right-of-way or franchise matter has been asserted against the Company.
The Company does not believe that its use or enjoyment of the pipeline gathering
system will be adversely affected by any such right-of-way matters or
irregularities in title.
Taxes. The Company is subject, on an ongoing basis, to audit of various
federal, state, local and tribal taxes. These audits may result in assessments
or refunds along with interest and penalties. In some cases the jurisdictional
basis of the taxing authority is in dispute and is the subject of litigation or
administrative appeals. In one such case, the Company has produced crude oil and
natural gas, or purchases crude oil as a first purchaser, from properties
located in a geographic area outside the boundaries of the Navajo Indian
Reservation in which the Navajo Nation has asserted the right to impose
severance and other taxes. A portion of the Company's pipeline gathering system
also is located in this geographic area. The extent of the Nation's taxing
authority in the geographic area is subject to doubt. The Company has received
several tax assessments from the Nation pertaining to the geographic area,
including a $1.8 million severance tax assessment issued in November 1991. The
Company has invoked its appeal rights with the Nation's Tax Commission in
connection with these matters and intends to oppose the severance tax
assessment. The Company believes that it is in substantial compliance with the
laws applicable to the disputed area and, therefore, it has accrued a liability
in regards thereto for substantially less than the amount of the original
assessment. It is possible that the Company's assessments will have to be
litigated by the Company before final resolution. The Company also may receive
further tax assessments. The Company intends to continue purchasing activities
in the geographic area.
DISCONTINUED OIL AND GAS OPERATIONS
In early 1996, the Company approved a plan of disposition for its oil and
gas operations. The decision was based upon management's review of the prospects
for this operation, which indicated that substantial new capital would be
necessary to further develop this business and reach an acceptable level of
profitability and integration. On August 30, 1996, the Company sold
substantially all of its oil and gas assets to Central Resources, Inc. ("CRI"),
a privately owned oil and gas company based in Denver, Colorado, for $25.5
million. The Company retained its ownership in natural gas wells located in San
Juan County, New Mexico which qualified for federal coal seam gas tax credits
under Section 29 of the Internal Revenue Code. Future Section 29 tax credits,
estimated to be approximately $3.2 million, generated from natural gas
production will be realized by the Company and, when earned, will be used to
offset income taxes payable through the year
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2002. These wells are subject to a production payment to CRI, under which the
natural gas reserves related to these wells will be produced for the benefit of
CRI, as well as a "suboperating" agreement under which CRI assumes substantially
all of the responsibilities and risks of operation of the wells. Additionally,
the Company retained an office building located at 2200 Bloomfield Highway,
Farmington, New Mexico.
DESCRIPTION OF THE 9 3/4% NOTES
The following summary of certain provisions of the indenture (the "1993
Indenture") relating to the 9 3/4% Notes is qualified in its entirety by
reference to the 1993 Indenture, a copy of which is available upon request to
the Company. Capitalized terms used below and not defined have the meanings
assigned to them in the 1993 Indenture.
In November 1993, the Company issued $100 million aggregate principal
amount of 9 3/4% Notes under the 1993 Indenture. The 9 3/4% Notes are senior
subordinated unsecured obligations of the Company that rank subordinate to all
then existing and future Senior Indebtedness of the Company and its
subsidiaries. The Exchange Notes will rank pari passu with the 9 3/4% Notes. The
9 3/4% Notes are unconditionally guaranteed, jointly and severally, on a senior
subordinated basis, by each of the Company's subsidiaries. The 9 3/4% Notes
mature on November 15, 2003.
The 9 3/4% Notes are redeemable, in whole or in part, on or after November
15, 1998 at the option of the Company at the redemption prices (expressed as
percentages of the principal amount of the 9 3/4% Notes) set forth below, plus,
in each case, accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the 12-month period beginning November 15 of each of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------------- ---------
<S> <C>
1998................................................. 104.875%
1999................................................. 103.250%
2000................................................. 101.625%
2001 and thereafter.................................. 100.000%
</TABLE>
In addition, upon a Change of Control, the Company must offer to purchase
all of the 9 3/4% Notes at 101% of the principal amount thereof, plus accrued
interest, if any, to the date of purchase.
The 1993 Indenture contains restrictive covenants, events of default and
other provisions substantially similar to those for the Exchange Notes being
offered by this Prospectus. See "Description of the Exchange Notes."
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued pursuant to an Indenture dated as of
August 26, 1997 (the "Indenture") among the Company, the Subsidiary Guarantors
and The Bank of New York, as trustee (the "Trustee"). The following is a summary
of material provisions of the Indenture. The following summaries of certain
provisions of the Exchange Notes and the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
Exchange Notes and the Indenture, including the definitions therein of certain
capitalized terms used but not defined herein. For the definitions of certain
capitalized terms, see "Certain Definitions" below. For purposes of this
Description of the Exchange Notes, the term the "Company" means Giant
Industries, Inc., but not any of the subsidiaries, unless the context otherwise
requires. A copy of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
Each Exchange Note will mature on September 1, 2007 and will bear interest
at the rate per annum stated on the cover page hereof from September 1, 1997,
payable semiannually on March 1 and September 1 of each year, commencing March
1, 1998, to the person in whose name the Exchange Note is registered at the
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close of business on the April 15 or August 15 preceding such interest payment
date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Principal and interest will be payable at the offices of the Trustee and
the Paying Agent, provided that, at the option of the Company, payment of
interest will be made by check mailed to the address of the person entitled
thereto as it appears in the register of the Exchange Notes maintained by the
Registrar. The aggregate principal amount of the Exchange Notes that may be
issued will be limited to $150,000,000. The Exchange Notes will be transferable
and exchangeable at the office of the Registrar or any co-registrar and will be
issued in fully registered form, without coupons, in denominations of $1,000 and
any whole multiple thereof. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection with certain
transfers and exchanges.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will be issued in the form of a Global Exchange Note
except as described below. The Global Exchange Note will be deposited with, or
on behalf of, the Depositary and registered in the name of the Depositary or its
nominee. Except as set forth below, the Global Exchange Note may be transferred,
in whole and not in part, only to the Depositary or another nominee of the
Depositary. Investors may hold their beneficial interests in the Global Exchange
Note directly through the Depositary if they have an account with the Depositary
or indirectly through organizations which have accounts with the Depositary.
Exchange Notes that are (i) originally issued to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) that are not qualified institutional buyers or (ii) issued as described
below under "Certificated Exchange Notes" will be issued in definitive form.
Upon the transfer of an Exchange Note in definitive form, such Exchange Note
will, unless the Global Exchange Note has previously been exchanged for Exchange
Notes in definitive form, be exchanged for an interest in the Global Exchange
Note representing the principal amount of Exchange Notes being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Exchange Note, the Depositary will credit,
on its book-entry registration and transfer system, the principal amount of the
Exchange Notes represented by such Global Exchange Note to the accounts of
participants. The accounts to be credited shall be designated by the Initial
Purchasers of such Exchange Notes. Ownership of beneficial interests in the
Global Exchange Note will be limited to participants or persons that may hold
interest through participants. Ownership of beneficial interests in the Global
Exchange Note will be shown on, and the transfer of those ownership interests
will be effected only through, records maintained by the Depositary (with
respect to participants' interests) and such participants (with respect to the
owners of beneficial interests in the Global Exchange Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Exchange Note.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Exchange Note, the Depositary or such nominee, as the case
may be, will be considered the sole legal owner and holder of the related
Exchange Notes for all purposes of such Exchange Notes and the Indenture. Except
as set forth
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below, owners of beneficial interests in the Global Exchange Note will not be
entitled to have the Exchange Notes represented by the Global Exchange Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Exchange Notes in definitive form and will not be
considered to be the owners or holders of any Exchange Notes under the Global
Exchange Note. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Exchange Note desires
to take any action that the Depositary, as the holder of the Global Exchange
Note, is entitled to take, the Depositary would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal of and interest on Exchange Notes represented by the
Global Exchange Note registered in the name of and held by the Depositary or its
nominee will be made to the Depositary or its nominee, as the case may be, as
the registered owner and holder of the Global Exchange Note.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Exchange Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Note as shown on the records of the Depositary or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Exchange Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Exchange Note for any Exchange Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depositary and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Exchange Note owning
through such participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Exchange Note may not be
transferred except as a whole by the Depositary to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among participants
of the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance by
the Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED EXCHANGE NOTES
The Exchange Notes represented by the Global Exchange Note are exchangeable
for certificated Exchange Notes in definitive form of like tenor as such
Exchange Notes in denominations of U.S. $1,000 and integral multiples thereof if
(i) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for the Global Exchange Note or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act,
(ii) the Company in its discretion at any time determines not to have all of the
Exchange Notes represented by the Global Exchange Note, or (iii) a default
entitling the holders of the Exchange Notes to accelerate the maturity thereof
has occurred and is continuing. Any Exchange Note that is exchangeable pursuant
to the preceding sentence is exchangeable for certificated Exchange Notes
issuable in authorized denominations and registered in such names as the
Depositary shall direct. Subject to the foregoing, the Global Exchange Note is
not exchangeable, except for a Global Exchange Note of the same aggregate
denomination to be registered in the name of the Depositary or its nominee.
SUBORDINATION OF EXCHANGE NOTES; SUBSIDIARY GUARANTEES
The Indebtedness evidenced by the Exchange Notes will be subordinated to
the prior payment when due of the principal of, premium, if any, and accrued and
unpaid interest on, and all other amounts payable with
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respect to, all existing and future Senior Indebtedness of the Company and pari
passu with, or senior to, in right of payment of principal of, premium, if any,
and accrued and unpaid interest on, all existing and future subordinated
Indebtedness of the Company.
The Indenture provides that, upon any distribution of assets of the Company
in any dissolution, winding up, liquidation or reorganization of the Company,
all holders of Senior Indebtedness must be paid in full before any payment or
distribution is made with respect to the Exchange Notes (except that, subject to
applicable law, holders of Exchange Notes may receive securities that are
subordinated, at least to the same extent as the Exchange Notes, to Senior
Indebtedness and to any securities issued in exchange for any such Senior
Indebtedness). Because of these subordination provisions, unless sufficient sums
are available to pay the holders of the Exchange Notes and the holders of Senior
Indebtedness are paid in full, holders of Senior Indebtedness, as well as
certain creditors of the Company who are not holders of Senior Indebtedness, may
recover more, ratably, than the holders of the Exchange Notes.
The Indenture provides that, upon the maturity of any Senior Indebtedness
by lapse of time, acceleration or otherwise, unless and until all principal
thereof, premium, if any, and interest thereon and other amounts due thereon
shall first be paid in full, no payment shall be made by or on behalf of the
Company with respect to the principal of, premium, if any, interest on or other
amounts owing on the Exchange Notes (except in such subordinated securities, as
described above). Upon the happening of any default in the payment of any
principal of or interest on or other amounts due on any Senior Indebtedness (a
"Payment Default"), unless and until such default shall have been cured or
waived or have ceased to exist, no payment shall be made by or on behalf of the
Company or any Subsidiary Guarantor with respect to the principal of, premium,
if any, interest on or other amounts owing on the Exchange Notes. Upon the
happening of any default or event of default (other than a Payment Default)
(including any event which with the giving of notice or the lapse of time or
both would become an event of default and including any default or event of
default which would result upon any payment with respect to the Exchange Notes)
with respect to any Designated Senior Indebtedness, as such default or event of
default is defined therein or in the instrument or agreement or other document
under which it is outstanding, then upon written notice thereof given to the
Company and the Trustee by a holder or holders of any Designated Senior
Indebtedness or their Representative ("Payment Notice"), no payment shall be
made by or on behalf of the Company or any Subsidiary Guarantor with respect to
the principal of, premium, if any, interest on or other amounts owing on the
Exchange Notes, during the period (the "Payment Blockage Period") commencing on
the date of such receipt of such Payment Notice and ending on the earlier of (i)
the date, if any, on which such default is cured or waived or ceases to exist or
(ii) the date, if any, on which the Designated Senior Indebtedness to which such
default relates is discharged; provided, however, that no default or event of
default (other than a Payment Default) shall prevent the making of any payment
on the Exchange Notes for more than 179 days after the Payment Notice shall have
been given. Notwithstanding the foregoing, (i) not more than one Payment Notice
shall be given within a period of 360 consecutive days, (ii) no event of default
that existed or was continuing on the date of any Payment Notice shall be made
the basis for the giving of a subsequent Payment Notice unless all such events
of default shall have been cured or waived for a period of at least 180
consecutive days after such date, and (iii) if the Company or the Trustee
receives any Payment Notice, a similar notice relating to or arising out of the
same default or facts giving rise to such default (whether or not such default
is on the same issue of Designated Senior Indebtedness) shall not be effective
for purposes of this paragraph.
The Indenture provides that the Company or a Subsidiary Guarantor, as the
case may be, shall resume payments of principal of, premium, if any, and
interest on the Exchange Notes (i) in the case of a Payment Default, upon the
date such Payment Default is cured or waived by the holders of Senior
Indebtedness to which such Payment Default relates and (ii) in the case of a
default or event of default (other than a Payment Default) with respect to
Designated Senior Indebtedness, on the earlier of (A) the date such default or
event of default is cured or (B) the expiration of the Payment Blockage Period
with respect thereto if, in the case of this clause (B), the Indenture otherwise
does not prohibit such payment.
Each of the Company's Subsidiaries existing on the Issue Date will
unconditionally guarantee (the "Guarantees") on a joint and several basis the
Company's obligations to pay principal of, premium, if any, and interest on the
Exchange Notes. The Indenture also provides that each Person that becomes a
Restricted
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Subsidiary after the Issue Date shall guarantee the payment of the Exchange
Notes. Under the terms of the Indenture, a Subsidiary Guarantor may be released
from its Guarantee in the event of the consolidation or merger of such
Subsidiary Guarantor or in the event such Subsidiary Guarantor is sold or
disposed of by the Company, or sells or disposes of all or substantially all of
its assets, to another Person in accordance with the Indenture, as described
below.
Each Subsidiary Guarantor's Guarantee will be subordinate to Senior
Indebtedness of such Subsidiary Guarantor including such Subsidiary Guarantor's
guarantees of Senior Indebtedness of the Company, on the same basis as the
Company's obligations under the Indenture, and the Exchange Notes will be
subordinate to Senior Indebtedness of the Company. The Guarantees will, however,
rank at least on a parity with claims of all unsecured creditors, other than
holders of Senior Indebtedness, of the respective Subsidiary Guarantors;
however, because of the subordination provisions, unless sufficient sums are
available to pay the full amounts required under the Guarantees and to pay the
unsecured creditors of the respective Subsidiary Guarantors, such other
unsecured creditors of the Subsidiary Guarantors may recover more, ratably, than
the holders of the Exchange Notes would recover with respect to the Guarantees.
Each Subsidiary Guarantor will be prohibited from making payments under its
Guarantee if defaults and certain other events with respect to Senior
Indebtedness of a Subsidiary Guarantor have occurred that prohibit the
Subsidiary Guarantor from making payment on the Exchange Notes pursuant to the
Guarantees.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal, state
or foreign law. Each Subsidiary Guarantor that makes a payment or distribution
under a Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all of its assets to the Company or another Subsidiary Guarantor
without limitation. The Company may not sell the Capital Stock of a Subsidiary
Guarantor, and a Subsidiary Guarantor may not consolidate with or merge into or
sell all or substantially all of its assets (in a single transaction or series
of related transactions) to any Person other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Company or any
Subsidiary Guarantor), unless (i) with respect to a consolidation or merger of
such Subsidiary Guarantor, either (A)(1) the surviving entity is a Subsidiary of
the Company or, as a result of the transaction, becomes a Subsidiary of the
Company, (2) the surviving entity remains a Restricted Subsidiary of the Company
or, simultaneously with the consummation of the transaction, is designated as a
Restricted Subsidiary of the Company, (3) immediately after giving effect to
such transaction on a pro forma basis, the Consolidated Tangible Net Worth of
the surviving entity is equal to or greater than the Consolidated Tangible Net
Worth of such Subsidiary Guarantor immediately before such transaction, (4)
immediately after giving effect to such transaction on a pro forma basis, the
Company would be able to incur $1.00 of additional Indebtedness under the test
described in the first paragraph of the covenant captioned "Limitation on
Incurrence of Additional Indebtedness," (5) if the surviving entity is not the
Subsidiary Guarantor, the surviving entity agrees to assume such Subsidiary
Guarantor's Guarantee and all its obligations pursuant to the Indenture, in
accordance with the provisions of the Indenture, and (6) such transaction does
not (x) violate any covenant under the Indenture or (y) result in a Default or
Event of Default immediately thereafter that is continuing or (B)(1) such
transaction is made in accordance with the covenant captioned "Limitation on
Sale of Assets" and (2) such transaction does not (x) violate any other covenant
under the Indenture or (y) result in a Default or Event of Default immediately
thereafter that is continuing, and (ii) with respect to the sale of the Capital
Stock or all or substantially all of the assets of such Subsidiary Guarantor,
(A) such transaction is made in accordance with the covenant captioned
"Limitation on Sale of Assets" and (B) such transaction does not (x) violate any
other covenants under the Indenture or (y) result in a Default or Event of
Default immediately thereafter that is continuing. A Subsidiary Guarantor may be
released from its Guarantee and its
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related obligations under the Indenture only if (i) the Capital Stock of a
Subsidiary Guarantor is sold to another Person or if such Subsidiary Guarantor
consolidates with, merges into or sells all or substantially all of its assets
to, another Person, in accordance with the requirements of clauses (i)(B) or
(ii) of the preceding sentence or (ii) such Subsidiary Guarantor has been
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary and such designation is made in compliance with the terms of the
Indenture. Except as provided in the preceding sentences a Subsidiary Guarantor
may not otherwise be released from its Guarantee.
As of June 30, 1997, after giving pro forma effect to the sale of the Notes
and the application of the estimated net proceeds therefrom, the Company and its
Subsidiaries would have had approximately $7.3 million of Indebtedness
outstanding ranking senior to the Exchange Notes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OPTIONAL REDEMPTION
At any time on or after September 1, 2002, the Company may, at its option,
redeem all or any portion of the Exchange Notes at the redemption prices
(expressed as percentages of the principal amount of the Exchange Notes) set
forth below, plus, in each case, accrued interest thereon to the applicable
redemption date, if redeemed during the 12-month period beginning September 1 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------- ----------
<S> <C>
2002........................................... 104.5%
2003........................................... 103.0%
2004........................................... 101.5%
2005 and thereafter............................ 100.0%
</TABLE>
In addition, at any time on or prior to September 1, 2000, the Company may,
at its option, redeem up to 35% of the aggregate principal amount of the
Exchange Notes originally issued with the net cash proceeds of one or more
Public Equity Offerings (as defined) at a redemption price equal to 109% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, provided that at least 65% of the aggregate initial principal
amount of the Exchange Notes remain outstanding after giving effect to each such
redemption. In order to effect the foregoing redemption, the Company must mail
notice of redemption no later than 60 days after the related Public Equity
Offering and must consummate such redemption within 90 days of the closing of
the Public Equity Offering.
If less than all of the Exchange Notes are to be redeemed, the Trustee
shall select pro rata or by lot the Exchange Notes to be redeemed in multiples
of $1,000. Exchange Notes in denominations larger than $1,000 may be redeemed in
part.
MANDATORY REDEMPTION
The Exchange Notes will not be entitled to the benefit of sinking fund or
other mandatory redemption provisions.
CHANGE OF CONTROL
The Indenture provides that, within 30 days following the occurrence of any
Change of Control, the Company will offer (a "Change of Control Offer") to
purchase all outstanding Exchange Notes at a purchase price equal to 101% of the
aggregate principal amount of the Exchange Notes, plus accrued and unpaid
interest to the date of purchase. The Change of Control Offer shall be deemed to
have commenced upon mailing of the notice described in the Indenture and shall
terminate 20 business days after its commencement, unless a longer offering
period is then required by law. Promptly after the termination of the Change of
Control Offer (the "Change of Control Payment Date"), the Company shall purchase
and mail or deliver payment for all Exchange Notes tendered in response to the
Change of Control Offer.
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The Company, to the extent applicable and if required by law, will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other federal and state
securities laws, rules and regulations which may then be applicable to any offer
by the Company to purchase the Exchange Notes at the option of the Holders upon
a Change of Control.
"Change of Control" means any event or series of events by which (i) any
"Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) of 50% or more of the total voting power of the Voting Stock
of the Company; (ii) the Company consolidates with or merges or amalgamates with
or into another Person or conveys, transfers, or leases all or substantially all
of its assets to any Person, or any Person consolidates with, or merges or
amalgamates with or into the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving corporation which is not
Disqualified Stock and (B) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving corporation immediately after
such transaction; (iii) the stockholders of the Company approve any plan of
liquidation or dissolution of the Company; or (iv) during any period of 12
consecutive months, individuals who at the beginning of such period constituted
the Board of Directors of the Company (or whose appointment or nomination for
election by the stockholders of the Company was approved by a vote of not less
than a majority of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
It is expected that any agreements with respect to Senior Indebtedness the
Company may enter into would prohibit the repurchase of Indebtedness
subordinated to Indebtedness thereunder, which would include the Exchange Notes.
Failure of the Company to repurchase the Exchange Notes validly tendered to the
Company pursuant to a Change of Control Offer would create an Event of Default
with respect to the Exchange Notes. In addition, the subordination provisions of
the Indenture prohibit, subject to certain conditions, the repurchase or
repayment of the Exchange Notes if there is a default under Senior Indebtedness.
As a result, the Company may be prohibited from making payment upon a Change of
Control. The definition of Change of Control includes any event by which the
Company conveys, transfers or leases all or substantially all of its assets to
any Person; the phrase "all or substantially all" is subject to applicable legal
precedent and as a result in the future there may be uncertainty as to whether a
Change of Control has occurred.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness. The Indenture
provides that the Company will not, and will not permit any of its Restricted
Subsidiaries, directly or indirectly, to issue, incur, assume, guarantee, become
liable, contingently or otherwise, with respect to or otherwise become
responsible for the payment of (collectively, "incur") any Indebtedness;
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time or as a consequence of the incurrence of such
Indebtedness, the Company or its Restricted Subsidiaries may incur Indebtedness
if, on a pro forma basis, after giving effect to such incurrence and the
application of the proceeds therefrom, the Consolidated Coverage Ratio would
have been equal to or greater than 2.0 to 1.0.
Notwithstanding the foregoing, (i) the Company may incur Indebtedness
consisting of the Notes and Exchange Notes; (ii) the Subsidiary Guarantors may
incur the Guarantees of the Notes and Exchange Notes; (iii) the Company or any
Subsidiary may incur secured or unsecured Indebtedness outstanding at any time
in an aggregate principal amount not to exceed the greater of (A) $40 million or
(B) the Borrowing Base; (iv) the Company may incur Permitted Company Refinancing
Indebtedness; (v) any Restricted Subsidiary may incur Permitted Subsidiary
Refinancing Indebtedness; and (vi) the Company may incur Indebtedness to any
Restricted Subsidiary, and any Restricted Subsidiary may incur Indebtedness to
the Company or to any Restricted Subsidiary of the Company.
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Any Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the
time it becomes a Restricted Subsidiary.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment, unless:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(ii) at the time of and immediately after giving effect to such
Restricted Payment, the Company would be able to incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
captioned "Limitation on Incurrence of Additional Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made after the
Issue Date does not exceed the sum of (A) 50% of the Consolidated Net
Income of the Company and its Restricted Subsidiaries (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit)
during the period (treated as one accounting period) subsequent to
September 30, 1997 and ending on the last day of the fiscal quarter
immediately preceding the date of such Restricted Payment; (B) the
aggregate Net Cash Proceeds, and the fair market value of property other
than cash (as determined in good faith by the Company's Board of Directors
and evidenced by a Board Resolution), received by the Company during such
period from any Person other than a Restricted Subsidiary of the Company as
a result of the issuance or sale of Capital Stock of the Company (other
than any Disqualified Stock), other than in connection with the conversion
of Indebtedness or Disqualified Stock; (C) the aggregate Net Cash Proceeds,
and the fair market value of property other than cash (as determined in
good faith by the Company's Board of Directors and evidenced by a Board
Resolution), received by the Company during such period from any Person
other than a Restricted Subsidiary of the Company as a result of the
issuance or sale of any Indebtedness or Disqualified Stock to the extent
that at the time the determination is made such Indebtedness or
Disqualified Stock, as the case may be, has been converted into or
exchanged for Capital Stock of the Company (other than Disqualified Stock);
(D) (1) in case any Unrestricted Subsidiary has been redesignated a
Restricted Subsidiary, an amount equal to the lesser of (x) the book value
(determined in accordance with GAAP) at the date of such redesignation of
the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary and (y) the fair market value
of such Investments in such Unrestricted Subsidiary at the time of such
redesignation, as determined in good faith by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution; or (2) in case any Restricted Subsidiary has been redesignated
an Unrestricted Subsidiary, minus the greater of (x) the book value
(determined in accordance with GAAP) at the date of redesignation of the
aggregate Investments made by the Company and its Restricted Subsidiaries
in such Restricted Subsidiary and (y) the fair market value of such
Investments in such Restricted Subsidiary at the time of such
redesignation, as determined in good faith by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a
resolution of such Board; (E) without duplication, with respect to any
Investment (other than a Permitted Investment) of any Person which has
previously been made by the Company or any of its Restricted Subsidiaries,
the amount of any such Investment that has been fully and unconditionally
repaid to the Company or a Restricted Subsidiary, not to exceed the cash
amount received by the Company or such Restricted Subsidiary upon such
repayment, or with respect to any Indebtedness of any Person that has
previously been guaranteed by the Company or any of its Restricted
Subsidiaries (other than the Notes, the Exchange Notes or the Subsidiary
Guarantees), the amount of any such Indebtedness that has been fully and
unconditionally released from any and all further obligation or liability
with respect thereto, provided in each case that such amount shall not
exceed the aggregate amount of Restricted Payments previously taken into
account with respect to such amount for purposes of determining the
aggregate amount of all Restricted Payments declared or made after the
Issue Date pursuant to this clause(iii); and (F) $30 million.
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Notwithstanding the foregoing, the above limitations will not prevent (i)
the payment of any dividend within 60 days after the date of declaration
thereof, if at such date of declaration such payment complied with the
provisions of the Indenture; (ii) the purchase, redemption, acquisition or
retirement of any shares of Capital Stock of the Company in exchange for, or out
of the net proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of, other shares of Capital Stock (other
than Disqualified Stock) of the Company; or (iii) the defeasance, redemption or
retirement of Indebtedness of the Company which is pari passu or subordinate in
right of payment to the Exchange Notes, in exchange for, by conversion into, or
out of the net proceeds of the substantially concurrent issue or sale (other
than to a Restricted Subsidiary of the Company) of Capital Stock (other than
Disqualified Stock) of the Company; provided that no Default or Event of Default
has occurred and is continuing at the time, or shall occur as a result, of any
of the actions contemplated in clause (i) above.
Limitation on Sale of Assets. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sales
which, in the aggregate, have a fair market value of $10 million or more in any
12-month period unless:
(i) the Company (or its Restricted Subsidiaries, as the case may be)
receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith
by the Company's Board of Directors and evidenced by a Board Resolution in
the case of any Asset Sales or series of related Asset Sales having a fair
market value of $15 million or more);
(ii) at least 85% of the proceeds received by the Company (or its
Restricted Subsidiaries, as the case may be) from each such Asset Sale
consists of (A) cash, (B) cash equivalents which would constitute Permitted
Financial Investments, (C) Publicly Traded Stock of a Person primarily
engaged in the Principal Business or (D) any combination of the foregoing;
provided, however, that (1) the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto) of the Company or such Restricted Subsidiary (other
than liabilities that are by their terms expressly subordinated to the
Notes and Exchange Notes or any guarantee thereof) that are assumed by the
transferee of any such assets and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such
transferee that, within 90 days following the closing of such sale or
disposition, are converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash
for purposes of this provision and (2) the aggregate fair market value (as
determined in good faith by the Board of Directors of the Company,
evidenced by a Board Resolution) of all consideration of the type specified
in clause (C) above received by the Company and its Restricted Subsidiaries
from all Asset Sales after the Issue Date shall not exceed 15% of
Consolidated Net Tangible Assets at the time of such Asset Sale; and
(iii) the Net Available Proceeds received by the Company (or its
Restricted Subsidiaries, as the case may be) from such Asset Sales are
applied in accordance with the two paragraphs following the succeeding
paragraph.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may dispose of property and assets of the Company or its Restricted Subsidiaries
in exchange for capital property and capital assets (i) which are directly
related to the Principal Business, (ii) which are of the same type of property
or assets, or which have the same function, as the properties or assets being
disposed of and (iii) which have an aggregate fair market value equal to or
greater than the aggregate fair market value of the property and assets being
disposed of; provided, however, that (A) in no event may the Company and its
Restricted Subsidiaries, in any 12-month period, dispose of property or assets
pursuant to this paragraph having an aggregate fair market value of $10 million
or more and (B) with respect to any property or assets being disposed of having
a fair market value of $1 million or more, the Board of Directors of the Company
shall have determined, in good faith and evidenced by a Board Resolution, that
the aggregate fair market value of the property and assets being received by the
Company and its Restricted Subsidiaries is equal to or greater than the
aggregate fair market value of the property and assets being disposed of.
The Company may, within 360 days following the receipt of Net Available
Proceeds from any Asset Sale, apply such Net Available Proceeds to: (i) the
repayment of Indebtedness of the Company under the Bank
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Credit Facility or other Senior Indebtedness of the Company or Senior
Indebtedness of a Subsidiary Guarantor that results in a permanent reduction in
the principal amount of such Senior Indebtedness in an amount equal to the
principal amount so repaid or (ii) make an investment in capital assets used in
the Principal Business.
