FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period _______ to _______.
Commission File Number: 1-10398
GIANT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0642718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23733 North Scottsdale Road, Scottsdale, Arizona 85255
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 585-8888
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendments to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
As of February 28, 1998, 10,993,267 shares of the registrant's
Common Stock, $.01 par value, were outstanding and the aggregate
market value of the voting stock held by non-affiliates of the
registrant was approximately $134,400,000 based on New York Stock
Exchange closing prices on February 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in
Part III of this Form 10-K Report:
Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders - Items 10, 11, 12, and 13.<PAGE>
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
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 petroleum products in New Mexico, Arizona, Colorado and
Utah, with a concentration in the Four Corners where these states
adjoin. The Company sells petroleum products through company-operated
retail facilities, independent wholesalers and retailers,
industrial/commercial accounts and sales and exchanges with major oil
companies. In addition, through its wholly-owned subsidiary Phoenix
Fuel Co., Inc. ("Phoenix Fuel"), which was acquired June 3, 1997, Giant
Arizona operates an industrial/commercial petroleum fuels and
lubricants distribution operation including an unattended fleet fueling
("cardlock") operation.
The Company was incorporated in 1989 and completed its initial
public offering in December 1989. At December 31, 1997, the Company had
10,993,267 shares of outstanding Common Stock. Giant Arizona was
founded in 1961 and operated as a sole proprietorship until
incorporation in the State of Arizona in 1969.
The Company's long-term strategy is to profitably grow its
refining, retail marketing and other marketing operations through both
selective acquisitions and capital improvements to its existing
operations. This strategy, in part, is designed to increase integration
or control over the distribution of a greater portion of the Company's
refined products through their sale in the Company's retail network.
The Company also intends to increase its market presence in the growing
Southwest market including the Phoenix and Tucson areas. Through
selective acquisitions, the Company may expand into new market regions
outside the Four Corners area where the Company's management believes
it can duplicate its business strategy.
REFINING AND MARKETING
REFINING
Giant Arizona owns and operates two refineries. 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. Both of these refineries are geographically located in the Four
Corners area. This area serves as the Company's primary market for its
refined products and as the primary source of its crude oil and natural
gas liquids ("NGLs") supplies.
Management believes that the technical capabilities of both
refineries, together with the high quality of locally available
feedstocks, enable the Company to achieve refinery yields which are
comparable to that achieved by some 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 is also
equipped with an isomerization unit, which enables it to produce
additional gasoline through the processing of NGLs, and cogeneration
facilities. These processing configurations enable the refineries to
yield in excess of 90% high value products, including gasoline, diesel
fuel and jet fuel, from each barrel of crude oil refined. The
refineries manufacture a product slate that can include 100% unleaded
gasoline and 100% low sulfur diesel fuel.
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,
------------------------------------
1997 1996 1995(1) 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Feedstock throughput:(2)
Crude oil 33,700 34,800 23,700 19,100 20,300
NGLs and oxygenates 6,500 5,400 5,000 4,500 5,000
------ ------ ------ ------ ------
Total 40,200 40,200 28,700 23,600 25,300
====== ====== ====== ====== ======
Crude oil throughput (as a % of total) 84% 87% 83% 81% 80%
Rated crude oil capacity utilized 87% 90% 88% 92% 98%
Refinery margin ($/bbl) $ 6.39 $ 6.21 $ 5.13 $ 5.60 $ 6.69
Products:(2)
Gasoline 24,800 24,900 18,500 15,200 16,300
Diesel fuel 11,000 10,900 7,200 5,200 5,400
Jet fuel 800 1,100 900 1,300 1,800
Other 3,600 3,300 2,100 1,900 1,800
------ ------ ------ ------ ------
Total 40,200 40,200 28,700 23,600 25,300
====== ====== ====== ====== ======
High Value Products:
Gasoline 62% 62% 65% 64% 65%
Diesel fuel 27% 27% 25% 22% 21%
Jet fuel 2% 3% 3% 6% 7%
------ ------ ------ ------ ------
Total 91% 92% 93% 92% 93%
====== ====== ====== ====== ======
(1) The 1995 operating data reflects the operations of the Bloomfield
refinery effective October 4, 1995. The purchase of the Bloomfield
refinery increased the Company's total rated crude oil refining
capacity owned by 18,000 bpd.
(2) Average barrels per day ("bpd").
</TABLE>
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 in order 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 twenty-four to forty-eight months
depending on the unit involved.
In general, a major refinery turnaround is scheduled every four
years. The most recent major turnaround occurred at the Bloomfield
refinery during April and May 1997. During the turnaround, certain
debottlenecking procedures were completed that increased reformer
capacity by approximately 900 bpd. A major turnaround is scheduled for
the Ciniza refinery in the second quarter of 1998. During this
turnaround, the Company intends to complete certain debottlenecking
procedures to increase reformer capacity by approximately 800 bpd. In
1997, minor scheduled reformer and isomerization unit turnarounds at
the Ciniza refinery included certain debottlenecking procedures that
increased capacity by approximately 700 bpd for the reformer and 1,000
bpd for the isomerization unit. 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 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. The refineries also supplement their supply of
crude oil with Alaska North Slope ("ANS") crude oil, accessed from the
West Coast through the Company's gathering systems interconnection with
the Four Corners and Texas-New Mexico pipeline systems, which together
can transport approximately 65,000 barrels per day.
The Company believes that local crude oil production currently
approximates local crude oil demand and that the supply of crude oil
and condensate in the Four Corners has improved 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. Any significant long-term interruption in
crude oil supply or to the crude oil transportation system would have
an adverse effect on the Company's operations.
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 understands that production of ANS has
been 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 the event of a shortage in supply of locally
produced feedstocks and ANS, the Company has identified potential
opportunities for accessing other supplemental crude oil supplies via
the pipelines. 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. If additional supplemental feedstocks become necessary, the
Company intends to implement then available alternatives as necessary
and as is most advantageous under the 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, the Company participates in various
government supply programs available to smaller refiners.
In addition to crude oil, the Ciniza refinery currently has the
capability of processing approximately 6,000 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 a
lower cost per barrel than crude oil. In 1997, the Company undertook
several projects at its refineries that increased its ability to
utilize NGLs and intends to complete additional projects in 1998 to
further its NGL utilization.
An adequate supply of NGLs is available for delivery to the Ciniza
refinery, primarily through a Company-owned pipeline connecting the
Ciniza refinery to natural gas liquids 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
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 December 12, 1997, the Company completed the sale of its ethanol
processing plant in Portales, New Mexico. Ethanol is an oxygenate which
can be used as a gasoline blending component. The Company temporarily
closed this plant in October 1995 and had planned to reopen the facility
in 1997 but decided to sell the facility when the opportunity arose and
to concentrate on its core business of refining and marketing. The
Company anticipates that it will be able to purchase sufficient
quantities of oxygenates from third parties at acceptable prices for the
foreseeable future.
TRANSPORTATION
Crude oil supply for the Ciniza and Bloomfield refineries comes
primarily from the Four Corners area and is either connected by Company
owned pipeline or delivered by Company owned truck transports to
pipeline injection points or refinery tankage. The Company owns about
240 miles of pipeline for gathering and delivery of crude oil to the
refineries. The pipeline system reaches into the San Juan Basin and
connects with common carrier pipelines. The Ciniza refinery receives
NGLs through a 13-mile Company owned pipeline connected to a natural gas
liquids fractionation plant.
Currently, over 40 Company-owned truck transports are involved in
the collection of crude oil from producing wells to supply the
refineries.
MARKETING AND DISTRIBUTION
THE FOUR CORNERS MARKET. The Four Corners area is the primary
market area for the Company's refined products. The Company's New Mexico
market includes the greater Albuquerque area, the largest market in New
Mexico. Substantially all of the Company's refined products are
distributed in the Four Corners market. The Company estimates that,
during 1997, 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 43% of the refineries' sales barrels in
1997. The balance is transported by customer or common carrier trucking.
REFINED PRODUCT SALES. During 1997, the Company sold approximately
9,200,000 barrels of gasoline and 4,000,000 barrels of diesel fuel from
its refineries. The Company's retail units sold an equivalent of
approximately 31% of these gasoline and 15% of these diesel sales.
Gasoline and diesel deliveries made through product exchanges with large
oil companies accounted for approximately 14% 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 purchases,
for resale, of gasoline and diesel from other sources.
The Company's other refined products, including military jet fuels,
are marketed to various third party customers.
RETAIL MARKETING. At December 31, 1997, the Company operated 137
service station/convenience stores located in New Mexico, Arizona,
Colorado and Utah. This was eighty-five more units than in 1996. The
Company also operates a Travel Center located on I-40 adjacent to the
Ciniza refinery near Gallup, New Mexico. The Company's retail units sold
approximately 144,700,000 gallons of gasoline and diesel fuel in 1997
compared to approximately 105,800,000 gallons in 1996, a 37% increase.
Merchandise sales increased approximately 53% in 1997, to $75,000,000
from $49,100,000. The increases were primarily due to an increase in the
number of stores operated by the Company.
For 1997, same store sales increased 2% for merchandise and
decreased by 3% for gasoline and diesel fuel compared to 1996.
During 1997, the Company continued to look for acquisition
opportunities to expand its retail marketing. In June, the Company
completed the acquisition of 96 retail units in the Four Corners,
Northern New Mexico and Colorado areas. At the end of the first quarter
of 1998, 18 of these units had either been sold or were closed, leaving
78 operating units. These units are operated under various brand names,
i.e., Thriftway, Gasman, Gasamat, Plateau and Malco. In 1998, the
Company intends to consolidate the number of brands under which it
operates. Also in 1997, a number of new land sites were acquired for
planned growth through construction in 1998.
In 1998, the Company will continue to look for acquisition
opportunities to expand its retail marketing in areas that are
consistent with its strategic refining and marketing objectives. The
Company also plans to construct thirteen units. This additional growth
is expected to be in the Four Corners and other Arizona and New Mexico
market areas. Additional land sites are also expected to be acquired in
1998, along with the rebuilding or remodeling of several units.
In September, Giant and Conoco Oil Co. entered into a strategic
branding/licensing agreement that allows the Company to brand approved
gasoline locations with the Conoco gasoline brand. Presently, nine units
(including the Travel Center) are in process of being converted and,
based upon expected improvements in gasoline volumes and gross profit,
additional units will be branded in 1998.
Many of the Company's service stations are modern, high-volume,
self-service stations. During 1997, the Company remodeled 3 units and
continued its program to install credit card readers in dispensers at
its higher-volume units. New product dispensers were installed at 13
units. The program to upgrade dispensers and card readers is expected to
continue during 1998.
The Company has executed an agreement to acquire the assets of
Ever-Ready Oil Co., Inc. and a related entity (collectively "Ever-
Ready"). Closing is contingent upon, among other things, due diligence,
various conditions and regulatory approvals. Ever-Ready is an
Albuquerque-based petroleum products distributor that has been in
business for 68 years. Ever-Ready has fuel sales of approximately 5,000
barrels per day and lubricant sales of approximately 1.0 million gallons
per year. The assets include, among other things, twenty-seven retail
service station/convenience stores and ten cardlock fueling operations.
A portion of the assets are subject to rights of first refusal in favor
of third parties. One of these parties has exercised its rights while
another did not. The Company has the option of closing on the remaining
assets or cancelling the purchase.
The Company has entered into agreements to acquire 33 service
station/convenience stores from Kaibab Industries, Inc. The retail
units, located throughout Arizona, include 15 in the greater Phoenix
area and 11 in the Tucson market, with the balance located primarily in
southern and eastern Arizona. Other assets in the acquisition include
fuel truck/transports, other related equipment, fuel inventories and
some undeveloped real estate. These units have had sales of
approximately 70 million gallons of refined petroleum products per year.
The acquisition is expected to close in the second quarter of 1998
subject to normal pre-closing conditions, due diligence procedures and
regulatory approvals.
On February 10, 1998, the Company completed the purchase of the
assets of DeGuelle Oil Company and the stock of DeGuelle Enterprises
(collectively "DeGuelle") for $9,750,000. DeGuelle is a Durango,
Colorado-based petroleum marketing company. Included in the purchase
were seven service station/convenience stores, two cardlock commercial
fleet fueling facilities, a gasoline and diesel storage bulk plant and
related transportation equipment. All of the facilities are located in
southwestern Colorado and will be supplied by the Company's refineries.
In 1997, DeGuelle had sales of approximately 10,000,000 gallons of
gasoline and diesel fuel in addition to 35,000 gallons of lubricants.
The Company's service stations are augmented with convenience
stores at many locations, which provide items such as general
merchandise, alcoholic and nonalcoholic beverages, fast foods, health
and beauty aids and automotive products.
As a result of the Thriftway acquisition, the Retail Division
entered into brand name fast food operations in 11 units (7 Taco Bell; 3
Blimpie; 1 A&W). In addition, "The Deli at Giant", Giant's proprietary
fast food operation, now in nine stores, offers a full-scale deli and
fast food menu. The Company evaluates the desirability of including fast
food operations in its retail units on a station by station basis.
The Company 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, 1997, the Company sold approximately
17,700,000 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. The facility
contains a 265 seat full service restaurant, two large convenience
stores, a 24-hour movie theater, a hair salon and other accommodations
such as showers, laundry, security and lighted parking.
In late 1997, extensive renovations took place at the Travel Center
to accommodate the establishment of three new major brand fast food
operations. The Company will lease space to two of these operations
(Taco Bell and Pizza Hut), and will be the operator of an A&W Restaurant
operation. It is management's expectation that the interstate traveler
will be attracted to the national brand fast food names and stop for
their food purchase, in addition to their fuel needs. These locations
are expected to open early in the second quarter of 1998.
PHOENIX FUEL. On June 3, 1997, the Company purchased Phoenix Fuel,
an independent industrial/commercial petroleum products distributor with
current wholesale fuel sales of approximately 17,000 barrels per day and
cardlock fuel sales of approximately 2,000 barrels per day, including
gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and
kerosene. In addition, Phoenix Fuel distributes approximately 370
barrels per day of oils and lubricants such as motor oil, hydraulic oil,
gear oil, cutting oil and grease.
Phoenix Fuel has nine bulk petroleum distribution plants, twenty-
two 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.
For the seven months of 1997 that the Company owned this operation,
Phoenix Fuel sold approximately 2,700,000 barrels of diesel fuel and
1,400,000 barrels of gasoline. Sales of additional products, including
lubricants and related items, totaled approximately $14,800,000 for
the same period. Most of the fuel sold by Phoenix Fuel is purchased for
resale from other refiners and marketers.
SOUTHERN ARIZONA MARKET. With the acquisition of Phoenix Fuel, the
Company expanded its market into southern Arizona. With the announcement
of an agreement to acquire the Petroleum Marketing Division of Kaibab
Industries, Inc., the Company may increase its presence in this market.
In addition, the Company expects to construct approximately ten new
units in the Phoenix and Tucson markets in 1998.
EMPLOYEES
The Company and its subsidiaries employed approximately 2,460
persons on February 28, 1998, including approximately 2,160 full-time
and approximately 300 part-time employees. Approximately 2,090 were
employed in refining and marketing operations including 290 part-time
employees. Of these, 1,390 (including 280 part-time) were employed in
the service station division and 260 (including 6 part-time) were
employed at the Travel Center. Phoenix Fuel employed approximately 210
persons, including 10 part-time. The Company currently has no labor
union employees.
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, 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.
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. The Company competes with major and larger integrated
oil companies and 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. In
addition, mergers between large integrated oil companies and upgrades to
competitors refineries have resulted in increased competition.
The Company is aware of a number of actions, proposals or industry
discussions regarding product pipeline projects that could impact
portions of its marketing areas. One of these projects, the expansion of
the ATA Line (formerly called the Emerald Line) into Albuquerque was
completed in 1997. Another of these announced projects, which would
result in a refined products pipeline from Southeastern New Mexico to
the Albuquerque and Four Corners markets, is reportedly scheduled for
completion in 1998. In addition, various proposals or actions have been
announced to increase the supply of pipeline-supplied products to El
Paso, Texas, which is connected by pipeline to the Albuquerque market to
the north and the Phoenix and Tucson markets to the west. The completion
of some or all of these projects would result in increased competition
by increasing the amount of refined products available in the
Albuquerque, Four Corners and other market areas, as well as allowing
additional competitors improved access to these market areas.
The principal competitive factors affecting Phoenix Fuel are much
the same as those affecting the Company's refining and marketing
operations except that much of the fuel and all of the lubricants sold
by Phoenix Fuel are purchased for resale from other refiners and
marketers. Phoenix Fuel must compete with others in the marketplace to
purchase the refined products, some of which must meet Maricopa County,
Arizona fuel specifications, and the lubricants that it sells. To be
successful, this must be done at prices that result in margins
sufficient to cover fixed and variable expenses.
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
OPERATIONS. 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 soil, air and water, product specifications, and the
generation, treatment, storage, transportation and disposal of solid and
hazardous waste and materials. The Company believes that the refineries
are capable of processing currently utilized feedstocks in substantial
compliance with existing, currently effective environmental laws and
regulations. However, environmental laws and regulations are becoming
increasingly stringent, and the Company is aware of laws and regulations
that will become effective in the future which may affect the refining
and marketing industry. The following currently appear to the Company 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 is subject to 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
also believes that it will be able to obtain these permits. Although
additional costs will be incurred in connection with these permits, the
Company currently 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. In 1998, the Company believes its compliance costs will be
approximately $1.1 million, with total compliance costs of approximately
$3.0 million to $3.5 million over the next five years.
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 are already
subject to these requirements. The underground storage tanks at all but
twenty-two of the Company's service stations satisfy the 1998 standards.
The Company anticipates that it will make the modifications necessary to
bring all of these stations into compliance with the 1998 standards
during 1998, at a cost of approximately $275,000. In addition, the
Company plans to remove certain underground storage tanks that are not
in compliance with the 1998 standards. The Company expects all such
tanks to be removed in 1998 at a cost of approximately $200,000.
The Company currently owns and operates six service
station/convenience stores in Maricopa County and, with the acquisition
of Phoenix Fuel and the agreement with Kaibab Industries, Inc., the
Company has acquired or may acquire other retail/wholesale marketing
operations, some of which are also located in Maricopa County. The
Company does not presently manufacture gasoline that satisfies Maricopa
County gasoline specifications. Because the amount of gasoline
manufactured at the Company's refineries and sold in Maricopa County has
been very small, and because the capital costs associated with
manufacturing large quantities of such gasolines would be significant in
amounts not yet determined by the Company, the Company currently does
not intend to make the changes necessary to produce such gasolines. The
Company has the ability to purchase or exchange for these gasolines to
supply its operations in Maricopa County. It is possible that further
legislation or regulation affecting motor fuel specifications may be
adopted that would impact geographic areas in which the Company markets
its products. However, with the exception of Maricopa County, the
Company does not believe that any gasoline currently produced at the
refineries would be subject to the Amendments' Reformulated Gasoline
program, unless a state governor requests that Reformulated Gasoline be
required in certain other areas.
The Company from time to time needs to obtain new environmental
permits or modifications to existing permits. Although there can be no
guarantee that the Company will be able to obtain all required permits,
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.
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 previously applied. 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 systems and equipment
not currently possessed by the Company.
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 is in
receipt of 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 the Company expected NMED to approve this
proposal in 1997, approval has not yet been received. The Company
anticipates that NMED will approve the proposal later in 1998. 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 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 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.
Although the Company has invested substantial resources to prevent
and minimize 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 had
reserved approximately $1,000,000 for possible environmental
expenditures relating to its Farmington property, of which approximately
$650,000 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 (the "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, the BLM made its proposed plan of action for the
Landfill available to the public. Remediation alternatives examined by
the BLM in connection with the development of its proposed plan ranged
in projected cost from no cost to approximately $14.5 million. The BLM
is proposing the adoption of a remedial action alternative that it
believes would cost approximately $3.9 million to implement.
The 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. For example, if assumptions regarding
groundwater mobility and contamination levels are incorrect, the BLM is
proposing to take additional remedial actions with an estimated cost of
approximately $1.8 million.
The BLM has received public comment on its proposed plan. The
Company understands that the final remedy for the site has not been
selected and that the BLM, EPA and NMED will all be involved in the
remedy selection process.
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 the BLM. The figure
was also based on the consultant's evaluation of such factors as
available clean-up technology, the 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 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.
The BLM may assert claims against the Company and others for
reimbursement of investigative, cleanup and other costs incurred by the
BLM in connection with the Landfill and surrounding areas. It is also
possible that the Company will assert claims against the BLM in
connection with contamination that may be originating from the Landfill.
Private parties and other governmental entities may also assert claims
against the 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 may
also 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 the
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 originally
established an environmental reserve of $2.25 million in connection with
this matter, of which approximately $2.0 million still 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 to audit on an ongoing basis of the
various taxes that it pays to federal, state, local and tribal agencies.
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 Tribe 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 Tribe's taxing authority in the geographic area is subject
to doubt. The Company has received several tax assessments from the
Tribe 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 Tribe's Tax Commission in connection
with these matters and intends to oppose the severance tax assessment.
It is the Company's position that it is in substantial compliance with
the 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. The
Company also may receive further tax assessments. The Company intends to
continue purchasing activities in the geographic area.
DISCONTINUED OPERATIONS
OIL & GAS OPERATIONS
On August 30, 1996, the Company sold substantially all of its oil
and gas assets. 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 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 2002. These wells are subject to a
production payment to Central Resources, Inc., under which the natural
gas reserves related to these wells will be produced for the benefit of
the buyer, as well as a "suboperating" agreement under which the buyer
assumes substantially all of the responsibilities and risks of operation
of the wells.
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to ordinary routine litigation incidental
to its business. There is also hereby incorporated by reference the
information under the headings "Regulatory, Environmental and Other
Matters Affecting Refining and Marketing" in Items 1 and 2, the
discussions contained in Item 7, and the information regarding
contingencies in Note 16 to the Consolidated Financial Statements in
Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Executive Officers of the Registrant.
Executive
Officer
Name Age Position Since
- ---- --- -------- ---------
James E. Acridge 58 President and Chief October 1989
Executive Officer
Fredric L. Holliger 50 Executive Vice President October 1989
and Chief Operating
Officer
A. Wayne Davenport 49 Vice President and May 1994
Chief Financial Officer
Morgan Gust 50 Vice President and August 1990
General Counsel, Vice
President Administration
and Secretary
The officers of the Company are elected annually by the Board
of Directors and each officer serves until his successor is chosen and
qualified or until his earlier resignation or removal. There are no
family relationships among the officers of the Company.
James E. Acridge has served as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company since
October 1989. Mr. Acridge also serves as Chairman of the Nominating
Committee. Mr. Acridge started Giant Industries Arizona, Inc.
("Giant"), the Company's principal wholly-owned subsidiary, in 1969
and has served continuously as its Chairman of the Board of
Directors, President and Chief Executive Officer. Mr. Acridge is also
Chairman of the Board of Phoenix Fuel Co., Inc. ("Phoenix Fuel"), an
industrial/commercial petroleum products distributor, all of whose
stock was acquired by Giant in June 1997. Additionally, Mr. Acridge
is Chairman of the Board of Directors of Giant Exploration and
Production Company ("Giant E&P"), which was the Company's other
principal wholly-owned subsidiary until the Company sold
substantially all of its oil and gas assets in August 1996.
Fredric L. Holliger has served as a director, Executive Vice
President and Chief Operating Officer of the Company since October
1989. Mr. Holliger joined Giant as Senior Vice President and
President of the Giant refining division in February 1989, and
continues to serve as a director, Executive Vice President and Chief
Operating Officer of Giant. Mr. Holliger has served as a director and
Chief Executive Officer of Phoenix Fuel since June 1997 and has
served as a director, President and Chief Executive Officer of Giant
E&P since May 1993.
A. Wayne Davenport served as Vice President and Corporate
Controller commencing May 1994 and, since May 1995, serves as Vice
President and Chief Financial Officer of the Company. He also serves
in such positions for Giant and Giant E&P and serves as Vice
President of Phoenix Fuel. Prior to joining the Company in March
1994, Mr. Davenport was an investor in crude oil and natural gas
properties and a consultant to the industry. From February 1987 to
September 1992, he served in various positions, the last being
Executive Vice President and Chief Financial Officer, with Hondo Oil
& Gas Company, a company engaged in refining, marketing, exploration
and production.
Morgan Gust has served as Secretary and General Counsel of the
Company since August 1990 and as Vice President since September 1990.
He has served as Vice President Administration since October 1992. He
also serves in such capacities for, and is a director of, Giant and
Giant E&P and serves as Secretary, General Counsel and Vice
President, and as a director, of Phoenix Fuel.
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal United States market on which the Company's
Common Stock is traded is the New York Stock Exchange. The high
and low sales prices for the Common Stock for each full quarterly
period as reported on the New York Stock Exchange Composite Tape
for the last two fiscal years is as follows:
Quarter Ended High Low
------------------ ------ ------
December 31, 1997 20 1/2 16 3/4
September 30, 1997 20 5/8 15
June 30, 1997 16 7/8 10
March 31, 1997 15 5/8 12 3/8
December 31, 1996 16 1/8 13 3/4
September 30, 1996 16 1/4 13 3/8
June 30, 1996 15 5/8 12 1/4
March 31, 1996 14 10 7/8
For 1997 and 1996, the Company's Board of Directors declared
quarterly cash dividends on common stock of $0.05 per share. Any
future dividends are subject to the results of the Company's operations,
declarations by the Board of Directors and existing debt covenants, as
described below.
The Company has issued $150,000,000 of 9% Senior Subordinated Notes
("9% Notes") and $100,000,000 of 9 3/4% Senior Subordinated Notes
("9 3/4% Notes"). The 9% Notes were issued pursuant to an Indenture ("9%
Indenture") dated August 26, 1997, and the 9 3/4% Notes were issued pursuant
to an Indenture ("9 3/4% Indenture" and collectively with the 9% Indenture
the "Indentures") dated November 29, 1993. The Indentures are among the
Company, its Subsidiaries, as guarantors, Bank of New York, as trustee
under the 9% Indenture and NBD Bank, National Association, as trustee
under the 9 3/4% Indenture. The Indentures contain a number of
covenants, which, among other provisions, place restrictions on the
payment of dividends. At December 31, 1997, retained earnings available
for dividends under the most restrictive terms of the Indentures was
approximately $19,700,000. The Indentures include the payment of
dividends in their definitions of "Restricted Payments" which are subject
to limitations, the most significant of which are summarized as follows:
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless:
(a) 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;
(b) 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
(c) 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 in the
case of the 9% Indenture and September 30, 1993 in the case
of the 9 3/4% Indenture and ending on the last day of the
fiscal quarter immediately preceding the date of such
Restricted Payment and (B) $30 million in the case of the
9% Indenture and $15 million in the case of the 9 3/4%
Indenture. Consolidated Net Income excludes, among other
things, any full cost ceiling limitation writedown.
Also see the "Capital Structure" discussion in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 hereof.
Capitalized items used but not defined above have the
meaning assigned to them in the Indentures.
There were 267 holders of record of Common Stock on
February 28, 1998.<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes recent financial information
of the Company. This selected financial data should be read in
conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations at Item 7 and the
Consolidated Financial Statements, related notes thereto, and the
Auditors' Report included in Item 8 hereof:
<TABLE>
<CAPTION>
FINANCIAL AND OPERATING HIGHLIGHTS
(In Millions, Except Percentages, Per Share and Operating Data)
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL STATEMENT DATA
Continuing Operations:
Net Revenues $ 657.3 $ 499.2 $ 332.9 $ 291.6 $ 313.2
Operating Income 41.1 39.7 20.6 20.1 31.4
Net Earnings 15.3 17.0 7.7 7.4 17.5
Earnings Per Common Share - Basic 1.38 1.52 .68 .61 1.43
Discontinued Operations
Net Earnings (Loss)(1) .2 (2.9) (11.3)
Earnings (Loss) Per Common Share - Basic .01 (.24) (.92)
Weighted Average Common
Shares Outstanding 11.1 11.2 11.5 12.1 12.2
Dividends Paid Per Common Share .20 .20 .20
Stockholders' Equity 133.5 122.1 109.7 109.7 105.9
Book Value Per Common Share 12.14 11.00 9.75 9.15 8.69
Return on Average Stockholders' Equity 12.0% 14.7% 7.2% 4.2% 5.8%
Total Assets 535.4 324.0 324.9 279.4 274.4
Working Capital 111.7 21.5 50.3 86.4 88.0
Long-Term Debt as a Percentage
of Total Capitalization 67.4% 48.1% 56.5% 51.4% 52.5%
Long-Term Debt 275.6 113.1 142.7 116.1 117.3
OPERATIONS DATA - CONTINUING OPERATIONS:(2)
REFINING AND MARKETING:
Rated Crude Oil Capacity Utilized 87% 90% 88% 92% 98%
Refinery Sourced Sales Barrels (Bbls/Day) 39,037 38,814 27,430 23,054 24,412
Average Crude Oil Costs ($/Bbl) $ 20.60 $ 21.80 $ 18.41 $ 16.97 $ 18.09
Refinery Margin ($/Bbl) $ 6.39 $ 6.21 $ 5.13 $ 5.60 $ 6.69
Service Stations:
Fuel Gallons Sold (In Thousands) 125,219 87,499 85,872 85,550 71,129
Product Margin ($/Gallon) $ 0.213 $ 0.201 $ 0.196 $ 0.200 $ 0.185
Merchandise Sold ($ In Thousands) $ 67,601 $ 42,037 $ 38,091 $ 32,727 $ 22,367
Merchandise Margin 30% 30% 30% 29% 28%
Number of Outlets at Year End 148 52 51 50 50
Travel Centers:(3)
Fuel Gallons Sold (In Thousands) 19,434 18,298 21,522 30,337 32,148
Product Margin ($/Gallon) $ 0.111 $ 0.104 $ 0.102 $ 0.118 $ 0.128
Merchandise Sold ($ In Thousands) $ 7,382 $ 7,092 $ 7,640 $ 9,929 $ 10,125
Merchandise Margin 44% 46% 47% 45% 45%
Number of Outlets at Year End 1 1 1 1 2
Retail Fuel Volumes Sold as a % of
Refinery Sourced Sales Barrels(3) 24% 18% 26% 33% 28%
PHOENIX FUEL:
Fuel Gallons Sold (In Thousands) 172,121
Product Margin ($/Gallon) $ 0.075
Lubricant Sales ($ In Thousands) $ 12,923
Lubricant Margin 14%
</TABLE>
(1) The 1994 and 1993 amounts include a $2.2 million and $9.9
million net of tax charge, respectively, for the reduction
of the carrying value of crude oil and natural gas properties.
(2) Operations data includes the operations of the Bloomfield refinery
from October 4, 1995 and the Thriftway and Phoenix Fuel acquisitions
from approximately June 1, 1997.
(3) The Company's Giant Express travel center was sold November 2,
1994.
