<PAGE>
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, 1999.
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: (480) 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. [ ]
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 29, 2000, 9,147,574 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
$45,798,000 based on the New York Stock Exchange closing price on February
29, 2000.
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 2000 Annual Meeting of Stockholders - Items
10, 11, 12, and 13.
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
GENERAL
Giant Industries, Inc., a Delaware corporation, together with its
subsidiaries, ("Giant" or the "Company"), through its wholly-owned subsidiary
Giant Industries Arizona, Inc. and its subsidiaries ("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. In addition, Phoenix Fuel Co., Inc. ("Phoenix Fuel"), a
wholly-owned subsidiary of Giant Arizona, operates an industrial/commercial
petroleum fuels and lubricants distribution operation.
The Company currently has three strategic business units, the Refining
Group, the Retail Group and Phoenix Fuel. Company operations, consisting
primarily of the Company's corporate staff operations, are not included in
any of the strategic business units. The Company believes that the Refining
Group, the Retail Group and Phoenix Fuel are its only material business
segments for financial reporting purposes. See the discussion of Company
segments contained in Item 8, Note 2.
The Refining Group consists of the Company's two refineries, its fleet
of crude oil and finished product truck transports, its crude oil pipeline
gathering operations and its finished product terminaling operations. The
Company's two refineries manufacture various grades of gasoline, diesel fuel,
jet fuel and other products from crude oil, other feedstocks and blending
components. These products are sold through Company-operated retail
facilities, independent wholesalers and retailers, industrial/commercial
accounts and sales and exchanges with major oil companies. Crude oil, other
feedstocks and blending components are purchased from third party suppliers.
The Retail Group consists of service station/convenience stores and one
travel center. These operations sell various grades of gasoline, diesel fuel,
general merchandise and food products to the general public through retail
locations. The petroleum fuels sold by the Retail Group are supplied by the
Refining Group, which either manufactures these refined products or acquires
them through exchange agreements, third party purchases, or from Phoenix
Fuel. General merchandise and food products are obtained from third party
suppliers.
Phoenix Fuel is an industrial/commercial petroleum fuels and lubricants
distribution operation, which includes a number of bulk distribution plants,
an unattended fleet fueling ("cardlock") operation and a fleet of finished
product truck transports. The petroleum fuels and lubricants sold are
primarily obtained from third party suppliers and to a lesser extent from the
Refining Group.
Giant was incorporated in 1989 in connection with the concurrent initial
public offering of common stock by Giant and the reorganization of Giant
Arizona and Hixon Development Company ("Hixon"). As a result of the
reorganization, Giant Arizona and Hixon became the principal wholly-owned
subsidiaries of the Company. Subsequent to the reorganization, Hixon was
renamed Giant Exploration & Production Company ("Giant E&P"). Giant E&P sold
substantially all of its assets in August 1996. Giant Arizona was founded in
1961 and operated as a sole proprietorship until incorporation in the State
of Arizona in 1969.
The Company's strategy is to profitably operate its refining, retail
marketing and other marketing operations, to make selective acquisitions, and
to take advantage of growth opportunities within its existing operations. The
Company's immediate focus is to identify ways to reduce operating expenses
and non-essential capital expenditures, to sell non-strategic assets and
underperforming assets while maintaining the value and integrity of the
Company's core assets, and to explore various ways to create greater value
for its stockholders.
REFINING GROUP
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 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 liquefied petroleum gas 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
90% or more of 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,
- -------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Feedstock throughput:(2)
Crude oil 31,900 32,500 33,700 34,800 23,700
NGLs and oxygenates 6,500 5,700 6,500 5,400 5,000
- -----------------------------------------------------------------------------
Total 38,400 38,200 40,200 40,200 28,700
=============================================================================
Crude oil throughput
(as a % of total) 83% 85% 84% 87% 83%
Rated crude oil capacity utilized 82% 84% 87% 90% 88%
Refinery margin ($/bbl) $ 6.89 $ 4.83 $ 6.39 $ 6.21 $ 5.13
Products:(2)
Gasoline 23,800 23,800 24,800 24,900 18,500
Diesel fuel 10,700 11,400 11,000 10,900 7,200
Jet fuel - - 800 1,100 900
Other 3,900 3,000 3,600 3,300 2,100
- -----------------------------------------------------------------------------
Total 38,400 38,200 40,200 40,200 28,700
=============================================================================
High Value Products:
Gasoline 62% 62% 62% 62% 65%
Diesel fuel 28% 30% 27% 27% 25%
Jet fuel - - 2% 3% 3%
- -----------------------------------------------------------------------------
Total 90% 92% 91% 92% 93%
=============================================================================
</TABLE>
(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 ("bbls") per day ("bpd").
Each refinery operating unit requires regular maintenance, as well as
major repair and upgrade 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. Capitalized
costs are then amortized over the estimated period until the next turnaround,
which is generally 24 to 48 months depending on the unit involved.
In general, a major refinery turnaround is scheduled every four years.
The Ciniza refinery had such a turnaround in 1998 and the Bloomfield refinery
is currently scheduled to have a major turnaround in 2001. In addition, the
platforming units at each refinery must be shut down one or two times a year
to regenerate catalyst. This is typically a nine to ten day shutdown and is
necessary to rejuvenate the catalyst thereby enabling continued production of
platformate, a high octane blending component. During such shutdowns,
turnaround maintenance and inspection is performed.
Unscheduled maintenance shutdowns also occur at the refineries, 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 Company's current receipts and projections of Four Corners crude oil
production indicate that the Company's crude oil demand may periodically
exceed the supply of crude oil that is available from local sources. The
Company has, and may from time to time, decrease production runs at its
refineries from levels it would otherwise schedule as a result of shortfalls
in Four Corners crude oil production.
The Four Corners basin is a mature production area and, accordingly, is
subject to a natural decline in production over time. In the past, this
natural decline has been offset by new drilling, field workovers and
secondary recovery projects which resulted in additional production from
existing reserves. Many of these projects were cut back, however, when crude
oil prices declined dramatically in 1998. Based upon history and discussions
with local producers, the Company anticipates that additional projects will
again be undertaken and that production will increase from the field as a
result of the recovery in crude oil prices which began in the second quarter
of 1999. Through the first quarter of 2000, the Company has noticed an
increase in Four Corners production and has indications that producers are
considering projects that, if undertaken, could increase production
significantly by the end of 2000 or early 2001.
The Company estimates that for the year 2000 its refinery production
runs will approximate 1999 levels based on current receipts and projections
of Four Corners crude oil production. If additional crude oil or other
refinery feedstocks become available, the Company may increase its production
runs depending on demand for finished products and refining margins
attainable.
The Company supplements the Four Corners crude oil used at its
refineries with other feedstocks. These feedstocks currently include locally
produced NGLs and other feedstocks produced outside of the Four Corners area.
The Company continues to evaluate supplemental feedstock alternatives for its
refineries on both a short-term and long-term basis. These alternatives
include, among other possibilities, the encouraging of new exploration and
production opportunities on tribal reservation lands. In addition, the
Company may evaluate a project to increase its production of gasoline from
abundantly available NGLs. Whether or not supplemental feedstocks are used at
the Company's refineries depends on a number of factors. These factors
include, but are not limited to, the availability of supplemental feedstocks,
the cost involved, the quantities required, the quality of the feedstocks,
the demand for finished products, and the selling prices of finished
products.
There is no assurance that current or projected levels of Four Corners
crude oil supply for the Company's refineries will be maintained. Any
significant long-term interruption or decline in Four Corners crude oil
supply, due to prices or other factors, or any significant long-term
interruption of crude oil transportation systems, would have an adverse
effect on the Company's operations.
The Company acquires crude oil 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. Some of the refineries' purchases are structured as
exchange agreements. In such exchanges, purchases are made in conjunction
with matching sales to the supplier at other domestic locations, as may be
negotiated periodically. The effect of such arrangements is to make a portion
of the cost of the refineries' supply dependent upon market conditions in
other locations, which may differ from those pertaining to the Four Corners
area.
In addition to crude oil, the Ciniza refinery currently 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 increases 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.
An adequate supply of NGLs is available for delivery to the Ciniza
refinery, primarily through a Company-owned pipeline connecting the Ciniza
refinery to a natural gas liquids fractionation plant operated by a third
party. NGLs also can 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 plant. These
agreements contain market sensitive pricing arrangements under which prices
are adjusted on a monthly basis.
OXYGENATES
The use of gasoline containing oxygenates has been government-mandated
in certain areas in which the Company sells motor fuel. Oxygenates are
oxygen-containing compounds that can be used as a motor vehicle fuel
supplement to reduce motor vehicle carbon monoxide emissions. 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 260 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 local common carrier
pipelines. The Ciniza refinery receives NGLs primarily 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 1999, its gasoline
production was distributed 49% in New Mexico, 38% in Arizona, 11% in Colorado
and 2% in Utah; and its diesel production was distributed 57% in New Mexico,
33% in Arizona, 9% in Colorado and 1% in Utah. In 1999, there was an
approximate 10% increase in the volume of gasoline distributed by the Company
in Arizona and an 8% decrease in New Mexico, compared to 1998 levels. This
was the result of opportunities created by refinery problems in California,
which reduced the amount of product available for shipment to Arizona by other
companies, and the opening of the Company's Flagstaff Terminal. The Company's
truck transports support refinery sales in its primary market as well as its
secondary markets. These vehicles hauled approximately 44% of the refineries'
sales barrels in 1999. The balance is transported by customer or common
carrier trucking.
FLAGSTAFF TERMINAL. In 1998, the Company began construction of a 6,000
bpd capacity finished products terminal near Flagstaff, Arizona (the
"Flagstaff Terminal"). Initial construction included a 30,000 bbl unleaded
tank, a 20,000 bbl diesel tank and a 15,000 bbl premium tank, in addition to
a truck loading rack with three loading spots. Construction of the Flagstaff
Terminal was completed in the second quarter of 1999, and the facility opened
for business in May 1999. Terminal capacity could be expanded to 12,000 bpd
of finished product. Product deliveries to the Flagstaff Terminal initially
are being made by truck transport from Phoenix, Arizona or the Company's
refineries. The Company currently is reviewing the economics for construction
of a pipeline between the Flagstaff Terminal and the Ciniza refinery,
including the costs of rights-of-way across the Navajo Reservation. The
Company is also reviewing the economics of using rail as a secondary resource
for supplying the terminal with finished products.
REFINED PRODUCT SALES. During 1999, the Company sold approximately
8,885,000 barrels of gasoline and 3,947,000 barrels of diesel fuel from its
refineries. In 1998, approximately 8,727,000 barrels of gasoline and
4,183,000 barrels of diesel fuel were sold. The Company's retail units sold
an equivalent of approximately 53% of these gasoline and 25% of these diesel
sales. Gasoline and diesel deliveries made through product exchanges with
large oil companies accounted for approximately 13% 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 are marketed
to various third party customers.
RETAIL GROUP
At December 31, 1999, the Company operated 172 service
station/convenience stores located in New Mexico, Arizona, Colorado and Utah.
This represents a net increase of 6 units since December 31, 1998. 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 239,864,000 gallons of gasoline and diesel fuel in 1999
compared to approximately 209,325,000 gallons in 1998, a 15% increase.
Merchandise sales increased approximately 16% in 1999, to $118,894,000 from
$102,827,000. The increases were primarily due to an increase in the number
of stores operating for a full year in 1999 versus partial operation in 1998.
In addition, the continued implementation and execution of improved
merchandise marketing programs also contributed significantly to increased
merchandise sales. For 1999, same store sales increased 11% for merchandise
and decreased by 6% for gasoline and diesel fuel compared to 1998.
During 1999, the Company continued to build new retail units to expand
its retail market. The Company opened five new Company-constructed service
station/convenience stores and completely rebuilt two other units. One
additional store was under construction in late 1999 and opened in January
2000. In addition, the Company completed two merchandise only stores.
As part of an ongoing effort to dispose of non-strategic or
underperforming assets, the Company disposed of two service station/
convenience stores and two pieces of non-strategic land in 1999.
In 1997, 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. As of December 31, 1999,
67 units (including the Travel Center) had been converted to the Conoco
brand.
Early in 1998, Giant operated service station/convenience stores under
eight different brand names as a result of acquisitions made in 1997 and
1998. The Company developed the Mustang Brand to consolidate the existing
trade names and provide brand synergy within Giant. During 1998 and 1999,
81 stores were renovated and rebranded Mustang.
Many of the Company's service stations are modern, high-volume self-
service stations. 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.
In 2000, the Company intends to evaluate its retail assets for non-
strategic or underperforming assets. The Company also plans to construct one
new unit. In addition, the Company may acquire, by the assignment of certain
leases/subleases, up to 16 service station/convenience stores located on the
Navajo, Ute or Zuni Indian Reservations.
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 12 months ended December
31, 1999, the Company sold approximately 26,084,000 gallons of diesel fuel at
the Travel Center (approximately 29% of the Ciniza refinery's total diesel
production). This compares to approximately 23,018,000 gallons of diesel fuel
sold (approximately 25% of the Ciniza refinery's total diesel production) in
the twelve months ended December 31, 1998. 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; Taco Bell, Pizza Hut Express and A&W Root Beer fast
food operations; two large convenience stores; a 24-hour movie theater; a
hair salon and other accommodations such as showers, laundry, security and
lighted parking.
PHOENIX FUEL
On June 3, 1997, Giant Arizona purchased all of the outstanding stock of
Phoenix Fuel. Giant Arizona operates Phoenix Fuel as a wholly-owned
subsidiary. Phoenix Fuel is an independent industrial/commercial petroleum
products distributor marketing gasoline, diesel fuel, jet fuel, kerosene,
motor oil, hydraulic oil, gear oil, cutting oil, grease and various chemicals
and solvents.
Phoenix Fuel operates eight lubricant and bulk petroleum distribution
plants, 21 cardlock fueling locations, a bulk lubricant terminal facility,
and a fleet of 35 finished product transports and 23 finished product
tankwagons. These assets and related operations are located throughout the
state of Arizona and in Las Vegas, Nevada.
In February 1998, Phoenix Fuel assumed the operations of Reinhart Oil
Company, a petroleum products distributorship in Las Vegas, Nevada. This
facility supplies a full line of fuel and lubricant products to customers in
southern Nevada and northwest Arizona.
For the twelve months ended December 31, 1999, Phoenix Fuel sold
approximately 8,507,000 barrels of finished products and lubricants. In 1998,
approximately 7,628,000 barrels were sold. Sales of additional products,
including lubricants and related items, totaled approximately $26,232,000 for
the twelve months ended December 31, 1999, compared to $26,294,000 in the
same 1998 period. Almost all of the petroleum products sold by Phoenix Fuel
are purchased for resale from other refiners and marketers.
SOUTHERN ARIZONA MARKET
With the acquisition of Phoenix Fuel, the Company expanded its
operations into southern Arizona. The Company further increased its presence
in this market with the acquisition of 32 service station/convenience stores
and the lease of one other from Kaibab Industries, Inc. in 1998. In 1999, the
Company opened three Company-constructed service station/convenience stores
in the Phoenix area and two in the Tucson market. In January 2000, an
additional unit was opened in Tucson.
EMPLOYEES
The Company and its subsidiaries employed approximately 2,850 persons on
February 29, 2000, including approximately 2,480 full-time and approximately
370 part-time employees. Approximately 2,470 were employed in refining and
marketing operations including 350 part-time employees. Of these, 2,060
(including 340 part-time) were employed in the Retail Group. Phoenix Fuel
employed approximately 240 persons, including ten part-time. The Company
currently has no employees covered by a collective bargaining agreement.
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, are 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 (i) the quality, quantity and delivered costs of
crude oil, NGLs and other refinery feedstocks, (ii) refinery processing
efficiencies, (iii) refined product mix, (iv) refined product selling prices,
(v) the cost of delivering refined products to markets, and (vi) 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 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,
at the end of 1999, an existing NGLs pipeline had been converted to a refined
products pipeline and was delivering finished product from Southeastern New
Mexico to the Albuquerque and Four Corners areas, and is expected to increase
competition for sales volumes in these areas. Mergers between large
integrated oil companies and upgrades to competitors' refineries have also
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 is the potential conversion and
extension of the existing Texas-New Mexico crude oil pipeline to transport
refined products from West Texas to New Mexico, including Albuquerque and
potentially Bloomfield. Another potential project would take product on to
Salt Lake City, Utah. In addition, various actions have been undertaken to
increase the supply of refined products to El Paso, Texas, which is connected
by pipeline to the Albuquerque area to the north and the Phoenix and Tucson,
Arizona 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 potentially available in these markets, as well as improving
competitor access to these areas, and may result in new opportunities for the
Company, as the Company is a net purchaser of refined products in some of
these 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 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
availability and cost, appearance and cleanliness of service stations and
brand acceptance.
REGULATORY, ENVIRONMENTAL AND OTHER MATTERS
OPERATIONS. The Company's operations are subject to a variety of
federal, state and local health and environmental laws and regulations
governing (i) the discharge of pollutants into the soil, air and water, (ii)
product specifications, and (iii) 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 currently effective
environmental laws and regulations. Environmental laws and regulations,
however, are becoming increasingly stringent.
The Company is subject to various federal and state programs relating to
the composition of motor fuels. In December 1999, the Environmental
Protection Agency ("EPA") issued a rule which requires refiners to reduce the
sulfur content of gasoline to 30 parts per million ("ppm") by 2006 unless
they qualify for an extension of this deadline. The Company may be eligible
for an extension of up to one year under a provision pertaining to gasoline
produced or sold in certain designated geographic areas, including three
states in which the Company markets its gasoline. It is anticipated that the
Company will incur costs in the approximate amount of $3,500,000 to purchase
the equipment necessary to produce gasoline with a 30 ppm sulfur content at
its refineries.
The federal Clean Air Act requires the sale of reformulated gasoline
("RFG") in certain designated areas of the country. Motor fuels produced by
the Company's refineries are not sold in any such areas. Arizona, however,
has adopted a cleaner burning gasoline ("CBG") program. The Company does not
presently manufacture gasolines that satisfy Arizona CBG specifications. The
specifications are currently applicable to gasolines sold or used in Maricopa
County and a portion of Yavapai County, and are expected to become effective
in Pinal County by 2001. The Company operates approximately 25 service
stations in these areas, and also conducts wholesale marketing operations
there. The Company currently does not intend to make the changes necessary to
produce CBG because the capital costs associated with manufacturing large
quantities of such gasolines would be significant in amounts not determined
by the Company. The Company has the ability to purchase or exchange for these
gasolines to supply its operations in the CBG areas, including Pinal County.
It is possible that additional legislation or regulations affecting motor
fuel specifications may be adopted that would impact geographic areas in
which the Company markets its products.
The Company is subject to environmental regulations adopted by 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. Permit
applications have been filed for both of the Company's refineries. While the
Company anticipated that the permits would be issued in 1999, it currently
appears that the permits will be received in 2000. Although additional costs
will be incurred in connection with these permits, the Company currently does
not believe these costs will be material.
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 and NMED are
negotiating a plan for closure of the land treatment facility. It is
anticipated that the costs associated with implementing the type of closure
plan under discussion would be approximately $400,000. An estimated $100,000
of this amount would be spent in 2000, with the remainder spent over a period
of approximately 30 years.
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, RELEASES AND CLEANUP ACTIVITIES. 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, and its 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
following are the most significant cleanup activities being undertaken by the
Company.
On October 1, 1999, the State of New Mexico filed a lawsuit in the
United States District Court for the District of New Mexico, and a separate
lawsuit in the Second Judicial District Court, County of Bernalillo, State of
New Mexico, against numerous entities, including General Electric Company,
ACF Industries, Inc., Chevron Corporation, Texaco Refining and Marketing,
Inc., Phillips Petroleum Company, Ultramar Diamond Shamrock Corporation, the
United States Department of Energy, the United States Department of Defense,
the United States Air Force and the Company. The lawsuits relate to alleged
releases of pollutants at the South Valley Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") Superfund Site in
Albuquerque, New Mexico (the "South Valley Superfund Site"). The South Valley
Superfund Site includes contamination that allegedly originated from a number
of facilities, including a GE Aircraft Engines/U.S. Air Force facility and a
petroleum products terminal (the "Albuquerque Terminal") that was acquired by
the Company in 1995 from Texaco Refining and Marketing, Inc. ("Texaco"). The
lawsuits allege that the defendants released or threatened to release
hazardous substances into the environment, causing injury to surface water,
groundwater and soil at the South Valley Superfund Site, which are natural
resources of the state. In the federal court lawsuit, the state seeks
monetary damages under CERCLA for all past, present and future damages to
these natural resources, plus interest, costs and attorneys' fees. The state
court complaint contains state law claims for trespass, public nuisance,
interference with natural resources held in trust by the state, negligence,
strict liability, unjust enrichment and punitive damages. The state seeks
various monetary damages in connection with these claims, including natural
resources damages, loss of use of property and natural resources, loss of tax
revenues, lost profits, punitive damages and attorneys' fees and costs. Since
its original filing, the state court complaint has been removed to federal
court. The Company, along with certain other defendants, has filed a motion
to dismiss the state law claims. Although neither complaint calculates the
amount of damages being sought by the state, a preliminary assessment report
on alleged damages to natural resources, dated December 1998, issued by the
New Mexico Office of the Natural Resources Trustee estimated these damages at
$260,000,000. Liability for natural resource damages under CERCLA is joint
and several such that a responsible party may be liable for all natural
resource damages at a site even though it was responsible for only a small
part of such damages.
Texaco agreed to defend, indemnify, reimburse and hold the Company
harmless from and against all claims and damages arising from, or caused by,
pre-closing contamination at the Albuquerque Terminal. Texaco has
acknowledged this obligation, subject to any evidence that alleged releases
resulted from the Company's operations. The Company believes that any damages
associated with the South Valley Superfund Site relate to releases that
predate the Company's acquisition of the Albuquerque Terminal and,
accordingly, does not believe that it needs to record a liability in
connection with the two lawsuits.
In 1973, the Company constructed the Farmington refinery that 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 the supervision of the New Mexico Oil Conservation
Division ("OCD"), although no cleanup order has been received. The Company
had reserved approximately $1,000,000 for possible environmental expenditures
relating to its Farmington property, of which approximately $570,000 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 Landfill was added to the National Priorities List as a 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.
BLM made a proposed plan of action for the Landfill available to the
public in 1996. Remediation alternatives examined by BLM in connection with
the development of its proposed plan ranged in projected cost from no cost to
approximately $14,500,000. BLM proposed the adoption of a remedial action
alternative that it believes would cost approximately $3,900,000 to
implement.
BLM's $3,900,000 cost estimate is based on certain assumptions which may
or may not prove to be correct and is contingent on confirmation that the
remedial actions, once implemented, are adequately addressing Landfill
contamination. For example, if assumptions regarding groundwater mobility and
contamination levels are incorrect, BLM is proposing to take additional
remedial actions with an estimated cost of approximately $1,800,000.
BLM has received public comment on its proposed plan. The final remedy
for the site, however, has not yet been selected. It is anticipated that the
final remedy will be selected in 2000. In 1989, a consultant to the Company
estimated, based on various assumptions, that the Company's share of
potential liability could be approximately $1,200,000. This figure was based
upon estimated Landfill remediation costs significantly higher than those
being proposed by BLM. The figure was also based on the consultant's
evaluation of such factors as available clean-up technology, BLM's
involvement at the site and the number of other entities that may have had
involvement at the site, but did not include an analysis of all 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.
Although it is possible that the Company may ultimately incur liability for
clean-up costs associated with the Landfill, a reasonable estimate of the
amount of this liability, if any, cannot be made at this time because, among
other reasons, the final site remedy has not been selected, a number of
entities had involvement at the site, allocation of responsibility among
potentially responsible parties has not yet been made, and potentially-
applicable factual and legal issues have not been resolved. Based on current
information, the Company does not believe that it needs to record a liability
in relation to BLM's proposed plan.
BLM may assert claims against the Company and others for reimbursement
of investigative, cleanup and other costs incurred by BLM in connection with
the Landfill and surrounding areas. It is also possible that the Company will
assert claims against BLM in connection with contamination that may be
originating from the Landfill. Private parties and other governmental
entities may also assert claims against BLM, the Company and others for
property damage, personal injury and other damages allegedly arising out of
any contamination originating from the Landfill and the Farmington property.
Parties 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 BLM or any other
party.
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 the Resources Conservation and Recovery Act (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 established an environmental
reserve of $2,250,000 in connection with this matter, of which approximately
$1,600,000 still remains.
The Company has discovered hydrocarbon contamination adjacent to a
55,000 barrel crude oil storage tank (the "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, to the
Company's knowledge, ceased operations in the early 1960s. The Company
submitted a work plan to define the extent of petroleum contamination in the
soil and groundwater, which was approved by OCD subject to certain
conditions. One of the conditions required the Company to submit a
comprehensive report on all site investigations to OCD by January 14, 2000.
The Company filed the required report on January 13, 2000. Based upon the
report, it appears possible that contaminated groundwater is contained within
the property boundaries and does not extend offsite. It is anticipated that
OCD will not require remediation of offsite soil based upon the low
contaminant levels found there. The Company previously estimated cleanup
costs at $250,000 and an environmental reserve in that amount was created, of
which $238,000 remains. If OCD adopts the remediation alternative proposed by
the Company, the Company anticipates that the cost of remediation will be
closer to $100,000. The Company, however, does not know whether OCD will
adopt the Company's remediation proposal.
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.
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.
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 governments.
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 Company operations outside the boundaries of the
Navajo Indian Reservation in an area of disputed jurisdiction, including a
$1,800,000 severance tax assessment (including interest and penalties through
the date of the assessment) issued in November 1991, and a $3,400,000
severance tax assessment (including interest and penalties through the date
of the assessment) issued in May 1999, both of which relate to crude oil
removed from properties located within this area. The Company has invoked its
appeal rights with the Tribe's Tax Commission in connection with the
assessments and intends to oppose the assessments. Although it is probable
that the Company will incur liability in connection with tax notifications
and assessments from the Navajo Tribe relating to the area of disputed
jurisdiction, it is not possible to precisely estimate the amount of any
obligation for such taxes at this time because the Navajo Tribe's legal
authority to impose taxes throughout this area has not been legally
established and all potentially-applicable factual issues have not been
resolved. The Company has accrued a liability for assessments that it has
received from the Navajo Tribe for substantially less than the amount of the
assessments. 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 may potentially be able to
request reimbursement from certain third party oil lease interest owners in
connection with any severance tax amounts ultimately paid by the Company that
relate to purchases from the interest owners. The Company intends to continue
purchasing activities in the area of disputed jurisdiction.
DISCONTINUED OIL & GAS OPERATIONS
In August 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 from the retained wells 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 (i) a production
payment to the buyer of the Company's other oil and gas assets, under which
the natural gas reserves related to these wells will be produced for the
benefit of the buyer, and (ii) a "suboperating" agreement under which the
buyer assumes substantially all of the responsibilities and risks of
operation of the wells.
<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" in Items 1
and 2, the discussions contained in Item 7, and the information regarding
contingencies in Note 17 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 officers of the Company as of March 1, 2000 are listed below:
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
James E. Acridge 59 Chairman of the Board, October 1989
President and Chief
Executive Officer
Fredric L. Holliger 52 Executive Vice President October 1989
and Chief Operating
Officer
Morgan Gust 52 Executive Vice President August 1990
Monte N. Swetnam 63 Executive Vice President, December 1998
Administration and
Corporate Affairs
Jack W. Keller 55 President of the Company's February 1999
Phoenix Fuel Strategic
Business Unit
Philip W. Tomczyk 47 President of the Company's February 1999
Retail Group Strategic
Business Unit
Carl D. Shook 61 Executive Vice President February 2000
of the Company's
Refining Group Strategic
Business Unit
C. Leroy Crow 49 Executive Vice President February 2000
of the Company's
Refining Group Strategic
Business Unit
Kim H. Bullerdick 46 Vice President, Legal February 1999
Department Director
and Secretary
Mark B. Cox 41 Vice President, Treasurer, February 1999
Financial Officer and
Assistant Secretary
Gary R. Dalke 47 Vice President, Controller, February 1999
Accounting Officer and
Assistant 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 Arizona in 1969. Mr. Acridge has served continuously as the
Chairman of the Board of Directors, President and Chief Executive Officer of
the Company and Giant Arizona since their formation. Since June 1997, Mr.
Acridge also has served as Chairman of the Board of Phoenix Fuel.
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 Arizona, the Company's principal wholly-owned subsidiary, as
Senior Vice President, and President of the Giant Arizona refining division,
in February 1989, and continues to serve as a director, Executive Vice
President and Chief Operating Officer of Giant Arizona. Mr. Holliger also has
served as a director and Chief Executive Officer of Phoenix Fuel since it was
acquired by Giant Arizona in June 1997.
Morgan Gust has served as Executive Vice President of the Company and
Giant Arizona since February 1999. From August 1990 through September 1998,
Mr. Gust served in various senior management positions for the Company and
Giant Arizona, including Vice President, Vice President Administration,
General Counsel, and Secretary. From October 1998 until January 1999, Mr.
Gust was absent from the Company. Upon returning to the Company in January
1999, Mr. Gust was part of senior management until being elected Executive
Vice President by the Board of Directors of the Company on February 25, 1999.
Monte N. Swetnam has served as Executive Vice President, Administration
and Corporate Affairs of the Company and Giant Arizona since December 1998
and as Executive Vice President of Giant E&P since January 1994. From October
1997 to December 1998, Mr. Swetnam served as Vice President, Corporate
Affairs for Giant Arizona. From November 1996 to October 1997, he served as
Vice President, Refining Operations for Giant Arizona.