If, upon completion of the 360-day period (the "Trigger Date"), any portion
of the Net Available Proceeds of any Asset Sale shall not have been applied by
the Company as described in clauses (i) or (ii) of the preceding paragraph and
such remaining Net Available Proceeds, together with any remaining net cash
proceeds from any prior Asset Sale (such aggregate constituting "Excess
Proceeds"), exceeds $10 million, then the Company will be obligated to make an
offer (the "Net Proceeds Offer") to purchase from all holders of the Notes and
Exchange Notes and holders of any then outstanding Pari Passu Indebtedness
required to be repurchased or repaid on a permanent basis in connection with an
Asset Sale, an aggregate principal amount of Notes and Exchange Notes and any
then outstanding Pari Passu Indebtedness equal to such Excess Proceeds as
follows:
(1) (i) the Company shall make an offer to purchase (a "Net Proceeds
Offer") from all holders of the Notes and Exchange Notes in accordance with
the procedures set forth in the Indenture the maximum principal amount
(expressed as a multiple of $1000) of Notes and Exchange Notes that may be
purchased out of an amount (the "Net Proceeds Offer Amount") equal to the
product of such Excess Proceeds multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Notes and Exchange Notes
and the denominator of which is the sum of the outstanding principal amount
of the Notes and Exchange Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as hereinafter defined) of all Notes and Exchange Notes
tendered), and (ii) to the extent required by such Pari Passu Indebtedness
and provided there is a permanent reduction in the principal amount of such
Pari Passu Indebtedness, the Company shall make an offer to purchase such
Pari Passu Indebtedness (the "Pari Passu Offer") in an amount (the "Pari
Passu Indebtedness Amount") equal to the excess of the Excess Proceeds over
the Net Proceeds Offer Amount.
(2) The offer price for the Notes and Exchange Notes shall be payable
in cash in an amount equal to 100% of the principal amount of the Notes and
Exchange Notes tendered pursuant to a Net Proceeds Offer, plus accrued and
unpaid interest, if any, to the date such Net Proceeds Offer is consummated
(the "Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of the Notes and
Exchange Notes tendered pursuant to a Net Proceeds Offer is less than the
Net Proceeds Offer Amount relating thereto or the aggregate amount of the
Pari Passu Indebtedness that is purchased or repaid pursuant to the Pari
Passu Offer is less than the Pari Passu Indebtedness Amount (such shortfall
constituting a "Net Proceeds Deficiency"), the Company may use such Net
Proceeds Deficiency, or a portion thereof, for general corporate purposes,
subject to the "Limitation on Restricted Payments" covenant.
(3) If the aggregate Offered Price of Notes and Exchange Notes validly
tendered and not withdrawn by holders thereof exceeds the Net Proceeds
Offer Amount, Notes and Exchange Notes to be purchased will be selected on
a pro rata basis. Upon completion of a Net Proceeds Offer and a Pari Passu
Offer, the amount of Excess Proceeds shall be reset to zero.
The Company, to the extent applicable and if required by law, will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other federal and state
securities laws, rules and regulations which may then be applicable to any offer
by the Company to purchase the Exchange Notes at the option of the holders
pursuant to a Net Proceeds Offer.
It is expected that agreements with respect to Senior Indebtedness the
Company may enter into would prohibit the repurchase of Indebtedness
subordinated to Indebtedness thereunder, which would include the Exchange Notes.
Failure of the Company to repurchase the Exchange Notes validly tendered to the
Company pursuant to a Net Proceeds Offer would create an Event of Default with
respect to the Exchange Notes. In addition, the subordination provisions of the
Indenture prohibit, subject to certain conditions, the repurchase
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or repayment of the Exchange Notes if there is a default under Senior
Indebtedness. As a result, the Company may be prohibited from making payment
pursuant to a Net Proceeds Offer in connection with an Asset Sale.
During the period between any Asset Sale and the application of the Net
Available Proceeds therefrom in accordance with this covenant, all Net Available
Proceeds shall be invested in Permitted Financial Investments.
Limitation on Liens Securing Indebtedness. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
create, incur, assume or suffer to exist any Liens (other than Permitted Liens)
upon any of their respective properties securing (i) any Indebtedness of the
Company (other than Senior Indebtedness of the Company), unless the Notes and
Exchange Notes are equally and ratably secured or (ii) any Indebtedness of any
Subsidiary Guarantor (other than Senior Indebtedness of such Subsidiary
Guarantor), unless the Guarantees are equally and ratably secured; provided,
however, that if such Indebtedness is expressly subordinated to the Notes and
Exchange Notes or the Guarantees, the Lien securing such Indebtedness will be
subordinated and junior to any Lien securing the Notes and Exchange Notes or the
Guarantees, with the same relative priority as such subordinated Indebtedness of
the Company or subordinated Indebtedness of a Subsidiary Guarantor will have
with respect to the Notes and Exchange Notes or the Guarantees, as the case may
be.
Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary of the Company to (i)
pay dividends or make any other distributions on its Capital Stock or on any
other interest or participation in a Restricted Subsidiary; (ii) pay any
Indebtedness owed to the Company or a Restricted Subsidiary of the Company;
(iii) make loans or advances to the Company or a Restricted Subsidiary of the
Company; or (iv) transfer any of its properties or assets to the Company or a
Restricted Subsidiary of the Company (each, a "Payment Restriction"), except for
(A) encumbrances or restrictions with respect to Senior Indebtedness in effect
on the Issue Date; (B) encumbrances or restrictions under the Bank Credit
Facility; (C) consensual encumbrances or consensual restrictions binding upon
any Person at the time such Person becomes a Restricted Subsidiary of the
Company (unless the agreement creating such consensual encumbrance or consensual
restriction was entered into in connection with, or in contemplation of, such
entity becoming a Subsidiary); (D) customary provisions restricting subletting
or assignment of any lease governing a leasehold interest of any Restricted
Subsidiary; (E) customary restrictions in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements and
mortgages; (F) customary restrictions in purchase money obligations for property
acquired in the ordinary course of business restricting the transfer of the
property acquired thereby; (G) consensual encumbrances or consensual
restrictions under any agreement that refinances or replaces any agreement
described in clauses (A), (B), (C), (D), (E) or (F) above, provided that the
terms and conditions of any such restrictions are no less favorable to the
holders of the Notes and Exchange Notes than those under the agreement so
refinanced or replaced; and (H) any encumbrance or restriction due to applicable
law.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Restricted Subsidiaries, directly or
indirectly, shall (i) sell, lease, transfer or otherwise dispose of any of its
properties, assets or securities to, (ii) purchase or lease any property, assets
or securities from, (iii) make any Investment in, or (iv) enter into or amend
any contract or agreement with or for the benefit of, either (A) an Affiliate of
any of them, (B) any Person or Person who is a member of a group (as such term
is used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable), that, directly or indirectly, is the beneficial holder of 5% or
more of any class of equity securities of the Company, (C) any Person who is an
Affiliate of any such holder, or (D) any officers, directors, or employees of
any of the above (each case under (A), (B), (C) and (D), an "Affiliate
Transaction"), in one or a series of related transactions (to either party) in
excess of $1 million per Affiliate Transaction, except for transactions
evidenced by an Officers' Certificate addressed and delivered to the Trustee
stating that such Affiliate Transaction is made in good faith, the terms of
which are fair and reasonable to the Company and such Restricted Subsidiary, as
the case may be, or, with respect to Affiliate Transactions between the Company
and
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any of its Subsidiaries, to the Company; provided, that (x) transactions between
or among the Company and any of its Restricted Subsidiaries shall not be deemed
to constitute Affiliate Transactions and (y) with respect to any Affiliate
Transaction with an aggregate value (to either party) in excess of $5 million,
the Company must, prior to the consummation thereof, obtain a written favorable
opinion as to the fairness of such transaction to itself from a financial point
of view from an independent investment banking firm of national reputation.
Limitation on Future Senior Subordinated Indebtedness. The Indenture
provides that the Company will not incur any Indebtedness other than the Notes
and Exchange Notes that is subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness, by its terms, is pari
passu with or subordinated to the Notes and Exchange Notes. No Subsidiary
Guarantor shall incur any Indebtedness other than the Guarantee of such
Subsidiary Guarantor that is subordinated in right of payment to any other
Indebtedness of such Subsidiary Guarantor unless such Indebtedness, by its
terms, is pari passu with or subordinated to the Guarantee of such Subsidiary
Guarantor.
LINE OF BUSINESS
For so long as any Notes or Exchange Notes are outstanding, the Company
shall not, and shall not permit any of its Restricted Subsidiaries to, engage in
any business or activity other than the Principal Business.
LIMITATIONS ON MERGERS AND CONSOLIDATIONS
The Indenture provides that the Company will not consolidate with or merge
with any Person or convey, transfer or lease all or substantially all of its
property to any Person, unless: (i) the Company survives such merger or the
Person formed by such consolidation or into which the Company is merged or that
acquires by conveyance or transfer, or which leases, all or substantially all of
the property of the Company is a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia and expressly assumes, by supplemental indenture, the due and punctual
payment of the principal of, premium, if any, and interest on, all the Notes and
Exchange Notes and the performance of every other covenant and obligation of the
Company under the Indenture; (ii) immediately before and after giving effect to
such transaction no Default or Event of Default exists; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated
Tangible Net Worth of the Company (or the surviving or transferee entity) is
equal to or greater than the Consolidated Tangible Net Worth of the Company
immediately before such transaction; and (iv) immediately after giving effect to
such transaction on a pro forma basis, the Company (or the surviving or
transferee entity) would be able to incur $1.00 of additional Indebtedness under
the tests described in the first paragraph of the covenant captioned "Limitation
on Incurrence of Additional Indebtedness." Upon any such consolidation, merger,
lease, conveyance or transfer in accordance with the foregoing, the successor
Person formed by such consolidation or into which the Company is merged or to
which such lease, conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor had been named as the
Company therein and thereafter (except in the case of a lease) the predecessor
corporation will be relieved of all further obligations and covenants under the
Indenture and the Exchange Notes.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms and
for the definitions of capitalized terms used herein and not defined below.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
lesser of (i) the amount by which the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities of such Subsidiary
Guarantor, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date), but excluding liabilities under the Guarantee of such Subsidiary
Guarantor at such date and (ii) the amount by which the present fair saleable
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value of the assets of such Subsidiary Guarantor at such date exceeds the amount
that will be required to pay the probable liability of such Subsidiary Guarantor
on its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Subsidiary Guarantor in respect of the obligations of
such Subsidiary under the Guarantee), excluding debt in respect of the
Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, capitalized lease (within the meaning of
GAAP), transfer, exchange or other disposition (or series of related sales,
capitalized leases, transfers, exchanges or dispositions) of shares of Capital
Stock of a Subsidiary (other than directors' qualifying shares), or of property
or assets or any interests therein (each referred to for purposes of this
definition as a "disposition") by the Company or any of its Restricted
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction (other than (i) by the Company to a Restricted Subsidiary or
by a Subsidiary to the Company or a Restricted Subsidiary, (ii) a sale of
inventory or hydrocarbons or other products (including both crude oil and
refined products), in each case in the ordinary course of business of the
Company's operations, (iii) the merger or consolidation of, or the disposition
of all or substantially all of the assets of the Company made in compliance with
the covenant captioned "Limitations on Mergers and Consolidations" and (iv) the
merger or consolidation of a Restricted Subsidiary made in compliance with
clause (i)(A) of the second sentence of the eighth paragraph under the caption
"Subordination of Exchange Notes; Subsidiary Guarantees").
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(A) the number of years from such date to the date of each successive scheduled
principal payment of such Indebtedness multiplied by (B) the amount of such
principal payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means a revolving credit and/or letter of credit
and/or bankers' acceptance facility the proceeds of which are used for working
capital and other general corporate purposes existing on the Issue Date or
entered into after the Issue Date by one or more of the Company and its
Subsidiaries and one or more financial institutions, as amended, extended or
refinanced from time to time.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to act on behalf of the Board of Directors of such
Person.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
85% of the book value of all accounts receivable owned by the Company and its
Restricted Subsidiaries (excluding any accounts receivable from an Affiliate of
the Company or that are more than 90 days past due, less (without duplication)
the allowance for doubtful accounts attributable to such current accounts
receivable) and (ii) 60% of the book value of all inventory owned by the Company
and its Restricted Subsidiaries as of such date, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable as of a specific date,
the Company may utilize the most recent available information for purposes of
calculating the Borrowing Base.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or partnership interests and any and all warrants, options and rights with
respect thereto (whether or not currently exercisable), including each class of
common stock and preferred stock of such Person.
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"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Consolidated Coverage Ratio" means, for any Reference Period, the ratio on
a pro forma basis of (i) Consolidated EBITDA for the Reference Period to (ii)
Consolidated Interest Expense for such Reference Period; provided, that, in
calculating Consolidated EBITDA and Consolidated Interest Expense (A) with
respect to any acquisition which occurs during the Reference Period or
subsequent to the Reference Period and on or prior to the date of the incurrence
of Indebtedness or issuance of Disqualified Stock giving rise to the need to
calculate the Consolidated Coverage Ratio (the "Debt Incurrence Date"), such
acquisition shall be assumed to have occurred on the first day of the Reference
Period, (B) with respect to the incurrence of any Indebtedness (including the
sale of the Notes) or issuance of any Disqualified Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Debt
Incurrence Date, the incurrence of such Indebtedness or the issuance of such
Disqualified Stock shall be assumed to have occurred on the first day of such
Reference Period, (C) any Indebtedness that had been outstanding during the
Reference Period that has been repaid on or prior to the Debt Incurrence Date
shall be assumed to have been repaid as of the first day of such Reference
Period, (D) the Consolidated Interest Expense attributable to interest on any
Indebtedness or dividends on any Disqualified Stock bearing a floating interest
(or dividend) rate shall be computed on a pro forma basis as if the rate in
effect on the Debt Incurrence Date were the average rate in effect during the
entire Reference Period, and (E) in determining the amount of Indebtedness
pursuant to the covenant captioned "Limitation of Incurrence of Additional
Indebtedness," the incurrence of Indebtedness or issuance of Disqualified Stock
giving rise to the need to calculate the Consolidated Coverage Ratio and, to the
extent the net proceeds from the incurrence or issuance thereof are used to
retire Indebtedness, the application of the proceeds therefrom, shall be assumed
to have occurred on the first day of the Reference Period.
"Consolidated EBITDA" means, for any Reference Period, the Consolidated Net
Income of the Company and its Restricted Subsidiaries for such Reference Period,
increased (to the extent deducted in determining Consolidated Net Income) by the
sum of (i) all income taxes of the Company and its Restricted Subsidiaries paid
or accrued according to GAAP for such period (other than income taxes
attributable to extraordinary gains or losses), (ii) all interest expense of the
Company and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (including amortization of original issue discount and other
non-cash interest expense), (iii) depreciation and depletion of the Company and
its Restricted Subsidiaries, (iv) amortization of the Company and its Restricted
Subsidiaries including, without limitation, amortization of capitalized debt
issuance costs; (v) other non-recurring, non-cash charges (excluding any such
non-cash charges to the extent they require an accrual of, or a reserve for,
cash charges for any future periods) to the extent such non-cash charges are
deducted in connection with the determination of Consolidated Net Income and
(vi) extraordinary losses to the extent deducted in connection with the
determination of Consolidated Net Income.
"Consolidated Interest Expense" means, with respect to the Company and its
Restricted Subsidiaries, for any Reference Period, the aggregate amount (without
duplication) of (i) interest expensed in accordance with GAAP (including, in
accordance with the following sentence, interest attributable to Capitalized
Lease Obligations) during such period in respect of all Indebtedness of the
Company and its Restricted Subsidiaries, including (A) amortization of original
issue discount on any Indebtedness, (B) the interest portion of all deferred
payment obligations, calculated in accordance with GAAP, and (C) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptance financing and currency and interest rate swap arrangements, in each
case to the extent attributable to such Reference Period, and (ii) dividend
requirements of the Company and its Restricted Subsidiaries with respect to
Disqualified Stock of the Company or its Restricted Subsidiaries, whether in
cash or otherwise (except dividends paid solely in shares of Qualified Stock),
paid (other than to the Company or any of its Restricted Subsidiaries),
declared, accrued or accumulated during such period, divided by the difference
of one minus the applicable actual combined federal, state, local and foreign
income tax rate of the Company and its Restricted Subsidiaries (expressed as a
decimal), on a consolidated basis, for the four quarters immediately preceding
the date of the transaction
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giving rise to the need to calculate Consolidated Interest Expense, in each case
to the extent attributable to such Reference Period and excluding items
eliminated in consolidation. For purposes of this definition, (i) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (ii) interest expense
attributable to any Indebtedness represented by the guarantee by the Company or
a Subsidiary of the Company of an obligation of another Person shall be deemed
to be the interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP,
provided, that (i) the net income for such period of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends, payments or
distributions actually paid to the Company or its Restricted Subsidiaries by
such other Person in such period; (ii) the net income for such period of any
Restricted Subsidiary of the Company that is subject to any Payment Restriction
will be included only to the extent of the amount of dividends, payments or
distributions which (A) are actually paid by such Restricted Subsidiary in such
period to the Company (or another Restricted Subsidiary which is not subject to
a Payment Restriction) and (B) are not in excess of the amount which such
Restricted Subsidiary would be permitted to pay to the Company (or another
Restricted Subsidiary which is not subject to a Payment Restriction) in any
future period under the Payment Restrictions applicable to such Restricted
Subsidiary, assuming that the net income of such Restricted Subsidiary in each
future period is equal to the net income for such Restricted Subsidiary for such
period; and (iii) the following will be excluded: (A) the net income (or loss)
of any other Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition, (B) any net gain on the sale or
other disposition by the Company or any of its Restricted Subsidiaries of assets
(other than a sale of inventory or hydrocarbons or other products (including
both crude oil and refined products), in each case in the ordinary course of
business of the Company's operations) and of the Capital Stock of any Restricted
Subsidiary of the Company, (C) extraordinary gains and (D) any ceiling
limitation writedown required in accordance with the full cost accounting method
rules of the SEC.
"Consolidated Net Tangible Assets" means, as of any date, the total assets
of the Company and its Restricted Subsidiaries on a consolidated basis as of
such date (less applicable reserves and other items properly deductible from
total assets) and after deducting therefrom: (i) total liabilities and total
capital items as of such date except the following: items constituting
Indebtedness, paid-in capital and retained earnings, provisions for deferred
income taxes and deferred gains, and reserves which are not reserves for any
contingencies not allocated to any particular purpose; (ii) goodwill, trade
names, trademarks, patents, unamortized debt discount and expense, and other
intangible assets; and (iii) all Investments other than Permitted Investments.
"Consolidated Tangible Net Worth" means, with respect to any Person, as at
any date of the determination, the sum of Capital Stock (other than Disqualified
Stock) and paid-in capital plus retained earnings (or minus accumulated deficit)
minus all intangible assets, including, without limitation, organization costs,
patents, trademarks, copyrights, franchise, research and development costs, and
any amount reflected in treasury stock, of such Person determined on a
consolidated basis in accordance with GAAP.
"Designated Senior Indebtedness" means (i) any Senior Indebtedness of the
Company and/or its Restricted Subsidiaries permitted under the Indenture, the
original principal amount of which is $10 million or more and (ii) the
Indebtedness and/or other obligations under the Bank Credit Facility.
"Disqualified Stock" means any Capital Stock of a Person which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event or with the passage of
time, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Maturity Date or which is exchangeable
or convertible into debt securities of such Person or any other Person, except
to the extent that such exchange or conversion rights cannot be exercised prior
to the Maturity Date.
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"Exchange Act" means the Securities and Exchange Act of 1934, as amended,
and the rules of and regulations of the SEC thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America from time to time.
"Indebtedness" means, without duplication, with respect to any Person, (i)
all obligations of such Person (A) in respect of borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof), (B) evidenced by bonds, notes, debentures or similar
instruments, (C) representing the balance deferred and unpaid of the purchase
price of any property or services (other than accounts payable or other
obligations arising in the ordinary course of business), (D) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (E) for
the payment of money relating to a Capitalized Lease Obligation, or (F)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (ii) all net obligations of such Person as
of the date of a required calculation under interest rate swap obligations and
foreign currency hedges; (iii) all liabilities of others of the kind described
in the preceding clauses (i) or (ii) that such Person has guaranteed or that are
otherwise its legal liability; (iv) Indebtedness (as otherwise defined in this
definition) of another Person secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, the amount of such
obligations being deemed to be the lesser of (A) the full amount of such
obligations so secured, and (B) the fair market value of such asset, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution of such Person; (v) the
liquidation preference and any mandatory redemption payment obligations in
respect of Disqualified Stock of such Person; and (vi) any and all deferrals,
renewals, extensions, refinancings and refundings (whether direct or indirect)
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii), (iii), (iv), (v), or this
clause (vi), whether or not between or among the same parties.
"Investment" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions (excluding
advances to employees in the ordinary course of business), (ii) all guarantees
of Indebtedness or other obligations of any other Person by such Person, (iii)
all purchases (or other acquisitions for consideration) by such Person of
Indebtedness, Capital Stock or other securities of any other Person and (iv) all
other items that would be classified as investments or advances on a balance
sheet of such Person prepared in accordance with GAAP.
"Issue Date" means the date on which the Notes were originally issued under
the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person, and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction).
"Maturity Date" means September 1, 2007.
"Net Available Proceeds" means, with respect to any Asset Sale of any
Person, cash proceeds received (including any cash proceeds received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, and excluding any other consideration
until such time as such consideration is converted into cash) therefrom, in each
case net of all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all federal, state or local taxes required to be
accrued as a liability as a consequence of such Asset Sale, and in each case net
of all Indebtedness which is secured by such assets, in accordance with the
terms of any Lien upon or with respect to such assets, or which must, by its
terms or in order to obtain a necessary consent to such Asset Sale to prevent a
default or event of default under Senior Indebtedness or by applicable law, be
repaid out of the proceeds from such Asset Sale and which is actually so repaid.
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"Net Cash Proceeds" means, in the case of any sale by the Company of
securities pursuant to clauses (B) or (C) of Section (iii) of the covenant
captioned "Limitation on Restricted Payments," the aggregate net cash proceeds
received by the Company, after payment of expenses, commissions, discounts and
any other transaction costs incurred in connection therewith.
"Pari Passu Indebtedness" means the 9 3/4% Notes and any other Indebtedness
of the Company that specifically provides that such Indebtedness is to rank pari
passu with the Notes and Exchange Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Permitted Business Investments" means (i) Investments by the Company or
any Restricted Subsidiary in any Person which immediately prior to the making of
such Investment is a Restricted Subsidiary; (ii) Investments in the Company by
any Restricted Subsidiary; and (iii) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary of the Company or (B)
such Person is merged, consolidated or amalgamated with or into, or transfers or
conveys all or substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary of the Company.
"Permitted Company Refinancing Indebtedness" means (i) Indebtedness of the
Company, the terms of which have been amended, modified or supplemented in a
manner that does not (A) affect the priority of such Indebtedness in right of
payment in relation to the Notes and Exchange Notes, (B) accelerate the maturity
of such Indebtedness or (C) shorten the Average Life of such Indebtedness and
(ii) Indebtedness of the Company, the net proceeds of which are used to renew,
extend, refinance, refund or repurchase outstanding Indebtedness of the Company,
provided that (A) if the Indebtedness (including the Notes and Exchange Notes)
being renewed, extended, refinanced, refunded or repurchased is pari passu with
or subordinated in right of payment to the Notes and Exchange Notes, then such
Indebtedness is pari passu with or subordinated in right of payment to, as the
case may be, the Notes and Exchange Notes at least to the same extent as the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (B)
such Indebtedness is scheduled to mature no earlier than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (C) such
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is equal to or greater than the remaining Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased; provided, further, that
such Indebtedness (to the extent that such Indebtedness constitutes Permitted
Company Refinancing Indebtedness) is in an aggregate principal amount (or, if
such Indebtedness is issued at a price less than the principal amount thereof,
the aggregate amount of gross proceeds therefrom is) not in excess of the
aggregate principal amount then outstanding of the Indebtedness being renewed,
extended, refinanced, refunded or repurchased (or if the Indebtedness being
renewed, extended, refinanced, refunded or repurchased was issued at a price
less than the principal amount thereof, then not in excess of the amount of
liability in respect thereof determined in accordance with GAAP).
"Permitted Financial Investments" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof, (iii) certificates
of deposit and eurodollar time deposits with maturities of 12 months or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
12 months and overnight bank deposits, in each case with any lender party to the
Bank Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $300 million, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated at
least A-2 or the equivalent thereof at the time of purchase by Moody's Investors
Service, Inc. and Standard & Poor's Corporation, and in each case maturing
within 12 months after the date of acquisition, (vi) money market mutual or
similar funds having assets in excess of $100,000,000, and (vii) any debt
securities or adjustable rate preferred stock issued by a corporation organized
under the laws of a state of the United States of America or issued by any
state, county or municipality located within the United States of America which
is rated at least AA- or the equivalent thereof by Moody's Investors Service,
Inc. and Standard & Poor's Corporation and maturing or having a call provision
not exceeding 24 months from the date of acquisition.
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"Permitted Investments" means Permitted Business Investments and Permitted
Financial Investments.
"Permitted Liens" means (i) Liens existing on the Issue Date; (ii) Liens
now or hereafter securing Senior Indebtedness; (iii) Liens now or hereafter
securing any interest rate hedging obligations (A) that the Company is required
to enter into with respect to the Bank Credit Facility or (B) that are entered
into for the purpose of managing interest rate risk with respect to Indebtedness
of the Company and its Restricted Subsidiaries, provided that such interest rate
obligations under clauses (A) and (B) do not have an aggregate notional amount
which exceeds the aggregate principal amount of Indebtedness of the Company and
its Restricted Subsidiaries; (iv) Liens securing obligations under agreements
that the Company enters into in the ordinary course of business for the purpose
of protecting against fluctuations in oil, natural gas, refined products or
grain prices; (v) Liens securing Indebtedness, the proceeds of which are used to
refinance secured Indebtedness of the Company or its Restricted Subsidiaries;
provided, that such Liens extend to or cover only the property or assets
currently securing the Indebtedness being refinanced; (vi) Liens for taxes,
assessments and governmental charges not yet delinquent or being contested in
good faith and for which adequate reserves have been established to the extent
required by GAAP; (vii) mechanics', workmen's, materialmen's, operator's or
similar Liens arising in the ordinary course of business for sums that are not
yet delinquent or are being contested in good faith by appropriate action;
(viii) Liens in connection with workmen's compensation, unemployment insurance
or other social security, old age pension or public liability obligations not
yet due or which are being contested in good faith by appropriate action; (ix)
Liens, deposits or pledges to secure the performance of bids, tenders, contracts
(other than contracts for the payment of money), leases, public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of business;
(x) survey exceptions, encumbrances, easements or reservations, or rights of
others for, rights of way, zoning or other restrictions as to the use of real
properties, and minor defects in title which, in the case of any of the
foregoing, were not incurred or created to secure the payment of borrowed money
or the deferred purchase price of property or services, and in the aggregate do
not materially adversely affect the value of such properties or materially
impair use for the purposes of which such properties are held by the Company or
any Restricted Subsidiaries; (xi) Liens on, or related to, properties to secure
all or part of the costs incurred in the ordinary course of business of
exploration, drilling, development or operation thereof; (xii) Liens on pipeline
or pipeline facilities which arise out of operation of law; (xiii) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceeding that are currently being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established to the extent required by GAAP; (xiv) (A) Liens
upon any property of any Person existing at the time of acquisition thereof by
the Company or a Subsidiary, (B) Liens upon any property of a Person existing at
the time such Person is merged or consolidated with the Company or any
Restricted Subsidiary or existing at the time of the sale or transfer of any
such property of such Person to the Company or any Restricted Subsidiary, or (C)
Liens upon any property of a Person existing at the time such Person becomes a
Restricted Subsidiary; provided, that in each case such Lien has not been
created in contemplation of such sale, merger, consolidation, transfer or
acquisition, and provided further, that in each such case no such Lien shall
extend to or cover any property of the Company or any Restricted Subsidiary
other than the property being acquired and improvements thereon; (xv) Liens on
deposits to secure public or statutory obligations or in lieu of surety or
appeal bonds entered into in the ordinary course of business; (xvi) Liens in
favor of collecting or payor banks having a right of setoff, revocation, refund
or chargeback with respect to money or instruments of the Company or any
Restricted Subsidiary on deposit with or in possession of such bank; (xvii)
purchase money Liens granted in connection with the acquisition of fixed assets
in the ordinary course of business and consistent with past practices, provided,
that (A) such Liens attach only to the property so acquired with the purchase
money indebtedness secured thereby and (B) such Liens secure only Indebtedness
that is not in excess of 100% of the purchase price of such fixed assets;
(xviii)Liens reserved in oil and gas mineral leases for bonus or rental payments
and for compliance with the terms of such leases; (xix) Liens arising under
partnership agreements, oil and gas leases, farm-out agreements, division
orders, contracts for the sale, purchase, exchange, transportation or processing
of oil, gas or other hydrocarbons, unitization and pooling declarations and
agreements, development agreements, operating agreements, area of mutual
interest agreements, and other agreements which are
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customary in the Principal Business; and (xx) other Liens provided that such
other Liens shall not secure obligations in excess of $5,000,000 in the
aggregate at any one time outstanding.
"Permitted Subsidiary Refinancing Indebtedness" means (i) Indebtedness of
any Subsidiary, the terms of which have been amended, modified or supplemented
in a manner that does not (A) affect the priority of such Indebtedness in right
of payment in relation to the Notes and Exchange Notes, (B) accelerate the
maturity of such Indebtedness or (C) shorten the Average Life of such
Indebtedness and (ii) Indebtedness of any Subsidiary, the net proceeds of which
are used to renew, extend, refinance, refund or repurchase outstanding
Indebtedness of such Subsidiary, provided that (A) if the Indebtedness
(including any guarantee thereof) being renewed, extended, refinanced, refunded
or repurchased is pari passu with or subordinated in right of payment to the
Guarantees, then such Indebtedness is pari passu with or subordinated in right
of payment to, as the case may be, the Guarantees at least to the same extent as
the Indebtedness being renewed, extended, refinanced, refunded or repurchased,
(B) such Indebtedness is scheduled to mature no earlier than the Indebtedness
being renewed, extended, refinanced, refunded or repurchased, and (C) such
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is equal to or greater than the remaining Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased; provided further, that
such Indebtedness (to the extent that such Indebtedness constitutes Permitted
Subsidiary Refinancing Indebtedness) is in an aggregate principal amount (or, if
such Indebtedness is issued at a price less than the principal amount thereof,
the aggregate amount of gross proceeds therefrom is) not in excess of the
aggregate principal amount then outstanding under the Indebtedness being
renewed, extended, refinanced, refunded or repurchased (or if the Indebtedness
being renewed, extended, refinanced, refunded or repurchased was issued at a
price less than the principal amount thereof, then not in excess of the amount
of liability in respect thereof determined in accordance with GAAP).