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
- ---------------------------------------------------------------------
The primary factors affecting the results of the Company's 1997
continuing operations as compared to its 1996 continuing operations are
the acquisition of ninety-six service station/convenience stores from
Thriftway Marketing Corp. and affiliates ("Thriftway") and the
acquisition of Phoenix Fuel Co., Inc. ("Phoenix Fuel"), an independent
industrial/commercial petroleum products distributor (the
"Acquisitions") near the end of May 1997; higher interest costs related
to the financing of the Acquisitions, including the issuance of
$150.0 million of 9% senior subordinated notes (the "9% Notes") in
August 1997; increased refinery margins and higher operating and
selling, general and administrative ("SG&A") costs.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
- -------------------------------------------------------
Earnings from continuing operations before income taxes were $25.1
million for the year ended December 31, 1997, a decrease of
approximately $3.1 million from $28.2 million for the year ended
December 31, 1996. The decrease is primarily due to increased SG&A and
operating costs for operations other than the Acquisitions, including a
20% increase in depreciation and amortization costs, a 5% increase in
other operating costs and a 10% increase in SG&A costs. These
increases in costs were offset in part by a pretax earnings
contribution of $8.0 million from the Acquisitions. Earnings were also
impacted by a 3% increase in average yearly refinery margins, in spite
of reduced margins early in the year resulting from a decline in West
Coast product prices. Refinery sourced sales volumes remained
relatively flat even though production was curtailed at both of the
Company's refineries during the year due to a scheduled major, every
four-year, maintenance turnaround at the Company's Bloomfield refinery,
and minor scheduled maintenance turnarounds on the reformer and
isomerization units at the Ciniza refinery. In addition, the Company
sold its ethanol processing plant in the fourth quarter of 1997,
incurring a pretax loss of approximately $1.2 million on the
disposition.
REVENUES
- --------
Revenues for the year ended December 31, 1997, increased
approximately $158.1 million or 32% to $657.3 million from $499.2
million in the comparable 1996 period. The increase is primarily due to
the Acquisitions, offset in part by a 3% decline in refinery weighted
average selling prices.
The volumes of refined products sold through the Company's retail
units increased approximately 37% from 1996 levels primarily due to the
acquisition of the ninety-six retail service station/convenience
stores, offset in part by a 1% decline in the volumes of finished
product sold from the Company's other retail operations. This reflects
a 2% decline in the volumes of finished product sold from the Company's
other service station/convenience stores, due primarily to increased
competitive pressures, and a 6% increase in volumes sold from the
Company's travel center, due in large part to improved marketing
programs put in place during 1997.
COST OF PRODUCTS SOLD
- ---------------------
For the year ended December 31, 1997, cost of products sold
increased $125.8 million or 35% to $487.7 million from $361.9 million
in the corresponding 1996 period. The increase is primarily due to the
Acquisitions, offset in part by a 6% decline in average crude oil
costs. In addition, the liquidation of certain lower cost crude oil
LIFO inventory layers in 1996 reduced 1996 cost of products sold by
approximately $2.8 million. There were no similar liquidations in 1997.
OPERATING EXPENSES
- ------------------
For the year ended December 31, 1997, operating expenses increased
approximately $20.9 million or 32% to $85.2 million from $64.3 million
for the year ended December 31, 1996.
Approximately 85% of the increase is due to the Acquisitions. For
the other operations, 1997 costs increased because of increased retail
advertising costs, higher payroll and related costs, higher refinery
purchased fuel and materials costs and higher retail operating bonuses.
These increases were offset in part by a reduction in refinery utility
costs.
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the year ended December 31, 1997, depreciation and
amortization increased approximately $6.3 million or 36% to $23.9
million from $17.6 million in the same 1996 period.
Approximately 43% of the increase is due to the Acquisitions. The
remaining increases are primarily related to other retail acquisitions
and construction, remodeling and upgrades in retail and refinery
operations, along with the amortization of 1997 and 1996 refinery
turnaround costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
For the year ended December 31, 1997, selling, general and
administrative expenses increased approximately $3.7 million or 23% to
$19.3 million from $15.6 million in the corresponding 1996 period.
Approximately 56% of the increase is due to the selling, general
and administrative activities of Phoenix Fuel. The remaining increases
are primarily the result of higher payroll and related costs, due in
part to acquisition activity and planning for future growth. In
addition, the comparisons were affected by higher 1996 expenses
relating to accruals for incentive bonus plans and estimated severance
tax assessments.
INTEREST EXPENSE (INCOME)
- -------------------------
For the year ended December 31, 1997, interest expense increased
approximately $5.8 million or 47% to $18.1 million from $12.3 million
in the comparable 1996 period.
The increase is primarily due to an increase in interest expense
because of additional long-term debt related to the Acquisitions,
including the issuance of the 9% Notes in August 1997. The increase is
offset in part by 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 proceeds from the sale of the Company's oil
and gas operations. The average interest rate for the 1997 period is
slightly higher due to capital lease transactions related to the
acquisition of the ninety-six retail service station/convenience stores
and the issuance of the 9% Notes.
For the year ended December 31, 1997, interest and investment
income increased approximately $1.3 million or 176.7% to $2.1 million
from $0.8 million in the comparable 1996 period. The increase is
primarily due to an increase in excess funds available for investment,
resulting from the issuance of the 9% Notes in August 1997. The effects
of fluctuations in interest rates applicable to invested funds were
nominal.
INCOME TAXES
- ------------
Income taxes for the years ended December 31, 1997 and 1996 were
computed in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, resulting in an effective tax rate of approximately
39% for each period.
DISCONTINUED OPERATIONS
- -----------------------
Substantially all of the Company's oil and gas assets were sold in
August 1996.
OUTLOOK
- -------
The Company intends to focus its efforts in 1998 on increasing its
retail operations through construction and acquisition, improving the
integration of operations and development of the synergies of the
Acquisitions and continuing to seek additional opportunities to expand
refinery capacity through acquisition and selected refinery projects.
The Company's future results of operations are primarily dependent on
producing or purchasing and selling sufficient quantities of refined
products at margins sufficient to cover fixed and variable expenses.
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
temporary 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 1996 and 1995.
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 the comparable
1995 period. Finished product sales of $130.3 million from the
Bloomfield refinery accounts 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.
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 had been acquired or
constructed in 1995 and 1996 over thirteen units that had been 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. It is believed that travel center
volumes had 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 fourteen units that
had been acquired or constructed in 1995 and 1996 over the thirteen
units that had been disposed of during the same period. This increase
was offset by a slight decline in same store volumes resulting from
increased competition.
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 the corresponding 1995 period. Cost of products sold of $101.0
million relating to the Bloomfield refinery accounts 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 temporary
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 the year
ended December 31, 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
for 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 have increased
due to annual wage increases and, in the retail operations, due to
expanded programs such as twenty-four hour operations, fuel pump island
attendant program, 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 the same 1995 period. 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 the corresponding 1995 period. 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 workman s 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
the same 1995 period. 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.
INCOME TAXES
- ------------
Income taxes for the years ended December 31, 1996 and 1995 were
computed in accordance with 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 temporarily
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 was approximately $4.3 million. 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 was 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.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
- -------------------------
Operating cash flows for the year ended December 31, 1997,
decreased when compared to the year ended December 31, 1996, primarily
as the result of the differences in the net changes in working capital
items in each period. This decrease was offset in part by increased
cash flow represented by net earnings plus depreciation and
amortization plus deferred income taxes in the year ended December 31,
1997. Net cash provided by operating activities of continuing
operations totaled $31.3 million for the year ended December 31, 1997,
compared to $42.8 million for the comparable 1996 period.
WORKING CAPITAL
- ---------------
Working capital at December 31, 1997, consisted of current assets
of $207.1 million and current liabilities of $95.4 million, or a
current ratio of 2.17:1. 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 an increase in cash and cash equivalents, accounts receivable,
inventories and prepaid items. Accounts receivable and prepaid items
have increased primarily as the result of the Acquisitions. Inventories
have increased due to the Acquisitions and an increase in pipeline
crude oil and terminal refined product volumes. Current liabilities
have increased due to an increase in accounts payable and accrued
expenses. Accounts payable have increased primarily as the result of
the Acquisitions, offset in part by a decline in the cost of raw
materials. Accrued expenses have increased primarily due to the
Acquisitions and higher accrued interest costs.
CAPITAL EXPENDITURES AND RESOURCES
- ----------------------------------
Net cash used in investing activities for the purchase of
property, plant and equipment and other assets, excluding the
Acquisitions, totaled approximately $35.8 million for the year 1997.
Expenditures included amounts for refinery and transportation equipment
and facility upgrades, capacity enhancement projects and turnaround
expenditures for the refineries, major remodeling expenditures for
three retail units, construction costs for one new unit, the
acquisition of land for future retail construction and continuing
retail equipment and systems upgrades.
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.
In August 1997, the refinery completed the replacement of catalyst in
the isomerization unit and the platformer.
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 900 bbls per day.
Over the period May 28, 1997 to May 31, 1997, 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 Assets") from Thriftway.
The consideration paid by the Company for 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 was
approximately $19.1 million in cash and an office building and a truck
maintenance shop with net book values totaling approximately $1.3
million. The Company leased 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 $22.9 million. The lease obligations
are 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 purchase
fifty-nine of these units for approximately $15.9 million during 1998.
Annual lease payments will be reduced by approximately $1.8 million
when these units are purchased.
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. The Company
intends to use substantially all of the assets acquired in a manner
consistent with their previous operation.
In late 1997, the Company entered into an arrangement to sell some
of the ninety-six units and additional retail locations acquired or
leased from Thriftway. Fourteen of these units and two of the
additional retail locations were sold in early 1998 for approximately
$1.5 million.
The Company also entered into a consignment agreement with
Thriftway to supply finished product to sixteen service
station/convenience stores operated by Thriftway which are located on
the Navajo, Ute and Zuni Indian Reservations. Under this agreement, the
Company will receive the profits from the finished product sales and
will pay Thriftway annual consignment fees. The Company has options to
purchase these service station/convenience stores. The Company has also
entered into other long-term supply arrangements with Thriftway to
provide gasoline and diesel fuel to other service stations in the area
that will continue to be operated by Thriftway.
The Company 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, the Company purchased all of the issued and
outstanding common stock of Phoenix Fuel for approximately $30.0
million. Phoenix Fuel is an independent industrial/commercial petroleum
products distributor with current wholesale fuel sales of approximately
17,000 barrels per day and cardlock fuel sales of approximately 2,000
barrels per day, including gasoline, diesel fuel, burner fuel, jet
fuel, aviation fuel and kerosene. In addition, Phoenix Fuel distributes
approximately 370 barrels per day of oils and lubricants such as motor
oil, hydraulic oil, gear oil, cutting oil and grease.
Phoenix Fuel has nine bulk petroleum distribution plants,
twenty-two 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.
The Acquisitions were funded with $54.0 million of indebtedness as
more fully described below.
On a pro forma basis, assuming the Acquisitions and the issuance
of the 9% Notes occurred on January 1, 1996, the Company's net revenues
would have been $790.2 million and $785.8 million, net earnings from
continuing operations would have been $14.2 million and $18.2 million,
basic earnings per common share from continuing operations would have
been $1.29 and $1.62 and, assuming dilution, would have been $1.27 and
$1.60 per share for the years ended December 31, 1997 and 1996,
respectively. This unaudited pro forma financial information does not
purport to represent the results of operations that actually would have
resulted had the purchases occurred on the date specified, nor should
it be taken as indicative of the future results of operations.
On December 12, 1997, the Company completed the sale of its
ethanol processing plant in Portales, New Mexico for $4.0 million in
cash. The Company incurred a pretax loss of $1.2 million on the
disposition. The Company temporarily closed this plant in October 1995
and had planned to reopen the facility in 1997 because of improved
economics, but decided to sell the facility when the opportunity arose
and to concentrate on its core business of refining and marketing. In
1997 the Company incurred expenses of approximately $0.3 million to
maintain this facility in addition to approximately $0.6 million in
depreciation costs.
The Company has budgeted approximately $65.0 million for capital
expenditures in 1998. Of this amount, approximately $15.0 million is
budgeted for non-discretionary projects that are required by law or
regulation or to maintain the physical integrity of existing assets.
These expenditures are primarily for operational and environmental
projects at the refineries, including a major maintenance turnaround at
the Ciniza refinery scheduled for the second quarter of 1998. The
remaining budget of $50.0 million is for discretionary projects to
sustain or enhance the current level of operations, increase earnings
on existing or new business and to expand operations. The primary
projects in this latter category include a terminal construction
project, construction of thirteen retail units, retail site
acquisitions, upgrades to existing retail units, capacity enhancement
projects and facility and equipment upgrades at the refineries and for
transportation and administrative operations. In addition to these
budgeted amounts, the Company could incur an additional contingent
payment related to the acquisition of the Bloomfield refinery, in
accordance with the Bloomfield refinery acquisition agreement, if
certain criteria are met. For 1997, the Company incurred a contingent
payment obligation of approximately $7.2 million which will be paid in
1998. This amount has been allocated to the appropriate assets and
will be amortized over their estimated useful lives.
The amount of these capital projects that are actually undertaken
in 1998 will depend on, among other things, identifying and
consummating acceptable acquisitions, general business conditions and
results of operations.
Much of the capital currently planned to be spent by the Company
for environmental compliance is integrally related to operations or to
operationally required projects. The Company does not specifically
identify capital expenditures related to such projects on the basis of
whether they are for environmental as opposed to economic purposes.
However, with respect to capital expenditures budgeted primarily to
satisfy environmental regulations, it is estimated that approximately
$0.5 million, $0.7 million and $0.5 million was spent in 1997, 1996 and
1995, respectively, and $2.0 million is expected to be spent in 1998.
With respect to the Company s operating expenses for environmental
compliance, while records are not kept specifically identifying or
allocating such expenditures, management believes that the Company
incurs significant operating expense for such purposes.
Changes in the tax laws, changes in federal and state clean air
and clean fuel requirements and other changes in environmental laws and
regulations may increase future capital and operating expenditure
levels.
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 or purchasing and selling
sufficient quantities of refined products at margins sufficient to
cover fixed and variable expenses.
CAPITAL STRUCTURE
- -----------------
At December 31, 1997 and 1996, the Company's long-term debt was
67.4% and 48.1% of total capital, respectively. The increase is
primarily due to an increase in long-term debt resulting from the
issuance of the 9% Notes, the proceeds of which were partially used to
payoff debt incurred in the Acquisitions and borrowings under the
Company's working capital facility. Also contributing to the increase
are capital lease obligations incurred in connection with the
acquisition of the Thriftway Assets. This was offset in part by a net
increase in stockholders' equity resulting from net earnings and 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 59.1% and
45.1% at December 31, 1997 and 1996, respectively.
In August 1997, the Company issued the 9% Notes due 2007. The net
proceeds of the 9% Notes, after deducting expenses and initial
purchasers discount, were approximately $146.8 million. Approximately
$73.6 million of the proceeds were used to repay outstanding
indebtedness and the Company intends to use approximately $18.9 million
to purchase service station/convenience stores currently subject to
capital lease obligations. It is anticipated that fifty-nine of these
service station/convenience stores will be purchased in the first half
of 1998 for approximately $15.9 million. The remaining proceeds of
approximately $54.3 million will be used for general corporate
purposes.
The Indenture supporting the 9% Notes contains certain restrictive
covenants, events of default and other provisions that are
substantially similar to those for the $100.0 million in aggregate
principal amount of 9 3/4% senior subordinated notes (the "9 3/4%
Notes") due 2003, issued in November 1993.
Repayment of the 9 3/4% Notes and the 9% 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.
In October 1995, the Company entered into a Credit Agreement (the
"Agreement") 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
$70.0 million from $30.0 million and to extend the due date to May 23,
2000 from October 4, 1998. The Company borrowed $54.0 million under
this capital expenditure facility to fund the amounts paid with respect
to the Acquisitions. These amounts have since been repaid from the
proceeds of the 9% Notes. 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 December 31,
1997, there were no outstanding balances under this facility.
In addition, the 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 Agreement. At December 31,
1997, the lesser amount was $40.0 million. The due date of this
facility has also been extended to May 23, 2000. There were no direct
borrowings under this arrangement at December 31, 1997, and there were
approximately $15.9 million of irrevocable letters of credit
outstanding, primarily to secure purchases of raw materials.
Both facilities have a floating interest rate that is tied to
various short-term indices. At December 31, 1997, this rate was
approximately 6.5% per annum.
The 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 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
a total of 1.5 million shares of the Company's common stock under a
stock repurchase plan, or approximately 12% of all shares issued as of
the inception of the 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. In 1997, the Company repurchased approximately 0.1
million shares of its common stock under this program for approximately
$1.8 million. From the inception of the stock repurchase plan, the
Company has repurchased approximately 1.2 million shares at a weighted
cost of $10.18. These shares are treated as treasury shares.
Repurchased shares are available for a variety of corporate
purposes. The number of shares actually repurchased will be dependent
upon market conditions and there is no guarantee as to the exact number
of shares to be repurchased by the Company. The Company may suspend or
discontinue the program at any time without notice.
For the year 1997, the Company's Board of Directors declared cash
dividends on common stock totaling $0.20 per share. 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.
OTHER
- -----
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 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
environmental laws.
Rules and regulations implementing federal, state and local laws
relating to health and the environment will continue to affect the
operations of the Company. The Company cannot predict what health or
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 enforced with respect to products or activities
of the Company. Compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of the 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 refinery
equipment, pollution control systems and other equipment not currently
possessed by the Company.
In May 1991, the Environmental Protection Agency ("EPA")
notified the Company 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 (the "Landfill"), adjacent to
the Company s inactive Farmington refinery. This refinery was operated
until 1982. Although a final plan of action for the Landfill has not
yet been adopted by the Bureau of Land Management (the "BLM"), the BLM
has developed a proposed plan of action which it projects will cost
approximately $3.9 million 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, the BLM is proposing to take additional remedial actions
with an estimated cost of approximately $1.8 million. In 1989, a
consultant to the Company estimated, based on various assumptions, that
the Company s share of potential liability could be approximately $1.2
million. This figure was based upon estimated Landfill remediation
costs significantly higher than those being proposed by the BLM. The
figure was also based on the consultant s evaluation of such factors as
available clean-up technology, the 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 the Company s
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
costs at 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. 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 $2.8 million. Approximately $0.8 million relates to
ongoing environmental projects, including the remediation of a
hydrocarbon plume that appears to extend no more than 1,800 feet south
of the inactive Farmington refinery and hydrocarbon contamination on
and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico.
The remaining $2.0 million relates to an originally estimated liability
of approximately $2.3 million, 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. This environmental
accrual is recorded in the current and long-term sections of the
Company s Consolidated Balance Sheet.
The Company is subject to audit on an ongoing basis of the
various taxes that it pays to federal, state, local and tribal
agencies. 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. The Company has received several tax
notifications and assessments from the Navajo Tribe 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 $1.8 million severance tax assessment issued
in November 1991. The Company has invoked its appeal rights with the
Tribe 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.
The Company has executed an agreement to acquire the assets of
Ever-Ready Oil Co., Inc. and a related entity (collectively "Ever-
Ready"). Closing is contingent upon, among other things, due diligence,
various conditions and regulatory approvals. Ever-Ready is an
Albuquerque-based petroleum products distributor that has been in
business for 68 years. Ever-Ready has fuel sales of approximately 5,000
barrels per day and lubricant sales of approximately 1.0 million
gallons per year. The assets include, among other things, twenty-seven
retail service station/convenience stores and ten cardlock fueling
operations. A portion of the assets are subject to rights of first
refusal in favor of third parties. One of these parties has exercised
its rights while another did not. The Company has the option of closing
on the remaining assets or cancelling the purchase.
On February 10, 1998, the Company completed the purchase of the
assets of DeGuelle Oil Company and the stock of DeGuelle Enterprises
(collectively "DeGuelle") for $9.75 million. DeGuelle is a Durango,
Colorado-based petroleum marketing company. Included in the purchase
were seven service station/convenience stores, two cardlock commercial
fleet fueling facilities, a gasoline and diesel storage bulk plant and
related transportation equipment. All of the facilities are located in
southwestern Colorado and will be supplied by the Company's refineries.
In 1997, DeGuelle had sales of approximately 10.0 million gallons of
gasoline and diesel fuel in addition to 35,000 gallons of lubricants.
The Company currently owns and operates six service
station/convenience stores in Maricopa County and, with the acquisition
of Phoenix Fuel, has acquired other retail/wholesale marketing
operations, some of which are also located in Maricopa County. The
Company does not presently manufacture gasoline that satisfies Maricopa
County gasoline specifications. Because the amount of gasoline
manufactured at the Company's refineries and sold in Maricopa County
has been very small, and because the capital costs associated with
manufacturing large quantities of such gasolines would be significant
in amounts not yet determined by the Company, the Company currently
does not intend to make the changes necessary to produce such
gasolines. The Company has the ability to purchase or exchange for
these gasolines to supply its operations in Maricopa County. It is
possible that further legislation or regulation affecting motor fuel
specifications may be adopted that would impact geographic areas in
which the Company markets its products.
The Company believes that local crude oil production currently
approximates local crude oil demand and that the supply of crude oil
and condensate in the Four Corners has improved as a result of enhanced
recovery programs and increased drilling activities by major oil
companies in the area. The Company is currently able to supplement
local crude oil supplies with Alaska North Slope crude oil ("ANS")
through its gathering systems interconnection with the Four Corners and
Texas-New Mexico common carrier pipeline systems. 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. Any significant long-term interruption in
crude oil supply or to the crude oil transportation system would have
an adverse effect on the Company's operations.
The Company is aware of a number of actions, proposals or industry
discussions regarding product pipeline projects that could impact
portions of its marketing areas. One of these projects, the expansion
of the ATA Line (formerly called the Emerald Line) into Albuquerque was
completed in 1997. Another of these announced projects, which would
result in a refined products pipeline from Southeastern New Mexico to
the Albuquerque and Four Corners markets, is reportedly scheduled for
completion in 1998. In addition, various proposals or actions have been
announced to increase the supply of pipeline-supplied products to El
Paso, Texas, which is connected by pipeline to the Albuquerque market
to the north. The completion of some or all of these projects would
result in increased competition by increasing the amount of refined
products available in the Albuquerque, Four Corners and other market
areas, as well as allowing additional competitors improved access to
these market areas.
The Year 2000 ("Y2K") issue is the result of computer systems
using a two-digit format rather than four to define the applicable
year. Such computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to a system failure or
miscalculations causing disruptions of operations. In 1997, the Company
developed a three-phase program for Y2K information systems compliance.
Phase I is to identify those systems with which the Company has
exposure to Y2K issues. Phase II is the development and implementation
of action plans to be Y2K compliant in all areas by mid-1999. Phase
III, to be completed in 1999, is the final testing of each major area
of exposure to ensure compliance. The Company has identified three
major areas determined to be critical for successful Y2K compliance:
(1) Financial and informational system applications, (2) Manufacturing
and process applications and (3) Business relationships.
For Phase I, the Company is in the process of conducting an
internal review of all systems and contacting all software suppliers to
determine major areas of exposure to Y2K issues. In the financial and
information system area, a number of applications have been identified
as being Y2K compliant due to their recent implementation. The
Company's core financial and reporting systems are not Y2K compliant
but were already scheduled for replacement by mid-1999. Some subsidiary
financial systems will either be added to this replacement project or
will require internal systems revisions to be Y2K compliant.
In the manufacturing and process area and the business
relationship area, the Company is in the process of identifying areas
of exposure.
The Company believes it will cost approximately $2.5 million to
replace the core financial and reporting systems and has identified the
potential for 4,000 man hours of work to bring the remaining financial
and informational system applications into compliance at an estimated
cost of approximately $0.8 million. The Company is interviewing outside
consultants to undertake a portion of the work and expects
approximately two-thirds of the cost to be incurred in 1998 and the
remainder in 1999. The Company has not yet determined what costs will
be incurred in connection with the manufacturing and processing area
and the business relationship area.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995: This report contains forward-looking statements
that involve risks and uncertainties, including but not limited to
economic, competitive and governmental factors affecting the Company's
operations, markets, products, services and prices; the continuing
effect of the acquisition of the ninety-six retail service
station/convenience stores and the operations of Phoenix Fuel on the
Company' s financial position and results of operations; the expansion
of the Company's refining and retail operations through acquisition and
construction; the completion of capital projects identified in the 1998
capital budget; the impact of the mandated use of reformulated
gasolines on the Company's operations; the adequacy of raw material
supplies; the adequacy of the Company's environmental reserves and
reserves for tax assessments; the potential effects of various pipeline
projects as they relate to the Company's market area and future
profitability; the ability of the Company to become Y2K compliant and
other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission.
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 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, 1997. 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, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 2, 1998<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82,592 $ 12,628
Receivables:
Trade, less allowance for doubtful accounts of $464,000 and $254,000 47,548 25,014
Income tax refunds 248 1,355
Other 9,274 4,395
--------- ---------
57,070 30,764
--------- ---------
Inventories 57,598 38,226
Prepaid expenses and other 7,016 3,252
Deferred income taxes 2,800 1,636
--------- ---------
Total current assets 207,076 86,506
--------- ---------
Property, plant and equipment 402,600 322,260
Less accumulated depreciation and amortization (120,773) (108,715)
--------- ---------
281,827 213,545
--------- ---------
Goodwill, less accumulated amortization of $1,341,000 and $903,000 18,363 435
Other assets 28,105 23,521
--------- ---------
$ 535,371 $ 324,007
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 562 $ 1,439
Accounts payable 55,546 35,754
Accrued expenses 39,243 27,772
--------- ---------
Total current liabilities 95,351 64,965
--------- ---------
Long-term debt, net of current portion 275,557 113,081
Deferred income taxes 25,887 19,042
Other liabilities 5,109 4,795
Commitments and contingencies (Notes 15 and 16)
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, 12,232,367 and 12,221,367 shares issued 122 122
Additional paid-in capital 72,699 72,617
Retained earnings 73,256 60,170
--------- ---------
146,077 132,909
Less common stock in treasury-at cost, 1,239,100 and 1,123,500 shares (12,610) (10,785)
--------- ---------
133,467 122,124
--------- ---------
$ 535,371 $ 324,007
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
(In thousands except per share data)
<S> <C> <C> <C>
Net revenues $ 657,278 $ 499,184 $ 332,888
Cost of products sold 487,748 361,864 234,271
----------- ----------- -----------
Gross margin 169,530 137,320 98,617
Operating expenses 85,177 64,315 51,856
Depreciation and amortization 23,991 17,673 13,345
Selling, general and administrative expenses 19,256 15,602 12,778
----------- ----------- -----------
Operating income 41,106 39,730 20,638
Interest expense (18,139) (12,318) (11,506)
Interest and investment income 2,133 771 2,239
----------- ----------- -----------
Earnings from continuing operations before income taxes 25,100 28,183 11,371
Provision for income taxes 9,806 11,132 3,638
----------- ----------- -----------
Earnings from continuing operations 15,294 17,051 7,733
Discontinued operations:
Earnings from oil and gas operations (net of taxes) 143
Loss on disposal of oil and gas operations (net of taxes) (13)
----------- ----------- -----------
Net earnings $ 15,294 $ 17,038 $ 7,876
=========== =========== ===========
Earnings per common share - basic:
Continuing operations $ 1.38 $ 1.52 $ 0.68
Discontinued operations 0.01
----------- ----------- -----------
Net earnings $ 1.38 $ 1.52 $ 0.69
=========== =========== ===========
Earnings per common share - assuming dilution:
Continuing operations $ 1.37 $ 1.50 $ 0.67
Discontinued operations 0.01
----------- ----------- -----------
Net earnings $ 1.37 $ 1.50 $ 0.68
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned
Unearned compen- Unrealized
Common stock employee sation loss on Total
---------------- Additional benefits related to securities Treasury stock stock-
Shares Par paid-in Retained related restricted available- ------------------- holders'
issued value capital earnings to ESOP stock for-sale Shares Cost equity
---------- ----- ---------- -------- -------- ---------- ---------- --------- --------- --------
(In thousands except number of shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 12,187,629 $122 $72,373 $40,373 $ (514) $ (614) $ (398) 202,300 $ (1,652) $109,690
Purchase of treasury stock 737,200 (6,349) (6,349)
Stock options exercised 1,000 8 8
Benefits allocated to
employees by ESOP 514 514
Compensation related to
restricted stock awards 8 463 471
Dividends declared (2,876) (2,876)
Change in unrealized loss
on securities available-
for-sale 398 398
Net earnings 7,876 7,876
---------- ---- ------- ------- ------ ------ ------ --------- -------- --------
Balances, December 31, 1995 12,188,629 122 72,389 45,373 (151) 939,500 (8,001) 109,732
Purchase of treasury stock 184,000 (2,784) (2,784)
Stock options exercised 32,750 216 216
Compensation related to
restricted stock awards 12 151 163
Restricted stock award
fractional shares
redeemed/canceled (12)
Dividends declared (2,241) (2,241)
Net earnings 17,038 17,038
---------- ---- ------- ------- ------ ------ ------ --------- -------- --------
Balances, December 31, 1996 12,221,367 122 72,617 60,170 1,123,500 (10,785) 122,124
Purchase of treasury stock 115,600 (1,825) (1,825)
Stock options exercised 11,000 82 82
Dividends declared (2,208) (2,208)
Net earnings 15,294 15,294
---------- ---- ------- ------- ------ ------ ------ --------- -------- --------
Balances, December 31, 1997 12,232,367 $122 $72,699 $73,256 $ $ $ 1,239,100 $(12,610) $133,467
========== ==== ======= ======= ====== ====== ====== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,294 $ 17,038 $ 7,876
Adjustments to reconcile net earnings to
net cash provided by continuing operating activities:
Loss (earnings) from discontinued operations 13 (143)
Depreciation and amortization 23,991 17,673 13,345
Deferred income taxes 5,681 6,514 1,632
Restricted stock award compensation 163 471
Changes in other assets and liabilities (2,557) 470 (328)
Other 801 73 57
Changes in operating assets and liabilities:
Increase in receivables (7,876) (6,718) (2,513)
(Increase) decrease in inventories (13,494) 4,355 (10,311)
(Increase) decrease in prepaid expenses and other (156) 647 (1,563)
Increase in accounts payable 2,784 1,644 15,096
Increase in accrued expenses 6,824 883 904
-------- -------- --------
Net cash provided by continuing operating activities 31,292 42,755 24,523
-------- -------- --------
Cash flows from investing activities:
Refinery acquisition (55,000)
Acquisition of businesses, net of cash received (47,168)
Purchases of property, plant and equipment and other assets (35,752) (27,468) (22,978)
Refinery acquisition contingent payment (6,910)
Proceeds from sale of property, plant and equipment and other assets 4,606 4,587 2,588
Payments received on ESOP loan 514
Proceeds from sales and maturities of marketable securities 35,991
Proceeds from sale of discontinued operations 24,106
Net cash used by discontinued operations (3,831) (6,150)
-------- -------- --------
Net cash used by investing activities (85,224) (2,606) (45,035)
-------- -------- --------
Cash flows from financing activities:
Proceeds of long-term debt 283,100 10,000 41,000
Payments of long-term debt (151,924) (42,218) (14,458)
Purchase of treasury stock (1,825) (2,784) (6,349)
Deferred financing costs (3,319) (698)
Payment of dividends (2,218) (2,284) (2,302)
Proceeds from exercise of stock options 82 216 8
-------- -------- --------
Net cash provided (used) by financing activities 123,896 (37,070) 17,201
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 69,964 3,079 (3,311)
Cash and cash equivalents:
Beginning of year 12,628 9,549 12,860
-------- -------- --------
End of year $ 82,592 $ 12,628 $ 9,549
======== ======== ========
</TABLE>
Significant Noncash Investing and Financing Activities. During
1997, the Company exchanged an office building and a truck
maintenance shop with net book values totaling approximately
$1,300,000 and recorded $22,904,000 for capital leases as part of
the acquisition of the Thriftway Assets. In addition, approximately
$7,243,000 was incurred as a contingent payment related to the
acquisition of the Bloomfield refinery. During 1996, the Company
accrued $2,250,000 for estimated preacquisition environmental
liabilities assumed and $6,910,000 was incurred as a contingent
payment, both related to the acquisition of the Bloomfield
refinery. During 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.