Jack W. Keller has served as the President of Phoenix Fuel Strategic
Business Unit since February 1999 and as the President of Phoenix Fuel since
December 1996. From 1989 to December 1996, Mr. Keller served in various
senior management roles with Phoenix Fuel, including Chief Operating Officer
from 1993 to 1996 and General Manager from 1989 to 1993. From December 1997
to September 1998, Mr. Keller also served as Senior Vice President, Marketing
Division of Giant Arizona.
Philip W. Tomczyk has served as the President of the Company's Retail
Group Strategic Business Unit since February 1999. From December 1997 to
February 1999, Mr. Tomczyk served as Senior Vice President of Giant Arizona's
Retail Division. From February 1997 to November 1997, Mr. Tomczyk provided
consulting services to the Company. From August 1996 to February 1997, Mr.
Tomczyk was the President of Discovery & Solutions, a strategic planning
consulting firm that he founded. In May 1996, Mr. Tomczyk purchased three
apartment buildings that he remodeled and continues to own and operate. From
February 1992 to April 1996, Mr. Tomczyk served as a Senior Vice President of
Circle K Corp. where he was responsible for gasoline, engineering,
construction, real estate and mergers and acquisitions.
Carl D. Shook has served as Executive Vice President of the Company's
Refining Group Strategic Business Unit and as Executive Vice President,
Refining Group of Giant Arizona since February 2000. From February 1999 to
February 2000, Mr. Shook served as Senior Vice President, Engineering and
Technical Services for Giant Arizona. From January 1998 to February 1999, Mr.
Shook served as Vice President, Engineering and Analysis for Giant Arizona.
From October 1996 until January 1998, Mr. Shook served as Vice President
Corporate Planning and Evaluation for Giant Arizona. From February 1995 until
October 1996, Mr. Shook served as Senior Vice President of Refinery
Operations for Giant Arizona.
C. Leroy Crow has served as Executive Vice President of the Company's
Refining Group Strategic Business Unit and as Executive Vice President,
Refining Group of Giant Arizona since February 2000. From February 1999 to
February 2000, Mr. Crow served as Senior Vice President, Refinery Operations
and Raw Material Supply for Giant Arizona. From December 1997 to February
1999, Mr. Crow served as Senior Vice President, Operations Division for Giant
Arizona. From February 1996 to December 1997, Mr. Crow served as the Vice
President of Operations for Phoenix Fuel. Prior to joining Phoenix Fuel in
February 1996, Mr. Crow was the General Manager of Pro Petroleum, a wholesale
fuel distributor in Phoenix, Arizona, from 1993 to 1996.
Kim H. Bullerdick has served as Vice President, Legal Department
Director and Secretary of the Company and Giant Arizona since December 1998.
From September 1998 to December 1998, Mr. Bullerdick served as an Assistant
Secretary of the Company and Giant Arizona. Mr. Bullerdick joined Giant
Arizona in June 1987 as Corporate Counsel. In August 1995, he was appointed
Assistant General Counsel of Giant Arizona, and in 1998, he was appointed
Associate General Counsel; Manager, Legal Department; and Manager, Regulatory
Affairs.
Mark B. Cox has served as Vice President, Treasurer, Financial Officer
and Assistant Secretary of the Company and Giant Arizona since December 1998.
From September 1998 to December 1998, Mr. Cox served as Treasurer and
Assistant Secretary of the Company and Giant Arizona. From 1997 to September
1998, Mr. Cox served as Treasurer of the Company and Giant Arizona. From 1994
to 1997, Mr. Cox served as Assistant Treasurer of Giant Arizona.
Gary R. Dalke has served as Vice President, Controller, Accounting
Officer and Assistant Secretary of the Company and Giant Arizona since
December 1998. From September 1998 to December 1998, Mr. Dalke served as an
Assistant Secretary of the Company and Giant Arizona. From April 1998 to
September 1998, Mr. Dalke served as Chief Information Officer of Giant
Arizona, and from July 1998 to December 1998, Mr. Dalke served as the
Controller for Giant Arizona. From January 1990 to July 1998, Mr. Dalke
served as Chief Financial Officer of Phoenix Fuel. From January 1997 to July
1998, Mr. Dalke also was Vice President of Phoenix Fuel, and from June 1997
to September 1998, he was also Treasurer of Phoenix Fuel.
<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 are as follows:
QUARTER ENDED HIGH LOW
December 31, 1999 11 11/16 6 13/16
September 30, 1999 12 9/16 9 1/4
June 30, 1999 12 1/4 7 11/16
March 31, 1999 9 13/16 5 5/8
December 31, 1998 13 1/2 8 9/16
September 30, 1998 18 9/16 10 3/4
June 30, 1998 23 11/16 17 5/16
March 31, 1998 21 1/16 16 3/4
During 1999, the Company's Board of Directors declared no cash dividends
on common stock. During 1998, the Company's Board of Directors declared cash
dividends on common stock for each of the first three quarters 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 (the
"9% Notes") and $100,000,000 of 9 3/4% Senior Subordinated Notes (the "9 3/4%
Notes"). The 9% Notes were issued pursuant to an Indenture dated August 26,
1997 (the "9% Indenture") and the 9 3/4% Notes were issued pursuant to an
Indenture dated November 29, 1993 (the "9 3/4% Indenture", and collectively
with the 9% Indenture, the "Indentures"). 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 Company's payment of dividends
and purchase of its common stock.
The Indentures include the payment of dividends and purchase of the
Company's common stock in their definitions of "Restricted Payments." The
Indentures place limitations on "Restricted Payments," the most significant
of which are summarized as follows:
The Company cannot, and cannot 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) $30,000,000 in the case of the 9% Indenture and
$15,000,000 in the case of the 9 3/4% Indenture. Consolidated Net Income
excludes, among other things, any full cost ceiling limitation
writedown.
At December 31, 1999, retained earnings available for dividends under
the most restrictive terms of the Indentures were approximately $10,658,000.
The Board of Directors will periodically review the Company's policy
regarding the payment of dividends.
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 256 holders of record of Common Stock on March 17, 2000.
<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 Independent Auditors' Report included in Item 8
hereof:
<TABLE>
<CAPTION>
FINANCIAL AND OPERATING HIGHLIGHTS
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OPERATING DATA)
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL STATEMENT DATA
Continuing Operations:
Net Revenues $782,683 $642,504 $657,278 $499,184 $332,888
Operating Income 37,397 19,907 41,106 39,730 20,638
Net Earnings (Loss) 10,778 (2,217) 15,294 17,051 7,733
Earnings (Loss) Per Common Share - Basic $ 1.01 $ (0.20) $ 1.38 $ 1.52 $ 0.68
Earnings (Loss) Per Common Share - Diluted $ 1.01 $ (0.20) $ 1.37 $ 1.50 $ 0.67
Discontinued Operations:
Net Earnings (Loss) $ (13) $ 143
Earnings (Loss) Per Common Share
- Basic and Diluted $ - $ 0.01
Weighted Average Common Shares Outstanding 10,679 10,951 11,051 11,220 11,479
Dividends Paid Per Common Share $ - $ 0.20 $ 0.20 $ 0.20 $ 0.20
Working Capital $ 49,396 $ 89,104 $111,725 $ 21,541 $ 50,328
Total Assets 546,799 527,414 535,371 324,007 324,862
Long-Term Debt 258,272 282,484 275,557 113,081 142,676
Stockholders' Equity 132,462 127,702 133,467 122,124 109,732
Long-Term Debt as a Percentage
of Total Capitalization 66.1% 68.9% 67.4% 48.1% 56.5%
Book Value Per Common Share $ 12.86 $ 11.78 $ 12.14 $ 11.00 $ 9.75
Return on Average Stockholders' Equity 8.3% 12.0% 14.7% 7.2%
OPERATING DATA(1)
Continuing Operations
REFINING GROUP:
Rated Crude Oil Capacity Utilized 82% 84% 87% 90% 88%
Refinery Sourced Sales Barrels (Bbls/Day) 37,368 37,898 39,037 38,814 27,430
Average Crude Oil Costs ($/Bbl) $ 17.64 $ 14.29 $ 20.60 $ 21.80 $ 18.41
Refinery Margin ($/Bbl) $ 6.89 $ 4.83 $ 6.39 $ 6.21 $ 5.13
RETAIL GROUP:
SERVICE STATIONS:
Fuel Gallons Sold (In Thousands) 211,873 184,375 125,219 87,499 85,872
Product Margin ($/Gallon) $ 0.179 $ 0.206 $ 0.213 $ 0.201 $ 0.196
Merchandise Sold ($ In Thousands) $111,603 $ 95,496 $ 67,601 $ 42,037 $ 38,091
Merchandise Margin 28% 30% 30% 30% 30%
Number of Outlets at Year End 172 166 148 52 51
TRAVEL CENTER:
Fuel Gallons Sold (In Thousands) 27,991 24,950 19,434 18,298 21,522
Product Margin ($/Gallon) $ 0.111 $ 0.111 $ 0.111 $ 0.104 $ 0.102
Merchandise Sold ($ In Thousands) $ 7,291 $ 7,331 $ 7,382 $ 7,092 $ 7,640
Merchandise Margin 45% 45% 44% 46% 47%
Number of Outlets at Year End 1 1 1 1 1
Retail Fuel Volumes Sold as a % of
Refinery Sourced Sales Barrels 42% 36% 24% 18% 26%
PHOENIX FUEL:
Fuel Gallons Sold (In Thousands) 351,949 314,763 172,121
Product Margin ($/Gallon) $ 0.064 $ 0.067 $ 0.075
Lubricant Sales ($ In Thousands) $ 22,067 $ 22,517 $ 12,923
Lubricant Margin 15% 14% 14%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating data includes the operations of the Bloomfield refinery
from October 4, 1995, the Thriftway and Phoenix Fuel acquisitions from
approximately June 1, 1997, the DeGuelle acquisition from February 10,
1998, and the Kaibab acquisition from approximately July 1, 1998.
<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, 1999 AND DECEMBER 31, 1998
- ---------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES
- -----------------------------------
For the year ended December 31, 1999, earnings before income taxes were
$16,456,000, an increase of $20,182,000 from a loss before income taxes of
$3,726,000 for the year ended December 31, 1998. This increase was primarily
due to a 42% increase in refinery margins, due in part to refinery problems
on the West Coast in early 1999 and the shifting of sales volumes to higher
netback markets; increased operating income from Phoenix Fuel; and increased
retail sales volumes. In addition, 1999 earnings reflected lower interest
expense, while 1998 earnings included the write-off of costs incurred in
connection with the terminated merger with Holly Corporation. The increase in
earnings was offset in part by increased operating and administrative
expenses, a 12% decline in retail fuel margins, a 7% decline in retail
merchandise margins and the write-off of approximately $2,387,000 in net book
value of assets that were either demolished for new construction or replaced
with new systems.
REVENUES
- --------
Revenues for the year ended December 31, 1999, increased approximately
$140,179,000 or 22% to $782,683,000 from $642,504,000 in the comparable 1998
period. The increase is due to, among other things, a 27% increase in
refinery weighted average selling prices; a 12% increase in wholesale fuel
volumes sold by Phoenix Fuel, along with a 25% increase in weighted average
selling prices; a 9% increase in weighted average retail fuel prices, along
with a 15% increase in retail fuel volumes sold; an 11% increase in
merchandise sales from service station/convenience stores that were in
operation for a full year in each period; and the acquisition of 32 service
station/convenience stores, and the lease of one other, from Kaibab
Industries, Inc. in June and July 1998 (the "Kaibab Acquisition"). This
increase was partially offset by a 1% decline in refinery sourced finished
product sales volumes.
The 15% increase in the volume of refined products sold through the
Company's retail units, from 1998 levels, was primarily due to the Kaibab
Acquisition. The volume of finished product sold from the Company's travel
center increased 12%, due in large part to improved marketing programs.
Finished product sales volumes from service station/convenience stores that
were in operation for a full year in each period declined approximately 6%.
This decrease was significantly offset by finished product sales from service
station/convenience stores constructed or remodeled within the last 21 months.
COST OF PRODUCTS SOLD
- ---------------------
For the year ended December 31, 1999, cost of products sold increased
$102,590,000 or 22% to $567,526,000 from $464,936,000 in the corresponding
1998 period. The increase is due in part to a 12% increase in wholesale fuel
volumes sold by Phoenix Fuel, along with a 27% increase in the cost of
finished product purchased; a 23% increase in average crude oil costs; an 11%
increase in merchandise sales from service station/convenience stores that
were in operation for a full year in each period; and the Kaibab Acquisition.
This increase was partially offset by a 1% decline in refinery sourced
finished product sales volumes.
For the year 1999, certain higher cost refinery LIFO inventory layers
were liquidated which resulted in an increase in the cost of products sold of
approximately $2,551,000. There were no similar liquidations in 1998.
OPERATING EXPENSES
- ------------------
For the year ended December 31, 1999, operating expenses increased
approximately $11,967,000 or 12% to $115,174,000 from $103,207,000 for the
year ended December 31, 1998. Forty-eight percent of the increase is due to
the Kaibab Acquisition. The remaining increase is primarily due to increased
lease expense related to the 1998 sale-leaseback transaction between the
Company and FFCA Capital Holding Corporation ("FFCA") that was completed in
December 1998, higher payroll and related costs for the Ciniza refinery
reflecting general wage increases and the allocating of wages in 1998 to the
second quarter major refinery turnaround, and expenses, paid or accrued, for
the estimated costs of 1999 company-wide incentive bonuses. These increases
were offset in part by lower 1999 workers' compensation costs and reduced
retail advertising costs in 1999 because of a change in advertising
strategies.
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the year ended December 31, 1999, depreciation and amortization
increased approximately $1,963,000 or 7% to $31,129,000 from $29,166,000 in
the same 1998 period. The increase is primarily related to construction,
remodeling and upgrades in retail and refining operations during 1998 and
1999, and the amortization of 1998 and 1999 refinery turnaround costs. These
increases were partially offset by a reduction in depreciation expense
related to the 1998 sale-leaseback transaction between the Company and FFCA.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
For the year ended December 31, 1999, selling, general and
administrative expenses ("SG&A") increased approximately $3,782,000 or 15% to
$29,070,000 from $25,288,000 (including approximately $1,355,000 in costs
written off in connection with the terminated merger with Holly Corporation)
in the corresponding 1998 period. The increase is primarily due to a larger
than normal contribution of $3,000,000 to the Company's Employee Stock
Ownership Plan ("ESOP") in 1999, no contribution having been made to the ESOP
in 1998; expenses for the estimated costs of 1999 incentive bonuses; and an
increase in 1999 self insured group health insurance costs due to higher
claims experience. The increase was offset in part by a reduction in outside
consulting costs, related in part to retail and corporate information system
evaluations conducted in 1998, and insurance reimbursements received relating
to prior workers' compensation claims that had been paid by the Company.
INTEREST EXPENSE (INCOME)
- -------------------------
For the year ended December 31, 1999, interest expense decreased
approximately $2,047,000 or 8% to $23,417,000 from $25,464,000 in the
comparable 1998 period. The decrease is primarily due to a reduction in
interest expense related to the purchase of service station/convenience
stores that were subject to capital lease obligations, along with a reduction
in borrowings from the Company's revolving credit facility.
For the year ended December 31, 1999, interest and investment income
increased approximately $645,000 or 35% to $2,476,000 from $1,831,000 in the
comparable 1998 period. The increase is primarily due to interest income
relating to a long-term note receivable from the Company's Chairman and Chief
Executive Officer. Interest and investment income from the investment of
funds in short-term instruments was relatively comparable year to year. The
effects of fluctuations in interest rates applicable to invested funds were
nominal.
INCOME TAXES
- ------------
The effective tax rate for the year ended December 31, 1999, was
approximately 35%. The effective benefit rate for the year ended December 31,
1998, was approximately 40%. The difference in the rates is primarily due to
deferred tax adjustments and the resolution of various tax matters in 1999.
OUTLOOK
- -------
The Company's strategy is to profitably operate its refining, retail
marketing and other marketing operations, to make selective acquisitions, and
to take advantage of growth opportunities within its existing operations. The
Company's immediate focus is to identify ways to reduce operating expenses
and non-essential capital expenditures; to sell non-strategic assets and
underperforming assets while maintaining the value and integrity of the
Company's core assets; and to explore various ways to create greater value
for its stockholders.
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, 1998 AND DECEMBER 31, 1997
- ---------------------------------------------------------------------
The primary factors affecting the results of the Company's 1998
operations as compared to its 1997 operations were (i) a decline in refinery
margins, partially related to (a) a sharp decline in crude oil and finished
product prices resulting from, among other things, a decline in worldwide
demand for crude oil and finished products, and (b) non-cash charges for
reductions in the carrying value of inventories; (ii) the acquisition of 96
service station/convenience stores and related assets in May 1997 from
Thriftway Marketing Corp. and affiliates (the "Thriftway Assets"), the June
1997 acquisition of independent industrial/commercial petroleum products
distributor Phoenix Fuel Co., Inc. ("Phoenix Fuel", and collectively with the
Thriftway Assets, the "1997 Acquisitions"), the acquisition of seven service
station/convenience stores and related assets in February 1998 from DeGuelle
Oil Company and DeGuelle Enterprises (the "DeGuelle Assets") and, in June and
July 1998, the acquisition of 32 service station/convenience stores and
related assets and the lease of one other service station/convenience store
from Kaibab Industries, Inc. (the "Kaibab Assets", and collectively with the
DeGuelle Assets, the "1998 Acquisitions"); (iii) increased interest costs
related to the issuance of $150,000,000 of 9% Senior Subordinated Notes (the
"9% Notes") in August 1997, to partially finance the 1997 and 1998
Acquisitions; (iv) increased operating costs, including depreciation and
amortization, and selling, general and administrative expenses ("SG&A")
primarily related to the above acquisitions and planning for future growth;
(v) a decrease in refinery sourced sales volumes due in part to a major
maintenance turnaround at the Ciniza refinery in the second quarter of 1998;
and (vi) a write-off of costs incurred in connection with the termination of
a proposed merger with Holly Corporation that had been approved by the
Company's Board of Directors on April 14, 1998.
EARNINGS (LOSS) BEFORE INCOME TAXES
- -----------------------------------
For the year ended December 31, 1998, the Company incurred a loss before
income taxes of $3,726,000, a decrease of approximately $28,826,000 from
earnings before income taxes of $25,100,000 for the year ended December 31,
1997. The decrease was primarily due to (i) a 24% decline in refinery
margins; (ii) a 40% increase in interest costs; (iii) a 21% increase in
operating expenses, including depreciation and amortization; (iv) a 31%
increase in administrative expenses, including a write-off of approximately
$1,355,000 of costs incurred in connection with the terminated merger with
Holly Corporation; and (v) a decrease in refinery sourced sales volumes of
approximately 3%. These items were offset in part by contributions from the
1997 and 1998 Acquisitions and a reduction in 1997 pretax earnings for a
$1,195,000 loss incurred in connection with the sale of the Company's ethanol
processing plant.
REVENUES
- --------
Revenues for the year ended December 31, 1998 were $642,504,000, a
decrease of approximately $14,774,000 or 2% from $657,278,000 in the
comparable 1997 period. The decrease was primarily due to a 27% decline in
refinery weighted average selling prices and a 3% decrease in refinery
sourced finished product sales volumes. These decreases were offset in part
by increased revenues attributable to the 1997 and 1998 Acquisitions and an
11% increase in merchandise sales for retail operations other than those
associated with the Acquisitions.
For the year ended December 31, 1998, volumes of refined products sold
through the Company's retail units increased approximately 45% from 1997
levels primarily due to the acquisition of the Thriftway, Kaibab and DeGuelle
Assets. In addition, the volumes of finished product sold from the Company's
other retail operations increased approximately 8%. This increase was largely
due to a 28% increase in the volumes of finished product sold from the
Company's travel center, due in large part to improved marketing programs put
in place during 1997, and a 3% increase in finished product volumes sold from
the Company's other retail service station/convenience stores.
COST OF PRODUCTS SOLD
- ---------------------
For the year ended December 31, 1998, cost of products sold decreased
$22,812,000 or 5% to $464,936,000 from $487,748,000 in the corresponding 1997
period. The decrease was primarily due to a 31% decline in average crude oil
costs and a 3% decrease in refinery sourced finished product sales volumes.
These decreases in costs were offset in part by increases in costs related to
the 1997 and 1998 Acquisitions. In addition, 1998 cost of products sold
increased by approximately $8,575,000 as a result of a reduction in the
carrying value of inventories related to a decline in crude oil and refined
product prices. Cost of products sold in 1997 was higher by approximately
$2,930,000 as a result of similar reductions in inventory carrying values.
OPERATING EXPENSES
- ------------------
Operating expenses for the year ended December 31, 1998 were
$103,207,000, an increase of approximately $18,030,000 or 21% from
$85,177,000 for the year ended December 31, 1997. Substantially all of the
increase was due to the 1997 and 1998 Acquisitions, including increased
administrative and support costs related to expanded retail operations. For
the Company's other operations, 1998 operating costs were relatively
comparable to those experienced in 1997.
DEPRECIATION AND AMORTIZATION
- -----------------------------
For the year ended December 31, 1998, depreciation and amortization
increased approximately $5,175,000 or 22% to $29,166,000 from $23,991,000 in
the same 1997 period. Approximately 61% of the increase was due to the 1997
and 1998 Acquisitions. The remainder of the increase was primarily related to
construction, remodeling and upgrades in retail, refining and transportation
operations; and the amortization of 1997 Bloomfield refinery turnaround
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
SG&A expenses for the year ended December 31, 1998 were $25,288,000
(including approximately $1,355,000 for the write-off of merger costs), an
increase of approximately $6,032,000 or 31% from $19,256,000 in the
corresponding 1997 period. Approximately 7% of the increase was due to SG&A
associated with the operations of Phoenix Fuel. The remainder of the increase
was primarily the result of higher 1998 payroll and related costs, and higher
1998 outside services and other costs, both in large part due to the 1997 and
1998 Acquisitions and planning for future growth. These increases were
partially offset by a $1,370,000 decrease in management incentive bonus expense
in the 1998 period due to the Company incurring a net loss for the year.
WRITE-OFF OF MERGER COSTS
- -------------------------
On April 14, 1998, the Board of Directors of the Company approved an
Agreement and Plan of Merger (the "Merger Agreement") whereby Holly
Corporation ("Holly") would be merged with and into Giant (the "Merger"). The
Merger was subject to various conditions stated in the Merger Agreement. On
September 1, 1998, Giant and Holly mutually agreed to terminate the proposed
Merger after considering various factors, including the inability of the
companies to reach a satisfactory resolution of concerns expressed by the
Federal Trade Commission relative to the possible impact of the Merger on
portions of the market served by the companies and uncertainty caused by a
lawsuit filed against Holly by Longhorn Partners Pipeline, L.P. For the year,
the Company wrote off approximately $1,355,000 of costs incurred in
connection with the proposed Merger. These costs were primarily for fees paid
to investment bankers, attorneys, accountants and regulatory agencies, and
printing and distribution costs related to documents delivered to stockholders.
INTEREST EXPENSE (INCOME)
- -------------------------
For the year ended December 31, 1998, interest expense increased
approximately $7,325,000 or 40% to $25,464,000 from $18,139,000 in the
comparable 1997 period. The increase was primarily due to additional interest
expense related to the 9% Notes. This increase was partially offset by a
reduction in 1998 interest expense due to lower direct borrowings from and
interest rates related to the Company's credit facilities.
For the year ended December 31, 1998, interest and investment income
decreased approximately $302,000 or 14% to $1,831,000 from $2,133,000. The
decrease was primarily due to the use of some of the proceeds from the
issuance of the 9% Notes, which had been invested in short-term instruments,
for the 1998 Acquisitions. The effects of fluctuations in interest rates
applicable to invested funds were nominal.
INCOME TAXES
- ------------
The benefit for income taxes for the year ended December 31, 1998, and
the provision for income taxes for the year ended December 31, 1997, resulted
in an effective benefit rate of approximately 40% for the year ended December
31, 1998, and an effective tax rate of approximately 39% for the comparable
1997 period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
- -------------------------
Operating cash flows increased for the year ended December 31, 1999
compared to the year ended December 31, 1998, primarily as a result of an
increase in net earnings and the increase in cash flows related to changes in
operating assets and liabilities in each period. Net cash provided by
operating activities totaled $59,799,000 for the year ended December 31,
1999, compared to $26,892,000 in the comparable 1998 period.
WORKING CAPITAL
- ---------------
Working capital at December 31, 1999 consisted of current assets of
$171,984,000 and current liabilities of $122,588,000, or a current ratio of
1.40:1. At December 31, 1998, the current ratio was 2.11:1 with current
assets of $169,726,000 and current liabilities of $80,622,000.
Current assets have increased since December 31, 1998, due to an
increase in accounts receivable and inventories. These increases were offset
in part by decreases in cash and cash equivalents, prepaid expenses and
deferred income taxes. Accounts receivable have increased primarily due to an
increase in finished product selling prices, along with increased Phoenix
Fuel sales volumes and increased product trading activity. Inventories have
increased due to an increase in crude oil and refined product prices and
Phoenix Fuel refined product volumes. These increases were offset in part by
declines in pipeline and refinery crude oil inventory volumes, along with
declines in refinery, terminal and exchange refined product inventory
volumes. Prepaid expenses have decreased primarily as a result of a reduction
in margin deposits related to hedging transactions. Deferred income taxes
decreased due to the effects of the elimination of the lower of cost or
market inventory allowance.
Current liabilities have increased due to an increase in accounts
payable and accrued expenses. Accounts payable have increased primarily as a
result of an increase in the cost of raw materials for the refineries,
increased product trading activity and an increase in the volume and cost of
finished product purchased by Phoenix Fuel. Accrued expenses have increased
primarily as a result of increased excise taxes payable, an increase in the
amount accrued for a contingency payment related to the acquisition of the
Bloomfield refinery, higher accruals for the estimated costs of management
incentive and other bonuses and higher accruals for payroll and related
costs.
CAPITAL EXPENDITURES AND RESOURCES
- ----------------------------------
Net cash used in investing activities for the purchase of property,
plant and equipment totaled approximately $46,361,000 for the year ended
December 31, 1999. Expenditures included amounts for, among other things,
construction costs related to the building of six new service
station/convenience stores, five of which opened in 1999 and the sixth in
January 2000, and the rebuilding of two others, which are also in operation;
costs for remodeling, re-branding, re-imaging and upgrading various retail
units; construction costs related to the Company's finished products terminal
near Flagstaff, Arizona, which opened in May 1999; the purchase of the
Company's aircraft, which previously had been leased under a long-term
arrangement; and expenditures for the Ciniza refinery second quarter
turnaround and other equipment upgrades at the refineries.
In addition, the above total includes the reacquisition, for
approximately $13,711,000, of 24 of the 83 service station/convenience stores
that had been sold to FFCA in December 1998 as part of a sale-leaseback
transaction. The Company had recorded a gain of approximately $5,650,000 on
the original transaction, which was deferred and was being amortized over the
initial lease period of 15 years. As a result of the reacquisition, the
reacquired assets were recorded at $9,209,000, which approximated the net
book value of the assets at the time of the original sale, and the deferred
gain was reduced by approximately $4,502,000. The remaining gain will be
amortized over the remaining lease period of 14 years.
In addition, in the third quarter of 1999, the Company made a contingent
payment of $5,250,000 related to the acquisition of the Bloomfield refinery.
This payment was due in 2000, in accordance with the Bloomfield refinery
acquisition agreement. The payment, however, was made in the third quarter to
meet a use of proceeds requirement under the Indentures supporting the
Company's 9% and 9 3/4% Senior Subordinated Notes relating to the sale-
leaseback transaction completed in December 1998 between the Company and
FFCA. An additional contingent payment of approximately $5,432,000 was
accrued in the fourth quarter of 1999 and will be paid in 2000. The
contingent payments were allocated to the appropriate assets and will be
amortized over their remaining useful lives.
The Company received proceeds of approximately $2,288,000 from the sale
of property, plant and equipment in 1999, primarily from the sale of two
service station/convenience stores.
The Company has budgeted approximately $24,600,000 for capital
expenditures in 2000, excluding any potential acquisitions. Of this amount,
approximately $4,600,000 is for the completion of projects that were started
in 1999. In addition, approximately $11,800,000 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 and asset
conversions and upgrades for the retail operations. The remaining budget of
$8,200,000 is for discretionary projects to sustain or enhance the current
level of operations, increase earnings associated with existing or new
business and to expand operations. The significant discretionary projects
include facility and equipment upgrades to existing retail units and site
acquisition and development of two cardlock locations for Phoenix Fuel. In
addition, the Company has also budgeted approximately $12,700,000 in
discretionary capital in connection with the acquisition of certain pipeline
assets in the Four Corners area and for the assignment of certain
leases/subleases associated with up to 16 service station/convenience stores
located on the Navajo, Ute or Zuni Indian Reservations. The leases/subleases
for the 16 stores would be acquired in accordance with options that the
Company has to acquire these properties.
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. If incurred, this contingent payment would be
payable in 2001.
The Company continues to investigate other strategic acquisitions as
well as capital improvements to its existing facilities. The amount of
capital projects that are actually undertaken in 2000 will depend on, among
other things, identifying and consummating acceptable acquisitions, general
business conditions and results of operations. The Company is also evaluating
the possible sale or exchange of non-strategic or underperforming assets.
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. With respect to
capital expenditures budgeted primarily to satisfy environmental regulations,
the Company estimates that approximately $900,000, $3,700,000 and $500,000
was spent in 1999, 1998 and 1997, respectively, and that approximately
$2,700,000 is expected to be spent in 2000. 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 also may increase future capital and operating expenditure
levels.
Working capital, including that necessary for capital expenditures and
debt service, will be funded through existing cash balances, cash generated
from operating activities, 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, 1999 and December 31, 1998, the Company's long-term debt
was 66.1% and 68.9% of total capital, respectively, and the Company's net
debt (long-term debt less cash and cash equivalents) to total capitalization
percentages were 63.0% and 64.0%, respectively.