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Principal Business" means (i) the business of the exploration for, and
development, acquisition, production, processing, marketing, refining, storage
and transportation of, hydrocarbons, (ii) any related energy and natural
resource business, (iii) any business currently engaged in by the Company or its
Subsidiaries, (iv) convenience stores, retail service stations, truck stops and
other public accommodations in connection therewith and (iv) any activity or
business that is a reasonable extension, development or expansion of any of the
foregoing.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"Publicly Traded Stock" means, with respect to any Person, Voting Stock of
such Person which is registered under Section 12 of the Exchange Act and which
is actively traded on the New York Stock Exchange or American Stock Exchange or
quoted in the National Association of Securities Dealers Automated Quotation
System (National Market System).
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
"Reference Period" means, with respect to any Person, the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes and Exchange Notes or the Indenture.
"Restricted Payment" means, with respect to any Person, any of the
following: (i) any dividend or other distribution in respect of such Person's
Capital Stock (other than (A) dividends or distributions payable solely in
Capital Stock (other than Disqualified Stock) of such Person and (B) in the case
of Restricted Subsidiaries of the Company, dividends or distributions payable to
the Company or to a Restricted Subsidiary of the Company that is a Wholly-Owned
Subsidiary); (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock, or any option, warrant, or other right to
acquire shares of Capital Stock, of the Company or any of its Restricted
Subsidiaries other than any such purchase, redemption or other acquisition or
retirement for value by the Company or any Restricted Subsidiary of the Company
that is a Wholly Owned Subsidiary of any Capital Stock, or any option, warrant
or other right to acquire shares of
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Capital Stock, of any Restricted Subsidiary with respect to such Capital Stock,
option, warrant or other right which is owned, at the time of any such
transaction, by the Company or another Restricted Subsidiary; (iii) the making
of any principal payment on, or the purchase, defeasance, repurchase, redemption
or other acquisition or retirement for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Indebtedness which
is pari passu or subordinated in right of payment to the Notes and Exchange
Notes; and (iv) the making by such Person of any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary. By a Board Resolution of the Company, as evidenced by
written notice thereof delivered to the Trustee, the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that,
immediately after giving effect to such designation, (i) the Company could incur
at least $1.00 in additional Indebtedness pursuant to the first paragraph of the
covenant captioned "Limitation on Incurrence of Additional Indebtedness" and
(ii) no Default or Event of Default shall have occurred and be continuing.
"Senior Indebtedness" means any Indebtedness of a Person (whether
outstanding on the date hereof or hereafter incurred), unless such Indebtedness
is stated to be pari passu with or is contractually subordinate or junior in
right of payment to the Notes and Exchange Notes.
A "subsidiary" of any Person means (i) a corporation a majority of whose
voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if such Person or its subsidiary is
entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other Person (other than a corporation or partnership)
in which such Person, directly or indirectly, at the date of determination
thereof, has (A) at least a majority ownership interest or (B) the power to
elect or direct the election of a majority of the directors or other governing
body of such Person. For purposes of the foregoing definition, an arrangement by
which a Person who owns an interest in an oil and gas property is subject to a
joint operating agreement, processing agreement, net profits interest,
overriding royalty interest, farm-out agreement, development agreement, area of
mutual interest agreement, joint bidding agreement, unitization agreement,
pooling arrangement or other similar agreement or arrangement shall not, in and
of itself, cause such Person to be considered a Subsidiary.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in
existence on the Issue Date, (ii) each of the Subsidiaries that becomes a
guarantor of the Notes and Exchange Notes in compliance with the provisions of
Article Eleven of the Indenture and (iii) each of the Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of an Unrestricted
Subsidiary or (ii) any Subsidiary of the Company or of a Restricted Subsidiary
that is designated as an Unrestricted Subsidiary by a Board Resolution of the
Company in accordance with the following sentence. The Company may designate any
Subsidiary of the Company or of a Restricted Subsidiary (including any
Restricted Subsidiary or any newly formed or newly acquired Subsidiary) to be an
Unrestricted Subsidiary by a Board Resolution of the Company, as evidenced by
written notice thereof delivered to the Trustee, if after giving effect to such
designation, (i) the Company could incur $1.00 of additional Indebtedness
pursuant to the first paragraph under the covenant captioned "Limitation on
Incurrence of Additional Indebtedness," (ii) the Company could make an
additional Restricted Payment of $1.00 pursuant to the first paragraph of the
covenant captioned "Limitation on Restricted Payments," (iii) such Subsidiary
does not own or hold any Capital Stock of, or any lien on any property of, the
Company or any Restricted Subsidiary and (iv) such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness.
"Unrestricted Subsidiary Indebtedness" of any Person means Indebtedness of
such Person (i) as to which neither the Company nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of the Company's or such Restricted
Subsidiary's being the primary obligor, or guarantor of, or otherwise liable in
any respect
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on, such Indebtedness), (ii) which, with respect to Indebtedness incurred after
the date of the Indenture by the Company or any Restricted Subsidiary, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary and (iii) which is not secured by any assets of the Company or of any
Restricted Subsidiary.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable at the option of the issuer
thereof.
"U.S. Legal Tender" means such coin or currency of the United States as at
the time of payment shall be legal tender for the payment of public and private
debts.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person.
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock (other
than directors' qualifying shares, if applicable) of which is owned by the
Company or another Wholly-Owned Subsidiary.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default by
the Company or any Subsidiary Guarantor in the payment of principal of or
premium, if any, on the Notes or Exchange Notes when due and payable at
maturity, upon repurchase pursuant to a Change of Control Offer or a Net
Proceeds Offer, upon acceleration or otherwise; (ii) default by the Company or
any Subsidiary Guarantor for 30 days in payment of any interest on the Notes or
Exchange Notes; (iii) default by the Company or any Subsidiary Guarantor in the
deposit of any optional redemption payment; (iv) default by the Company or any
Subsidiary Guarantor in performance or breach of any other covenant or agreement
in the Notes or Exchange Notes, the Guarantees or the Indenture which shall not
have been remedied within 60 days after written notice by the Trustee or by the
holders of at least 25% in principal amount of the Notes and Exchange Notes then
outstanding; (v) the acceleration of the maturity of any other Indebtedness of
the Company, any Subsidiary Guarantor or any Restricted Subsidiary having an
outstanding principal amount of $5.0 million or more individually or in the
aggregate; (vi) judgments or orders for the payment of money in an aggregate
amount in excess of $5.0 million (net of applicable insurance coverage which is
acknowledged in writing by the insurer) having been rendered against the
Company, any Subsidiary Guarantor or any Restricted Subsidiary and such
judgments or orders shall continue unsatisfied and unstayed for a period of 60
days; (vii) other than a release of a Guarantee pursuant to the terms of the
Indenture, any ineffectiveness of a Guarantee or any denial or disaffirmation of
a Guarantee by any Subsidiary Guarantor; or (viii) certain events involving
bankruptcy, insolvency or reorganization of the Company, any Subsidiary
Guarantor or any Restricted Subsidiary. The Indenture provides that the Trustee
may withhold notice to the holders of the Notes and Exchange Notes of any
default (except in payment of principal of, or premium, if any, or interest on
the Notes and Exchange Notes) if the Trustee considers it in the interest of the
holders of the Exchange Notes to do so.
The Indenture provides that if an Event of Default (other than with respect
to clause (viii) of the preceding paragraph) occurs and is continuing with
respect to the Indenture, the Trustee or the holders of not less than 25% in
principal amount of the Notes and Exchange Notes outstanding may declare the
principal of, premium, if any, and accrued but unpaid interest on all Notes and
Exchange Notes then outstanding to be due and payable. Upon such a declaration,
such principal, premium, if any, and interest will be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company or any Subsidiary occurs and is
continuing, the principal of and premium, if any, and interest on all the Notes
and Exchange Notes will become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the Notes
and Exchange Notes. The amount due and
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payable on the acceleration of any Note will be equal to 100% of the principal
amount of such Note, plus accrued interest to the date of payment. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes and Exchange Notes may rescind any such acceleration with respect to the
Notes and Exchange Notes and its consequences.
The Indenture provides that no holder of a Note or Exchange Note may pursue
any remedy under the Indenture unless (i) the Trustee shall have received
written notice of a continuing Event of Default from the Company or a holder of
a Note or Exchange Note, (ii) the Trustee shall have received a request from
holders of at least 25% in principal amount of the Notes and Exchange Notes to
pursue such remedy, (iii) the Trustee shall have been offered indemnity and
security reasonably satisfactory to it, and (iv) the Trustee shall have failed
to act for a period of 60 days after receipt of such notice, request and offer
of indemnity; however, such provision does not affect the right of a holder of a
Note or Exchange Note to sue for enforcement of any overdue payment thereon.
The holders of a majority in principal amount of the Notes and Exchange
Notes then outstanding will have the right, by an instrument or concurrent
instruments in writing executed and delivered to the Trustee, to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee under the Indenture or exercising any trust or power
conferred on such Trustee, subject to certain limitations specified in the
Indenture. The Indenture will require the annual filing by the Company with the
Trustee of a written statement as to compliance with the covenants contained in
the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that modifications and amendments to the Indenture
or the Notes or Exchange Notes may be made by the Company, the Subsidiary
Guarantors and the Trustee with the consents of the holders of a majority in
principal amount of the Notes and Exchange Notes then outstanding; provided that
no such modification or amendment may, without the consent of the holder of each
Note or Exchange Note then outstanding affected thereby, (i) reduce the
percentage of principal amount of Notes and Exchange Notes whose holders may
consent to an amendment, supplement or waiver; (ii) reduce the rate or change
the time for payment of interest, including default interest, on any Note or
Exchange Note; (iii) reduce the principal amount of any Note or Exchange Note or
change the Maturity Date of the Notes and Exchange Notes; (iv) reduce the
redemption price, including premium, if any, payable upon redemption of any Note
or Exchange Note or change the time at which any Note or Exchange Note may or
shall be redeemed; (v) reduce the repurchase price, including premium, if any,
payable upon the repurchase of any Note or Exchange Note or change the time at
which any Note or Exchange Note may or shall be repurchased; (vi) make any Note
or Exchange Note payable in money other than that stated in the Note or Exchange
Note; (vii) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on, any Note or
Exchange Note; (viii) make any change in the percentage of principal amount of
Notes and Exchange Notes necessary to waive compliance with certain provisions
of the Indenture; or (ix) except as otherwise provided in the Indenture, waive a
continuing Default or Event of Default in the payment of principal of, premium,
if any, or interest on the Notes and Exchange Notes. The Indenture provides that
modifications, amendments and supplements of the Indenture may be made by the
Company, the Subsidiary Guarantors and the Trustee without notice to or consent
of any holders of Notes and Exchange Notes in certain limited circumstances,
including (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to
provide for the assumption of the obligations of the Company or any Subsidiary
Guarantor under the Indenture upon the merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company or any such
Subsidiary Guarantor, (iii) to provide for uncertificated Notes or Exchange
Notes in addition to or in place of certificated Notes or Exchange Notes, (iv)
to reflect the release of any Subsidiary Guarantor from its Guarantee, or the
addition of any Subsidiary of the Company as a Subsidiary Guarantor, in the
manner provided by the Indenture, (v) to comply with any requirement of the SEC
in order to effect or maintain the qualification of the Indenture under the
Trustee Indenture Act of 1939 or (vi) to make any change that would provide any
additional benefit or rights to the holders or that does not adversely affect
the rights of any holder of Notes or Exchange Notes in any material respect.
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The Indenture provides that the holders of a majority in aggregate
principal amount of the Notes and Exchange Notes then outstanding may waive any
past default under the Indenture, except a default in the payment of principal,
premium, if any, or interest.
DISCHARGE AND TERMINATION
The Company may at any time terminate its obligation under the Notes and
Exchange Notes and the Indenture, with certain exceptions specified in the
Indenture, by irrevocably depositing in trust cash or obligations of the United
States government and its agencies for payment of principal of, premium, if any,
and interest on, the Notes and Exchange Notes to redemption or maturity, subject
to the satisfaction of certain conditions.
Subject to the conditions described below, at the Company's option, either
(i) the Company and all Subsidiary Guarantors will be deemed to have been
discharged from their respective obligations with respect to the Notes and
Exchange Notes on the 91st day after the applicable conditions set forth below
have been satisfied or (ii) the Company and all Subsidiary Guarantors will cease
to be under any obligation to comply with certain restrictive covenants,
including those described under "Certain Covenants" as well as the subordination
and guarantee provisions of the Indenture at any time after the applicable
conditions set forth below have been satisfied: (A) the Company or any
Subsidiary Guarantor has deposited or caused to be deposited irrevocably with
the Trustee as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders (1) U.S. Legal Tender or (2) U.
S. Government Obligations, which through the payment of interest and principal
in respect thereof in accordance with their terms will provide (without any
reinvestment of such interest or principal), not later than one day before the
due date of any payment, U.S. Legal Tender or (3) a combination of (1) and (2),
in an amount sufficient, in the opinion (with respect to (2) and (3)) of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee at or prior to the time
of such deposit, to pay and discharge each installment of principal of, premium,
if any, and interest on, the outstanding Notes and Exchange Notes on the date
such installments are due; (B) the Company has delivered to the Trustee an
officers' certificate certifying whether the Notes and Exchange Notes are then
listed on a national securities exchange; (C) if the Notes and Exchange Notes
are then listed on a national securities exchange, the Company has delivered to
the Trustee an officers' certificate to the effect that the Company's exercise
of its option described above would not cause the Notes and Exchange Notes to be
delisted; (D) no Default or Event of Default has occurred and is continuing on
the date of such deposit or will occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company or a Subsidiary Guarantor is a
party or by which any of them is bound, as evidenced to the Trustee in an
officers' certificate delivered to the Trustee concurrently with such deposit;
(E) the Company has delivered to the Trustee an opinion of counsel (which
counsel may be an employee of the Company) to the effect that holders of the
Notes and Exchange Notes will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option
described above and will be subject to federal income tax on the same amount and
in the same manner and at the same time as would have been the case if such
option had not been exercised, and, in the case of the Notes and Exchange Notes
being discharged, accompanied by a ruling to that effect received from or
published by the Internal Revenue Service (it being understood that (1) such
opinion will also state that such ruling is consistent with the conclusions
reached in such opinion and (2) the Trustee will be under no obligation to
investigate the basis of correctness of such ruling); (F) the Company has
delivered to the Trustee an opinion of counsel (which counsel may be an employee
of the Company) to the effect that the Company's exercise of its option
described above will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds hereunder becoming or being deemed to
be an "investment company" under the Investment Company Act of 1940, as amended;
(G) the Company or any Subsidiary Guarantor has paid or duly provided for
payment of all amounts then due to the Trustee pursuant to the terms of the
Indenture; and (H) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel (which counsel may be an employee of the
Company), each stating that all conditions precedent provided for in the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
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Upon the termination of the Company's obligations under the Notes and
Exchange Notes and the Indenture, the obligations of the Subsidiary Guarantors
under the Guarantees will also terminate.
GOVERNING LAW
The Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect to
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. The Company has
also appointed the Trustee as the initial Registrar and Paying Agent under the
Indenture.
The Company may maintain depository and other normal banking relationships
with the Trustee or any of its affiliates. The Trustee will be permitted to
engage in other transactions with the Company; however, the Trustee would be
required to resign within 90 days of the occurrence of a Default or an Event of
Default (without regard to the giving of notice or the passage of time) if the
Trustee then has any conflicting interest (as defined in the Trust Indenture Act
of 1939).
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act of 1939), it must eliminate such conflict or resign.
The Indenture provides that in case an Event of Default shall occur (and be
continuing), the Trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The Trustee will be under no
obligation to exercise any of its powers under the Indenture at the request of
any of the holders of the Notes or Exchange Notes, unless such holders shall
have offered the Trustee indemnity and security reasonably satisfactory to it.
AUTHENTICATION
Two officers of the Company shall sign the Exchange Notes on behalf of the
Company, and two officers of each Subsidiary Guarantor shall sign the notation
on the Exchange Notes relating to the Guarantee of such Subsidiary Guarantor on
behalf of such Subsidiary Guarantor, in each case by manual or facsimile
signature. The Company's seal shall be reproduced on the Exchange Notes. An
Exchange Note shall not be valid until the Trustee or an authenticating agent
manually signs the certificate of authentication on the Exchange Note. Each
Exchange Note shall be dated the date of its authentication.
REGISTRATION RIGHTS
In connection with the issuance and sale of the Notes, the Company and the
Subsidiary Guarantors have agreed pursuant to a registration rights agreement
(the "Registration Rights Agreement") with the Initial Purchasers, for the
benefit of the holders of the Notes, that the Company will, at its cost, (i)
within 60 days after the date of original issue of the Notes, file the Exchange
Offer Registration Statement with the SEC with respect to the Registered
Exchange Offer to exchange the Notes for the Exchange Notes, which will have
terms substantially identical in all material respects to the Notes (except that
the Exchange Notes will not contain terms with respect to transfer restrictions
and with respect to the payment of additional interest under circumstances
relating to breaches of the Registration Rights Agreement by the Company and the
Subsidiary Guarantors), and (ii) use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 120 days after the date of original issue of the Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer the Exchange Notes in exchange for surrender of the Notes. The
registration statement of which this Prospectus is a part has been
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filed with the SEC and the Exchange Offer is being made to satisfy the Company's
and the Subsidiary Guarantors' obligations under the Registration Rights
Agreement
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect such a Registered Exchange Offer, or if for any
other reason, the Registered Exchange Offer is not consummated within 150 days
of the date of original issue of the Notes, or if the Initial Purchasers so
request with respect to Notes not eligible to be exchanged for Exchange Notes in
the Registered Exchange Offer, or if any holder of Notes is not eligible to
participate in the Registered Exchange Offer or does not receive freely tradable
Exchange Notes in the Registered Exchange Offer, the Company will, at its cost,
(a) as promptly as practicable, file a shelf registration statement (the "Shelf
Registration Statement") with the SEC covering resales of the Notes or the
Exchange Notes, as the case may be, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act, and
(c) keep the Shelf Registration Statement effective until the earlier of (i) the
time when the Notes covered by the Shelf Registration Statement can be sold
pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h)
of Rule 144, or (ii) two years from the Issue Date. The Company will, in the
event a Shelf Registration Statement is filed, among other things, provide to
each holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes or the Exchange Notes, as the case may be. A holder selling such Notes or
Exchange Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If (i) on or prior to October 27, 1997 (the first business day following
the 60th day after the Issue Date), neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been filed with the SEC, (ii)
on or prior to January 23, 1998 (150 days after the Issue Date), neither the
Registered Exchange Offer is consummated nor the Shelf Registration Statement is
declared effective; or (iii) after the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Notes or Exchange Notes in accordance
with and during the periods specified in the Registration Rights Agreement (each
such event referred to in clause (i) through (iii) being herein called a
"Registration Default"), additional interest will accrue on the Notes at the
rate of 0.50% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. All accrued additional interest shall be
paid to holders in the same manner in which payments of other interest are made
pursuant to the Indenture. At all other times, the Notes will bear interest at
the rate of 9% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal United States
federal income tax consequences of the acquisition, ownership and disposition of
the Notes and the Exchange Notes to initial beneficial owners of the Notes who
are U.S. Holders (as defined below) and the principal U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of the
Notes and the Exchange Notes to initial beneficial owners of the Notes who are
Non-U.S. Holders (as defined below). This discussion is based on currently
existing provisions of the Code, existing and proposed Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as in effect or proposed on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. It does
not include any description of the tax laws of any state, local or foreign
government that may be applicable to the Notes or Exchange Notes or beneficial
owners thereof. This discussion does not address the tax consequences to
subsequent beneficial owners of the Notes and the Exchange Notes, and is limited
to beneficial owners who hold the Notes or the Exchange Notes as capital assets
within the meaning of section 1221 of the Code. This discussion also does not
address the tax consequences to Non-U.S. Holders that are subject to U.S.
federal income or estate tax on a net basis on income realized with respect to a
Note or Exchange Note because such income is effectively connected with the
conduct of a U.S. trade or business. Such holders are generally taxed in a
similar manner to U.S. Holders; however, certain special rules apply. Moreover,
this discussion is for general information only, and does not address all of the
U.S. federal income tax consequences that may be relevant to particular initial
beneficial owners in light of their personal circumstances, or to certain types
of initial beneficial owners (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons who have hedged
the risk of owning a Note or Exchange Note or U.S. Holders that have a
functional currency other than the U.S. dollar).
PROSPECTIVE PARTICIPANTS IN THE REGISTERED EXCHANGE OFFER ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES AND EXCHANGE NOTES,
INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS
OR INTERPRETATIONS THEREOF.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest
In general, interest on a Note or Exchange Note will be taxable to a
beneficial owner who or which is (i) a citizen or resident of the United States,
(ii) a corporation created or organized under the laws of the United States or
any State thereof (including the District of Columbia), or (iii) a person
otherwise subject to U.S. federal income taxation on its worldwide income (a
"U.S. Holder") as ordinary income at the time it is (actually or constructively)
received or accrued, depending on the beneficial owner's method of accounting
for U.S. federal income tax purposes.
Original Issue Discount
If the Notes are not issued at a discount or are deemed to be issued with
no discount because such discount is de minimis, a U.S. Holder will include in
income as ordinary interest income the gross amount of interest paid or payable
in respect of the Notes as provided above in "Payments of Interest." A discount
on original issue will be considered de minimis and, thus, will be treated as
zero discount if the original issue discount is less than one-fourth ( 1/4) of
one percent of the stated redemption price at maturity, multiplied by the number
of complete years to maturity. The Company expects that the Notes will be deemed
to be issued without original issue discount.
Registered Exchange Offer
The exchange of Notes for the Exchange Notes pursuant to the Registered
Exchange Offer will not be treated as an "exchange" for U.S. federal income tax
purposes because the Exchange Notes will not be
80
<PAGE> 84
considered to differ materially in kind or extent from the Notes. As a result,
there will be no U.S. federal income tax consequences to beneficial owners
exchanging the Notes for the Exchange Notes pursuant to the Registered Exchange
Offer. The Company is obligated to pay additional interest to the beneficial
owners of Exchange Notes under certain circumstances described under
"Registration Rights." The Company believes that any such payments should be
treated as an "incidental contingency" for purposes of the original issue
discount rules because the potential amount of any such payments, if required to
be made, is expected to be insignificant relative to the total expected amount
of remaining payments on the Notes, and accordingly should be taxable to the
beneficial owners in the manner described in the preceding paragraph but should
not otherwise impact the federal income tax consequences to beneficial owners of
the Notes.
Sale, Exchange or Retirement of the Notes or Exchange Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note or Exchange Note, a U.S. Holder will generally recognize
taxable gain or loss equal to the difference between the sum of cash plus the
fair market value of all other property received on such disposition (except to
the extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income) and such beneficial owner's adjusted
tax basis in the Note or Exchange Note. A U.S. Holder's adjusted tax basis in a
Note or Exchange Note generally will equal the cost of the Note or Exchange Note
to such holder, less any principal payments received by such holder.
Gain or loss recognized on the disposition of a Note or Exchange Note
generally will be capital gain or loss, and will be long-term capital gain or
loss if, at the time of such disposition, the U.S. Holder's holding period for
the Note or Exchange Note is more than one year. The Taxpayer Relief Act of 1997
reduced the maximum capital gains tax rate for investments held for at least one
year to 20% from 28% effective May 7, 1997. Effective July 29, 1997, the holding
period necessary to qualify for the new capital gains rates increased from one
year to 18 months. For Notes sold after July 28, 1997 with a holding period
between one year and 18 months, the maximum rate remains at 28%.
U.S. TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal and interest on the Notes or Exchange Notes
by the Company or any agent of the Company to any beneficial owner of a
Note or Exchange Note that is not a U.S. Holder (a "Non-U.S. Holder") will
not be subject to U.S. federal withholding tax, provided that in the case
of interest (a)(1) the Non-U.S. Holder does not actually or constructively
own 10 percent or more of the total combined voting power of all classes of
stock of the Company entitled to vote, (2) the Non-U.S. Holder is not a
controlled foreign corporation that is related to the Company through stock
ownership, (3) the Non-U.S. Holder is not a bank described in Section
881(c)(3)(A) of the Code, and (4) either (A) the beneficial owner of the
Notes or Exchange Notes certifies to the Company or its agent on Internal
Revenue Service ("IRS") Form W-8 (or a suitable substitute form), under
penalties of perjury, that it is not a "U.S. person" (as defined in the
Code) and provides its name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Notes or Exchange Notes on behalf of the
beneficial owner certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof or (b) the Non-U.S. Holder is
entitled to the benefits of an income tax treaty under which interest on
the Notes or Exchange Notes is exempt from U.S. withholding tax and
provides a properly executed IRS Form 1001 claiming the exemption;
(ii) the exchange of Notes for the Exchange Notes pursuant to the
Registered Exchange Offer will not be treated as an "exchange" for U.S.
federal income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the Notes. As a
result, there will be no U.S.
81
<PAGE> 85
federal income tax consequences to beneficial owners exchanging the Notes
for the Exchange Notes pursuant to the Registered Exchange Offer;
(iii) a Non-U.S. Holder will not be subject to U.S. federal
withholding tax on gain realized on the sale, exchange or redemption of a
Note or Exchange Note, unless the Non-U.S. Holder is an individual who is
present in the United States for a period or periods aggregating 183 or
more days in the taxable year of the disposition and certain other
conditions are met; and
(iv) Notes or Exchange Notes held at the time of death (or theretofore
transferred subject to certain retained rights or powers) by an individual
who at the time of death is a Non-U.S. Holder will not be included in such
holder's gross estate for U.S. federal estate tax purposes provided that
the individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote or hold the Notes or Exchange Notes in connection with a U.S. trade
or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes or Exchange Notes are
outstanding, the Company is required to provide the IRS with certain
information, including the beneficial owner's name, address and taxpayer
identification number, the aggregate amount of interest paid to that beneficial
owner during the calendar year and the amount of tax withheld, if any. This
obligation, however, does not apply with respect to certain payments to U.S.
Holders, including corporations, tax-exempt organizations, qualified pension and
profit sharing trusts and individual retirement accounts, provided that they
establish entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Notes or Exchange Notes. This backup withholding is not
an additional tax and may be credited against the U.S. Holder's U.S. federal
income tax liability, provided that the required information is furnished to the
IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Note or Exchange Note if
such holder has provided the required certification that it is not a U.S. person
as set forth in clause (4) in the first paragraph under "U.S. Taxation of
Non-U.S. Holders," or has otherwise established an exemption (provided that
neither the Company nor its agent has actual knowledge that the holder is a U.S.
person or that the conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Note or Exchange Note to or
through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that if the broker is a U.S. person, a
controlled foreign corporation for U.S. federal income tax purposes or a foreign
person 50 percent or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment was effectively connected with a U.S. trade or business, information
reporting may apply to such payments. Payment of the proceeds from a sale of a
Note or Exchange Note to or through the U.S. office of a broker subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its taxpayer identification number or otherwise
establishes an exemption from information reporting and backup withholding.
PROPOSED REGULATIONS
The IRS has issued proposed regulations relating to withholding, backup
withholding and information reporting that, if adopted in their current form,
would, among other things, unify current certification procedures and forms and
clarify certain reliance standards. The regulations are proposed to be effective
for payments made after December 31, 1997 but provide that certificates issued
on or before the date that is 60 days after the proposed regulations are made
final will continue to be valid until they expire. The proposed regulations,
however, may be subject to change prior to their adoption in final form.
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<PAGE> 86
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes issued
pursuant to the Registered Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than broker-dealers, as set forth below, and any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder does not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution of such Exchange Notes. Any holder who tenders
in the Registered Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989), Morgan Stanley & Co., Incorporated
(available June 5, 1991), Shearman & Sterling (available July 2, 1993) or
similar no-action letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. In addition, any such resale transaction should be covered
by an effective registration statement containing the selling security holders
information required by Item 507 of Regulation S-K of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must agree that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1997 (90 days after
commencement of the Registered Exchange Offer), all dealers effecting
transactions in the Exchange Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Registered Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells the Exchange Notes that were received by
it for its own account pursuant to the Registered Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the holders of the Notes) other than commission or concessions of any
brokers or dealers and will indemnify the holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By tendering in the Registered Exchange Offer, each holder will represent
to the Company that, among other things, (i) the Exchange Notes acquired
pursuant to the Registered Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is
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<PAGE> 87
a holder, (ii) neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes, and (iii) the holder and such other person acknowledge that if
they participate in the Registered Exchange Offer for the purpose of
distributing the Exchange Notes, (a) they must, in the absence of an exemption
therefrom, comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale of the Exchange Notes and
cannot rely on the no-action letters referenced above, and (b) failure to comply
with such requirements in such instance could result in such holder incurring
liability under the Securities Act for which such holder is not indemnified by
the Company. Further, by tendering in the Registered Exchange Offer, each holder
that may be deemed an "affiliate" (as defined under Rule 405 of the Securities
Act) of the Company will represent to the Company that such holder understands
and acknowledges that the Exchange Notes may not be offered for resale, resold
or otherwise transferred by that holder without registration under the
Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the SEC with respect to resales of
the Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act.