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<PAGE>
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") is organized
through two wholly-owned subsidiaries, Giant Industries Arizona, Inc.
("Giant Arizona") and Giant Exploration and Production Company
("Giant E&P"). Giant Arizona, along with a number of its wholly-
owned subsidiaries, is engaged in the refining and marketing
business. In addition, through its wholly-owned subsidiary Phoenix
Fuel Co., Inc. ("Phoenix Fuel"), Giant Arizona operates an
independent industrial/commercial petroleum products distribution
operation. Substantially all of the oil and gas assets of Giant E&P
were sold in August 1996.
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 3 for further
discussion.) In May and June 1997, the Company acquired ninety-six
service station/convenience stores, nearly tripling its retail
operations, and Phoenix Fuel, whose operations are located throughout
the state of Arizona. (See Note 3 for further discussion.)
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 marketer
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.
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.
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
primarily 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 and the lube
oils, refined products and other merchandise of Phoenix Fuel 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 at retail locations 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:
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
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.
GOODWILL
Goodwill is carried at cost less accumulated amortization.
Goodwill is amortized on the straight-line method over the periods of
expected benefit ranging from fifteen to thirty years.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, the Company reviews the carrying values of its long-
lived assets and identifiable intangibles for possible impairment
whenever events or changes in circumstances indicate that the carrying
amount of assets to be held and used may not be recoverable. For assets
to be disposed of, the Company reports long-lived assets and certain
identifiable intangibles at the lower of carrying amount or fair value
less cost to sell.
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
1997, the Company had repurchased 1,239,100 shares at a cost of
approximately $12,610,000. 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 PER COMMON SHARE
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. The Company has implemented this Statement and, as
required, has restated earnings per share ("EPS") for all periods
presented. This new standard requires dual presentation of "basic" and
"diluted" EPS on the face of the earnings statement and requires a
reconciliation of the numerator and denominator of the basic and
diluted EPS calculations. (See Note 2.) Basic earnings per common share
is computed on the weighted average number of shares of common stock
outstanding during each period. Earnings per common share assuming
dilution is computed on the weighted average number of shares of common
stock outstanding plus additional shares representing the exercise of
outstanding common stock options using the treasury stock method.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1 "Environmental
Remediation Liabilities". The Company adopted this Statement in the
first quarter of 1997. Based on a review of environmental remediation
activities, there was no current impact on the Company's financial
position or results of operations.
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 fiscal
year 1998. The Company has not completed evaluating the effects
these Statements will have on its financial reporting and
disclosures. The Statements will have no effect on the Company's
financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial
statements and notes to conform to the statement classifications used
in 1997.
<PAGE>
<PAGE>
NOTE 2--EARNINGS PER SHARE:
As discussed in Note 1, the following is a reconciliation of the
numerators and denominators of the basic and diluted per share
computations for income from continuing operations as required by
SFAS No. 128:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------- -------------------------------- --------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per common share
- basic
Earnings from continuing
operations $15,294,000 11,050,853 $1.38 $17,051,000 11,220,380 $1.52 $7,733,000 11,478,779 $0.68
Effect of dilutive
stock options 124,041 115,964 40,541
----------- ---------- ----- ----------- ---------- ----- ---------- ---------- -----
Earnings per common share
- assuming dilution
Earnings from continuing
operations $15,294,000 11,174,894 $1.37 $17,051,000 11,336,344 $1.50 $7,733,000 11,519,320 $0.67
=========== ========== ===== =========== ========== ===== ========== ========== =====
</TABLE>
There were no transactions subsequent to December 31, 1997, that
if the transactions had occurred before December 31, 1997, would
materially change the number of common shares or potential common
shares outstanding as of December 31, 1997.
<PAGE>
<PAGE>
NOTE 3--ACQUISITIONS AND DISPOSITIONS:
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 Assets"). The assets were
acquired from Thriftway Marketing Corp. and Clayton Investment
Company and from entities related to such sellers (collectively,
"Thriftway").
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 were purchased for approximately $19,100,000 in
cash and an office building and a truck maintenance shop with net
book values totaling approximately $1,300,000. 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 lease obligations are accounted for as
capital leases and 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 Company intends to purchase fifty-nine of these
units for approximately $15,900,000 in the first half of 1998. Annual
lease payments will be reduced by approximately $1,800,000 when these
units are purchased.
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.
In late 1997, the Company entered into an arrangement to sell
some of the ninety-six units and additional retail locations acquired
or leased from Thriftway. Fourteen of these units and two of the
additional retail locations were sold in early 1998 for approximately
$1,500,000.
GFC also entered into a consignment agreement with Thriftway to
supply finished product to sixteen service station/convenience stores
operated by Thriftway which are located on the Navajo, Ute and Zuni
Indian Reservations. Under this agreement, GFC receives the profits
from the finished product sales and pays Thriftway 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 to provide gasoline and diesel fuel to
other service stations in the area that will continue to be operated
by Thriftway.
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 Arizona purchased all of the issued and
outstanding common stock of Phoenix Fuel from J. W. Wilhoit, as
Trustee of the Wilhoit Trust Agreement dated December 26, 1974 and
other related entities for approximately $30,000,000 in cash.
Phoenix Fuel is an independent industrial/commercial petroleum
products distributor with current wholesale fuel sales of
approximately 17,000 barrels per day and cardlock fuel sales of
approximately 2,000 barrels per day, including gasoline, diesel fuel,
burner fuel, jet fuel, aviation fuel and kerosene. In addition,
Phoenix Fuel distributes approximately 370 barrels per day of oils
and lubricants such as motor oil, hydraulic oil, gear oil, cutting
oil and grease.
Phoenix Fuel has nine bulk petroleum distribution plants,
twenty-two 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 year ended December 31,
1997. The Company recorded goodwill of approximately $17,000,000 for
the acquisition of Phoenix Fuel and $1,000,000 for the acquisition of
the Thriftway Assets. The Company is amortizing goodwill related to
the Phoenix Fuel acquisition over 30 years and goodwill related to
the Thriftway Assets acquisition over 15 years.
The acquisitions were funded under the Company's Credit
Agreement, as amended, with a group of banks. The amounts borrowed
were subsequently repaid with the issuance of $150,000,000 of 9%
senior subordinated notes (the "9% Notes").
The following unaudited Pro Forma Combined Condensed Statements
of Earnings for the years ended December 31, 1997 and 1996 combine
the historical financial information for the Company, the Thriftway
Assets and Phoenix Fuel assuming the acquisitions were consummated at
the beginning of the periods presented, as well as the sale of the 9%
Notes and the application of the proceeds as described in Note 9,
assuming such transaction had occurred at the beginning of the
periods. 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 purchases occurred on the date specified, nor should
it be taken as indicative of the future results of operations.
<PAGE>
<PAGE>
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Pro Forma Pro Forma
1997 1996
---------- ----------
<S> <C> <C>
Net revenues $ 790,184 $ 785,756
Cost of products sold 599,474 596,244
---------- ----------
Gross margin 190,710 189,512
Operating expenses 97,235 93,881
Depreciation and amortization 26,810 24,142
Selling, general and administrative expenses 22,358 21,114
---------- ----------
Operating income 44,307 50,375
Interest expense, net 20,950 20,339
---------- ----------
Earnings from continuing operations before income taxes 23,357 30,036
Provision for income taxes 9,118 11,864
---------- ----------
Earnings from continuing operations $ 14,239 $ 18,172
========== ==========
Earnings per common share - basic $ 1.29 $ 1.62
========== ==========
Earnings per common share - assuming dilution $ 1.27 $ 1.60
========== ==========
</TABLE>
On December 12, 1997, the Company completed the sale of its
ethanol processing plant in Portales, New Mexico for $4,000,000 in
cash. The Company incurred a pretax loss of approximately $1,200,000 on
the disposition. The Company temporarily closed this plant in October
1995 and had planned to reopen the facility in 1997 because of improved
economics, but decided to sell the facility when the opportunity arose
and to concentrate on its core business of refining and marketing. In
1997 and 1996, the Company incurred expenses of approximately $307,000
and $468,000, respectively, to maintain this facility in addition to
approximately $606,000 and $683,000, respectively, in depreciation. For
1995, this operation contributed approximately $7,000,000 in third
party revenues and an operating loss of approximately $782,000.
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, 1997, 1996 and 1995, the Company had
accrued $7,243,000, $6,910,000 and $1,198,000, respectively, under
this arrangement relating to 1997, 1996 and 1995 operations. In
addition, the Company accrued $2,250,000 in 1996 relating to certain
environmental obligations assumed in the purchase.
<PAGE>
<PAGE>
NOTE 4--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. 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 $8,363,000 for 1995. 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 1995, earnings from operations were
$143,000, net of income taxes of $154,000.
<PAGE>
<PAGE>
NOTE 5--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.
<PAGE>
<PAGE>
NOTE 6--INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
First-in, first-out ("FIFO") method:
Crude oil $12,736 $10,443
Refined products 25,562 22,462
Refinery and shop supplies 7,530 7,439
Merchandise 4,640
Retail method:
Merchandise 5,840 2,768
------- -------
Subtotal 56,308 43,112
Allowance for last-in, first-out ("LIFO") method 4,220 (4,886)
Allowance for lower of cost or market (2,930)
------- -------
Total $57,598 $38,226
======= =======
</TABLE>
The portion of inventories valued on a LIFO basis totaled
$37,714,000 and $25,887,000 at December 31, 1997 and 1996,
respectively. The following data will facilitate comparison with the
operating results of companies using the FIFO method of inventory
valuation.
If inventories had been determined using the FIFO method at
December 31, 1997, 1996 and 1995, net earnings and basic earnings per
share for the years ended December 31, 1997, 1996 and 1995 would have
been (lower) higher by $(3,705,000) and $(0.34), $2,883,000 and $0.26
and $(268,000) and $(0.02), respectively.
<PAGE>
<PAGE>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Land and improvements $ 29,354 $ 24,053
Buildings and improvements 96,817 61,955
Machinery and equipment 203,726 195,964
Pipelines 9,789 9,510
Furniture and fixtures 28,658 16,568
Vehicles 10,620 8,372
Construction in progress 23,636 5,838
--------- ---------
Subtotal 402,600 322,260
Accumulated depreciation and amortization (120,773) (108,715)
--------- ---------
Total $ 281,827 $ 213,545
========= =========
</TABLE>
<PAGE>
<PAGE>
NOTE 8--ACCRUED EXPENSES:
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Excise taxes $ 9,926 $ 8,212
Bloomfield refinery acquisition contingent payment 7,243 6,910
Payroll and related costs 5,240 3,804
Bonus, profit sharing and retirement plans 2,880 2,850
Interest 6,223 1,267
Other 7,731 4,729
------- -------
Total $39,243 $27,772
======= =======
</TABLE>
<PAGE>
<PAGE>
NOTE 9--LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
9% senior subordinated notes, due 2007, interest
payable semi-annually $150,000
9 3/4% senior subordinated notes, due 2003,
interest payable semi-annually 100,000 $100,000
Capital lease obligations, 11.3%, due 2007,
interest payable monthly 22,904
Unsecured credit agreement, due 2000, paid in 1997 10,000
Notes payable to others, collateralized by real
estate, 9% to 11%, due 1997 to 2010, interest
payable monthly or annually 1,193 2,208
8% secured promissory note, paid in 1997 973
Other 2,022 1,339
-------- --------
Subtotal 276,119 114,520
Less current portion (562) (1,439)
-------- --------
Total $275,557 $113,081
======== ========
</TABLE>
During August 1997, the Company issued the 9% Notes due 2007.
The net proceeds of the 9% Notes, after deducting expenses and
initial purchasers discounts, were approximately $146,800,000.
Approximately $73,600,000 of the proceeds were used to repay
outstanding indebtedness and the Company intends to use approximately
$18,900,000 to purchase service station/convenience stores currently
subject to capital lease obligations. The remaining proceeds of
approximately $54,300,000 will be used for general corporate
purposes. Interest on the 9% Notes is payable semi-annually on March
1 and September 1, commencing March 1, 1998.
Repayment of the 9% Notes and the 9 3/4% senior subordinated
notes (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 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 Indentures supporting the 9% Notes and the 9 3/4% Notes
(collectively, the "Notes") contain restrictive 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, 1997, the Company was in
compliance with these covenants. In addition, subject to certain
conditions, the Company is 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, 1997, retained earnings available for
dividends under the most restrictive terms of the Indentures was
approximately $19,700,000.
The Company currently has a Credit Agreement (the "Agreement")
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 from $30,000,000 to
$70,000,000, and to extend the due date from October 4, 1998 to May
23, 2000. On May 23, 1999, the borrowing commitment under the
capital expenditure facility is required to be reduced by
$20,000,000. At December 31, 1997, there were no outstanding
borrowings under the capital expenditure facility.
In addition, the 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
Agreement. At December 31, 1997, the lesser amount was $40,000,000.
At December 31, 1997, there were no direct borrowings and there were
$15,938,000 of irrevocable letters of credit outstanding under this
facility. The due date of this facility was also extended to May 23,
2000.
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 December 31, 1997
was approximately 6.5%. The Company is required to pay a quarterly
commitment fee based on the unused amount of each facility.
The 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, 1997, the Company was
in compliance with these covenants. The Agreement is guaranteed by
substantially all of the Company's wholly-owned subsidiaries.
Near the end of May 1997, the Company completed the acquisition
of the Thriftway Assets. Sixty-four of the retail service
station/convenience stores are being leased for a period of ten years
and the Company intends to purchase them pursuant to options to
purchase during the ten-year period for approximately $22,904,000.
The lease obligations are being accounted for as capital leases and
require annual lease payments of approximately $2,600,000, all of
which is recorded as interest expense. Assets associated with these
lease obligations of $19,869,000 are included in property, plant and
equipment. Accumulated depreciation of $939,000 is related to these
assets. The remaining assets of $3,035,000, primarily liquor
licenses, are included in other assets. It is the Company's intent to
purchase fifty-nine of these service station/convenience stores in
the first half of 1998 for approximately $15,900,000. Annual lease
payments will be reduced by $1,800,000 when these units have been
purchased.
Aggregate annual maturities of long-term debt as of December 31,
1997 are: 1998 - $562,000; 1999 - $1,142,000; 2000 - $200,000; 2001 -
$149,000; 2002 - $130,000; and all years thereafter - $273,936,000.
<PAGE>
<PAGE>
NOTE 10--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,
------------------------------------------
1997 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 $253,180 $256,536 $104,449 $108,491
</TABLE>
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.
The Company uses these contracts in its hedging activities. At
December 31, 1997, the Company's hedging activities had futures
contracts maturing in 1998 covering 42,000 barrels of crude oil and
36,000 barrels of heating 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 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
losses for the Company's petroleum hedging activities were
approximately $199,000 and $30,000 at December 31, 1997 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.
<PAGE>
<PAGE>
NOTE 11--INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current: Federal $ 3,367 $ 3,712 $ 1,140
State 758 906 866
Deferred: Federal 4,689 5,471 1,438
State 992 1,043 194
------- ------- -------
$ 9,806 $11,132 $ 3,638
======= ======= =======
</TABLE>
Income taxes paid in 1997, 1996 and 1995 were $2,785,000, $8,909,000,
and $0, respectively.
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,
-------------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income taxes at the statutory U.S. federal income tax rate $ 8,785 $ 9,864 $ 3,980
Increase (decrease) in taxes resulting from:
State taxes, net 1,191 1,346 563
General business credits, net (100) (679)
Federal tax credits from nonconventional fuel (700)
Other, net (70) (78) 474
------- ------- -------
$ 9,806 $11,132 $ 3,638
======= ======= =======
</TABLE>
<PAGE>
<PAGE>
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, 1997 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 $ 128 $ 128 $ 101 $ 101
Insurance accruals 555 555 373 373
Insurance settlements 189 189 213 213
Other nondeductible accruals 208 208
Other reserves 546 546 617 617
Inventory costs capitalized
for income tax purposes 198 198 124 124
Nondeductible accrual for
lower of cost or market
adjustment to inventory 1,184 1,184
------- -------- -------- ------- -------- --------
Total current 2,800 2,800 1,636 1,636
------- -------- -------- ------- -------- --------
Other nondeductible accruals 428 $ (281) 147 1,114 1,114
Accelerated plant costs (1,348) (1,348)
Operating lease (863) (863) $ (938) (938)
Accelerated depreciation (30,465) (30,465) (25,717) (25,717)
Other 14 (1,658) (1,644) 27 (1,664) (1,637)
Tax credit carryforwards 8,286 8,286 8,136 8,136
------- -------- -------- ------- -------- --------
Total noncurrent 8,728 (34,615) (25,887) 9,277 (28,319) (19,042)
------- -------- -------- ------- -------- --------
Total $11,528 $(34,615) $(23,087) $10,913 $(28,319) $(17,406)
======= ======== ======== ======= ======== ========
</TABLE>
At December 31, 1997, the Company had a minimum tax credit
carryforward of approximately $5,485,000 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, 1997, the Company also had approximately
$2,801,000 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 carry-
forward can be used. Of the total general business credit available,
$1,449,000 will expire in 2009, $1,154,000 will expire in 2010,
$98,000 will expire in 2011 and $100,000 will expire in 2012.<PAGE>
<PAGE>
NOTE 12--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.
At December 31, 1997 and 1996, the ESOP's assets included
1,222,150 and 1,296,088 shares of the Company's common stock,
respectively. All of these shares have been allocated to the
participants. In addition to investments in the Company's common stock,
the ESOP is invested in a balanced mutual fund.
Contributions to the ESOP are made at the discretion of the
Board of Directors. The Company made contributions of $536,000,
$450,000 and $900,000 to the ESOP for 1997, 1996 and 1995,
respectively. 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.
<PAGE>
<PAGE>
NOTE 13--STOCK INCENTIVE PLAN:
The Company established the 1989 Stock Incentive 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 FASB 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.
The following summarizes stock option transactions:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
Options outstanding at SHARES PRICE
- ---------------------- -------- --------
<S> <C> <C>
January 1, 1995 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
Exercised (11,000) 7.52
-------
December 31, 1997 256,007 $8.40
=======
Options exercisable at December 31:
1997 256,007 $8.40
1996 256,573 8.44
1995 222,973 8.29
</TABLE>
<PAGE>
<PAGE>
The following summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
----------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICES OUTSTANDING LIFE PRICE
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
$ 8.96 108,857 1.5 Years $ 8.96
10.50 5,000 2.6 Years 10.50
10.63 26,000 3.2 Years 10.63
5.25 29,400 4.3 Years 5.25
7.75 76,750 5.3 Years 7.75
9.81 10,000 6.2 Years 9.81
-------
256,007 3.3 Years $ 8.40
=======
</TABLE>
At December 31, 1997, there were 175,401 shares available for
future grants.
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. All options were granted at fair market value at the
date of grant and expire on the tenth anniversary of the grant date.
<PAGE>
<PAGE>
NOTE 14--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 pretax basis
in non-Giant stock investments thus diversifying their retirement
portfolios. For the years ended December 31, 1997, 1996 and 1995, the
Company had expensed $930,000, $800,000, and $188,000, respectively,
for matching contributions under this plan.
<PAGE>
<PAGE>
NOTE 15--INTEREST, OPERATING LEASES AND RENT EXPENSE:
Interest paid and capitalized for 1997 was $13,075,000 and
$333,000, for 1996 was $12,804,000 and $43,000, and for 1995 was
$11,833,000 and $190,000, 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, 1997 as follows:
<TABLE>
<CAPTION>
Land, building, machinery
and equipment leases
-------------------------
(In thousands)
<S> <C>
1998 $2,091
1999 1,728
2000 1,131
2001 348
2002 171
All years thereafter 149
------
Total minimum payments required $5,618
======
</TABLE>
Total rent expense was $3,354,000, $1,930,000, and $1,982,000
for 1997, 1996, and 1995, respectively.
<PAGE>
<PAGE>
NOTE 16--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, 1997 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 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 (the "Landfill"),
which is owned by the United States Bureau of Land Management (the
"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, the 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 established an environmental liability accrual
of approximately $2,800,000. Approximately $800,000 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, of certain
environmental obligations assumed in the acquisition of the
Bloomfield refinery. 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 notifications and assessments
from the Navajo Tribe 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 in November 1991. The Company has
invoked its appeal rights with the Tribe'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, the Company 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.
<PAGE>
<PAGE>
NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------
Quarter
----------------------------------------
First Second(1) Third(1) Fourth(1)
------- --------- -------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Continuing Operations:
Net revenues $116,138 $154,123 $197,358 $189,659
Cost of products sold 86,588 112,057 146,333 142,770
-------- -------- -------- --------
Gross margin 29,550 42,066 51,025 46,889
-------- -------- -------- --------
Operating expenses 15,822 18,307 25,037 26,011
Depreciation and amortization 5,005 5,566 6,834 6,586
Selling, general and administrative expenses 4,448 5,360 3,474 5,974
Net earnings 1,124 5,675 6,596 1,899
Net earnings per common share - basic $ 0.10 $ 0.51 $ 0.60 $ 0.17
Net earnings per common share - assuming dilution $ 0.10 $ 0.51 $ 0.59 $ 0.17
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------
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 - basic $ 0.21 $ 0.77 $ 0.47 $ 0.07
Net earnings per common share - assuming dilution $ 0.21 $ 0.76 $ 0.46 $ 0.07
Discontinued Operations:
Net earnings (loss) $ 79 $ (72) $ (20)
Net earnings (loss) per common share - basic $ - $ - $ -
</TABLE>
(1) The results of operations of the Acquisitions are included from the
date of purchase. (See Note 3.)
<PAGE>
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
<PAGE>
PART III
Certain information required by Part III is omitted from
this Report by virtue of the fact that the Registrant will file
with the Securities and Exchange Commission a definitive proxy
statement relating to the Company's Annual Meeting of
Stockholders to be held May 8, 1998 pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information
to be included therein is incorporated herein by reference. The
Company expects to disseminate the Proxy Statement to
stockholders on or about March 30, 1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required
by this Item is incorporated by reference to the information
contained in the Proxy Statement under the caption "Election of
Directors".
The information concerning the Company's executive officers
required by this Item is incorporated by reference to the section
in Part I, Item 4 hereof entitled "Executive Officers of the
Registrant".
The information concerning compliance with Section 16(a) of
the Exchange Act required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Election of Directors", "Executive
Compensation", "Compensation Committee Report on Executive
Compensation" and "Compensation Committee Interlocks and Insider
Participation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Election of Directors" and "Security
Ownership of Certain Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference to the information contained in the Proxy Statement
under the captions "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions".
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following financial statements are included
in Item 8:
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheets - December 31, 1997
and 1996
(iii) Consolidated Statements of Earnings - Years
ended December 31, 1997, 1996 and 1995
(iv) Consolidated Statements of Stockholders' Equity
- Years ended December 31, 1997, 1996 and 1995
(v) Consolidated Statements of Cash Flows - Years
ended December 31, 1997, 1996 and 1995
(vi) Notes to Consolidated Financial Statements
(2) Financial Statement Schedule. The following financial
statement schedule of Giant Industries, Inc. for the years ended
December 31, 1997, 1996 and 1995 is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of Giant Industries, Inc.
Independent Auditors' Report on Schedule . . . . . S-1
Schedule II - Valuation and Qualifying Accounts . . S-2
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.
(3) Exhibits. The Exhibits listed on the accompanying
Index to Exhibits immediately following the financial statement
schedule are filed as part of, or incorporated by reference
into, this Report.
Contracts with management and any compensatory plans or
arrangements relating to management are as follows:
Exhibit
No. Description
- ------- -----------
10.1 1989 Stock Incentive Plan of the Registrant.
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.
10.6 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.
10.7 Amended 1988 Restricted Stock Plan of Registrant.
Incorporated by reference to Exhibit 10.3 to Form S-1.
10.8 1989 Stock Option Plan of Registrant. Incorporated by
reference to Exhibit 10.4 to Form S-1.
10.23 Employment Agreement, dated as of December 11, 1997,
between James E. Acridge and the Company.
10.24 Employment Agreement, dated as of December 11, 1997,
between Fredric L. Holliger and the Company.
10.25 Employment Agreement, dated as of December 11, 1997,
between Morgan Gust and the Company.
10.28 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.
10.29 First Amendment of the Giant Industries, Inc. and Affiliated
Companies 401(k) Plan, dated October 17, 1996. Incorporated
by reference to Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-10398.
10.30 Second Amendment to the Giant Industries, Inc. and
Affiliated Companies 401(k) Plan, dated December 31, 1997.
10.31 Giant Industries, Inc., 1998 Phantom Stock Plan.
_________________________________
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.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
by the Company during the fourth quarter of the fiscal year ended
December 31, 1997.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GIANT INDUSTRIES, INC.
By: /s/ James E. Acridge
------------------------------
James E. Acridge
Chairman of the Board, President
and Chief Executive Officer
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
/s/ James E. Acridge
- ---------------------------------------
James E. Acridge, Chairman of the Board,
President, Chief Executive Officer
and Director
March 27, 1998
/s/ A. Wayne Davenport
- ---------------------------------------
A. Wayne Davenport
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
March 27, 1998
/s/ Fredric L. Holliger
- ---------------------------------------
Fredric L. Holliger, Executive Vice President,
Chief Operating Officer and Director.
March 27, 1998
<PAGE>
<PAGE>
/s/ Anthony J. Bernitsky
- ---------------------------------------
Anthony J. Bernitsky, Director
March 27, 1998
/s/ F. Michael Geddes
- ---------------------------------------
F. Michael Geddes, Director
March 27, 1998
/s/ Harry S. Howard, Jr.
- ---------------------------------------
Harry S. Howard, Jr., Director
March 27, 1998
/s/ Richard T. Kalen, Jr.
- ---------------------------------------
Richard T. Kalen, Jr., Director
March 27, 1998
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Giant Industries, Inc.
Scottsdale, Arizona
We have audited the consolidated financial statements of Giant
Industries, Inc. and subsidiaries (the "Company") as of December 31,
1997 and 1996, and for each of the three years in the period ended
December 31, 1997, and have issued our report thereon dated March 2,
1998; such financial statements and report are included elsewhere in
this Form 10-K. Our audits also included the consolidated financial
statement schedule of the Company listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
set forth therein.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 2, 1998
S-1
<PAGE>
<PAGE>
<TABLE>
SCHEDULE II
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three years ended December 31, 1997
(In thousands)
<CAPTION>
Charged
Balance at (credited) Balance
beginning to costs at end
of period and expenses Deduction(b) of period
---------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts $254 $281 $ (71) $464
==== ==== ===== ====
Year ended December 31, 1996:
Allowance for doubtful accounts $424 $(30)(a) $(140) $254
==== ==== ===== ====
Year ended December 31, 1995:
Allowance for doubtful accounts $546 $(82)(a) $ (40) $424
==== ==== ===== ====
(a) Includes adjustments of $100,000 and $162,000 in 1996 and 1995,
respectively, credited to costs and expenses to revise the Company's
estimated Allowance for Doubtful Accounts.
(b) Deductions are specific trade accounts determined to be uncollectible.
S-2
/TABLE
<PAGE>
<PAGE>
GIANT INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS
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. 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.
Exhibit No. Description
- ----------- -----------
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 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 for the period May 28, 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 for the period June 3, 1997, File No. 1-10398.
3.1 Restated Certificate of Incorporation of the 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 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.
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, 1994, 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** Amended Bylaws of Phoenix Fuel Co., Inc.
4.1 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.
4.2 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 hereto.
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.
4.3 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 on Form 8-K for the period May 28, 1997, File No. 1-10398.
4.4 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 on Form 8-K
for the period May 28, 1997, File No. 1-10398.
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** Tenth Amendment of the Employee Stock Ownership Plan and
Trust Agreement of Giant Industries, Inc. and Affiliated
Companies dated December 15, 1997.
10.6 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 1-10398.
10.7 Amended 1988 Restricted Stock Plan of the Company.
Incorporated by reference to Exhibit 10.3 Form S-1.
10.8 1989 Stock Option Plan of the Company. Incorporated by
reference to Exhibit 10.4 to Form S-1.
10.9 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.
10.10 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.
10.11 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.
10.12 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 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* Sales Agreement, dated June 6, 1989, between Giant Arizona
and Mobil Oil Corporation. Incorporated by reference to
Exhibit 10.47 to Amendment No. 2.
10.19* 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.
10.20* 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.
10.21* 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.
10.22* 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.
10.23** Employment Agreement, dated as of December 11, 1997, between
James E. Acridge and the Company.
10.24** Employment Agreement, dated as of December 11, 1997, between
Fredric L. Holliger and the Company.
10.25** Employment Agreement, dated as of December 11, 1997, between
Morgan Gust and the Company.
10.26 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.
10.27 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.
10.28 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.
10.29 First Amendment of the Giant Industries, Inc. and Affiliated
Companies 401(k) Plan, dated October 17, 1996. Incorporated
by reference to Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-10398.
10.30** Second Amendment to the Giant Industries, Inc. and Affiliated
Companies 401(k) Plan, dated December 31, 1997.
10.31** Giant Industries, Inc., 1998 Phantom Stock Plan.
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 to incorporate reports in
previously filed Registration Statement.
27.1 ** Financial Data Schedule for fiscal year ended December 31,
1997.
27.2 ** Financial Data Schedules, restated, for fiscal years ended
December 31, 1995 and 1996 and for the quarters ended March 31,
1996, June 30, 1996, and September 30, 1996.
27.3 ** Financial Data Schedules, restated, for the quarters ended
March 31, 1997, June 30, 1997, and September 30, 1997.
99.1 ** Information required by Rule 15d-21 under the Securities Act
of 1934 for the year ended December 31, 1997 for the Giant
Industries, Inc. and Affiliated Companies Employee Stock
Ownership Plan.
*Certain information contained in these documents has been afforded
confidential treatment.
**Filed herewith.
EXHIBIT 3.17
ARTICLES OF INCORPORATION
OF
PHOENIX FUEL CO., INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, having associated ourselves together for
the purpose of forming a corporation under and by virtue of the laws of
the State of Arizona, do hereby adopt the following Articles of
Incorporation:
ARTICLE I.
The name of the corporation shall be PHOENIX FUEL CO., INC., and
its principal place of business within the State of Arizona shall be in
the City of Phoenix, in the County of Maricopa, in said State, but the
board of directors may designate other places, either within or without
the State of Arizona, where other offices may be established and
maintained, and all corporate business transacted.
ARTICLE II.
The names, residences and post office addresses of the
incorporators are as follows:
F. A. Wilhoit 5208 North 19th Drive
Phoenix, Arizona
Christine M. Wilhoit 5208 North 19th Drive
Phoenix, Arizona
J. William Wilhoit 5208 North 19th Drive
Phoenix, Arizona
ARTICLE III.