The Company's capital structure includes $150,000,000 of 9% senior
subordinated notes due 2007 (the "9% Notes") and $100,000,000 of 9 3/4%
senior subordinated notes due 2003 (the "9 3/4% Notes", and collectively with
the 9% Notes, the "Notes"). The Indentures supporting the Notes contain
restrictive covenants that, among other things, restrict the ability of the
Company and its subsidiaries to create liens, to incur or guarantee debt, to
pay dividends, to repurchase shares of the Company's common stock, to sell
certain assets or subsidiary stock, to engage in certain mergers, to engage
in certain transactions with affiliates or to alter the Company's current
line of business. At December 31, 1999, the Company was in compliance with
the restrictive covenants relating to these Notes.
The Company had been precluded from making restricted payments from the
third quarter of 1998 until June 30, 1999, because it did not satisfy a
financial ratio test contained in one of the covenants relating to the 9 3/4%
Notes. This included the payment of dividends and the repurchase of shares of
the Company's common stock. The terms of the Indenture also had restricted
the amount of money the Company could otherwise borrow during this period.
The Company is no longer subject to these restrictions, as the Company
currently satisfies the requirements of the covenant's financial ratio test.
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 would 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.
Repayment of the 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
Indentures 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.
Separate financial statements of the Company's subsidiaries are not
included herein because 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; the
subsidiaries are jointly and severally liable for the repayment of the Notes;
and the separate financial statements and other disclosures concerning the
subsidiaries are not deemed material to investors.
In December 1998, the Company and FFCA completed a sale-leaseback
transaction in which the Company sold 83 service station/convenience stores
to FFCA and leased them back. Net proceeds to the Company, after expenses,
were approximately $50,100,000. In the second half of 1999, the Company
repurchased 24 of the service station/convenience stores for approximately
$13,711,000, which was the original selling price of these units.
In accordance with the Indentures supporting the Notes, the Company was
required to use the net proceeds from the FFCA sale-leaseback transaction
described above, less $10,000,000, to either make a permanent reduction in
senior indebtedness (as defined in the respective Indentures), or make an
investment in capital assets used in the Company's principal business (as
defined in the respective Indentures) before certain time periods expired.
Prior to the expiration dates, the Company used a sufficient portion of the
net proceeds from the FFCA transaction to invest in capital assets and to
reduce senior indebtedness and is not required to offer to repurchase the
Notes.
The original total base rent payments under the FFCA sale-leaseback
transaction, which included scheduled increases of six percent on the second
anniversary of the Agreement and every second anniversary thereafter, on a
compounded basis, during the initial lease term and any extension thereof,
have been adjusted downward to reflect the repurchase of the 24 service
station/convenience stores. The total amount of the remaining base rent
payments of approximately $64,767,000 is being charged to expense on the
straight-line method over the remaining term of the lease. This amount is
approximately $4,626,000 per year. At December 31, 1999, the Company had
recorded a deferred credit of approximately $837,000 to reflect the excess of
rent expense over cash payments made.
The Company has a $65,000,000 secured Credit Agreement (the "Credit
Agreement") due December 23, 2001, with a group of banks. This Credit
Agreement, a revolving loan agreement, is primarily a working capital and
letter of credit facility and is secured by eligible accounts receivable and
inventories as defined in the Credit Agreement. In addition, the Company is
able to borrow up to $9,000,000 to exercise its purchase rights in connection
with certain service station/convenience stores that are currently subject to
capital lease obligations, and up to $10,000,000 for other acquisitions as
defined in the Credit Agreement. The availability of funds under this
facility is the lesser of (i) $65,000,000, or (ii) the amount determined
under a borrowing base calculation tied to the eligible accounts receivable
and inventories. At December 31, 1999, the availability of funds under the
Credit Agreement was $65,000,000. There were no direct borrowings outstanding
under this facility at December 31, 1999, and there were approximately
$8,887,000 of irrevocable letters of credit outstanding, primarily to secure
purchases of raw materials. At December 31, 1998, direct borrowings under
this facility were $24,000,000. This amount was repaid in early 1999. As of
March 17, 2000, there were $4,000,000 of direct borrowings outstanding under
this facility.
The interest rate applicable to the Credit Agreement is tied to various
short-term indices. At December 31, 1999, this rate was approximately 7.5%
per annum. The Company is required to pay a quarterly commitment fee ranging
from 0.325% to 0.500% per annum of the unused amount of the facility. The
exact rate depends on meeting certain conditions in the Credit Agreement.
The Credit Agreement contains certain restrictive covenants which
require the Company to, among other things, maintain a minimum consolidated
net worth, a minimum interest coverage ratio and a maximum capitalization
ratio. It also places limits on investments, dispositions of assets,
prepayments of senior subordinated debt, guarantees, liens and restricted
payments. At December 31, 1999, the Company was in compliance with the Credit
Agreement's restrictive covenants. The Credit Agreement is guaranteed by
certain of the Company's direct and indirect wholly-owned subsidiaries.
The Company's Board of Directors has authorized the repurchase of
2,500,000 shares of the Company's common stock. 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. During the third quarter of 1999, the Company repurchased
440,000 shares of its common stock from its Chairman and Chief Executive
Officer for $4,950,000 or $11.25 per share. The per share price paid for the
shares was at a discount to the then current fair market value. From the
inception of the stock repurchase program, the Company has repurchased
1,962,700 shares for approximately $20,623,000, resulting in a weighted
average cost of $10.51 per share. The repurchased shares are treated as
treasury shares.
Repurchased shares are available for a number of corporate purposes. The
number of shares actually repurchased will be dependent upon market
conditions and existing debt covenants, and there is no guarantee as to the
exact number of shares to be repurchased by the Company. The Company may
discontinue the program at any time without notice. The Company is no longer
restricted from acquiring shares of its common stock under this program as
noted above.
On December 21, 1999, the Company filed a Schedule 13E-4 Issuer Tender
Offer Statement with the Securities and Exchange Commission to acquire up to
1,333,333 shares of its common stock at a price of $9.00 per share, net to
the seller in cash. The offer expired on February 4, 2000, at which time
1,169,414 shares had been properly tendered to the Company. The Company
purchased all of these shares at the stated price, or approximately
$10,525,000, on February 8, 2000. These repurchased shares are treated as
treasury shares.
The Company's Board of Directors did not declare a cash dividend on
common stock for the year ended December 31, 1999. The payment of dividends
is subject to the results of the Company's operations, existing debt
covenants and declaration by the Company's Board of Directors. The Board of
Directors will periodically review the Company's policy regarding the payment
of dividends.
OTHER
- -----
The Company is exposed to various market risks, including changes in
certain commodity prices and interest rates. To manage the volatility
relating to these normal business exposures, the Company periodically uses
commodity futures and options contracts to reduce price volatility, to fix
margins in its refining and marketing operations and to protect against price
declines associated with its crude oil and finished products inventories.
During 1999, the Company entered into several related transactions for
the purchase and sale of various put and call option contracts, the purpose
of which was to protect crude oil inventories from the risk associated with
declines in crude oil prices. For the year ended December 31, 1999, the
Company recorded losses of approximately $4,168,000 related to the option
contracts as a result of crude oil price increases. These losses were offset
by reductions in lower of cost or market inventory reserves. At December 31,
1999, there were no option contracts open related to these transactions.
The potential loss from a hypothetical 10% adverse change in commodity
prices on open commodity futures and options contracts held by the Company at
December 31, 1999, was approximately $50,000.
Additionally, the Company's $65,000,000 Credit Agreement is floating-
rate debt tied to various short-term indices. As a result, the Company's
annual interest costs associated with this debt will fluctuate. At December
31, 1999, there were no direct borrowings outstanding under this Credit
Agreement.
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 other 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.
On October 1, 1999, the State of New Mexico filed a lawsuit in the
United States District Court for the District of New Mexico, and a separate
lawsuit in the Second Judicial District Court, County of Bernalillo, State of
New Mexico, against numerous entities, including General Electric Company,
ACF Industries, Inc., Chevron Corporation, Texaco Refining and Marketing,
Inc., Phillips Petroleum Company, Ultramar Diamond Shamrock Corporation, the
United States Department of Energy, the United States Department of Defense,
the United States Air Force and the Company. The lawsuits relate to alleged
releases of pollutants at the South Valley CERCLA Superfund Site in
Albuquerque, New Mexico. The South Valley Superfund Site includes
contamination that allegedly originated from a number of facilities,
including a GE Aircraft Engines/U.S. Air Force facility and the Albuquerque
Terminal, which was acquired by the Company in 1995 from Texaco. The lawsuits
allege that the defendants released or threatened to release hazardous
substances into the environment, causing injury to surface water, groundwater
and soil at the South Valley Superfund Site, which are natural resources of
the state. In the federal court lawsuit, the state seeks monetary damages
under CERCLA for all past, present and future damages to these natural
resources, plus interest, costs and attorneys' fees. The state court
complaint contains state law claims for trespass, public nuisance,
interference with natural resources held in trust by the state, negligence,
strict liability, unjust enrichment and punitive damages. The state seeks
various monetary damages in connection with these claims, including natural
resources damages, loss of use of property and natural resources, loss of tax
revenues, lost profits, punitive damages and attorneys' fees and costs. Since
its original filing, the state court complaint has been removed to federal
court. The Company, along with certain other defendants, has filed a motion
to dismiss the state claims. Although neither complaint calculates the amount
of damages being sought by the state, a preliminary assessment report on
alleged damages to natural resources, dated December 1998, issued by the New
Mexico Office of the Natural Resources Trustee estimated these damages at
$260,000,000. Liability for natural resource damages under CERCLA is joint
and several such that a responsible party may be liable for all natural
resource damages at a site even though it was responsible for only a small
part of such damages.
Texaco agreed to defend, indemnify, reimburse and hold the Company
harmless from and against all claims and damages arising from, or caused by,
pre-closing contamination at the Albuquerque Terminal. Texaco has
acknowledged this obligation, subject to any evidence that alleged releases
resulted from the Company's operations. The Company believes that any damages
associated with the South Valley Superfund Site relate to releases that
predate the Company's acquisition of the Albuquerque Terminal and,
accordingly, does not believe that it needs to record a liability in
connection with the two lawsuits.
In 1973, the Company constructed the Farmington refinery that 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, although no cleanup order has been
received. The Company had reserved approximately $1,000,000 for possible
environmental expenditures relating to its Farmington property, of which
approximately $570,000 still remains.
The Farmington property is located adjacent to the Lee Acres Landfill, a
closed landfill formerly operated by San Juan County, which is situated on
lands owned by 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 Landfill was added to the National Priorities List as a 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.
BLM made a proposed plan of action for the Landfill available to the
public in 1996. Remediation alternatives examined by BLM in connection with
the development of its proposed plan ranged in projected cost from no cost to
approximately $14,500,000. BLM proposed the adoption of a remedial action
alternative that it believes would cost approximately $3,900,000 to
implement.
BLM's $3,900,000 cost estimate is based on certain assumptions which may
or may not prove to be correct and is contingent on confirmation that the
remedial actions, once implemented, are adequately addressing Landfill
contamination. For example, if assumptions regarding groundwater mobility and
contamination levels are incorrect, BLM is proposing to take additional
remedial actions with an estimated cost of approximately $1,800,000.
BLM has received public comment on its proposed plan. The final remedy
for the site, however, has not yet been selected. It is anticipated that the
final remedy will be selected in 2000. In 1989, a consultant to the Company
estimated, based on various assumptions, that the Company's share of
potential liability could be approximately $1,200,000. This figure was based
upon estimated Landfill remediation costs significantly higher than those
being proposed by BLM. The figure was also based on the consultant's
evaluation of such factors as available clean-up technology, BLM's
involvement at the site and the number of other entities that may have had
involvement at the site, but did not include an analysis of all 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.
Although it is possible that the Company may ultimately incur liability for
clean-up costs associated with the Landfill, a reasonable estimate of the
amount of this liability, if any, cannot be made at this time because, among
other reasons, the final site remedy has not been selected, a number of
entities had involvement at the site, allocation of responsibility among
potentially responsible parties has not yet been made, and potentially-
applicable factual and legal issues have not been resolved. Based on current
information, the Company does not believe that it needs to record a liability
in relation to BLM's proposed plan.
BLM may assert claims against the Company and others for reimbursement
of investigative, cleanup and other costs incurred by BLM in connection with
the Landfill and surrounding areas. It is also possible that the Company will
assert claims against BLM in connection with contamination that may be
originating from the Landfill. Private parties and other governmental
entities may also assert claims against BLM, the Company and others for
property damage, personal injury and other damages allegedly arising out of
any contamination originating from the Landfill and the Farmington property.
Parties 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 BLM or any other
party.
In connection with the acquisition of the Bloomfield refinery, the
Company assumed certain environmental obligations including Bloomfield
Refining Company's obligations under an Administrative Order issued by EPA in
1992 pursuant to the Resources Conservation and Recovery Act. 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 established an environmental reserve of $2,250,000 in
connection with this matter, of which approximately $1,600,000 still remains.
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, to the Company's
knowledge, ceased operations in the early 1960s. The Company submitted a work
plan to define the extent of petroleum contamination in the soil and
groundwater, which was approved by OCD subject to certain conditions. One of
the conditions required the Company to submit a comprehensive report on all
site investigations to OCD by January 14, 2000. The Company filed the
required report on January 13, 2000. Based upon the report, it appears
possible that contaminated groundwater is contained within the property
boundaries and does not extend offsite. It is anticipated that OCD will not
require remediation of offsite soil based upon the low contaminant levels
found there. The Company previously estimated cleanup costs at $250,000 and
an environmental reserve in that amount was created, of which $238,000
remains. If OCD adopts the remediation alternative proposed by the Company,
the Company anticipates that the cost of remediation will be closer to
$100,000. The Company, however, does not know whether OCD will adopt the
Company's remediation proposal.
The Company is in receipt of a NOV, dated February 9, 1993, from 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 and NMED are
negotiating a plan for closure of the land treatment facility. It is
anticipated that the costs associated with implementing the type of closure
plan under discussion would be approximately $400,000. An estimated $100,000
of this amount would be spent in 2000, with the remainder spent over a
period of approximately 30 years.
The Company has an environmental liability accrual of approximately
$2,400,000. Approximately $800,000 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 the 5.5 acres that the Company
owns in Bloomfield, New Mexico. The remaining $1,600,000 relates to certain
environmental obligations assumed in the acquisition of the Bloomfield
refinery. This environmental accrual is recorded in the current and long-term
sections of the Company's Consolidated Balance Sheets.
The Company is subject to audit on an ongoing basis of the various taxes
that it pays to federal, state, local and tribal governments. 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 Company operations outside the boundaries of the Navajo Indian
Reservation in an area of disputed jurisdiction, including a $1,800,000
severance tax assessment (including interest and penalties through the date
of the assessment) issued in November 1991, and a $3,400,000 severance tax
assessment (including interest and penalties through the date of the
assessment issued in May 1999, both of which relate to crude oil removed from
properties located within this area. The Company has invoked its appeal
rights with the Tribe's Tax Commission in connection with the assessments and
intends to oppose the assessments. Although it is probable that the Company
will incur liability in connection with tax notifications and assessments
from the Navajo Tribe relating to the area of disputed jurisdiction, it is
not possible to precisely estimate the amount of any obligation for such
taxes at this time because the Navajo Tribe's legal authority to impose taxes
throughout this area has not been legally established and all potentially-
applicable factual issues have not been resolved. The Company has accrued a
liability for assessments that it has received from the Navajo Tribe for
substantially less than the amount of the assessments. 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 may potentially be able to request reimbursement
from third party oil lease interest owners in connection with any severance
tax amounts ultimately paid by the Company that relate to purchases from the
interest owners. The Company intends to continue purchasing activities in the
area of disputed jurisdiction.
The Company's current receipts and projections of Four Corners crude oil
production indicate that the Company's crude oil demand may periodically
exceed the supply of crude oil that is available from local sources. The
Company has, and may from time to time, decrease production runs at its
refineries from levels it would otherwise schedule as a result of shortfalls
in Four Corners crude oil production.
The Four Corners basin is a mature production area and, accordingly, is
subject to a natural decline in production over time. In the past, this
natural decline has been offset by new drilling, field workovers and
secondary recovery projects which resulted in additional production from
existing reserves. Many of these projects were cut back, however, when crude
oil prices declined dramatically in 1998. Based upon history and discussions
with local producers, the Company anticipates that additional projects will
again be undertaken and that production will increase from the field as a
result of the recovery in crude oil prices which began in the second quarter
of 1999. Through the first quarter of 2000, the Company has noticed an
increase in Four Corners production and has indications that producers are
considering projects that, if undertaken, could increase production
significantly by the end of 2000 or early 2001.
The Company estimates that for the year 2000 its refinery production
runs will approximate 1999 levels based on current receipts and projections
of Four Corners crude oil production. If additional crude oil or other
refinery feedstocks become available, the Company may increase its production
runs depending on demand for finished products and refining margins
attainable.
The Company supplements the Four Corners crude oil used at its
refineries with other feedstocks. These feedstocks currently include locally
produced natural gas liquids and other feedstocks produced outside of the
Four Corners area. The Company continues to evaluate supplemental feedstock
alternatives for its refineries on both a short-term and long-term basis.
These alternatives include, among other possibilities, the encouraging of new
exploration and production opportunities on tribal reservation lands. In
addition, the Company may evaluate a project to increase its production of
gasoline from abundantly available natural gas liquids. Whether or not
supplemental feedstocks are used at the Company's refineries depends on a
number of factors. These factors include, but are not limited to, the
availability of supplemental feedstocks, the cost involved, the quantities
required, the quality of the feedstocks, the demand for finished products,
and the selling prices of finished products.
There is no assurance that current or projected levels of Four Corners
crude oil supply for the Company's refineries will be maintained. Any
significant long-term interruption or decline in Four Corners crude oil
supply, due to prices or other factors, or any significant long-term
interruption of crude oil transportation systems, 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 is the potential conversion and
extension of the existing Texas-New Mexico crude oil pipeline to transport
refined products from West Texas to New Mexico, including Albuquerque and
potentially Bloomfield. Another potential project would take product on to
Salt Lake City, Utah. In addition, various actions have been undertaken to
increase the supply of refined products to El Paso, Texas, which is connected
by pipeline to the Albuquerque area to the north and the Phoenix and Tucson,
Arizona 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 potentially available in these markets, as well as improving
competitor access to these areas, and may result in new opportunities for the
Company, as the Company is a net purchaser of refined products in some of
these areas.
Separately, at the end of 1999, an existing natural gas liquids pipeline
had been converted to a refined products pipeline and was delivering finished
product from Southeastern New Mexico to the Albuquerque and Four Corners
areas. The Company expects increased competition for sales volumes in these
areas as a result of the completion of this project.
The Company is subject to various federal and state programs relating to
the composition of motor fuels. In December 1999, EPA issued a rule which
requires refiners to reduce the sulfur content of gasoline to 30 ppm by 2006
unless they qualify for an extension of this deadline. The Company may be
eligible for an extension of up to one year under a provision pertaining to
gasoline produced or sold in certain designated geographic areas, including
three states in which the Company markets its gasoline. It is anticipated
that the Company will incur costs in the approximate amount of $3,500,000 to
purchase the equipment necessary to produce gasoline with a 30 ppm sulfur
content at its refineries.
The federal Clean Air Act requires the sale of reformulated gasoline
in certain designated areas of the country. Motor fuels produced by
the Company's refineries are not sold in any such areas. Arizona, however,
has adopted a cleaner burning gasoline program. The Company does not
presently manufacture gasolines that satisfy Arizona CBG specifications. The
specifications are currently applicable to gasolines sold or used in Maricopa
County and a portion of Yavapai County, and are expected to become effective
in Pinal County by 2001. The Company operates approximately 25 service
stations in these areas, and also conducts wholesale marketing operations
there. The Company currently does not intend to make the changes necessary to
produce CBG because the capital costs associated with manufacturing large
quantities of such gasolines would be significant in amounts not determined
by the Company. The Company has the ability to purchase or exchange for these
gasolines to supply its operations in the CBG areas, including Pinal County.
It is possible that additional legislation or regulations affecting motor
fuel specifications may be adopted that would impact geographic areas in
which the Company markets its products.
In 1997, the Company outlined a program for Year 2000 ("Y2K")
compliance. The Y2K issue is the result of certain computer systems using a
two-digit format rather than four digits to define the applicable year. Such
computer systems may be unable to properly interpret dates beyond the year
1999, which could lead to system failure or miscalculations causing
disruptions of operations. The Company identified three major areas
determined to be critical for successful Y2K compliance: (1) financial and
information system applications, (2) manufacturing and process applications,
including embedded chips, and (3) business relationships.
The Company hired an outside consultant to act as its Year 2000 project
manager. This consultant directed the Company's efforts in identifying and
resolving Y2K issues pursuant to a five-phase program for Year 2000
compliance.
(1) Awareness Phase. This phase included the development of a
Project Management Plan to make the Company aware of the Y2K problem,
identify potential Y2K issues in all areas of the Company and develop a plan
of action to resolve these issues. This phase was completed in July 1998.
(2) Assessment Phase. Completed in October 1998, this phase included
generating a complete inventory of all software, hardware, processing
equipment and embedded chips throughout the entire organization and
identifying those items that were Y2K compliant and those that were not.
(3) Renovation (Remedy) Phase. In this phase, strategies were
developed for each item inventoried during the assessment phase to determine
whether remedial action was required and, if so, whether the item should be
eliminated, replaced, or updated. This phase also included the determination
of priorities and scheduling, including contingency plans for all critical
items. This phase was substantially completed in February 1999 except for
Phoenix Fuel and the Company's retail operations, which were completed in
June 1999.
(4) Validation (Testing) Phase. In this phase, a test plan was
developed and implemented to validate the remedies selected in the previous
phase. The Company completed testing in September 1999.
(5) Implementation Phase. This phase involved the use of the Y2K
compliant inventory, and the development and implementation of additional
plans to avoid Y2K problems. The Company completed this phase in September
1999.
Remediation of the Y2K items identified by the Company was accomplished using
both internal and external manpower. The total cost of the Y2K project was
approximately $650,000. The Company funded its Y2K expenditures from
operating cash flows.
The Company experienced no significant disruptions to its business
operations as a result of Y2K issues. The Company is not aware of any
significant Y2K problems affecting critical business partners.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: This report contains forward-looking statements that involve
known and unknown risks and uncertainties. Forward-looking statements are
identified by words or phrases such as "believes," "expects," "anticipates,"
"estimates," "could," "plans," "intends," variations of such words and
phrases and other similar expressions. While these forward-looking statements
are made in good faith, and reflect the Company's current judgment regarding
such matters, actual results could vary materially from the forward-looking
statements. Important factors that could cause actual results to differ from
forward-looking statements include, but are not limited to, economic,
competitive and governmental factors affecting the Company's operations,
markets, products, services and prices; risks associated with non-compliance
with certain debt covenants or the satisfaction of financial ratios contained
in such covenants; the adequacy of the Company's environmental and tax
reserves; the ultimate outcome of the two lawsuits filed against the Company
by the State of New Mexico and the Company's ultimate liability related
thereto; the availability of indemnification from third parties; the
Company's ability to recover tax payments from third parties; the expansion
of the Company's refining, retail and Phoenix Fuel operations through
acquisition and construction; the adequacy and cost of raw material supplies;
the potential effects of various pipeline projects as they relate to the
Company's market area and future profitability; the impact of the mandated
use of gasolines satisfying governmentally mandated specifications on the
Company's operations; the ability of the Company to duplicate the level of
1999 refinery production runs in 2000; the ability of the Company to reduce
operating expenses and non-essential capital expenditures; and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. All subsequent written and oral forward-looking
statements attributable to the Company, or persons acting on behalf of the
Company, are expressly qualified in their entirety by the foregoing. Forward-
looking statements made by the Company represent its judgement on the dates
such statements are made. The Company assumes no obligation to update any
forward-looking statements to reflect new or changed events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is incorporated herein by reference to
the section entitled "Other" in the Company's Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7.
<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 (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of earnings (loss),
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 6, 2000
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,945 $ 55,697
Receivables:
Trade, less allowance for doubtful accounts of $591 and $460 62,076 39,050
Income tax refunds 1,495 417
Other 10,429 10,728
- ------------------------------------------------------------------------------------------------
74,000 50,195
- ------------------------------------------------------------------------------------------------
Inventories 58,240 51,349
Prepaid expenses and other 4,097 5,860
Deferred income taxes 2,702 6,625
- ------------------------------------------------------------------------------------------------
Total current assets 171,984 169,726
- ------------------------------------------------------------------------------------------------
Property, plant and equipment 485,181 439,940
Less accumulated depreciation and amortization (161,983) (138,008)
- ------------------------------------------------------------------------------------------------
323,198 301,932
- ------------------------------------------------------------------------------------------------
Goodwill, less accumulated amortization of $3,223 and $2,140 21,819 22,902
Other assets 29,798 32,854
- ------------------------------------------------------------------------------------------------
$ 546,799 $ 527,414
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 297 $ 1,200
Accounts payable 76,833 42,903
Accrued expenses 45,458 36,519
- ------------------------------------------------------------------------------------------------
Total current liabilities 122,588 80,622
- ------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 258,272 282,484
Deferred income taxes 28,002 26,793
Other liabilities and deferred income 5,475 9,813
Commitments and contingencies (Notes 10, 13, 14, 15, 16 and 17)
Stockholders' equity:
Preferred stock, par value $.01 per share,
10,000,000 shares authorized, none issued
Common stock, par value $.01 per share, 50,000,000
shares authorized, 12,266,188 and 12,232,367 shares issued 122 122
Additional paid-in capital 72,990 72,699
Retained earnings 79,973 69,391
- ------------------------------------------------------------------------------------------------
153,085 142,212
Less common stock in treasury - at cost,
1,962,700 and 1,393,600 shares (20,623) (14,510)
- ------------------------------------------------------------------------------------------------
132,462 127,702
- ------------------------------------------------------------------------------------------------
$ 546,799 $ 527,414
================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 782,683 $ 642,504 $ 657,278
Cost of products sold 567,526 464,936 487,748
- ------------------------------------------------------------------------------------------------
Gross margin 215,157 177,568 169,530
Operating expenses 115,174 103,207 85,177
Depreciation and amortization 31,129 29,166 23,991
Selling, general and administrative expenses 29,070 25,288 19,256
Loss on the write-off of assets 2,387
- ------------------------------------------------------------------------------------------------
Operating income 37,397 19,907 41,106
Interest expense (23,417) (25,464) (18,139)
Interest and investment income 2,476 1,831 2,133
- ------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 16,456 (3,726) 25,100
Provision (benefit) for income taxes 5,678 (1,509) 9,806
- ------------------------------------------------------------------------------------------------
Net earnings (loss) $ 10,778 $ (2,217) $ 15,294
================================================================================================
Earnings (loss) per common share:
Basic $ 1.01 $ (0.20) $ 1.38
================================================================================================
Assuming dilution $ 1.01 $ (0.20) $ 1.37
================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
---------------- Additional Treasury Stock Total
Shares Par paid-in Retained -------------------- stockholders'
issued value capital earnings Shares Cost equity
- ----------------------------------------------------------------------------------------------------------
(In thousands, except number of shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 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
- $0.20 per share (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
Purchase of treasury stock 154,500 (1,900) (1,900)
Dividends declared
- $0.15 per share (1,648) (1,648)
Net loss (2,217) (2,217)
- ----------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 12,232,367 122 72,699 69,391 1,393,600 (14,510) 127,702
Purchase of treasury stock 569,100 (6,113) (6,113)
Stock options exercised 120,857 1 1,069 1,070
Shares cancelled on net
exercise of stock options (87,036) (1) (778) (196) (975)
Net earnings 10,778 10,778
- ----------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 12,266,188 $122 $72,990 $79,973 1,962,700 $(20,623) $132,462
==========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 10,778 $ (2,217) $ 15,294
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 31,129 29,166 23,991
Deferred income taxes 5,132 (2,920) 5,681
Deferred lease expense 837
Loss on disposal of assets 2,181 152 802
Other (782) 293 (2,558)
Changes in operating assets and liabilities:
(Increase) decrease in receivables (23,478) 7,028 (7,876)
(Increase) decrease in inventories (6,685) 5,811 (13,494)
Decrease (increase) in prepaid expenses and other 1,209 (867) (156)
Increase (decrease) in accounts payable 33,930 (12,596) 2,784
Increase in accrued expenses 5,548 3,042 6,824
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 59,799 26,892 31,292
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of businesses, net of cash received (38,205) (47,168)
Purchases of property, plant and equipment and other assets (46,361) (60,320) (35,752)
Refinery acquisition contingent payment (7,289) (7,243) (6,910)
Proceeds from sale-leaseback transaction 50,124
Proceeds from sale of property, plant and
equipment and other assets 2,288 3,816 4,606
Investment in note receivable (5,000)
- ------------------------------------------------------------------------------------------------------
Net cash used by investing activities (51,362) (56,828) (85,224)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds of long-term debt 46,000 283,100
Payments of long-term debt (25,115) (38,435) (151,924)
Purchase of treasury stock (6,113) (1,900) (1,825)
Deferred financing costs (56) (425) (3,319)
Payment of dividends (2,199) (2,218)
Proceeds from exercise of stock options 95 82
- ------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (31,189) 3,041 123,896
- ------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (22,752) (26,895) 69,964
Cash and cash equivalents:
Beginning of year 55,697 82,592 12,628
- ------------------------------------------------------------------------------------------------------
End of year $ 32,945 $ 55,697 $ 82,592
======================================================================================================
Significant Noncash Investing and Financing Activities. In the second quarter of 1999 the Company received
87,036 shares of its own common stock valued at approximately $975,000 from two officers of the Company as
payment for the exercise of 108,857 common stock options. These shares were immediately cancelled. In
addition, approximately $10,682,000 was incurred as a contingent payment related to the 1995 acquisition of
the Bloomfield refinery, of which $5,250,000 was paid in 1999. During 1998, approximately $2,039,000 was
incurred as a contingent payment related to the 1995 acquisition of the Bloomfield refinery, which was paid
in 1999. 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, which was paid in 1998.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Giant Industries, Inc., a Delaware corporation, together with its
subsidiaries, ("Giant" or the "Company"), through its wholly-owned subsidiary
Giant Industries Arizona, Inc. and its subsidiaries ("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. In addition, Phoenix Fuel Co., Inc. ("Phoenix Fuel"), a
wholly-owned subsidiary of Giant Arizona, operates an industrial/commercial
petroleum fuels and lubricants distribution operation.