By acceptance of this Registered Exchange Offer, each broker-dealer that
receives Exchange Notes for its own account pursuant to the Registered Exchange
Offer agrees that, upon receipt of notice from the Company of the happening of
any event which makes any statement in this Prospectus untrue in any material
respect or which requires the making of any changes in this Prospectus in order
to make the statements therein not misleading (which notice the Company agrees
to deliver promptly to such broker-dealer), such broker-dealer will suspend use
of this Prospectus until the Company has amended or supplemented this Prospectus
to correct such misstatement or omission and has furnished copies of the amended
or supplemental Prospectus to such broker-dealer.
The Initial Purchasers have advised the Company that they propose to offer
the Notes for sale from time to time in one or more transactions (which may
include block transactions), in negotiated transactions or otherwise, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Initial Purchasers may effect such transactions by selling the Notes
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the Initial Purchasers and/or the
purchaser of the Notes for whom they may act as agents. In connection with the
sale of the Notes, the Initial Purchasers may be deemed to have received
compensation from the Company in the form of discounts, and the Initial
Purchasers may also receive commissions from the purchasers of the Notes for
whom they may act as agents. Any discounts or commissions received by the
Initial Purchasers and any dealers that participate with the Initial Purchasers
in the distribution of the Notes, and any profit on the resale of the Notes by
them, may be deemed to be discounts or commissions.
The Notes are new securities for which there currently is no market. The
Exchange Notes sold to QIBs are expected to be eligible for trading in The
PORTAL Market. The Initial Purchasers have advised the Company that they have
acted as market makers for the Notes and presently intend to make a market in
the Exchange Notes as permitted by applicable law. The Initial Purchasers are
not obligated, however, to make a market in the Exchange Notes and any such
market-making may be discontinued at any time at the sole discretion of the
Initial Purchasers. Accordingly, no assurance can be given as to the development
or liquidity of any market for the Exchange Notes.
The Company has agreed to indemnify the Initial Purchasers against certain
liabilities or contribute to payments which the Initial Purchasers may be
required to make in respect thereof.
In the ordinary course of their respective businesses, certain of the
Initial Purchasers and their affiliates have engaged in investment banking and
commercial banking transactions with the Company for which they have received
customary fees, and may engage in such transactions in the future. Affiliates of
BancAmerica Securities, Inc. serve as the agent bank, the arranger and a lending
bank under the Credit Agreement. Such affiliates will receive their
proportionate share of any repayment by the Company of amounts outstanding under
the Credit Agreement from the net proceeds of the offering of the Notes.
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<PAGE> 88
LEGAL MATTERS
Certain legal matters relating to the Exchange Notes offered hereby will be
passed upon for the Company by Fennemore Craig, P.C., Phoenix, Arizona.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Giant Industries, Inc. and subsidiaries as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included and incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are included and incorporated by reference herein, and have been so included and
incorporated by reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Bloomfield Refining Company as of December 31,
1993 and 1994 and for each of the three years in the period ended December 31,
1994 incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent auditors, as stated in their report, which is
incorporated by reference herein, and have been so incorporated by reference in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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<PAGE> 89
GLOSSARY
The following is a selection of terms used in this Prospectus.
BBLS. Barrels of oil. One barrel equals 42 gallons.
BCF. One billion cubic feet of gas.
BOE OR OIL EQUIVALENT. Oil equivalent reserve and production information
is expressed in Bbls of oil based on a ratio of gas to oil of six Mcf to one
Bbl.
CARDLOCK OPERATION. An unmanned fleet fueling operation.
CRUDE OIL. Crude oil includes condensate.
COAL SEAM GAS. Natural gas recovered from seams of coal beds and produced
using conventional drilling and completion methods.
FEEDSTOCKS. Hydrocarbon compounds, such as crude oil and natural gas
liquids that are processed and blended into refined products.
LPG. Liquid Propane Gas.
MBBLS. One thousand barrels of oil.
MCF. One thousand cubic feet of gas.
NGL. Natural gas liquid.
RATED CRUDE OIL CAPACITY. The crude oil processing capacity of a refinery
that is established by engineering design.
REFINERY CONVERSION. The ability of a refinery to produce high-value
refined products such as gasoline, diesel fuel and jet fuel from crude oil and
other feedstocks.
REFINERY MARGIN. The difference between crude oil, NGLs and other
feedstock, intermediate stock and blending component costs and the prices of
refined products sold, expressed in dollars per barrel of refined product.
REFINED PRODUCTS. The hydrocarbon compounds, such as gasoline, diesel
fuel, jet fuel and residual fuel, that are produced by a refinery.
YIELD. The percentage of refined products that are produced from
feedstocks.
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<PAGE> 90
INDEX TO FINANCIAL STATEMENTS*
CONSOLIDATED FINANCIAL STATEMENTS OF GIANT INDUSTRIES, INC. AND SUBSIDIARIES:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1996, and June 30, 1997
(Unaudited)......................................................................... F-3
Consolidated Statements of Earnings, Years Ended December 31, 1994, 1995 and 1996, and
Six Months Ended June 30, 1996 and 1997 (Unaudited)................................. F-4
Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1994, 1995
and 1996, and Six Months Ended June 30, 1997 (Unaudited)............................ F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997 (Unaudited)............................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
UNAUDITED INTERIM FINANCIAL STATEMENTS OF BLOOMFIELD REFINING COMPANY:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Balance Sheets, December 31, 1994 and September 30, 1995.............................. F-27
Statements of Operations, Nine Months Ended September 30, 1994 and 1995............... F-28
Statements of Cash Flows, Nine Months Ended September 30, 1994 and 1995............... F-29
Notes to Financial Statements......................................................... F-30
</TABLE>
- ---------------
* The financial statements of the Subsidiary Guarantors are omitted because all
of the Company's subsidiaries will guarantee the Exchange Notes on a full,
unconditional, joint and several basis.
F-1
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Giant Industries, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of Giant
Industries, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Giant
Industries, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 3, 1997, except for Note 17 as to
which the date is June 3, 1997
F-2
<PAGE> 92
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 9,549 $ 12,628 $ 7,136
Receivables:
Trade, less allowance for doubtful accounts of
$424,000, $254,000, and $470,000 (unaudited)...... 22,264 25,014 46,871
Income tax refunds.................................. 380 1,355 1,282
Other............................................... 1,381 4,395
-------- --------- ---------
24,025 30,764 48,153
-------- --------- ---------
Inventories............................................ 42,581 38,226 56,305
Prepaid expenses and other............................. 3,880 3,252 8,699
Net assets of discontinued operations.................. 26,689
Deferred income taxes.................................. 2,145 1,636 1,636
-------- --------- ---------
Total current assets........................... 108,869 86,506 121,929
-------- --------- ---------
Property, plant and equipment............................ 292,919 322,260 391,988
Less accumulated depreciation and amortization......... (94,357) (108,715) (116,768)
-------- --------- ---------
198,562 213,545 275,220
-------- --------- ---------
Other assets............................................. 17,431 23,956 37,222
-------- --------- ---------
$324,862 $ 324,007 $ 434,371
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable and current portion of long-term debt..... $ 4,063 $ 1,439 $ 5,190
Accounts payable....................................... 34,162 35,754 49,893
Accrued expenses....................................... 20,316 27,772 24,780
-------- --------- ---------
Total current liabilities...................... 58,541 64,965 79,863
-------- --------- ---------
Long-term debt, net of current portion................... 142,676 113,081 202,358
Deferred income taxes.................................... 12,864 19,042 20,664
Other liabilities........................................ 1,049 4,795 4,753
Commitments and contingencies (Notes 2, 7, 8, 14, 15 and
17)....................................................
Stockholders' equity:
Preferred stock, par value $.01 per share, 10,000,000
shares authorized, none issued......................
Common stock, par value $.01 per share, 50,000,000
shares authorized, 12,188,629, 12,221,367, and
11,022,567 (unaudited) shares issued................ 122 122 122
Additional paid-in capital............................. 72,389 72,617 72,617
Retained earnings...................................... 45,373 60,170 65,863
Unearned compensation related to restricted stock...... (151)
-------- --------- ---------
117,733 132,909 138,602
Less common stock in treasury-at cost, 939,500,
1,123,500, and 1,198,800 (unaudited) shares............ (8,001) (10,785) (11,869)
-------- --------- ---------
109,732 122,124 126,733
-------- --------- ---------
$324,862 $ 324,007 $ 434,371
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 93
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................... $ 291,623 $ 332,888 $ 499,184 $ 239,743 $ 270,261
Cost of products sold........... 195,489 234,271 361,864 166,678 198,645
----------- ----------- ----------- ----------- -----------
Gross margin.................... 96,134 98,617 137,320 73,065 71,616
Operating expenses.............. 51,823 51,856 64,315 31,277 34,129
Depreciation and amortization... 12,246 13,345 17,673 8,381 10,571
Selling, general and
administrative expenses....... 11,930 12,778 15,602 9,042 9,808
----------- ----------- ----------- ----------- -----------
Operating income................ 20,135 20,638 39,730 24,365 17,108
Interest expense................ (11,805) (11,506) (12,318) (6,599) (6,005)
Interest and investment
income........................ 1,733 2,239 771 222 232
----------- ----------- ----------- ----------- -----------
Earnings from continuing
operations before income
taxes......................... 10,063 11,371 28,183 17,988 11,335
Provision for income taxes...... 2,608 3,638 11,132 6,970 4,536
----------- ----------- ----------- ----------- -----------
Earnings from continuing
operations.................... 7,455 7,733 17,051 11,018 6,799
Discontinued operations:
Earnings (loss) from oil and
gas operations (net of
taxes)..................... (2,934) 143 7
Loss on disposal of oil and
gas operations (net of
taxes)..................... (13)
----------- ----------- ----------- ----------- -----------
Net earnings.................... $ 4,521 $ 7,876 $ 17,038 $ 11,025 $ 6,799
=========== =========== =========== =========== ===========
Earnings (loss) per common
share:
Continuing operations......... $ 0.61 $ 0.68 $ 1.52 $ 0.98 $ 0.61
Discontinued operations....... (0.24) 0.01
----------- ----------- ----------- ----------- -----------
Net earnings.................. $ 0.37 $ 0.69 $ 1.52 $ 0.98 $ 0.61
=========== =========== =========== =========== ===========
Weighted average number of
shares outstanding............ 12,127,481 11,478,779 11,220,380 11,255,853 11,084,336
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 94
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
UNEARNED UNEARNED UNREALIZED
COMMON STOCK EMPLOYEE COMPENSATION LOSS ON
------------------- ADDITIONAL BENEFITS RELATED TO SECURITIES
SHARES PAR PAID-IN RETAINED RELATED TO RESTRICTED AVAILABLE-
ISSUED VALUE CAPITAL EARNINGS ESOP STOCK FOR-SALE
---------- ----- ---------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994...... 12,192,770 $122 $ 72,417 $35,852 $ (1,347) (1,130)
Purchase of treasury stock....
Stock options exercised....... 500 3
Benefits allocated to
employees by ESOP........... 833
Compensation related to
restricted stock awards..... 469
Restricted stock award shares
forfeited................... (5,641) (47) 47
Unrealized loss on securities
available-for-sale.......... $ (398)
Net earnings.................. 4,521
---------- ---- ------- ------- ----- ----- -----
Balances, December 31, 1994.... 12,187,629 122 72,373 40,373 (514) (614) (398)
Purchase of treasury stock....
Stock options exercised....... 1,000 8
Benefits allocated to
employees by ESOP........... 514
Compensation related to
restricted stock awards..... 8 463
Dividends declared............ (2,876)
Change in unrealized loss on
securities
available-for-sale.......... 398
Net earnings.................. 7,876
---------- ---- ------- ------- ----- ----- -----
Balances, December 31, 1995.... 12,188,629 122 72,389 45,373 (151)
Purchase of treasury stock....
Stock options exercised....... 32,750 216
Compensation related to
restricted stock awards..... 12 151
Restricted stock award
fractional shares
redeemed/canceled........... (12)
Dividends declared............ (2,241)
Net earnings.................. 17,038
---------- ---- ------- ------- ----- ----- -----
Balances, December 31, 1996.... 12,221,367 122 72,617 60,170
Purchase of treasury stock
(unaudited).................
Dividends declared
(unaudited)................... (1,106)
Net earnings (unaudited)...... 6,799
---------- ---- ------- ------- ----- ----- -----
Balances, June 30, 1997
(unaudited)................... 12,221,367 $122 $ 72,617 $65,863 $ $ $
========== ==== ======= ======= ===== ===== =====
<CAPTION>
TREASURY STOCK TOTAL
--------------------- STOCKHOLDERS'
SHARES COST EQUITY
--------- -------- -------------
<S> <C> <C> <C>
Balances, January 1, 1994...... $ 105,914
Purchase of treasury stock.... 202,300 $ (1,652) (1,652)
Stock options exercised....... 3
Benefits allocated to
employees by ESOP........... 833
Compensation related to
restricted stock awards..... 469
Restricted stock award shares
forfeited...................
Unrealized loss on securities
available-for-sale.......... (398)
Net earnings.................. 4,521
--------- -------- --------
Balances, December 31, 1994.... 202,300 (1,652) 109,690
Purchase of treasury stock.... 737,200 (6,349) (6,349)
Stock options exercised....... 8
Benefits allocated to
employees by ESOP........... 514
Compensation related to
restricted stock awards..... 471
Dividends declared............ (2,876)
Change in unrealized loss on
securities
available-for-sale.......... 398
Net earnings.................. 7,876
--------- -------- --------
Balances, December 31, 1995.... 939,500 (8,001) 109,732
Purchase of treasury stock.... 184,000 (2,784) (2,784)
Stock options exercised....... 216
Compensation related to
restricted stock awards..... 163
Restricted stock award
fractional shares
redeemed/canceled...........
Dividends declared............ (2,241)
Net earnings.................. 17,038
--------- -------- --------
Balances, December 31, 1996.... 1,123,500 (10,785) 122,124
Purchase of treasury stock
(unaudited)................. 75,300 (1,084) (1,084)
Dividends declared
(unaudited)................... (1,106)
Net earnings (unaudited)...... 6,799
--------- -------- --------
Balances, June 30, 1997
(unaudited)................... 1,198,800 $(11,869) $ 126,733
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 95
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................................ $ 4,521 $ 7,876 $ 17,038 $ 11,025 $ 6,799
Adjustments to reconcile net earnings to net cash provided by continuing
operating activities:
Loss (earnings) from discontinued operations.......................... 2,934 (143) 13 (7)
Depreciation and amortization......................................... 12,246 13,345 17,673 8,381 10,571
Deferred income taxes................................................. (1,058) 1,632 6,514 1,665 1,623
Restricted stock award compensation................................... 469 471 163 76
Gain on involuntary conversion of refinery assets..................... (533)
Increase (decrease) in other liabilities.............................. 1,019 (328) 470 457 562
Other................................................................. 341 57 73 (47) (49)
Changes in operating assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables.................................. (7,200) (2,513) (6,718) (5,188) 185
(Increase) decrease in inventories.................................. (8,929) (10,311) 4,355 (2,314) (12,201)
Decrease (increase) in prepaid expenses and other................... 1,120 (1,563) 647 1,678 493
Increase (decrease) in accounts payable............................. 5,037 15,096 1,644 3,557 (2,698)
(Decrease) increase in accrued expenses............................. (2,121) 904 883 3,774 1,175
------- ------- ------- ------- -------
Net cash provided by continuing operating activities.............. 7,846 24,523 42,755 23,057 6,460
------- ------- ------- ------- -------
Cash flows from investing activities:
Refinery acquisition.................................................... (55,000)
Acquisition of businesses, net of cash received......................... (47,029)
Purchases of property, plant and equipment and other assets............. (17,165) (22,978) (27,468) (15,780) (18,466)
Refinery acquisition contingent payment................................. (6,910)
Proceeds from sale of property, plant and equipment and other assets.... 5,611 2,588 4,587 3,352 246
Insurance proceeds from involuntary conversion of refinery assets....... 438
Payments received on ESOP loan.......................................... 833 514
Purchases of marketable securities...................................... (101,562)
Proceeds from sales and maturities of marketable securities............. 100,849 35,991
Proceeds from sale of discontinued operations........................... 24,106
Net cash provided (used) by discontinued operations..................... 639 (6,150) (3,831)
Net change in assets of discontinued operations......................... 372
------- ------- ------- ------- -------
Net cash used by investing activities............................. (10,357) (45,035) (2,606) (12,056) (72,159)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds of long-term debt.............................................. 41,000 10,000 120,850
Payments of long-term debt.............................................. (3,025) (14,458) (42,218) (12,252) (58,244)
Purchase of treasury stock.............................................. (1,652) (6,349) (2,784) (1,084)
Deferred financing costs................................................ (100) (698) (201)
Payment of dividends.................................................... (2,302) (2,284) (1,156) (1,114)
Proceeds from exercise of stock options................................. 3 8 216 95
------- ------- ------- ------- -------
Net cash (used) provided by financing activities.................. (4,774) 17,201 (37,070) (13,313) 60,207
------- ------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents.............. (7,285) (3,311) 3,079 (2,312) (5,492)
Cash and cash equivalents:
Beginning of period..................................................... 20,145 12,860 9,549 9,549 12,628
------- ------- ------- ------- -------
End of period........................................................... $ 12,860 $ 9,549 $ 12,628 $ 7,237 $ 7,136
======= ======= ======= ======= =======
</TABLE>
Noncash Investing and Financing Activities. For the year ended December 31,
1994, a portion of the acquisition price of nine retail units was seller
financed for $2,917,000. For the year ended December 31, 1995, two retail units
with a net book value of $1,613,000 were exchanged for a finished products
terminal and $1,198,000 was incurred as a contingent payment related to the
acquisition of the Bloomfield refinery. In the second quarter of 1996 and for
the year ended December 31, 1996, the Company accrued $2,250,000 for estimated
preacquisition environmental liabilities assumed in the purchase of the
Bloomfield refinery. For the year ended December 31, 1996, $6,910,000 was
incurred as a contingent payment, also related to the acquisition of the
Bloomfield refinery. Both of these amounts have been added to property, plant
and equipment as an adjustment to the purchase price of the Bloomfield refinery.
In the second quarter of 1997, the Company exchanged an office building with a
net book value of approximately $800,000, a truck maintenance shop with a net
book value of approximately $500,000 and recorded $22,904,000 as long-term debt
for capital leases as part of the acquisition of ninety-six service
station/convenience stores and other assets.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 96
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Giant Industries, Inc. ("Giant" or the "Company") was organized to combine
the refining and marketing business of Giant Industries Arizona, Inc. ("Giant
Arizona") with the oil and gas business of Hixon Development Company ("Hixon")
through a merger in December 1989 in which Giant Arizona and Hixon became
wholly-owned subsidiaries of the Company. In conjunction with the merger, the
Company completed its initial public offering. In 1990, Hixon was renamed Giant
Exploration & Production Company ("Giant E&P").
In early 1996, the Company approved a plan for disposition of its oil and
gas business. On August 30, 1996, the Company completed the sale of
substantially all of its oil and gas assets. (See Note 3 for further
discussion.)
DESCRIPTION OF BUSINESS
The Company operates primarily as an independent refiner and marketer of
petroleum products. The Company has two operating refineries in New Mexico. The
Ciniza refinery, with a crude oil throughput capacity of 20,800 barrels per day
("bpd") and a total capacity including natural gas liquids of 26,000 bpd, is
located near Gallup, New Mexico. In October 1995, the Company acquired the
Bloomfield refinery, with a crude oil throughput capacity of 18,000 bpd and a
total capacity including natural gas liquids of 18,600 bpd, located in
Bloomfield, New Mexico. (See Note 2 for further discussion.) The Company also
owns an ethanol production plant which supplies ethanol for blending by the
Company as well as for sale to third party customers. Due to high grain costs,
this facility temporarily suspended operations in October 1995. Based on current
raw material and product prices, the Company has reevaluated its options
regarding this facility and currently plans to reopen the plant in 1997.
The Company's principal business is the refining of crude oil into
petroleum products which are sold through branded retail outlets as well as
through distributors, industrial/commercial accounts and major oil companies.
The Company is the largest refiner and one of the largest marketers of petroleum
products in the Four Corners area of the southwestern United States where New
Mexico, Arizona, Colorado and Utah adjoin. As an adjunct to its retail outlets,
the Company sells merchandise through its stores.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Giant and all
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NET REVENUES
Revenues are recognized from sales when product ownership is transferred to
the customer. Excise and other similar taxes are excluded from net revenues.
F-7
<PAGE> 97
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
All highly liquid instruments with an original maturity of three months or
less are considered to be cash equivalents.
FUTURES AND OPTION CONTRACTS
The Company periodically enters into futures or option contracts to hedge
its exposure to price fluctuations on crude oil and refined products. Gains and
losses on hedge contracts are deferred and reported as a component of the
related transaction. For the purposes of the Statement of Cash Flows, hedging
transactions are considered to be operating activities.
INTEREST RATE SWAPS
In the past, interest rate management techniques such as swaps and caps
were entered into in order to effectively manage and reduce net interest
expense. Net settlements on swap transactions are reported as an adjustment to
net interest expense over the life of the associated debt instruments. These
debt instruments were repaid in 1996, and the remaining net settlement proceeds
were recorded as an adjustment to interest expense.
MARKETABLE SECURITIES
All marketable securities were sold or matured in 1995. Marketable
securities were stated at fair value which was generally estimated based on
quoted market prices. Marketable securities were managed as part of the
Company's shortterm cash management program.
CONCENTRATION OF CREDIT RISK
Credit risk with respect to customer receivables is concentrated in a small
geographic area in which the Company operates and relates to customers in the
oil and gas industry. To minimize this risk, the Company performs ongoing credit
evaluations of its customers' financial position and requires collateral, such
as letters of credit, in certain circumstances.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs for crude oil
and refined products produced by the refineries are determined by the last-in,
first-out ("LIFO") method. Costs for exchange and terminal refined products and
shop supplies are determined by the first-in, first-out ("FIFO") method. Costs
for merchandise inventories are determined by the retail inventory method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated on the
straight-line method over their respective estimated useful lives. The estimated
useful lives for the various categories of property, plant and equipment are:
<TABLE>
<S> <C>
Buildings and improvements.............................. 7-30 years
Machinery and equipment................................. 7-24 years
Pipelines............................................... 30 years
Furniture and fixtures.................................. 2-15 years
Vehicles................................................ 3-7 years
</TABLE>
F-8
<PAGE> 98
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Routine maintenance, repairs and replacement costs are charged against
earnings as incurred. Turnaround costs, which consist of complete shutdown and
inspection of significant units of the refineries at intervals of two or more
years for necessary repairs and replacements, are deferred and amortized over
the period until the next expected shutdown which generally ranges from
twenty-four to forty-eight months depending on the type of shutdown and the unit
involved. Expenditures which materially increase values, expand capacities or
extend useful lives are capitalized. Interest expense is capitalized as part of
the cost of constructing major facilities and equipment.
TREASURY STOCK
The Company's Board of Directors has authorized the repurchase of up to
1,500,000 shares of the Company's common stock or approximately 12% of all
shares issued as of the inception of the repurchase program. These purchases may
be made from time to time as conditions permit. Shares may be repurchased
through privately-negotiated transactions, block share purchases and open market
transactions. Through the end of 1996, the Company had repurchased 1,123,500
shares at a cost of approximately $10,785,000. These shares are being treated as
treasury shares.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated.
INCOME TAXES
The provision for income taxes is based on earnings reported in the
financial statements. Deferred income taxes are provided on temporary
differences between the basis of assets and liabilities for financial reporting
purposes and income tax purposes.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed on the weighted average number
of shares of common stock outstanding during each period. The exercise of
outstanding stock options would not result in a material dilution of earnings
per share.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
adopted this Statement in the first quarter of 1996 and based on an evaluation
of its operations in accordance with the criteria specified in the Statement,
determined that there was no material impact to the Company's financial position
or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock Based Compensation." The Company determined that it
will not change to the fair value method prescribed in the Statement and will
continue to use Accounting Principles Board Opinion No. 25 for measurement and
recognition of employee stock based compensation. SFAS No. 123 requires
additional disclosures to be made in the financial statements.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1 "Environmental Remediation
Liabilities." The Company has not completed the process of evaluating the impact
that will result from adopting this SOP. However, management does not believe
the
F-9
<PAGE> 99
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adoption will have a significant impact on the Company's financial position or
results of operations. SOP 96-1 is required to be adopted in the first quarter
of 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
and notes to conform to the statement classifications used in 1996.
NOTE 2 -- ACQUISITION
On October 4, 1995, the Company completed the purchase of the Bloomfield
refinery along with related pipeline and transportation assets from
Gary-Williams Energy Co. and its wholly-owned subsidiary, Bloomfield Refining
Company ("BRC").
The purchase price was $55,000,000 plus approximately $7,500,000 for crude
oil and refined products inventories associated with the refinery operations.
The purchase agreement provides for potential contingent payments to be made to
BRC over approximately six years from the acquisition date, not to exceed a
present value of $25,000,000, should certain criteria be met. These contingent
payments are considered to be additional purchase price and will be allocated to
the assets acquired in the same proportions as the original purchase price was
allocated, not to exceed the estimated current replacement cost, and amortized
over the estimated remaining life of the assets. At December 31, 1995 and 1996,
the Company had accrued $1,198,000 and $6,910,000, respectively, under this
arrangement relating to 1995 and 1996 operations. In addition, the Company
accrued $2,250,000 relating to certain environmental obligations assumed in the
purchase. The above accruals have been recorded as additional purchase price and
allocated to the assets acquired.
The following Statements of Earnings compare the consolidated results of
Giant, including the results of the Bloomfield refinery, for the year ended
December 31, 1996, with the pro forma combined condensed statement of earnings
of the Company and BRC ("Pro Forma") for the years ended December 31, 1994 and
1995. The pro forma statements assume the transaction was consummated at the
beginning of the periods presented, and include the results of operations of the
Company and BRC, along with adjustments which give effect to events that are
directly attributable to the transaction and which are expected to have a
continuing impact.
The unaudited pro forma combined condensed financial information does not
purport to represent the results of operations that actually would have resulted
had the purchase occurred on the date specified, nor should it be taken as
indicative of the future results of operations.
F-10
<PAGE> 100
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
PRO FORMA PRO FORMA GIANT
1994 1995 1996
--------- --------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenues..................................... $ 432,089 $ 439,719 $499,184
Cost of products sold............................ 294,964 313,353 361,864
-------- -------- --------
Gross margin..................................... 137,125 126,366 137,320
-------- -------- --------
Operating expenses............................... 64,755 61,504 64,315
Depreciation and amortization.................... 14,996 15,408 17,673
Selling, general and administrative expenses..... 14,495 14,339 15,602
-------- -------- --------
Operating income................................. 42,879 35,115 39,730
Interest expense, net and other.................. 14,021 12,229 11,547
-------- -------- --------
Earnings from continuing operations before income
taxes.......................................... 28,858 22,886 28,183
Provision for income taxes....................... 9,955 8,118 11,132
-------- -------- --------
Earnings from continuing operations ............. $ 18,903 $ 14,768 $ 17,051
======== ======== ========
Earnings from continuing operations per common
share.......................................... $ 1.56 $ 1.29 $ 1.52
======== ======== ========
</TABLE>
NOTE 3 -- DISCONTINUED OPERATIONS
In early 1996, the Company approved a plan of disposition for its oil and
gas segment. The decision was based upon management's review of the prospects
for this operation, which indicated that substantial new capital would be
necessary to further develop this business and reach an acceptable level of
profitability and integration.
The net assets of the oil and gas segment at December 31, 1995, were
approximately $26,689,000, consisting primarily of oil and gas properties and
related deferred taxes.
On August 30, 1996, the Company completed the sale of substantially all of
its oil and gas assets for $25,500,000. The transaction was structured so that
the Company retained only the oil and gas properties that will generate future
coal seam gas tax credits under Section 29 of the Internal Revenue Code. The
reserves related to these properties will be produced by the buyer and tax
credits will be realized by the Company. The net asset value assigned to these
properties is approximately $4,300,000 and is included in other assets and
liabilities in the accompanying Consolidated Balance Sheet. The Company also
retained an office building and some equipment. Future coal seam gas tax
credits, when earned, will be used to offset income taxes payable.
Revenues for the oil and gas operations in 1996, up to the date of sale,
were $6,891,000 and were $5,959,000 and $8,363,000 for the years 1994 and 1995,
respectively. These revenues are not included in revenues as reported in the
Consolidated Statements of Earnings.
Loss on the disposal of the oil and gas segment for 1996 is a loss on the
sale of the oil and gas properties of approximately $18,000, including a
provision for income taxes of $53,000, offset by earnings from operations of
approximately $5,000, including income tax benefits of $861,000. For 1994 and
1995, earnings (loss) from operations were $(2,934,000), net of income tax
benefit of $1,351,000, and $143,000, net of income taxes of $154,000,
respectively. A pre-tax charge for a reduction of the carrying value of crude
oil and natural gas properties of $3,395,000 was recorded in 1994.
F-11
<PAGE> 101
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Coal seam gas tax credits generated from these operations in 1996 of
$519,000 were allocated to discontinued operations. Similar tax credits
generated in 1994 and 1995 of $635,000 and $700,000, respectively, which could
not be used on a separate return basis, were allocated to continuing operations
based on the Company's tax sharing arrangement.
NOTE 4 -- MARKETABLE SECURITIES
During 1995, all of the Company's marketable securities, which were
classified as available-for-sale as defined in SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," were sold or matured.
In recording gains and losses on the sale of marketable securities, cost is
determined using specific identification. In 1995, the Company realized gross
losses of approximately $310,000, offset in part by a $200,000 gain realized on
the full payment of certain notes which had been written down by that amount in
1994 to reflect an estimated other than temporary impairment.
NOTE 5 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
First-in, first-out ("FIFO") method:
Crude oil.............................................. $15,465 $10,443
Refined products....................................... 17,605 22,462
Refinery and shop supplies............................. 6,871 7,439
Retail method:
Merchandise............................................ 2,721 2,768
------- -------
Subtotal............................................... 42,662 43,112
Allowance for last-in, first-out ("LIFO") method......... (81) (4,886)
------- -------
Total.......................................... $42,581 $38,226
======= =======
</TABLE>
The Company uses the LIFO method of inventory valuation. The portion of
inventories valued on a LIFO basis totaled $29,710,000 and $25,887,000 at
December 31, 1995 and 1996, respectively. The following data will facilitate
comparison with the operating results of companies using the FIFO method.