The general nature of the business in which the corporation shall
engage is as follows:
1. To buy, sell, market, transport and otherwise deal in and with
respect to petroleum products of all kinds and classes;
2. To issue such notes, bonds, debentures, contracts, or other
security or evidences of indebtedness upon such terms and conditions
and in such manner and form as may be prescribed or determined by the
board of directors;
3. To purchase, acquire, own, hold, sell, assign, transfer,
mortgage, pledge, or otherwise to acquire, dispose of, hold or deal in
the shares of the stock, bonds, debentures, notes or other security or
evidences of indebtedness of this or any other corporation, association
or individual, and to exercise all the rights, powers and privileges of
ownership, including the right to vote thereon to the same extent as a
natural person might or could do;
4. To lend or invest its funds, with or without security, upon
such terms and conditions as shall be prescribed or determined by the
board of directors;
5. To borrow money and to issue bonds, debentures, notes,
contracts, and other evidences of indebtedness or obligation, and from
time to time for any lawful purpose to mortgage, pledge and otherwise
charge any or all of its properties, property rights, privileges and
assets to secure the payment thereof;
6. To act as agent, trustee, broker, or in any other fiduciary or
representative capacity;
7. To purchase, own, hold or hypothecate any patent rights,
privileges, trademarks, or secret processes;
8. To act as surety or guarantor and to underwrite in whole or in
part, any contract, issue of stock, bonds, debentures or other
securities or evidences of indebtedness of any other corporation or
association, or of any person or persons;
9. To supervise and to manage or otherwise control properties or
property rights and to manage and conduct any business, venture or
enterprise for other persons, corporations or associations;
10. To make and perform contracts of every kind and description,
and in carrying on its business, or for the purpose of attaining and
furthering any of its objects, to do any and all things which a natural
person might or could do, and which now or hereafter may be authorized
by law, and in general to do and perform such acts and things and
transact such business in connection with the foregoing objects, not
inconsistent with law, as may be necessary and required.
The designation of any object or purpose herein shall not be
construed to be a limitation or qualification, or in any manner to
limit or restrict the purposes and objects of the corporation.
ARTICLE IV.
The authorized amount of the capital stock of the corporation
shall be one thousand (1,000) shares, of the par value of one hundred
dollars ($100.00) each, and shall be paid for at such time and in such
manner as the board of directors shall determine. All or any portion of
the capital stock of the corporation may be issued in payment for real
or personal property, services or any other thing of value, for the
uses and purposes of the corporation, and when so issued, shall be
fully paid, the same as though paid for in cash, and the directors
shall be the sole judges of the value of any property, right or thing
acquired in exchange for capital stock. The shares of the capital
stock of the corporation, when issued, shall be fully paid and non-
assessable.
ARTICLE V.
The time of the commencement of the corporation shall be from the
date of the issuance to it of the certificate of incorporation by the
Arizona Corporation Commission, and it shall endure for the term of
twenty-five (25) years thereafter, with the privilege of renewal as
provided by law.
ARTICLE VI.
The affairs of the corporation shall be conducted by a Board of
Directors and such officers as the directors may elect or appoint. The
officers and directors need not be stockholders of the corporation. The
number of directors shall be not less than three (3) nor more than five
(5), Directors shall hold office for one year, or until their
successors are elected and qualified, and shall be elected by the
stockholders of the corporation at the annual meeting thereof to be
held at 10:00 o'clock A.M. on the second Monday in January of each
year, commencing with the year 1953. The time for holding the annual
meeting of the stockholders may be altered by the majority vote of the
stockholders at any meeting thereof.
Until the first annual meeting of the stockholders and until their
successors have been elected and qualified, the following named persons
shall be directors of the corporation:
F. A. Wilhoit
Christine M. Wilhoit
J. William Wilhoit
In furtherance, and not in limitation of the powers conferred by
law, the board of directors is expressly authorized to adopt, amend and
rescind bylaws for the corporation, and to fill vacancies in any office
or in the board of directors resulting from any cause.
ARTICLE VII
The private property of the stockholders, directors and officers
of the corporation shall at all times be exempt from all corporate
debts and liabilities whatsoever.
ARTICLE VIII
The highest amount of indebtedness or liability, direct or
contingent, to which the corporation shall at any time subject itself,
shall be SIXTY-SIX THOUSAND, SIX HUNDRED SIXTY-SIX DOLLARS
($66,666.00).
ARTICLE IX.
RICHARD G. KLEINDIENST, whose address is 619 Title & Trust
Building, Phoenix, Arizona, and who has been a bona fide resident of
the State of Arizona for more than three (3) years last past, is hereby
appointed and designated Statutory Agent for the corporation for the
State of Arizona, upon whom service of process may be had.
IN WITNESS WHEREOF, we have hereunto set our hands and seals this
6th day of January, 1953.
F. A. Wilhoit
Christine M. Wilhoit
J. William Wilhoit
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this, the 6th day of January, 1953, before me the undersigned
Notary Public, personally appeared F. A. WILHOIT, CHRISTINE M. WILHOIT
and J. WILLIAM WILHOIT, known to me to be the persons whose names are
subscribed to the foregoing instrument, and acknowledged that they
executed the same for the purposes therein contained.
IN WITNESS WHEREOF I hereunto set my hand and official seal.
RICHARD G. KLEINDIENST
Notary Public
My commission expires:
January 16, 1955
(NOTARIAL SEAL)<PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
PHOENIX FUEL CO., INC.
This is to certify that a special meeting of the stockholders of
PHOENIX FUEL CO., INC., an Arizona corporation, was held in Phoenix,
Arizona, on the 18th day of April, 1960, written notice of the time,
place and purpose of such meeting having been given to all of the
stockholders more than thirty (30) days prior to the said meeting; all
shares of the capital stock of the corporation were present, and by the
unanimous vote of those present, the following sections of the Articles
of Incorporation were amended to read as follows:
ARTICLE IV
The authorized amount of the capital stock of the corporation shall
be five thousand (5,000) shares, of the par value of One Hundred Dollars
($100.00) each, and shall be paid for at such time and in such manner as
the board of directors shall determine. All or any portion of the
capital stock of the corporation may be issued in payment for real or
personal property, services or any other thing of value, for the uses
and purposes of the corporation, and when so issued, shall be fully
paid, the same as though paid for in cash, and the directors shall be
the sole judges of the value of any property, right or thing acquired in
exchange for capital stock. The shares of the capital stock of the
corporation, when issued, shall be fully paid and nonassessable.
ARTICLE VIII
The highest amount of indebtedness or liability, direct or
contingent, to which the corporation shall at any time subject itself,
shall be THREE HUNDRED THIRTY-THREE THOUSAND, THREE HUNDRED THIRTY-THREE
DOLLARS ($333,333.00).
IN WITNESS WHEREOF, the undersigned, as president and secretary,
respectively, of the said corporation, have hereunto affixed their
signatures and the seal of said corporation this 19th day of April,
1960.
/s/ J. W. Wilhoit
_________________________
ATTEST: J. W. Wilhoit, President
/s/ Christine M. Wilhoit
_______________________________
Christine M. Wilhoit, Secretary
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this, the 19th day of April, 1960, before me, the undersigned
Notary Public, personally appeared J. W. WILHOIT and CHRISTINE M.
WILHOIT, who acknowledged themselves to be the president and secretary,
respectively, of PHOENIX FUEL CO., INC., a corporation, and as such
president and secretary, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing
their names as said president and secretary.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
_________________________
My commission expires: Notary Public
_____________________<PAGE>
<PAGE>
STATE OF ARIZONA
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PHOENIX FUEL CO., INC.
Pursuant to the provisions of S.S. 10-061, Arizona Revised
Statutes, the undersigned corporation adopts the attached Articles of
Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is Phoenix Fuel Co., Inc.
SECOND: The document attached hereto as Exhibit A sets forth an
amendment to the Articles of Incorporation which was adopted by the
shareholders of the corporation of October 1, 1977 in the manner
prescribed by the Arizona Revised Statutes.
THIRD: The number of shares of the corporation outstanding at the
time of such adoption was 560; and the number of shares entitled to vote
thereon was 560.
FOURTH: The designation and number of outstanding shares of each
class or series entitled to vote thereon as a class or series were as
follows:
CLASS OR SERIES NUMBER OF SHARES
--------------- ----------------
Common Stock 560
FIFTH: The number of shares of each class or series entitled to
vote thereon as a class or series voted for or against such amendment,
respectively, was:
CLASS OR SERIES NUMBER OF SHARES FOR NUMBER OF SHARES AGAINST
--------------- -------------------- ------------------------
Common 560 -0-
SIXTH: No exchange, reclassification, or cancellation of issued
shares was provided for in the amendment.
SEVENTH: No change in the amount of stated capital was made by the
amendment.
DATED: December 13, 1977.
PHOENIX FUEL CO., INC.
By /s/ J. W. Wilhoit
____________________________
J. W. Wilhoit, President
By /s/ T. A. Wilhoit
____________________________
T. A. Wilhoit, Secretary
<PAGE>
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 13th day
of December, 1977 by J. W. Wilhoit, President of Phoenix Fuel Co., Inc.,
an Arizona corporation, on behalf of the corporation.
/s/ David R. Foyer
_________________________
Notary Public
My Commission Expires:
July 7, 1980
_____________________
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 13th day
of December, 1977 by T. A. Wilhoit, Secretary of Phoenix Fuel Co., Inc.,
an Arizona corporation, on behalf of the corporation.
/s/ David R. Foyer
_________________________
Notary Public
My Commission Expires:
July 7, 1980
_____________________
<PAGE>
<PAGE>
EXHIBIT A
1. ARTICLE V is amended to read as follows:
"ARTICLE V
No holder of common stock shall have the right or power to transfer,
pledge, sell or otherwise dispose of any of the shares of the common
stock of the corporation, nor shall any transfer, pledge, sale or other
disposition thereof, unless such transfer be accomplished by right of
inheritance or by operation of law, be valid and effective until the
shares of common stock proposed to be transferred are first offered for
sale to the corporation. Whenever tendered to the corporation for
purchase, the corporation shall have the right to purchase any share or
shares of said stock from the holder by paying therefor a price fixed by
the valuation put upon said stock by the stockholders at their last
annual meeting. If this corporation shall fail or refuse, for a period
of ninety (90) days after said shares of stock so offered, then the said
stock shall be offered on a ratable basis to the other holders of stock
of this corporation, and shall not be subject to the conditions
hereinabove set forth. Upon the death of any stockholder, the
corporation shall have the right and option to purchase the common stock
of this corporation held by the deceased at the time of his death by
paying therefor the price determined in accordance with this section.
The purchase price therefor shall be paid in cash, within such time as
shall be agreed upon by the personal representative of the deceased, and
the corporation. Unless the corporation pays for such stock in cash or
arrives at an agreement with the personal representative of the deceased
within one year from the date such personal representative is legally
qualified to act, then the personal representative of the deceased shall
be authorized to offer such stock for sale to the other holders of stock
in this corporation on a ratable basis according to the percentage
ownership of the other stockholders. In the event that the other
stockholders of stock in this corporation shall fail or refuse for a
period of ninety (90) days after said shares of stock are offered for
sale, to purchase the shares of stock so offered, the stockholder or
personal representative of a deceased stockholder shall be authorized to
offer such stock for sale to any other person or persons."
2. ARTICLE VIII is amended to read as follows:
"ARTICLE VIII
The holders from time to time of the common stock of the corporation
shall have pre-emptive rights as to any new or existing class of stock
then or thereafter authorized to be issued, including treasure stock. No
resolution of the board of directors authorizing the issuance of stock
to which pre-emptive rights shall attach may require such rights to be
exercised within fewer than sixty days."
<PAGE>
<PAGE>
STATE OF ARIZONA
ARTICLES OF AMENDMENT
TO THE
ARTICLE OF INCORPORATION
OF
PHOENIX FUEL CO., INC.
Pursuant to the provisions of A.R.S. S.S. 10-061, the undersigned
corporation adopts the following articles of amendment to its articles
of incorporation:
FIRST: The name of the corporation is Phoenix Fuel Co., Inc.
SECOND: The document attached hereto as exhibit A sets forth
amendments to the articles of incorporation which were
adopted by the shareholders of the corporation on March 31,
1981, in the manner prescribed by A.R.S. S.S. 10-059.
THIRD: The number of shares outstanding at the time of such adoption
was 560 and the number of shares entitled to vote thereon was
560.
FOURTH: The corporation has outstanding only a single class of stock.
FIFTH: The number of shares voted for the amendments was 560 and
the number of shares voted against the amendments was 0.
SIXTH: The amendments do not effect any exchange, reclassification,
or cancellation of issued shares.
SEVENTH: The amendments do not effect a change in the amount of stated
capital.
EIGHTH: The amendments remove the corporation's limited period of
existence and thereby provide for perpetual succession.
DATED: March 31, 1981.
Phoenix Fuel Co., Inc.
By /s/ J. W. Wilhoit
___________________________
J. W. Wilhoit, President
By /s/ T. A. Wilhoit
___________________________
T. A. Wilhoit, Secretary
<PAGE>
<PAGE>
ACKNOWLEDGEMENTS
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 31st day
of March, 1981, by J. W. Wilhoit, President of Phoenix Fuel Co., Inc.,
an Arizona corporation, on behalf of the corporation.
/s/ David R. Foyer
_________________________
Notary Public
My Commission Expires:
July 7, 1984
_____________________
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 31st day
of March, 1981, by T. A. Wilhoit, Secretary of Phoenix Fuel Co., Inc.,
an Arizona corporation, on behalf of the corporation.
/s/ David R. Foyer
_________________________
Notary Public
My Commission Expires:
July 7, 1984
_____________________
<PAGE>
<PAGE>
EXHIBIT A
1. The following Article X is hereby added to the Articles of
Incorporation of Phoenix Fuel Co., Inc.:
"ARTICLE X
Subject to the further provisions hereof, the corporation shall
indemnify any and all of its existing and former directors, officers,
employees and agents against all expenses incurred by them and each of
them including but not limited to legal fees, judgments, penalties, and
amounts paid in settlement or compromise, which may arise or be
incurred, rendered, or levied in any legal action brought or threatened
against any of them for or on account of any action or omission alleged
to have been committed while acting within the scope of employment as
director, officer, employee or agent of the corporation, whether or not
any action is or has been filed against them and whether or not any
settlement or compromise is approved by a court. Indemnification shall
be made by the corporation whether the legal action brought or
threatened is brought by or in the right of the corporation or by any
other person. Whenever such director, officer, employee or agent shall
report to the president of the corporation or the chairman of the board
of directors that he or she has incurred or may incur expenses,
including but not limited to legal fees, judgments, penalties, and
amounts paid in settlement or compromise in a legal action brought or
threatened against him or her for or on account of any action or
omission alleged to have been committed by him or her while acting
within the scope of his or her employment as a director, officer,
employee or agent of the corporation, the board of directors shall, at
its next regular or at a special meeting held within a reasonable time
thereafter, determine in good faith whether, in regard to the matter
involved in the action or contemplated action, such person acted, failed
to act, or refused to act willfully or with gross negligence or with
fraudulent or criminal intent. If the board of directors determines in
good faith that such person did not act, fail to act, or refuse to act
willfully or with gross negligence or with fraudulent or criminal intent
in regard to the mater involved in the action or contemplated action,
indemnification shall be mandatory and shall be automatically extended
as specified herein, provided however, that no such indemnification
shall be available with respect to liabilities under the Securities Act
of 1933, and, provided further, that the corporation shall have the
right to refuse indemnification in any instance in which the person to
whom indemnification would otherwise have been applicable shall have
unreasonably refused to permit the corporation, at its own expense and
through counsel of its own choosing, to defend him or her in the
action."
EXHIBIT 3.18
A M E N D E D B Y L A W S
OF
PHOENIX FUEL CO., INC.
(As Adopted October 1, 1977)
SECTION 1
OFFICES AND CORPORATE SEAL
1.1. PRINCIPAL OFFICE. In addition to its known place of business,
which shall be the office of its statutory agent, the corporation shall
maintain a principal office in Maricopa County, Arizona.
1.2. OTHER OFFICES. The corporation may also maintain offices at
such other place or places, either within or without the State of
Arizona, as may be designated from time to time by the board of
directors, where the business of the corporation may be transacted with
the same effect as though done at the principal office.
1.3. CORPORATE SEAL. A corporate seal shall not be requisite to
the validity of any instrument executed by or on behalf of the
corporation, but nevertheless if in any instance a corporate seal be
used, the same shall, at the pleasure of the officer affixing the same,
be either (a) circular in form, shall have inscribed thereon the name of
the corporation, the year of its organization, and the words
"Incorporated" and "Arizona," or (b) a circle containing the words
"Corporate Seal" on the circumference thereof.
SECTION 2
STOCKHOLDERS
2.1. STOCKHOLDERS' MEETINGS. All meetings of stockholders shall be
held at such place as may be fixed from time to time by the board of
directors, or in the absence of direction by the board of directors, by
the president or secretary of the corporation, either within or without
the State of Arizona, as shall be stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
2.2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held on the second Monday in January, if not a legal holiday, and if a
legal holiday, then on the next secular day following, or at such other
date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting. Stockholders shall,
at the annual meeting, elect a board of directors and transact such
other business as properly may be brought before the meeting.
2.3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten
nor more than fifty days before the date of the meeting. Stockholders
entitled to vote at the meeting shall be determined as of 4 o'clock in
the afternoon on the day before notice of the meeting is sent.
2.4. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
2.5. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders, for any purpose of purposes, unless otherwise proscribed
by statute or by the articles of incorporation, may be called by the
president and shall be called by the president or secretary at the
request in writing of a majority of the board of directors, or at the
request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of
the proposed meeting.
2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given not less
than ten nor more than fifty days before the date of the meeting, to
each stockholder entitled to vote at such meeting. Business transacted
at any special meeting of stockholders shall be limited to the purposes
stated in the notice. Stockholders entitled to vote at the meeting
shall be determined as of 4 o'clock in the afternoon on the day before
notice of the meeting is sent.
2.7. QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote at the meeting,
present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business except
as otherwise provided by statute or by the articles of incorporation.
If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote at the
meeting, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
2.8. MAJORITY REQUIRED. When a quorum is present at any meeting,
the vote of the holders of a majority of the voting power present,
whether in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by
express provision of the statutes or of the articles of incorporation, a
different vote is required in which case such express provision shall
govern and control the decision of such question.
2.9. VOTING. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each
share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted or acted upon after eleven months from its
date, unless the proxy provides for a longer period.
No stock shall be voted at any stockholders's meeting: (1) upon
which any installment is due and unpaid until such arrears have been
paid; (2) which shall have been transferred on the books of the
corporation within ten (10) days next preceding the date of such
meeting; (3) which belongs to the corporation.
2.10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of all
of the outstanding stock entitled to vote with respect to the subject
matter of the action.
2.11. WAIVER OF NOTICE. Attendance of a stockholder at a meeting
shall constitute waiver of notice of such meeting, except when the
person attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called
or convened. Any stockholder may waive notice of any annual or special
meeting of stockholders by executing a written waiver of notice either
before or after the time of the meeting.
SECTION 3
DIRECTORS
3.1. NUMBER. The number of directors which shall constitute the
whole board shall be not fewer than three nor more than five. The
directors shall be elected at the annual meeting of the stockholders,
except as provided in 3.2. of this Section 3, and each director elected
shall hold office until his or her successor is elected and qualifies.
Directors need not be stockholders.
3.2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
If there are no directors in office, then an election of directors may
be held in the manner provided by statute.
3.3. POWERS. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute
or by the articles of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
3.4. PLACE OF MEETINGS. The board of directors of the corporation
may hold meetings, both regular and special, either within or without
the State of Arizona.
3.5. ANNUAL MEETINGS. The first meeting of each newly elected
board of directors shall be held immediately following the annual
meeting of stockholders and in the same place as the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting,
providing a quorum shall be present. In the event such meeting is not
held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provider for special meetings
of the board of directors, or as shall be specified in a written waiver
by all of the directors.
3.6. REGULAR MEETINGS. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from
time to time be determined by the board.
3.7. SPECIAL MEETINGS. Special meetings of the board may be
called by the president or the secretary on one day's notice to each
director, either personally or by mail or by telegram or by telephone;
special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors.
3.8. QUORUM. A majority of the membership of the board of
directors shall constitute a quorum and the concurrence of a majority of
those present shall be sufficient to conduct the business of the board,
except as may be otherwise specifically provided by statute or by the
articles of incorporation. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
articles of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of the
board or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the
board or committee.
3.10. WAIVER OF NOTICE. Attendance of a director at a meeting
shall constitute waiver of notice of such meeting, except when the
person attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called
or convened. Any director may waive notice of any annual, regular or
special meeting of directors by executing a written waiver of notice
either before or after the time of the meeting.
SECTION 4
OFFICERS
4.1. DESIGNATION OF TITLES. The officers of the corporation shall
be chosen by the board of directors and shall be a president, a vice
president, a secretary and a treasurer. The board of directors may also
choose a chairman of the board, additional vice presidents, and one or
more assistant secretaries and assistant treasurers. Any number of
offices, except the offices of president and secretary, may be held by
the same person.
4.2. APPOINTMENT OF OFFICERS. The board of directors at its first
meeting after each annual meeting of stockholders shall choose a
president, one or more vice presidents, a secretary and a treasurer, and
may choose a chairman of the board, each of whom shall serve at the
pleasure of the board of directors. The board of directors at any time
may appoint such other officers and agents as it shall deem necessary
who shall hold their offices at the pleasure of the board of directors
and who shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
4.3. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a
director of the corporation. The salaries of the officers or the rate
by which salaries are fixed shall be set forth in the minutes of the
meetings of the board of directors.
4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the
board of directors at any time.
4.5. CHAIRMAN OF THE BOARD. The chairman of the board, if one
shall have been appointed and be serving, shall preside at all meetings
of the board of directors and shall perform such other duties as may be
from time to time assigned to him or her.
4.6. PRESIDENT. The president shall preside at all meetings of
stockholders, and if a chairman of the board shall not have been
appointed or, having been appointed, shall not be serving or be absent,
the president shall preside at all meetings of the board of directors.
He or she shall sign all deeds and conveyances, all contracts and
agreements, and all other instruments requiring execution on behalf of
the corporation, and shall act as operating and directing head of the
corporation, subject to policies established by the board of directors.
4.7. VICE PRESIDENTS. There shall be as many vice presidents as
shall be determined from time to time and they shall perform such duties
as may be from time to time assigned to them. Any one of the vice
presidents, as authorized by the board, shall have all the powers and
perform all the duties of the president in case of the temporary absence
of the president or in case of his or her temporary inability to act.
In case of the permanent absence or inability of the president to act,
the office shall be declared vacant by the board of directors and a
successor chosen by the board.
4.8. SECRETARY. The secretary shall see that the minutes of all
meetings of stockholders, of the board of directors and of any standing
committees are kept. He or she shall be the custodian of the corporate
seal, and shall affix it to all proper instruments when deemed advisable
by him or her. He or she shall give or cause to be given required
notices of all meetings of the stockholders and of the board of
directors. He or she shall have charge of all the books and records of
the corporation except the books of account and in general shall perform
all the duties incident to the office of secretary of a corporation and
such other duties as may be assigned to him or her.
4.9. TREASURER. The treasurer shall have general custody of all
of the funds and securities of the corporation except such as may be
required by law to be deposited with any state official; he or she shall
see to the deposit of the funds of the corporation in such bank or banks
as the board of directors may designate. Regular books of account shall
be kept under his or her direction and supervision, and he or she shall
render financial statements to the president, directors and stockholders
at proper times. He or she shall have charge of the preparation and
filing of such reports and financial statements and returns as may be
required by law. He or she shall give to the corporation such fidelity
bond as may be required, and the premium therefor shall be paid by the
corporation as an operating expense.
4.10. ASSISTANT SECRETARIES. There may be such number of
assistant secretaries as the board of directors may from time to time
fix, and such persons shall perform such functions as may be from time
to time assigned to them. No assistant secretary shall have power or
authority to collect, account for, or pay over any tax imposed by any
federal, state or city government.
4.11. ASSISTANT TREASURERS. There may be such number of assistant
treasurers as the board of directors may from time to time fix, and such
persons shall perform such functions as may be from time to time
assigned to them. No assistant treasurer shall have the power or
authority to collect, account for, or pay over any tax imposed by any
federal, state or city government.
SECTION 5
REPEAL, ALTERATION OR AMENDMENT
These bylaws may be repealed, altered or amended or substitute
bylaws may be adopted only by a majority of the board of directors at
any time.
/s/ J. W. Wilhoit
________________________
J. W. Wilhoit, President
ATTEST:
/s/ T. A. Wilhoit
_______________________
T.A. Wilhoit, Secretary
EXHIBIT 10.5
TENTH AMENDMENT
OF THE
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF GIANT INDUSTRIES, INC.
AND AFFILIATED COMPANIES
Effective as of July 1, 1987, Giant Industries, Inc., an Arizona
corporation, and Ciniza Pipe Line, Inc., a New Mexico Corporation,
amended and restated the Joint Profit Sharing Plan and Trust Agreement
of Giant Industries, Inc., Giant Western Service Stations, Inc., and
Ciniza Pipe Line Inc., as the Employee Stock Ownership Plan and Trust
Agreement of Giant Industries, Inc. and Affiliated Companies (the
"Plan"). Effective as of July 1, 1987, the Plan was adopted by Ciniza
Production Company, a New Mexico corporation ("Ciniza"), and by J.E.A.
Company, Inc., an Arizona corporation.
Effective as of September 28, 1989, Ciniza Pipe Line Inc. was
merged into Giant Industries, Inc., an Arizona corporation. Effective
as of October 12, 1989, J.E.A. Company, Inc. was merged into Giant
Industries, Inc. and Giant Industries, Inc. changed its name to Giant
Industries Arizona, Inc. ("Giant Arizona").
On October 15, 1989, Giant Arizona entered into an Agreement and
Plan of Reorganization with Hixon Development Company, a Texas
corporation, ("Hixon") contemplating a merger whereby Giant Arizona and
Hixon would become wholly owned subsidiaries of Giant Industries, Inc.,
a Delaware corporation ("Giant"). The stock of Giant became publicly
traded on December 15, 1989, and the merger was consummated on December
21, 1989.
Effective as of December 21, 1989, the Plan was adopted by Giant
and by Hixon. The name of Hixon was changed to Giant Exploration &
Production Company, a Texas corporation ("E&P"), effective June 12,
1990. Giant, Giant Arizona, E&P, Ciniza, Giant Stop-N-Go of New
Mexico, a New Mexico corporation, and Giant Four Corners, Inc., an
Arizona corporation, and such other entities described in section 1.14
of the Plan are hereinafter collectively referred to as the "Employer".
Under Section 11.1 of the Plan, Giant has been granted the right to
amend the Plan in whole or in part at any time and from time to time,
subject to certain restrictions set forth in the Plan, on behalf of the
Employer.
NOW THEREFORE, Giant deems it advisable to amend the Plan in the
manner hereinafter set forth and hereby adopts this tenth amendment.
Article I of the existing Plan is removed and replaced by the
attached Article I which is incorporated herein by this reference.
The terms used in this Tenth Amendment which are defined in the
Plan shall have the same meaning given to such terms in the Plan.
Except as modified by this Tenth Amendment, the Plan shall
continue in full force and effect and the Plan and all amendments
thereto shall be read, taken and construed as one and the same
document.
Executed on the 15th day of December, 1997, to be effective as of
January 1, 1997, unless otherwise specified on the relevant replacement
page.
FOR THE EMPLOYER: ADMINISTRATIVE COMMITTEE:
GIANT INDUSTRIES, INC. _____________________________
A Delaware Corporation Morgan M. Gust
_____________________________
By_______________________ A. Wayne Davenport
_______________________
_____________________________
Charles F. Yonker
By_______________________
_______________________ TRUSTEE:
BANK OF AMERICA, N.T. & S.A.