DESCRIPTION OF BUSINESS
The Company operates primarily as an independent refiner and marketer of
petroleum products. 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 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.
At December 31, 1999, the Company owned and/or operated 172 retail service
station/convenience stores and a travel center. These operations sell gasoline,
diesel fuel and merchandise to the general public.
In addition, through Phoenix Fuel, the largest independent petroleum
products distributor in the state of Arizona, the Company distributes gasoline,
diesel fuel and various lubricants to industrial and commercial accounts.
(See Note 2 for further discussion of business segments and Note 3 for
recent acquisitions and dispositions.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Giant and
all of its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, 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.
DERIVATIVES
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 purposes of the Statement of Cash Flows, hedging
transactions are considered to be operating activities.
The Company from time to time speculates in the purchasing and selling of
crude oil and finished products and may enter into futures and options
contracts to speculate on price fluctuations in these commodities. These
activities are transacted in accordance with policies established by the
Company's Board of Directors, which set limits on quantities, requires various
levels of approval and requires certain review and reporting procedures. Gains
and losses on all speculative transactions are reflected in earnings in the
period that they occur.
CONCENTRATION OF CREDIT RISK
Credit risk with respect to customer receivables is concentrated in the
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 lubricants, refined
products and other merchandise of Phoenix Fuel, are determined by the last-in,
first-out ("LIFO") method. Costs for retail, 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 24 to
48 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, which results from business acquisitions, represents the excess
of the purchase price over the fair value of the net assets acquired and is
carried at cost less accumulated amortization. Goodwill is amortized on the
straight-line method over the period of expected benefit ranging from 15 to 30
years.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, issued by the Financial Accounting Standards Board ("FASB"), 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
2,500,000 shares of the Company's common stock. 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 1999, the Company had repurchased 1,962,700
shares at a cost of approximately $20,623,000. These shares are being treated
as treasury shares. In addition, the Company purchased 1,169,414 shares of its
common stock, as treasury shares, for $9.00 per share, net to the seller,
through a Schedule 13E-4 Issuer Tender Offer completed on February 8, 2000.
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. Environmental liabilities are not discounted to
their present value and are recorded without consideration of potential
recoveries from third parties. Subsequent adjustments to estimates, which may
be significant, may be made as more refined information becomes available or as
circumstances change (See Note 17).
INCOME TAXES
The provision for income taxes is based on earnings (loss) reported in the
financial statements. Deferred income taxes are provided to reflect temporary
differences between the basis of assets and liabilities for financial reporting
purposes and income tax purposes, as well as the effects of tax credits.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share are calculated in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings (loss) per common share is computed by
dividing consolidated net earnings (loss) by the weighted average number of
shares of common stock outstanding during each period. Earnings (loss) per
common share assuming dilution is computed by dividing consolidated net
earnings (loss) by the sum of 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, unless such
calculation is antidilutive. (See Note 4.)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was originally to be effective for
the Company's financial statements as of January 1, 2000. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133." SFAS No.
137 defers the effective date of SFAS No. 133 by one year in order to give
companies more time to study, understand and implement the provisions of SFAS
No. 133 and to complete information system modifications. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that entities record all derivatives as either
assets or liabilities, measured at fair value, with any change in fair value
recognized in earnings or in other comprehensive income, depending on the use
of the derivative and whether it qualifies for hedge accounting. If certain
conditions are met, a derivative may be specifically designated as a (a) hedge
of the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment, (b) hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods
must be consistent with the entity's approach to managing risk. The Company is
in the process of evaluating the effects that SFAS No. 133 will have on its
financial reporting and disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to classifications used in the current year.
These reclassifications had no effect on reported earnings or stockholders'
equity.
<PAGE>
NOTE 2-BUSINESS SEGMENTS:
The Company is organized into three operating segments based on
manufacturing and marketing criteria. These segments are the Refining Group,
the Retail Group and Phoenix Fuel. A description of each segment and principal
products and operations are as follows:
- Refining Group: The Refining Group consists of the Company's two
refineries, its fleet of crude oil and finished product truck transports, its
crude oil pipeline gathering operations, and its finished product terminaling
operations. The Company's two refineries manufacture various grades of
gasoline, diesel fuel, jet fuel and other products from crude oil, other
feedstocks and blending components. These products are sold through Company-
operated retail facilities, independent wholesalers and retailers,
industrial/commercial accounts, and sales and exchanges with major oil
companies. Crude oil, other feedstocks and blending components are purchased
from third party suppliers.
- Retail Group: The Retail Group consists of service station/convenience
stores and one travel center. These operations sell various grades of gasoline,
diesel fuel, general merchandise and food products to the general public
through retail locations. The petroleum fuels sold by the Retail Group are
supplied by the Refining Group, which either manufactures these refined
products or acquires them through exchange arrangements, third party purchases,
or from Phoenix Fuel. General merchandise and food products are obtained from
third party suppliers.
- Phoenix Fuel: Phoenix Fuel is an industrial/commercial petroleum fuels
and lubricants distribution operation, which includes a number of bulk
distribution plants, an unattended fleet fueling ("cardlock") operation, and a
fleet of finished product truck transports. The petroleum fuels and lubricants
sold are primarily obtained from third party suppliers and to a lesser extent
from the Refining Group.
Operations that are not included in any of the three segments are included
in the category "Other" and consist primarily of corporate staff operations,
including selling, general and administrative expenses of $26,695,000,
$22,170,000 and $17,863,000 for 1999, 1998 and 1997, respectively.
Operating income for each segment consists of net revenues less cost of
products sold, operating expenses, depreciation and amortization and the
segment's selling, general and administrative expenses. The sales between
segments are made at market prices. Cost of products sold reflect current costs
adjusted, where appropriate, for LIFO and lower of cost or market inventory
adjustments.
The total assets of each segment consist primarily of net property, plant
and equipment, inventories, accounts receivable and other assets directly
associated with the segment's operations. Included in the total assets of the
corporate staff operations are a majority of the Company's cash and cash
equivalents, various accounts receivable, net property, plant and equipment and
other long-term assets.
<PAGE>
Disclosures regarding the Company's reportable segments with
reconciliations to consolidated totals are presented below.
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1999 (In thousands)
- -----------------------------------------------------------------------------------------------
Refining Retail Phoenix Reconciling
Group Group Fuel Other Items Consolidated
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Customer net revenues $190,540 $338,565 $252,901 $ 677 $782,683
Intersegment net revenues 197,760 19,784 $(217,544)
- ----------------------------------------------------------------------------------------------
Total net revenues $388,300 $338,565 $272,685 $ 677 $(217,544) $782,683
- ----------------------------------------------------------------------------------------------
Operating income (loss) $ 52,925 $ 4,328 $ 8,549 $(26,018) $ (2,387) $ 37,397
Interest expense (23,417)
Interest income 2,476
- ----------------------------------------------------------------------------------------------
Earnings before income taxes $ 16,456
- ----------------------------------------------------------------------------------------------
Depreciation and amortization $ 15,615 $ 9,270 $ 2,273 $ 3,971 $ 31,129
Total assets $252,356 $146,110 $ 79,731 $ 68,602 $546,799
Capital expenditures $ 8,419 $ 33,235 $ 1,984 $ 2,723 $ 46,361
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998 (In thousands)
- -----------------------------------------------------------------------------------------------
Refining Retail Phoenix Reconciling
Group Group Fuel Other Items Consolidated
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Customer net revenues $181,033 $271,775 $189,168 $ 528 $642,504
Intersegment net revenues 131,599 1,876 7,343 $(140,818)
- ----------------------------------------------------------------------------------------------
Total net revenues $312,632 $273,651 $196,511 $ 528 $(140,818) $642,504
- ----------------------------------------------------------------------------------------------
Operating income (loss) $ 24,995 $ 11,774 $ 4,780 $(21,642) $ 19,907
Interest expense (25,464)
Interest income 1,831
- ----------------------------------------------------------------------------------------------
Loss before income taxes $ (3,726)
- ----------------------------------------------------------------------------------------------
Depreciation and amortization $ 14,305 $ 9,298 $ 1,976 $ 3,587 $ 29,166
Total assets $241,898 $123,086 $ 64,315 $ 98,115 $527,414
Capital expenditures $ 40,763 $ 16,325 $ 2,180 $ 934 $ 60,202
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1997 (In thousands)
- -----------------------------------------------------------------------------------------------
Refining Retail Phoenix Reconciling
Group Group Fuel Other Items Consolidated
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Customer net revenues $309,940 $214,864 $132,047 $ 427 $657,278
Intersegment net revenues 118,748 1,994 4,496 $(125,238)
- ----------------------------------------------------------------------------------------------
Total net revenues $428,688 $216,858 $136,543 $ 427 $(125,238) $657,278
- ----------------------------------------------------------------------------------------------
Operating income (loss) $ 47,873 $ 7,155 $ 3,514 $(17,436) $ 41,106
Interest expense (18,139)
Interest income 2,133
- ----------------------------------------------------------------------------------------------
Earnings before income taxes $ 25,100
- ----------------------------------------------------------------------------------------------
Depreciation and amortization $ 13,740 $ 6,494 $ 935 $ 2,822 $ 23,991
Total assets $229,663 $128,200 $ 65,227 $112,281 $535,371
Capital expenditures $ 19,366 $ 11,790 $ 1,696 $ 2,343 $ 35,195
The Company had no customers whose revenues exceeded 10% of consolidated net revenues.
</TABLE>
<PAGE>
NOTE 3-ACQUISITIONS AND DISPOSITIONS:
In February 1998, the Company purchased seven service station/convenience
stores, two cardlock commercial fleet fueling facilities, a gasoline and diesel
storage bulk plant, and related transportation equipment from DeGuelle Oil
Company and DeGuelle Enterprises (the "DeGuelle Assets") for $9,750,000. All of
the facilities are located in southwestern Colorado and are supplied by the
Company's refineries.
In April 1998, the Board of Directors of the Company approved an Agreement
and Plan of Merger (the "Merger Agreement") whereby Holly Corporation ("Holly")
would be merged with and into Giant (the "Merger"). The Merger was subject to
various conditions stated in the Merger Agreement. On September 1, 1998, Giant
and Holly mutually agreed to terminate the proposed Merger after considering
various factors, including the inability of the companies to reach a
satisfactory resolution of concerns expressed by the Federal Trade Commission
relative to the possible impact of the Merger on portions of the market served
by the companies and uncertainty caused by a lawsuit filed against Holly by
Longhorn Partners Pipeline, L.P. For the year ended December 31, 1998, the
Company wrote off approximately $1,355,000 of costs incurred in connection with
the proposed Merger. These costs were primarily for fees paid to investment
bankers, attorneys, accountants and regulatory agencies, and printing and
distribution costs related to documents delivered to shareholders.
In July 1998, the Company completed the acquisition of 32 service
station/convenience stores, equipment, fuel truck/transports, and undeveloped
real estate from Kaibab Industries, Inc. (the "Kaibab Assets") for
approximately $28,400,000. 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.
In April 1997, the Company entered into an agreement for the acquisition
of 96 retail service station/convenience stores, seven additional retail
locations for future development, certain petroleum transportation and
maintenance assets, options to acquire service station/convenience stores and
other related assets (the "Thriftway Assets"). The assets will be acquired from
Thriftway Marketing Corp. and Clayton Investment Company and from entities
related to such sellers (collectively, "Thriftway").
In May 1997, 32 of the Thriftway service station/convenience stores, as
well as 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 for an office building and a truck maintenance shop with net book
values totaling approximately $1,300,000. The remaining 64 service
station/convenience stores and related assets were leased for a period of ten
years with options to purchase them during the ten-year period for
approximately $22,904,000. The lease obligations were accounted for as capital
leases. During 1998, the Company purchased 54 of these retail service
station/convenience stores for approximately $14,669,000 and one additional
service station/convenience store in 1999 for $162,000. The remaining nine
stores continue to be leased under the original terms, and the Company intends
to purchase them pursuant to the options to purchase during the remaining lease
period for approximately $8,073,000.
The service station/convenience stores acquired from Thriftway 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 also entered into a consignment agreement with Thriftway to
supply finished product to 16 service station/convenience stores operated by
Thriftway which are located on the Navajo, Ute and Zuni Indian Reservations.
The Company has options to acquire these service station/convenience stores and
may acquire most of them in 2000. The Company also entered into long-term
supply arrangements with Thriftway to provide gasoline and diesel fuel to other
service stations in the area that will continue to be operated by Thriftway.
In late 1997, the Company entered into an arrangement to sell some of the
96 units and additional retail locations acquired or leased from Thriftway.
Sixteen of these units and two of the additional retail locations were sold in
early 1998 for approximately $1,700,000.
In June 1997, the Company 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.
All of the acquisitions have been accounted for using the purchase method.
Accordingly, the Company's purchase price has been allocated to acquired assets
and assumed liabilities based on estimated fair values. Results of operations
of the acquired businesses from their respective dates of acquisition have been
included in the Company's Consolidated Statements of Earnings (Loss) for the
years ended December 31, 1998 and 1997. The Company recorded goodwill of
approximately $17,000,000 for the acquisition of Phoenix Fuel, $4,600,000 for
the acquisition of the Kaibab Assets and $1,700,000 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 Kaibab and Thriftway
Assets over 15 years.
The Thriftway and Phoenix Fuel acquisitions were funded under the
Company's unsecured credit agreement, as amended, with a group of banks. This
facility was replaced in 1998 with a secured credit agreement. The amounts
borrowed were subsequently repaid with the issuance of $150,000,000 of 9%
senior subordinated notes (the "9% Notes") in August 1997. The proceeds of the
9% Notes were also used for the DeGuelle and Kaibab acquisitions and the
purchase of the assets related to the Thriftway capital lease obligations.
The following unaudited pro forma information for the year ended December
31, 1998 combines the historical financial information for the Company, the
Kaibab Assets, and the DeGuelle Assets assuming these acquisitions were
consummated at the beginning of the period presented. The unaudited pro forma
information includes the results of operations of the Company, the Kaibab
Assets, and the DeGuelle Assets, along with adjustments which give effect to
events that are directly attributable to the transactions and which are
expected to have a continuing impact.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA 1998
- ----------------------------------------------------------------------------
<S> <C>
Net revenues $668,506
Earnings (loss) before income taxes $ (2,163)
Net earnings (loss) $ (1,279)
Net earnings (loss) per common share - basic $ (0.12)
Net earnings (loss) per common share - assuming dilution $ (0.12)
</TABLE>
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.
In December 1998, the Company and FFCA Capital Holding Corporation
("FFCA") completed a sale-leaseback transaction. Under the terms of the Sale
and Lease Agreement (the "Agreement"), FFCA purchased 83 service
station/convenience stores from the Company for approximately $51,800,000,
including six of the seven DeGuelle Asset units and 26 of the Kaibab Asset
units, with the remainder having been acquired as part of the acquisition of
the Thriftway Assets. The Company in turn leased the 83 service
station/convenience stores back from FFCA under an operating lease arrangement
with an initial term of 15 years and three separate options to continue the
lease for successive periods of five years. In the second half of 1999, the
Company reacquired 24 of the service station/convenience stores for
approximately $13,711,000, which was the original selling price of these
properties. The original total base rent payments under the FFCA sale-leaseback
transaction, which included scheduled increases of six percent on the second
anniversary of the Agreement and every second anniversary thereafter, on a
compounded basis, during the initial lease term and any extension thereof, have
been adjusted downward to reflect the repurchase of the 24 service
station/convenience stores. The total amount of the remaining base rent
payments of approximately $64,767,000 is being charged to expense on the
straight-line method over the remaining term of the lease. This amount is
approximately $4,626,000 per year. At December 31, 1999, the Company had
recorded a deferred credit of approximately $837,000 to reflect the excess of
rent expense over cash payments made. This deferred credit is included in
"Other Liabilities and Deferred Income" in the Company's Consolidated Balance
Sheet at December 31, 1999. The Company has a right of first refusal to acquire
the leased assets upon an offer to purchase the assets by a third party. Net
proceeds to the Company from the original 1998 sale-leaseback transaction,
after expenses, were approximately $50,100,000. The Company had recorded a gain
of approximately $5,650,000 on the original transaction, which was deferred and
was being amortized over the initial lease period of 15 years. As a result of
the reacquisition, the reacquired assets were recorded at $9,209,000, which
approximated the net book value of the assets at the time of the original sale,
and the deferred gain was reduced by approximately $4,502,000. The remaining
gain will be amortized over the remaining lease period of 14 years. The
deferred gain is reflected in "Other Liabilities and Deferred Income" in the
Company's Consolidated Balance Sheets at December 31, 1999 and 1998.
In accordance with the Indentures supporting the Company's 9% Notes and
$100,000,000 of 9 3/4% senior subordinated notes (the "9 3/4% Notes", and
collectively with the 9% Notes, the "Notes"), the Company was required to use
the net proceeds from the FFCA sale-leaseback transaction described above, less
$10,000,000, to either make a permanent reduction in senior indebtedness (as
defined in the respective Indentures), or make an investment in capital assets
used in the Company's principal business (as defined in the respective
Indentures) before certain time periods expired. Prior to the expiration dates,
the Company used a sufficient portion of the net proceeds from the FFCA
transaction to invest in capital assets and to reduce senior indebtedness and
is not required to offer to repurchase the Notes.
In December 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 $1,195,000 on the disposition. In 1997, the
Company incurred expenses of approximately $307,000 to maintain this facility
in addition to approximately $606,000 in depreciation.
In October 1995, the Company completed the purchase of the Bloomfield
refinery along with related pipeline and transportation assets for $55,000,000
from Gary-Williams Energy Co. and its wholly-owned subsidiary, Bloomfield
Refining Company ("BRC"). The purchase agreement provides for potential
contingent payments to be made to BRC over approximately six years from the
acquisition date of approximately $35,000,000, not to exceed a net present
value of $25,000,000 as of October 1995, should certain criteria be met. These
contingent payments are considered to be additional purchase price and are
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. For 1999,
the Company paid approximately $5,250,000 and had accrued an additional
$5,432,000 at December 31, 1999, under this arrangement relating to 1999
operations. At December 31, 1998 and 1997, the Company had accrued $2,039,000
and $7,243,000, respectively, under this arrangement relating to 1998 and 1997
operations. In addition, the Company accrued $2,250,000 in 1996 relating to
certain environmental obligations assumed in the purchase, which amount was
also considered to be additional purchase price.
<PAGE>
NOTE 4-EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for earnings (loss) as required
by SFAS No. 128:
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Per Per Per
Earnings Shares Share Loss Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per common
share - basic:
Earnings (loss) $10,778,000 10,678,773 $1.01 $(2,217,000) 10,950,991 $(0.20) $15,294,000 11,050,853 $1.38
Effect of dilutive
stock options 40,084 * 124,041
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common
share - assuming dilution:
Earnings (loss) $10,778,000 10,718,857 $1.01 $(2,217,000) 10,950,991 $(0.20) $15,294,000 11,174,894 $1.37
===================================================================================================================================
*The additional shares would be antidilutive due to the net loss.
</TABLE>
On December 21, 1999, the Company filed a Schedule 13E-4 Issuer Tender
Offer Statement with the Securities and Exchange Commission. The offer expired
on February 4, 2000, and the Company acquired 1,169,414 shares of its common
stock, which were properly tendered under the offer, on February 8, 2000. The
repurchased shares are being treated as treasury shares.
There were no other transactions subsequent to December 31, 1999, that if
the transactions had occurred before December 31, 1999, would materially change
the number of common shares or potential common shares outstanding as of
December 31, 1999.
<PAGE>
NOTE 5-RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1998, the Company
loaned $5,000,000 to its Chairman and Chief Executive
Officer. The Company's initial loan in the amount of
$4,000,000 was subsequently increased by $1,000,000. The loan
was originally evidenced by an unsecured promissory note
bearing interest at prime plus 2% on $4,000,000 from
September 17, 1998 through December 22, 1998, and prime plus
3% on $5,000,000 thereafter. An initial interest payment was
paid on February 28, 1999 for interest due through December
31, 1998. Subsequent interest was due and payable semi-
annually on each June 30 and December 31 of each year until
February 28, 2001, at which time all outstanding principal
and interest was fully due and payable. The terms of the loan
have been revised so that all principal and interest,
including interest that would otherwise have been payable at
December 31, 1999, is fully due and payable on February 28,
2001, and the loan became secured by a pledge, by an entity
controlled by the Company's Chairman and Chief Executive
Officer, of an equity interest in an entity that owns certain
real property. This loan is included in "Other Assets" in the
Company's Consolidated Balance Sheets at December 31, 1999
and 1998.
During the third quarter of 1999, the Company
repurchased 440,000 shares of its common stock under its
stock repurchase program from its Chairman and Chief
Executive Officer for $4,950,000 or $11.25 per share. The per
share price paid for the shares was at a discount to the then
current fair market value. The repurchased shares are treated
as treasury shares.
The Company believes that the foregoing transactions are
fair to the Company and its subsidiaries, and are in the best
interests of the Company and its subsidiaries.
<PAGE>
NOTE 6-INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
First-in, first-out ("FIFO") method:
Crude oil $11,550 $ 8,419
Refined products 26,632 17,956
Refinery and shop supplies 10,502 9,648
Merchandise 4,897 4,568
Retail method:
Merchandise 8,809 7,460
- ----------------------------------------------------------------------------
Subtotal 62,390 48,051
Adjustment for last-in, first-out ("LIFO") method (4,150) 14,758
Allowance for lower of cost or market (11,460)
- ----------------------------------------------------------------------------
Total $58,240 $ 51,349
============================================================================
</TABLE>
The portion of inventories valued on a LIFO basis totaled $32,435,000 and
$30,423,000 at December 31, 1999 and 1998, respectively. The data in the
following paragraph 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,
1999, 1998 and 1997, net earnings and earnings per share for the years ended
December 31, 1999, 1998 and 1997 would have been higher (lower) by $4,408,000
and $0.41, $(1,205,000) and $(0.11), and $(3,705,000) and $(0.34), respectively.
For the year 1999, certain higher cost refinery LIFO inventory layers were
liquidated resulting in a reduction of current year earnings of approximately
$1,531,000 or $0.14 per share.
<PAGE>
NOTE 7-PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 30,722 $ 28,321
Buildings and improvements 113,469 92,701
Machinery and equipment 271,045 246,615
Pipelines 10,195 10,088
Furniture and fixtures 25,577 23,108
Vehicles 8,774 10,160
Construction in progress 25,399 28,947
- ----------------------------------------------------------------------------
Subtotal 485,181 439,940
Accumulated depreciation and amortization (161,983) (138,008)
- ----------------------------------------------------------------------------
Total $ 323,198 $ 301,932
============================================================================
</TABLE
<PAGE>
NOTE 8-ACCRUED EXPENSES:
Accrued expenses are comprised of the following:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Excise taxes $16,452 $12,264
Bloomfield refinery acquisition contingent payment 5,432 2,039
Payroll and related costs 6,446 6,082
Bonus, profit sharing and retirement plans 4,867 3,351
Interest 5,704 6,364
Other 6,557 6,419
- ----------------------------------------------------------------------------
Total $45,458 $36,519
============================================================================
</TABLE>
<PAGE>
NOTE 9-LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
- ----------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
9% senior subordinated notes, due 2007,
interest payable semi-annually $150,000 $150,000
9 3/4% senior subordinated notes, due 2003,
interest payable semi-annually 100,000 100,000
Secured credit agreement, due 2001, floating
interest rate, interest payable quarterly 24,000
Capital lease obligations, 11.3%, due through
2007, interest payable monthly 8,073 8,235
Notes payable to others, collateralized by real
estate, 9 3/4%, due 1999, interest payable monthly 950
Other 496 499
- ----------------------------------------------------------------------------
Subtotal 258,569 283,684
Less current portion (297) (1,200)
- ----------------------------------------------------------------------------
Total $258,272 $282,484
============================================================================
</TABLE>
Repayment of the 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 Indentures 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.
Separate financial statements of the Company's subsidiaries are not
included herein because 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; the subsidiaries
are jointly and severally liable for repayment of the Notes; and the separate
financial statements and other disclosures concerning the subsidiaries are not
deemed material to investors.
The Indentures supporting the Notes contain restrictive covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
create liens, to incur or guarantee debt, to pay dividends, to repurchase
shares of the Company's common stock, to sell certain assets or subsidiary
stock, to engage in certain mergers, to engage in certain transactions with
affiliates or to alter the Company's current line of business. 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 would 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, 1999, retained earnings available for
dividends under the most restrictive terms of the Indentures were approximately
$10,658,000. At December 31, 1999, the Company was in compliance with the
restrictive covenants relating to the Notes.
The Company had been precluded from making restricted payments from the
third quarter of 1998 until June 30, 1999, because it did not satisfy a
financial ratio test contained in one of the covenants relating to the 9 3/4%
Notes. This included the payment of dividends and the repurchase of shares of
the Company's common stock. The terms of the Indenture also had restricted the
amount of money the Company could otherwise borrow during this period. The
Company is no longer subject to these restrictions, as the Company currently
satisfies the requirements of the covenant's financial ratio test.
On December 23, 1998, the Company entered into a $65,000,000 secured
Credit Agreement (the "Credit Agreement") due December 23, 2001, with Bank of
America National Trust and Savings Association, Union Bank of California, N.A.
and Bank One, Arizona, N.A. This Credit Agreement, a revolving loan agreement,
is primarily a working capital and letter of credit facility and is secured by
eligible accounts receivable and inventories as defined in the Credit
Agreement. In addition, the Company is able to borrow up to $9,000,000 to
exercise its purchase rights in connection with the Thriftway Assets that are
currently subject to capital lease obligations, and up to $10,000,000 for other
acquisitions as defined in the Credit Agreement. The availability of funds
under this facility is the lesser of (i) $65,000,000, or (ii) the amount
determined under a borrowing base calculation tied to the eligible accounts
receivable and inventories. At December 31, 1999, the availability of funds
under the Credit Agreement was $65,000,000. There were no direct borrowings
outstanding under this facility at December 31, 1999, and there were
approximately $8,887,000 of irrevocable letters of credit outstanding,
primarily to secure purchases of raw materials.
The interest rate applicable to the Credit Agreement is tied to various
short-term indices. At December 31, 1999, this rate was approximately 7.5% per
annum. The Company is required to pay a quarterly commitment fee ranging from
0.325% to 0.500% per annum of the unused amount of the facility. The exact rate
depends on meeting certain conditions in the Credit Agreement.
The Credit Agreement contains certain restrictive covenants which require
the Company to, among other things, maintain a minimum consolidated net worth,
a minimum interest coverage ratio, and a maximum capitalization ratio. It also
places limits on investments, dispositions of assets, prepayments of senior
subordinated debt, guarantees, liens and restricted payments. At December 31,
1999, the Company was in compliance with the Credit Agreement's restrictive
covenants. The Credit Agreement is guaranteed by certain of the Company's
direct and indirect wholly-owned subsidiaries.
In 1997, as part of the acquisition of the Thriftway Assets, the Company
leased 64 service station/convenience stores for a period of ten years with
options to purchase the assets during the ten-year period for approximately
$22,904,000. During 1998, the Company purchased 54 of these retail service
station/convenience stores for approximately $14,669,000 and one additional
service station/convenience store in 1999 for $162,000. The remaining nine
stores continue to be leased under the original terms and the Company intends
to purchase them pursuant to options to purchase during the remaining lease
period for approximately $8,073,000. The remaining lease obligations of
$8,073,000 are being accounted for as capital leases and require annual lease
payments of approximately $912,000, all of which are recorded as interest
expense. Assets associated with these lease obligations of approximately
$9,489,000 are included in property, plant and equipment. Accumulated
depreciation as of December 31, 1999 of approximately $2,000,000 is related
to these assets. Assets of $651,000, primarily liquor licenses, are included
in other assets.
Aggregate annual maturities of long-term debt as of December 31, 1999 are:
2000 - $297,000; 2001 - $78,000; 2002 - $76,000; 2003 - $100,028,000; 2004 -
$17,000; and all years thereafter - $158,073,000.
<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. Considerable judgment is required, however, 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,
- ---------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet - Financial
Instruments:
Fixed rate long-term debt $250,496 $236,686 $251,449 $231,778
</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.
The Company also has a long-term note receivable with a related party
which, due to its maturity in February 2001, has a carrying value that
approximates fair value.
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
From time to time, the Company enters into futures and options contracts
to reduce price volatility, to fix margins in its refining and marketing
operations and to protect against price declines for 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, 1999, the Company's hedging activities had open futures
contracts maturing in 2000 covering 50,000 barrels of heating oil and 38,000
barrels of crude oil. At December 31, 1998, the Company's hedging activities
had futures contracts maturing in 1999 covering 78,000 barrels of heating oil
and options had been sold on 700,000 barrels of crude oil. The crude oil
options expired unexercised in January 1999 with a realized premium of
$177,000. 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. Gains and
losses from market changes on contracts not qualifying for hedge accounting are
recognized immediately in operations. Net deferred losses for the Company's
petroleum hedging activities were approximately $331,000 and $159,000 at
December 31, 1999 and 1998, respectively.