If inventories had been determined using the FIFO method at December 31,
1994, 1995 and 1996, net earnings and earnings per share for the years ended
December 31, 1994, 1995 and 1996 would have been higher (lower) by $357,000 and
$0.03, $(268,000) and $(0.02) and $2,883,000 and $0.26, respectively.
F-12
<PAGE> 102
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements................................. $ 21,582 $ 24,053
Buildings and improvements............................ 56,165 61,955
Machinery and equipment............................... 178,301 195,964
Pipelines............................................. 8,875 9,510
Furniture and fixtures................................ 15,195 16,568
Vehicles.............................................. 6,552 8,372
Construction in progress.............................. 6,249 5,838
-------- ---------
Subtotal......................................... 292,919 322,260
Accumulated depreciation and amortization............. (94,357) (108,715)
-------- ---------
Total....................................... $198,562 $ 213,545
======== =========
</TABLE>
NOTE 7 -- ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Excise taxes.......................................... $ 8,608 $ 8,212
Bloomfield refinery acquisition contingent payment.... 1,198 6,910
Payroll and related costs............................. 3,975 3,804
Bonus, profit sharing and retirement plans............ 538 2,850
Interest.............................................. 1,390 1,267
Other................................................. 4,607 4,729
------- -------
Total....................................... $20,316 $27,772
======= =======
</TABLE>
F-13
<PAGE> 103
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
9 3/4% senior subordinated notes, due 2003, interest
payable semi-annually................................ $100,000 $100,000
Unsecured credit agreement, due 1998, floating interest
rate, interest payable quarterly..................... 31,000 10,000
10.91% senior unsecured note repaid October 1996....... 8,750
Notes payable to others, collateralized by real estate,
9% to 11%, due 1996 to 2010, interest payable monthly
or annually.......................................... 3,645 2,208
8% secured promissory note, due 1996 to 1997, interest
payable quarterly.................................... 1,945 973
Other.................................................. 1,399 1,339
-------- --------
Subtotal.......................................... 146,739 114,520
Less current portion................................... (4,063) (1,439)
-------- --------
Total........................................ $142,676 $113,081
======== ========
</TABLE>
Repayment of the 9 3/4% senior subordinated notes ("Notes") is jointly and
severally guaranteed on an unconditional basis by the Company's direct and
indirect wholly-owned subsidiaries, subject to a limitation designed to ensure
that such guarantees do not constitute a fraudulent conveyance. Except as
otherwise allowed in the Indenture pursuant to which the Notes were issued,
there are no restrictions on the ability of such subsidiaries to transfer funds
to the Company in the form of cash dividends, loans or advances. General
provisions of applicable State law, however, may limit the ability of any
subsidiary to pay dividends or make distributions to the Company in certain
circumstances.
No separate financial statements of the subsidiaries are included herein
because the subsidiaries are jointly and severally liable; the aggregate assets,
liabilities, earnings, and equity of the subsidiaries are substantially
equivalent to the assets, liabilities, earnings, and equity of the Company on a
consolidated basis; and the separate financial statements and other disclosures
concerning the subsidiaries are not deemed material to investors.
The Indenture supporting the Notes contains certain covenants that, among
other things, restrict the ability of the Company and its subsidiaries to create
liens, incur or guarantee debt, pay dividends, sell certain assets or subsidiary
stock, engage in certain mergers, engage in certain transactions with affiliates
or alter the Company's current line of business. At December 31, 1996, the
Company was in compliance with these covenants. In addition, the Company is,
subject to certain conditions, obligated to offer to purchase a portion of the
Notes at a price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase, with the net cash proceeds of
certain sales or other dispositions of assets. Upon a change of control, the
Company will be required to offer to purchase all of the Notes at 101% of the
principal amount thereof, plus accrued interest, if any, to the date of
purchase. At December 31, 1996, retained earnings available for dividends under
the terms of the Indenture was approximately $16,123,000.
In October 1995, the Company entered into a Credit Agreement with a group
of banks under which $30,000,000 was borrowed pursuant to a three-year unsecured
revolving term facility to provide financing for the purchase of the Bloomfield
refinery. At December 31, 1996, this revolving term facility had been repaid.
The $30,000,000 that was repaid is currently available for reborrowing under
this facility for the acquisition of
F-14
<PAGE> 104
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
property, plant and equipment. This facility has a floating interest rate that
is tied to various short-term indices.
In addition, the Credit Agreement contains a three-year unsecured working
capital facility to provide working capital and letters of credit in the
ordinary course of business. The availability under this working capital
facility is the lesser of (i) $40,000,000, or (ii) the amount determined under a
borrowing base calculation tied to eligible accounts receivable and inventories
as defined in the Credit Agreement. At December 31, 1996, the lesser amount was
$40,000,000. At December 31, 1996, direct borrowings under this arrangement were
$10,000,000 and there were $15,928,000 of irrevocable letters of credit
outstanding. This facility has a floating interest rate that is tied to various
short-term indices and was 6.5% per annum at December 31, 1996.
The Company is required to pay a quarterly commitment fee based on the
unused amount of each facility.
The Credit Agreement contains certain covenants and restrictions which
require the Company to, among other things, maintain a minimum consolidated net
worth; minimum fixed charge coverage ratio; minimum funded debt to total
capitalization percentage; and places limits on investments, prepayment of
senior subordinated debt, guarantees, liens and restricted payments. At December
31, 1996, the Company was in compliance with these covenants. The Credit
Agreement is guaranteed by substantially all of the Company's wholly-owned
subsidiaries.
On October 17, 1996, the 10.91% senior unsecured note due to an insurance
company was repaid. In 1994, 1995 and 1996, the Company's interest expense was
reduced by approximately $288,000, $242,000 and $363,000, respectively, as a
result of amortizing the proceeds received from a terminated interest rate swap
agreement that was related to this note. At December 31, 1996, the balance of
the deferred swap proceeds was fully amortized due to the repayment of the
10.91% note.
Aggregate annual maturities of long-term debt as of December 31, 1996 are:
1997 -- $1,439,000; 1998 -- $10,395,000; 1999 -- $1,530,000; 2000 -- $49,000;
2001 -- $56,000; and all years thereafter -- $101,051,000.
NOTE 9 -- FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments" and SFAS No. 119,
"Disclosures about Derivative Financial Instruments and Fair Value of Financial
Instruments." The estimated fair value amounts have been determined by the
Company using available market information and valuation methodologies described
below. However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
may not be indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1996
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet -- Financial Instruments:
Fixed rate long-term debt.................. $115,637 $ 116,259 $104,449 $ 108,491
</TABLE>
F-15
<PAGE> 105
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying values of cash and cash equivalents, receivables, accounts
payable and accrued expenses approximate fair values due to the short-term
maturities of these instruments. Variable rate long-term debt instruments are
estimated to approximate fair values as rates are tied to short-term indices.
FIXED RATE LONG-TERM DEBT
The fair value of fixed rate long-term debt was determined using quoted
market prices, where applicable, or estimated by discounting future cash flows
using rates estimated to be currently available for debt of similar terms and
remaining maturities.
HEDGING ACTIVITIES
The Company purchases crude oil futures contracts and options to reduce
price volatility, to fix margins in its refining and marketing operations and to
protect against price declines for excess inventory volumes. These contracts
permit settlement by delivery of commodities and, therefore, are not financial
instruments, as defined by SFAS No. 105, "Disclosures of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk."
The Company uses these contracts in its hedging activities. At December 31,
1995, the Company's hedging activities had futures contracts maturing in 1996
covering 85,000 barrels of crude oil and options had been purchased on 240,000
barrels of crude oil. At December 31, 1996, the Company's hedging activities had
futures contracts maturing in 1997 covering 16,000 barrels of crude oil. The
crude oil options provided the Company downside protection on a portion of crude
oil barrels in inventory in excess of current operating needs. The crude oil
futures contracts qualify as hedges and any gains or losses resulting from
market changes are substantially offset by losses or gains on the Company's
hedging contracts. Gains and losses on hedging contracts are deferred and
reported as a component of the related transaction. Net deferred gains/(losses)
for the Company's petroleum hedging activities were approximately $116,000 and
$(30,000) at December 31, 1995 and 1996, respectively.
The Company is exposed to loss in the event of nonperformance by the other
parties to these contracts. However, the Company does not anticipate
nonperformance by the counterparties.
NOTE 10 -- INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $ 3,283 $1,140 $ 3,712
State................................................ 385 866 906
Deferred:
Federal.............................................. (1,189) 1,438 5,471
State................................................ 129 194 1,043
------- ------ -------
$ 2,608 $3,638 $11,132
======= ====== =======
</TABLE>
Income taxes paid in 1994, 1995 and 1996 were $5,379,000, $0, and
$8,909,000, respectively.
F-16
<PAGE> 106
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the difference between the provision for income taxes
and income taxes at the statutory U.S. federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at the statutory U.S. federal income tax
rate................................................. $ 3,522 $3,980 $ 9,864
Increase (decrease) in taxes resulting from:
State taxes, net..................................... 505 563 1,346
General business credits, net........................ (910) (679)
Federal tax credits from nonconventional fuel........ (635) (700)
Other, net........................................... 126 474 (78)
------- ------ -------
$ 2,608 $3,638 $11,132
======= ====== =======
</TABLE>
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes. The tax
effected temporary differences and credit carryforwards which comprise deferred
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------------- ----------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------- ----------- -------- ------- ----------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nondeductible accruals for
uncollectible receivables...... $ 168 $ 168 $ 101 $ 101
Insurance accruals............... 597 597 373 373
Insurance settlements............ 106 106 213 213
Other nondeductible accruals..... 130 130 208 208
Other reserves................... 616 616 617 617
Inventory costs capitalized for
income tax purposes............ 137 137 124 124
Other............................ 391 391
------- -------- -------- ------- -------- --------
Total current............... 2,145 2,145 1,636 1,636
------- -------- -------- ------- -------- --------
Other nondeductible accruals..... 349 349 1,114 1,114
Restricted stock awards.......... $ (28) (28)
Operating lease.................. (1,003) (1,003) $ (938) $ (938)
Accelerated depreciation......... (19,953) (19,953) (25,717) (25,717)
Other............................ 42 (979) (937) 27 (1,664) (1,637)
Tax credit carryforwards......... 8,708 8,708 8,136 8,136
------- -------- -------- ------- -------- --------
Total noncurrent............ 9,099 (21,963) (12,864) 9,277 (28,319) (19,042)
------- -------- -------- ------- -------- --------
Total.................. $11,244 $ (21,963) $(10,719) $10,913 $ (28,319) $(17,406)
======= ======== ======== ======= ======== ========
</TABLE>
At December 31, 1996, the Company had a minimum tax credit carryforward of
approximately $5,537,000 available to offset future income taxes payable to the
extent regular income taxes payable exceeds alternative minimum taxes payable.
Minimum tax credits can be carried forward indefinitely.
At December 31, 1996, the Company also had approximately $2,599,000 of
general business credits available to offset future regular taxes payable.
Pursuant to Federal income tax law, these carryover credits must be used before
any minimum tax credit carryforward can be used. Of the total general business
credit available, $214,000 will expire in 2008, $1,341,000 will expire in 2009
and $1,044,000 will expire in 2010.
F-17
<PAGE> 107
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EMPLOYEE STOCK OWNERSHIP PLAN
The Company and its subsidiaries have an Employee Stock Ownership Plan
("ESOP") which is a noncontributory defined contribution plan established
primarily to acquire shares of the Company's common stock for the benefit of all
eligible employees.
The ESOP originally borrowed $6,500,000 from a bank and purchased shares of
the Company's common stock from existing shareholders. The loan was purchased by
the Company from the bank in 1993 when the loan had a principal balance of
$1,347,000. In 1995, the ESOP paid the balance due on the loan of $514,000.
At December 31, 1995 and 1996, the ESOP's assets included 1,435,965 and
1,296,088 shares of the Company's common stock, respectively. All of these
shares have been allocated to the participants. Shares were allocated to
participants when principal payments were made on the loan discussed above. The
1996 contribution of $450,000 was invested in a balanced mutual fund.
Allocations to participant accounts are made on a formula based on the ratio
that each participant's compensation, during the Plan year, bears to the
compensation of all such participants. The Company treats all ESOP shares as
outstanding for earnings per share purposes.
Contributions to the ESOP are made at the discretion of the Board of
Directors. The Company made contributions of $900,000, $900,000 and $450,000 to
the ESOP for 1994, 1995 and 1996, respectively.
NOTE 12 -- STOCK INCENTIVE PLAN
The Company established the 1989 Stock Incentive Plan (the "Plan") under
which 500,000 shares of the Company's common stock were authorized to be issued
to deserving employees in the form of options and/or restricted stock. The Plan
is administered by the Compensation Committee of the Board of Directors, but to
the extent required under Section 16 of the Securities Exchange Act of 1934, any
transaction between the Company or the Plan and an executive officer of the
Company that involves a grant, award or other acquisition of the Company's
equity securities must be approved by the Board of Directors.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock Based Compensation." The Company has determined that
it will not change to the fair value method prescribed in the Statement and will
continue to use Accounting Principles Board Opinion No. 25 for measurement and
recognition of employee stock based compensation.
F-18
<PAGE> 108
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes stock option transactions:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS OUTSTANDING AT SHARES EXERCISE PRICE
--------------------------------------------------- ------- ----------------
<S> <C> <C>
January 1, 1994.................................... 304,857 $ 8.05
Granted.......................................... 10,000 9.81
Exercised........................................ (500) 5.25
Forfeited........................................ (2,000) 5.25
-------
December 31, 1994.................................. 312,357 8.13
Exercised........................................ (1,000) 7.75
Forfeited........................................ (5,000) 7.75
-------
December 31, 1995.................................. 306,357 8.14
Exercised........................................ (32,750) 6.61
Forfeited........................................ (6,600) 6.39
-------
December 31, 1996.................................. 267,007 $ 8.37
=======
Options exercisable at December 31:
1994............................................. 154,481 $ 8.41
1995............................................. 222,973 8.29
1996............................................. 256,573 8.44
</TABLE>
The following summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------------------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.96...................................... 108,857 2.5 Years $ 8.96 108,857 $ 8.96
10.50...................................... 5,000 3.6 Years 10.50 5,000 10.50
10.63...................................... 26,000 4.2 Years 10.63 26,000 10.63
5.25...................................... 30,400 5.3 Years 5.25 23,300 5.25
7.75...................................... 86,750 6.3 Years 7.75 86,750 7.75
9.81...................................... 10,000 7.2 Years 9.81 6,666 9.81
------- -------
267,007 4.4 Years $ 8.37 256,573 $ 8.44
======= =======
</TABLE>
In 1990, an additional 29,500 shares of restricted stock were granted under
this plan of which 8,572 were forfeited in 1993 and 1,286 in 1994.
At December 31, 1996, there were 175,401 shares available for future
grants.
Prior to adoption of the 1989 Stock Incentive Plan, the Company granted
shares to employees under Restricted Stock Plans as follows:
<TABLE>
<CAPTION>
SHARES
-------
<S> <C>
1988..................................................... 214,436*
1989..................................................... 124,097**
</TABLE>
- ---------------
* Net of 33,757 shares forfeited/redeemed/canceled.
** Net of 21,045 shares forfeited.
F-19
<PAGE> 109
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of the options or restricted stock grants are subject to forfeiture
with vesting ranging from 14% to 33% annually beginning one year after the date
of grant for restricted stock and exercise dates of stock options. Compensation
expense related to restricted stock grants is charged to earnings over the
appropriate vesting period. All options were granted at fair market value at the
date of grant and expire on the tenth anniversary of the grant date.
NOTE 13 -- 401(k) PLAN
In 1993, the Company adopted a 401(k) retirement plan for its employees.
This plan complements the Company's Employee Stock Ownership Plan by allowing
the employees to invest on a pre-tax basis in non-Giant stock investments thus
diversifying their retirement portfolios. For the years ended December 31, 1994,
1995 and 1996, the Company had expensed $189,000, $188,000 and $800,000,
respectively, for matching contributions under this plan.
NOTE 14 -- INTEREST, OPERATING LEASES AND RENT EXPENSE
Interest paid and capitalized for 1994 was $11,644,000 and $0, for 1995 was
$11,833,000 and $190,000 and for 1996 was $12,804,000 and $43,000, respectively.
The Company is committed to annual minimum rentals under noncancelable
operating leases that have initial or remaining lease terms in excess of one
year as of December 31, 1996 as follows:
<TABLE>
<CAPTION>
LAND, BUILDING, MACHINERY
AND EQUIPMENT LEASES
-------------------------
(IN THOUSANDS)
<S> <C>
1997............................................ $ 939
1998............................................ 878
1999............................................ 659
2000............................................ 396
2001............................................ 68
------
Total minimum payments required............... $ 2,940
======
</TABLE>
Total rent expense was $1,890,000, $1,982,000 and $1,930,000 for 1994, 1995
and 1996, respectively.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
The Company and certain subsidiaries are defendants to various legal
actions. Certain of these pending legal actions involve or may involve claims
for compensatory, punitive or other damages. Litigation is subject to many
uncertainties and it is possible that some of these legal actions, proceedings
or claims could be decided adversely. Although the amount of liability at
December 31, 1996 with respect to these matters is not ascertainable, the
Company believes that any resulting liability should not materially affect the
Company's financial condition or results of operations.
Federal, state and local laws and regulations relating to health and the
environment affect nearly all of the operations of the Company. As is the case
with all companies engaged in similar industries, the Company faces significant
exposure from actual or potential claims and lawsuits involving environmental
matters. These matters include soil and water contamination, air pollution and
personal injuries or property damage allegedly caused by substances
manufactured, handled, used, released or disposed of by the Company. Future
expenditures related to health and environmental matters cannot be reasonably
quantified in many circumstances due to the speculative nature of remediation
and clean-up cost estimates and methods, imprecise and conflicting data
regarding the hazardous nature of various types of substances, the number of
other potentially
F-20
<PAGE> 110
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
responsible parties involved, various defenses which may be available to the
Company and changing environmental laws and interpretations of environmental
laws.
The United States Environmental Protection Agency notified the Company in
May 1991 that it may be a potentially responsible party for the release or
threatened release of hazardous substances, pollutants, or contaminants at the
Lee Acres Landfill, which is owned by the United States Bureau of Land
Management ("BLM") and which is adjacent to the Company's Farmington refinery.
This refinery was operated until 1982. Although a final plan of action for the
Landfill has not yet been adopted by the BLM, the BLM has developed a proposed
plan of action, which it projects will cost approximately $3,900,000 to
implement. This cost projection is based on certain assumptions which may or may
not prove to be correct, and is contingent on confirmation that the remedial
actions, once implemented, are adequately addressing Landfill contamination. For
example, if assumptions regarding groundwater mobility and contamination levels
are incorrect, BLM is proposing to take additional remedial actions with an
estimated cost of approximately $1,800,000. Potentially responsible party
liability is joint and several, such that a responsible party may be liable for
all of the clean-up costs at a site even though it was responsible for only a
small part of such costs. Based on current information, the Company does not
believe it needs to record a liability in relation to the BLM's proposed plan.
The Company has an environmental liability accrual of approximately
$2,900,000. Approximately $900,000 relates to ongoing environmental projects,
including the remediation of a hydrocarbon plume at the Company's Farmington
refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company
owns in Bloomfield, New Mexico. The remaining amount of approximately $2,000,000
relates to an original estimate of approximately $2,300,000, recorded in the
second quarter of 1996, for certain environmental obligations assumed in the
acquisition of the Bloomfield refinery. That amount was recorded as an
adjustment to the purchase price and allocated to the assets acquired. The
environmental accrual is recorded in the current and long-term sections of the
Company's Consolidated Balance Sheet.
The Company has received several tax assessments from the Navajo Nation
relating to crude oil and natural gas removed from properties located outside
the boundaries of the Navajo Indian Reservation in an area of disputed
jurisdiction, including a $1,800,000 severance tax assessment issued to Giant in
November 1991. The Company has invoked its appeal rights with the Nation's Tax
Commission in connection with this assessment and intends to oppose the
assessment. It is the Company's position that it is in substantial compliance
with laws applicable to the disputed area and, therefore, has accrued a
liability in regards thereto for substantially less than the amount of the
original assessment. It is possible that the Company's assessments will have to
be litigated by the Company before final resolution. In addition, the Company
may receive further tax assessments.
F-21
<PAGE> 111
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH(1)
------- ------- ------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Continuing Operations:
Net revenues..................................... $69,562 $80,590 $78,400 $104,336
Cost of products sold............................ 49,357 56,497 53,719 74,698
------- ------- ------- --------
Gross margin..................................... 20,205 24,093 24,681 29,638
------- ------- ------- --------
Operating expenses............................... 12,115 12,255 13,120 14,366
Depreciation and amortization.................... 3,056 3,307 2,986 3,996
Selling, general and administrative expenses..... 2,842 3,365 3,333 3,238
Net earnings..................................... 112 2,093 1,968 3,560
Net earnings per common share.................... $ 0.01 $ 0.18 $ 0.17 $ 0.32
Discontinued Operations:
Net earnings..................................... $ 35 $ 59 $ 10 $ 39
Net earnings per common share.................... $ - $ 0.01 $ - $ -
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996(2)
-----------------------------------------------
QUARTER
-----------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Continuing Operations:
Net revenues.................................. $104,100 $135,643 $136,032 $123,409
Cost of products sold......................... 73,960 92,718 100,567 94,619
------- ------- ------- --------
Gross margin.................................. 30,140 42,925 35,465 28,790
------- ------- ------- --------
Operating expenses............................ 15,408 15,869 16,141 16,897
Depreciation and amortization................. 4,096 4,285 4,508 4,784
Selling, general and administrative expenses.. 3,595 5,447 3,423 3,137
Net earnings.................................. 2,325 8,693 5,283 750
Net earnings per common share................. $ 0.21 $ 0.77 $ 0.47 $ 0.07
Discontinued Operations:
Net earnings (loss)........................... $ 79 $ (72) $ (20) $ -
Net earnings (loss) per common share.......... $ - $ - $ - $ -
</TABLE>
- ---------------
(1) Fourth quarter 1995 includes the results of operations of the Bloomfield
refinery which was acquired on October 4, 1995.
(2) 1996 includes the results of operations of the Bloomfield refinery for all
periods presented.
NOTE 17 - SUBSEQUENT EVENTS
Over the period May 28, 1997 to May 31, 1997, Giant Four Corners, Inc.,
("GFC"), an indirect wholly-owned subsidiary of the Company, completed the
acquisition of ninety-six retail service station/convenience stores, seven
additional retail locations for future development, certain petroleum
transportation and maintenance assets, options to acquire service
station/convenience stores and other related assets (the "Thriftway Stations").
The assets were acquired from Thriftway Marketing Corp. and Clayton Investment
Company and from entities related to such sellers (collectively, "Thriftway
Marketing").
F-22
<PAGE> 112
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Thirty-two service station/convenience stores, the seven retail locations
for future development, the transportation and maintenance assets, the options
to acquire service station/convenience stores and other related assets are being
purchased for approximately $19,100,000 in cash, an office building with a net
book value of approximately $800,000 and a truck maintenance shop with a net
book value of approximately $500,000. GFC is leasing the remaining sixty-four
service station/convenience stores and related assets for a period of ten years
and intends to purchase them pursuant to options to purchase during the ten year
period for approximately $22,900,000. The leased service station/convenience
stores will be accounted for as capital leases and will initially require annual
lease payments of approximately $2,600,000. These lease payments will be reduced
as the individual service station/convenience stores are purchased pursuant to
the options. The amount paid for the options, described here and below, will be
applied to the acquisition of the last service station/convenience stores
purchased pursuant to such options.
The service station/convenience stores acquired are retail outlets that
sell various grades of gasoline, diesel fuel and merchandise to the general
public and are located in New Mexico, Arizona, Colorado and Utah, in or adjacent
to the Company's primary market area. GFC intends to use substantially all of
the assets acquired in a manner consistent with their previous operation. A
small number of the acquired service station/convenience stores have been
targeted for disposal and will be sold for use other than as retail service
station/convenience stores.
GFC also entered into a consignment agreement with Thriftway Marketing to
supply finished product to sixteen service station/convenience stores operated
by Thriftway Marketing which are located on the Navajo, Ute and Zuni Indian
Reservations. Under this agreement, GFC will receive the profits from the
finished product sales and will pay Thriftway Marketing annual consignment fees.
GFC has options to purchase these service station/convenience stores. The
Company has also entered into long-term supply arrangements with Thriftway
Marketing to provide gasoline and diesel fuel to other service stations in the
area that will continue to be operated by Thriftway Marketing.
In addition, GFC has one-year options to purchase forty-five additional
units from Thriftway Marketing that are located in Wyoming, Texas and Montana.
GFC paid additional monies for finished product, merchandise and supply
inventories associated with the units acquired. The amount paid approximated the
sellers' cost of such inventories.
On June 3, 1997, Giant Industries Arizona, Inc., ("Giant Arizona"), a
wholly-owned subsidiary of the Company, purchased all of the issued and
outstanding common stock of Phoenix Fuel Co., Inc. ("Phoenix Fuel") from J. W.
Wilhoit, as Trustee of the Wilhoit Trust Agreement Dated 12/26/74 and other
related entities for $30,000,000 in cash.
Phoenix Fuel is an independent industrial/commercial petroleum products
distributor with fuel sales of approximately 16,000 barrels per day, including
gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene. In
addition, Phoenix Fuel distributes oils and lubricants such as motor oil,
hydraulic oil, gear oil, cutting oil and grease.
Phoenix Fuel has nine bulk petroleum distribution plants, twenty cardlock
fueling operations, a lubricant storage and distribution facility and operates a
fleet of forty finished product truck transports. These assets and related
operations are located throughout the state of Arizona and will continue to be
used in a manner consistent with their previous operation.
Both acquisitions have been accounted for using the purchase method.
Results of operations of the acquired businesses from their respective dates of
acquisition have been included in the Company's consolidated statement of
earnings for the six months ended June 30, 1997. The Company recorded estimated
goodwill of approximately $15,000,000 for the acquisition of Phoenix Fuel and
$1,000,000 for the acquisition of the Thriftway Stations pending final
allocation of the purchase price. The Company is amortizing goodwill
F-23
<PAGE> 113
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to the Phoenix Fuel acquisition over 30 years and goodwill related to
the Thriftway Stations acquisition over 20 years.
The purchases were funded under Giant's Credit Agreement, (the
"Agreement"), dated October 4, 1995, as amended, with a group of banks. This
Agreement was amended effective May 23, 1997 to increase the borrowing
commitment under the unsecured capital expenditure facility portion of the
Agreement to $70,000,000 from $30,000,000 and to extend the due date to May 23,
2000 from October 4, 1998, for both the unsecured capital expenditure facility
and the unsecured working capital facility. The proceeds of the capital
expenditure facility can be used for the following: (a) to purchase the assets
of the above described acquisition and for the purchase of the common stock of
Phoenix Fuel, (b) to repurchase shares of the Company's common stock, and (c)
for acquisitions, capital expenditures and general corporate purposes, but not
for working capital expenditures. On May 23, 1999, the borrowing commitment
under the capital expenditure facility is required to be reduced by $20,000,000.
Funds under the working capital facility portion of the Agreement are available
to provide working capital and letters of credit in the ordinary course of
business. Certain covenants and restrictions contained in the original Credit
Agreement were also modified. The interest rate on these unsecured facilities is
tied to various short-term indices and the associated interest rate margin has
been revised downward. The interest rate at June 30, 1997 was approximately
6.5%. Phoenix Fuel will be a guarantor under the Agreement and the Indenture,
dated as of November 29, 1993 among Giant, as Issuer, the Subsidiary Guarantors,
as guarantors, and NBD Bank, National Association, as Trustee, relating to
$100,000,000 of 9 3/4% Senior Subordinated Notes due 2003.
NOTE 18 -- NOTES TO UNAUDITED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited consolidated financial statements for the six
months ended June 30, 1996 and 1997 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are only
of a normal recurring nature. Operating results for the six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
The Company adopted SOP 96-1 "Environmental Remediation Liabilities" in the
first quarter of 1997. Based on a review of current environmental remediation
activities, there was no current impact on the Company's financial position or
results of operations.
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share", which is effective for financial statements
for both interim and annual periods ending after December 15, 1997. Early
adoption of the statement is not permitted. This new standard requires dual
presentation of "basic" and "diluted" earnings per share ("EPS") on the face of
the earnings statement and requires a reconciliation of the numerators and
denominators of basic and diluted EPS calculations. The Company's current EPS
calculation conforms to SFAS No. 128's basic EPS. Diluted EPS, which includes
the effects of dilutive stock options, is not materially different from basic
EPS for the Company.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information". SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional capital in the equity section of a statement of
financial position. SFAS No. 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for disclosures about products and services, geographic
areas and major customers. Both statements are effective for financial
statements for
F-24
<PAGE> 114
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
periods beginning after December 15, 1997. The Company has not completed
evaluating the impact of implementing the provisions of SFAS Nos. 130 and 131.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Inventories consist of the following at June 30, 1997:
First-in, first-out ("FIFO") method:
Crude oil......................................... $ 15,219
Refined products.................................. 27,494
Refinery and shop supplies........................ 7,565
Retail method:
Merchandise....................................... 5,438
-------
55,716
Allowance for last-in, first-out ("LIFO")
method.......................................... 589
-------
Total........................................ $ 56,305
=======
</TABLE>
The following unaudited pro forma combined condensed statements of earnings
for the six months ended June 30, 1996 and 1997 combine the historical financial
information for the Company, the Thriftway Stations and Phoenix Fuel assuming
the acquisitions were consummated at the beginning of the periods presented. The
pro forma statements include the results of operations of the Company and the
acquisitions, along with adjustments which give effect to events that are
directly attributable to the transactions and which are expected to have a
continuing impact.