By___________________________
Its________________________
<PAGE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
INDEX AFTER TENTH AMENDMENT
PAGE
INTRODUCTION
I. DESIGNATION OF PLAN AND DEFINITIONS........................1.1
1.1 Accounts..............................................1.1
1.2 Alternate Payee.......................................1.1
1.3 Asset Account.........................................1.2
1.4 Beneficiary or Beneficiaries..........................1.2
1.5 Board of Directors....................................1.3
1.6 Break in Service......................................1.4
1.7 Ciniza................................................1.4
1.8 Code..................................................1.4
1.9 Committee.............................................1.4
1.10 Compensation..........................................1.4
1.11 Disability............................................1.6
1.12 Effective Date........................................1.7
1.13 Employee..............................................1.7
1.14 Employer..............................................1.8
1.15 Employer Real Property...............................1.11
1.16 Employer Stock.......................................1.11
1.17 ERISA................................................1.12
1.18 Exempt Loan..........................................1.12
1.19 Fiduciary............................................1.12
1.20 Fiscal Year..........................................1.13
1.21 Former Participant...................................1.13
1.22 Giant................................................1.13
1.23 Giant Arizona........................................1.13
1.24 Highly Compensated...................................1.13
1.25 Hixon................................................1.17
1.26 Hour of Service......................................1.17
1.27 Ineligible Participant...............................1.18
1.28 Investment Manager...................................1.18
1.29 Participant..........................................1.19
1.30 Plan.................................................1.19
1.31 Qualifying Employer Real Property....................1.19
1.32 Section 1042 Employer Stock..........................1.20
1.33 Section 1042 Employer Stock Account..................1.20
1.34 Suspense Account.....................................1.20
1.35 Temporary Stock Account..............................1.20
1.36 Trust or Trust Fund..................................1.20
1.37 Trustee..............................................1.21
1.38 Union Employee.......................................1.21
1.39 Unrestricted Employer Stock..........................1.21
1.40 Unrestricted Employer Stock Account..................1.21
1.41 Valuation Date.......................................1.21
1.42 Year of Service......................................1.21
1.43 Year of Service......................................1.22
<PAGE>
<PAGE>
PAGE
II. PARTICIPATION..............................................2.1
2.1 Eligibility Requirements..............................2.1
(a) General Eligibility Rule.........................2.1
(b) Eligibility Upon Re-employment...................2.1
2.2 Employee Participation................................2.2
2.3 Retirement............................................2.3
(a) Normal Retirement................................2.3
(b) Late Retirement..................................2.3
III. CONTRIBUTIONS..............................................3.1
3.1 Employer Contributions and Limitations
on Annual Additions...................................3.1
(a) Employer Contributions...........................3.1
(b) Overall Limitation on Contributions..............3.3
(1) Basic Limitations...........................3.3
(2) Special Limitations.........................3.4
(3) Adjustment for Excessive
Annual Additions.........................3.4(a)
(4) Participation in Multiple Plans.............3.5
(5) Special Rule for Defined
Contribution Plan Fraction..................3.6
(6) Definitions.................................3.8
3.2 Time of Payment of Contribution.......................3.8
3.3 Voluntary Contributions...............................3.8
IV. ALLOCATIONS TO ACCOUNTS....................................4.1
4.1 Creation of Accounts..................................4.1
(a) Creation of Accounts for New
Participants.....................................4.1
(b) Creation of Accounts for Alternate...............4.1
Payees
4.2 Account Statements....................................4.2
4.3 Forfeitures...........................................4.2
(a) Forfeitures from Asset Accounts..................4.2
(b) Forfeitures from Employer
Stock Accounts...................................4.3
(c) Order of Allocations.............................4.4
4.4 Allocation of Purchased Unrestricted
Employer Stock and Section 1042 Employer
Stock Released with Certain Dividends.................4.4
(a) Unrestricted Employer Stock
Purchased with Plan Assets.......................4.4
(b) Section 1042 Employer Stock Released
with Certain Dividends...........................4.5
(c) Order of Allocations.............................4.6
4.5 Valuation of Accounts.................................4.7
(a) Asset Accounts...................................4.7
(b) Employer Stock Accounts..........................4.9
(c) Order of Allocations.............................4.9
4.6 Annual Employer Contribution Allocation...............4.9
4.7 Allocations of Employer Stock........................4.10
(a) Allocation of Stock Contributed
by the Employer.................................4.10
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<PAGE>
PAGE
(b) Allocation of Section 1042
Employer Stock..................................4.10
(c) Allocation of Unrestricted Employer
Stock from Suspense Account and
Purchased Unrestricted Employer Stock...........4.12
(d) Order of Allocations............................4.12
4.8 Voting Rights in Employer Stock......................4.13
4.9 Right to Tender Employer Stock.......................4.15
4.10 Coverage Fail-Safe...................................4.18
V. BENEFITS...................................................5.1
5.1 Vesting of Interests..................................5.1
(a) Upon Death, Disability or Retirement.............5.1
(b) Termination for Other Reasons....................5.1
(c) Calculation of Years of Service..................5.2
(1) General Rules for Crediting
Years of Service............................5.2
(2) Special Rules for Crediting
Years of Service Upon
Reemployment................................5.2
(A) Delay in Crediting Years
of Service.............................5.2
(B) Rule of Parity.........................5.3
(C) Effect on Portion of
Accounts Earned Prior to
Break in Service.......................5.3
(3) Break in Service Rules for Pre-
January 1, 1985 Plan Years..................5.3
(d) Transition Rule..................................5.3
5.2 Form of Distribution..................................5.4
(a) Distribution in Cash or in Stock.................5.4
(b) Lifetime Distributions...........................5.5
(1) General Rule................................5.5
(2) Additional Lifetime Installments
Distributions...............................5.5
(c) Distributions Upon Death.........................5.6
5.3 Distributions in Stock................................5.7
5.4 Distributions in Cash.................................5.9
5.5 Distributions in Cash and Stock......................5.10
5.6 Time of Distribution.................................5.11
(a) General Rule....................................5.11
(b) Consents and Notices............................5.12
(1) Accounts of $3,500 or Less.................5.12
(2) Accounts in Excess of $3,500...............5.13
(c) Liquidity Limitations......................5.14
5.7 Dividends............................................5.15
(a) Dividends on Stock Allocated to
Unrestricted Employer Stock Accounts
and Section 1042 Employer Stock
Accounts........................................5.15
(b) Dividends on Stock Allocated to
the Unallocated Stock Account...................5.16
(c) Dividends on Stock Allocated to
the Suspense Account............................5.16
(d) Treatment of Distributed Dividends..............5.17
<PAGE>
<PAGE>
PAGE
5.8 Put Option and Right of First
Refusal..............................................5.17
(a) Put Option......................................5.17
(b) Right of First Refusal..........................5.18
5.9 Non-Vested Interests.................................5.19
(a) Forfeitures.....................................5.19
(b) Repayment of Prior Distribution.................5.20
(c) Termination of Employment with
No Distribution.................................5.21
5.10 Participant Loans....................................5.23
VI. [RESERVED]
VII. THE COMMITTEE..............................................7.1
7.1 Members...............................................7.1
7.2 Committee Action......................................7.1
7.3 Rights and Duties.....................................7.2
7.4 Procedure for Establishing Funding
Policy -Transmittal of Information....................7.6
7.5 Delegation of Investment Responsibility...............7.7
7.6 Delegation of Non-Investment Fiduciary
Responsibility........................................7.8
7.7 Duty of Care..........................................7.9
7.8 Compensation, Indemnity and Liability.................7.9
VIII. THE TRUSTEE..............................................8.1
8.1 Appointment of Trustee................................8.1
8.2 Resignation and Removal...............................8.1
8.3 Successor Trustee.....................................8.2
8.4 General Duties of Trustee.............................8.3
8.5 Accounts and Records..................................8.4
8.6 Compensation and Expenses.............................8.5
8.7 Employment of Agents..................................8.6
8.8 Third Party May Rely..................................8.6
8.9 Notice Must be in Writing and Received................8.6
8.10 Valuation.............................................8.6
IX. POWERS OF THE TRUSTEE......................................9.1
9.1 Investment of Trust Fund..............................9.1
9.2 Exempt Loans..........................................9.1
9.3 Permitted Investment Acts.............................9.5
9.4 Prohibited Investment Acts............................9.7
9.5 Diversification.......................................9.8
X. PORTABILITY AND ROLL-OVER.................................10.1
10.1 Portability..........................................10.1
(a) Direct Rollovers................................10.1
(b) Definitions.....................................10.1
10.2 Receipt of Direct Rollovers..........................10.2
<PAGE>
<PAGE>
PAGE
XI. AMENDMENT AND TERMINATION.................................11.1
11.1 Amendments..........................................11.1
11.2 Discontinuance of Plan..............................11.3
11.3 Merger or Consolidation.............................11.4
11.4 Failure to Contribute...............................11.4
XII. MISCELLANEOUS.............................................12.1
12.1 Contributions Not Recoverable.......................12.1
12.2 Limitations on Participants' Rights.................12.2
12.3 Receipt and Release.................................12.2
12.4 Assignment and Alienation...........................12.2
12.5 Qualified Domestic Relations Orders.................12.3
12.6 Governing Law.......................................12.3
12.7 Headings, Etc., Not Part of Agreement...............12.4
12.8 Successors and Assigns..............................12.4
12.9 Agent Designated for Service of Process.............12.4
12.10 Benefits Payable to Incompetents....................12.4
12.11 Pronouns............................................12.5
12.12 Reference to Laws...................................12.5
XIII. EARLY WITHDRAWAL OF EMPLOYER CONTRIBUTIONS...............13.1
XIV. TOP HEAVY PROVISIONS......................................14.1
14.1 Application of Top Heavy Provisions..................14.1
14.2 Vesting Requirements.................................14.1
14.3 Compensation Limitation..............................14.2
14.4 Minimum Allocation...................................14.3
14.5 Limitations on Contributions and
Benefits for Key Employees...........................14.4
14.6 Rules for Determining Top Heavy Status...............14.4
14.7 Definitions..........................................14.6
<PAGE>
<PAGE>
ARTICLE I.
DESIGNATION OF PLAN AND DEFINITIONS
This Employee Stock Ownership Plan shall be known as the "Employee
Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and
Affiliated Companies." For purposes of Plan investments and other
transactions, the Plan may be referred to as the "Giant ESOP." The
following terms shall have the following meanings unless a different
meaning is plainly required by the context. Whenever in these
definitions a word or phrase not previously defined is used, such word
shall have the meaning thereafter given to it in Article I unless
otherwise specified.
1.1 "Accounts" shall mean the Asset Account, Unrestricted
Employee Stock Account, and Section 1042 Employer Stock Account, if
any, established for any Participant, Former Participant, Alternate
Payee or Beneficiary.
1.2 "Alternate Payee" means any spouse, former spouse,
child or other dependent of a Participant who is entitled to receive
all or a portion of a Participant's Account pursuant to a domestic
relations order which is determined to be a qualified domestic
relations order in accordance with Section 12.5. An Alternate Payee
shall not be a Beneficiary for purposes of this Plan unless such
Alternate Payee is named as a Beneficiary pursuant to Section 1.4. The
Alternate Payee shall have only the rights specified under the Plan and
shall not be deemed to have the rights of a Participant, Former
Participant or Beneficiary unless expressly stated.
1.3 "Asset Account" shall mean the account used to
reflect an interest in assets of the Plan other than Employer Stock.
1.4 "Beneficiary" or "Beneficiaries" shall mean the
person or persons last selected by a Participant, Former Participant,
or Alternate Payee on a form provided by the Committee and by the terms
of the Plan to receive any amounts payable under the Plan following the
death of the Participant or Alternate Payee. The designation by a
(Replacement Page,
Tenth Amendment)
<PAGE>
<PAGE>
Participant or Former Participant of a Beneficiary other than his
spouse shall not be effective unless the spouse of the Participant or
Former Participant gives written consent to the designation. A
Participant, Former Participant, or Alternate Payee may change the
Beneficiary from time to time on a form provided by the Administrative
Committee, however, unless a Participant's or Former Participant's
spouse's initial consent to the designation of a Beneficiary other than
the spouse expressly acknowledges that the spouse has a right to limit
her consent to a specific Beneficiary and unless such spouse expressly
relinquishes the right to approve any change in Beneficiary, the spouse
must also give written consent to a change in a Participant's or Former
Participant's selection of a Beneficiary other than the spouse. Any
spousal consent shall acknowledge the effect of the Participant's or
Former Participant's selection and shall be witnessed by a Notary
Public. The consent of the spouse shall not be required to the
selection of a Beneficiary by a Participant or Former Participant upon
proof satisfactory to the Committee that the Participant or Former
Participant is not married, the spouse of the Participant or Former
Participant cannot be located, or the consent of the spouse cannot be
obtained under such circumstances as may be prescribed in regulations
issued by the U.S. Secretary of the Treasury or his delegate. If no
Beneficiary is designated, or in the event no Beneficiary or contingent
Beneficiary is surviving at the time of the Participant's, Former
Participant's or Alternate Payee's death, a Participant's, Former
Participant's or Alternate Payee's Beneficiary shall be deemed to be
his spouse, if living, or if there is no spouse living, the
Participant's, Former Participant's or Alternate Payee's issue, by
right of representation, or if neither the Participant's, Former
Participant's or Alternate Payee's spouse nor any issue are living,
the Participant's, Former Participant's or Alternate Payee's estate.
If a Participant or Alternate Payee completes a form designating more
than one Beneficiary, his Accounts will be divided equally among the
Beneficiaries who survive him, unless he directs otherwise in writing.
1.5 "Board of Directors" shall mean the Board of
Directors of Giant Industries, Inc., a Delaware corporation, unless
otherwise specifically indicated.
(Replacement Page,
Tenth Amendment)
<PAGE>
<PAGE>
1.6 "Break in Service" shall mean an Eligibility
Computation Period, as defined in Section 1.41, or a Vesting
Computation Period, as defined in Section 1.42, during which an
Employee or a Participant fails to complete at least five hundred (500)
Hours of Service.
1.7 "Ciniza" shall mean Ciniza Production Company, a New
Mexico corporation.
1.8 "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
1.9 "Committee" shall mean the Committee appointed by
Giant Industries, Inc., a Delaware corporation, pursuant to Article VII
of this Plan.
1.10 "Compensation" with respect to any Participant for
any Fiscal Year beginning on or after January 1, 1989, shall mean and
include the total compensation within the meaning of Treasury
Regulation Section 1.415-2(d)(11)(i), paid by the Employer during that
portion of the Fiscal Year in which the Employee is a Participant under
the Plan; provided that for any Fiscal Year beginning on or after
January 1, 1987, Compensation of an Employee shall be limited to one
hundred and fifty thousand dollars ($150,000) per Fiscal Year, and
further provided that for any Fiscal Year beginning on or after January
1, 1993, the term Compensation shall include elective contributions
that are not includible in gross income under Code Sections 125,
402(e)(3), 402(h) and 403(b) which are made by the Employer on behalf
of a Participant during that portion of the Fiscal Year in which the
Employee is a Participant under the Plan. Effective January 1, 1997,
Compensation shall exclude reimbursement or other expense allowances,
fringe benefits (cash and noncash), moving expenses, deferred
compensation, welfare benefits (including, but not limited to severance
benefits), the value of a qualified or nonqualified stock option
granted to an Employee by the Employer to the extent such value was
includible in the Employee's taxable income, and the amount realized
from the exercise of a qualified or nonqualified stock option.
(Replacement Page,
Tenth Amendment)
<PAGE>
<PAGE>
In determining Compensation under the Plan for any Fiscal Year
beginning on or after January 1, 1989, and before January 1, 1997, a
Participant who is either a more than five percent owner of the
Employer as defined in Code Section 414(q)(3) or one of the top ten
(10) Highly Compensated Employees as defined in Code Section 414(q)(6)
(hereinafter referred as a "Super Highly Compensated Participant"), a
Participant who is a spouse of a Super Highly Compensated Participant
on any day of the Fiscal Year and/or a Participant who has not attained
age nineteen (19) before the close of the Fiscal Year and who is a
lineal descendent of a Super Highly Compensated Participant, shall be
treated as a "Family Group". Notwithstanding any other provision of
the Plan to the contrary, the total Compensation of a Family Group
cannot exceed $200,000 for any Fiscal Year beginning on or after
January 1, 1989 and before January 1, 1994, $150,000 for any Fiscal
Year beginning on or after January 1, 1994, or such greater amounts as
determined by the Secretary of the Treasury in accordance with Code
Section 401(a)(17) (hereinafter referred to as the "Family Group
Limitation") for Fiscal Years beginning on or after January 1, 1989.
If the total Compensation of a Family Group after applying a $150,000
per individual limitation to each Family Group member and before
applying of the Family Group Limitation for the Fiscal Year to the
Family Group, exceeds the Family Group Limitation for the Fiscal Year,
the Compensation of any individual member of a Family Group shall be
determined based upon the ratio that each Family Group member's
Compensation after applying the $150,000 limitation but before applying
the Family Group Limitation for the Fiscal Year, bears to the
Compensation of all Family Group members after applying the $150,000
limitation but before applying the Family Group Limitation for the
Fiscal Year, multiplied by the Family Group Limitation for the Plan
Year.
1.11 "Disability" shall mean a physical or mental
condition resulting from bodily injury, disease, or mental disorder
which can be expected to result in death or to last at least 12 months,
which totally and presumably permanently prevents a Participant from
continuing any gainful occupation, and which condition is determined to
be a disability under the federal Social Security Acts by the
appropriate Disability Determination Services Office of the Social
Security Administration.
(Replacement Page,
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1.12 "Effective Date" shall mean July 1, 1987 for the
amendment and restatement of the Plan as an employee stock ownership
plan and a stock bonus plan within the meaning of Code Sections 401(a)
and 4975(e)(7). The Plan was originally adopted as a profit sharing
plan effective as of August 15, 1969.
1.13 "Employee" shall mean any person who is employed by
the Employer other than any person who serves only as a director or any
person who is a Union Employee. For any Fiscal Year beginning on or
after January 1, 1984, the term Employee shall include any Leased
Employee. For purposes of this Section, the term Leased Employee
includes an individual (who is not otherwise employed by the Employer)
who, pursuant to a leasing agreement between the Employer and any other
person, has performed services for the Employer (or for the Employer
and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full-time basis for at least one
year and who performs services historically performed by employees in
the Employer's business field, provided that for Fiscal Years between
January 1, 1984 and December 31, 1986, the term Leased Employee
excludes any such individual who is covered by a plan described in Code
Section 414(n)(5) and for purposes of services performed by such
individuals after December 31, 1986, the term Leased Employee excludes
any such individual who is covered by a plan described in Code Section
414(n)(5) only if Leased Employees constitute less than twenty percent
(20%) of the Employer's non-highly compensated work force (as
determined under Code Section 414(n)(5)). If by the terms of this
Section any Leased Employee is included in the term "Employee", all
contributions or benefits provided for or on behalf of such Leased
Employee by a leasing organization which are attributable to services
performed for the Employer shall be treated as provided by the Employer
and shall offset any benefit otherwise provided under the terms of this
Plan.
1.14 "Employer," effective as of December 21, 1989, shall
mean Giant Industries, Inc., a Delaware corporation, Giant Industries
Arizona, Inc., an Arizona corporation, Hixon Development Company
(renamed Giant Exploration & Production Company, effective June 12,
1990), a Texas corporation, and Ciniza Production Company, a New Mexico
Corporation. The term "Employer" shall also include any other
(Replacement Page,
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corporation which becomes a member of a controlled group of
corporations (within the meaning of Section 1563(a) of the Code,
determined without regard to Sections 1563(a)(4) and (e)(3)(c) of the
Code) in which Giant is a component member and each entity (whether or
not incorporated) which comes under common control with Giant (as
defined in Section 414(c) of the Code and regulations issued
thereunder) effective as of the date the corporation or entity becomes
a member of a controlled group in which Giant is a member or comes
under common control with Giant, including Giant Stop-N-Go of New
Mexico, Inc., a New Mexico corporation, Giant Four Corners, Inc., an
Arizona Corporation, Giant Mid-Continent, Inc., an Arizona corporation,
San Juan Refining Company, a New Mexico corporation, and Phoenix Fuel
Co., Inc., an Arizona corporation, unless the Board of Directors or the
corporation or entity which becomes a member of such controlled group
affirmatively elects to exclude such corporation or entity from the
definition of Employer. In addition, for purposes of determining Hours
of Service and Years of Service, (i) all service completed by a prior
employee of Shell Oil Company and Shell Pipe Line Corporation who
became an Employee on or about April 1, 1982 in connection with the
acquisition of the Ciniza Refinery and Pipeline by Giant Industries,
Inc., shall be included as service with the Employer, (ii) all service
completed by an Employee of Hixon prior to December 21, 1989 who was
employed by Hixon on December 20, 1989 shall be included as service
with the Employer under this Plan, (iii) effective as of January 1,
1996, all service by a prior employee of Bloomfield Refining Company
("Bloomfield") or The Gary-Williams Company ("Gary-Williams") for
service with either company or with any of their affiliates or
predecessor employers to the extent service was credited to the prior
employee under The Gary Tax Advantaged Savings Program and Profit-
Sharing Plan on October 4, 1995, but only if such employee was employed
by Bloomfield or Gary-Williams on October 3, 1995, and became an
Employee of the Employer on October 4, 1995, in connection with the
sale of assets of Bloomfield to the Employer, (iv) effective as of
January 1, 1996, all service by a prior employee of Meridian Oil Inc.,
Meridian Oil Gathering Inc., or Meridian Trading Inc. (collectively
"Meridian") for service with Meridian or with any affiliate or
predecessor employer of Meridian to the extent service was credited to
the prior employee under the Burlington Resources Retirement Savings
(Replacement Page,
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Plan on August 18, 1995, but only if such employee was employed by
Meridian on August 17, 1995, and became an Employee of the Employer on
August 18, 1995, in connection with the sale of assets of Meridian to
the Employer, (v) effective as of January 1, 1996, all service by a
prior employee of Texaco Refining and Marketing Inc. ("Texaco") for
service with Texaco or with any affiliate or predecessor employer of
Texaco to the extent service was credited to the prior employee under
any plan sponsored by Texaco that qualified under Section 401(a) of the
Code, but only if such employee was employed by Texaco on July 27,
1995, and became an Employee of the Employer on July 28, 1995, in
connection with the sale of assets of Texaco to the Employer, and (vi)
effective as of July 1, 1997, all service by Pat Curtis, a human
resource generalist, or any prior employees of Thriftway Marketing
Corporation ("Thriftway") employed or hired into the transportation
division on or about May 28, 1997, for service with Thriftway before
May 28, 1997, but only if such employee was employed by Thriftway on
May 27, 1997 and became an Employee of the Employer on or about May 28,
1997 in connection with the sale of assets of Thriftway and certain
related entities to the Employer, and (vii) effective as of January 1,
1998, all service by an employee of Phoenix Fuel Co., Inc. ("Phoenix
Fuel") for service with Phoenix Fuel or an affiliate or predecessor
employer of Phoenix Fuel to the extent service was credited to such
employee on June 3, 1997 under the Phoenix Fuel Co., Inc. Section
401(k) Savings Plan as of June 3, 1997, but only if such employee was
employed by Phoenix Fuel on June 2, 1997, and became an Employee of the
Employer on June 3, 1997, in connection with the sale of the stock of
Phoenix Fuel to the Employer.
1.15 "Employer Real Property" shall mean real property
(and related personal property) which is leased to an Employer or to an
affiliate of such Employer as defined under Section 407(d)(7) of ERISA.
Employer Real Property shall be deemed to be acquired by the Plan on
the date on which the Plan acquires the property or on the date on
which a lease from the Plan to the Employer (or affiliate) is entered
into, whichever is later.
1.16 "Employer Stock" prior to December 21, 1989, shall
mean shares of common stock of Giant Industries Arizona, Inc., an
Arizona corporation, having a combination of voting power and dividend
(Replacement Page,
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rights equal to or in excess of that class of common stock having the
greatest voting power and that class of common stock having the
greatest dividend rights, and on or after December 21, 1989 shall mean
shares of common stock issued by Giant Industries, Inc., a Delaware
corporation. Any valuation of Employer Stock prior to December 21,
1989, and any valuation in the event shares of common stock of Giant
Industries, Inc. cease to be readily tradable on an established
securities market after December 21, 1989, shall be performed by an
independent appraiser who meets the requirements of Code Section
410(a)(28)(c).
1.17 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.18 "Exempt Loan" shall mean an exempt loan within the
meaning of Code Section 4975(d)(3) and Treasury Regulations Section
54.4975-7(b)(iii), the requirements of which are more fully set forth
in Section 9.2.
1.19 "Fiduciary" shall mean, in accordance with Section 3(21)
of ERISA, any person who exercises any discretionary authority or
discretionary control respecting management of the Plan or any
authority or control respecting management or disposition of Plan
assets, who renders investment advice for a fee or other compensation
(direct or indirect) with respect to Plan assets or who has any
authority or responsibility to do so, and any person who has any
discretionary authority or discretionary responsibility in the
administration of the Plan. The term Fiduciary shall be construed as
including the term "Named Fiduciary" as defined in Section 402(a)(2) of
ERISA with respect to those Fiduciaries who are identified in the Plan
as "Named Fiduciaries".
1.20 "Fiscal Year" shall mean the year beginning on
January 1 and ending on December 31, and such Fiscal Year shall be the
plan year for all purposes under ERISA and the Code.
1.21 "Former Participant" shall mean a Participant whose
employment with the Employer has terminated but who has vested Accounts
under the Plan which have not been paid in full and which continue to
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participate in the increase or decrease in Plan assets including, for
any Former Participant on or after December 21, 1989, any increase or
decrease in Employer Stock.
1.22 "Giant" means Giant Industries, Inc., a Delaware
corporation.
1.23 "Giant Arizona" means Giant Industries Arizona,
Inc., an Arizona corporation.
1.24 "Highly Compensated Employee" means, effective for
any Fiscal Year beginning on or after January 1, 1987, any Employee
who is a highly compensated employee as defined in Code Section 414(q)
and the applicable Treasury regulations. Generally, any Employee is
considered a Highly Compensated Employee if during the Determination
Year or the Look-Back Year such Employee:
(a) was a "5% owner" as defined in Code Section
416(i)(B)(i) (i.e. who owns (or is treated as owning) more than five
percent (5%) of the outstanding stock of the Employer or stock
possessing more than five percent (5%) of the total combined voting
power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the
capital or profits interest in the Employer.) In determining
percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c) and (m) shall be treated as
separate employers;
(b) received Section 415 Compensation from the Employer
in excess of $75,000;
(c) received Section 415 Compensation from the Employer
in excess of $50,000 and was in the "Top-Paid Group." An Employee is
in the Top-Paid Group if such Employee is in the group consisting of
the top twenty percent (20%) of Employees when ranked on the basis of
Section 415 Compensation (as adjusted below); or
(d) was an officer of the Employer whose Section 415
Compensation (as adjusted below) is greater than $45,000 (or such other
(Replacement Page,
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amount which is equal to fifty percent (50%) of the amount specified in
Code Section 415(b)(1)(A) for the calendar year in which the
Determination Year or the Look-Back Year begins.
For purposes of this Section, the Determination Year shall be
the Plan Year in which testing is being performed. The Employer has
elected to treat the calendar year ending with or within the
Determination Year as the Look-Back Year as provided for in Treasury
regulations. Solely for purposes of identifying Highly Compensated
Employees under the terms of this Section and Code Section 414(q),
Section 415 Compensation means Section 415 Compensation as defined in
Section 3.1(b) plus amounts described under Code Sections 125,
402(e)(3) (formerly 402(a)(8)) or 402(h)(1)(B) that are otherwise
excluded from Section 415 Compensation; and the dollar threshold amount
specified in subsections (b) and (c) of this Section shall be adjusted
at such time and in such manner as is provided in the Code.
The term "Highly Compensated Employee" also includes a former
Employee who separated from service (or has a deemed separation from
service as determined under Treasury regulations) prior to the
Determination Year, performs no services for the Employer during the
Determination Year, and was a Highly Compensated Employee either for
the Look-Back Year or any Determination Year ending on or after his
55th birthday.
The Committee shall make the determination of who is a Highly
Compensated Employee, including the determination of the number and
identity of the Top-Paid Group, the number of officers includible in
subsection (d), the number and identity of former Employees considered
to be Highly Compensated Employees, the identity of "Excluded
Employees," and Section 415 Compensation, in a manner consistent with
Code Section 414(q).
For purposes of this Section, an "Excluded Employee" is
defined under Code Section 414(q)(8) and generally includes (i)
Employees who have not completed six (6) months of service; (ii)
Employees who normally work less than 17 1/2 hours per week; (iii)
Employees who normally work during not more than six (6) months during
(Replacement Page,
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any Determination Year; (iv) Employees who have not attained age 21;
and (v) employees who are included in a unit of employees covered by a
collective bargaining agreement. The number of officers taken into
account under subsection (d) will not exceed the greater of 3 or 10% of
the total number of Employees (after subtracting Excluded Employees)
but will not exceed 50 officers. If no Employee satisfies the dollar
threshold amount in subsection (d) for the relevant Fiscal Year, the
Committee will treat the highest paid officer as satisfying subsection
(d) for that Fiscal Year.
For purposes of applying any nondiscrimination test in a
manner consistent with the applicable Treasury regulations, the
Committee will treat as a single Highly Compensated Employee any Highly
Compensated Employee, who is a 5% owner or is one of the 10 Highly
Compensated Employees with the greatest Section 415 Compensation for
the Determination Year, and his spouse, lineal ascendants or
descendants or spouses of lineal ascendants or descendants even if such
family members are Highly Compensated Employees in their own right.
1.25 "Hixon" shall mean Hixon Development Company, a
Texas corporation.
1.26 "Hour of Service" shall mean each hour for which the
Employee is directly or indirectly paid or entitled to payment by the
Employer for performance of duties for the Employer including each hour
for which back pay, irrespective of mitigation of damages, has been
either awarded or agreed to by the Employer, and including each hour
for which payment is made or payable to the Employee for periods during
which the Employee is on an Employer approved leave of absence for
vacation, jury, sick, or disability leave, or military service. Hours
of Service shall also include hours during such additional periods of
service as may be required pursuant to Department of Labor regulations.
Hours for nonperformance of duties shall be credited in accordance with
DOL Regulations Section 2530.200b-2(b). Hours shall be credited to the
applicable computation period in accordance with DOL Regulations
Section 2530.200b-2(c).
(Replacement Page,
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1.27 "Ineligible Participant" shall mean, for purposes of
allocating Section 1042 Employer Stock, (a) a Participant who is a more
than twenty-five percent (25%) owner (or a Participant who is treated
under Code Section 409(n) as a more than twenty-five percent (25%)
owner) of any class of outstanding stock of Giant Industries, Inc. (or
prior to December 21, 1989, of Giant Industries Arizona, Inc.) or of
the total value of any class of outstanding stock of Giant Industries,
Inc. (or prior to December 21, 1989, of Giant Industries Arizona, Inc.)
whether he has elected nonrecognition of gain under Section 1042 of the
Code or not, or (b) a Participant (or a Participant who is related
within the meaning of Code Section 409(n) to a Participant) who has
elected nonrecognition of gain under Section 1042 of the Code in
connection with the sale of Employer Stock to the Plan. A Participant
who is described in Section 1.27(b) but not in Section 1.27(a) shall be
an "Ineligible Participant" only for the period beginning on the date
on which the Employee Stock for which he elected Code Section 1042
treatment was sold to the Plan and ending on the later of (1) the date
which is ten (10) years after the date of such sale or (2) the date on
which any allocation under the Plan is made which is attributable to
the final payment of any indebtedness incurred by the Plan in
connection with such sale.
1.28 "Investment Manager" shall mean a fiduciary (other
than a Trustee or Named Fiduciary) designated by the Committee under
this Plan to whom has been delegated the power to manage, acquire or
dispose of all or any of the assets of the Plan, who is registered as
an investment advisor under the Investment Advisers Act of 1940, is a
bank as defined under the Investment Advisers Act of 1940 or is an
insurance company qualified to manage, acquire, or dispose of assets
under the laws of more than one State, and who has acknowledged in
writing that he is a fiduciary with respect to the management,
acquisition and control of Plan assets.
1.29 "Participant" shall mean any Employee of the
Employer who becomes eligible for participation in accordance with the
provisions of this Plan.
1.30 "Plan" shall mean the qualified stock bonus plan and
trust set forth in this Agreement, which is intended to be a qualified
employee stock ownership plan and trust.
(Replacement Page,
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1.31 "Qualifying Employer Real Property" shall mean
Employer Real Property:
(a) if a substantial number of the parcels are
dispersed geographically;
(b) if each parcel of real property and the improve-
ments thereon are suitable (or adaptable without excessive cost) for
more than one use;
(c) even if all such real property is leased to one
lessee (which may be an employer, or an affiliate of an employer); and
(d) if the acquisition and retention of such
property comply with the provisions of this part of ERISA (other than
section 404(a)(1)(B) to the extent it requires diversification, and
sections 404(a)(1)(C), 406, and subsection (a) of this section).
1.32 "Section 1042 Employer Stock" shall mean Employer
Stock acquired by the Plan prior to December 21, 1989 in a transaction
which qualified for nonrecognition of gain under Code Section 1042.
1.33 "Section 1042 Employer Stock Account" shall mean the
account used to reflect an interest in Section 1042 Employer Stock.
1.34 "Suspense Account" shall mean the account used to
hold Employer Stock purchased pursuant to Article IX of the Plan with
the proceeds of an Exempt Loan, prior to allocation of such stock to
the Accounts of Participants under the Plan.
1.35 "Temporary Stock Account" shall mean the interim
account used to hold Employer Stock purchased by the Trustee, other
than Employer Stock purchased pursuant to Article IX of the Plan with
the proceeds of an Exempt Loan, and to hold Employer Stock contributed
to the Plan by the Employer, prior to the allocation of such stock to
the Accounts of Participants each Fiscal Year in accordance with
Sections 4.4(a), 4.7(a) and 4.7(c).
(Replacement Page,
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1.36 "Trust" or "Trust Fund" shall mean the trust which
is established herein to hold and invest contributions made under this
Plan.
1.37 "Trustee" shall mean the one or more individuals,
banks, trust companies or other financial institutions, which are
appointed in accordance with Article VIII to hold and manage the assets
of the Trust.
1.38 "Union Employee" shall mean any person employed by
Employer who is a member of a unit of employees covered by any
collective bargaining agreement between employee representatives and
the Employer, wherein retirement benefits were the subject of good
faith bargaining between the parties thereto, unless said agreement
provides for participation in this Plan.
1.39 "Unrestricted Employer Stock" shall mean Employer
Stock which was not acquired in a transaction qualifying for
nonrecognition of gain under Section 1042 of the Code.
1.40 "Unrestricted Employer Stock Account" shall mean the
account used to reflect an interest in Unrestricted Employer Stock.
1.41 "Valuation Date" shall mean the last day of each
Fiscal Year unless otherwise specifically indicated.
1.42 "Year of Service" shall mean, for purposes of
eligibility under the Plan, the twelve (12) consecutive month period
commencing on
(a) the first day the Employee completes an Hour of
Service, or
(b) if the Employee incurs a Break in Service, the
first day the Employee completes an Hour of Service after such Break in
Service, and, each succeeding twelve (12) consecutive month period
beginning on anniversaries of that date during which the Employee
completes at least one thousand (1,000) Hours of Service. The twelve
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(12) consecutive month period determined under this Section for the
calculation of a Year of Service for eligibility shall be the
Eligibility Computation Period.