The Company is exposed to loss in the event of nonperformance by the other
parties to these contracts. The Company does not anticipate, however,
nonperformance by the counterparties.
<PAGE>
NOTE 11-INCOME TAXES:
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 532 $ 1,406 $ 3,367
State 14 5 758
Deferred: Federal 3,412 (2,787) 4,689
State 1,720 (133) 992
- ---------------------------------------------------------------------------
$ 5,678 $ (1,509) $ 9,806
===========================================================================
</TABLE>
Income taxes paid in 1999, 1998 and 1997 were $2,099,000, $1,468,000 and
$2,785,000, respectively.
A reconciliation of the difference between the provision (benefit) for
income taxes and income taxes at the statutory U.S. federal income tax rate is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at the statutory
U.S. federal income tax rate of 35% $ 5,760 $ (1,304) $ 8,785
Increase (decrease) in taxes resulting from:
State taxes, net 795 (135) 1,191
Resolution of tax matters (320)
General business credits, net (205) (182) (100)
Other, net (352) 112 (70)
- ---------------------------------------------------------------------------
$ 5,678 $ (1,509) $ 9,806
===========================================================================
</TABLE>
<PAGE>
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes, as well as
available tax credit carryforwards. The tax effected temporary differences and
credit carryforwards which comprise deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------
(IN THOUSANDS) ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nondeductible accruals for
uncollectible receivables $ 163 $ 163 $ 111 $ 111
Insurance accruals 494 494 915 915
Insurance settlements 649 649 273 273
Contribution carryover 154 154
Other reserves 1,043 1,043 611 611
Inventory costs capitalized
for income tax purposes 159 159 246 246
Nondeductible accrual for
lower of cost or market
adjustment to inventory 40 40 4,469 4,469
- -----------------------------------------------------------------------------------------
Total current 2,702 2,702 6,625 6,625
- -----------------------------------------------------------------------------------------
Other nondeductible accruals 1,080 $ (292) 788 382 $ (388) (6)
Accelerated plant costs (539) (539) (944) (944)
Deferred lease payments 317 317
Operating lease (783) (783)
Accelerated depreciation (41,756) (41,756) (33,806) (33,806)
Other (703) (703) (1,601) (1,601)
Tax credit carryforwards 13,891 13,891 10,347 10,347
- -----------------------------------------------------------------------------------------
Total noncurrent 15,288 (43,290) (28,002) 10,729 (37,522) (26,793)
- -----------------------------------------------------------------------------------------
Total $17,990 $(43,290) $(25,300) $17,354 $(37,522) $(20,168)
=========================================================================================
</TABLE>
At December 31, 1999, the Company had a minimum tax credit carryforward of
approximately $9,562,000 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, 1999,
the Company also had approximately $396,000 in state net operating loss
carryforwards available.
At December 31, 1999, the Company had approximately $3,933,000 of general
business credits available to offset future regular taxes payable. Pursuant to
Federal income tax law, these carryover credits must be used before any minimum
tax credit carryforward can be used. Of the total general business credits
available, $1,046,000 will expire in 2008, $1,341,000 will expire in 2009,
$1,154,000 will expire in 2010, $98,000 will expire in 2011, $89,000 will
expire in 2012 and $205,000 will expire in 2014.
<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, 1999 and 1998, the ESOP's assets
included 1,339,932 and 1,149,739 shares of the Company's common stock,
respectively. All of these shares have been allocated or will be allocated to
the participants accounts effective as of December 31, 1999. 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
Company's Board of Directors. The Company made contributions of $3,000,000, $0,
and $536,000 to the ESOP for 1999, 1998 and 1997, 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>
NOTE 13-401(k) PLAN:
The Company has a 401(k) retirement plan for its employees who meet plan
eligibility requirements. The Company matches the employee's contributions at a
rate of 50% up to a maximum of 6% of the employee's annual compensation,
subject to a per participant maximum contribution amount. For the years ended
December 31, 1999, 1998, and 1997, the Company expensed $1,388,000, $1,300,000
and $930,000, respectively, for matching contributions under this plan.
<PAGE>
NOTE 14-STOCK INCENTIVE PLANS:
At a Special Meeting of Stockholders held on June 26, 1998, the
stockholders of the Company approved the Giant Industries, Inc. 1998 Stock
Incentive Plan (the "1998 Plan"). Under the 1998 Plan, shares of the Company's
common stock are authorized to be issued to deserving employees in connection
with awards of options, appreciation rights, restricted shares, performance
shares or performance units, all as defined in the 1998 Plan. Appreciation
rights, performance shares and performance units may be settled in cash, common
shares of the Company or any combination thereof.
The total number of shares available for grant under the 1998 Plan during
1998 was 440,000 shares. Thereafter, commencing January 1, 1999 and continuing
through the term of the plan, 2% of the total number of common shares
outstanding as of the first day of each calendar year are available for grant,
which amount was 216,775 shares for 1999, subject to a 400,000 share annual
limitation on the number of common shares available for the grant of options
that are intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code. Common shares available for grant in any particular
calendar year which are not, in fact, granted in such year cannot be added to
the common shares available for grant in any subsequent calendar year.
The 1998 Plan provides that all grants are subject to restrictions,
conditions and terms more specifically described in the 1998 Plan, including,
but not limited to, the exercise price for stock options and appreciation
rights and time vesting requirements for all awards. In general, the 1998 Plan
provides that grants of stock options and appreciation rights must expire no
more than 10 years from the date of grant. In addition, all grants under the
1998 Plan are subject to forfeiture under certain circumstances, and all
unvested awards may vest immediately under various circumstances defined in the
1998 Plan.
On December 31, 1999, 100,000 nonqualified stock options were granted
under the 1998 Plan, 50,000 stock options at an exercise price of $12.00 per
share and 50,000 stock options at $18.50 per share. The stock options were
granted to two employees who had been granted an equal number of Phantom Stock
units under the Giant Industries, Inc. 1998 Phantom Stock Plan (the "Phantom
Stock Plan"), which was terminated by the Company in 1999. Each Phantom Stock
unit was equivalent to one share of the Company's common stock. The stock
options were granted under the original terms of the Phantom Stock Plan grant
as to exercise price, vesting and expiration date. The exercise prices exceeded
the fair market value at the date of grant, 60,000 options became vested on the
grant date, and the remaining options vest in varying amounts, and at various
times, through December 31, 2001. All of the options expire on February 1,
2008. No other awards were outstanding under the Phantom Stock Plan at the time
of its termination.
Under the Company's 1989 Stock Incentive Plan (the "1989 Plan"), 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. At December 31, 1999,
there were no shares available for future grants under the 1989 Plan.
All of the options or restricted stock grants under the 1989 plan are
subject to forfeiture under certain circumstances. The options and restricted
stock generally vest 14% to 33% annually beginning one year after the date of
grant. All options were granted at or above fair market value at the date of
grant and expire on the tenth anniversary of the grant date. All unvested
awards under the 1989 Plan may vest immediately under various circumstances
defined in the 1989 Plan.
<PAGE>
The following summarizes stock option transactions under the 1989 and
1998 Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT SHARES WEIGHTED AVERAGE EXERCISE PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1997 267,007 $ 8.37
Exercised (11,000) 7.52
--------
December 31, 1997 256,007 8.40
Granted 177,401 9.34
Forfeited (2,000) 5.25
--------
December 31, 1998 431,408 8.80
Granted 100,000 15.25
Exercised (120,857) 8.86
--------
December 31, 1999 410,551 $10.36
========
Options exercisable at December 31:
1999 252,285 $ 9.80
1998 254,007 8.43
1997 256,007 8.40
</TABLE>
The following summarizes information about stock options outstanding
under the 1989 and 1998 Plans at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------
Weighted
Weighted Average Weighted
Average Number Remaining Number Average
Exercise Price Outstanding Contractual Life Exercisable Exercise Price
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.50 5,000 0.6 Years 5,000 $10.50
10.63 26,000 1.2 Years 26,000 10.63
5.25 25,400 2.3 Years 25,400 5.25
7.75 71,750 3.3 Years 71,750 7.75
10.38 5,000 4.2 Years 5,000 10.38
15.25 100,000 8.1 Years 60,000 14.17
9.34 177,401 8.6 Years 59,135 9.34
------- -------
$10.36 410,551 6.0 Years 252,285 $ 9.80
======= =======
</TABLE>
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 Company has adopted the disclosure-only provisions of SFAS No. 123. If
the Company had elected to recognize compensation costs based on the fair value
at the date of grant for awards granted in 1998 and 1999, consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
for the year ended December 31, 1999, would have decreased by approximately
$497,000 and $0.05 per share and the Company's net loss and loss per share for
the year ended December 31, 1998, would have increased approximately $33,000
and $0.003 per share.
The pro forma effects of applying SFAS No. 123 in this disclosure are not
necessarily indicative of future amounts.
The estimated weighted average fair values of options granted during 1999
and 1998 were $9.14 and $5.40 per share, respectively, and were estimated using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Expected life in years 8 7
Risk-free interest rate 6.5% 6%
Volatility 45% 38%
Dividend yield 1.2%
</TABLE
<PAGE>
NOTE 15-PHANTOM STOCK PLAN:
On December 11, 1997, the Board of Directors of the Company adopted the
Phantom Stock Plan to become effective on January 30, 1998. In 1999, the
Phantom Stock Plan was terminated.
In 1998, a total of 100,000 Phantom Stock units were granted to two
employees of the Company. A grant of 25,000 units to each individual was made
at an exercise price of $12.00 per unit and a separate grant of 25,000 units to
each individual was made at $18.50 per unit. These units were terminated due to
the termination of the Phantom Stock Plan. To replace these units, the
individuals involved were granted stock options under the Company's 1998 Plan.
The individuals involved consented to the termination of the Phantom Stock Plan
and the awards outstanding under the Plan.
<PAGE>
NOTE 16-INTEREST, OPERATING LEASES AND RENT EXPENSE:
Interest paid and capitalized for 1999 was $24,176,000 and $183,000, for
1998 was $25,358,000 and $373,000 and for 1997 was $13,075,000 and $333,000,
respectively.
As discussed in Note 3, on December 31, 1998, the Company and FFCA
completed a sale-leaseback transaction. Under the terms of the Agreement, FFCA
purchased 83 service station/convenience stores from the Company and the
Company in turn leased the 83 service station/convenience stores back from FFCA
under an operating lease arrangement with an initial term of 15 years and three
separate options to continue the lease for successive periods of five years. In
the second half of 1999, the Company reacquired 24 of the service
station/convenience stores for approximately $13,711,000, which was the
original selling price of these properties.
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, 1999 as follows:
</TABLE>
<TABLE>
<CAPTION>
(In thousands) Land, building, machinery and equipment leases
- ----------------------------------------------------------------------
<S> <C>
2000 $ 8,030
2001 7,120
2002 6,351
2003 5,621
2004 5,281
2005-2013 46,793
- ----------------------------------------------------------------------
Total minimum payments required $79,196
======================================================================
</TABLE>
Total rent expense was $12,134,000, $5,624,000, and $3,354,000 for 1999,
1998 and 1997, respectively.
<PAGE>
NOTE 17-COMMITMENTS AND CONTINGENCIES:
Various legal actions, claims, assessments and other contingencies arising
in the normal course of the Company's business, including those matters
described below, are pending against the Company and certain of its
subsidiaries. Certain of these matters involve or may involve significant
claims for compensatory, punitive or other damages. These matters are subject
to many uncertainties, and it is possible that some of these matters could be
ultimately decided, resolved or settled adversely. The Company has recorded
accruals for losses related to those matters that it considers to be probable
and that can be reasonably estimated. Although the ultimate amount of liability
at December 31, 1999, which may result from those matters for which the Company
has recorded accruals is not ascertainable, the Company believes that any
amounts exceeding the Company's recorded accruals should not materially affect
the Company's financial condition. It is possible, however, that the ultimate
resolution of these matters could result in a material adverse effect on the
Company's results of operations for a particular reporting period.
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 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.
On October 1, 1999, the State of New Mexico filed a lawsuit in the United
States District Court for the District of New Mexico, and a separate lawsuit in
the Second Judicial District Court, County of Bernalillo, State of New Mexico,
against numerous entities, including General Electric Company, ACF Industries,
Inc., Chevron Corporation, Texaco Refining and Marketing, Inc., Phillips
Petroleum Company, Ultramar Diamond Shamrock Corporation, the United States
Department of Energy, the United States Department of Defense, the United
States Air Force and the Company. The lawsuits relate to alleged releases of
pollutants at the South Valley Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") Superfund Site in Albuquerque, New
Mexico (the "South Valley Superfund Site"). The South Valley Superfund Site
includes contamination that allegedly originated from a number of facilities,
including a GE Aircraft Engines/U.S. Air Force facility and a petroleum
products terminal (the "Albuquerque Terminal"), which was acquired by the
Company in 1995 from Texaco Refining and Marketing, Inc. ("Texaco"). The
lawsuits allege that the defendants released or threatened to release hazardous
substances into the environment, causing injury to surface water, groundwater
and soil at the South Valley Superfund Site, which are natural resources of the
state. In the federal court lawsuit, the state seeks monetary damages under
CERCLA for all past, present and future damages to these natural resources,
plus interest, costs and attorneys' fees. The state court complaint contains
state law claims for trespass, public nuisance, interference with natural
resources held in trust by the state, negligence, strict liability, unjust
enrichment and punitive damages. The state seeks various monetary damages in
connection with these claims, including natural resources damages, loss of use
of property and natural resources, loss of tax revenues, lost profits, punitive
damages and attorneys' fees and costs. Since its original filing, the state
court complaint has been removed to federal court. The Company, along with
certain other defendants, has filed a motion to dismiss the state law claims.
Although neither complaint calculates the amount of damages being sought by the
state, a preliminary assessment report on alleged damages to natural resources,
dated December 1998, issued by the New Mexico Office of the Natural Resources
Trustee estimated these damages at $260,000,000. Liability for natural resource
damages under CERCLA is joint and several such that a responsible party may be
liable for all natural resource damages at a site even though it was
responsible for only a small part of such damages.
Texaco agreed to defend, indemnify, reimburse and hold the Company
harmless from and against all claims and damages arising from, or caused by,
pre-closing contamination at the Albuquerque Terminal. Texaco has acknowledged
this obligation, subject to any evidence that alleged releases resulted from
the Company's operations. The Company believes that any damages associated with
the South Valley Superfund Site relate to releases that predate the Company's
acquisition of the Albuquerque Terminal and, accordingly, does not believe that
it needs to record a liability in connection with the two lawsuits.
In 1973, the Company constructed the Farmington refinery that 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
the supervision of the New Mexico Oil Conservation Division ("OCD"), although
no cleanup order has been received. The Company had reserved approximately
$1,000,000 for possible environmental expenditures relating to its Farmington
property, of which approximately $570,000 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 Landfill was added to the National Priorities List as a CERCLA
Superfund site in 1990. In connection with this listing, the Environmental
Protection Agency ("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.
BLM made a proposed plan of action for the Landfill available to the
public in 1996. Remediation alternatives examined by BLM in connection with the
development of its proposed plan ranged in projected cost from no cost to
approximately $14,500,000. BLM proposed the adoption of a remedial action
alternative that it believes would cost approximately $3,900,000 to implement.
BLM's $3,900,000 cost estimate is based on certain assumptions which may
or may not prove to be correct and is contingent on confirmation that the
remedial actions, once implemented, are adequately addressing Landfill
contamination. For example, if assumptions regarding groundwater mobility and
contamination levels are incorrect, BLM is proposing to take additional
remedial actions with an estimated cost of approximately $1,800,000.
BLM has received public comment on its proposed plan. The final remedy for
the site, however, has not yet been selected. It is anticipated that the final
remedy will be selected in 2000. In 1989, a consultant to the Company
estimated, based on various assumptions, that the Company's share of potential
liability could be approximately $1,200,000. This figure was based upon
estimated Landfill remediation costs significantly higher than those being
proposed by BLM. The figure was also based on the consultant's evaluation of
such factors as available clean-up technology, BLM's involvement at the site
and the number of other entities that may have had involvement at the site, but
did not include an analysis of all 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. Although
it is possible that the Company may ultimately incur liability for clean-up
costs associated with the Landfill, a reasonable estimate of the amount of this
liability, if any, cannot be made at this time because, among other reasons,
the final site remedy has not been selected, a number of entities had
involvement at the site, allocation of responsibility among potentially
responsible parties has not yet been made, and potentially-applicable factual
and legal issues have not been resolved. Based on current information, the
Company does not believe that it needs to record a liability in relation to
BLM's proposed plan.
BLM may assert claims against the Company and others for reimbursement of
investigative, cleanup and other costs incurred by BLM in connection with the
Landfill and surrounding areas. It is also possible that the Company will
assert claims against BLM in connection with contamination that may be
originating from the Landfill. Private parties and other governmental entities
may also assert claims against BLM, the Company and others for property damage,
personal injury and other damages allegedly arising out of any contamination
originating from the Landfill and the Farmington property. Parties 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 BLM or any other party.
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 the Resources Conservation and Recovery Act (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 established an environmental reserve of $2,250,000 in
connection with this matter, of which approximately $1,600,000 still remains.
The Company has discovered hydrocarbon contamination adjacent to a 55,000
barrel crude oil storage tank (the "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, to the Company's
knowledge, ceased operations in the early 1960s. The Company submitted a work
plan to define the extent of petroleum contamination in the soil and
groundwater, which was approved by OCD subject to certain conditions. One of
the conditions required the Company to submit a comprehensive report on all
site investigations to OCD by January 14, 2000. The Company filed the required
report on January 13, 2000. Based upon the report, it appears possible that
contaminated groundwater is contained within the property boundaries and does
not extend offsite. It is anticipated that OCD will not require remediation of
offsite soil based upon the low contaminant levels found there. The Company
previously estimated cleanup costs at $250,000 and an environmental reserve in
that amount was created, of which $238,000 remains. If OCD adopts the
remediation alternative proposed by the Company, the Company anticipates that
the cost of remediation will be closer to $100,000. The Company, however, does
not know whether OCD will adopt the Company's remediation proposal.
The Company is in receipt of a Notice of Violation, 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 and NMED are negotiating a plan for
closure of the land treatment facility. It is anticipated that the costs
associated with implementing the type of closure plan under discussion
would be approximately $400,000. An estimated $100,000 of this amount would
be spent in 2000, with the remainder spent over a period of approximately
30 years.
The Company has an environmental liability accrual of approximately
$2,400,000. Approximately $800,000 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 the 5.5 acres the Company owns in Bloomfield,
New Mexico. The remaining $1,600,000 relates to 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 Sheets.
The Company has received several tax notifications and assessments from
the Navajo Tribe relating to Company operations outside the boundaries of the
Navajo Indian Reservation in an area of disputed jurisdiction, including a
$1,800,000 severance tax assessment (including interest and penalties through
the date of the assessment) issued in November 1991, and a $3,400,000 severance
tax assessment (including interest and penalties through the date of the
assessment) issued in May 1999, both of which relate to crude oil removed from
properties located within this area. The Company has invoked its appeal rights
with the Tribe's Tax Commission in connection with the assessments and intends
to oppose the assessments. Although it is probable that the Company will incur
liability in connection with tax notifications and assessments from the Navajo
Tribe relating to the area of disputed jurisdiction, it is not possible to
precisely estimate the amount of any obligation for such taxes at this time
because the Navajo Tribe's legal authority to impose taxes throughout this area
has not been legally established and all potentially-applicable factual issues
have not been resolved. The Company has accrued a liability for assessments
that it has received from the Navajo Tribe for substantially less than the
amount of the assessments. 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 may potentially be
able to request reimbursement from certain third party oil lease interest
owners in connection with any severance tax amounts ultimately paid by the
Company that relate to purchases from the interest owners. The Company intends
to continue purchasing activities in the area of disputed jurisdiction.
The Company is subject to various federal and state programs relating to
the composition of motor fuels. In December 1999, EPA issued a rule which
requires refiners to reduce the sulfur content of gasoline to 30 parts per
million ("ppm") by 2006 unless they qualify for an extension of this
deadline. The Company may be eligible for an extension of up to one year
under a provision pertaining to gasoline produced or sold in certain
designated geographic areas, including three states in which the Company
markets its gasoline. It is anticipated that the Company will incur costs
in the approximate amount of $3,500,000 to purchase the equipment necessary
to produce gasoline with a 30 ppm sulfur content at its refineries.
The federal Clean Air Act requires the sale of reformulated gasoline
("RFG") in certain designated areas of the country. Motor fuels produced by the
Company's refineries are not sold in any such areas. Arizona, however, has
adopted a cleaner burning gasoline ("CBG") program. The Company does not
presently manufacture gasolines that satisfy Arizona CBG specifications. The
specifications are currently applicable to gasolines sold or used in Maricopa
County and a portion of Yavapai County, and are expected to become effective in
Pinal County by 2001. The Company operates approximately 25 service stations in
these areas, and also conducts wholesale marketing operations there. The
Company currently does not intend to make the changes necessary to produce CBG
because the capital costs associated with manufacturing large quantities of
such gasolines would be significant in amounts not determined by the Company.
The Company has the ability to purchase or exchange for these gasolines to
supply its operations in the CBG areas, including Pinal County. It is possible
that additional legislation or regulations affecting motor fuel specifications
may be adopted that would impact geographic areas in which the Company markets
its products.
<PAGE>
NOTE 18-QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Year Ended December 31, 1999
- ---------------------------------------------------------------------------------------------------
(In thousands, except per share data) Quarter
- ---------------------------------------------------------------------------------------------------
First Second Third Fourth
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $149,021 $201,182 $214,503 $217,977
Cost of products sold 99,687 137,339 160,064 170,436
- ---------------------------------------------------------------------------------------------------
Gross margin 49,334 63,843 54,439 47,541
- ---------------------------------------------------------------------------------------------------
Operating expenses 27,084 29,012 28,771 30,307
Depreciation and amortization 7,338 7,841 7,487 8,463
Selling, general and administrative expenses 7,938 7,388 7,296 6,448
Loss on write-off of assets 1,950 437
Net earnings (loss) 858 7,405 3,465 (950)
Net earnings (loss) per common share - basic $ 0.08 $ 0.68 $ 0.32 $ (0.09)
Net earnings (loss) per common share - assuming dilution $ 0.08 $ 0.68 $ 0.32 $ (0.09)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- ---------------------------------------------------------------------------------------------------
(In thousands, except per share data) Quarter
- ---------------------------------------------------------------------------------------------------
First(1) Second(1) Third(1) Fourth(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $145,716 $157,014 $167,461 $172,313
Cost of products sold 105,752 112,748 119,139 127,297
- ---------------------------------------------------------------------------------------------------
Gross margin 39,964 44,266 48,322 45,016
- ---------------------------------------------------------------------------------------------------
Operating expenses 24,893 24,261 26,424 27,629
Depreciation and amortization 6,789 6,774 7,664 7,939
Selling, general and administrative expenses 5,815 6,237 7,485(2) 5,751(2)
Net earnings (loss). (1,682) 759 421 (1,715)
Net earnings (loss) per common share - basic $ (0.15) $ 0.07 $ 0.04 $ (0.16)
Net earnings (loss) per common share - assuming dilution $ (0.15) $ 0.07 $ 0.04 $ (0.16)
Dividends declared per common share $ 0.05 $ 0.05 $ 0.05
</TABLE>
(1) The results of operations of the Acquisitions are included from the
date of purchase. (See Note 3.)
(2) Selling, general and administrative expenses include costs associated
with the terminated merger with Holly Corporation of approximately
$1,053,000 and $302,000 in the third and fourth quarters of 1998,
respectively.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<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 11, 2000 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, 2000.
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 hereof entitled
"Executive Officers of the Registrant," following Item 4.
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," "Security Ownership of Management" and "Shares Owned by Certain
Shareholders."
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," "Certain Transactions" and
"Indebtedness of Management."
<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, 1999 and 1998
(iii) Consolidated Statements of Earnings (Loss) - Years ended
December 31, 1999, 1998 and 1997
(iv) Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
(v) Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997
(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, 1999, 1998
and 1997 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
10.3 Giant Industries, Inc., 1998 Phantom Stock Plan. Incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, File No. 1-10398.
10.4 Giant Industries, Inc. 1998 Stock Incentive Plan. Incorporated
by reference to Appendix H to the Joint Proxy Statement/Prospectus
included in the Company's Registration Statement on Form S-4 under
the Securities Act of 1933 as filed May 4, 1998, File No. 333-51785.
10.5 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.
10.6 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.
10.7 Amended 1988 Restricted Stock Plan of the Company. Incorporated
by reference to Exhibit 10.3 to 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 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.
10.33 Employment Agreement made and entered into as of May 7, 1997,
between Leroy Crow and Phoenix Fuel Co., Inc.
10.34 Employment Agreement made and entered into as of May 7, 1997,
between Gary Dalke and Phoenix Fuel Co., Inc.
10.35 Employment Agreement made and entered into as of May 7, 1997,
between Jack Keller and Phoenix Fuel Co., Inc.
10.36 Employment Agreement dated as of December 11, 1997, between
James E. Acridge and the Company. Incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-10398.
10.37 Employment Agreement dated as of December 11, 1997, between
Fredric L. Holliger and the Company. Incorporated by reference to
Exhibit 10.24 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 1-10398.
10.38 Employment Agreement dated as of December 11, 1997, between
Morgan Gust and the Company. Incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, File No. 1-10398.
_________________________________
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,
1999.
<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 22, 2000
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 22, 2000
/s/ Fredric L. Holliger
- -------------------------------
Fredric L. Holliger, Executive Vice President,
Chief Operating Officer and Director
March 22, 2000
/s/ Mark B. Cox
- -------------------------------
Mark B. Cox, Vice President, Treasurer,
Financial Officer and Assistant Secretary
March 22, 2000
/s/ Gary R. Dalke
- -------------------------------
Gary R. Dalke, Vice President,
Controller, Accounting Officer and
Assistant Secretary
March 22, 2000
<PAGE>
/s/ Anthony J. Bernitsky
- -------------------------------
Anthony J. Bernitsky, Director
March 22, 2000
/s/ F. Michael Geddes
- -------------------------------
F. Michael Geddes, Director
March 22, 2000
/s/ Harry S. Howard, Jr.
- -------------------------------
Harry S. Howard, Jr., Director
March 22, 2000
/s/ Richard T. Kalen, Jr.
- -------------------------------
Richard T. Kalen, Jr., Director
March 22, 2000
<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, 1999 and
1998, and for each of the three years in the period ended December 31, 1999,
and have issued our report thereon dated March 6, 2000; 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 6, 2000
S-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
GIANT INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
BALANCE AT CHARGED
BEGINNING TO COSTS BALANCE AT
OF PERIOD AND EXPENSES DEDUCTION(a) END OF PERIOD
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts $ 460 $ 501 $(370) $ 591
============================================================================================
Year ended December 31, 1998:
Allowance for doubtful accounts $ 464 $ 227 $(231) $ 460
============================================================================================
Year ended December 31, 1997:
Allowance for doubtful accounts $ 254 $ 281 $ (71) $ 464
============================================================================================
</TABLE>
(a) Deductions are specific trade accounts determined to be uncollectible.
S-2
<PAGE>
GIANT INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
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. 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 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.
2.2 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 Giant Industries,
Inc., a Delaware corporation. Incorporated by reference to
Exhibit 3.1 to Amendment No. 3.
3.2* Bylaws of Giant Industries, Inc., a Delaware corporation, as
amended September 9, 1999.
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 Annual
Report on Form 10-K for the 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 Annual Report on Form 10-K for
the 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 Annual
Report on Form 10-K for the 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 Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File No. 1-10398.
3.17 Articles of Incorporation of Phoenix Fuel Co., Inc.
Incorporated by reference to Exhibit 3.17 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997,
File No. 1-10398.
3.18 Amended Bylaws of Phoenix Fuel Co., Inc. Incorporated by
reference to Exhibit 3.18 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, File No. 1-10398.
3.19 Articles of Incorporation of DeGuelle Oil Company. Incorporated
by reference to Exhibit 3.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, File No.
1-10398.
3.20 Bylaws of DeGuelle Oil Company. Incorporated by reference to
Exhibit 3.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, File No. 1-10398.
3.21* Articles of Incorporation of Giant Pipeline Company.
3.22* Bylaws of Giant Pipeline Company.
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 Report on Form 8-K
dated November 29, 1993, File No. 1-10398.
4.2 Indenture dated as of August 26, 1997, among the Company, as
Issuer, the Subsidiary Guarantors, as guarantors, and The Bank of
New York, as Trustee, relating to $150,000,000 of 9% Senior
Subordinated Notes due 2007. Incorporated by reference to Exhibit
4.8 to the Company's Registration Statement on Form S-4 under the
Securities Act of 1933 as filed October 9, 1997, File No.
333-37561.
10.1 Credit Agreement dated December 23, 1998, among Giant
Industries, Inc., the Financial Institutions parties hereto and
Bank of America National Trust and Savings Association, as
Administrative Agent and as Letter of Credit Issuing Bank.
Incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998,
File No. 1-10398.
10.2* First Amendment dated December 17, 1999 to Credit Agreement
dated December 23, 1998, among Giant Industries, Inc., the
Financial Institutions parties hereto and Bank of America
National Trust and Savings Association, as Administrative Agent
and as Letter of Credit Issuing Bank.
10.3 Giant Industries, Inc., 1998 Phantom Stock Plan. Incorporated
by reference to Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, File No.
1-10398.
10.4 Giant Industries, Inc. 1998 Stock Incentive Plan. Incorporated
by reference to Appendix H to the Joint Proxy
Statement/Prospectus included in the Company's Registration
Statement on Form S-4 under the Securities Act of 1933 as filed
May 4, 1998, File No. 333-51785.
10.5 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.
10.6 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.
10.7 Amended 1988 Restricted Stock Plan of the Company. Incorporated
by reference to Exhibit 10.3 to 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 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.