This unaudited pro forma financial information does not purport to
represent the results of operations that actually would have resulted had the
acquisitions occurred on the date specified, nor should it be taken as
indicative of the future results of operations.
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1996 1997
----------- -----------
<S> <C> <C>
Net revenues.............................................. $ 373,421 $ 403,167
Cost of products sold..................................... 275,252 310,371
---------- ----------
Gross margin.............................................. 98,169 92,796
Operating expenses........................................ 45,669 46,187
Depreciation and amortization............................. 11,457 13,230
Selling, general and administrative expenses.............. 11,681 12,910
---------- ----------
Operating income.......................................... 29,362 20,469
Interest expense, net..................................... 9,616 8,551
---------- ----------
Earnings from continuing operations before income taxes... 19,746 11,918
Provision for income taxes................................ 7,673 4,769
---------- ----------
Earnings from continuing operations....................... $ 12,073 $ 7,149
========== ==========
Earnings per common share for continuing operations....... $ 1.07 $ .64
========== ==========
Weighted average number of shares outstanding............. 11,255,853 11,084,336
========== ==========
</TABLE>
F-25
<PAGE> 115
BLOOMFIELD REFINING COMPANY
INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
F-26
<PAGE> 116
BLOOMFIELD REFINING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary investments........................... $ 8,379,601 $ 8,273,826
Accounts receivable -- affiliates........................ 6,008,872 7,647,303
Accounts receivable...................................... 257,820 126,876
Inventories.............................................. 7,887,826 6,213,748
Notes receivable -- affiliate............................ 15,000,000
Prepaid crude oil -- affiliate........................... 2,312,338 5,054,070
Prepaid expenses and other............................... 584,495 823,517
----------- -----------
Total current assets.................................. 25,430,952 43,139,340
----------- -----------
Property, Plant and Equipment
Refinery property, plant and equipment................... 23,165,353 23,396,346
Gas plants, property and equipment....................... 4,855,654 5,163,770
Less: Accumulated depreciation........................ (6,550,919) (7,853,081)
----------- -----------
21,470,088 20,707,035
Construction in progress................................. 147,712 596,205
----------- -----------
Total property, plant and equipment................... 21,617,800 21,303,240
----------- -----------
Other.................................................... 289,005 278,173
----------- -----------
Total Assets..................................... $47,337,757 $ 64,720,753
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable -- affiliates........................... $10,853,802 $ 9,601,415
Accounts payable......................................... 649,983 1,043,750
Accrued liabilities...................................... 2,227,067 872,247
Notes payable............................................ 14,166,667
Income taxes payable -- affiliate........................ 2,967,000
----------- -----------
Total current liabilities............................. 13,730,852 28,651,079
----------- -----------
Non-Current Liabilities
Deferred income taxes, net............................... 1,184,500 1,316,200
Accrued turnaround costs................................. 1,953,671 2,716,039
Other.................................................... 130,312 121,670
----------- -----------
Total non-current liabilities......................... 3,268,483 4,153,909
----------- -----------
Commitments and contingencies (Note 9)
Shareholder's Equity
Common stock, $.01 par value, 1,000 voting shares
authorized, issued and outstanding.................... 10 10
Contributed capital...................................... 3,200,090 3,200,090
Retained earnings........................................ 27,138,322 28,715,665
----------- -----------
Total shareholder's equity............................ 30,338,422 31,915,765
----------- -----------
Total Liabilities and Shareholder's Equity....... $47,337,757 $ 64,720,753
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-27
<PAGE> 117
BLOOMFIELD REFINING COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Operating revenues............................................ $107,713,865 $107,734,435
Operating expenses............................................ 86,037,166 89,423,495
------------ ------------
Gross margin................................................ 21,676,699 18,310,940
General and administrative expenses........................... 5,306,263 4,932,441
------------ ------------
Operating income............................................ 16,370,436 13,378,499
------------ ------------
Other Income (Expense)
Interest income............................................. 258,012 230,290
Interest expense............................................ (196,934) (419,744)
Other....................................................... 78,951 305,988
------------ ------------
140,029 116,534
------------ ------------
Income before income taxes.................................. 16,510,465 13,495,033
Income Tax Expense (Note 4)
Current..................................................... (6,282,000) (5,124,000)
Deferred.................................................... (178,800) (131,700)
------------ ------------
(6,460,800) (5,255,700)
------------ ------------
Net Income............................................... $ 10,049,665 $ 8,239,333
============ ============
</TABLE>
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<S> <C> <C>
Balance at January 1.......................................... $ 23,854,523 $ 27,138,322
Net income.................................................... 10,049,665 8,239,333
Dividends..................................................... (4,500,000) (6,661,990)
------------ ------------
Balance at September 30....................................... $ 29,404,188 $ 28,715,665
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE> 118
BLOOMFIELD REFINING COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net income to net cash provided by operating
activities:
Net income..................................................... $10,049,665 $ 8,239,333
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 1,276,944 1,302,162
Accrued turnaround costs.................................... 857,664 762,368
Changes in assets and liabilities:
Increase in accounts receivable........................... (1,315,740) (1,507,487)
(Increase) decrease in inventories........................ (1,849,190) 1,674,078
Increase in prepaid expenses and other.................... (1,692,608) (2,980,754)
Decrease in deferred tax asset............................ 291,500
Decrease in other assets.................................. 10,832 10,832
Increase (decrease) in accounts payable................... 1,076,781 (872,622)
Increase (decrease) in accrued liabilities................ 556,414 (1,354,820)
Increase in income taxes payable-affiliate................ 63,400 2,967,000
(Decrease) increase in deferred income taxes, net......... (1,679,400) 131,700
Decrease in other liabilities............................. (8,642)
----------- -----------
Net cash provided by operating activities.............. 7,646,262 8,363,148
----------- -----------
Cash flows used in investing activities:
Capital expenditures -- refinery............................... (1,005,795) (665,484)
Capital expenditures -- gas plants............................. (38,979) (308,116)
----------- -----------
Net cash used in investing activities.................. (1,044,774) (973,600)
----------- -----------
Cash flows used in financing activities:
Borrowings under term loan..................................... 15,000,000
Loan to parent................................................. (15,000,000)
Principal payments on debt..................................... (2,875,000) (833,333)
Dividends distributed.......................................... (4,500,000) (6,661,990)
----------- -----------
Net cash used in financing activities.................. (7,375,000) (7,495,323)
----------- -----------
Net decrease in cash and temporary investments................... (773,512) (105,775)
Cash and temporary investments at beginning of year.............. 9,501,500 8,379,601
----------- -----------
Cash and temporary investments at end of period.................. $ 8,727,988 $ 8,273,826
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-29
<PAGE> 119
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION, BACKGROUND AND ORGANIZATION
Basis Of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Management of Bloomfield Refining
Company, all adjustments and reclassifications considered necessary for a fair
and comparable presentation have been included and are of a normal recurring
nature. Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995. The enclosed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
December 31, 1994 annual financial statements of Bloomfield Refining Company.
ORGANIZATION
On August 31, 1984, Bloomfield Refining Company, a Delaware corporation
(Bloomfield), was incorporated. Bloomfield's primary activities are the refining
of petroleum products and gas plant operations. Bloomfield is a wholly-owned
subsidiary of Gary-Williams Energy Corporation (GWEC). Bloomfield operates a
refinery in Bloomfield, New Mexico (see Note 10) with a throughput capacity of
17,000 barrels per day and has ownership interests in two gas plants located in
Utah.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash And Temporary Investments
For purposes of these statements, Bloomfield considers investments
purchased with an original maturity of three months or less to be cash or
temporary investments. Temporary investments consist primarily of commercial
paper and money market funds. These securities are classified as held to
maturity investments as defined by Statement of Financial Accounting Standards
No. 115. At December 31, 1994 and September 30, 1995, these securities are
recorded at a market value of $7,633,000 and $8,273,826, respectively. Realized
gains and losses from sales of these securities are included in interest income
in the accompanying statements of operations. The net unrealized gain or loss on
these securities was not material as of and December 31, 1994 and September 30,
1995.
Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Inventories at December 31, 1994 and September 30, 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Refined, unrefined and intermediate products....... $4,181,728 $ 3,823,475
Crude oil.......................................... 2,811,004 1,521,217
Materials and supplies............................. 895,094 869,056
---------- ----------
$7,887,826 $ 6,213,748
========== ==========
</TABLE>
Property, Plant And Equipment
The initial purchase and additions to property, plant and equipment are
recorded at cost. Depreciation is provided using the straight-line method based
on estimated useful lives ranging from 2 to 35 years, with an average initial
life of approximately 19 years.
F-30
<PAGE> 120
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Ownership interests in gas plants are recorded at cost and proportionately
consolidated for financial statement purposes. Depreciation is provided using
the straight-line method with estimated useful lives ranging from 5 to 12 years,
with an average initial life of approximately 7 years.
General And Administrative Expenses
Bloomfield reimburses GWEC for general and administrative services relating
to the supply and marketing of raw materials and refined products and gas plant
operations.
Accrued Turnaround Costs
Major repair and maintenance expenses (turnaround costs) are accrued and
charged to current operations in anticipation of the work to be performed in
future periods to renew the related refinery assets. Accrued turnaround costs
are classified as either current or non-current liabilities based upon the
scheduling of major expenditures.
Capitalized Interest
Bloomfield capitalizes interest on debt associated with the financing of
capital construction projects. No interest was capitalized during 1994 or during
the nine months ended September 30, 1995.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the
current year presentation.
NOTE 3 -- LONG-TERM DEBT
Bloomfield borrowed $15,000,000 from a group of banks on July 31, 1995.
Bloomfield then lent the $15,000,000 to its parent, GWEC, which used the funds
to acquire another refinery. Interest is based on the bank's prime rate or
alternatively, interest rates can be fixed for 30 to 180 day periods at a
floating Eurocurrency rate. The loan was to be repaid ratably over 36 months
beginning August 31, 1995. However, the loan was paid in full in October, 1995.
Bloomfield also had a revolving credit facility, as amended, with a group
of banks under which it could issue letters of credit which in the aggregate
cannot exceed the lesser of $35,000,000 or the borrowing base. The borrowing
base, which consists primarily of accounts receivable, inventory, exchange
balances and unused outstanding letters of credit was approximately $21,000,000
and $27,000,000 as of December 31, 1994 and September 30, 1995. Bloomfield had
no amounts outstanding under the revolving credit facility, however letters of
credit totaling approximately $20,000,000 and $24,000,000 had been issued as of
December 31, 1994 and September 30, 1995. Borrowings under the revolving credit
facility bear interest at a rate based on the bank's prime rate.
The credit facility and term loan are secured by substantially all of the
assets of Bloomfield and, among other things, requires the maintenance of
certain financial covenants and ratios. The revolving credit facility was to
mature June 1, 1997; however, it was closed in October 1995.
NOTE 4 -- INCOME TAXES
Bloomfield and GWEC are members of a consolidated tax group which files a
consolidated federal income tax return. An agreement was entered into between
Bloomfield and GWEC whereby Bloomfield determines, on a stand alone basis, the
tax liability or benefit as if it were not a member of the tax group. Bloomfield
then reimburses GWEC for its current income tax liability on a quarterly basis.
Deferred income
F-31
<PAGE> 121
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxes are paid to GWEC periodically. Bloomfield is entitled to be reimbursed by
GWEC for its income tax benefit when Bloomfield could otherwise have utilized
such benefit on a stand alone basis.
Deferred income taxes are recognized for the differences between the tax
and financial reporting bases of assets and liabilities at each period-end based
on enacted tax laws and statutory tax rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
The net deferred tax liability consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Gross deferred tax assets......................... $ (1,090,700) $ (1,364,000)
Gross deferred tax liabilities.................... 2,798,300 3,203,300
----------- -----------
1,707,600 1,839,300
Payments to affiliate............................. (523,100) (523,100)
Valuation allowance
----------- -----------
Net deferred tax liability........................ $ 1,184,500 $ 1,316,200
=========== ===========
</TABLE>
Deferred tax assets and liabilities result primarily from inventory and
overhead costs capitalized for tax, accounting reserves and from recording
depreciation and turnaround expenses in different periods for financial and tax
accounting purposes. In management's opinion, it is more likely than not that
the gross deferred tax assets will be realized based on past earnings history.
The difference between Bloomfield's tax provision at the federal statutory
rate and the effective rate is due primarily to state income taxes.
Tax Deficiency
The Internal Revenue Service concluded a field audit of the consolidated
tax group's income tax returns for the fiscal years 1990 and 1991 resulting in a
"Notice of Deficiency" for both fiscal years. Proposed adjustments to income and
tax credits resulted in a proposed tax deficiency of approximately $4,800,000
plus penalties for 1990 and $600,000 plus penalties for 1991. Bloomfield has
filed petitions with the United States Tax Court contesting the notices and
believes that it has meritorious legal defenses to the proposed tax
deficiencies, but the ultimate outcome of the Tax Court case is uncertain.
NOTE 5 -- OPERATING REVENUES AND EXPENSES BY SEGMENTS
The following segment information reflects operating revenues, operating
expenses and gross margins for the nine months ended September 30, 1994 and
1995.
<TABLE>
<CAPTION>
REFINING GAS PLANTS TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
September 30, 1994
Operating Revenues....................... $105,748,159 $1,965,706 $107,713,865
Operating Expenses....................... 84,395,339 1,641,827 86,037,166
------------ ---------- ------------
Gross Margin..................... $ 21,352,820 $ 323,879 $ 21,676,699
============ ========== ============
September 30, 1995
Operating Revenues....................... $106,030,168 $1,704,267 $107,734,435
Operating Expenses....................... 87,818,761 1,604,734 89,423,495
------------ ---------- ------------
Gross Margin..................... $ 18,211,407 $ 99,533 $ 18,310,940
============ ========== ============
</TABLE>
F-32
<PAGE> 122
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- RELATED PARTY TRANSACTIONS
A supply and marketing service agreement was entered into between
Bloomfield and GWEC, whereby GWEC purchases crude oil and other raw materials
for resale to Bloomfield, at cost, for processing at the refinery. The
intercompany purchases of raw materials include all amounts accrued and owing by
GWEC to third parties, including prepayments and offsite inventory. Also,
Bloomfield sells refined petroleum products to GWEC, at market, for resale by
GWEC.
Bloomfield has guaranteed the payment by GWEC of an aggregate maximum at
any one time of $2,000,000 of present and/or future indebtedness owed to a third
party crude oil supplier.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Bloomfield has a profit sharing plan (defined contribution plan) covering
certain non-union employees who meet eligibility requirements as to age and
length of service. Contributions to the plan are determined annually by
Bloomfield. Contributions of $138,140 and $125,460 were accrued for 1994 and the
nine months ended September 30, 1995, respectively. The funding of the plan was
discontinued in October, 1995.
Bloomfield also has a defined benefit pension plan for union employees.
Bloomfield's funding policy is to contribute annually an amount to fund normal
cost and amortize unfunded actuarial liabilities over 19 years. Plan assets at
December 31, 1994 and September 30, 1995 consist primarily of private and public
debt and equity investments. The funding of the plan was discontinued in
October, 1995.
Benefits are based on a percentage of the employee's earnings, as defined,
as of June 1, 1993, and years of credited service up to a maximum of 30 years.
The following table sets forth the funded status and amounts recognized in
Bloomfield's statements of financial position and operations at December 31,
1994 for the defined benefit pension plan:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$417,559 at December 31, 1994............................... $(433,264)
=========
Projected benefit obligation for service rendered to date........ $(433,264)
Plan assets at fair value........................................ 302,952
---------
Projected benefit obligation in excess of plan assets............ (130,312)
Unrecognized net obligation existing at January 1, 1989 being
recognized over 19 years....................................... 8,926
Prior service cost not yet recognized............................ 77,483
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions.................. 70,391
Adjustment to recognize minimum liability........................ (156,800)
---------
Accrued pension liability included in other liabilities.......... $(130,312)
=========
Net pension cost includes the following components:
Service cost................................................... $ 55,079
Interest cost.................................................. 29,266
Actual return on plan assets................................... 6,557
Net amortization and deferral of other components.............. (19,922)
---------
Net periodic pension cost........................................ $ 70,980
=========
</TABLE>
F-33
<PAGE> 123
BLOOMFIELD REFINING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.0% for 1994. The expected long-term rate of
return on pension plan assets was 8.0% in 1994.
NOTE 8 -- MAJOR CUSTOMERS
During the nine months ended September 30, 1994 and 1995, Bloomfield sold
100% of the refined products to GWEC. Also, during that period, Bloomfield
purchased 100% of the crude oil and raw materials from GWEC.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Bloomfield is subject to certain environmental and other regulations
primarily administered by the United States Environmental Protection Agency
(E.P.A.) and various state agencies. Management of Bloomfield believes it has
complied with all material aspects associated with these regulations. Bloomfield
entered into an administrative order with the E.P.A. to perform a study to
assess the nature of any environmental cleanup requirements at the refinery
which was substantially completed in 1994. Management is currently evaluating
the E.P.A.'s response and is uncertain as to what, if any, additional costs may
be required.
Bloomfield is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on Bloomfield's financial
position or results of operations.
An affiliate of Bloomfield entered into a ten year lease agreement for
office space in November 1989. Bloomfield has guaranteed the performance of the
affiliate's obligations. Terms of the lease provided for annual rent of $796,000
in 1995 through 1999. In addition to the rent, Bloomfield has guaranteed the
annual payment of $328,000 in occupancy costs with provisions for escalation
based on actual expenses. Currently, the affiliate of Bloomfield is subleasing
certain office space to a third party and a related party.
NOTE 10 -- SUBSEQUENT EVENT
In October, 1995 Bloomfield and GWEC sold the Bloomfield, New Mexico
refinery and related assets to a third party. The sales price was $55,000,000
plus the market value of hydrocarbon inventories and an earnout provision based
on the combined per barrel gross margin of the buyer's refineries providing for
annual payments through the year 2001 of up to a net present value of
$25,000,000 using a discount rate of 9.75% per annum.
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======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Prospectus Summary.................... 1
Risk Factors.......................... 13
Use of Proceeds....................... 20
Capitalization........................ 21
Selected Financial Data............... 22
Unaudited Pro Forma Combined Financial
Information......................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
The Registered Exchange Offer......... 36
Business.............................. 44
Description of the 9 3/4% Notes....... 55
Description of the Exchange Notes..... 55
Registration Rights................... 78
Certain Federal Income Tax
Consequences........................ 80
Plan of Distribution.................. 83
Legal Matters......................... 85
Experts............................... 85
Glossary.............................. 86
Index to Financial Statements......... F-1
</TABLE>
UNTIL DECEMBER 20, 1997, ALL DEALERS AFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
$150,000,000
[GIANT INDUSTRIES, INC. LOGO]
OFFER TO EXCHANGE ITS
9% SENIOR SUBORDINATED
NOTES DUE 2007 FOR
9% SENIOR SUBORDINATED
NOTES DUE 2007 THAT
HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
------------------------
PROSPECTUS
------------------------
November 10, 1997
======================================================
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has purchased insurance on behalf of the registrants' directors
and officers against certain liabilities that may be asserted against such
persons in connection with any actual or alleged Wrongful Act (as defined in the
policy) in their capacities as directors and officers of the registrants,
including certain liabilities under the federal and state securities laws,
except to the extent that the registrants have indemnified the directors and
officers.
The following contains summaries of certain circumstances in which
indemnification is provided pursuant to the registrants' Certificate or Articles
of Incorporation and Bylaws. Such summaries are qualified in their entirety by
reference to the registrants' Certificate or Articles of Incorporation and
Bylaws.
The Company
As permitted by the Delaware General Corporation law (the "DGCL"), the
Company's Restated Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, including grossly negligent
business judgments made in good faith, except for liability (i) for breach of
the duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL (governing distributions
to stockholders), or (iv) for any transaction for which a director derives an
improper personal benefit. In addition, Section 145 of the DGCL and the
Company's Bylaws, under certain circumstances, provide for the indemnification
of the Company's officers, directors, employees, and agents against liabilities
which they may incur in such capacities.
In general, any officer, director, employee or agent may be indemnified
against expenses including attorneys' fees, fines, settlements or judgments
which were actually and reasonably incurred in connection with a legal
proceeding, other than one brought by or on the behalf of the Company, to which
he was a party as a result of such relationship, if he acted in good faith, and
in the manner he believed to in the Company's best interest and not unlawful. If
the action is brought by or on behalf of the Company, the person to be
indemnified must have acted in good faith in a manner he believed to have been
in the Company's best interest and generally must not have been adjudged liable
to the Company.
No person seeking indemnification may be denied indemnification unless the
Board of Directors or the stockholders of the Company determine in good faith,
or independent legal counsel for the Company opines in writing, that the
standards for indemnification have not been met. A successful defense is deemed
conclusive evidence of a person's right to be indemnified against expenses.
The Company may advance funds to pay the expenses of any person involved in
such action provided that the Company receives an undertaking that the person
will repay the advanced funds unless it is ultimately determined that he is not
entitled to indemnification.
Indemnification may also be granted pursuant to provisions of Bylaws which
may be adopted in the future, pursuant to the terms of agreements which may be
entered into in the future or pursuant to a vote of stockholders or
disinterested directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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Giant E&P
With respect to Giant Exploration & Production Company, a Texas corporation
("Giant E&P"), Article 2.02A(16) of the Texas Business Corporation Act empowers
a corporation to indemnify directors, officers, employees and agents of the
corporation and to purchase and maintain liability insurance for those persons.
Article 2.02-1 permits a corporation to indemnify a person who was, is or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director only if it is determined that the person
conducted himself in good faith, reasonably believed that his official conduct
was in the corporation's best interests (or in other cases was at least not
opposed to the corporation's best interests), and in the case of any criminal
proceeding had no reasonable cause to believe his conduct was unlawful. Under
Article 2.02-1, a corporation shall indemnify a director or officer against
reasonable expenses incurred by him in connection with a proceeding in which he
is named defendant or respondent because he is or was a director or officer if
he has been wholly successful, on the merits or otherwise, in the defense of the
proceedings, and, in addition, such indemnification may be ordered in a proper
case by a court of law. In addition, a corporation may indemnify and advance
expenses to person who are not or were not officers, employees, or agents of the
corporation but who are or were serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprises to the same extent that it may indemnify and advance expenses to
directors under this article. The statute provides that a corporation may
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation or a person who is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another enterprise, against any
liability asserted against him in such capacity or arising out of such status,
whether or not the corporation would have the power to indemnify him against
that liability under this article.
Article IX of Giant E&P's Articles of Incorporation (the "Articles")
provides that a director of the corporation shall not be liable to the
corporation or its shareholders for monetary damages for an act or omission in
such director's capacity as a director, except for liability of such director
for (1) a breach of such director's duty of loyalty to the corporation or its
shareholders; (2) an act or omission not in good faith that constitutes a breach
of duty of the director to the corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law; (3) a transaction from
which such director received an improper benefit, whether or not the benefit
results from an action taken within the scope of such director's office; or (4)
an act or omission for which the liability of such director is expressly
provided by an applicable statute. No amendment to or repeal of this Article IX
shall apply to or have any effect upon the liability or alleged liability of any
director of the corporation for or with respect to any act or omission of such
director occurring prior to such amendment or repeal.
Giant E&P entered into indemnification agreements in October 1989 with
certain of its then directors and officers pursuant to which it may have
continuing obligations.
Giant Arizona, Giant Four Corners, Inc., Phoenix Fuel Co., Inc. and Giant
Mid-Continent, Inc.
With respect to Giant Industries Arizona, Inc., Giant Four Corners, Inc.,
Phoenix Fuel Co., Inc. and Giant Mid-Continent, Inc., all Arizona corporations
(collectively referred to herein as the "Arizona Subsidiaries"), Section 10-851
of the Arizona Revised Statutes empowers a corporation to indemnify directors,
officers, employees or agents of the corporation who are made a party to a
proceeding, including any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation only if that person acted in good faith and reasonably believed
(a) in the case of conduct in the person's official capacity with the
corporation that the person's conduct was within its best interest; and (b) in
all other cases, the person's conduct was at least not opposed to the Arizona
Subsidiaries' best interests. In the case of any criminal proceeding, the person
must have had no reasonable cause to believe that the person's conduct was
unlawful. Indemnification shall not be provided in respect of: (i) any
proceeding by or in the right of the corporation in which the person was
adjudged liable to the corporation, or (ii) any proceeding charging improper
personal benefit to the person, whether or not involving action in the person's
official capacity for the
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<PAGE> 127
corporation, in which the person was adjudged liable on the basis that personal
benefit was improperly received by that person.
Unless ordered by a court, indemnification pursuant to the foregoing may
only be made by the Arizona Subsidiaries as authorized in a specific case upon a
determination that indemnification is proper under the circumstances because the
director, officer, employee or agent has met the applicable standard of conduct.
Such determination shall be made (a) by the board of directors of the Arizona
Subsidiary, acting by a majority vote of a quorum consisting of directors who
are not parties to the proceeding; (b) by special legal counsel selected by a
majority vote of the disinterested directors or, if there are no disinterested
directors, by majority vote of the board; or (c) by the shareholders (but shares
owned by or voted under the control of persons who are parties to the proceeding
shall not be voted.
In addition, under Arizona law, the Arizona Subsidiaries are required to
indemnify a director, officer, employee or agent against expenses in connection
with any lawsuit or proceeding if such person has been successful on the merits
or otherwise in the defense of such lawsuit or proceeding. Further, the Arizona
Subsidiaries are required to indemnify an outside director against liability
except (1) in the cases described above in which indemnification is not
permitted and (2) if a court determines that the director did not meet the
applicable standard of conduct. The Arizona Subsidiaries may advance or pay
expenses incurred by a director, officer, employee or agent in advance of final
disposition of a proceeding if all of the following conditions exist: (a) the
person furnishes the corporation with a written affirmation of the person's good
faith belief that the person has met the applicable standard of conduct; (b) the
person furnishes the corporation with a written undertaking by or on behalf of
such person to repay the advance if it is ultimately determined that the person
did not met the applicable standard of conduct; and (c) a determination is made
that the facts then known to those making the determination would not preclude
indemnification.
The respective Articles of Incorporation ("Articles") and Bylaws of the
Arizona Subsidiaries provide that the Arizona Subsidiaries shall indemnify each
director and officer to the fullest extent permitted by law. The Arizona
Subsidiaries' Bylaws extend that protection to employees and agents of the
corporation. No modification of the indemnification provision may adversely
affect any director's or officer's right to indemnification with respect to any
act or omission occurring prior to such modifications.
The Arizona Subsidiaries' (except Phoenix Fuel's) respective Articles
provide that no director of the Arizona Subsidiaries shall be liable to the
Arizona Subsidiaries or their respective shareholders for monetary damages for
breach of fiduciary duty as a director; provided, however, that the Articles and
Arizona law do not permit the elimination of liability (a) for any breach of the
director's duty of loyalty to the corporation or its shareholders; (b) for acts
or omissions which are not in good faith or which involve intentional misconduct
or a knowing violation of law; (c) for authorizing the unlawful payment of a
dividend or other distribution on shares of the corporation's capital stock; (d)
for any transaction from which the director derived an improper personal
benefit; or (e) for any violation of Section 10-041 of the Arizona Revised
Statues, which relates to directors' conflicts of interests. The effect of this
provision in the Articles is to eliminate the rights of the Arizona Subsidiaries
and their respective shareholders (through shareholders' derivative suits on
behalf of the Arizona Subsidiaries) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (a) through (e) above. This provision will not alter the
liability of directors under federal securities laws.
Giant Stop-N-Go of New Mexico, Inc,. Ciniza Production Company, and San Juan
Refining Company
With respect to Giant Stop-N-Go of New Mexico, Inc., Ciniza Production
Company and San Juan Refining Company, all New Mexico corporations (collectively
referred to herein as the "New Mexico Subsidiaries"), Section 53-11-4.1 NMSA
1978 of the New Mexico Business Corporation Act empowers a corporation to
indemnify directors, officers, employees or agents of the corporation who are
made a party to a proceeding, including any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation only if that person acted in good
faith and reasonably believed (a) in the case of
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conduct in the person's official capacity with the corporation that the person's
conduct was within its best interest; and (b) in all other cases, the person's
conduct was at least not opposed to the New Mexico Subsidiaries' best interests.
In the case of any criminal proceeding, the person must have had no reasonable
cause to believe that the person's conduct was unlawful. Indemnification shall
not be provided in respect of any proceeding charging improper personal benefit
to the person, whether or not involving action in the person's official capacity
for the corporation, in which the person shall have been adjudged to be liable
on the basis that personal benefit was improperly received by that person.
If a determination has been made by the board of directors that the person
has been wholly successful in the defense of the proceeding brought against him,
or if a court should so determine that indemnification is required, the person
shall be indemnified against reasonable expenses incurred by him in connection
with the proceeding.
The New Mexico Subsidiaries may not indemnify a person until a
determination has been made that the indemnification of that person in
permissible under the circumstances because that person has met the standards of
conduct required by Section 53-11-4.1B NMSA 1978. This determination shall be
made (1) by the board of directors by a majority vote of a quorum consisting of
directors who are not parties to the proceeding; (2) if that quorum cannot be
obtained, by a majority vote by a committee of the board elected by a majority
of the full board; (3) by special legal counsel selected by the board of
directors or a committee thereof; or (4) by the shareholders. The reasonable
expenses incurred by a person who is a party to the proceeding may be paid or
reimbursed by the corporation in advance if (1) that person furnishes the New
Mexico Subsidiaries with a written affirmation of his good faith belief that the
person has met the standard of conduct necessary for indemnification by the New
Mexico Subsidiaries; (2) the person furnishes the New Mexico Subsidiaries a
written undertaking by or on his behalf to repay that amount if it is ultimately
determined that the person has not met those standards of conduct; and (3) a
determination is made that the facts then known to those making the
determination will not preclude indemnification.
The Bylaws of the New Mexico Subsidiaries provide for indemnification of
directors and officers and each person who may serve at the corporation's
request as the director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, against
expenses actually and reasonably incurred in connection with the settlement or
defense of any action, suit or proceeding, civil or criminal, in which that
person is made a party by reason of being or having been such director or
officer, except in relation to matters as to which he shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty to the corporation. This provision specifically indemnifies
each such director and officer from payment of any judgment, levy, or demand
that might be granted against that person by virtue of his occupancy of that
office growing out of any such action, suit or proceeding.