1.43 "Year of Service" shall mean, for purposes of
vesting under the Plan, the Fiscal Year
(a) during which a Participant first completed an
Hour of Service either as an Employee or as a Union Employee; or
(b) if an Employee or a Union Employee incurs a
Break in Service, the Fiscal Year during which the Employee or Union
Employee completes an Hour of Service after such Break in Service,
and each succeeding Fiscal Year during which an Employee or a Union
Employee completes at least one thousand (1,000) Hours of Service;
provided, however, that any Employee or a Union Employee hired on or
before June 30, 1993 who becomes a Participant under the terms of
Section 2.1 prior to the Seventh Amendment shall be credited in all
events with one Year of Service for the Fiscal Year in which such
Employee or Union Employee becomes a Participant. The Fiscal Year
shall be the Vesting Computation Period.
(Replacement Page,
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EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into as of this 11th day of December, 1997, between Giant Industries,
Inc., a Delaware corporation (the "Company"), and James E. Acridge
(the "Executive").
RECITALS
A. The Company desires to retain the services of the
Executive as its President and Chief Executive Officer and the
Executive desires and is willing to continue employment with the
Company in that capacity.
B. The Company and the Executive desire to embody the terms
and conditions of the Executive's employment in a written agreement,
which will supersede all prior agreements of employment, whether
written or oral, including without limitation the Employment
Agreement, dated November 16, 1989, between the Company and the
Executive, pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of their mutual covenants and
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DUTIES AND TERM
1.1. EMPLOYMENT. The Executive is employed as the
President and Chief Executive Officer of the Company. In this
capacity, the Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the Board
of Directors of the Company (the "Board") in the Executive's capacity
as the President and Chief Executive Officer of the Company, in
addition to such other duties and responsibilities as the Board shall
designate as are not inconsistent with the Executive's position with
the Company, including the performance of duties with respect to
subsidiaries of the Company, as may be requested by the Board.
1.2 TERM. The term of this Agreement shall commence on the
date first written above and shall continue, unless sooner
terminated, for three years (the "Initial Term"). Thereafter, the
term of this Agreement shall automatically be extended for successive
one year periods ("Renewal Terms") unless either the Board or the
Executive gives written notice to the other at least 90 days prior to
the end of the Initial Term or any Renewal Term, as the case may be,
of its or his intention not to renew the term of this Agreement or
unless this Agreement is otherwise terminated pursuant to Article III
hereof. The Initial Term and any Renewal Terms of this Agreement
shall be collectively referred to as the "Term."
1.3 LOCATION. During the Term of this Agreement, the
Executive shall be based in the principal offices of the Company in
Maricopa County, Arizona, and shall not be required to be based
anywhere other than Maricopa County, Arizona except for travel
reasonably required in the performance of his duties hereunder and
except as may be otherwise agreed to by the Executive.
ARTICLE II
COMPENSATION
2.1 BASE SALARY. Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term of
this Agreement a base salary at an annual rate of not less than
$550,000 (the "Base Salary"). The Base Salary shall be reviewed at
least annually by the Board and the Board may, in its discretion,
increase the Base Salary. The Base Salary of the Executive shall not
be decreased at any time during the Term of this Agreement from the
amount of Base Salary then in effect, except in connection with
across-the-board salary reductions similarly affecting all senior
executives of the Company. Participation in deferred compensation,
discretionary bonus, retirement, stock option and other employee
benefit plans and in fringe benefits shall not reduce the Base Salary
payable to the Executive under this Section 2.1. The Base Salary
under this Section 2.1 shall be payable by the Company to the
Executive not less frequently than monthly.
2.2 DISCRETIONARY BONUSES. Subject to the further
provisions of this Agreement, during the Term of this Agreement the
Executive shall be entitled to participate in an equitable manner
with all other senior executives of the Company in such discretionary
bonuses including, but not limited to, bonuses provided pursuant to
any management bonus plan that the Company may adopt (based upon the
performance of the participant and the Company), as may be authorized
and declared by the Board to the Company's senior executives.
Nothing in this Section shall be deemed to limit the ability of the
Executive to be paid and receive discretionary bonuses from the
Company, based solely on the Executive's performance, without regard
to the payment of discretionary bonuses to any other officers of the
Company.
2.3 PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS;
FRINGE BENEFITS. The Executive shall be entitled to participate in
all plans of the Company relating to stock options, stock purchases,
pension, thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance, education
or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives. In addition,
the Executive shall be entitled to participate in any other fringe
benefits, such as automobile allowances, club dues and fees of
professional organizations and associations, which are now or may
become applicable to the Company's senior executives, and any other
benefits which are commensurate with the duties and responsibilities
to be performed by the Executive under this Agreement. The Executive
shall, during the Term of his employment hereunder, continue to be
provided with benefits at a level which shall in no event be less in
any material respect than the benefits available to the Executive as
of the date of this Agreement. Notwithstanding the foregoing, the
Company may terminate or reduce benefits under any benefit plans and
programs to the extent such reductions apply uniformly to all senior
executives entitled to participate therein, and the Executive's
benefits shall be reduced or terminated accordingly.
2.4 VACATIONS. The Executive shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of his duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise determines. The Executive shall be
entitled to an annual paid vacation of four weeks per year or such
longer period as the Board may approve; provided, however, that the
Executive may not carry over more than one week of vacation time to
any subsequent year without the prior approval of the Board. The
timing of paid vacations shall be scheduled in a manner reasonably
acceptable to the Company.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall
automatically terminate upon the death or Retirement (as defined in
Section 3.4) of the Executive.
3.2 BY THE EXECUTIVE. The Executive shall be entitled to
terminate this Agreement by giving written notice to the Company:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) at any time for Good Reason (as defined in Section
3.4); and
(c) at any time without Good Reason upon 30 days
advance notice to the Company.
3.3. BY THE COMPANY. The Company shall be entitled to
terminate this Agreement by giving written notice to the Executive:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) in the event of the Executive's Disability (as
defined in Section 3.4);
(c) for cause; and
(d) at any time without cause upon 30 days advance
notice to the Executive.
3.4 DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "CHANGE OF CONTROL" shall mean a change in
ownership or control of the Company effected through any of the
following transactions:
(i) the direct or indirect acquisition by any
person or related group of persons (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than 35% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders or other transaction; or
(ii) a change in the composition of the Board over
a period of 36 consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A)
who were still in office at the time such election or nomination was
approved by the Board; or
(iii) a merger or consolidation approved by the
stockholders of the Company, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the sale, transfer or other disposition (in
one transaction or a series of transactions) of all or substantially
all of the assets of the Company approved by the stockholders or the
complete liquidation or dissolution of the Company approved by the
stockholders.
(b) "DISABILITY" shall mean the Executive's inability,
with or without reasonable accommodation, to perform all of the
essential functions of his position hereunder on a full-time basis
for a period exceeding 180 consecutive days or for periods
aggregating more than 180 days during any 12 month period as a result
of incapacity due to physical or mental illness not due to drug or
alcohol abuse. If there is a dispute as to whether the Executive is
or was physically or mentally unable to perform his duties under this
Agreement, such dispute shall be submitted for resolution to a
licensed physician agreed upon by the Board and the Executive, or if
an agreement cannot be promptly reached, the Board and the Executive
will each select a physician, and if these physicians cannot agree,
they will pick a third physician whose decision shall be binding on
all parties. If such a dispute arises, the Executive shall submit to
such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s)
as to the Executive's physical or mental condition shall be binding
and conclusive.
(c) "GOOD REASON" shall mean any of the following if
the same shall occur following a Change of Control without the
Executive's express prior written consent:
(i) a material change by the Company in the
Executive's function, duties or responsibilities (including reporting
responsibilities) which would cause the Executive's position with the
Company to become of less dignity, responsibility and importance than
those associated with his functions, duties or responsibilities
during the 90 day period immediately preceding the date a Change of
Control occurs;
(ii) the Executive's Base Salary is reduced by the
Company, unless such reduction is pursuant to a salary reduction
program as described in Section 2.1 hereof, or there is a material
reduction in the benefits that are in effect for the Executive,
unless such reduction is pursuant to a uniform reduction in benefits
for all senior executives as described in Section 2.3 hereof;
(iii) relocation of the Executive's principal
place of employment to a place located outside of Maricopa County,
Arizona;
(iv) the failure by the Company to obtain the
assumption by operation of law or otherwise of this Agreement by any
entity which is the surviving entity in any merger or other form of
corporate reorganization involving the Company or by any entity which
acquires all or substantially all of the Company's assets in a Change
of Control transaction; or
(v) other material breach of this Agreement by the
Company, which breach shall not be cured within 15 days after written
notice thereof to the Company.
(d) "RETIREMENT" shall mean normal retirement at age 65
or in accordance with retirement rules generally applicable to the
Company's senior executives.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR
MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a
Change of Control, or more than three years following a Change of
Control, the Executive's employment is terminated by reason of the
Executive's death or Disability, by the Company with cause or by the
Executive with or without Good Reason, the Company shall:
(a) pay the Executive (or his estate or beneficiaries)
any Base Salary which has accrued but not been paid as of the
termination date;
(b) reimburse the Executive (or his estate or
beneficiaries) for expenses incurred by him prior to the date of
termination which are subject to reimbursement pursuant to applicable
Company policies then in effect;
(c) provide to the Executive (or his estate or
beneficiaries) any accrued and vested benefits required to be
provided by the terms of any Company-sponsored benefit plans or
programs, together with any benefits required to be paid or provided
in the event of the Executive's death or Disability under applicable
law;
(d) pay the Executive (or his estate or beneficiaries)
any discretionary bonus with respect to a prior fiscal year which has
accrued and been earned but has not been paid;
(e) in addition, the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options outstanding at the termination date in
accordance with terms of the plans and agreements pursuant to which
such options were issued; and
(f) in addition, to the extent permitted by the terms
of the policies then in effect, the Executive shall have a right of
first refusal to cause the transfer of the ownership of all key-man
life insurance policies maintained by the Company on the Executive to
the Executive at the Executive's sole cost and expense.
4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF
CONTROL.
If, at any time within a three year period following a
Change of Control, the Executive's employment is terminated by reason
of the Executive's death or Disability, by the Company with or
without cause or by the Executive with Good Reason, or upon
expiration of the Term of this Agreement pursuant to Section 3.3
hereof within a three year period following a Change of Control, the
Company shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1, other than under Section 4.1(e);
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
three times the sum of: (i) the Executive's Base Salary in effect
immediately prior to the time such termination occurs; and (y) a lump
sum payment equal to the average of the annual bonuses paid to the
Executive for the three fiscal years immediately preceding the fiscal
year in which the termination occurs; and
(c) in addition, all unvested stock options or other
stock awards owned by the Executive that would otherwise have vested
after the termination date shall become fully vested and exercisable
at the termination date, and the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options or awards outstanding at the termination
date (including the accelerated options and awards) in accordance
with the terms (except the vesting terms with respect to the
accelerated options and awards) of the plans and agreements pursuant
to which such options and other awards were issued.
(d) The Internal Revenue Code of 1986, as amended (the
"Code"), imposes significant tax burdens on the Executive and the
Company if the total amounts received by the Executive due to a
Change of Control exceed prescribed limits. These tax burdens
include a requirement that the Executive pay a 20% excise tax on
certain amounts received in excess of the prescribed limits and a
loss of deduction for the Company. If, as a result of these Code
provisions, the Executive is required to pay such excise tax, then
upon written notice from the Executive to the Company, the Company
shall pay the Executive an amount equal to the total excise tax
imposed on the Executive (including the excise taxes on any excise
tax reimbursements due pursuant to this sentence and the excise taxes
on any income tax reimbursements due pursuant to the next sentence).
If the Company is obligated to pay the Executive pursuant to the
preceding sentence, the Company also shall pay the Executive an
amount equal to the "total presumed federal and state taxes" that
could be imposed on the Executive with respect to the excise tax
reimbursements due to the Executive pursuant to the preceding
sentence and the income tax reimbursements due to the Executive
pursuant to this sentence. For purposes of the preceding sentence,
the "total presumed federal and state taxes" that could be imposed on
the Executive shall be conclusively calculated using a combined tax
rate equal to the sum of the then prevailing maximum marginal federal
and state income tax rates and the hospital insurance portion of
FICA. No adjustments will be made in this combined rate for the
deduction of state taxes on the federal return, the loss of itemized
deductions or exemptions, or for any other purpose. The Executive
shall be responsible for paying the actual taxes. The amounts
payable to the Executive pursuant to this or any other agreement or
arrangement with Company shall not be limited in any way by the
amount that may be paid pursuant to the Code without the imposition
of an excise tax or the loss of Company deductions. Either the
Executive or the Company may elect to challenge any excise taxes
imposed by the Internal Revenue Service, and the Company and the
Executive agree to cooperate with each other in prosecuting such
challenges. If the Executive elects to litigate or otherwise
challenge the imposition of such excise tax, however, the Company
will join the Executive in such litigation or challenge only if the
Board determines in good faith that the Executive's position has
substantial merit and that the issues should be litigated from the
standpoint of the Company's best interest.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE
OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL.
If, prior to a Change of Control, or more than three years following
a Change of Control, the Executive's employment is terminated by the
Company without cause or the Company or the Board gives written
notice to the Executive of its intention to not renew this Agreement
at the end of the Initial Term or any Renewal Term, the Company
shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1; and
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
the Executive's Base Salary in effect immediately prior to the time
such termination occurs.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIALITY.
(a) The Executive agrees to keep all trade secrets
and/or proprietary information (collectively, "Confidential
Information") of the Company in strict confidence and agrees not to
disclose any Confidential Information to any other person, firm,
association, partnership, corporation or other entity for any reason
except as such disclosure may be required in connection with his
employment hereunder. The Executive further agrees not to use any
Confidential Information for any purpose except on behalf of the
Company.
(b) For purposes of this Agreement, "Confidential
Information" shall mean any information, process or idea that is not
generally known in the industry, that the Company considers
confidential, and/or that gives the Company a competitive advantage,
including, without limitation, suppliers, production costs or
production information; marketing plans; business forecasts; and
sales records. The Executive understands that the above list is
intended to be illustrative and that other Confidential Information
may currently exist or arise in the future. If the Executive is
unsure whether certain information or material is Confidential
Information, the Executive shall treat that information or material
as confidential unless the Executive is informed by the Company, in
writing, to the contrary. "Confidential Information" shall not
include any information which: (i) is or becomes publicly available
through no act or failure of the Executive; (ii) was or is rightfully
learned by the Executive from a source other than the Company before
being received from the Company; or (iii) becomes independently
available to the Executive as matter of right from a third party. If
only a portion of the Confidential Information is or becomes publicly
available, then only that portion shall not be Confidential
Information hereunder.
(c) The Executive further agrees that upon termination
of his employment with the Company, for whatever reason, the
Executive will surrender to the Company all of the property, notes,
manuals, reports, documents and other things in the Executive's
possession, including copies or computerized records thereof, which
relate directly or indirectly to Confidential Information.
5.2 COMPETITION.
(a) The Executive agrees that during the term of his
employment with the Company hereunder, the Executive shall not:
(i) except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof,
directly or indirectly own, operate, manage, consult with, control,
participate in the management or control of, be employed by, maintain
or continue any interest whatsoever in any refinery company or any
company that markets petroleum products that directly competes with
the Company; or
(ii) directly or indirectly influence customers or
suppliers of the Company to divert their business to any competitor
of the Company; or
(iii) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company who are in
the employ of the Company on the termination date of his employment
hereunder for employment by others in competition with the Company.
(b) The Executive expressly agrees and acknowledges
that:
(i) this covenant not to compete is reasonably
necessary for the protection of the interests of the Company and is
reasonable as to time and geographical area and does not place any
unreasonable burden upon him;
(ii) the general public will not be harmed as a
result of enforcement of this covenant not to compete;
(iii) his personal legal counsel has reviewed this
covenant not to compete; and
(iv) he understands and hereby agrees to each and
every term and condition of this covenant not to compete.
5.3 REMEDIES. The Executive expressly agrees and
acknowledges that the covenant not to compete set forth in Section
5.2 is necessary for the Company's and its affiliates' protection
because of the nature and scope of their business and his position
with the Company. Further, the Executive acknowledges that, in the
event of his breach of his covenant not to compete, money damages
will not sufficiently compensate the Company for its injury caused
thereby, and he accordingly agrees that in addition to such money
damages he may be restrained and enjoined from any continuing breach
of the covenant not to compete without any bond or other security
being required. The Executive acknowledges that any breach of the
covenant not to compete would result in irreparable damage to the
Company. The Executive further acknowledges and agrees that if the
Executive fails to comply with this Article V, the Company has no
obligation to provide any compensation or other benefits described in
Article IV hereof. The Executive acknowledges that the remedy at law
for any breach or threatened breach of Sections 5.1 and 5.2 will be
inadequate and, accordingly, that the Company shall, in addition to
all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such
breach), be entitled to injunctive relief or specific performance.
ARTICLE VI
MISCELLANEOUS
6.1 NO ASSIGNMENTS. This Agreement is personal to each of
the parties hereto. No party may assign or delegate any rights or
obligations hereunder without first obtaining the written consent of
the other party hereto, except that this Agreement shall be binding
upon and inure to the benefit of any successor corporation to the
Company.
(a) The Company shall use reasonable efforts to require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as defined herein and any successor to its
business and/or assets which assumes this Agreement by operation of
law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to him hereunder had he
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to his devisee, legatee or other designee, or if there is no such
designee, to his estate.
6.2 NOTICES. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set
forth below, or to such other addresses as either party may have
furnished to the other in writing in accordance herewith, except that
notice of a change of address shall be effective only upon actual
receipt:
To the Company: Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Attention: General Counsel
To the Executive: James E. Acridge
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Notices pursuant to Article III of this Agreement shall specify the
specific termination provision relied upon by the party giving notice
and shall state the effective date of the termination.
6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to
this Agreement shall be binding unless in writing and signed by each
of the parties hereto.
6.4 SECTION HEADINGS. The section headings used in this
Agreement are included solely for convenience and shall not affect,
or be used in connection with, the interpretation of this Agreement.
6.5 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the
other provisions hereof. If, in any judicial proceedings, a court
shall refuse to enforce one or more of the covenants or agreements
contained herein because the duration thereof is too long, or the
scope thereof is too broad, it is expressly agreed between the
parties hereto that such scope or duration shall be deemed reduced to
the extent necessary to permit the enforcement of such covenants or
agreements.
6.6 COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original
but all of which together shall constitute one and the same
instrument.
6.7 ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in
Maricopa County, Arizona in accordance with the rules of the American
Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on the parties, and judgment
may be entered on the arbitrators' award in any court having
jurisdiction. The costs and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators.
Notwithstanding any other provision of this Agreement, if any
termination of this Agreement becomes subject to arbitration, the
Company shall not be required to pay any amounts to the Executive
(except those amounts required by law) until the completion of the
arbitration and the rendering of the arbitrators' decision. The
amounts, if any, determined by the arbitrators to be owed by the
Company to the Executive shall be paid within five days after the
decision by the arbitrators is rendered.
6.8 MODIFICATIONS AND WAIVERS. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the
Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
6.9 GOVERNING LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Arizona without regard to its conflicts of
law principles.
6.10 TAXES. Any payments provided for hereunder shall be
paid net of any applicable withholding or other employment taxes
required under federal, state or local law.
6.11 SURVIVAL. The obligations of the Company under Article
IV hereof and the obligations of the Executive under Article V hereof
shall survive the expiration of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first indicated above.
THE COMPANY:
GIANT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Richard T. Kalen, Jr.
_________________________
Chairman of the
Compensation Committee
THE EXECUTIVE:
/s/ James E. Acridge
____________________________
James E. Acridge
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into as of this 11th day of December, 1997, between Giant Industries,
Inc., a Delaware corporation (the "Company"), and Fredric L. Holliger
(the "Executive").
RECITALS
A. The Company desires to retain the services of the
Executive as its Executive Vice President and Chief Operating Officer
and the Executive desires and is willing to continue employment with
the Company in that capacity.
B. The Company and the Executive desire to embody the terms
and conditions of the Executive's employment in a written agreement,
which will supersede all prior agreements of employment, whether
written or oral, including without limitation the Employment
Agreement, dated November 16, 1989, between the Company and the
Executive, pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of their mutual covenants and
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DUTIES AND TERM
1.1. EMPLOYMENT. The Executive is employed as the Executive
Vice President and Chief Operating Officer of the Company. In this
capacity, the Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the Board
of Directors of the Company (the "Board") in the Executive's capacity
as the Executive Vice President and Chief Operating Officer of the
Company, in addition to such other duties and responsibilities as the
Board shall designate as are not inconsistent with the Executive's
position with the Company, including the performance of duties with
respect to subsidiaries of the Company, as may be requested by the
Board.
1.2 TERM. The term of this Agreement shall commence on the
date first written above and shall continue, unless sooner
terminated, for three years (the "Initial Term"). Thereafter, the
term of this Agreement shall automatically be extended for successive
one year periods ("Renewal Terms") unless either the Board or the
Executive gives written notice to the other at least 90 days prior to
the end of the Initial Term or any Renewal Term, as the case may be,
of its or his intention not to renew the term of this Agreement or
unless this Agreement is otherwise terminated pursuant to Article III
hereof. The Initial Term and any Renewal Terms of this Agreement
shall be collectively referred to as the "Term."
1.3 LOCATION. During the Term of this Agreement, the
Executive shall be based in the principal offices of the Company in
Maricopa County, Arizona, and shall not be required to be based
anywhere other than Maricopa County, Arizona except for travel
reasonably required in the performance of his duties hereunder and
except as may be otherwise agreed to by the Executive.
ARTICLE II
COMPENSATION
2.1 BASE SALARY. Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term of
this Agreement a base salary at an annual rate of not less than
$325,000 (the "Base Salary"). The Base Salary shall be reviewed at
least annually by the Board and the Board may, in its discretion,
increase the Base Salary. The Base Salary of the Executive shall not
be decreased at any time during the Term of this Agreement from the
amount of Base Salary then in effect, except in connection with
across-the-board salary reductions similarly affecting all senior
executives of the Company. Participation in deferred compensation,
discretionary bonus, retirement, stock option and other employee
benefit plans and in fringe benefits shall not reduce the Base Salary
payable to the Executive under this Section 2.1. The Base Salary
under this Section 2.1 shall be payable by the Company to the
Executive not less frequently than monthly.
2.2 DISCRETIONARY BONUSES. Subject to the further
provisions of this Agreement, during the Term of this Agreement the
Executive shall be entitled to participate in an equitable manner
with all other senior executives of the Company in such discretionary
bonuses including, but not limited to, bonuses provided pursuant to
any management bonus plan that the Company may adopt (based upon the
performance of the participant and the Company), as may be authorized
and declared by the Board to the Company's senior executives.
Nothing in this Section shall be deemed to limit the ability of the
Executive to be paid and receive discretionary bonuses from the
Company, based solely on the Executive's performance, without regard
to the payment of discretionary bonuses to any other officers of the
Company.
2.3 PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS;
FRINGE BENEFITS. The Executive shall be entitled to participate in
all plans of the Company relating to stock options, stock purchases,
pension, thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance, education
or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives. In addition,
the Executive shall be entitled to participate in any other fringe
benefits, such as automobile allowances, club dues and fees of
professional organizations and associations, which are now or may
become applicable to the Company's senior executives, and any other
benefits which are commensurate with the duties and responsibilities
to be performed by the Executive under this Agreement. The Executive
shall, during the Term of his employment hereunder, continue to be
provided with benefits at a level which shall in no event be less in
any material respect than the benefits available to the Executive as
of the date of this Agreement. Notwithstanding the foregoing, the
Company may terminate or reduce benefits under any benefit plans and
programs to the extent such reductions apply uniformly to all senior
executives entitled to participate therein, and the Executive's
benefits shall be reduced or terminated accordingly.
2.4 VACATIONS. The Executive shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of his duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise determines. The Executive shall be
entitled to an annual paid vacation of four weeks per year or such
longer period as the Board may approve; provided, however, that the
Executive may not carry over more than one week of vacation time to
any subsequent year without the prior approval of the Board. The
timing of paid vacations shall be scheduled in a manner reasonably
acceptable to the Company.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall
automatically terminate upon the death or Retirement (as defined in
Section 3.4) of the Executive.
3.2 BY THE EXECUTIVE. The Executive shall be entitled to
terminate this Agreement by giving written notice to the Company:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) at any time for Good Reason (as defined in Section
3.4); and
(c) at any time without Good Reason upon 30 days
advance notice to the Company.
3.3. BY THE COMPANY. The Company shall be entitled to
terminate this Agreement by giving written notice to the Executive:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) in the event of the Executive's Disability (as
defined in Section 3.4);
(c) for cause; and
(d) at any time without cause upon 30 days advance
notice to the Executive.
3.4 DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "CHANGE OF CONTROL" shall mean a change in
ownership or control of the Company effected through any of the
following transactions:
(i) the direct or indirect acquisition by any
person or related group of persons (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than 35% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders or other transaction; or
(ii) a change in the composition of the Board over
a period of 36 consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A)
who were still in office at the time such election or nomination was
approved by the Board; or
(iii) a merger or consolidation approved by the
stockholders of the Company, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the sale, transfer or other disposition (in
one transaction or a series of transactions) of all or substantially
all of the assets of the Company approved by the stockholders or the
complete liquidation or dissolution of the Company approved by the
stockholders.
(b) "DISABILITY" shall mean the Executive's inability,
with or without reasonable accommodation, to perform all of the
essential functions of his position hereunder on a full-time basis
for a period exceeding 180 consecutive days or for periods
aggregating more than 180 days during any 12 month period as a result
of incapacity due to physical or mental illness not due to drug or
alcohol abuse. If there is a dispute as to whether the Executive is
or was physically or mentally unable to perform his duties under this
Agreement, such dispute shall be submitted for resolution to a
licensed physician agreed upon by the Board and the Executive, or if
an agreement cannot be promptly reached, the Board and the Executive
will each select a physician, and if these physicians cannot agree,
they will pick a third physician whose decision shall be binding on
all parties. If such a dispute arises, the Executive shall submit to
such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s)
as to the Executive's physical or mental condition shall be binding
and conclusive.
(c) "GOOD REASON" shall mean any of the following if
the same shall occur following a Change of Control without the
Executive's express prior written consent:
(i) a material change by the Company in the
Executive's function, duties or responsibilities (including reporting
responsibilities) which would cause the Executive's position with the
Company to become of less dignity, responsibility and importance than
those associated with his functions, duties or responsibilities
during the 90 day period immediately preceding the date a Change of
Control occurs;
(ii) the Executive's Base Salary is reduced by the
Company, unless such reduction is pursuant to a salary reduction
program as described in Section 2.1 hereof, or there is a material
reduction in the benefits that are in effect for the Executive,
unless such reduction is pursuant to a uniform reduction in benefits
for all senior executives as described in Section 2.3 hereof;
(iii) relocation of the Executive's principal
place of employment to a place located outside of Maricopa County,
Arizona;
(iv) the failure by the Company to obtain the
assumption by operation of law or otherwise of this Agreement by any
entity which is the surviving entity in any merger or other form of
corporate reorganization involving the Company or by any entity which
acquires all or substantially all of the Company's assets in a Change
of Control transaction; or
(v) other material breach of this Agreement by the
Company, which breach shall not be cured within 15 days after written
notice thereof to the Company.
(d) "RETIREMENT" shall mean normal retirement at age 65
or in accordance with retirement rules generally applicable to the
Company's senior executives.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR
MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a
Change of Control, or more than three years following a Change of
Control, the Executive's employment is terminated by reason of the
Executive's death or Disability, by the Company with cause or by the
Executive with or without Good Reason, the Company shall:
(a) pay the Executive (or his estate or beneficiaries)
any Base Salary which has accrued but not been paid as of the
termination date;
(b) reimburse the Executive (or his estate or
beneficiaries) for expenses incurred by him prior to the date of
termination which are subject to reimbursement pursuant to applicable
Company policies then in effect;
(c) provide to the Executive (or his estate or
beneficiaries) any accrued and vested benefits required to be
provided by the terms of any Company-sponsored benefit plans or
programs, together with any benefits required to be paid or provided
in the event of the Executive's death or Disability under applicable
law;
(d) pay the Executive (or his estate or beneficiaries)
any discretionary bonus with respect to a prior fiscal year which has
accrued and been earned but has not been paid;
(e) in addition, the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options outstanding at the termination date in
accordance with terms of the plans and agreements pursuant to which
such options were issued; and
(f) in addition, to the extent permitted by the terms
of the policies then in effect, the Executive shall have a right of
first refusal to cause the transfer of the ownership of all key-man
life insurance policies maintained by the Company on the Executive to
the Executive at the Executive's sole cost and expense.
4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF
CONTROL.
If, at any time within a three year period following a
Change of Control, the Executive's employment is terminated by reason
of the Executive's death or Disability, by the Company with or
without cause or by the Executive with Good Reason, or upon
expiration of the Term of this Agreement pursuant to Section 3.3
hereof within a three year period following a Change of Control, the
Company shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1, other than under Section 4.1(e);
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
three times the sum of: (i) the Executive's Base Salary in effect
immediately prior to the time such termination occurs; and (y) a lump
sum payment equal to the average of the annual bonuses paid to the
Executive for the three fiscal years immediately preceding the fiscal
year in which the termination occurs; and
(c) in addition, all unvested stock options or other
stock awards owned by the Executive that would otherwise have vested
after the termination date shall become fully vested and exercisable
at the termination date, and the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options or awards outstanding at the termination
date (including the accelerated options and awards) in accordance
with the terms (except the vesting terms with respect to the
accelerated options and awards) of the plans and agreements pursuant
to which such options and other awards were issued.
(d) The Internal Revenue Code of 1986, as amended (the
"Code"), imposes significant tax burdens on the Executive and the
Company if the total amounts received by the Executive due to a
Change of Control exceed prescribed limits. These tax burdens
include a requirement that the Executive pay a 20% excise tax on
certain amounts received in excess of the prescribed limits and a
loss of deduction for the Company. If, as a result of these Code
provisions, the Executive is required to pay such excise tax, then
upon written notice from the Executive to the Company, the Company
shall pay the Executive an amount equal to the total excise tax
imposed on the Executive (including the excise taxes on any excise
tax reimbursements due pursuant to this sentence and the excise taxes
on any income tax reimbursements due pursuant to the next sentence).
If the Company is obligated to pay the Executive pursuant to the
preceding sentence, the Company also shall pay the Executive an
amount equal to the "total presumed federal and state taxes" that
could be imposed on the Executive with respect to the excise tax
reimbursements due to the Executive pursuant to the preceding
sentence and the income tax reimbursements due to the Executive
pursuant to this sentence. For purposes of the preceding sentence,
the "total presumed federal and state taxes" that could be imposed on
the Executive shall be conclusively calculated using a combined tax
rate equal to the sum of the then prevailing maximum marginal federal
and state income tax rates and the hospital insurance portion of
FICA. No adjustments will be made in this combined rate for the
deduction of state taxes on the federal return, the loss of itemized
deductions or exemptions, or for any other purpose. The Executive
shall be responsible for paying the actual taxes. The amounts
payable to the Executive pursuant to this or any other agreement or
arrangement with Company shall not be limited in any way by the
amount that may be paid pursuant to the Code without the imposition
of an excise tax or the loss of Company deductions. Either the
Executive or the Company may elect to challenge any excise taxes
imposed by the Internal Revenue Service, and the Company and the
Executive agree to cooperate with each other in prosecuting such
challenges. If the Executive elects to litigate or otherwise
challenge the imposition of such excise tax, however, the Company
will join the Executive in such litigation or challenge only if the
Board determines in good faith that the Executive's position has
substantial merit and that the issues should be litigated from the
standpoint of the Company's best interest.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE
OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL.