10.10 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.
10.11 Escrow Instructions dated January 7, 1991, between Prime Pinnacle
Peak Properties Limited Partnership and Giant Arizona.
Incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, File No. 1-10398.
10.12 Real Estate Purchase Agreement dated October 5, 1997 between
Pinnacle Sonoran Desert Properties, L.L.C. ("Seller") and Giant
Industries Arizona, Inc. ("Purchaser"). Incorporated by reference
to Exhibit 10.24 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-10398.
10.13 Amendment dated October 16, 1997, to Real Estate Purchase
Agreement dated October 5, 1997 between Pinnacle Sonoran Desert
Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc.
("Purchaser"). Incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-10398.
10.14 Second Amendment dated April 21, 1998, to Real Estate Purchase
Agreement dated October 5, 1997 between Pinnacle Sonoran Desert
Properties, L.L.C. ("Seller") and Giant Industries Arizona, Inc.
("Purchaser"). Incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-10398.
10.15 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, 1990, File No. 1-10398.
10.16 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.
10.17 Retail Lease dated July 1, 1998, between Pinnacle Citadel LLC
("Landlord") and Giant Industries Arizona, Inc. ("Tenant").
Incorporated by reference to Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, File No. 1-10398.
10.18 Retail Lease dated July 1, 1998, between Pinnacle Citadel LLC
("Landlord") and Giant Industries Arizona, Inc. ("Tenant").
Incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, File No. 1-10398.
10.19 Retail Sublease dated July 1, 1998 between Giant Industries
Arizona, Inc. ("Lessor") and Pinnacle Inn at the Citadel LLC
("Tenant"). Incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-10398.
10.20 Sale and Lease Agreement dated December 31, 1998, by and among
FFCA Capital Holding Corporation ("Buyer") and Giant Industries
Arizona, Inc. and Giant Four Corners, Inc. (individually called
"Seller" and collectively called "Sellers"). Incorporated by
reference to Exhibit 10.32 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, File No.
1-10398.
10.21 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.
10.22 Agreement dated September 17, 1998, between James E. Acridge
("Borrower") and Giant Industries, Inc. ("Lender"). Incorporated
by reference to Exhibit 10.34 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, File No.
1-10398.
10.23 Promissory Note for $4,000,000 dated September 17, 1998, from
James E. Acridge to Giant Industries, Inc. Incorporated by
reference to Exhibit 10.35 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, File No.
1-10398.
10.24 Modification Agreement dated December 23, 1998, to Promissory
Note for $4,000,000 dated September 17, 1998, from James E.
Acridge to Giant Industries, Inc. Incorporated by reference to
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, File No. 1-10398.
10.25 Amended and Restated Promissory Note for $5,000,000 dated
December 23, 1998, from James E. Acridge to Giant Industries,
Inc. Incorporated by reference to Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, File No. 1-10398.
10.26* Amended and Restated Loan Agreement dated March 20, 2000,
between James E. Acridge ("Borrower") and Giant Industries, Inc.
("Lender").
10.27* Amended and Restated Promissory Note for $5,000,000 dated March
10, 2000, from James E. Acridge to Giant Industries, Inc.
10.28* Pledge and Security Agreement dated March 10, 2000 from James E.
Acridge and Pinnacle Rodeo, L.L.C., to Giant Industries, Inc.
10.29 Promissory Note for $825,000 dated December 20, 1988, from JEA
to Metlife. Incorporated by reference to Exhibit 10.39 to Form
S-1.
10.30 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.
10.31 Registration Rights Agreement dated as of August 21, 1997, among
the Company, the Initial Purchasers and the Subsidiary
Guarantors. Incorporated by reference to Exhibit 10.31 to the
Company's Registration Statement on Form S-4 under the Securities
Act of 1933 as filed October 9, 1997, File No. 333-37561.
10.32 Purchase Agreement dated August 21, 1997, among the Company, the
Initial Purchasers and the Subsidiary Guarantors. Incorporated by
reference to Exhibit 10.32 to the Company's Registration
Statement on Form S-4 under the Securities Act of 1933 as filed
October 9, 1997, File No. 333-37561.
10.33* Employment Agreement made and entered into as of May 7, 1997,
between Leroy Crow and Phoenix Fuel Co., Inc.
10.34* Employment Agreement made and entered into as of May 7, 1997,
between Gary Dalke and Phoenix Fuel Co., Inc.
10.35* Employment Agreement made and entered into as of May 7, 1997,
between Jack Keller and Phoenix Fuel Co., Inc.
10.36 Employment Agreement dated as of December 11, 1997, between
James E. Acridge and the Company. Incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-10398.
10.37 Employment Agreement dated as of December 11, 1997, between
Fredric L. Holliger and the Company. Incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-10398.
10.38 Employment Agreement dated as of December 11, 1997, between
Morgan Gust and the Company. Incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 1-10398.
10.39 Consulting Agreement dated January 1, 1990, between the Company
and Kalen and Associates. Incorporated by reference to Exhibit
10.66 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, File No. 1-10398.
10.40 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.
18.1 Letter regarding change in accounting principles. Incorporated
by reference to Exhibit 18.1 to 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 report in
previously filed Registration Statement.
27.1* Financial Data Schedule for fiscal year ended December 31, 1999.
*Filed herewith.
EXHIBIT 3.2
BYLAWS
OF
GIANT INDUSTRIES, INC.
(hereinafter called the "Corporation"),
as amended September 9, 1999
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle,
State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices
at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at
such time and place, either within or without the State of Delaware,
as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice
of the meeting, at which meetings the stockholders shall elect, in
accordance with Section 1 of Article III of these Bylaws, by a
majority vote those Directors belonging to the class or classes of
directors to be elected at such meeting, and transact such other
business as may properly be brought before the meeting. 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 (10) nor more than sixty (60) days before the date
of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law
or by the Amended and Restated Certificate of Incorporation, Special
Meetings of Stockholders may be called only by the Chairman of the
Board, if there be one, the President or the Board of Directors
pursuant to a resolution adopted by a majority of the entire board of
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption). 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 (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting.
Business transacted at all special meetings shall be confined to the
objects stated in the call.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Amended and Restated Certificate of Incorporation, the holders of a
majority of the capital stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, 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 noticed. If
the adjournment is for more than thirty (30) 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
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Amended
and Restated Certificate of Incorporation or these By-Laws, (i) any
question brought before any meeting of stockholders shall be decided
by the vote of the holders of a majority of the stock represented and
entitled to vote thereat and (ii) each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each
share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such
proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting
of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of
the Corporation who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) 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 (10) 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 of the Corporation who is present.
SECTION 7. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by Section 6 of this
Article II or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
SECTION 8. NOTICE OF BUSINESS. At any meeting of stockholders,
only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of the notice provided for
in this Section 8 of this Article II, who shall be entitled to vote at
such meeting and who complies with the notice procedures set forth in
this Section 8 of this Article II. For business to be properly brought
before a meeting of stockholders by a stockholder, the stockholder
shall have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices
of the Corporation not less than ninety (90) days nor more than 120
days prior to the meeting; provided, however, that in the event that
less than 100 days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close
of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made,
which ever first occurs. Such stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to
be brought before the meeting, the reasons for conducting such
business at the meeting and, in the event that such business includes
a proposal to amend either the Amended and Restated Certificate of
Incorporation or By-Laws of the Corporation, the language of the
proposed amendment, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c)
the class and number of shares of capital stock of the Corporation
which are beneficially owned by such stockholder and (d) any material
interest of such stockholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the
procedures set forth in this Section 8 of this Article II. The
Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before
the meeting and in accordance with the provisions of the By-Laws, and
if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 8
of this Article II, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section 8 of this Article II.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The business and
affairs of the Corporation shall be managed by or under the direction
of a Board of Directors consisting of not less than three nor more
than nine directors, the exact number of directors to be determined
from time to time by resolution adopted by the affirmative vote of a
majority of the directors then in office. The directors shall be
divided into three classes, designated Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-
third of the total number of directors constituting the entire Board
of Directors. Immediately following the adoption by the Corporation of
the Amended and Restated Certificate of Incorporation, a majority of
the shares entitled to vote shall elect Class I directors for a one-
year term, Class II directors for a two-year term and Class III
directors for a three-year term. At each annual meeting of
stockholders beginning in 1990, successors to the class of directors
whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, but
in no case shall a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the Corporation,
if any, shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of the Amended and
Restated Certificate of Incorporation applicable thereto, and such
Directors so elected shall not be divided into classes pursuant to
this Section 1 of this Article III unless expressly provided by such
terms.
Directors of the Corporation may be removed by stockholders of
the Corporation only for cause.
SECTION 2. VACANCIES. Any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, provided that a
quorum is present, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any
director of any class elected to fill a vacancy resulting from an
increase in the number of directors in such class shall hold office
for a term that shall coincide with the remaining term of that class.
Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that
of his predecessor.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the 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 Amended and
Restated Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special either within or without
the State of Delaware. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as may from time
to time be determined by the Board of Directors. Special meetings of
the Board of Directors may be called by the Chairman, if there be one,
the President or any two directors. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the
meeting, by telephone, electronic facsimile or telegram on twenty-four
(24) hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Amended and Restated Certificate of Incorporation
or these By-Laws, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum
for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be
the act of the Board of Directors. 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.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Amended and Restated Certificate of Incorporation or these By-Laws,
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 the members of the Board of Directors 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 of
Directors or committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Amended and Restated Certificate of
Incorporation or these By-Laws, members of the Board of Directors of
the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 of this Article III shall constitute
presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one
or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of any such
committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or
disqualified member. Except as may be otherwise specifically provided
by law, the Amended and Restated Certificate of Incorporation or these
Bylaws, at all meetings of any committee, a majority of the entire
committee shall constitute a quorum for the transaction of business,
and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the committee. If a quorum
shall not be present at any meeting of any committee, 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. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each
committee shall keep regular minutes and report to the Board of
Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting
of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for
attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers,
or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if (i) the material facts as to his
or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his
or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to
vote thereon, and the contract or transaction is specifically approved
in good faith by vote of the stockholders, or (iii) the contract or
transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract
or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary
and a Treasurer. The Board of Directors, in its discretion, may also
choose a Chairman of the Board of Directors (who must be a director)
and one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by
the same person, unless otherwise prohibited by law, the Amended and
Restated Certificate of Incorporation or these By-Laws. The officers
of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need
such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the
officers of the Corporation, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors; and all
officers of the Corporation shall hold office until their successors
are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed
at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
SECTION 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be
executed in the name of and on behalf of the Corporation by the
President or any Vice President and any such officer may, in the name
of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any
meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the
ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board
of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings
of the stockholders and of the Board of Directors. He shall be the
Chief Executive Officer of the Corporation, and except where by law
the signature of the President is required, the Chairman of the Board
of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which
may be authorized by the Board of Directors. During the absence or
disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the
President. The Chairman of the Board of Directors shall also perform
such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of
Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control
of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the
Corporation and shall see that all orders and resolutions of the Board
of Directors are carried into effect. He shall execute all bonds,
mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute
documents when so authorized by these By-Laws, the Board of Directors
or the President. In the absence or disability of the Chairman of the
Board of Directors, or if there be none, the President shall preside
at all meetings of the stockholders and the Board of Directors. If
there be no Chairman of the Board of Directors, the President shall be
the Chief Executive Officer of the Corporation. The President shall
also perform such other duties and may exercise such other powers as
from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if
there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated
by the Board of Directors) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all
the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board of Directors
from time to time may prescribe. If there be no Chairman of the Board
of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the
President or in the event of the inability or refusal of the President
to act, shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions
upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all
the proceedings thereat in a book or books to be kept for that
purpose; the Secretary shall also perform like duties for the standing
committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings
of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the
President may choose another officer to cause such notice to be given.
The Secretary shall have custody of the seal of the Corporation and
the Secretary or any Assistant Secretary, if there be one, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by
the signature of any such Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The
Secretary shall see that all books, reports, statements, certificates
and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board
of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any,
shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors, the President, any
Vice President, if there be one, or the Secretary, and in the absence
of the Secretary or in the event of his disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there
be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President,
any Vice President, if there be one, or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal
to act, shall perform the duties of the Treasurer, and when so acting,
shall have all the powers of and be subject to all the restrictions
upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and
for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as
from time to time may be assigned to them by the Board of Directors.
The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe
their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the
name of the Corporation (i) by the Chairman of the Board of Directors,
the President or a Vice President and (ii) by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the
Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or
(ii) a registrar other than the Corporation or its employee, any other
signature on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if
he were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate, the Board of
Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws.
Transfers of stock shall be made on the books of the Corporation only
by the person named in the certificate or by his attorney lawfully
constituted in writing and upon the surrender of the certificate
therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of
any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting
of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such
owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law,
the Amended and Restated Certificate of Incorporation or these By-
Laws, to be given to any director, member of a committee or
stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice
may also be given personally or by electronic facsimile, telegram,
telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Amended and Restated Certificate of Incorporation or these
By-Laws, to be given to any director, member of a committee or
stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Amended and Restated
Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, and may be paid in cash,
in property, or in shares of the capital stock. Before payment of any
dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may
modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from
time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to
Section 3 of this Article VIII, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact
that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY
OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director or officer, of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standard
of conduct set forth in Section 1 or Section 2 of this Article VIII,
as the case may be. Such determination shall be made (i) by the Board
of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however,
that a director or officer of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding
described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith,
without the necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, or, with respect
to any criminal action or proceeding, to have had no reasonable cause
to believe his conduct was unlawful, if his action is based on the
records or books of account of the Corporation or another enterprise,
or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice
of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or
another enterprise by an independent certified public accountant or by
an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as
used in this Section 4 of this Article VIII shall mean any other
corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent.
The provisions of this Section 4 of this Article VIII shall not be
deemed to be exclusive or to limit in any way the circumstances in
which a person may be deemed to have met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as
the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this
Article VIII, and notwithstanding the absence of any determination
thereunder, any director or officer may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections 1 and 2 of this
Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or
officer is proper in the circumstances because he has met the
applicable standards of conduct set forth in Section 1 or Section 2 of
this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article
VIII nor the absence of any determination thereunder shall be a
defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard
of conduct. Notice of any application for indemnification pursuant to
this Section 5 of this Article VIII shall be given to the Corporation
promptly upon the filing of such application. If successful in whole
or in part, the director or officer seeking indemnification shall also
be entitled to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or
pending action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation as authorized
in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by
or granted pursuant to this Article VIII shall not be deemed exclusive
of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be
made to the fullest extent permitted by law. The provisions of this
Article VIII shall not be deemed to preclude the indemnification of
any person who is not specified in Section 1 or Section 2 of this
Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the
State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnify its directors and officers, so that any
person who is or was a director or officer of such constituent
corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of
this Article VIII with respect to the resulting or surviving
corporation as such indemnification relates to his acts while serving
in any of the foregoing capacities, of such constituent corporation,
as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article VIII,
references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service
as a director or officer of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in this Article
VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article VIII shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of
the heirs, executors and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for
proceedings to enforce rights to indemnification (which shall be
governed by Section 5 of this Article VIII), the Corporation shall not
be obligated to indemnify any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such
proceeding (or part thereof) was authorized or consented to by the
Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation
similar to those conferred in this Article VIII to directors and
officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. Except as otherwise provided in the Amended and
Restated Certificate of Incorporation, these By-Laws may be altered,
amended or repealed, in whole or in part, or new By-Laws may be
adopted by the stockholders or by the Board of Directors, provided,
however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. Except as
otherwise provided in the Amended and Restated Certificate of
Incorporation, all such amendments must be approved by either the
holders of a majority of the outstanding capital stock entitled to
vote thereon or by a majority of the entire Board of Directors then in
office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX
and in these By-Laws generally, the term "entire Board of Directors"
means the total number of directors which the Corporation would have
if there were no vacancies.
EXHIBIT 3.21
ARTICLES OF INCORPORATION
OF
GIANT PIPELINE COMPANY
The undersigned, acting as incorporator of a corporation under
the New Mexico Business Corporation Act, adopts the following Articles
of Incorporation for the corporation:
ARTICLE I
The name of the corporation will be "GIANT PIPELINE COMPANY".
ARTICLE II
The period of duration is perpetual.
ARTICLE III.
The purpose or purposes for which the corporation is organized
are: The transportation of liquid hydrocarbon products and any lawful
business for which corporations may be incorporated under the New
Mexico Business Corporation Act.
ARTICLE IV.
The aggregate number of shares which the corporation shall have
authority to issue will be 500,000 shares of Common.
ARTICLE V.
Preemptive rights on any stock or security in any manner
whatsoever are allowed.
ARTICLE VI.
The name of its initial registered agent is: CT Corporation System
and the street address, city and zip code of its initial registered
office in New Mexico is: 123 E. Marcy Street, Santa Fe, NM 87501.
ARTICLE V.
The number of constituting the initial board of directors is 3
and the names and addresses of the persons who have consented to serve
as directors until the first annual meeting of shareholders or until
their successors are elected and qualify are:
NAME ADDRESS
James E. Acridge 23733 N. Scottsdale Road
Scottsdale, Arizona 85255
Fredric L. Holliger 23733 N. Scottsdale Road
Scottsdale, Arizona 85255
Morgan M. Gust 23733 N. Scottsdale Road
Scottsdale, Arizona 85255
ARTICLE VIII.
The name and address of the incorporator is:
NAME ADDRESS
Kim H. Bullerdick 23733 N. Scottsdale Road
Scottsdale, Arizona 85255
Dated: November 2, 1999.
/s/ KIM H. BULLERDICK
----------------------------
Kim H. Bullerdick
EXHIBIT 3.22
BY-LAWS
OF
GIANT PIPELINE COMPANY
ARTICLE I
LOCATION OF OFFICE
The principal office of the corporation in the State of New
Mexico shall be located in the Town of Bloomfield, County of San
Juan. The corporation may have such other offices, either within or
without the State of New Mexico, as the business of the corporation
may require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
shareholders shall be held in the second quarter of each fiscal
year for the purpose of electing Directors and for the transaction
of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting
shall be held on the next succeeding business day. In the event
that such annual meeting is omitted by oversight or otherwise on
the date herein provided for, the Board of Directors shall cause a
meeting in lieu thereof to be held as soon thereafter as
conveniently may be, and any business transacted or elections held
at such meetings shall be as valid as if transacted or held at the
annual meeting. Such subsequent meeting shall be called in the same
manner as provided for the annual shareholders' meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the President, the Secretary, by a
majority of the Board of Directors or by the holders of not less
than a majority of all the outstanding shares of the corporation.
SECTION 3. PLACE OF MEETING. The President or Secretary
may designate any place, either within or without the State of New
Mexico, as the place of meeting for any annual meeting or for any
special meeting. A waiver of notice signed by all shareholders also
may designate any place, either within or without the State of New
Mexico, as the place for the holding of such meeting. If no
designation is made or if a special meeting be otherwise called,
the place for the holding of such meeting shall be the principal
office of the corporation in the State of New Mexico.
SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. Written
notice of each shareholders' meeting stating the time and the
place, and the objects for which such meetings are called, shall be
given by the President, the Treasurer, the Secretary an Assistant
Secretary or by any one or more shareholders entitled to call a
special meeting of the shareholders personally or by mail not less
than 10 nor more than 50 days prior to the date of the meeting, to
each shareholder of record at the shareholder's address as it
appears on the stock books of the Corporation, unless he shall have
filed with the Secretary of the Corporation a written request that
notice intended for the shareholder be mailed to some other
address, in which case it shall be mailed to the address designated
in such request.
SECTION 5. QUORUM OF SHAREHOLDERS. At any meeting of the
shareholders, a majority in interest of all the capital stock
issued and outstanding, represented by shareholders of record in
person or by proxy, shall constitute a quorum, but a lesser
interest may adjourn any meeting, and the meeting may be held as
adjourned without further notice; provided, however, that Directors
shall not be elected at meetings so adjourned. When a quorum is
present at any meeting, a majority in interest of the stock
represented thereat shall decide any question brought before such
meeting, unless the question is one upon which by express provision
of law or of the Articles of Incorporation or of these bylaws a
larger or different vote is required, in which case such express
provision shall govern and control the decision of such question.
SECTION 6. VOTING. Voting of shares shall be in accordance
with the Business Corporation Act of New Mexico (Sections 53-11-1
through 53-11-51), or other applicable statutes, as now existing or
as hereafter amended. Unissued shares shall not be voted. There
shall be no cumulative voting.
SECTION 7. PROXIES. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the
shareholder or by the shareholder's duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting.
SECTION 8. ACTION BY CONSENT. Any action required to be taken
at a meeting of the shareholders may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with respect to
the subject matter thereof. Such consent shall have the effect of
a unanimous vote.
ARTICLE III
STOCK
SECTION 1. CERTIFICATES. Certificates of stock shall be in a
form approved and adopted by the Board of Directors. They shall be
signed by the Chairman or Vice-Chairman of the Board of Directors,
the President, or any Vice President, and counter-signed by the
Secretary. They shall be consecutively numbered and state upon
their face the information required by law. The name and address of
the person owning the shares with the number of shares and the date
of issue shall be entered on the Corporation's books.
SECTION 2. ASSIGNMENT AND CANCELLATION. All certificates of
stock transferred by assignment shall be surrendered for
cancellation and new certificates issued to the purchasers or
assignees.
SECTION 3. TRANSFER. Shares of stock shall be transferred on
the books of the Corporation only by the holder thereof in person
or by the holder's attorney-in-fact.
ARTICLE IV
DIRECTORS
SECTION 1. GENERAL POWERS. The Board of Directors shall have
the entire management of the business of the Corporation. In the
management and control of the property, business, and affairs of
the Corporation, the Board of Directors is hereby vested with all
the powers possessed by the Corporation itself, so far as this
delegation of authority is not inconsistent with laws of the State
of New Mexico, with the Articles of Incorporation of the
Corporation, or with these bylaws. The Board of Directors shall
have the power to determine what constitutes net earnings, profits,
and surplus, respectively, what amount shall be reserved for
working capital and for any other purpose, and what amount shall be
declared as dividends, and such determination by the Board of
Directors shall be final and conclusive.
SECTION 2. NUMBER, TENURE AND DISQUALIFICATIONS. The number of
Directors of the Corporation shall be three. Each Director shall
hold office for the term for which he is elected or until the
Director's successor shall have been elected and qualified.
Directors need not be residents of New Mexico nor shareholders of
the Corporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this by-law,
immediately after, and at the same place as, the annual meeting of
shareholders. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of New
Mexico, for the holding of additional regular meetings without
other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the President or
any one Director. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within
or without the State of New Mexico, as the place for holding any
special meeting of the Board of Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be
given at least two days prior thereto by written notice delivered
personally or mailed to each Director at the Director's business
address, or by telephone, facsimile, e-mail or commercial mail
services. Any Director may waive notice of any meeting. The
attendance of a Director at any meeting shall constitute a waiver
of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of Directors fixed
by these bylaws as constituting the Board of Directors shall
constitute a quorum for the transaction of business, but a lesser
number (not less than two) may adjourn any meeting and the meeting
may be held as adjourned without further notice. When a quorum is
present at any meeting, a majority of the members present thereat
shall decide any question brought before such meeting, except as
otherwise provided by law or by these bylaws.
SECTION 7. MANNER OF ACTING. The act of the majority of the
Directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
SECTION 8. ACTION BY CONSENT. Any action required to be taken
at a meeting of the Directors, or any other action which may be
taken at a meeting of Directors, may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors entitled to vote with respect to the
subject matter thereof. Such consent shall have the effect of a
unanimous vote and shall be equally valid as if said action were
approved at a meeting.
SECTION 9. PARTICIPATION BY TELEPHONE. Any one or more members
of the Board may participate in a meeting of the Board by means of
a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in
person at the meeting.
SECTION 10. VACANCIES. Any vacancy occurring in the Board of
Directors or in a directorship to be filled by reason of any
increase in the number of directors, may be filled by the
Directors. A Director elected to fill a vacancy shall be elected
for the unexpired term of the Director's predecessor in office.
SECTION 11. COMPENSATION. Directors as such shall not receive
any stated salaries for their services, but by resolution of the
Board of Directors, a fixed sum and expenses of attendance, if any,
may be allowed for attendance at each regular or special meeting of
the Board of Directors; provided that nothing herein contained
shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation
therefor.
ARTICLE V
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall
consist of a President, one or more Vice Presidents, a Secretary,
a Treasurer and such other officers as may be elected in accordance
with the provisions of this Article. The Board of Directors, by
resolution, may create the offices of one or more Assistant
Treasurers and Assistant Secretaries, all of whom shall be elected
by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the Board of Directors at
the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the Board of
Directors. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death
or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the corporation
would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the
term.
SECTION 5. PRESIDENT. The President shall be the chief
executive officer of the corporation. The President, unless some
other person is specifically authorized by vote of the Board of
Directors, shall sign all certificates of stock, bonds, deeds,
mortgages, extension agreements, modification of mortgage
agreements, leases, and contracts of the corporation. He shall
perform all the duties commonly incident to this office and shall
perform such other duties as the Board of Directors shall
designate.
SECTION 6. VICE PRESIDENT. Except as specially limited by vote
of the Board of Directors, any Vice president shall perform the
duties and have the powers of the President during the absence or
disability of the President and shall have the power to sign all
certificates of stock, bonds, deeds, and contracts of the
corporation. He shall perform such other duties and have such other
powers as the Board of Directors shall designate.
SECTION 7. TREASURER. The Treasurer, subject to the order of
the Board of Directors, shall have the care and custody of the
money, funds, valuable papers, and documents of the corporation and
shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to his
office. He shall deposit all funds of the corporation in such bank
or banks as the directors shall designate. He may endorse for
deposit or collection all checks and notes payable to the
corporation or to its order, may accept drafts on behalf of the
corporation, and together with the President or a Vice President
may assign certificates of stock. He shall keep accurate books of
account of the corporation's transactions which shall be the
property of the corporation, and shall be subject at all times to
the inspection and control of the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall keep accurate
minutes of all meetings of the shareholders and the Board of
Directors, and shall perform all the duties commonly incident to
his office, and shall perform such other duties and have such other
powers as the Board of Directors shall designate. The Secretary
shall have power, together with the President or a Vice President,
to sign certificates of stock of the corporation. In his absence at
any meeting an Assistant Secretary or a Secretary Pro Tempore shall
perform his duties thereat.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Treasurers and Assistant Secretaries, in general, shall
perform such duties as shall be assigned to them by the Treasurer
or the Secretary respectively, or by the President or the Board of
Directors.
SECTION 10. 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.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on behalf of
the corporation, and such authority may be general or confined to
specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and
in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not
otherwise employed shall be deposited from time to time to the
credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be the twelve-month
period ending December 31 of each year.
ARTICLE VIII
DIVIDENDS
SECTION 1. SOURCE AND FORM. Dividends may be declared in the
form of cash, in the corporation's authorized but unissued shares,
or in the property of the corporation. No dividends shall be
declared or paid on the stock of the corporation if, were the
dividends paid, either (1) the corporation would be unable to pay
its debts as they become due in the usual course of its business;
or (2) the corporation's total assets would be less than the sum of
its total liabilities and the maximum amount that then would be
payable, in any liquidation, in respect of all outstanding shares
having preferential rights in liquidation.
SECTION 2. DECLARATION. The date for the declaration of
dividends shall be the date of the meeting of the Board of
Directors at which the dividends shall be declared. The Board of
Directors in its discretion shall declare what, if any, dividends
shall be issued upon the stock of the corporation. Dividends may be
declared at any meeting, regular or special, of the Board of
Directors. The Board of Directors may fix in advance a record date
for the determination of the shareholders entitled to a dividend
distribution, which date shall not be less than three (3) days nor
more than twenty (20) days from the date on which such Board took
such action. The shareholders of record as of the record date shall
be entitled to receive the dividends.
ARTICLE IX
SEAL
The Board of Directors may provide a corporate seal which
shall be in the form of a circle and shall have inscribed thereon
the name of the corporation.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of these bylaws or under the provisions of the Articles
of Incorporation or under the provisions of the law under which
this corporation is organized, waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation, by approval given to these bylaws,
indemnifies each and every Director and officer and each person who
may hereafter at any time serve at its request as a Director or
officer of another corporation in which it owns shares of capital
stock or of which it is a creditor, against expenses actually and
reasonably incurred by each such Director and officer in connection
with the settlement or defense of any action, suit or proceeding,
civil or criminal, in which he is made a party by reason of being
or having been such Director or officer, except in relation to
matters as to which he shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the
performance of duty to the corporation; and it specifically
indemnifies each such Director and officer from payment of any
judgment, levy, or demand that might be granted against any such
Director or officer by virtue of his occupancy of said directorship
or office growing out of any such action, suit, or proceeding.
The indemnification described in this ARTICLE XI is in
addition to, and not in lieu of, the indemnification of directors
and officers described in NMSA 1978, Section 53-114.1 as the same
may be amended from time to time.
ARTICLE XII
AMENDMENTS
These bylaws may be altered, amended or repealed and new
bylaws may be adopted at any annual meeting of the Board of
Directors of the corporation or at any special meeting when the
proposal to amend these bylaws has been stated in the notice of
such special meeting, by a majority vote of the Directors
represented at the meeting.
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "First
Amendment") is entered into as of December 17, 1999, among GIANT
INDUSTRIES, INC., a Delaware corporation (the "Company"), BANK OF
AMERICA, N.A. (formerly known as Bank of America National Trust and
Savings Association) as administrative agent (the "Administrative
Agent") and as a Bank, UNION BANK OF CALIFORNIA, as a Bank and BANK
ONE, ARIZONA, N.A., as a Bank. Capitalized terms which are used
herein without definition and which are defined in the Credit
Agreement referred to below shall have the meanings ascribed to
them in the Credit Agreement.