The Bylaws of the New Mexico Subsidiaries provide that the indemnification
contained therein is in addition, and not in lieu of, the indemnification of
directors and officers described in Section 53-11-4.1 NMSA 1978, as that law may
be amended from time to time.
The Articles of San Juan Refining Company provide that, subject to certain
exceptions, its directors shall not be personally liable to it or it
shareholders for monetary damages for breach of fiduciary duties.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(A) EXHIBITS
The following is a list of all the exhibits filed as part of the
Registration Statement.
DEFINITIONS:
Form S-1 -- Refers to the Form S-1 Registration Statement under the
Securities Act of 1933 as filed October 16, 1989, File No. 33-31584.
Amendment No. 1 -- Refers to the Amendment No. 1 to Form S-1 Registration
Statement under the Securities Act of 1933 as filed October 27, 1989, File No.
33-31584.
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<PAGE> 129
Amendment No. 2 -- Refers to the Amendment No. 2 to Form S-1 Registration
Statement under the Securities Act of 1933 as filed November 20, 1989, File No.
33-31584.
Amendment No. 3 -- Refers to the Amendment No. 3 to Form S-1 Registration
Statement under the Securities Act of 1933 as filed December 12, 1989, File No.
33-31584.
Form S-3 -- Refers to the Form S-3 Registration Statement under the
Securities Act of 1933 as filed September 22, 1993, File No. 33-69252.
<TABLE>
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EXHIBIT NO. DESCRIPTION
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<C> <S>
2.1* Purchase and Sale Agreement, dated August 8, 1995, among Bloomfield Refining
Company and Gary-Williams Energy Corporation, as Sellers, and Giant Industries
Arizona, Inc., as Buyer. Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K for the period of October 4, 1995, File No. 1-10398.
2.2 First Amendment, dated September 29, 1995, to Purchase and Sale Agreement, dated
August 8, 1995, among Bloomfield Refining Company and Gary-Williams Energy
Corporation, as Sellers, and Giant Industries Arizona, Inc., as Buyer.
Incorporated by reference to Exhibit 2.2 to the Company's Report on Form 8-K for
the period October 4, 1995, File No. 1-10398.
2.3 Second Amendment, dated October 2, 1995, to Purchase and Sale Agreement, dated
August 8, 1995, among Bloomfield Refining Company and Gary-Williams Energy
Corporation, as Sellers, and Giant Industries Arizona, Inc. as Buyer.
Incorporated by reference to Exhibit 2.3 to the Company's Report on Form 8-K for
the period October 4, 1995, File No. 1-10398.
2.4 Definitive Agreement, dated April 18, 1997, by and between Giant Four Corners,
Inc., as "Buyer," and Thriftway Marketing Corp. and Clayton Investment Company,
collectively as "Seller." Incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K filed June 12, 1997, File No. 1-10398.
2.5 Stock Purchase Agreement, dated April 30, 1997, by and among Phoenix Fuel Co.,
Inc. (the "Company"), J.W. Wilhoit, as Trustee of the Wilhoit Trust Agreement
Dated 12/26/74, Katherine C. Lahowetz, as Trustee of the Theresa Ann Wilhoit
Grantor Retained Annuity Trust Dated 4/4/97, Katherine C. Lahowetz, and Katherine
C. Lahowetz, as custodian for the Benefit of Emily Lahowetz, a minor
(collectively, the "Shareholders") and Giant Industries Arizona, Inc. (the
"Purchaser"). Incorporated by reference to Exhibit 2.1 to the Company's Report on
Form 8-K filed June 17, 1997, File No. 1-10398.
3.1 Restated Certificate of Incorporation of Giant Industries, Inc., a Delaware
corporation (the "Company"). Incorporated by reference to Exhibit 3.1 to
Amendment No. 3.
3.2 Bylaws of the Company, as amended. Incorporated by reference to Exhibit 3.2 to
Amendment No. 3.
3.3 Articles of Incorporation of Giant Exploration & Production Company, a Texas
corporation ("Giant Exploration"), formerly Hixon Acquisition Corp. Incorporated
by reference to Exhibit 2.1, Annex III to Form S-1.
3.4 Bylaws of Giant Exploration. Incorporated by reference to Exhibit 2.1, Annex IV
to Form S-1.
3.5 Articles of Incorporation of Giant Industries Arizona, Inc., an Arizona
corporation ("Giant 3.6 Arizona") formerly Giant Acquisition Corp. Incorporated
by reference to Exhibit 2.1, Annex V to Form S-1.
3.6 Bylaws of Giant Arizona. Incorporated by reference to Exhibit 2.1, Annex VI to
Form S-1.
3.7 Articles of Incorporation of Ciniza Production Company. Incorporated by reference
to Exhibit 3.7 to Form S-3.
3.8 Bylaws of Ciniza Production Company. Incorporated by reference to Exhibit 3.8 to
Form S-3.
3.9 Articles of Incorporation of Giant Stop-N-Go of New Mexico, Inc. Incorporated by
reference to Exhibit 3.9 to Form S-3.
</TABLE>
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EXHIBIT NO. DESCRIPTION
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3.10 Bylaws of Giant Stop-N-Go of New Mexico, Inc. Incorporated by reference to
Exhibit 3.10 to Form S-3.
3.11 Articles of Incorporation of Giant Four Corners, Inc. Incorporated by reference
to Exhibit 3.11 to Form S-3.
3.12 Bylaws of Giant Four Corners, Inc. Incorporated by reference to Exhibit 3.12 to
Form S-3.
3.13 Articles of Incorporation of Giant Mid-Continent, Inc. Incorporated by reference
to Exhibit 3.13 to the Company's Report on Form 10-K for fiscal year ended
December 31, 1994, File No. 1-10398.
3.14 Bylaws of Giant Mid-Continent, Inc. Incorporated by reference to Exhibit 3.14 to
the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File
No. 1-10398.
3.15 Articles of Incorporation of San Juan Refining Company. Incorporated by reference
to Exhibit 3.15 to the Company's Report on Form 10-K for fiscal year ended
December 31, 1995, File No. 1-10398.
3.16 Bylaws of San Juan Refining Company. Incorporated by reference to Exhibit 3.16 to
the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File
No. 1-10398.
3.17+ Articles of Incorporation of Phoenix Fuel Co., Inc.
3.18+ Bylaws of Phoenix Fuel Co., Inc.
4.1 Amended and Restated Note Agreement, dated as of September 30, 1993, among the
Prudential Insurance Company of America ("Prudential"), Pruco Life Insurance
Company ("Pruco"), the Company and Giant Arizona, relating to $20,000,000 of
10.91% Senior Notes due March 31, 1999. Incorporated by reference to Exhibit 4.13
to Amendment No. 2 to the Form S-3 Registration Statement under the Securities
Act of 1933 as filed November 12, 1993, File No. 33-69252.
4.2 Letter Amendment No. 1, dated December 31, 1994, to Amended and Restated Note
Agreement, dated September 30, 1993, among Prudential, Pruco, the Company and
Giant Arizona. Incorporated by reference to Exhibit 4.2 to the Company's Report
on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398.
4.3 Letter Amendment No. 2, dated May 9, 1995, to Amended and Restated Note
Agreement, dated September 30, 1993, among Prudential, Pruco, the Company and
Giant Arizona. Incorporated by reference to Exhibit 4 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1995, File No. 1-10398.
4.4 Indenture, dated as of November 29, 1993 among the Company, as Issuer, the
Subsidiary Guarantors, as guarantors, and NBD Bank, National Association, as
Trustee, relating to $100,000,000 of 9 3/4% Senior Subordinated Notes due 2003.
Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K dated November 29, 1993, File No. 1-10398.
4.5 Credit Agreement, dated October 4, 1995, among Giant Industries, Inc., as
Borrower , Giant Industries Arizona, Inc., Ciniza Production Company, San Juan
Refining Company, Giant Exploration & Production Company and Giant Four Corners,
Inc., as Guarantors, and Bank of America National Trust and Savings Association,
as Agent, Bank of America Illinois, as a Bank and as Letter of Credit Issuing
Bank and the Other Financial Institutions Parties thereto. Incorporated by
reference to Exhibit 4.1 to the Company's Report on Form 8-K for the period
October 4, 1995, File No. 1-10398.
</TABLE>
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<TABLE>
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EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
4.6 First Amendment, dated May 15, 1996, to Credit Agreement, dated October 4, 1995,
among Giant Industries, Inc., as Borrower, Giant Industries Arizona, Inc., Giant
Exploration & Production Company, Giant Four Corners, Inc., San Juan Refining
Company and Ciniza Production Company, as Guarantors, and Bank of America
National Trust and Savings Association, as Agent, Bank of America Illinois, as
issuing Bank and as a Bank, NBD Bank as a Bank, and Union Bank, as a Bank.
Incorporated by reference to Exhibit 4.2 to the Company's Report of Form 8-K
dated June 12, 1997, File No. 1-10398.
4.7 Second Amendment, dated May 23, 1997, to Credit Agreement, dated October 4, 1995,
among Giant Industries, Inc., as Borrower, Giant Industries Arizona, Inc., Giant
Exploration & Production Company, San Juan Refining Company, Giant Four Corners,
Inc. and Ciniza Production Company, as Guarantors, and Bank of America National
Trust and Savings Association, as Agent, Bank of America Illinois, as issuing
Bank and as a Bank, First National Bank of Chicago (successor to NBD Bank, by
assignment), as a Bank, and Union Bank of California, N.A. (formerly known as
Union Bank), as a Bank. Incorporated by reference to Exhibit 4.3 to the Company's
Report of Form 8-K dated June 12, 1997, File No. 1-10398.
4.8+ Indenture, dated as of August 26, 1997, among the Company, as Issuer, the
Subsidiary Guarantors, as guarantors, and The Bank of New York, as Trustee,
relating to $150,000,000 of 9% Senior Subordinated Notes due 2007.
4.9 Form of Exchange Note (included in Exhibit 4.8).
5.1** Opinion of Fennemore Craig, P.C., as to the legality of the Exchange Notes.
10.1*** 1989 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-10398.
10.2*** Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated
by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1996, File No. 1-10398.
10.3 Employee Stock Ownership Plan and Trust Agreement of the Company, as amended.
Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q
for the quarter ended September 30, 1994, File No. 1-10398.
10.4 Ninth Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant
Industries, Inc. and Affiliated Companies dated October 1, 1996. Incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-10398.
10.5*** ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-10398.
10.6*** Amended 1988 Restricted Stock Plan of the Company. Incorporated by reference to
Exhibit 10.3 to Form S-1.
10.7*** 1989 Stock Option Plan of the Company. Incorporated by reference to Exhibit 10.4
to Form S-1.
10.8 Purchase Agreement, dated November 29, 1990, between Giant Arizona and Prime
Pinnacle Peak Properties Limited Partnership. Incorporated by reference to
Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
10.9 Escrow Instructions, dated January 7, 1991, between Prime Pinnacle Peak
Properties Limited Partnership and Giant Arizona. Incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
</TABLE>
II-7
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.10 Agreement for Leasing of Service Station Site, dated March 1, 1991, between Giant
Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by
reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File No. 1-10398.
10.11 First Amendment to Agreement for Leasing of Service Station Site, dated March 1,
1991, between Giant Arizona and Prime Pinnacle Peak Properties Limited
Partnership. Incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, File No.
1-10398.
10.12 Purchase and Sale Agreement, dated as of May 7, 1991, between New Bank of New
England N.A., Den Norske Bank, Kansallis -- Osake -- Pankki -- and Portales
Energy Company, Inc. and the Company. Incorporated by reference to Exhibit 10.4
to the Company's Report on Form 10-Q for the quarter ended June 30, 1991, File
No. 1-10398.
10.13 Aircraft Lease Purchase Agreement, dated as of June 21, 1991, between Metlife
Capital Corporation and the Company. Incorporated by reference to Exhibit 10.1 to
the Company's Report on Form 10-Q for the quarter ended June 30, 1991, File No.
1-10398.
10.14 Promissory Note for $600,000, dated December 1, 1988, from JEA to Metlife Capital
Corporation ("Metlife"). Incorporated by reference to Exhibit 10.38 to Form S-1.
10.15 Promissory Note for $825,000, dated December 20, 1988, from JEA to Metlife.
Incorporated by reference to Exhibit 10.39 to Form S-1.
10.16 Promissory Note for $750,000, dated December 28, 1987, from JEA to Metlife.
Incorporated by reference to Exhibit 10.40 to Form S-1.
10.17 Promissory Note for $1,087,500, dated December 30, 1988, from JEA to Metlife.
Incorporated by reference to Exhibit 10.44 to Form S-1.
10.18 Promissory Note for $1,082,900, dated December 30, 1988, from JEA to Metlife.
Incorporated by reference to Exhibit 10.45 to Form S-1.
10.19* Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil
Corporation. Incorporated by reference to Exhibit 10.47 to Amendment No. 2.
10.20* Amendment, dated April 20, 1990, to Sales Agreement, dated June 6, 1989, between
Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit
10.51 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-10398.
10.21* Crude Oil and Condensate Sales and Purchase Agreement, dated August 1, 1994,
between Meridian Oil Trading Inc. (Seller) and Giant Refining Company, a division
of Giant Industries Arizona, Inc. (Buyer). Incorporated by reference to Exhibit
10.27 to the Company's Report on Form 10-K for fiscal year ended December 31,
1994, File No. 1-10398.
10.22* Natural Gas Liquids Sales and Purchase Agreement, dated October 27, 1994, between
Meridian Oil Hydrocarbons Inc. and Giant Refining Company, a division of Giant
Industries Arizona, Inc. Incorporated by reference to Exhibit 10.28 to the
Company's Report on Form 10-K for fiscal year ended December 31, 1994, File No.
1-10398.
10.23* Natural Gasoline Purchase and Sale Agreement, dated September 1, 1990, between
Sunterra Gas Processing Company and Giant Arizona. Incorporated by reference to
Exhibit 10.57 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
10.24*** Employment Agreement, dated as of November 16, 1989, between James E. Acridge and
the Company. Incorporated by reference to Exhibit 10.52 to Amendment No. 2.
10.25*** Employment Agreement, dated as of November 16, 1989, between Fredric L. Holliger
and the Company. Incorporated by reference to Exhibit 10.53 to Amendment No. 2.
</TABLE>
II-8
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.26*** Employment Agreement, dated as of August 1, 1990 between Morgan Gust and the
Company. Incorporated by reference to Exhibit 10.64 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, File No.
1-10398.
10.27 Consulting Agreement, dated January 1, 1990, between the Company and Kalen and
Associates. Incorporated by reference to Exhibit 10.66 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, File No.
1-10398.
10.28 Consulting Agreement, dated March 12, 1992, between the Company and Geddes and
Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended June 30, 1992, File No. 1-10398.
10.29*** Giant Industries, Inc. and Affiliated Companies 401(k) Plan. Incorporated by
reference to Exhibit 10.46 to Amendment No. 2 to the Form S-3 Registration
Statement under the Securities Act of 1933 as filed November 12, 1993, File No.
33-69252.
10.30*** First Amendment of the Giant Industries, Inc. and Affiliated Companies 401(k)
Plan, dated October 17, 1996. Incorporated by reference to Exhibit 10.30 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-10398.
10.31+ Registration Rights Agreement, dated as of August 21, 1997, among the Company,
the Initial Purchasers and the Subsidiary Guarantors.
10.32+ Purchase Agreement, dated August 21, 1997, among the Company, the Initial
Purchasers and the Subsidiary Guarantors.
11.1 Statement regarding computation of earnings per share. Incorporated by reference
to Exhibit 11.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and to Exhibit 11.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No. 1-10398.
18.1 Letter regarding change in accounting principles. Incorporated by reference to
Exhibit 18.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-10398.
21.1+ Subsidiaries of the Company.
23.1** Consent of Deloitte & Touche LLP.
23.2** Consent of Arthur Andersen LLP.
23.3** Consent of Fennemore Craig, P.C. (included in Exhibit 5.1).
24.1+ Powers of Attorney (contained on pages II-12 through II-20 of the Registration
Statement on Form S-4 (No. 333-37561) filed with the Commission on October 9,
1997).
24.2** Board of Directors resolutions authorizing Powers of Attorney.
25.1+ Statement of Eligibility of Trustee on Form T-1 of The Bank of New York under the
Trust Indenture Act of 1939.
27 Financial Data Schedule. Incorporated by reference to Exhibit 27 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and to
Exhibit 27 of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, File No. 1-10398.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Certain information contained in these documents has been afforded
confidential treatment.
** Filed herewith.
*** Indicates contract with management or compensatory plan or arrangement
relating to management.
+ Previously filed as an Exhibit to the Form S-4 Registration Statement under
the Securities Act of 1933 as filed October 9, 1997, File No. 333-37561.
II-9
<PAGE> 134
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Giant Industries, Inc. for
the years ended December 31, 1996, 1995 and 1994 is incorporated by reference in
this Registration Statement and should be read in conjunction with the
Consolidated Financial Statements of Giant Industries, Inc.
<TABLE>
<S> <C>
Independent Auditors' Report on Schedule....................... S-1
Schedule II -- Valuation and Qualifying Accounts............... S-2
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or because the information required to be set
forth therein is included in the Consolidated Financial Statements or Notes
thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-10
<PAGE> 135
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Each of the undersigned registrants hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission under
section 305(b)(2) of the Act.
II-11
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT INDUSTRIES, INC.
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Director
- ---------------------------------------------
Anthony J. Bernitsky
* Director
- ---------------------------------------------
F. Michael Geddes
* Director
- ---------------------------------------------
Richard T. Kalen, Jr.
* Director
- ---------------------------------------------
Harry S. Howard, Jr.
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT INDUSTRIES ARIZONA, INC.
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Vice
- --------------------------------------------- President Administration, Secretary and
Morgan Gust Director
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT EXPLORATION & PRODUCTION COMPANY
/s/ FREDRIC L. HOLLIGER
--------------------------------------
Fredric L. Holliger
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed by the following persons in the
capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board and Director
- ---------------------------------------------
James E. Acridge
/s/ FREDRIC L. HOLLIGER President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER President, Chief Executive Officer and
- --------------------------------------------- Director Attorney-in-Fact
Fredric L. Holliger
</TABLE>
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT STOP-N-GO OF NEW MEXICO, INC.
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
SAN JUAN REFINING COMPANY
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
CINIZA PRODUCTION COMPANY
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT FOUR CORNERS, INC.
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
GIANT MID-CONTINENT, INC.
*
--------------------------------------
James E. Acridge
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
James E. Acridge Executive Officer)
/s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
A. Wayne Davenport Accounting Officer)
* Vice President and General Counsel, Secretary,
- --------------------------------------------- Vice President Administration and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Executive Vice President, Chief Operating
- --------------------------------------------- Officer and Director
Fredric L. Holliger Attorney-in-Fact
</TABLE>
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Form S-4 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Scottsdale, State of Arizona on November 5, 1997.
PHOENIX FUEL CO., INC.
/s/ FREDRIC L. HOLLIGER
--------------------------------------
Fredric L. Holliger,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-4 Registration Statement has been signed by the following
persons in the capacities indicated on November 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Chairman of the Board and Director
- ---------------------------------------------
James E. Acridge
/s/ FREDRIC L. HOLLIGER Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Fredric L. Holliger
* President and Chief Operating Officer
- ---------------------------------------------
Jack Keller
* Vice President, Chief Financial Officer and
- --------------------------------------------- Treasurer (Principal Financial Officer and
Gary Dalke Principal Accounting Officer)
* Vice President and General Counsel, Secretary
- --------------------------------------------- and Director
Morgan Gust
*By: /s/ FREDRIC L. HOLLIGER Chief Executive Officer and Director
- --------------------------------------------- Attorney-in-Fact
Fredric L. Holliger
</TABLE>
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Fennemore Craig, P.C., as to the legality of the Exchange Notes.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Fennemore Craig, P.C. (included in Exhibit 5.1)
24.2 Board of Directors resolutions authorizing Powers of Attorney.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[FENNEMORE CRAIG LETTERHEAD]
November 5, 1997
Board of Directors
Giant Industries, Inc.
Giant Industries Arizona, Inc.
Giant Exploration & Production Company
Phoenix Fuel Co., Inc.
San Juan Refining Company
Giant Mid-Continent, Inc.
Ciniza Production Company
Giant Stop-N-Go of New Mexico, Inc.
Giant Four Corners, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Ladies and Gentlemen:
We have acted as special counsel for Giant Industries, Inc., a Delaware
corporation (the Company"), and the Subsidiary Guarantors (defined below) in
connection with the offer to exchange (the "Exchange Offer") up to $150,000,000
aggregate principal amount of registered 9% Senior Subordinated Notes due 2007
(the "Exchange Notes") for a like principal amount of the Company's 9% Senior
Subordinated Notes due 2007 issued and sold in a Rule 144A offering (the
"Notes") pursuant to the Registration Statement on Form S-4 filed by the Company
and the Subsidiary Guarantors with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), on
October 9, 1997 (which Registration Statement, as amended by Amendment No. 1
thereto, is referred to herein as the "Registration
<PAGE> 2
FENNEMORE CRAIG
Board of Directors
November 5, 1997
Page 2
Statement"). In connection with the Registration Statement, we have been
requested to render the opinions set forth herein.
The Exchange Notes will be issued pursuant to the terms of the Indenture
dated August 26, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and The Bank of New York, a New York banking corporation, as
indenture trustee (the "Trustee"). The Company's payment obligations with
respect to the Exchange Notes are being guaranteed, jointly and severally on a
subordinated basis, by the Subsidiary Guarantors. Giant Industries Arizona,
Inc., an Arizona corporation ("Giant Arizona"), Giant Exploration & Production
Company, a Texas corporation ("Giant E&P"), Phoenix Fuel Co., Inc., an Arizona
corporation ("Phoenix Fuel"), San Juan Refining Company, a New Mexico
corporation ("San Juan"), Giant Mid-Continent, Inc., an Arizona corporation
("Giant Mid-Continent"), Ciniza Production Company, a New Mexico corporation
("Ciniza"), Giant Stop-N-Go of New Mexico, Inc., a New Mexico corporation
("Giant Stop-N-Go"), and Giant Four Corners, Inc., an Arizona corporation
("Giant Four Corners"), are collectively referred to herein as the "Subsidiary
Guarantors," the guarantees of the Subsidiary Guarantors with respect to the
Exchange Notes are collectively referred to herein as the "Guarantees," and the
Exchange Notes and the Guarantees are collectively referred to herein as the
"Securities."
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Certificate of
Incorporation and the Bylaws of the Company, (ii) the comparable organizational
documents for each of the Subsidiary Guarantors, (iii) certain resolutions of
the Boards of Directors of the Company and of each of the Subsidiary Guarantors,
(iv) the Indenture, (v) the Registration Statement, (vi) a specimen of the
Exchange Notes and the Guarantees; and (vii) such other corporate records,
agreements, documents and other instruments of the Company and the Subsidiary
Guarantors and such certificates or comparable documents of public officials and
of officers and representatives of the Company and the Subsidiary Guarantors as
we deemed necessary or appropriate for purposes of rendering the opinions set
forth below.
In such examination and in rendering the opinions set forth below, we have
assumed (i) the legal capacity of all natural persons, (ii) the genuineness of
all signatures, (iii) the authority of all signatories, (iv) the authenticity
and completeness of all documents submitted to us as forms of the documents to
be executed, (v) the conformity to original documents of all documents submitted
to us as certified or photostatic copies, (vi) that the parties' choice of New
York law to govern the Indenture and the Securities would be upheld if
challenged, and (vii) that the Securities will be issued as described in the
Registration Statement. As to any facts material to this opinion which we did
not independently establish or verify, we have relied upon statements or
representations of officers and/or other representatives of the Company, the
Subsidiary Guarantors and others, all of which statements and representations we
have assumed to be true and correct in all respects as of the date hereof.
<PAGE> 3
FENNEMORE CRAIG
Board of Directors
November 5, 1997
Page 3
Based upon and subject to the assumptions, limitations, qualifications and
exceptions set forth herein, it is our opinion that:
1. The Company is a corporation duly incorporated and in good standing
under the laws of the State of Delaware, and has duly authorized the execution,
delivery and performance of the Indenture and the Exchange Notes.
2. Giant Arizona, Phoenix Fuel, Giant Mid-Continent and Giant Four Corners
are corporations duly incorporated and are in good standing under the laws of
the State of Arizona, and have duly authorized the execution, delivery and
performance of the Indenture and their respective Guarantees.
3. Giant E&P is a corporation duly incorporated and is in good standing
under the laws of the State of Texas, and has duly authorized the execution,
delivery and performance of the Indenture and its Guarantee.
4. San Juan, Ciniza and Giant Stop-N-Go are corporations duly incorporated
and are in good standing under the laws of the State of New Mexico, and have
duly authorized the execution, delivery and performance of the Indenture and
their respective Guarantees.
5. Assuming that (i) the Indenture has been duly authorized, executed and
delivered by the Trustee, (ii) the Exchange Notes are duly executed and issued
by the Company, (iii) the Guarantees are duly executed and issued by the
respective Subsidiary Guarantors, and (iv) the Exchange Notes have been
authenticated by the Trustee in the manner set forth in the Indenture, and upon
exchange and delivery as described in the Registration Statement, the Exchange
Notes will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled to
the benefits of the Indenture, except to the extent that the enforceability
thereof may be limited by (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, fraudulent transfer or other laws relating to
creditors' rights generally, and (B) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law), the
discretion of the court before which proceedings may be brought and an implied
covenant of good faith and fair dealing.
6. Assuming that the Indenture has been duly authorized, executed and
delivered by the Trustee, the Indenture constitutes a valid and legally binding
instrument of the Company and each of the Subsidiary Guarantors, enforceable
against the Company and each of the Subsidiary Guarantors in accordance with its
terms, and, based on such assumption, the Guarantees will constitute valid and
legally binding obligations of each of the respective Subsidiary Guarantors,
enforceable against each Subsidiary Guarantor in accordance with their terms;
provided, however, in each case that the enforceability thereof may be limited
by (A) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, fraudulent transfer or other laws relating to creditors' rights
generally, and (B) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law), the discretion
of the court
<PAGE> 4
FENNEMORE CRAIG
Board of Directors
November 5, 1997
Page 4
before which proceedings may be brought and an implied covenant of good faith
and fair dealing.
The foregoing opinions are subject to the following qualifications and
limitations:
(a) With respect to our opinions set forth in paragraphs 3, 5 and 6, as to
matters of New York and Texas law we have relied solely on the opinion of
Andrews & Kurth L.L.P. attached hereto as Exhibit A, including the assumptions,
qualifications and limitations set forth therein.
(b) With respect to our opinions set forth in paragraph 4, as to matters
of New Mexico law we have relied solely on the opinion of Montgomery & Andrews,
P.A. attached hereto as Exhibit B, including the assumptions, qualifications and
limitations set forth therein.
We are qualified to practice law in the State of Arizona. We express no
opinion as to, and for the purposes of the opinions set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any laws
other than the laws of the State of Arizona, the General Corporation Law of the
State of Delaware, and, to the extent expressly set forth herein, the federal
laws of the United States. This opinion is rendered as of the date hereof, and
we undertake no obligation to update this opinion should it no longer remain
accurate by change in factual circumstances, law, judicial decision or
otherwise.
This opinion is furnished only to, and is solely for the benefit of, the
addressees named above and, except with our prior written consent, is not to be
used, circulated, quoted or otherwise referred to or disseminated for any other
purpose or relied upon by any person or entity. Notwithstanding the foregoing,
we hereby consent to the filing of this opinion with the Commission as Exhibit
5.1 to the Registration Statement and to the reference to this firm under the
heading "LEGAL MATTERS" in the Prospectus forming a part of the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
Fennemore Craig, a Professional Corporation
/s/ Fennemore Craig, a Professional Corporation
<PAGE> 5
[ANDREWS & KURTH L.L.P. LETTERHEAD]
November 4, 1997
Board of Directors
Giant Industries, Inc.
Giant Industries Arizona, Inc.
Giant Exploration & Production Company
Phoenix Fuel Co., Inc.
San Juan Refining Company
Giant Mid-Continent, Inc.
Ciniza Production Company
Giant Stop-N-Go of New Mexico, Inc.
Giant Four Corners, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Re: Giant Industries, Inc.
$150,000,000 9% Senior Subordinated Notes due 2007
Ladies and Gentlemen:
We have acted as special counsel for Giant Industries, Inc., a
Delaware corporation (the "Company"), and the Subsidiary Guarantors (defined
below) in connection with the offer to exchange (the "Exchange Offer") up to
$150,000,000 aggregate principal amount of registered 9% Senior Subordinated
Notes due 2007 (the "Exchange Notes") for the Company's existing 9% Senior
Subordinated Notes due 2007 (the "Old Notes") pursuant to the Registration
Statement on Form S-4, No. 333-37561 (the "Registration Statement"), filed by
the Company and the Subsidiary Guarantors with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Act"), on
October 9, 1997. The Old Notes were issued, and the Exchange Notes are being
issued pursuant to an Indenture, dated August 26, 1997 (the "Indenture"), among
the Company, the Subsidiary Guarantors and The Bank of New York, as trustee (the
"Trustee"). The Company's payment obligations with respect to the Exchange Notes
are being guaranteed, jointly and severally on a subordinated basis, by Giant
Industries Arizona, Inc., an Arizona corporation, Giant Exploration & Production
Company, a Texas corporation ("Giant E&P"), Phoenix Fuel Co., Inc., an Arizona
corporation, San Juan Refining Company, a New Mexico corporation, Giant
Mid-Continent, Inc., an Arizona corporation, Ciniza Production Company, a New
Mexico corporation, Giant Stop-N-Go
EXHIBIT A
<PAGE> 6
[ANDREWS & KURTH L.L.P. LETTERHEAD]
Board of Directors
Giant Industries, Inc. et al.