If, prior to a Change of Control, or more than three years following
a Change of Control, the Executive's employment is terminated by the
Company without cause or the Company or the Board gives written
notice to the Executive of its intention to not renew this Agreement
at the end of the Initial Term or any Renewal Term, the Company
shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1; and
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
the Executive's Base Salary in effect immediately prior to the time
such termination occurs.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIALITY.
(a) The Executive agrees to keep all trade secrets
and/or proprietary information (collectively, "Confidential
Information") of the Company in strict confidence and agrees not to
disclose any Confidential Information to any other person, firm,
association, partnership, corporation or other entity for any reason
except as such disclosure may be required in connection with his
employment hereunder. The Executive further agrees not to use any
Confidential Information for any purpose except on behalf of the
Company.
(b) For purposes of this Agreement, "Confidential
Information" shall mean any information, process or idea that is not
generally known in the industry, that the Company considers
confidential, and/or that gives the Company a competitive advantage,
including, without limitation, suppliers, production costs or
production information; marketing plans; business forecasts; and
sales records. The Executive understands that the above list is
intended to be illustrative and that other Confidential Information
may currently exist or arise in the future. If the Executive is
unsure whether certain information or material is Confidential
Information, the Executive shall treat that information or material
as confidential unless the Executive is informed by the Company, in
writing, to the contrary. "Confidential Information" shall not
include any information which: (i) is or becomes publicly available
through no act or failure of the Executive; (ii) was or is rightfully
learned by the Executive from a source other than the Company before
being received from the Company; or (iii) becomes independently
available to the Executive as matter of right from a third party. If
only a portion of the Confidential Information is or becomes publicly
available, then only that portion shall not be Confidential
Information hereunder.
(c) The Executive further agrees that upon termination
of his employment with the Company, for whatever reason, the
Executive will surrender to the Company all of the property, notes,
manuals, reports, documents and other things in the Executive's
possession, including copies or computerized records thereof, which
relate directly or indirectly to Confidential Information.
5.2 COMPETITION.
(a) The Executive agrees that during the term of his
employment with the Company hereunder, the Executive shall not:
(i) except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof,
directly or indirectly own, operate, manage, consult with, control,
participate in the management or control of, be employed by, maintain
or continue any interest whatsoever in any refinery company or any
company that markets petroleum products that directly competes with
the Company; or
(ii) directly or indirectly influence customers or
suppliers of the Company to divert their business to any competitor
of the Company; or
(iii) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company who are in
the employ of the Company on the termination date of his employment
hereunder for employment by others in competition with the Company.
(b) The Executive expressly agrees and acknowledges
that:
(i) this covenant not to compete is reasonably
necessary for the protection of the interests of the Company and is
reasonable as to time and geographical area and does not place any
unreasonable burden upon him;
(ii) the general public will not be harmed as a
result of enforcement of this covenant not to compete;
(iii) his personal legal counsel has reviewed this
covenant not to compete; and
(iv) he understands and hereby agrees to each and
every term and condition of this covenant not to compete.
5.3 REMEDIES. The Executive expressly agrees and
acknowledges that the covenant not to compete set forth in Section
5.2 is necessary for the Company's and its affiliates' protection
because of the nature and scope of their business and his position
with the Company. Further, the Executive acknowledges that, in the
event of his breach of his covenant not to compete, money damages
will not sufficiently compensate the Company for its injury caused
thereby, and he accordingly agrees that in addition to such money
damages he may be restrained and enjoined from any continuing breach
of the covenant not to compete without any bond or other security
being required. The Executive acknowledges that any breach of the
covenant not to compete would result in irreparable damage to the
Company. The Executive further acknowledges and agrees that if the
Executive fails to comply with this Article V, the Company has no
obligation to provide any compensation or other benefits described in
Article IV hereof. The Executive acknowledges that the remedy at law
for any breach or threatened breach of Sections 5.1 and 5.2 will be
inadequate and, accordingly, that the Company shall, in addition to
all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such
breach), be entitled to injunctive relief or specific performance.
ARTICLE VI
MISCELLANEOUS
6.1 NO ASSIGNMENTS. This Agreement is personal to each of
the parties hereto. No party may assign or delegate any rights or
obligations hereunder without first obtaining the written consent of
the other party hereto, except that this Agreement shall be binding
upon and inure to the benefit of any successor corporation to the
Company.
(a) The Company shall use reasonable efforts to require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as defined herein and any successor to its
business and/or assets which assumes this Agreement by operation of
law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to him hereunder had he
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to his devisee, legatee or other designee, or if there is no such
designee, to his estate.
6.2 NOTICES. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set
forth below, or to such other addresses as either party may have
furnished to the other in writing in accordance herewith, except that
notice of a change of address shall be effective only upon actual
receipt:
To the Company: Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Attention: General Counsel
To the Executive: Fredric L. Holliger
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Notices pursuant to Article III of this Agreement shall specify the
specific termination provision relied upon by the party giving notice
and shall state the effective date of the termination.
6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to
this Agreement shall be binding unless in writing and signed by each
of the parties hereto.
6.4 SECTION HEADINGS. The section headings used in this
Agreement are included solely for convenience and shall not affect,
or be used in connection with, the interpretation of this Agreement.
6.5 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the
other provisions hereof. If, in any judicial proceedings, a court
shall refuse to enforce one or more of the covenants or agreements
contained herein because the duration thereof is too long, or the
scope thereof is too broad, it is expressly agreed between the
parties hereto that such scope or duration shall be deemed reduced to
the extent necessary to permit the enforcement of such covenants or
agreements.
6.6 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
6.7 ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in
Maricopa County, Arizona in accordance with the rules of the American
Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on the parties, and judgment
may be entered on the arbitrators' award in any court having
jurisdiction. The costs and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators.
Notwithstanding any other provision of this Agreement, if any
termination of this Agreement becomes subject to arbitration, the
Company shall not be required to pay any amounts to the Executive
(except those amounts required by law) until the completion of the
arbitration and the rendering of the arbitrators' decision. The
amounts, if any, determined by the arbitrators to be owed by the
Company to the Executive shall be paid within five days after the
decision by the arbitrators is rendered.
6.8 MODIFICATIONS AND WAIVERS. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the
Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
6.9 GOVERNING LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Arizona without regard to its conflicts of
law principles.
6.10 TAXES. Any payments provided for hereunder shall be
paid net of any applicable withholding or other employment taxes
required under federal, state or local law.
6.11 SURVIVAL. The obligations of the Company under Article
IV hereof and the obligations of the Executive under Article V hereof
shall survive the expiration of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first indicated above.
THE COMPANY:
GIANT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Richard T. Kalen, Jr.
__________________________
Chairman of the
Compensation Committee
THE EXECUTIVE:
/s/ Fredric L. Holliger
_____________________________
Fredric L. Holliger
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into as of this 11th day of December, 1997, between Giant Industries,
Inc., a Delaware corporation (the "Company"), and Morgan Gust (the
"Executive").
RECITALS
A. The Company desires to retain the services of the
Executive as its Vice President, General Counsel and Secretary and
the Executive desires and is willing to continue employment with the
Company in that capacity.
B. The Company and the Executive desire to embody the terms
and conditions of the Executive's employment in a written agreement,
which will supersede all prior agreements of employment, whether
written or oral, including without limitation the Employment
Agreement, dated August 1, 1990, between the Company and the
Executive, pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of their mutual covenants and
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DUTIES AND TERM
1.1. EMPLOYMENT. The Executive is employed as the Vice
President, General Counsel and Secretary of the Company. In this
capacity, the Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the Board
of Directors of the Company (the "Board") in the Executive's capacity
as the Vice President, General Counsel and Secretary of the Company,
in addition to such other duties and responsibilities as the Board
shall designate as are not inconsistent with the Executive's position
with the Company, including the performance of duties with respect to
subsidiaries of the Company, as may be requested by the Board.
1.2 TERM. The term of this Agreement shall commence on the
date first written above and shall continue, unless sooner
terminated, for three years (the "Initial Term"). Thereafter, the
term of this Agreement shall automatically be extended for successive
one year periods ("Renewal Terms") unless either the Board or the
Executive gives written notice to the other at least 90 days prior to
the end of the Initial Term or any Renewal Term, as the case may be,
of its or his intention not to renew the term of this Agreement or
unless this Agreement is otherwise terminated pursuant to Article III
hereof. The Initial Term and any Renewal Terms of this Agreement
shall be collectively referred to as the "Term."
1.3 LOCATION. During the Term of this Agreement, the
Executive shall be based in the principal offices of the Company in
Maricopa County, Arizona, and shall not be required to be based
anywhere other than Maricopa County, Arizona except for travel
reasonably required in the performance of his duties hereunder and
except as may be otherwise agreed to by the Executive.
ARTICLE II
COMPENSATION
2.1 BASE SALARY. Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term of
this Agreement a base salary at an annual rate of not less than
$240,000 (the "Base Salary"). The Base Salary shall be reviewed at
least annually by the Board and the Board may, in its discretion,
increase the Base Salary. The Base Salary of the Executive shall not
be decreased at any time during the Term of this Agreement from the
amount of Base Salary then in effect, except in connection with
across-the-board salary reductions similarly affecting all senior
executives of the Company. Participation in deferred compensation,
discretionary bonus, retirement, stock option and other employee
benefit plans and in fringe benefits shall not reduce the Base Salary
payable to the Executive under this Section 2.1. The Base Salary
under this Section 2.1 shall be payable by the Company to the
Executive not less frequently than monthly.
2.2 DISCRETIONARY BONUSES. Subject to the further
provisions of this Agreement, during the Term of this Agreement the
Executive shall be entitled to participate in an equitable manner
with all other senior executives of the Company in such discretionary
bonuses including, but not limited to, bonuses provided pursuant to
any management bonus plan that the Company may adopt (based upon the
performance of the participant and the Company), as may be authorized
and declared by the Board to the Company's senior executives.
Nothing in this Section shall be deemed to limit the ability of the
Executive to be paid and receive discretionary bonuses from the
Company, based solely on the Executive's performance, without regard
to the payment of discretionary bonuses to any other officers of the
Company.
2.3 Participation in Retirement and Employee Benefit Plans;
Fringe Benefits. The Executive shall be entitled to participate in
all plans of the Company relating to stock options, stock purchases,
pension, thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance, education
or other retirement or employee benefits that the Company has adopted
or may adopt for the benefit of its senior executives. In addition,
the Executive shall be entitled to participate in any other fringe
benefits, such as automobile allowances, club dues and fees of
professional organizations and associations, which are now or may
become applicable to the Company's senior executives, and any other
benefits which are commensurate with the duties and responsibilities
to be performed by the Executive under this Agreement. The Executive
shall, during the Term of his employment hereunder, continue to be
provided with benefits at a level which shall in no event be less in
any material respect than the benefits available to the Executive as
of the date of this Agreement. Notwithstanding the foregoing, the
Company may terminate or reduce benefits under any benefit plans and
programs to the extent such reductions apply uniformly to all senior
executives entitled to participate therein, and the Executive's
benefits shall be reduced or terminated accordingly.
2.4 VACATIONS. The Executive shall be entitled, without
loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of his duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation
time, unless the Board otherwise determines. The Executive shall be
entitled to an annual paid vacation of four weeks per year or such
longer period as the Board may approve; provided, however, that the
Executive may not carry over more than one week of vacation time to
any subsequent year without the prior approval of the Board. The
timing of paid vacations shall be scheduled in a manner reasonably
acceptable to the Company.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall
automatically terminate upon the death or Retirement (as defined in
Section 3.4) of the Executive.
3.2 BY THE EXECUTIVE. The Executive shall be entitled to
terminate this Agreement by giving written notice to the Company:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) at any time for Good Reason (as defined in Section
3.4); and
(c) at any time without Good Reason upon 30 days
advance notice to the Company.
3.3. BY THE COMPANY. The Company shall be entitled to
terminate this Agreement by giving written notice to the Executive:
(a) at least 90 days prior to the end of the Initial
Term or any Renewal Term of this Agreement;
(b) in the event of the Executive's Disability (as
defined in Section 3.4);
(c) for cause; and
(d) at any time without cause upon 30 days advance
notice to the Executive.
3.4 DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Change of Control" shall mean a change in
ownership or control of the Company effected through any of the
following transactions:
(i) the direct or indirect acquisition by any
person or related group of persons (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than 35% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders or other transaction; or
(ii) a change in the composition of the Board over
a period of 36 consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A)
who were still in office at the time such election or nomination was
approved by the Board; or
(iii) a merger or consolidation approved by the
stockholders of the Company, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the sale, transfer or other disposition (in
one transaction or a series of transactions) of all or substantially
all of the assets of the Company approved by the stockholders or the
complete liquidation or dissolution of the Company approved by the
stockholders.
(b) "Disability" shall mean the Executive's inability,
with or without reasonable accommodation, to perform all of the
essential functions of his position hereunder on a full-time basis
for a period exceeding 180 consecutive days or for periods
aggregating more than 180 days during any 12 month period as a result
of incapacity due to physical or mental illness not due to drug or
alcohol abuse. If there is a dispute as to whether the Executive is
or was physically or mentally unable to perform his duties under this
Agreement, such dispute shall be submitted for resolution to a
licensed physician agreed upon by the Board and the Executive, or if
an agreement cannot be promptly reached, the Board and the Executive
will each select a physician, and if these physicians cannot agree,
they will pick a third physician whose decision shall be binding on
all parties. If such a dispute arises, the Executive shall submit to
such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s)
as to the Executive's physical or mental condition shall be binding
and conclusive.
(c) "Good Reason" shall mean any of the following if
the same shall occur following a Change of Control without the
Executive's express prior written consent:
(i) a material change by the Company in the
Executive's function, duties or responsibilities (including reporting
responsibilities) which would cause the Executive's position with the
Company to become of less dignity, responsibility and importance than
those associated with his functions, duties or responsibilities
during the 90 day period immediately preceding the date a Change of
Control occurs;
(ii) the Executive's Base Salary is reduced by the
Company, unless such reduction is pursuant to a salary reduction
program as described in Section 2.1 hereof, or there is a material
reduction in the benefits that are in effect for the Executive,
unless such reduction is pursuant to a uniform reduction in benefits
for all senior executives as described in Section 2.3 hereof;
(iii) relocation of the Executive's principal
place of employment to a place located outside of Maricopa County,
Arizona;
(iv) the failure by the Company to obtain the
assumption by operation of law or otherwise of this Agreement by any
entity which is the surviving entity in any merger or other form of
corporate reorganization involving the Company or by any entity which
acquires all or substantially all of the Company's assets in a Change
of Control transaction; or
(v) other material breach of this Agreement by the
Company, which breach shall not be cured within 15 days after written
notice thereof to the Company.
(d) "Retirement" shall mean normal retirement at age 65
or in accordance with retirement rules generally applicable to the
Company's senior executives.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR
MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a
Change of Control, or more than three years following a Change of
Control, the Executive's employment is terminated by reason of the
Executive's death or Disability, by the Company with cause or by the
Executive with or without Good Reason, the Company shall:
(a) pay the Executive (or his estate or beneficiaries)
any Base Salary which has accrued but not been paid as of the
termination date;
(b) reimburse the Executive (or his estate or
beneficiaries) for expenses incurred by him prior to the date of
termination which are subject to reimbursement pursuant to applicable
Company policies then in effect;
(c) provide to the Executive (or his estate or
beneficiaries) any accrued and vested benefits required to be
provided by the terms of any Company-sponsored benefit plans or
programs, together with any benefits required to be paid or provided
in the event of the Executive's death or Disability under applicable
law;
(d) pay the Executive (or his estate or beneficiaries)
any discretionary bonus with respect to a prior fiscal year which has
accrued and been earned but has not been paid;
(e) in addition, the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options outstanding at the termination date in
accordance with terms of the plans and agreements pursuant to which
such options were issued; and
(f) in addition, to the extent permitted by the terms
of the policies then in effect, the Executive shall have a right of
first refusal to cause the transfer of the ownership of all key-man
life insurance policies maintained by the Company on the Executive to
the Executive at the Executive's sole cost and expense.
4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF
CONTROL.
If, at any time within a three year period following a
Change of Control, the Executive's employment is terminated by reason
of the Executive's death or Disability, by the Company with or
without cause or by the Executive with Good Reason, or upon
expiration of the Term of this Agreement pursuant to Section 3.3
hereof within a three year period following a Change of Control, the
Company shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1, other than under Section 4.1(e);
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
three times the sum of: (i) the Executive's Base Salary in effect
immediately prior to the time such termination occurs; and (y) a lump
sum payment equal to the average of the annual bonuses paid to the
Executive for the three fiscal years immediately preceding the fiscal
year in which the termination occurs; and
(c) in addition, all unvested stock options or other
stock awards owned by the Executive that would otherwise have vested
after the termination date shall become fully vested and exercisable
at the termination date, and the Executive (or his estate or
beneficiaries) shall have the right to exercise all vested,
unexercised stock options or awards outstanding at the termination
date (including the accelerated options and awards) in accordance
with the terms (except the vesting terms with respect to the
accelerated options and awards) of the plans and agreements pursuant
to which such options and other awards were issued.
(d) The Internal Revenue Code of 1986, as amended (the
"Code"), imposes significant tax burdens on the Executive and the
Company if the total amounts received by the Executive due to a
Change of Control exceed prescribed limits. These tax burdens
include a requirement that the Executive pay a 20% excise tax on
certain amounts received in excess of the prescribed limits and a
loss of deduction for the Company. If, as a result of these Code
provisions, the Executive is required to pay such excise tax, then
upon written notice from the Executive to the Company, the Company
shall pay the Executive an amount equal to the total excise tax
imposed on the Executive (including the excise taxes on any excise
tax reimbursements due pursuant to this sentence and the excise taxes
on any income tax reimbursements due pursuant to the next sentence).
If the Company is obligated to pay the Executive pursuant to the
preceding sentence, the Company also shall pay the Executive an
amount equal to the "total presumed federal and state taxes" that
could be imposed on the Executive with respect to the excise tax
reimbursements due to the Executive pursuant to the preceding
sentence and the income tax reimbursements due to the Executive
pursuant to this sentence. For purposes of the preceding sentence,
the "total presumed federal and state taxes" that could be imposed on
the Executive shall be conclusively calculated using a combined tax
rate equal to the sum of the then prevailing maximum marginal federal
and state income tax rates and the hospital insurance portion of
FICA. No adjustments will be made in this combined rate for the
deduction of state taxes on the federal return, the loss of itemized
deductions or exemptions, or for any other purpose. The Executive
shall be responsible for paying the actual taxes. The amounts
payable to the Executive pursuant to this or any other agreement or
arrangement with Company shall not be limited in any way by the
amount that may be paid pursuant to the Code without the imposition
of an excise tax or the loss of Company deductions. Either the
Executive or the Company may elect to challenge any excise taxes
imposed by the Internal Revenue Service, and the Company and the
Executive agree to cooperate with each other in prosecuting such
challenges. If the Executive elects to litigate or otherwise
challenge the imposition of such excise tax, however, the Company
will join the Executive in such litigation or challenge only if the
Board determines in good faith that the Executive's position has
substantial merit and that the issues should be litigated from the
standpoint of the Company's best interest.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE
OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL.
If, prior to a Change of Control, or more than three years following
a Change of Control, the Executive's employment is terminated by the
Company without cause or the Company or the Board gives written
notice to the Executive of its intention to not renew this Agreement
at the end of the Initial Term or any Renewal Term, the Company
shall:
(a) make the payments and provide to the Executive the
benefits under Section 4.1; and
(b) pay to the Executive a lump sum payment on or prior
to the 30th day following the termination date in an amount equal to
the Executive's Base Salary in effect immediately prior to the time
such termination occurs.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIALITY.
(a) The Executive agrees to keep all trade secrets
and/or proprietary information (collectively, "Confidential
Information") of the Company in strict confidence and agrees not to
disclose any Confidential Information to any other person, firm,
association, partnership, corporation or other entity for any reason
except as such disclosure may be required in connection with his
employment hereunder. The Executive further agrees not to use any
Confidential Information for any purpose except on behalf of the
Company.
(b) For purposes of this Agreement, "Confidential
Information" shall mean any information, process or idea that is not
generally known in the industry, that the Company considers
confidential, and/or that gives the Company a competitive advantage,
including, without limitation, suppliers, production costs or
production information; marketing plans; business forecasts; and
sales records. The Executive understands that the above list is
intended to be illustrative and that other Confidential Information
may currently exist or arise in the future. If the Executive is
unsure whether certain information or material is Confidential
Information, the Executive shall treat that information or material
as confidential unless the Executive is informed by the Company, in
writing, to the contrary. "Confidential Information" shall not
include any information which: (i) is or becomes publicly available
through no act or failure of the Executive; (ii) was or is rightfully
learned by the Executive from a source other than the Company before
being received from the Company; or (iii) becomes independently
available to the Executive as matter of right from a third party. If
only a portion of the Confidential Information is or becomes publicly
available, then only that portion shall not be Confidential
Information hereunder.
(c) The Executive further agrees that upon termination
of his employment with the Company, for whatever reason, the
Executive will surrender to the Company all of the property, notes,
manuals, reports, documents and other things in the Executive's
possession, including copies or computerized records thereof, which
relate directly or indirectly to Confidential Information.
5.2 COMPETITION.
(a) The Executive agrees that during the term of his
employment with the Company hereunder, the Executive shall not:
(i) except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof,
directly or indirectly own, operate, manage, consult with, control,
participate in the management or control of, be employed by, maintain
or continue any interest whatsoever in any refinery company or any
company that markets petroleum products that directly competes with
the Company; or
(ii) directly or indirectly influence customers or
suppliers of the Company to divert their business to any competitor
of the Company; or
(iii) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company who are in
the employ of the Company on the termination date of his employment
hereunder for employment by others in competition with the Company.
(b) The Executive expressly agrees and acknowledges
that:
(i) this covenant not to compete is reasonably
necessary for the protection of the interests of the Company and is
reasonable as to time and geographical area and does not place any
unreasonable burden upon him;
(ii) the general public will not be harmed as a
result of enforcement of this covenant not to compete;
(iii) his personal legal counsel has reviewed this
covenant not to compete; and
(iv) he understands and hereby agrees to each and
every term and condition of this covenant not to compete.
5.3 REMEDIES. The Executive expressly agrees and
acknowledges that the covenant not to compete set forth in Section
5.2 is necessary for the Company's and its affiliates' protection
because of the nature and scope of their business and his position
with the Company. Further, the Executive acknowledges that, in the
event of his breach of his covenant not to compete, money damages
will not sufficiently compensate the Company for its injury caused
thereby, and he accordingly agrees that in addition to such money
damages he may be restrained and enjoined from any continuing breach
of the covenant not to compete without any bond or other security
being required. The Executive acknowledges that any breach of the
covenant not to compete would result in irreparable damage to the
Company. The Executive further acknowledges and agrees that if the
Executive fails to comply with this Article V, the Company has no
obligation to provide any compensation or other benefits described in
Article IV hereof. The Executive acknowledges that the remedy at law
for any breach or threatened breach of Sections 5.1 and 5.2 will be
inadequate and, accordingly, that the Company shall, in addition to
all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such
breach), be entitled to injunctive relief or specific performance.
ARTICLE VI
MISCELLANEOUS
6.1 NO ASSIGNMENTS. This Agreement is personal to each of
the parties hereto. No party may assign or delegate any rights or
obligations hereunder without first obtaining the written consent of
the other party hereto, except that this Agreement shall be binding
upon and inure to the benefit of any successor corporation to the
Company.
(a) The Company shall use reasonable efforts to require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as defined herein and any successor to its
business and/or assets which assumes this Agreement by operation of
law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to him hereunder had he
continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to his devisee, legatee or other designee, or if there is no such
designee, to his estate.
6.2 NOTICES. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set
forth below, or to such other addresses as either party may have
furnished to the other in writing in accordance herewith, except that
notice of a change of address shall be effective only upon actual
receipt:
To the Company: Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Attention: General Counsel
To the Executive: Morgan Gust
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Notices pursuant to Article III of this Agreement shall specify the
specific termination provision relied upon by the party giving notice
and shall state the effective date of the termination.
6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to
this Agreement shall be binding unless in writing and signed by each
of the parties hereto.
6.4 SECTION HEADINGS. The section headings used in this
Agreement are included solely for convenience and shall not affect,
or be used in connection with, the interpretation of this Agreement.
6.5 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the
other provisions hereof. If, in any judicial proceedings, a court
shall refuse to enforce one or more of the covenants or agreements
contained herein because the duration thereof is too long, or the
scope thereof is too broad, it is expressly agreed between the
parties hereto that such scope or duration shall be deemed reduced to
the extent necessary to permit the enforcement of such covenants or
agreements.
6.6 COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original
but all of which together shall constitute one and the same
instrument.
6.7 ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in
Maricopa County, Arizona in accordance with the rules of the American
Arbitration Association then in effect. The decision of the
arbitrators shall be final and binding on the parties, and judgment
may be entered on the arbitrators' award in any court having
jurisdiction. The costs and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators.
Notwithstanding any other provision of this Agreement, if any
termination of this Agreement becomes subject to arbitration, the
Company shall not be required to pay any amounts to the Executive
(except those amounts required by law) until the completion of the
arbitration and the rendering of the arbitrators' decision. The
amounts, if any, determined by the arbitrators to be owed by the
Company to the Executive shall be paid within five days after the
decision by the arbitrators is rendered.
6.8 MODIFICATIONS AND WAIVERS. No provision of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by the
Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
6.9 GOVERNING LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the State of Arizona without regard to its conflicts of
law principles.
6.10 TAXES. Any payments provided for hereunder shall be
paid net of any applicable withholding or other employment taxes
required under federal, state or local law.
6.11 SURVIVAL. The obligations of the Company under Article
IV hereof and the obligations of the Executive under Article V hereof
shall survive the expiration of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first indicated above.
THE COMPANY:
GIANT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Richard T. Kalen, Jr.
__________________________
Chairman of the
Compensation Committee
THE EXECUTIVE:
/s/ Morgan Gust
_____________________________
Morgan Gust
EXHIBIT 10.30
SECOND AMENDMENT
OF THE
GIANT INDUSTRIES, INC.
& AFFILIATED COMPANIES
401(K) PLAN
WHEREAS, Giant Industries, Inc. and certain of its affiliates
(the "Employer") adopted the Giant Industries, Inc. & Affiliated
Companies 401(k) Plan (the "Plan") effective July 1, 1993; and
WHEREAS, the Employer amended and restated the Plan, effective
July 1, 1993, through an adoption agreement dated September 10, 1994;
and
WHEREAS, the Employer has the authority to amend the Plan.
NOW, THEREFORE, the Employer hereby amends the Plan as follows:
Pages 5 and 13, and the Attachment to Adoption Agreement for
Giant Industries, Inc. & Affiliated Companies 401(k) Plan of the
existing Plan are hereby removed and replaced by the attached
replacement pages 5 and 13, and the Attachment to Adoption Agreement
for Giant Industries, Inc. & Affiliated Companies 401(k) Plan.
This amendment is effective January 1, 1997, except as otherwise
stated in the replacement pages of the attachment.
GIANT INDUSTRIES, INC. &
AFFILIATED COMPANIES
12/31/97
_______________ ______________________________
Date A. Wayne Davenport
Vice President and CFO
Accepted by:
FIDELITY MANAGEMENT TRUST COMPANY,
as Trustee
_______________ ______________________________
Date Name:
Title:
<PAGE>
<PAGE>
(c) DATE OF INITIAL PARTICIPATION - AN EMPLOYEE WILL BECOME A
PARTICIPANT UNLESS EXCLUDED BY SECTION 1.03(a)(3) ABOVE ON
THE ENTRY DATE IMMEDIATELY FOLLOWING THE DATE THE EMPLOYEE
COMPLETES THE SERVICE AND AGE REQUIREMENT(S) IN SECTION
1.03(a), IF ANY, EXCEPT (check one):
(1) [ ] No exceptions.
(2) [ ] Employees employed on the Effective Date in Section
1.01(g) will become Participants on that date.
(3) [X] Employees who meet the age and service
requirement(s) of Section 1.03(a) on the Effective
Date in Section 1.01(g) will become Participants on
that date.
1.04 COMPENSATION
(a) FOR PURPOSES OF DETERMINING CONTRIBUTIONS UNDER THE PLAN,
COMPENSATION SHALL BE AS DEFINED IN SECTION 2.01(a)(7), BUT
EXCLUDING (check the appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [ ] Bonuses.
(3) [ ] Commissions.
(4) [X] The value of a qualified or a non-qualified stock
option granted to an Employee by the Employer to
the extent such value is includable in the
Employee's taxable income.
See attachment.
Note: These exclusions shall not apply for
purposes of the "Top Heavy" requirements in
Section 9.03 or allocating Discretionary Employer
Contributions if an Integrated Formula is elected
in Section 1.05(a)(2)(B).
(5) [ ] No exclusions.
5 (Replacement Page,
Second Amendment)
<PAGE>
<PAGE>
1.08 PREDECESSOR EMPLOYER SERVICE
[X] SERVICE FOR PURPOSES OF ELIGIBILITY IN SECTION 1.03(a)(1)
AND VESTING IN SECTION 1.07(a) OF THIS PLAN SHALL INCLUDE
SERVICE WITH THE FOLLOWING EMPLOYER(S):
(a) See attachment.
(b) See attachment.
(c) See attachment.
(d) See attachment.
1.09 PARTICIPANT LOANS
PARTICIPANT LOANS (check (a) or (b)):
(a) [ ] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.09,
SUBJECT TO A $1,000 MINIMUM AMOUNT AND WILL BE GRANTED
(check (1) or (2)):
(1) [ ] for any purpose.
(2) [ ] for hardship withdrawal (as defined in
Section 7.10) purposes only.
(b) [X] WILL NOT BE ALLOWED.
1.10 HARDSHIP WITHDRAWALS
PARTICIPANT WITHDRAWALS FOR HARDSHIP PRIOR TO TERMINATION OF
EMPLOYMENT (check one):
(a) [X] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.10,
SUBJECT TO A $1,000 MINIMUM AMOUNT.
(b) [ ] WILL NOT BE ALLOWED.
13 (Replacement Page,
Second Amendment)
<PAGE>
<PAGE>
ATTACHMENT TO ADOPTION AGREEMENT FOR GIANT INDUSTRIES, INC.
AFFILIATED COMPANIES 401(K) PLAN
Section 1.04(a)(4).
Effective January 1, 1997, Compensation shall exclude (1) the
value of a qualified or a nonqualified stock option granted to
an Employee by the Employer to the extent such value is
includable in the Employee's taxable income, (2) the amount
realized from the exercise of a qualified or nonqualified stock
option and (3) severance benefits.
Section 1.05(c)(4)(A).
An Employee of Giant Exploration & Production Company ("E&P")
who is employed by E&P on July 16, 1996, and who is not
thereafter transferred from E&P to another affiliate or division
that is part of the Employer, shall be deemed to satisfy the
requirements of this Section 1.05(c)(4)(A) for the Plan Year
ending December 31, 1996.