WHEREAS, the Company, the Administrative Agent and the Banks
are parties to a certain Credit Agreement dated as of December 23,
1998 (the "Credit Agreement"); and
WHEREAS, the Company desires to repurchase its stock pursuant
to a tender offer as herein described and in order to permit such
repurchase the Company has requested certain amendments to the
Credit Agreement as herein set forth, and subject to the terms
hereof the Administrative Agent and the Banks are willing to agree
to the Company's requested amendments;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement.
(a) Amendment to Section 1.01. Section 1.01 of the Credit
Agreement is hereby amended by adding the following definition
thereto:
"Tender Offer" means the Company's offer to
shareholders to repurchase the Company's stock in
compliance with applicable law and regulations; provided,
however, that the aggregate price paid by the Company for
purchase of shares pursuant to the Tender Offer shall not
exceed $14,000,000; and provided further, that all
purchases pursuant to the Tender Offer shall be
consummated not later than February 29, 2000.
(b) Amendment to Section 8.09 (Restricted Payments). Section
8.09(c) of the Credit Agreement is hereby amended to add the
following to the end thereof:
"provided, however, that the stock purchased by the
Company pursuant to the Tender Offer shall not be
included in calculating said 1,000,000 shares."
(c) Amendment to Section 8.12 (Minimum Consolidated Tangible
Net Worth). Section 8.12 of the Credit Agreement is hereby amended
as follows: delete "October 1, 1998" in clause (ii) and insert in
lieu thereof "October 1, 1999"; and add the following words to the
end of Section 8.12: "provided, however, that in the event that the
Tender Offer is withdrawn or for some other reason that Company
does not purchase any stock pursuant to the Tender Offer, the
operative date in clause (ii) of this Section 8.12 shall be October
1, 1998 instead of October 1, 1999."
(d) Amendment to Section 8.14 (Maximum Capitalization Ratio).
Section 8.14 of the Credit Agreement is hereby amended to read as
follows: delete "December 31, 1999" in clauses (i) and (ii) and
insert in lieu thereof "December 31, 2000"; and add the following
words to the end of Section 8.14: "provided, however, that in the
event that the Tender Offer is withdrawn or for some other reason
that Company does not purchase any stock pursuant to the Tender
Offer, the operative dates in clause (i) and (ii) of this Section
8.14 shall be December 31, 1999 instead of December 31, 2000."
SECTION 2. Representations and Warranties. The Company
represents and warrants to the Administrative Agents and to each of
the Banks that:
(a) This Amendment, the Credit Agreement as amended hereby
and each Guaranty and each Note have been duly authorized, executed
and delivered by the Company and the Guarantors who are parties
thereto and constitute their legal, valid and binding obligations
enforceable in accordance with their respective terms (subject, as
to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting
creditors' rights generally and to general principles of equity).
(b) The representations and warranties set forth in Article V
of the Credit Agreement are true and correct in all material
respects before and after giving effect to this Amendment with the
same effect as if made on the date hereof.
(c) As of the date hereof, at the time of and immediately
after giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
(d) No material adverse change in the business, assets,
operations, financial condition, liabilities or capitalization of
the Company and its Subsidiaries has occurred since December 31,
1998.
(e) No approval, consent, exemption, authorization or other
action by, or notice to, or filing with, any Governmental Authority
is necessary or required in connection with the Tender Offer, other
than the filing of the Schedule 13e-4 with the SEC. The Tender
Offer has been duly authorized by all necessary corporate action,
and does not and will not (a) contravene the terms of the Company's
Organization Documents; (b) conflict with or result in any breach
or contravention of, or the creation of any Lien under, any
document evidencing any material Contractual Obligation to which
the Company is a party or any order, injunction, writ or decree of
any Governmental Authority to which the Company is subject; or (c)
violate any Requirement of Law.
SECTION 3. Conditions of Effectiveness. This Amendment shall
be effective on the date of satisfaction of the following
conditions precedent:
(a) Amendment. This Amendment, signed by the Company, the
Guarantors, the Administrative Agent, and the Majority Banks;
(b) Resolutions. (i) Resolutions of the board of directors
of the Company authorizing the Tender Offer and authorizing the
execution and delivery of this Amendment, certified by the
Secretary or an Assistant Secretary of the Company; (ii) if not
previously delivered to this Administrative Agent, a certificate of
the Secretary or Assistant Secretary of the Company/applicable
Guarantor certifying the names and true signatures of the officers
of the Company and the Guarantors authorized to execute and deliver
this Amendment;
(c) Payment of Fees. Payment by the Company to the
Administrative Agent for the account of each Bank, of an amendment
fee in the amount of 10 basis points times each Bank's Commitment.
(d) Other. Such other approvals, opinions and documents as
the Administrative Agent or the Majority Banks may request.
SECTION 4. Effect of Amendment. This Amendment (i) except as
expressly provided herein, shall not be deemed to be a consent to
the modification or waiver of any other term or condition of the
Credit Agreement or of any of the instruments or agreements
referred to therein and (ii) shall not prejudice any right or
rights which the Administrative Agent or the Banks may now have
under or in connection with the Credit Agreement, as amended by
this Amendment. Except as otherwise expressly provided by this
Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed
by each of the parties hereto that the Credit Agreement, as amended
hereby, shall continue in full force and effect, an that this
Amendment and such Credit Agreement shall be read and construed as
one instrument.
SECTION 5. Miscellaneous. This Amendment shall for all
purposes be construed in accordance with and governed by the laws
of the State of California and applicable federal law. The captions
in this Amendment are for convenience of reference only and shall
not define or limit the provisions hereof. This Amendment may be
executed in separate counterparts, each of which when so executed
and delivered shall be an original, but all of which together shall
constitute one instrument. In proving this Amendment, it shall not
be necessary to produce or account for more than one such
counterpart.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
NO ORAL AGREEMENTS. THE CREDIT AGREEMENT (AS AMENDED BY THIS
FIRST AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and
duly authorized officers as of the date and year first above
written.
GIANT INDUSTRIES, INC.
By: /s/ MARK B. COX
----------------------------
Name: Mark B. Cox
Title: V.P. & Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE
<PAGE>
BANK OF AMERICA, N.A., (formerly known as
Bank of America National Trust and Savings
Association), as Administrative Agent and as a
Bank
By: /s/ CLAIRE M. LIU
---------------------------------
Claire M. Liu
Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
BANK ONE, ARIZONA, N.A.
By: /s/ STEPHEN LUTTRELL
---------------------------------
Name: Stephen Luttrell
Title: Vice President
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ KARYSSA M. HENDERSON
---------------------------------
Karyssa M. Henderson
Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
GUARANTORS' RATIFICATION
Each of the Guarantors hereby consents to and accepts the terms and
conditions of the foregoing First Amendment, agrees to be bound by
the terms and conditions hereof, and ratifies and confirms that its
Guaranty dated as of December 23, 1998 executed and delivered in
connection with the Credit Agreement is and remains in full force
and effect.
GIANT INDUSTRIES ARIZONA, INC.,
GIANT EXPLORATION & PRODUCTION COMPANY,
GIANT FOUR CORNERS, INC.,
DEGUELLE OIL COMPANY,
GIANT MID-CONTINENT, INC.,
GIANT STOP-N-GO OF NEW MEXICO, INC.,
SAN JUAN REFINING COMPANY,
CINIZA PRODUCTION COMPANY, and
PHOENIX FUEL CO., INC.,
as Guarantors
By: /s/ GARY R. DALKE
-------------------------------
Name: Gary R. Dalke
in each case, as Controller
and Vice President
EXHIBIT 10.26
AMENDED AND RESTATED LOAN AGREEMENT
1. DATE: March 20, 2000.
2. PARTIES:
2.1. JAMES E. ACRIDGE, an unmarried man ("Borrower"); and
2.2. GIANT INDUSTRIES, INC., a Delaware corporation ("Lender").
3. RECITALS:
3.1. Lender made a loan in the original principal sum of
$4,000,000 (the "Original Principal Amount") to Borrower on September
17, 1998 in accordance with the terms of a Promissory Note of even
date therewith (the "Original Note") and an agreement of even date
therewith (the "Original Agreement").
3.2. Lender and Borrower entered into a Modification
Agreement effective December 23, 1998 (the "Modification Agreement")
to amend the Original Agreement to provide for, among other things, an
extension of the period for repayment and for an additional advance by
Lender to Borrower of $1,000,000 (the "Additional Principal Amount"
and, collectively with the Original Principal Amount, the "Loan"). In
connection with the Modification Agreement, Borrower executed an
Amended and Restated Promissory Note of even date therewith.
3.3. Lender and Borrower desire to further amend and restate
the Agreement, as amended by the Modification Agreement, to
memorialize certain agreements made between them in connection with
the Loan. This Amended and Restated Agreement is referred to herein
as the "Agreement." In addition, Borrower has agreed to execute, in
connection with this Agreement, a new Amended and Restated Note of
even date herewith (the "Restated Note").
4. AGREEMENTS:
4.1. Adoption of Recitals. The foregoing recitals are
adopted as agreements of the parties and not as mere recitals of fact,
and are incorporated herein.
4.2. Notice of Status of Stock Pledges. Borrower agrees to
provide to Lender, immediately upon receipt thereof, written notice of
(and in the case of an item which is written, true copies of):
4.2.1. any notice of default received on any Stock Pledge or
the underlying loan which Stock Pledge secures;
4.2.2. any margin call or other demand for the furnishing of
any additional security for any loan secured by a Stock Pledge which
Borrower is unable or unwilling to satisfy;
4.2.3. any notice of any fact which, with the passage of
time, will become a default under any loan secured by a Stock Pledge;
4.2.4. any notice that any lender holding a loan secured by a
Stock Pledge deems itself insecure or for any other reason demands
payment of the loan or gives notice that it will not renew the loan
upon its maturity even if such renewal is requested by Borrower;
4.2.5. any notice that any lender refuses to renew a loan
secured by a Stock Pledge following application or other request for
renewal by Borrower;
4.2.6. any demand for payment by any lender under a loan
secured by a Stock Pledge, whether or not there is any claim of
default (other than requests for payments due in the ordinary course
of such loan which are not of a material amount); or
4.2.7. the receipt of any levy or notice of levy or issuance
of a writ of replevin, execution or other writ of any nature against
any stock of Lender owned by Borrower, whether or not such stock is
subject to a Stock Pledge.
Any such notice shall be referred to herein as a "Default
Notice". Notwithstanding the foregoing, however, Borrower shall not
be required to give Lender any Default Notice if Borrower reasonably
believes that he will be able to cure any such default or other event
or otherwise take appropriate action that will prevent foreclosure by
such lender of the applicable Stock Pledge and such action by Borrower
is otherwise permissible under the terms of this Agreement.
4.3. Right of First Refusal. So long as there is an unpaid
balance under the Loan, in the event Borrower decides to sell or
otherwise dispose of any of the stock subject to a Stock Pledge,
otherwise than pursuant to a transaction permitted under Section 4.4
hereof, Borrower shall first give written notice to Lender of his
intent to sell or otherwise dispose of the stock, with all details of
the intended disposition, including but not limited to the identity of
the transferee; the price upon sale or disposition; and the terms of
such sale or disposition. Borrower agrees that he shall not complete
such contemplated sale or disposition until the earlier of ten days
after said notice or a written waiver by Lender of this right of first
refusal. During the ten day period, Lender shall be entitled to elect
to exercise this right of first refusal by giving written notice to
Borrower of such election. In the event the election is to exercise
the right of first refusal, then Lender shall proceed to close the
transaction upon the same terms and conditions as were contained in
the original notice from Borrower, or upon such other terms as
Borrower and Lender may thereupon agree. If Lender does not give
notice of election to exercise the right of first refusal on or before
the close of business on the 10th day following receipt of written
notice by Lender, such right shall lapse as to the stock involved in
the notice, and Borrower may sell or dispose of such stock on the same
terms and conditions as contained in such notice.
4.4. Negative Pledge. Borrower agrees that, so long as there
is an outstanding balance under the Loan, Borrower shall not, without
the prior written consent of Lender (or compliance with the right of
first refusal set forth in the preceding section), sell, transfer,
encumber or further encumber any of the common stock of Lender owned
or controlled by Borrower, and that the sale, transfer or encumbrance
of any of such stock shall be a default hereunder, and shall entitle
Lender to accelerate the balance due under the Restated Note and to
exercise any or all remedies available to it. However, the foregoing
negative pledge shall not prohibit Borrower from: (a) exercising his
full borrowing authority under any of the existing loans of Borrower
that are secured by a Stock Pledge; or (b) refinancing any of such
existing loans at interest rates and on terms that are not materially
more burdensome to Borrower and, in connection therewith, re-
encumbering in favor of the new lender the stock released from the
Stock Pledge that secured the existing loan; (c) pledging any
unencumbered shares now or hereafter acquired by Borrower in
connection with any existing or refinanced loans permitted by this
Section 4.4; or (d) selling not more than an aggregate of 411,200
shares of Lender stock in market or privately-negotiated transactions
for a purchase price equal to the fair value thereof, provided that
the sales proceeds are used to retire indebtedness or otherwise
invested in Borrower's assets.
4.5. Payment of Loans Secured by Stock Pledges. Borrower
agrees that he shall promptly discharge when due all sums due under
each loan secured by a Stock Pledge. If Lender determines that a
default exists or is imminent, Lender may give notice to Borrower to
cure such default or imminent default, and, if Borrower does not do so
within ten days (or such shorter period as may be required in any
Default Notice), Lender shall have the right, but not the obligation,
to cure such default on behalf of Borrower, and any amounts expended
pursuant to such cure by Lender shall be added to the indebtedness and
shall thereafter bear interest at the default rate set forth in the
Restated Note until paid. Borrower hereby appoints Lender as his
attorney in fact for the purpose of making any such cure, which power
is coupled with an interest and is irrevocable so long as any balance
remains outstanding under the Loan.
4.6. Voting Rights. Notwithstanding anything in this
Agreement to the contrary, during the period of this Agreement or
until any stock is actually sold or otherwise transferred out of the
control of Borrower, Borrower shall retain all voting rights
attributable to such stock, other than as may be specified in any
Stock Pledge.
4.7. Pledge of Membership Interest in Pinnacle Rawhide,
L.L.C. Borrower agrees to execute in favor of Lender a Pledge and
Security Agreement substantially in the form of Exhibit "A" attached
hereto and incorporated herein by this reference in order to secure
Lender's loan to Borrower, and to deliver and file appropriate UCC
Financing Statements as requested by counsel to Lender to evidence the
same.
4.8. Release of Lender. Borrower acknowledges with respect
to the amounts owing to Lender that Borrower has no offset, defense or
counterclaim with respect thereto, no claim or defense in the
abatement or reduction thereof, nor any other claim against Lender or
with respect to any document forming part of the transaction in
respect of which the Restated Note was made, which shall include, but
not be limited to, any action which Lender may take in enforcing its
rights given under the Restated Note or this Agreement. To the extent
any such offset, defense, counterclaim, or other claim (collectively,
"Claims") may exist, Borrower, on behalf of himself and his successors
and assigns,
4.8.1. hereby forever and irrevocably releases and discharges
Lender and its officers, successors, representatives, agents,
attorneys, employees, predecessors, and assigns, and each of them,
from any and all Claims, demands, obligations, suits, causes of
action, and liabilities whatsoever, in law or in equity, which
Borrower had, now has or may have which have arisen out of, or may
arise from, any matter, cause, event, or transaction, whether known or
unknown, or whether or not presently asserted, arising from or in
connection with the Loan, and
4.8.2. hereby waives the provisions of any law providing that
a general release does not extend to claims a party does not know of
or suspect to exist at the time it gives such release, and
4.8.3. Borrower does hereby agree that this waiver and
covenant on the part of Borrower is contractual, and not a mere
recital, and the parties acknowledge and agree that no liability
whatever is admitted by any party, except Borrower's indebtedness to
Lender under the Restated Note and its associated documents and this
Agreement.
4.9. General Borrower Agreements. Borrower agrees:
4.9.1. to repay the Loan in accordance with the terms of the
Restated Note;
4.9.2. to provide Lender, upon execution of this Agreement, a
general repayment plan and to update such plan as circumstances
warrant so long as there is an unpaid balance under the Loan, with
such plan to be in form and substance as reasonably required by
Lender;
4.9.3. to provide Lender, within 30 days after the end of
each calendar quarter, an unaudited balance sheet of Borrower;
4.9.4. to provide Lender with all other documents reasonably
required by Lender to give effect to this Agreement;
4.9.5. Lender has no obligation whatsoever to make any other
loans or advances to or for his benefit;
4.9.6. this Agreement is not intended for and shall not be
construed for the benefit of any party not a signatory hereto;
4.9.7. this Agreement shall be binding upon, and inure to the
benefit of the parties hereto and their respective successors and
assigns;
4.9.8. this Agreement constitutes the entire agreement
(including all representations and promises made) among the parties
with respect to the subject matter hereof, and no modification or
waiver shall be effective unless in writing and signed by the party to
be charged;
4.9.9. the indebtedness represented by the Restated Note and
this Agreement is for commercial or business purposes;
4.9.10. time is of the essence hereof; and
4.9.11. Borrower acknowledges that he has thoroughly read and
reviewed the terms and provisions of this Agreement and is familiar
with the same, that the terms and provisions contained herein are
clearly understood by him and have been fully and unconditionally
consented to by him, and that Borrower's execution of this Agreement
is done freely, voluntarily, with full knowledge and without duress,
and that in executing this Agreement, Borrower is relying on no other
representations either written or oral, express or implied, made to
Borrower by any other party hereto, and that the consideration
received by Borrower hereunder has been actual and adequate.
4.10. No Release of Stock Restrictions. Nothing contained
herein shall annul, release, vary, modify or affect any currently-
existing restrictions on any stock of Lender owned by Borrower, all of
which shall continue in full force and effect. Lender specifically
reserves and shall have all rights and remedies available to it under
such stock restrictions for the purpose of compliance with law,
regulation or contract.
4.11. Agreements of Borrower and Lender. Borrower and Lender
acknowledge and agree that: (a) the unpaid principal balance of the
Loan as of the effective date of this Agreement is as set forth in the
Restated Note; (b) this Agreement is a valid, binding agreement
enforceable in accordance with its terms; and (c) they hereby ratify and
confirm the security and enforceability of the Original Agreement, as
amended and restated by this Agreement.
4.12. Time of the Essence. Time is of the essence of all
provisions of the Restated Note and this Agreement.
4.13. Notices. Lender hereby appoints Richard T. Kalen, Jr.
as its representative to give and receive notices pursuant to this
Agreement and to otherwise act on behalf of Lender in connection with
the Loan. Any notices required to be sent to any party hereto shall
be sent to the parties as follows:
To Borrower:
James E. Acridge
23733 North Scottsdale Road
Scottsdale, Arizona 85255
Facsimile number (480) 585-8985
To Lender:
Richard T. Kalen, Jr.
Kalen & Associates
6162 E. Mockingbird Lane
Suite 201A
Dallas, Texas 75214
Facsimile number (214) 823-4646
Notices shall be effective upon hand delivery or delivery by
facsimile transmission, followed by hand delivery. Either party shall
have the right to change the address for notices by delivery of a
written notice to such effect to the other party.
Dated as of the date first above written.
BORROWER:
/s/ JAMES E. ACRIDGE
___________________________________
James E. Acridge
LENDER:
GIANT INDUSTRIES, INC., a Delaware corporation
By: /s/ MARK B. COX
_____________________________________
Name: Mark B. Cox
Title: Treasurer
<PAGE>
EXHIBIT "A"
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AGREEMENT (hereinafter "Agreement"), is
dated effective as of March 10, 2000, and is made by JAMES E.
ACRIDGE, an unmarried man ("Acridge") and PINNACLE RODEO, L.L.C.,
an Arizona limited liability company ("Rodeo") (referred to
together in the singular, from time to time, as "Pledgor"), to
GIANT INDUSTRIES, INC., a Delaware corporation ("Pledgee").
PRELIMINARY STATEMENTS:
A. Acridge and Pledgee have entered into a loan
transaction wherein Pledgee has lent to Acridge the sum of
$5,000,000.00 in accordance with the terms of an Amended and
Restated Loan Agreement of even date herewith, and an Amended and
Restated Promissory Note of even date herewith (the "Note"). The
parties have also entered into an Amended and Restated Loan
Agreement of even date herewith (the "Loan Agreement"). The
obligations of Acridge under the Note and the Loan Agreement are
referred to from time to time hereafter as the "Obligations."
B. Acridge is the sole member of Rodeo, which in
turn is the sole owner of 100% of the membership interests (the
"Membership Interest") in Pinnacle Rawhide, L.L.C., an Arizona
limited liability company, (the "Company").
C. Pursuant to the terms of certain financing
agreements with Western Town, L.L.C. and Hirsch Investment Co.,
L.L.C., both Arizona limited liability companies, Pledgor is
entitled to pledge to third parties no more than 49% of the
ownership interests in the Company, and Pledgor is willing to do
so pursuant to the terms hereof.
D. Each capitalized term used herein that is not
otherwise defined herein shall have the meaning ascribed to such
term in the Note.
NOW, THEREFORE, in consideration of the premises,
Pledgor hereby agrees as follows:
1. PLEDGE. Pledgor hereby grants to Pledgee a first priority
security interest in the following (the "Pledged Collateral"):
1.1. Collateral Definition: The Collateral shall
consist of the following:
1.1.1. All rights of Rodeo as a member of the
Company to the extent of 49% of the total Membership
Interest therein (including without limitation the
right to distributions of cash or property from the
Company), which is herein called the "Interest;" and
1.1.2. All proceeds of or distributions or payments
under the Interest.
1.2. Definition of "Net Cash Flow". For the purposes of
this Agreement, the term "Net Cash Flow" shall mean means
the gross cash proceeds to the Company from all sources,
less the portion thereof used to pay or establish reserves
for Company expenses, debt payments, capital improvements,
replacements and contingencies, all as determined by the
Manager of Company, Rodeo, in its reasonable discretion.
1.3. Payment of Net Cash Flow with respect to the
Interest When No Default Exists: During the term of this
Pledge, and prior to any default under the Note, the Loan
Agreement or hereunder, the Net Cash Flow after accounting
for any payments or reserves required by the existing lenders
to Rodeo or Company attributable to the Interest shall be
paid as follows:
1.3.1. Pledgor shall cause the Company to
distribute from time to time sufficient amounts of all
Net Cash Flow to Pledgee to make payments then due; and
1.3.2. Pledgor shall cause the Company to
distribute from time to time the balance of all Net
Cash Flow to Pledgor.
1.4. Payment of Net Cash Flow with respect to the
Interest After Default: After any default has occurred under
the Note, the Loan Agreement or hereunder, Pledgor shall
cause the Company to distribute all Net Cash Flow after
accounting for any payments or reserves required by the
existing lenders to Rodeo or Company to Pledgee on account of
Acridge's Obligations under the Note, the Loan Agreement and
hereunder.
2. SECURITY FOR OBLIGATIONS.
2.1. Obligations Secured. This Agreement secures the
payment and performance of the Obligations by Acridge.
2.2. Acknowledgment of Consideration. Rodeo
acknowledges that it has benefited by the investment of
moneys by Acridge in Rodeo, and that the results of such
investment enabled it to acquire the Interest pledged herein.
Although the Obligations are those of Acridge and not of
Rodeo, Rodeo acknowledges that it has received valuable
consideration in the form of the aforesaid investment of
moneys by Acridge, the receipt and sufficiency of which are
hereby acknowledged, for its pledge of the Interest as set
forth herein, and all of the terms and conditions of this
Agreement are fully binding upon it as set forth herein.
3. FINANCING STATEMENTS. To perfect the security interest
granted hereby in accordance with the Uniform Commercial Code in
effect in the State of Arizona (the "Code"), Pledgor shall,
contemporaneously with the execution hereof, execute and deliver
to Pledgee a financing statement (the "Financing Statement") in
form satisfactory to Pledgee. Pledgor agrees that, from time to
time hereafter, it will execute and deliver to Pledgee such
further instruments and documents as Pledgee may reasonably
request which are necessary for the purpose of perfecting and
continuing the perfection of the security interest granted hereby.
4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants to Pledgee as follows:
4.1. Authorization. This Agreement has been duly
authorized, executed and delivered by Pledgor and creates a
valid security interest in the Pledged Collateral under the
Code, and when the Financing Statement is duly filed with the
Arizona Secretary of State, Pledgee will have a first
priority security interest in the Pledged Collateral.
4.2. No Default. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated herein will conflict with or result in a breach,
default or violation of any statute or governmental rule or
regulation, or theng Agreement or any other agreement to
which Pledgor is a party or by which any of Pledgor's
property is bound.
4.3. Good Title. Pledgor is the legal owner of the
Pledged Collateral and has neither granted any other security
interest in the Pledged Collateral nor executed any financing
statement with respect thereto (other than the Financing
Statement), except that there is an existing security
interest in the Pledged Collateral in favor of Western Town,
L.L.C. and/or Hirsch Investment Co., L.L.C., which existing
security interest will be subordinated to the Pledge herein
created under documents complying with the obligations of
such lienholders to subordinate to the Pledge herein created
(the "Subordinate Pledge").
4.4. Business Location. The chief place of business and
chief executive office of Pledgor are located at the address
for Pledgor specified on the signature page below. Pledgor
shall promptly notify Pledgee of any change in either.
4.5. Priority. This Agreement creates a first priority
security interest, free from any other liens, claims or
security interests, at such time as the subordination
agreements to create Subordinate Pledge have been executed.
4.6. No Amendments. That it will not consent to or
permit any amendment to any governing document of, or to the
admission of any new member of, either Company or Rodeo,
without the prior written consent of Pledgee.
4.7. Consents. That no consent or approval of any
member of the Company is required to permit the pledge of the
Interest hereunder or such consent or approval has been
given.
5. OTHER LIENS. Other than the Subordinate Pledge described
herein, Pledgor agrees that it will not create or permit to exist
any lien, security interest, or other charge or encumbrance upon
or with respect to the Pledged Collateral, except for the security
interest under this Agreement.
6. REMEDIES OF PLEDGEE. In the event that an Event of Default
shall occur under the Note, then Pledgee shall have and may
exercise, with respect to the Pledged Collateral and pursuant to
the security interest created hereby, all rights and remedies
under the Arizona Uniform Commercial Code (the "Code"). Pledgee
may immediately direct the Company not to make any distributions
to Pledgor, and to make all distributions directly to Pledgee.
The proceeds from any foreclosure sale pursuant to the Code shall
be applied first toward the costs and expenses of such sale,
second towards any attorneys' fees owing to the Pledgee pursuant
to Section 15 hereof, third towards the satisfaction of the
defaulted Obligations, fourth toward the satisfaction of any
indebtedness secured by a subordinate security interest in the
Pledged Collateral, and the surplus (if any) to the Pledgor.
Prior to Pledgee's foreclosure of the security interest herein
granted in the Interest, none of Pledgor's rights, options,
elections, privileges or other benefits of any nature under any
governing document of Company or otherwise, including without
limitation all rights to receive distributions of cash or property
pursuant to any governing document of Company, shall be restricted
or limited by the existence of such security interest (nor may
Pledgee exercise any such rights, options, elections, privileges
or other benefits), and Pledgor may continue to receive such
distributions and exercise such other rights, options, elections,
privileges and benefits, subject to the provisions of any
governing document of Company. In the event that Pledgee has and
exercises remedies under the Code pursuant to and in accordance
with the terms of this Section 6, any notice of sale required by
law shall be deemed "commercially reasonable" if such notice is
given at least ten (10) days prior to the time of such sale.
Pledgor recognizes that Pledgee may be unable to effect a public
sale of any or all of the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended,
and applicable state securities law, but may be compelled to
resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to
acquire such Pledged Collateral for their own account for
investment and not with a view to the distribution or resale
thereof. Pledgor acknowledges and agrees that any such private
sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding
such circumstances, agrees that any such private sale (if
otherwise commercially reasonable) shall be deemed to have been
made in a commercially reasonable manner. Nothing contained in
the two immediately preceding sentences shall be construed as an
agreement between Pledgor and Pledgee that the Pledged Collateral
does constitute a "security" within the meaning of the Securities
Act of 1933 or applicable state securities laws, or that the
Pledged Collateral cannot be sold at a public sale.
7. REMEDIES CUMULATIVE. The remedies of the parties hereto
under this Agreement are cumulative and shall not exclude any
other remedies to which any party may be lawfully entitled
including, without limitation, the remedies under the Note or the
Loan Agreement.
8. AMENDMENTS, ETC. Any amendment, modification or waiver of
any provision of this Agreement shall be void and of no force or
effect unless made in writing, signed by the party or parties to
be bound and specifying with particularity the nature and extent
of such amendment, modification or waiver. No delay in
exercising, or failure to exercise, any right, remedy or power
hereunder shall impair such right, remedy or power or any right,
remedy or power of Pledgee under the Note or the Loan Agreement or
shall be construed to be a waiver of any default hereunder or
under the Note or the Loan Agreement.
9. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, any notice, request, instruction, correspondence
or other document to be given hereunder by either party to the
other (herein collectively called a "Notice") shall be in writing
and shall be given either by hand delivery or by certified mail,
return receipt requested, to the addresses set forth beneath the
signature of each party hereto. Notices given by hand delivery
shall be effective as of the date delivered. Notices sent by mail
shall be effective three days following deposit with the United
States Postal Service. Both parties agree that, in the event of
any notice given to the other party, the notice shall also be sent
to the holder of the Subordinate Pledge at the following address:
c/o I. Jerome Hirsch, Jaren Corporation, 4455 East Camelback Road,
Suite 215-A, Phoenix, Arizona 85018. In the event any party
(including the holder of the Subordinate Pledge) wishes to change
the address for notices as specified herein, it shall give a
notice pursuant to this section, whereupon the new notice shall be
effective after the time stated herein.