November 4, 1997
Page 2
of New Mexico, Inc., a New Mexico corporation, and Giant Four Corners, Inc., an
Arizona corporation, collectively referred to herein as the "Subsidiary
Guarantors." The guarantees of the Subsidiary Guarantors with respect to the
Exchange Notes are collectively referred to as the "Guarantees," and the
Exchange Notes and the Guarantees are collectively referred to herein as the
"Securities." In connection with the Registration Statement, the Company and the
Subsidiary Guarantors have requested that we render the opinions set forth
herein.
In the above capacity and for the purpose of rendering the
opinions set forth below, we have examined an executed copy of the Indenture,
which includes the form of the Exchange Notes and the Guarantees, and such
corporate records, agreements, documents and other instruments of the Company
and the Subsidiary Guarantors, and such certificates or comparable documents of
public officials and of officers and representatives of the Company and the
Subsidiary Guarantors, and have made such other and further investigations, as
we deemed necessary or appropriate for purposes of rendering the opinions set
forth below.
We have also examined the originals, or copies certified or
otherwise identified to our satisfaction, of records of the Company and the
Subsidiary Guarantors, such agreements, certificates of public officials,
certificates of officers or representatives of the Company, the Subsidiary
Guarantors and others, and such other documents, certificates and corporate or
other records as we have deemed necessary or appropriate as a basis for the
opinions set forth herein. For purposes of the following opinions, we have
conducted such investigation as in our judgment is necessary to enable us to
render such opinions. In our examination we have assumed without independent
verification the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to this opinion which we did not
independently establish or verify, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company, the Subsidiary Guarantors and others.
We have also assumed that all necessary consents, approvals,
authorizations, registrations, declarations and filings (governmental or
otherwise) and all other conditions precedent with respect to the legal and
valid execution and delivery of, and performance under, the documents that we
have examined by each party thereto have been made or satisfied or have occurred
and are in full force and effect.
<PAGE> 7
[ANDREWS & KURTH L.L.P. LETTERHEAD]
Board of Directors
Giant Industries, Inc. et al.
November 4, 1997
Page 3
Based upon the foregoing examination, and subject to the
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that, as of the date hereof:
1. Assuming that the Indenture is duly authorized, executed
and delivered by the Company, the Subsidiary Guarantors and the Trustee, the
Indenture constitutes a valid and legally binding instrument of the Company and
each of the Subsidiary Guarantors enforceable against the Company and each of
the Subsidiary Guarantors in accordance with its terms.
2. Assuming that (i) the Indenture is duly authorized,
executed and delivered by the Company, the Subsidiary Guarantors and the
Trustee, (ii) the Exchange Notes are duly authorized, executed and issued by the
Company, (iii) the Guarantees are duly authorized, executed and delivered by
each of the Subsidiary Guarantors and (iv) the Exchange Notes are duly
authenticated by the Trustee, upon exchange and delivery as described in the
Registration Statement, (A) the Exchange Notes will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Indenture, and
(B) the Guarantees will constitute valid and legally binding instruments of the
respective Subsidiary Guarantors enforceable against the Guarantors in
accordance with their terms.
3. Giant E&P is duly incorporated and is in good standing
under the laws of the State of Texas and has duly authorized the execution,
delivery and performance of the Indenture and its Guarantee.
The foregoing opinions are subject to the qualifications and
limitations set forth below:
(a) Our opinions set forth in paragraphs 1 and 2 with respect
to the enforceability referred to therein are subject to the qualification that
(i) such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, fraudulent transfer and other
laws now or hereafter in effect relating to the rights of creditors generally
and by general equity principles or by an implied covenant of good faith and
fair dealing and (ii) the remedy of specific performance and other forms of
equitable relief may be subject to certain equitable defenses and to the
discretion of the court before which proceedings may be brought.
(b) We express no opinion as to the enforceability of any
provisions of the Indenture, the Exchange Notes or the Guarantees to the extent
relating to (i) any failure to comply with requirements concerning notices,
delay or omission to enforce rights or remedies or purporting
<PAGE> 8
[ANDREWS & KURTH L.L.P. LETTERHEAD]
Board of Directors
Giant Industries, Inc. et al.
November 4, 1997
Page 4
to waive or affect rights, claims, defenses, the application of any provision of
law (including pursuant to the first sentence of Section 7.07 of the Indenture)
or other benefits to the extent that any of the same cannot be waived or so
affected under applicable law or (ii) indemnities or exculpation from liability
to the extent prohibited by public policy, or provisions which might require
indemnification for, or exculpation from liability on account of, gross
negligence, willful misconduct, fraud or illegality of an indemnified or
exculpated party.
(c) With respect to the opinions set forth in paragraph 3 with
respect to the due incorporation and good standing of Giant E&P under the laws
of the State of Texas, we have relied exclusively on certificates, each dated as
of a recent date, from the Secretary of State of the State of Texas and the
Comptroller of Public Accounts for the State of Texas.
We are qualified to practice law in the State of New York and
the State of Texas. We express no opinion as to, and for the purposes of the
opinions set forth herein we have conducted no investigation of, and do not
purport to be experts on, any laws other than the laws of the State of New York,
the State of Texas, the General Corporation Law of the State of Delaware and, to
the extent expressly set forth herein, the federal laws of the United States of
America.
The foregoing opinions are being furnished only to, and are
solely for the benefit of, the addressee named above and, except with our prior
written consent, are not to be used, circulated, quoted, published or otherwise
referred to or disseminated for any other purpose or relied upon by any person
or entity other than said addressee, provided that Fennemore Craig, P.C. may
rely upon this opinion with respect to certain matters of the laws of the States
of New York and Texas, stated in its opinion to the Company's Board of Directors
to be filed with the Securities and Exchange Commission as an exhibit to the
Registration Statement.
Very truly yours,
/s/Andrews & Kurth L.L.P.
Andrews & Kurth L.L.P.
<PAGE> 9
[MONTGOMERY & ANDREWS LETTERHEAD]
November 4, 1997
VIA FEDERAL EXPRESS
Board of Directors
Giant Industries, Inc.
Giant Industries Arizona, Inc.
Giant Exploration & Production Company
Phoenix Fuel Co., Inc.
San Juan Refining Company
Giant Mid-Continent, Inc.
Ciniza Production Company
Giant Stop-N-Go of New Mexico, Inc.
Giant Four Corners, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Ladies and Gentlemen:
We have acted as special counsel for Giant Industries, Inc., a Delaware
corporation (the "Company"), and the Subsidiary Guarantors (defined below) in
connection with the offer to exchange (the "Exchange Offer") up to $150,000,000
aggregate principal amount of registered 9% Senior Subordinated Notes due 2007
(the "Exchange Notes") for a like principal amount of the Company's 9% Senior
Subordinated Notes due 2007 issued and sold in a Rule 144A offering (the
"Notes") pursuant to the Registration Statement on Form S-4 filed by the Company
and the Subsidiary Guarantors with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act:), on
October 9, 1997 (which Registration Statement, as amended by Amendment No. 1
thereto, is referred to herein as the "Registration Statement"). In connection
with the Registration Statement, we have been requested to render the opinions
set forth herein.
The Exchange Notes will be issued pursuant to the terms of the
Indenture dated August 26, 1997 (the "Indenture"), among the Company, the
Subsidiary Guarantors and The Bank of New York, a New York banking corporation,
as indenture trustee (the "Trustee"). The Company's payment obligations with
respect to the Exchange Notes are being guaranteed, jointly and severally on a
subordinated basis, by the Subsidiary Guarantors. Giant Industries Arizona,
Inc., an Arizona corporation ("Giant Arizona"),
EXHIBIT B
<PAGE> 10
Board of Directors
November 4, 1997
Page 2
Giant Exploration & Production Company, a Texas corporation ("Giant E&P"),
Phoenix Fuel Co., Inc., an Arizona corporation ("Phoenix Fuel"), San Juan
Refining Company, a New Mexico corporation ("San Juan"), Giant Mid-Continent,
Inc., an Arizona corporation ("Giant Mid-Continent"), Ciniza Production Company,
a New Mexico corporation ("Ciniza"), Giant Stop-N-Go- of New Mexico, Inc., a New
Mexico corporation ("Giant Stop-N-Go"), and Giant Four Corners, Inc., an Arizona
corporation ("Giant Four Corners"), are collectively referred to herein as the
"Subsidiary Guarantors," the guarantee of the Subsidiary Guarantors with respect
to the Exchange Notes are collectively referred to herein as the "Guarantees,"
and the Exchange Notes and the Guarantees are collectively referred to herein as
the "Securities."
In connection with this opinion we have examined (i) the Articles of
Incorporation and Bylaws of Ciniza, Giant Stop-N-Go and San Juan, (ii) the
corporate proceedings of Ciniza, Giant Stop-N-Go and San Juan with respect to
the making of the guarantees, (iii) the Indenture, and (iv) such other corporate
records, agreements, documents, and other instruments of the Company, Ciniza,
Giant Stop-N-Go and San Juan and such certificates or comparable documents of
public officials and of officers and representatives of the Company, Ciniza,
Giant Stop-N-Go and San Juan as we deemed necessary or appropriate for purposes
of rendering the opinions set forth below.
In our examination we have assumed (i) the legal capacity of all
natural persons, (ii) the genuiness of all signatures, (iii) the authority of
all signatories, (iv) the authenticity and completeness of all documents
submitted to us as forms of the documents to be executed and delivered, and (v)
the conformity to original documents of all documents submitted to us as
certified, conformed or photostatic copies. As to any other facts material to
the opinions expressed herein that have not been independently established or
verified by us, we have relied upon statements or representations of officers
and/or other representatives of the Company, Ciniza, Giant Stop-N-Go and San
Juan.
We are qualified to practice law in the State of New Mexico. We express
no opinion as to, and for the purposes of the opinions set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any laws
other than the laws of the State of New Mexico. This opinion is rendered as of
the date hereof, and we undertake no obligation to update this opinion should
this opinion no longer remain accurate by change in factual circumstances, law,
judicial decision or otherwise.
Based on the foregoing, and subject to the assumptions, limitations,
qualifications and exceptions set forth herein, we are of the opinion that
Ciniza, Giant
<PAGE> 11
Board of Directors
November 4, 1997
Page 3
Stop-N-Go and San Juan are corporations duly incorporated and are in good
standing under the laws of the State of New Mexico, and have duly authorized the
execution, delivery and performance of the Indenture and their respective
Guarantees.
The foregoing opinions are being furnished only to, and are solely for
the benefit of, the addresses named above and, except with our prior written
consent, are not to be used, circulated, quoted, published or otherwise referred
to or disseminated for any other purpose or relied upon by any person or entity,
provided that Fennemore Craig, P.C. may rely on this opinion with respect to its
opinion to the Company's Board of Directors to be filed with the Securities and
Exchange Commission as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-37561) relating to the Notes and the Guarantees.
Very truly yours,
MONTGOMERY & ANDREWS, P.A.
by:/s/ Gary Kilpatric
--------------------
Gary Kilpatric
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement of
Giant Industries, Inc. on Form S-4 of our report dated March 3, 1997 on the
financial statement schedule listed in Item 14 included in the Annual Report on
Form 10-K of Giant Industries, Inc. for the year ended December 31, 1996, and
to the use of our report dated March 3, 1997, except for Note 17 as to which
the date is June 3, 1997, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Summary Historical and Pro Forma Financial Data", "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 5, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated October 13, 1995
with respect to the financial statements of Bloomfield Refining Company included
in Giant Industries, Inc.'s current report on Form 8-K, dated October 19, 1995,
and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Denver, Colorado
November 5, 1997
<PAGE> 1
EXHIBIT 24.2
BOARD OF DIRECTORS RESOLUTIONS
AUTHORIZING POWERS OF ATTORNEY
COMPANY
FURTHER RESOLVED, that each officer or director of the Corporation who may
be required to execute the Registration Statement or any amendment or amendments
thereto to be filed with the Commission, is hereby authorized and empowered, in
the name and on behalf of the Corporation, to execute a power of attorney
appointing Fredric L. Holliger and A. Wayne Davenport and either of them,
severally, his or her true and lawful attorney or attorney-in-fact and agent or
agents with the power to act, with or without the other, with full power of
substitution and resubstitution, for him or her and in his or her name, place or
stead, in his or her capacity as a director or officer or both, as the case may
be, of the Corporation, to sign the Registration Statement and any and
amendments thereto and all documents or instruments necessary, appropriate or
desirable to enable the Corporation to comply with the Act and the Rules and
Regulations, other federal and state securities laws and other applicable United
States and other laws in connection with the Exchange Offering, and to file the
same with the Commission with full power and authority to each of said
attorneys-in-fact to do and to perform, in the name and on behalf of each such
officer or director, or both, as the case may be, every act whatsoever necessary
or appropriate, as fully and for all intents and purposes as such officer or
director, or both, as the case may be, might or could do in person.
SUBSIDIARY GUARANTORS
FURTHER RESOLVED, that each officer and director of the Company who may be
required to execute the Registration Statement is hereby authorized and directed
to execute a special power of attorney appointing Fredric L. Holliger and A.
Wayne Davenport each as the officer's or the director's true and lawful attorney
and agent, with the limited authority to sign as a director and/or officer the
Registration Statement, and any and all amendments thereto and all other
documents in connection therewith, and to file the same with the SEC and such
other governmental authorities as they deem necessary to advisable.
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
Offer For Any and All Outstanding
9% Senior Subordinated Notes due 2007
in Exchange for
9% Senior Subordinated Notes due 2007
Which Have Been Registered Under The Securities Act of 1933
Pursuant to the Prospectus dated November 10, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON DECEMBER 12, 1997, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<S> <C> <C>
By Hand Or Overnight Delivery Facsimile Transmissions: By Registered Or Certified Mail:
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street (212)571-3080 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization Section,
Attention: Reorganization Section, or for Information Call
(212) 815-6333
</TABLE>
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated: November 10, 1997 (the "Prospectus"), of Giant Industries, Inc., a
Delaware corporation ("Giant"), and this Letter of Transmittal, which together
constitute Giant's offer (the "Exchange Offer") to exchange an aggregate
principal amount of up to $150,000,000 9% Senior Subordinated Notes due 2007,
which have been registered under the Securities Act of 1993, as amended (the
"Securities Act") (the "Exchange Notes") for a like principal amount of the
issued and outstanding 9% Senior Subordinated Notes due 2007 (the "Notes") of
the Company from the holders thereof.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
<PAGE> 2
This Letter of Transmittal is to be completed by holders of Notes either
if Notes are to be forwarded herewith or if tenders of Notes are to be made by
book-entry transfer to an account maintained by The Bank of New York (the
"Exchange Agent") at The Depository Trust Company (the "Book-Entry Transfer
Facility" or "DTC") pursuant to the procedures set forth in "The Registered
Exchange Offer -- Registered Exchange Offer Procedures" in the Prospectus.
Holders of Notes whose certificates (the "Certificates") for such Notes
are not immediately available or who cannot deliver their Certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfers on a timely basis, must tender their Notes according to the
guaranteed delivery procedures set forth in "The Registered Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES 1 2 3
- -------------------------------------------------------------------------------------------------------
Aggregate Principal
Principal Amount of
Name(s) and Address(es) of Registered Holder(s): Certificate Amount of Notes
(Please fill in, if blank) Number(s)* Notes
Tendered**
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Notes are being tendered by book-entry holders.
** Notes may be tendered in whole or in part in integral multiples of $1,000.
See Instruction 4. Unless otherwise indicated in the column, a holder will
be deemed to have tendered all Notes represented by Notes indicated in
Column 2. See Instruction 4.
2
<PAGE> 3
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOKENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
Account Number______________________________________________________
Transaction Code Number_____________________________________________
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s)________________________________________
Window Ticket Number (if any)_______________________________________
Date of Execution of Notice of Guaranteed Delivery__________________
Name of Institution which Guaranteed Delivery_______________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution_______________________________________
Account Number _____________________________________________________
Transaction Code Number_____________________________________________
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER
FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
3
<PAGE> 4
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES
(A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: ______________________________________________________________
Address: ___________________________________________________________
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Giant, the above-described aggregate principal
amount of the Company's Notes in exchange for a like aggregate principal amount
of the Company's Exchange Notes which have been registered under the Securities
Act upon the terms and subject to the conditions set forth in the Prospectus
dated November 10, 1997 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of Giant
all right, title and interest in and to such Notes as are being tendered
herewith. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent is also acting as agent of Giant in connection with the Exchange
Offer) with respect to the tendered Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) subject only to the right of withdrawal described in the Prospectus,
to (i) deliver Certificates for Notes to Giant together with all accompanying
evidences of transfer and authenticity to, or upon the order of, Giant, upon
receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes
to be issued in exchange for such Notes, (ii) present Certificates for such
Notes for transfer, and to transfer the Notes on the books of Giant, and (iii)
receive for the account of Giant all benefits and otherwise exercise all rights
of beneficial ownership of such Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, GIANT
WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE NOTES TENDERED
HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL,
UPON REQUEST, EXECUTE AND DELIVER ANY
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<PAGE> 5
ADDITIONAL DOCUMENTS DEEMED BY GIANT OR THE EXCHANGE AGENT TO BE NECESSARY OR
DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE NOTES
TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE
TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Notes. The
Certificate number(s) and the Notes that the undersigned wishes to tender should
be indicated in the appropriate boxes above.
If any tendered Notes are not exchanged pursuant to the Exchange Offer for
any reason, or if Certificates are submitted for more Notes than are tendered or
accepted for exchange, Certificates for such non-exchanged Notes will be
returned (or, in the case of Notes tendered by book-entry transfer, such Notes
will be credited to an account maintained at DTC), without expense to the
tendering holder, promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Notes pursuant to any one of
the procedures describe in "The Registered Exchange Offer -- Registered Exchange
Offer Procedure" in the Prospectus and in the instruction, attached hereto will,
upon Giant's acceptance for exchange of such tendered notes, constitute a
binding agreement between the undersigned and Giant upon the terms and subject
to the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, Giant may not be required to
accept for exchange any of the Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issues in the name(s) of the undersigned or, in the case of a book-entry
transfer of Notes, that such Exchange Notes be credited to the account indicated
above maintained at DTC. If applicable, substitute Certificates representing
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Notes will be credited
to the account indicated above maintained at DTC. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please deliver Exchange Notes
to the undersigned at the address shown below the undersigned's signature.
BY TENDERING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF GIANT OR, IF IT IS SUCH AN AFFILIATE, THAT THE EXCHANGE NOTES MAY
NOT BE OFFERED FOR RESALE, RESOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
UNDER AND COMPLIANCE WITH THE PROSPECTUS DELIVERY REQUIREMENT OF THE SECURITIES
ACT OR AN EXEMPTION THEREFROM; (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS; (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
TO BE RECEIVED IN THE
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<PAGE> 6
EXCHANGE OFFER; AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE
UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NOTES. BY TENDERING NOTES
PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A
HOLDER OF NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH
CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION
FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A)
SUCH NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH
NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
GIANT HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR NOTES, WHERE
SUCH NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT
AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A
PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER
CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN
ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING
BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH NOTES AND EXECUTING THIS
LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM GIANT OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL
RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF NOTES PURSUANT TO THE PROSPECTUS UNTIL GIANT HAS AMENDED OR SUPPLEMENTED
THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES
OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR
GIANT HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE NOTES MAY BE RESUMED, AS THE
CASE
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<PAGE> 7
MAY BE. IF GIANT GIVES SUCH NOTICE TO SUSPEND THE SALE OF EXCHANGE NOTES, IT
SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE
OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE
DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF EXCHANGE NOTES OR TO AND INCLUDING THE
DATE ON WHICH GIANT HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE NOTES MAY BE
RESUMED, AS THE CASE MAY BE.
Holders of Notes whose Notes are accepted for exchange will not receive
accrued interest on such Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Notes
prior to the original issue date of the Exchange Notes or, if no such interest
has been paid or duly provided for, will not receive any accrued interest on
such Notes, and the undersigned waives the right to receive any interest on such
Notes accrued from and after such Interest Payment Date or, if no such interest
has been paid or duly provided for, from and after August 26, 1997.
The undersigned will, upon request, execute and deliver any additional
documents deemed by Giant to be necessary or desirable to complete the sale,
assignment and transfer of the Notes tendered hereby. All authority herein
conferred or agreed to be conferred in this Letter of Transmittal shall survive
the death or incapacity of the undersigned and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, legal representatives, successors and
assigns of the undersigned. Except as stated in the Prospectus, this tender is
irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE NOTES AS
SET FORTH IN SUCH BOX.
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<PAGE> 8
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 18)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificates(s) for the Notes hereby tendered or on the register of holders
maintained by or on behalf of Giant, or by any person(s) authorized to become
the registered holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as may
be required by Giant for the Notes to comply with the restrictions on transfer
applicable to the Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: _______________, 1997
Name(s)_________________________________________________________________________
_________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)___________________________________________________________
Address _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number__________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
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<PAGE> 9
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
________________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date: ________________, 1997
Name of Firm ___________________________________________________________________
Capacity (full title)_____________________________________________________
(PLEASE PRINT)
Address _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number__________________________________________________
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<PAGE> 10
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes or Notes not tendered are to be
issued in the name of someone other than the registered holder of the Notes
whose name(s) appear(s) above.
Issue
/ / Notes not tendered to:
/ / Exchange Notes to:
Name(s) _______________________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBERS)
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<PAGE> 11
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or Notes not tendered are to be sent to
someone other than the registered holder of Notes whose name(s) appear(s) above,
or such registered holder(s) at an address other than that shown above.
Mail
/ / Notes not tendered to:
/ / Exchange Notes to:
Name(s) ________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _______________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
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<PAGE> 12
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Registered
Exchange Offer -- Registered Exchange Offer Procedures" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Notes into
the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date. Notes may be tendered in whole or in
part in integral multiples of $1,000.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available or (ii) who cannot deliver their Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Registered Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Notes, in proper form for transfer, together with a
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three New York Stock Exchange, Inc. trading days after the Expiration
Date, all as provided in "The Registered Exchange Offer -- Guaranteed Delivery
Procedures for Tendering Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERED HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF
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<PAGE> 13
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL,
NOTES OR OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO GIANT.
Giant will not accept any alternative, conditional or contingent tenders.
Each tendering holder, by execution of a Letter of Transmittal (or facsimile
thereof), waives any right to receive any notice of the acceptance of such
tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant
in DTC whose name appears on the register of holders maintained by
or on behalf of Giant as the owner of the Notes) of Notes tendered
herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or
(ii) such Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Notes and any other required information should be listed on
a separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Notes will be
accepted only in integral multiples of $1,000. If less than all the Notes
evidenced by any Certificate submitted are to be tendered, fill in the principal
amount of Notes which are to be tendered in the box entitled "Liquidation Amount
of Notes Tendered (if less than all)." In such case, new Certificate(s) will
only be sent to the holder of the Notes, promptly after the Expiration Date. All
Notes represented by Certificates delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time on or prior to 5:00 p.m., New York City time, on the Expiration Date.
In order for a withdrawal to be effective on or prior to that time, a written,
telegraphic, telex or facsimile transmission of such notice of withdrawal must
be timely received by the Exchange Agent at one of its addresses set forth above
or in the Prospectus on or prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Notes to be withdrawn, the aggregate principal amount of
Notes to be withdrawn, and (if Certificates of Notes have been tendered) the
name of the registered holder of the Notes as set forth on the Certificate for
the Notes; if different from that of the person who tendered such Notes. If
Certificates for the Notes have been delivered or otherwise identified to the
Exchange
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<PAGE> 14
Agent, then prior to the physical release of such Certificates for the Notes,
the tendering holder must submit the serial numbers shown on the particular
Certificates for the Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Notes tendered for the account of an Eligible Institution. If Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in the
Prospectus under "The Registered Exchange Offer -- Registered Exchange Offer
Procedures," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Notes, in which case a
notice of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of
Notes may not be rescinded. Notes properly withdrawn will not be deemed validly
tendered for purposes of the Exchange Offer, but may be retendered at any
subsequent time on or prior to 5:00 p.m., New York City time, on the Expiration
Date by following any of the procedures described in the Prospectus under "The
Registered Exchange Offer -- Registered Exchange Offer Procedures."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Giant, in its sole
discretion, which determination shall be final and binding on all parties. None
of Giant, any affiliates or assigns of Giant, the Exchange Agent or any other
person shall be under any duty to give any notification of any irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification. Any Notes which have been tendered but which are withdrawn will be
returned to the holder thereof without cost to such holder promptly after
withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Notes
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Notes tendered are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to Giant, in its sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of
the Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless Notes are to be issued in the name of
a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
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<PAGE> 15
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Notes listed, the Certificates must be endorsed or
accompanied by appropriate bond powers, signed exactly as the name or names of
the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
Giant may require in accordance with the restrictions on transfer applicable to
the Notes. Signatures on such Certificates or bond powers must be guaranteed by
an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Notes are to be issued
in the name of a person other than the signer of this Letter of Transmittal, or
if Notes are to be sent to someone other than the signer of this Letter of
Transmittal or to an address other than that shown above, the appropriate boxes
on this Letter of Transmittal should be completed. Certificates for Notes not
exchanged will be returned by mail or, if tendered by book-entry transfer, by
crediting the account indicated above maintained at DTC. See Instruction 4.
7. Giant will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Notes, which determination shall be
final and binding on all parties. Giant reserves the absolute right to reject
any and all tenders determined by it not to be in proper form or the acceptance
of which, or exchange for which, may, in the view of counsel to Giant, be
unlawful. Giant also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer set forth in the Prospectus
under "The Registered Exchange Offer -- Conditions" or any conditions or
irregularity in any tender of Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
Giant's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be final
and binding. No tender of Notes will be deemed to have been validly made until
all irregularities with respect to such tender have been cured or waived. Giant,
any affiliates or assigns of Giant, the Exchange Agent, or any other person
shall not be under any duty to give notification of any irregularities in
tenders or incur any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Notes are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the Correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of
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<PAGE> 16
Awaiting Taxpayer Identification Number below in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent. The Exchange Agent
will retain such amounts withheld during the 60-day period following the date of
the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN
within 60 days after the date of the Substitute Form W-9, the amounts retained
during the 60-day period will be remitted to the holder and no further amounts
shall be retained or withheld from payments made to the holder thereafter. If,
however, the holder has not provided the Exchange Agent with its TIN within such
60-day period, amounts withheld will be remitted to the IRS as backup
withholding. In addition, 31% of all payments made thereafter will be withheld
and remitted to the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Notes or of the last transferee appearing on the transfers attached to, or
endorsed on, the Notes. If the Notes are registered in more than one name or are
not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Notes for exchanges.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Notes
nor shall any of them incur any liability for failure to give any such notice.
16
<PAGE> 17
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, Exchange Notes are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
17
<PAGE> 18
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
PAYER'S NAME: THE BANK OF NEW YORK
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SUBSTITUTE
Form W-9 Department Of The Treasury Internal Revenue Service
Payor's Request For Taxpayer Identification Number ("TIN") and Certification
- --------------------------------------------------------------------------------
PART 1 - PLEASE PROVIDE YOUR TIN ON THE LINE AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
- --------------------------------------------------------------------------------
PART 2 - TIN Applied For / /
- --------------------------------------------------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because (i) I am exempt from
backup withholding, (ii) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (iii) the IRS has notified
me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature _____________________________ Date ________________, 1997
- --------------------------------------------------------------------------------
TIN:__________________________ Social Security Number or Employer Identification
Number
- --------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature ________________________________ Date ______________________,1997
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18
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
9% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED NOVEMBER 10, 1997
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for Giant's 9% Senior Subordinated Notes due 2007 (the "Notes") are
not immediately available, (ii) Notes, the Letter of Transmittal and all other
required documents cannot be delivered to The Bank of New York (the "Exchange
Agent") on or prior to 5:00 P.M., New York City time, on the Expiration Date (as
defined in the Prospectus referred to below) or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The
Registered Exchange Offer -- Registered Exchange Offer Procedures" and " --
Guaranteed Delivery Procedures" in the Prospectus. In addition, in order to
utilize the guaranteed delivery procedure to tender Notes pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal relating to
Notes (or facsimile thereof) must also be received by the Exchange Agent prior
to 5:00 P.M., New York City time, on the Expiration Date. Capitalized terms not
defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<CAPTION>
By Hand Or Overnight Delivery Facsimile Transmissions: By Registered Or Certified Mail:
(Eligible Institutions Only)
<S> <C> <C>
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization Section,
Attention: Reorganization Section, or for Information Call
(212) 815-6333
</TABLE>
<PAGE> 2
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to Giant Industries, Inc., a Delaware
corporation ("Giant"), upon the terms and subject to the conditions set forth in
the Prospectus dated November 10, 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Registered Exchange Offer -- Guaranteed Delivery Procedures."
Aggregate Liquidation Amount Name(s) of Registered Holder(s):_____
Amount Tendered: $__________________ _____________________________________
Certificate No(s)
(if available): ____________________
:____________________________________
(Total Liquidation Amount Represented by
Notes Certificate(s))
$____________________________________
If Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number: ___________________________
Date: __________________________________________
-2-
<PAGE> 3
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
X________________________________________ ____________________________
X________________________________________ ____________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: ____________________________________________
Must be signed by the holder(s) of the Notes as their name(s) appear(s)
on certificates for Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s): _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Capacity: _____________________________________________________________
Address(es) _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
-3-
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Notes to the Exchange Agent's account at The Depository Trust
Company ("DTC"), pursuant to the procedures for book-entry transfer set forth in
the Prospectus, in either case together with one or more properly completed and
duly executed Letter(s) of Transmittal (or facsimile thereof) and any other
required documents within three New York Stock Exchange trading days after the
Expiration Date.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Notes tendered hereby to the Exchange Agent within the time
period set forth above and that failure to do so could result in a financial
loss to the undersigned.
__________________________________ ___________________________________
Name of Firm Authorized Signature
__________________________________ ___________________________________
Address Title
__________________________________ ___________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No. ____________________ Date: ___________________
NOTE: DO NOT SEND CERTIFICATES FOR NOTES WITH THIS FORM. CERTIFICATES FOR NOTES
SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
-4-