Section 1.08
(a) Effective as of January 1, 1996, Bloomfield Refining
Company ("Bloomfield"), The Gary-Williams Company ("Gary-
Williams"), and any affiliate or predecessor employer of
either, but only to the extent service was credited under
The Gary Tax Advantaged Savings Program and Profit-Sharing
Plan on October 4, 1995 with respect to such employer, and
only for employees who were employed by Bloomfield or Gary-
Williams on October 3, 1995, and became Employees of the
Employer on October 4, 1995, in connection with the sale of
assets of Bloomfield Refining Company to the Employer.
(b) Effective as of January 1, 1996, Meridian Oil Inc.,
Meridian Oil Gathering Inc., and Meridian Oil Trading Inc.
(collectively "Meridian"), and any affiliate or predecessor
employer of Meridian, but only to the extent service was
credited under the Burlington Resources Retirement Savings
Plan on August 18, 1995 with respect to such employer, and
only for employees who were employed by Meridian on August
17, 1995, and became Employees of the Employer on August
18, 1995, in connection with the sale of assets of Meridian
to the Employer.
-1- (Replacement Page,
Second Amendment)
<PAGE>
<PAGE>
(c) Effective as of January 1, 1996, Texaco Refining and
Marketing Inc. ("Texaco"), and any affiliate or predecessor
employer of Texaco, but only to the extent service was
credited under any plan sponsored by Texaco that qualified
under Section 401(a)(4) of the Code, and only for an
employee who was employed by Texaco on July 24, 1993, and
became an Employee of the Employer on July 25, 1995 in
connection with the sale of assets of Texaco to the
Employer.
(d) Effective as of July 1, 1997, Thriftway Marketing
Corporation ("Thriftway") for service before May 28, 1997
but only for Pat Curtis, a human resource generalist, and
for employees employed by Thriftway on May 27, 1997 who
were employed or hired into the transportation division on
or about May 28, 1997 and who became Employees of the
Employer on May 28, 1997 in connection with the sale of
assets of Thriftway and certain related entities to the
Employer.
AMENDMENT TO BASIC PLAN DOCUMENT
By way of clarification and emphasis, Section 13.01 is amended
by inserting the words "Discretionary authority" at the beginning of
each of clauses (b)-(f), and in each such clause, revising "To" to
read "to".
-2- (Replacement Page,
Second Amendment)
EXHIBIT 10.31
GIANT INDUSTRIES, INC.
1998 PHANTOM STOCK PLAN
<PAGE>
GIANT INDUSTRIES, INC.
1998 PHANTOM STOCK PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Giant Industries, Inc. 1998
Phantom Stock Plan (the "Plan"). The Plan was adopted by the Board of
Giant Industries, Inc. (the "Company") on December 11, 1997 to become
effective on January 30, 1998. The purpose of the Plan is to enable
the Company and its Subsidiaries to obtain and retain competent
personnel who will contribute to the Company's success by their
ability, ingenuity and industry and to provide incentives to the
participating officers and other key employees that are linked
directly to increases in stockholder value and will therefore inure to
the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(c) "COMMITTEE" means the Compensation Committee of the
Board, or any other committee the Board may subsequently appoint to
administer the Plan.
(d) "COMPANY" means Giant Industries, Inc., a
corporation organized under the laws of the State of Delaware (or any
successor corporation).
(e) "DISABILITY" means permanent and total disability as
determined under the Company's disability program.
(f) "EFFECTIVE DATE" shall mean the date provided in
Section 10.
(g) "ELIGIBLE EMPLOYEE" means an employee of the Company
or any Subsidiary eligible to participate in the Plan pursuant to
Section 4.
(h) "FAIR MARKET VALUE" means, as of any given date,
with respect to any awards granted hereunder, at the discretion of the
Committee and subject to such limitations as the Committee may impose,
(A) the closing sale price of the Stock on such date as reported in
the Midwestern Edition of the Wall Street Journal Composite Tape or
(B) the average on such date of the closing price of the Stock on each
day on which the Stock is traded over a period of up to 20 trading
days immediately prior to such date.
(i) "NONEMPLOYEE DIRECTOR" means a member of the Board
who: (i) is not at the time in question an officer or employee of the
Company or any Subsidiary, (ii) has not received compensation for
serving as a consultant or in any other non-director capacity or had
an interest in any transaction with the Company or any Subsidiary that
would exceed the $60,000 threshold for which disclosure would be
required under Item 404(a) of Regulation S-K, or (iii) has not been
engaged through another party in a business relationship with the
Company or any Subsidiary that would be disclosable under Item 404(b)
of Regulation S-K.
(j) "PARENT CORPORATION" means any corporation (other
than the Company) in an unbroken chain of corporations ending with the
Company, if each of the corporations other than the Company owns stock
possessing 50% or more of the combined voting power of all classes of
stock in one of the other corporations in the chain.
(k) "PARTICIPANT" means any Eligible Employee selected
by the Committee, pursuant to the Committee's authority in Section 2
below, to receive grants of Phantom Stock.
(l) "PHANTOM STOCK" means the right pursuant to an award
granted under Section 5 below to receive an amount equal to the
difference between (i) the Fair Market Value, as of the date such
Phantom Stock or portion thereof is surrendered, of the shares of
Stock covered by such right or such portion thereof, and (ii) the
aggregate exercise price of such right or such portion thereof,
together with all dividends attributable to the Phantom Stock during
the period from grant until exercise. Each Phantom Stock unit shall
be equivalent to one share of Stock.
(m) "RETIREMENT" means retirement from active employment
with the Company or any Subsidiary on or after the retirement date
specified in the applicable Company pension plan.
(n) "STOCK" means the common stock, $.01 par value, of
the Company.
(o) "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board or by a
Committee of not less than two Nonemployee Directors who shall be
appointed by the Board and who shall serve at the pleasure of the
Board. For purposes of this Plan, the terms "Committee" and "Board"
are used interchangeably.
The Committee shall have the power and authority to grant
Phantom Stock to Eligible Employees, pursuant to the terms of the
Plan.
In particular, the Committee shall have the authority:
(a) To select those employees of the Company who are
Eligible Employees;
(b) To determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder; and
(c) To determine the terms and conditions, not
inconsistent with the terms of the Plan, which shall govern all
written instruments evidencing the Phantom Stock units.
The Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise
the administration of the Plan.
All decisions made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons,
including the Company and the Participants.
SECTION 3. PHANTOM STOCK SUBJECT TO THE PLAN.
The total number of Phantom Stock units reserved and
available for issuance under the Plan shall be 250,000.
To the extent that a Phantom Stock unit expires, is
forfeited or is otherwise terminated without being exercised, such
Phantom Stock unit shall again be available for issuance in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, or other change in corporate
structure affecting the Stock, a substitution or adjustment shall be
made in (i) the aggregate number of Phantom Stock units reserved for
issuance under the Plan, and (ii) the exercise price of the Phantom
Stock units granted under the Plan as may be determined by the
Committee, in its sole discretion, provided that the Phantom Stock
units subject to any award shall always be a whole number. Such other
substitutions or adjustments shall be made as may be determined by the
Committee, in its sole discretion.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company or
Subsidiaries who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company or its
Subsidiaries shall be eligible to be granted Phantom Stock hereunder.
The Participants under the Plan shall be selected from time to time by
the Committee, in its sole discretion, from among Eligible Employees
recommended by the senior management of the Company, and the Committee
shall determine, in its sole discretion, the number of Phantom Stock
units awarded.
SECTION 5. PHANTOM STOCK AWARDS.
(a) TERMS AND CONDITIONS. Awards of Phantom Stock shall
be subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by
the Committee, including the following:
(i) EXERCISE; VESTING. Phantom Stock shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at or after grant;
provided, however, that Phantom Stock shall not be exercisable during
the first six months after grant, except that this limitation shall
not apply in the event of death or Disability of the recipient of the
Phantom Stock prior to the expiration of the six-month period. The
Committee is empowered to establish vesting requirements, if any, with
each grant.
(ii) TERM. The term of each Phantom Stock unit
shall be fixed by the Committee, but no Phantom Stock unit shall be
exercisable more than ten years after the date such unit is granted.
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 425(d) of the Code) more than 10% of the combined
voting powers of all classes of stock of the Company or any Parent
Corporation or Subsidiary and Phantom Stock is granted to such
employee, the term of such unit (to the extent required by the Code at
the time of grant) shall be no more than five years from the date of
grant.
(iii) VALUE OF UNITS. Upon the exercise of a
Phantom Stock unit, a recipient shall be entitled to receive up to,
but not more than, an amount in cash (or at the election of the
Committee shares of Stock or any combination of cash or shares of
Stock) equal in value to the sum of (A) the excess of the Fair Market
Value of one share of Stock over the exercise price per share
specified in the Phantom Stock award, and (B) all dividends
attributable to one share of Stock during the period from grant until
exercise, which sum shall be multiplied by the number of shares in
respect to which the Phantom Stock unit is being exercised, with the
Committee having the right to determine the form of payment.
(iv) TERMINATION BY DEATH. If an employee's
employment with the Company or any Subsidiary terminates by reason of
death, the Phantom Stock may thereafter be immediately exercised, to
the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the employee under
the will of the employee, for a period of one year (or such shorter
period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of such Phantom Stock
unit, whichever period is shorter.
(v) TERMINATION BY REASON OF DISABILITY. If an
employee's employment with the Company or any Subsidiary terminates by
reason of Disability, any Phantom Stock held by such employee may
thereafter be exercised, to the extent it was exercisable at the time
of such termination (or on such accelerated basis as the Committee
shall determine at the time of grant), for a period of one year (or
such shorter period as the Committee shall specify at grant) from the
date of such termination of employment or until the expiration of the
stated term of such Phantom Stock unit, whichever period is shorter;
provided, however, that, if the employee dies within such one-year
period (or such shorter period as the Committee shall specify at
grant) and prior to the expiration of the stated term of such Phantom
Stock unit, any unexercised Phantom Stock unit held by such employee
shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months (or
such shorter period as the Committee shall specify at grant) from the
time of death or until the expiration of the stated term of such
Phantom Stock unit, whichever period is shorter.
(vi) RETIREMENT OR OTHER TERMINATION. Except as
otherwise provided in this paragraph, unless otherwise determined by
the Committee, if an employee's employment with the Company or any
Subsidiary terminates as a result of Retirement or for any reason
other than death or Disability, the Phantom Stock may be exercised
until the earlier to occur of (A) three months from the date of such
termination or Retirement, or (B) the expiration of such Phantom Stock
unit term.
(b) ESTABLISHMENT OF ACCOUNTS. Phantom Stock units
granted under this Plan will be credited to a memorandum account
maintained by the Company in the name of the recipient as of the date
of grant. The account will be credited quarterly with an amount
determined by multiplying the number of Phantom Stock units credited
to each account by the per-share dividend (if any) paid during the
quarter by the Company on the Stock.
SECTION 6. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which would
impair the rights of the Participant under any award theretofore
granted without such Participant's consent. The Committee may amend
the terms of any award theretofore granted, prospectively or
retroactively, but, subject to Section 3 above, no such amendment
shall impair the rights of any holder without his or her consent. The
approval of the stockholders shall not be required for any amendment,
alteration or discontinuation of this Plan unless specifically
required by law or by the rules and regulations of the New York Stock
Exchange.
SECTION 7. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to
a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general
creditor of the Company.
SECTION 8. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall
apply in the event of a "Change of Control" as defined in
paragraph (b) of this Section 8:
(a) CONSEQUENCES OF CHANGE OF CONTROL. In the event of
a "Change of Control," unless otherwise determined by the Committee or
the Board in writing at or after grant, but prior to the occurrence of
such Change in Control:
(i) all Phantom Stock units outstanding shall
become fully exercisable and vested; and
(ii) the value of all outstanding Phantom Stock
units shall, to the extent determined by the Committee at or after
grant, be cashed out on the basis of the "Change of Control Price" (as
defined in paragraph (c) of this Section 8) as of the date the Change
of Control occurs or such other date as the Committee may determine
prior to the Change of Control.
(b) DEFINITION OF "CHANGE OF CONTROL". For purposes of
paragraph (a) of this Section 8, a "Change of Control" shall be deemed
to have occurred if:
(i) any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (other than the Company; any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company; any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of Stock of the Company; or James E. Acridge, his wife
or widow, his lineal descendants and his heirs, devisees and donees,
and trusts created by him, inter vivos or by will, for the benefit of
such persons or for the benefit of charitable or educational
institutions), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii) or (iv) of this Section 8(b)) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter
referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
80% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's
then outstanding securities shall not constitute a "Change of Control"
of the Company; or
(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(c) DEFINITION OF "CHANGE OF CONTROL PRICE". For
purposes of this Section 8, "Change of Control Price" means the higher
of (i) the highest price per share paid or offered in any transaction
related to a Change of Control of the Company, or (ii) the highest
price per share paid in any transaction reported on the exchange on
which the Stock is traded, at any time during the preceding 60-day
period as determined by the Committee.
SECTION 9. GENERAL PROVISIONS.
(a) LEGENDS. All certificates for shares of Stock, if
any, delivered under the Plan shall be subject to such stop-transfer
orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities law, and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) OTHER PLANS; NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company
or any Subsidiary any right to continued employment with the Company
or a Subsidiary, as the case may be, nor shall it interfere in any way
with the right of the Company or a Subsidiary to terminate the
employment of any of its employees at any time.
(c) TAXES. Each Participant shall, no later than the
date as of which the value of an award first becomes includible in the
gross income of the Participant for Federal income tax purposes, pay
to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to the award. The
obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company (and, where applicable, its
Subsidiaries) shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to
the Participant.
(d) INDEMNIFICATION. No member of the Board or the
Committee, nor any officer or employee of the Company acting on behalf
of the Board or the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith
with respect to the Plan, and all members of the Board or the
Committee and each and any officer or employee of the Company acting
on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such
action, determination or interpretation.
(e) RULE 16B-3 COMPLIANCE. With respect to persons
subject to Section 16 of the Securities Exchange Act of 1934 (the
"1934 Act"), transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
1934 Act. To the extent any provisions of the Plan or action by the
Committee or Board fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee or Board.
(f) DELEGATION. The Committee or Board may delegate to
an officer of the Corporation the authority to make decisions pursuant
to this Plan provided that no such delegation may be made that would
cause any award or other transaction under the Plan to cease to be
exempt from Section 16(b) of the 1934 Act. The Committee may
authorize any one or more of its members or any officer of the Company
to execute and deliver documents on behalf of the Committee.
SECTION 10. EFFECTIVE DATE OF PLAN.
The Plan becomes effective on January 30, 1998.
SECTION 11. TERM OF PLAN.
No Phantom Stock shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date, but awards
previously granted may extend beyond that date.
COMPENSATION COMMITTEE
/s/ Richard T. Kalen, Jr.
_____________________________
Richard T. Kalen, Jr.
Chairman
EXHIBIT 21.1
SUBSIDIARIES OF
GIANT INDUSTRIES, INC.
(a Delaware corporation)
Jurisdiction of Names Under Which
Subsidiary Incorporation Company Does Business
- ---------- --------------- ---------------------
Giant Industries
Arizona, Inc. Arizona Giant Refining Company
Ciniza Pipe Line
Company
Giant Transportation
Giant Service Stations
Giant Travel Center
TransWest Tank Lines
- Ciniza Production
Company* New Mexico
- Giant Stop-N-Go of
New Mexico, Inc.* New Mexico
- San Juan Refining
Company* New Mexico
- Giant Four Corners,
Inc.* Arizona
- Giant Mid-Continent,
Inc.* Arizona
- Phoenix Fuel Co., Inc.* Arizona Phoenix Fuel Company
Mesa Fuel Company
Tucson Fuel Company
Firebird Fuel Company
PFC Lubricants Company
Giant Exploration &
Production Company Texas
_______________
*A wholly-owned subsidiary of Giant Industries Arizona, Inc.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-35357 of Giant Industries, Inc. on Form S-8 of our reports
dated March 2, 1998 and March 27, 1998 appearing in the Annual Report on
Form 10-K of Giant Industries, Inc. for the year ended December 31,
1997 and in the Annual Report on Form 11-K of Giant Industries, Inc.
for the year ended December 31, 1997, respectively.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 82,592
<SECURITIES> 0
<RECEIVABLES> 48,012
<ALLOWANCES> 464
<INVENTORY> 57,598
<CURRENT-ASSETS> 207,076
<PP&E> 402,600
<DEPRECIATION> 120,773
<TOTAL-ASSETS> 535,371
<CURRENT-LIABILITIES> 95,351
<BONDS> 275,557
0
0
<COMMON> 122
<OTHER-SE> 133,345
<TOTAL-LIABILITY-AND-EQUITY> 535,371
<SALES> 657,278
<TOTAL-REVENUES> 657,278
<CGS> 487,748
<TOTAL-COSTS> 596,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,139
<INCOME-PRETAX> 25,100
<INCOME-TAX> 9,806
<INCOME-CONTINUING> 15,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,294
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 9,549 12,628 470 7,237 25,098
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 22,688 25,268 0 0 0
<ALLOWANCES> 424 254 0 0 0
<INVENTORY> 42,581 38,226 50,449 44,895 35,515
<CURRENT-ASSETS> 108,869 86,506 111,604 111,974 94,268
<PP&E> 292,919 322,260 294,291 306,029 310,080
<DEPRECIATION> 94,357 108,715 97,066 100,986 104,818
<TOTAL-ASSETS> 324,862 324,007 325,915 333,930 323,606
<CURRENT-LIABILITIES> 58,541 64,965 61,609 66,108 72,242
<BONDS> 142,676 113,081 138,603 130,458 106,837
0 0 0 0 0
0 0 0 0 0
<COMMON> 122 122 0 0 0
<OTHER-SE> 109,610 122,002 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 324,862 324,007 325,915 333,930 323,606
<SALES> 332,888 499,184 104,100 239,743 375,775
<TOTAL-REVENUES> 332,888 499,184 104,100 239,743 375,775
<CGS> 234,271 361,864 73,960 166,678 267,245
<TOTAL-COSTS> 299,472 443,852 93,464 206,336 327,552
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 11,506 12,318 0 0 0
<INCOME-PRETAX> 11,371 28,183 3,675 17,988 26,723
<INCOME-TAX> 3,638 11,132 1,350 6,970 10,422
<INCOME-CONTINUING> 7,733 17,051 2,325 11,018 16,301
<DISCONTINUED> 143 (13) 79 7 (13)
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 7,876 17,038 2,404 11,025 16,288
<EPS-PRIMARY> 0.69 1.52 0.21 0.98 1.45
<EPS-DILUTED> 0.68 1.50 0.21 0.97 1.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 3,881 7,136 84,684
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 45,414 56,305 48,980
<CURRENT-ASSETS> 83,901 121,929 198,701
<PP&E> 326,526 391,988 411,303
<DEPRECIATION> 111,837 116,768 129,824
<TOTAL-ASSETS> 321,406 434,371 519,491
<CURRENT-LIABILITIES> 54,831 79,863 80,994
<BONDS> 119,978 202,358 276,268
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 321,406 434,371 519,491
<SALES> 116,138 270,261 467,619
<TOTAL-REVENUES> 116,138 270,261 467,619
<CGS> 86,588 198,645 344,978
<TOTAL-COSTS> 107,415 243,345 421,549
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 1,807 11,335 22,212
<INCOME-TAX> 683 4,536 8,817
<INCOME-CONTINUING> 1,124 6,799 13,395
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,124 6,799 13,395
<EPS-PRIMARY> 0.10 0.61 1.21
<EPS-DILUTED> 0.10 0.61 1.20
</TABLE>
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 11-K
ANNUAL REPORT
_____________
PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal year Ended December 31, 1997
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN
GIANT INDUSTRIES, INC.
______________________
The principal executive offices of Giant Industries, Inc. are
located at 23733 North Scottsdale Road, Scottsdale, Arizona 85255.
<PAGE>
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
- ---------------------------------
(a) Financial Statements and Supplemental Schedules
Page Number
-----------
Independent Auditors' Report F-1
Statements of Net Assets Available F-2
for Benefits - December 31, 1997 and 1996
Statements of Changes in Net Assets F-3
Available for Benefits - Years Ended
December 31, 1997 and 1996
Notes to Financial Statements F-4 to F-7
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes F-8
Schedule of Reportable Transactions F-9
(b) Exhibits - none
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Committee has duly caused this annual report
to be signed by the undersigned thereunto duly authorized.
EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT
INDUSTRIES, INC. AND AFFILIATED COMPANIES
Date: March 27, 1998 Signature: /s/ A. Wayne Davenport
-------------------------------
A. Wayne Davenport,
Vice President and
Chief Financial Officer
Date: March 27, 1998 Signature: /s/ Morgan Gust
-------------------------------
Morgan Gust,
Vice President-General Counsel
Date: March 27, 1998 Signature: /s/ Charley Yonker, Jr.
-------------------------------
Charley Yonker, Jr.,
Director of Human Resources
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Administrative Committee
Employee Stock Ownership Plan of
Giant Industries, Inc. and Affiliated Companies
Scottsdale, Arizona
We have audited the accompanying statements of net assets available for
benefits of the Employee Stock Ownership Plan of Giant Industries, Inc.
and Affiliated Companies as of December 31, 1997 and 1996, and the
related statements of changes in net assets available for benefits for
the years then ended. These financial statements are the responsibility
of the Plan'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 financial statements referred to above present
fairly, in all material respects, the net assets available for benefits
of the Employee Stock Ownership Plan of Giant Industries, Inc. and
Affiliated Companies as of December 31, 1997 and 1996, and the changes
in net assets available for benefits for the years then ended in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules
for the year ended December 31, 1997 on pages F-8 and F-9 are presented
for the purpose of additional analysis and are not a required part of
the basic financial statements, but are supplementary information
required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security
Act of 1974. These schedules are the responsibility of the Plan's
management. Such schedules have been subjected to the auditing
procedures applied in our audit of the basic 1997 financial statements
and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements taken as a
whole.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 27, 1998
F-1<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
- ------
INVESTMENTS AT FAIR VALUE (Note 3):
Cash and cash equivalents $ 35,989 $ 400,426
Mutual funds 2,876,097 2,448,435
Limited partnership 6,096 6,600
Common stock of Giant Industries, Inc. 23,220,850 18,145,232
Loans to participants 28,941 32,253
----------- -----------
Total investments at fair value 26,167,973 21,032,946
CONTRIBUTION RECEIVABLE 536,478
INTEREST AND DIVIDENDS RECEIVABLE 61,550 2,603
OTHER RECEIVABLES 470 1,227
----------- -----------
Total assets 26,766,471 21,036,776
LIABILITIES
- -----------
ACCRUED LIABILITIES 9,247 9,247
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $26,757,224 $21,027,529
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ADDITIONS:
Net appreciation in fair value of investments (Note 3) $ 6,536,632 $ 2,871,648
Interest and dividend income 342,652 297,862
Employer contribution 536,478 450,000
----------- -----------
Total additions 7,415,762 3,619,510
DEDUCTIONS - Distributions to participants 1,686,067 2,234,453
----------- -----------
NET INCREASE 5,729,695 1,385,057
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 21,027,529 19,642,472
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $26,757,224 $21,027,529
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. DESCRIPTION OF THE PLAN
GENERAL - On June 30, 1987, Giant Industries, Inc. (the
"Company") converted through an amendment, its Joint Profit
Sharing Plan to an Employee Stock Ownership Plan. The Employee
Stock Ownership Plan of Giant Industries, Inc. and Affiliated
Companies (the "Plan") is a non-contributory defined
contribution plan which covers all eligible employees. The
purpose of the Plan is to enable participants to share in the
ownership of the Company. The Summary Plan Description describes
the Plan, including contribution allocations, termination,
vesting and benefit provisions. The Plan is subject to the
requirements of the Employee Retirement Income Security Act of
1974 ("ERISA").
CONTRIBUTIONS - The Plan provides for a contribution from the
Company from its current or accumulated net income as may be
determined annually at the discretion of its Board of Directors.
DISTRIBUTIONS - Benefits are recorded when paid. The Plan
records distributions for Plan participants who have requested
payment of their account in stock at the market value of the
stock on the date that the shares are reregistered in the
name of the participant.
PARTICIPATION AND VESTING - Each employee hired on or after July
1, 1993 shall become a participant on his or her participation
date, which is defined as the January 1 or July 1 coincident
with or next following the date on which the employee shall have
completed one year of service. The participation date of any
employee hired prior to July 1, 1993 shall be determined in
accordance with the terms of the Plan prior to the seventh
amendment. Participants' interests in their accounts vest over a
seven year period. In the event the Plan is terminated by the
Company, all participants would immediately become 100 percent
vested in their accrued benefits as of the date of Plan
termination.
ALLOCATIONS - Each participant's account is credited with an
allocation of the Company's contribution, investment income and
forfeitures of terminated participants' non-vested accounts.
Allocations to participant accounts are made on a formula based
on the ratio that each participant's compensation, as defined,
during the Plan year, bears to the compensation of all such
participants.
PLAN ADMINISTRATION - The Company administers the Plan through
an administrative committee comprised of three employees who are
appointed by the Company's Board of Directors. Most expenses
pertaining to the administration of the Plan are being paid by
the Company, at the Company's option. Bank of America is the
Plan's trustee and custodian and Boyce & Associates is the
Plan's recordkeeper.
F-4<PAGE>
<PAGE>
AMENDMENTS - The Plan was amended eight times prior to 1996.
A ninth amendment was executed on October 15, 1996 to be
effective January 1, 1996 to permit prior service credit to
individuals who became employees of the Company in connection
with the Company's purchase of certain assets from Bloomfield
Refining Company and Meridian Oil, Inc. and related companies.
A tenth amendment was executed on December 15, 1997 to be
effective January 1, 1997 to permit prior service credit to
certain individuals who became employees of the Company in
connection with the Company's purchase of certain assets of
Thriftway and related entities and Phoenix Fuel Co., Inc. In
addition, the definition of compensation was changed to exclude
reimbursement or other expense allowances and certain fringe
benefits.
TERMINATION - Although it has not expressed any intent to do so,
the Company has the right under the Plan to discontinue its
contributions at any time and to terminate the Plan subject to
the provisions of ERISA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting records of the Plan are maintained on the accrual
basis of accounting, and accordingly, revenues and expenses are
recorded in the year earned or incurred.
Investments included in the Statement of Net Assets
Available for Benefits are stated at fair value. The fair value
of marketable securities and mutual funds is determined based on
quoted market prices as of the Plan's year-end. The fair value
of the limited partnership is management's best estimate based
on an independent appraisal provided by Bank of America. The
Company's common stock value is determined based on the quoted
market price as reported by the New York Stock Exchange as of
the Plan's year-end. Loans to participants are valued at cost
which approximates fair value. The net change in the fair value
of investments is recorded in the Statement of Changes in Net
Assets Available for Benefits as net appreciation (depreciation)
in fair value of investments. Interest and dividend income is
recorded on the accrual basis.
Benefits are recorded when paid.
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 additions and deductions
during the reporting period. Actual results could differ from
these estimates.
3. INVESTMENTS
The following tables present the fair value of investments at
December 31, 1997 and 1996, with mutual funds and common stock
of the Company representing investments greater than 5 percent
of the Plan's net assets at December 31, 1997 and 1996.
F-5
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
NUMBER OF
SHARES OR
PRINCIPAL FAIR
AMOUNT VALUE
<S> <C> <C>
Cash and cash equivalents - Bank of America
Short-term Investment Fund 35,989 $ 35,989
-----------
Mutual Funds:
ML Lee Acquisition 25 4,861
Bank of America Balanced Fund 115,251 2,871,236
-----------
Total mutual funds 2,876,097
-----------
Limited partnership - Recorp. Mtg. Investors II 1.5 6,096
-----------
Giant Industries, Inc. common stock 1,222,150 23,220,850
-----------
Loans to participants 28,941
-----------
Total $26,167,973
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
NUMBER OF
SHARES OR
PRINCIPAL FAIR
AMOUNT VALUE
<S> <C> <C>
Cash and cash equivalents - Bank of America
Short-term Investment Fund 400,426 $ 400,426
-----------
Mutual Funds:
ML Lee Acquisition 25 11,632
Bank of America Balanced Fund 115,464 2,436,803
-----------
Total mutual funds 2,448,435
-----------
Limited partnership - Recorp. Mtg. Investors II 1.5 6,600
-----------
Giant Industries, Inc. common stock 1,296,088 18,145,232
-----------
Loans to participants 32,253
-----------
Total $21,032,946
===========
</TABLE>
F-6
<PAGE>
<PAGE>
Net appreciation in fair value of the Plan's investments
(including investments bought, sold and held during the period)
for the years ended December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Recorp. Mtg. Investors II $ (504) $ (15,600)
Mutual funds 418,954 285,354
Giant Industries, Inc. common stock 6,118,182 2,601,894
---------- ----------
Net appreciation $6,536,632 $2,871,648
========== ==========
</TABLE>
4. FEDERAL INCOME TAX STATUS
The plan obtained its latest determination letter on September
16, 1994, in which the Internal Revenue Service stated that the
Plan, as then designed, was in compliance with the applicable
requirements of the Internal Revenue Code. The Plan has been
amended since receiving the determination letter. However, the
Plan administrator and the Plan's tax counsel believe that the
Plan is currently designed and being operated in compliance with
the applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been included in
the Plan's financial statements.
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are managed by Bank of America. Bank
of America is the Trustee as defined by the Plan and, therefore,
these transactions qualify as party-in-interest.
* * * * * *
F-7<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
SUPPLEMENTAL SCHEDULE
DECEMBER 31, 1997
ITEM 27a - ASSETS HELD FOR INVESTMENT PURPOSES
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------- -------------------------------------------- ---------- -----------
DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUER, BORROWER, COLLATERAL, RATE OF INTEREST, MATURITY CURRENT
LESSOR, OR SIMILAR PARTY DATE, PAR OR MATURITY VALUE COST VALUE
- ---------------------------- -------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Bank of America Short-term Investment Fund - 35,989 shares $ 35,989 $ 35,989
ML Lee Acquisition Mutual Fund - 25 shares 25,000 4,861
Bank of America Balanced Fund - 115,251 shares 2,557,743 2,871,236
Recorp. Mtg. Investors II Limited Partnership - 1.5 units 60,000 6,096
Giant Industries, Inc. Common stock - 1,222,150 shares 6,028,291 23,220,850
Loans to participants Loans at prime plus 3%, collateralized by vested
accounts, due 1998 through 2002 28,941 28,941
---------- -----------
Total assets held for investment purposes $8,735,964 $26,167,973
========== ===========
</TABLE>
F-8<PAGE>
<PAGE>
<TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN OF
GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES
SUPPLEMENTAL SCHEDULE
DECEMBER 31, 1997
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN G COLUMN H COLUMN I
- ---------------------- -------------------------- ---------- ---------- ---------- ----------- ----------
CURRENT
VALUE OF
ASSET ON
IDENTITY OF PURCHASE SELLING COST TRANSACTION
PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE OF ASSET DATE NET GAIN
- ---------------------- -------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Series of Transactions
Bank of America Balanced Fund $1,563,316 $1,563,316 $1,563,316
Bank of America Balanced Fund $1,552,958 1,369,102 1,552,958 $183,856
Bank of America Short-Term Investment Fund 2,796,529 2,796,529 2,796,529
Bank of America Short-Term Investment Fund 3,160,966 3,160,966 3,160,966
Bank of America Giant Industries, Inc. 454,094 454,094 454,094
Bank of America Giant Industries, Inc. 1,046,619 358,519 1,046,619 688,100
NOTE: Reportable transactions are those transactions which either singularly or in series of combined purchases
and sales during the year exceed 5% of the fair value of the Plan's assets at the beginning of the year.
</TABLE>
F-9