10. SEVERABLE PROVISIONS; ENFORCEABILITY. Each provision of
this Agreement is intended to be severable. If any provisions
hereof shall be declared by a court of competent jurisdiction to
be illegal, unenforceable or invalid for any reason whatsoever,
such illegality, unenforceability or invalidity shall not affect
the validity of the remainder of this Agreement. Time is of the
essence hereof.
11. TERMINOLOGY. All captions, headings or titles in the
paragraphs or sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part of
this Agreement or affect the construction or interpretation of
this Agreement.
12. CONTINUING SECURITY INTEREST; TRANSFER OF OBLIGATIONS.
This Agreement creates a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect
until performance in full of the Obligations, (ii) be binding upon
the Pledgor, its successors, transferees and assigns and (iii)
inure to the benefit of the Pledgee and its successors,
transferees and assigns. The security interest herein granted
shall terminate, and Pledgee shall execute and deliver to Pledgor
such termination statements and other instruments as shall be
necessary to release such security interest, when the Obligations
of Acridge have been fully satisfied and all liabilities and
obligations of Acridge under the Note or the Loan Agreement has
terminated. Pledgor shall promptly notify Pledgee of any transfer
of Pledgor's Interest and any change in Pledgor's name or the
location of its chief executive office or principal place of
business, and upon the happening of any of the foregoing events
shall cause the Pledgor and transferee to execute such additional
financing statements, continuation statements or other documents
as may be necessary to continue the perfection of the security
interest herein granted. The security interest herein granted
shall continue in effect notwithstanding any transfer of Pledgor's
Interest, regardless of whether such transfer may be permitted
pursuant to this Agreement or any governing document of the
Company. Nothing in this Agreement, express or implied, is
intended to confer upon any person or entity other than the
parties hereto and their respective permitted successors and
assigns any rights, benefits or obligations hereunder.
13. INTERPRETATION. The parties hereto and their respective
legal counsel have participated extensively in the preparation,
negotiation and drafting of this Agreement. Accordingly, no
presumption will apply in favor of any party hereto in the
interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof.
14. GOVERNING LAW; TERMS. This Agreement shall be governed
by, and construed and enforced in accordance with the laws of the
State of Arizona. Unless otherwise defined herein, terms defined
in Article 9 of the Code are used herein as therein defined.
15. ATTORNEYS' FEES. In the event of any claim, controversy
or dispute arising out of or relating to this Agreement, or the
breach thereof, the prevailing party shall be entitled to recover
reasonable attorneys' fees incurred in connection with any
arbitration or court proceeding.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to
be duly executed and delivered by its authorized officer thereunto
duly authorized as of the date first above written.
PLEDGOR: PLEDGEE:
GIANT INDUSTRIES, INC., a
Delaware corporation
_________________________ By:_______________________
James E. Acridge Name: Mark B. Cox
Title: Treasurer
Address: Address:
23733 N. Scottsdale Road 23733 N. Scottsdale Road
Scottsdale, Arizona 85255 Scottsdale, Arizona 85255
PINNACLE RODEO, L.L.C., an Arizona
limited liability company
By: ______________________________
James E. Acridge
Sole Member
Address:
23733 N. Scottsdale Road
Scottsdale, Arizona 85255
This Agreement is executed by the undersigned
limited liability company solely to consent to the pledge
of the Interest hereunder.
PINNACLE RAWHIDE, L.L.C., an Arizona
limited liability company
By:___________________________________
James E. Acridge, sole member of
Pinnacle Rodeo, L.L.C., its manager
Address:
23733 N. Scottsdale Road
Scottsdale, Arizona 85255
EXHIBIT 10.27
AMENDED AND RESTATED
PROMISSORY NOTE
James E. Acridge
Initial Principal Amount: $4,000,000.00
Initial Rate: Prime plus 2.0%
Date of Original Note: September 17, 1998
Prior Additional Principal Amount: $1,000,000.00
Prior Amended Rate: Prime plus 3.0% from and after December 23, 1998
Effective Date of Prior Amendment: December 23, 1998
Current Principal Amount: $5,000,000.00
Effective Date of This Amendment: March 10, 2000
For value received, JAMES E. ACRIDGE ("Borrower") promises
to pay to GIANT INDUSTRIES, INC., a Delaware corporation
("Giant"), or order, in lawful money of the United States of
America, (a) the initial principal amount of four million dollars
($4,000,000.00), together with interest on the unpaid initial
principal amount from September 17, 1998, until paid in full and
(b) the additional principal amount of one million dollars
($1,000,000.00), together with interest on the unpaid additional
principal amount from December 23, 1998, until paid in full. The
annual interest rate on this Note is the Prime rate as published
in the Western Edition of the Wall Street Journal on September
17, 1998, plus two percent (2.0%) from September 17, 1998,
through December 22, 1998, and the Prime rate as published in the
Western Edition of the Wall Street Journal on September 17, 1998,
plus three percent (3%) from December 23, 1998, until paid in
full.
Interest will accrue on the total principal amount of the
Loan from July 1, 1999 until February 28, 2001 (the "Maturity
Date"), at which time all outstanding principal and interest
shall be fully due and payable.
Borrower will pay Giant at Giant's corporate offices, 23733
North Scottsdale Road, Scottsdale, Arizona, 85255, or at such
other place as Giant may designate in writing. Unless otherwise
agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
The annual interest rate for this Note is computed on the
basis of a 365-day year; that is, by applying the ratio of the
annual interest rate over a year of 365 days, multiplied by the
outstanding principal balance, multiplied by the actual number of
days the principal balance is outstanding. Under no
circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due.
Borrower will be in default if any of the following happens:
(a) Borrower fails to make any payment when due; (b) Borrower
fails to comply with or to perform when due any other term,
obligation, covenant, or condition contained in this Note; (c) a
receiver is appointed for any part of Borrower's property, or any
proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws; or (d) Borrower defaults
under that certain Amended and Restated Loan Agreement of even
date herewith between Borrower and Giant.
Upon default, Giant may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately
due, and then Borrower will pay that amount. Upon default,
including failure to pay upon final maturity, Giant, at its
option, may also, if permitted under applicable law, increase the
interest rate on this Note by an additional three percent (3.0%).
The interest rate will not exceed the maximum rate permitted by
applicable law. Giant may hire or pay someone else to help
collect this Note if Borrower does not pay, and Borrower also
will pay Giant that amount, if reasonable. This includes,
subject to any limits under applicable law, Giant's reasonable
attorneys' fees and Giant's reasonable legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited
by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by Law.
This Note has been delivered to Giant and accepted by Giant
in the State of Arizona. If there is a lawsuit, Borrower agrees
upon Giant's request to submit to the jurisdiction of the courts
of Maricopa County, the State of Arizona. This Note shall be
governed by and construed in accordance with the laws of the
State of Arizona.
Giant may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower, to the
extent allowed by law, waives presentment, demand for payment,
protest and notice of dishonor. The parties agree that Giant may
modify this loan without the consent of or notice to anyone other
than Borrower.
Borrower agrees to an effective rate of interest that is the
rate specified in this Note plus any additional rate resulting
from any other charges in the nature of interest paid or to be
paid in connection with this Note.
This Amended and Restated Note has been issued pursuant to
an initial Loan Agreement dated September 17, 1998, followed by
various amendments, concluding in an Amended and Restated Loan
Agreement, of even date herewith, between Borrower and Giant, the
provisions of which are incorporated herein by reference.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTANDS
ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF
THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
/s/ JAMES E. ACRIDGE
_____________________
James E. Acridge
EXHIBIT 10.28
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AGREEMENT (hereinafter "Agreement"), is
dated effective as of March 10, 2000, and is made by JAMES E.
ACRIDGE, an unmarried man ("Acridge") and PINNACLE RODEO, L.L.C.,
an Arizona limited liability company ("Rodeo") (referred to
together in the singular, from time to time, as "Pledgor"), to
GIANT INDUSTRIES, INC., a Delaware corporation ("Pledgee").
PRELIMINARY STATEMENTS:
A. Acridge and Pledgee have entered into a loan
transaction wherein Pledgee has lent to Acridge the sum of
$5,000,000.00 in accordance with the terms of an Amended and
Restated Loan Agreement of even date herewith, and an Amended and
Restated Promissory Note of even date herewith (the "Note"). The
parties have also entered into an Amended and Restated Loan
Agreement of even date herewith (the "Loan Agreement"). The
obligations of Acridge under the Note and the Loan Agreement are
referred to from time to time hereafter as the "Obligations."
B. Acridge is the sole member of Rodeo, which in
turn is the sole owner of 100% of the membership interests (the
"Membership Interest") in Pinnacle Rawhide, L.L.C., an Arizona
limited liability company, (the "Company").
C. Pursuant to the terms of certain financing
agreements with Western Town, L.L.C. and Hirsch Investment Co.,
L.L.C., both Arizona limited liability companies, Pledgor is
entitled to pledge to third parties no more than 49% of the
ownership interests in the Company, and Pledgor is willing to do
so pursuant to the terms hereof.
D. Each capitalized term used herein that is not
otherwise defined herein shall have the meaning ascribed to such
term in the Note.
NOW, THEREFORE, in consideration of the premises,
Pledgor hereby agrees as follows:
1. PLEDGE. Pledgor hereby grants to Pledgee a first priority
security interest in the following (the "Pledged Collateral"):
1.1. Collateral Definition: The Collateral shall
consist of the following:
1.1.1. All rights of Rodeo as a member of the
Company to the extent of 49% of the total Membership
Interest therein (including without limitation the
right to distributions of cash or property from the
Company), which is herein called the "Interest;" and
1.1.2. All proceeds of or distributions or payments
under the Interest.
1.2. Definition of "Net Cash Flow". For the purposes of
this Agreement, the term "Net Cash Flow" shall mean means
the gross cash proceeds to the Company from all sources,
less the portion thereof used to pay or establish reserves
for Company expenses, debt payments, capital improvements,
replacements and contingencies, all as determined by the
Manager of Company, Rodeo, in its reasonable discretion.
1.3. Payment of Net Cash Flow with respect to the
Interest When No Default Exists: During the term of this
Pledge, and prior to any default under the Note, the Loan
Agreement or hereunder, the Net Cash Flow after accounting
for any payments or reserves required by the existing lenders
to Rodeo or Company attributable to the Interest shall be
paid as follows:
1.3.1. Pledgor shall cause the Company to
distribute from time to time sufficient amounts of all
Net Cash Flow to Pledgee to make payments then due; and
1.3.2. Pledgor shall cause the Company to
distribute from time to time the balance of all Net
Cash Flow to Pledgor.
1.4. Payment of Net Cash Flow with respect to the
Interest After Default: After any default has occurred under
the Note, the Loan Agreement or hereunder, Pledgor shall
cause the Company to distribute all Net Cash Flow after
accounting for any payments or reserves required by the
existing lenders to Rodeo or Company to Pledgee on account of
Acridge's Obligations under the Note, the Loan Agreement and
hereunder.
2. SECURITY FOR OBLIGATIONS.
2.1. Obligations Secured. This Agreement secures the
payment and performance of the Obligations by Acridge.
2.2. Acknowledgment of Consideration. Rodeo
acknowledges that it has benefited by the investment of
moneys by Acridge in Rodeo, and that the results of such
investment enabled it to acquire the Interest pledged herein.
Although the Obligations are those of Acridge and not of
Rodeo, Rodeo acknowledges that it has received valuable
consideration in the form of the aforesaid investment of
moneys by Acridge, the receipt and sufficiency of which are
hereby acknowledged, for its pledge of the Interest as set
forth herein, and all of the terms and conditions of this
Agreement are fully binding upon it as set forth herein.
3. FINANCING STATEMENTS. To perfect the security interest
granted hereby in accordance with the Uniform Commercial Code in
effect in the State of Arizona (the "Code"), Pledgor shall,
contemporaneously with the execution hereof, execute and deliver
to Pledgee a financing statement (the "Financing Statement") in
form satisfactory to Pledgee. Pledgor agrees that, from time to
time hereafter, it will execute and deliver to Pledgee such
further instruments and documents as Pledgee may reasonably
request which are necessary for the purpose of perfecting and
continuing the perfection of the security interest granted hereby.
4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants to Pledgee as follows:
4.1. Authorization. This Agreement has been duly
authorized, executed and delivered by Pledgor and creates a
valid security interest in the Pledged Collateral under the
Code, and when the Financing Statement is duly filed with the
Arizona Secretary of State, Pledgee will have a first
priority security interest in the Pledged Collateral.
4.2. No Default. Neither the execution and delivery of
this Agreement nor the consummation of the transactions
contemplated herein will conflict with or result in a breach,
default or violation of any statute or governmental rule or
regulation, or theng Agreement or any other agreement to
which Pledgor is a party or by which any of Pledgor's
property is bound.
4.3. Good Title. Pledgor is the legal owner of the
Pledged Collateral and has neither granted any other security
interest in the Pledged Collateral nor executed any financing
statement with respect thereto (other than the Financing
Statement), except that there is an existing security
interest in the Pledged Collateral in favor of Western Town,
L.L.C. and/or Hirsch Investment Co., L.L.C., which existing
security interest will be subordinated to the Pledge herein
created under documents complying with the obligations of
such lienholders to subordinate to the Pledge herein created
(the "Subordinate Pledge").
4.4. Business Location. The chief place of business and
chief executive office of Pledgor are located at the address
for Pledgor specified on the signature page below. Pledgor
shall promptly notify Pledgee of any change in either.
4.5. Priority. This Agreement creates a first priority
security interest, free from any other liens, claims or
security interests, at such time as the subordination
agreements to create Subordinate Pledge have been executed.
4.6. No Amendments. That it will not consent to or
permit any amendment to any governing document of, or to the
admission of any new member of, either Company or Rodeo,
without the prior written consent of Pledgee.
4.7. Consents. That no consent or approval of any
member of the Company is required to permit the pledge of the
Interest hereunder or such consent or approval has been
given.
5. OTHER LIENS. Other than the Subordinate Pledge described
herein, Pledgor agrees that it will not create or permit to exist
any lien, security interest, or other charge or encumbrance upon
or with respect to the Pledged Collateral, except for the security
interest under this Agreement.
6. REMEDIES OF PLEDGEE. In the event that an Event of Default
shall occur under the Note, then Pledgee shall have and may
exercise, with respect to the Pledged Collateral and pursuant to
the security interest created hereby, all rights and remedies
under the Arizona Uniform Commercial Code (the "Code"). Pledgee
may immediately direct the Company not to make any distributions
to Pledgor, and to make all distributions directly to Pledgee.
The proceeds from any foreclosure sale pursuant to the Code shall
be applied first toward the costs and expenses of such sale,
second towards any attorneys' fees owing to the Pledgee pursuant
to Section 15 hereof, third towards the satisfaction of the
defaulted Obligations, fourth toward the satisfaction of any
indebtedness secured by a subordinate security interest in the
Pledged Collateral, and the surplus (if any) to the Pledgor.
Prior to Pledgee's foreclosure of the security interest herein
granted in the Interest, none of Pledgor's rights, options,
elections, privileges or other benefits of any nature under any
governing document of Company or otherwise, including without
limitation all rights to receive distributions of cash or property
pursuant to any governing document of Company, shall be restricted
or limited by the existence of such security interest (nor may
Pledgee exercise any such rights, options, elections, privileges
or other benefits), and Pledgor may continue to receive such
distributions and exercise such other rights, options, elections,
privileges and benefits, subject to the provisions of any
governing document of Company. In the event that Pledgee has and
exercises remedies under the Code pursuant to and in accordance
with the terms of this Section 6, any notice of sale required by
law shall be deemed "commercially reasonable" if such notice is
given at least ten (10) days prior to the time of such sale.
Pledgor recognizes that Pledgee may be unable to effect a public
sale of any or all of the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act of 1933, as amended,
and applicable state securities law, but may be compelled to
resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to
acquire such Pledged Collateral for their own account for
investment and not with a view to the distribution or resale
thereof. Pledgor acknowledges and agrees that any such private
sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding
such circumstances, agrees that any such private sale (if
otherwise commercially reasonable) shall be deemed to have been
made in a commercially reasonable manner. Nothing contained in
the two immediately preceding sentences shall be construed as an
agreement between Pledgor and Pledgee that the Pledged Collateral
does constitute a "security" within the meaning of the Securities
Act of 1933 or applicable state securities laws, or that the
Pledged Collateral cannot be sold at a public sale.
7. REMEDIES CUMULATIVE. The remedies of the parties hereto
under this Agreement are cumulative and shall not exclude any
other remedies to which any party may be lawfully entitled
including, without limitation, the remedies under the Note or the
Loan Agreement.
8. AMENDMENTS, ETC. Any amendment, modification or waiver of
any provision of this Agreement shall be void and of no force or
effect unless made in writing, signed by the party or parties to
be bound and specifying with particularity the nature and extent
of such amendment, modification or waiver. No delay in
exercising, or failure to exercise, any right, remedy or power
hereunder shall impair such right, remedy or power or any right,
remedy or power of Pledgee under the Note or the Loan Agreement or
shall be construed to be a waiver of any default hereunder or
under the Note or the Loan Agreement.
9. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, any notice, request, instruction, correspondence
or other document to be given hereunder by either party to the
other (herein collectively called a "Notice") shall be in writing
and shall be given either by hand delivery or by certified mail,
return receipt requested, to the addresses set forth beneath the
signature of each party hereto. Notices given by hand delivery
shall be effective as of the date delivered. Notices sent by mail
shall be effective three days following deposit with the United
States Postal Service. Both parties agree that, in the event of
any notice given to the other party, the notice shall also be sent
to the holder of the Subordinate Pledge at the following address:
c/o I. Jerome Hirsch, Jaren Corporation, 4455 East Camelback Road,
Suite 215-A, Phoenix, Arizona 85018. In the event any party
(including the holder of the Subordinate Pledge) wishes to change
the address for notices as specified herein, it shall give a
notice pursuant to this section, whereupon the new notice shall be
effective after the time stated herein.
10. SEVERABLE PROVISIONS; ENFORCEABILITY. Each provision of
this Agreement is intended to be severable. If any provisions
hereof shall be declared by a court of competent jurisdiction to
be illegal, unenforceable or invalid for any reason whatsoever,
such illegality, unenforceability or invalidity shall not affect
the validity of the remainder of this Agreement. Time is of the
essence hereof.
11. TERMINOLOGY. All captions, headings or titles in the
paragraphs or sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part of
this Agreement or affect the construction or interpretation of
this Agreement.
12. CONTINUING SECURITY INTEREST; TRANSFER OF OBLIGATIONS.
This Agreement creates a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect
until performance in full of the Obligations, (ii) be binding upon
the Pledgor, its successors, transferees and assigns and (iii)
inure to the benefit of the Pledgee and its successors,
transferees and assigns. The security interest herein granted
shall terminate, and Pledgee shall execute and deliver to Pledgor
such termination statements and other instruments as shall be
necessary to release such security interest, when the Obligations
of Acridge have been fully satisfied and all liabilities and
obligations of Acridge under the Note or the Loan Agreement has
terminated. Pledgor shall promptly notify Pledgee of any transfer
of Pledgor's Interest and any change in Pledgor's name or the
location of its chief executive office or principal place of
business, and upon the happening of any of the foregoing events
shall cause the Pledgor and transferee to execute such additional
financing statements, continuation statements or other documents
as may be necessary to continue the perfection of the security
interest herein granted. The security interest herein granted
shall continue in effect notwithstanding any transfer of Pledgor's
Interest, regardless of whether such transfer may be permitted
pursuant to this Agreement or any governing document of the
Company. Nothing in this Agreement, express or implied, is
intended to confer upon any person or entity other than the
parties hereto and their respective permitted successors and
assigns any rights, benefits or obligations hereunder.
13. INTERPRETATION. The parties hereto and their respective
legal counsel have participated extensively in the preparation,
negotiation and drafting of this Agreement. Accordingly, no
presumption will apply in favor of any party hereto in the
interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof.
14. GOVERNING LAW; TERMS. This Agreement shall be governed
by, and construed and enforced in accordance with the laws of the
State of Arizona. Unless otherwise defined herein, terms defined
in Article 9 of the Code are used herein as therein defined.
15. ATTORNEYS' FEES. In the event of any claim, controversy
or dispute arising out of or relating to this Agreement, or the
breach thereof, the prevailing party shall be entitled to recover
reasonable attorneys' fees incurred in connection with any
arbitration or court proceeding.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to
be duly executed and delivered by its authorized officer thereunto
duly authorized as of the date first above written.
PLEDGOR: PLEDGEE:
GIANT INDUSTRIES, INC., a
Delaware corporation
/s/ JAMES E. ACRIDGE
_________________________ By: /s/ MARK B. COX
James E. Acridge _______________________
Name: Mark B. Cox
Title: Treasurer
Address: Address:
23733 N. Scottsdale Road 23733 N. Scottsdale Road
Scottsdale, Arizona 85255 Scottsdale, Arizona 85255
PINNACLE RODEO, L.L.C., an Arizona
limited liability company
By: /s/ JAMES E. ACRIDGE
______________________________
James E. Acridge
Sole Member
Address:
23733 N. Scottsdale Road
Scottsdale, Arizona 85255
This Agreement is executed by the undersigned
limited liability company solely to consent to the pledge
of the Interest hereunder.
PINNACLE RAWHIDE, L.L.C., an Arizona
limited liability company
By: /s/ JAMES E. ACRIDGE
___________________________________
James E. Acridge, sole member of
Pinnacle Rodeo, L.L.C., its manager
Address:
23733 N. Scottsdale Road
Scottsdale, Arizona 85255
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of the 7th day of May, 1997, between Phoenix Fuel
Co., Inc., an Arizona corporation (the "Company"), and Leroy Crow
(the "Executive").
RECITALS
A. The Company is engaged, among other things, in the
business of purchasing, terminaling, transporting, marketing and
selling gasoline, diesel fuel, lubricants and other petroleum
products and chemicals and providing trucking and other services
in connection with petroleum products and chemicals (the
"Business"). The Executive has substantial experience and
expertise in managing and operating the Business.
B. The Company desires to retain the services of the
Executive as an executive of the Company and the Executive desires
employment with the Company in that capacity.
C. 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, 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.
(a) The Executive is employed as an executive of the
Company. The Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the
President or by the Board of Directors of the Company (the
"Board"), including the performance of duties with respect to
affiliates of the Company, including, but not limited to, Giant
Industries Arizona, Inc. ("Giant") (as defined below).
(b) During the period of his employment hereunder,
the Executive shall devote substantially all of his business time,
attention, skill and efforts to the faithful performance of his
duties hereunder.
1.2 Term. The term of this Agreement shall commence upon
the date of the consummation of the transactions contemplated by
the Stock Purchase Agreement (the "Stock Purchase Agreement")
dated April 30, 1997, among the Company, the shareholders of the
Company and Giant, and shall continue, unless sooner terminated,
for three (3) years (the "Term"). Upon this Agreement's
termination at the end of the Term, Executive shall be an employee
at will and will be subject to all employment policies applicable
to other Company employees.
1.3 Location. During the Term of this Agreement, the
Executive shall be based 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 a base salary equal to: (a) during the remainder of 1997,
the Executive's current salary of $75,000.00 per year shall
continue; (b) during 1998, $135,000.00 per year; and (c)
thereafter, such base salary as may be determined by the Board
(collectively, the "Base Salary"). Except as provided in clause
(a) above, the Base Salary of the Executive shall not be decreased
at any time during the Term of this Agreement below the amount
specified in clause (b) above. Any 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.
2.2 Bonuses.
(a) Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term
bonuses (the "Regular Bonuses") as follows: (a) during the
remainder of 1997, such bonuses as are payable under the Company's
bonus plan in effect immediately prior to the execution of this
Agreement; and (b) thereafter, such bonuses as are payable under
the Company's bonus plan in effect immediately prior to the
execution of this Agreement, or, if the Company in its sole and
absolute discretion elects to discontinue such bonus plan, the
Executive shall be entitled to participate in an equitable manner
with all senior executives of Giant in such discretionary bonuses
as may be authorized and declared by Giant's Board of Directors
for Giant's senior executives.
(b) In addition to the Regular Bonuses described in
Section 2.2(a), the Executive shall be entitled to a stay-on bonus
of $270,000.00 (the "Stay-on Bonus"). Such Stay-on bonus shall
accrue and be payable as follows: (i) 50-75% of such Stay-on
Bonus shall be paid in cash; (ii) 25-50% of such Stay-on Bonus
shall be paid in stock of Giant Industries, Inc. ("Giant
Industries") with the number of shares determined based on the New
York Stock Exchange closing price of Giant Industries stock on the
date of closing of the transactions contemplated by the Stock
Purchase Agreement (the "Closing"); (iii) within the ranges
provided in clauses (i) and (ii) above, the Executive may select
the percentages to be paid in cash and stock; and (iv) such Stay-
on Bonus shall accrue and the Executive may elect to have such
Stay-on Bonus paid (x) one-third two years after the date of this
Agreement and two-thirds three years after the date of this
Agreement or (y) one-third two years after the date of this
Agreement, one-third three years after the date of this Agreement,
and one-third on the first day of the calendar year following the
third anniversary of this Agreement. The Executive shall inform
the Company in writing of his selections and elections under
subparts (iii) and (iv) of this paragraph at the time of the
Closing. Notwithstanding the foregoing provisions of this
paragraph, except as otherwise provided in Section 4.2(b), the
Executive shall not be entitled to any unpaid portion of the Stay-
on-Bonus unless he is employed by the Company at the time a
payment is to be made in accordance with clause (iv) above.
2.3 Participation in Retirement and Employee Benefit
Plans; Fringe Benefits. The Executive shall be entitled to
participate in all plans of Giant or Giant Industries, as
applicable, relating to stock options, stock purchases, pension,
thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance,
education or other employee benefits that Giant has adopted or may
adopt for the benefit of its senior executives. In addition, the
Executive shall be entitled to a car allowance of $393.75 per
month, to cardlock fuel to be used for Company business only, and
to insurance coverage (subject to deductibles and other terms and
conditions applicable to Giant's senior executives) on the
Executive's primary auto used for work. 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's years of Employment with
the Company shall count as of years of employment with Giant for
purposes of Giant's vacation policies, and the Executive shall be
entitled to not less than three weeks of paid vacation per year.
2.5 Existing Life Insurance. The life insurance policy
currently provided to the Executive by the Company will be
assigned to the Executive. Upon such assignment, the Company
shall have no further obligations with respect to the payment of
premiums on such policy and all such premiums shall be the
responsibility of the Executive.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 Death of Executive. This Agreement shall
automatically terminate upon the death of the Executive.
3.2 By the Executive. The Executive shall be entitled to
terminate this Agreement by giving at least thirty (30) days
written 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) in the event of the Executive's Disability (as
defined in Section 3.4);
(b) for Cause (as defined in Section 3.4); and
(c) at any time without Cause (subject to Section
4.2).
3.4 Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Cause" shall mean any of the following:
(i) the conviction of or a plea of guilty by
the Executive to a felony involving fraud, embezzlement or theft;
(ii) willful misrepresentation of material fact
by the Executive in connection with the performance of his duties
hereunder;
(iii) failure of or refusal on the part of the
Executive to substantially perform all of his duties hereunder;
(iv) the Executive's violation of the Company's
or Giant's then current drug and alcohol policy or the Executive's
flagrant violation of any other of the Company's or Giant's then
current personnel policies;
(v) the Executive's unauthorized absence from
his duties hereunder for a period exceeding thirty (30)
consecutive days; or
(vi) material breach of Article V of this
Agreement by the Executive.
(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 ninety (90) consecutive
days or for periods aggregating more than ninety (90) days during
any one hundred eighty (180) day period as a result of incapacity
due to physical or mental illness not due to drug or alcohol
abuse.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 Upon Termination for Death, Disability, at Expiration
of Term, by the Company for Cause or by the Executive. If the
Executive's employment is terminated by reason of the Executive's
death, Disability, upon expiration of the Term of this Agreement,
by the Company for Cause or by the Executive, 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 or Giant-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 Regular Bonus with respect to a prior fiscal
year which has accrued and been earned but has not been paid;
(e) if the Executive's employment is terminated by
reason of the Executive's death or Disability, pay the Executive
(or his estate or beneficiaries) a prorated portion of the "Stay-
on Bonus," computed by (x) multiplying the Stay-on Bonus by a
fraction, the numerator of which shall be the number of days from
the Closing to the termination date and the denominator of which
shall be the number of days in the Term of this Agreement (i.e.,
1,096) and (y) subtracting all prior Stay-on Bonus payments from
the amount so computed; and
(f) if the Executive's employment is terminated upon
expiration of the Term of this Agreement, by the Company for Cause
or by the Executive, pay the Executive (or his estate or
beneficiaries) any portion of the Stay-on Bonus which has accrued
and been earned but has not been paid.
4.2 Termination by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause,
the Company shall:
(a) pay the Executive as provided in Section 4.1;
(b) pay the Executive the Stay-on Bonus in
accordance with the schedule in Section 2.2(b) notwithstanding the
fact that the Executive did not remain in the employ of the
Company until the payment dates specified in Section 2.2(b); and
(c) at the Company's sole election either: (i)
release the Executive from his duties and obligations under
Section 5.2 of this Agreement; or (ii) pay in one lump sum any
unpaid Base Salary to which the Executive would have been entitled
had he remained employed through the end of the Term.
4.3 For purposes of Section 4.2(c) of this Agreement, if
at the time of the Executive's termination the Board has not
determined the Executive's base salary for periods after 1998, the
Executive's annual base salary for these periods shall be deemed
to be the 1998 base salary specified in Section 2.1 of this
Agreement.
4.4 For purposes of this Article IV of this Agreement, a
Regular Bonus and a Stay-on Bonus shall not be deemed to have
accrued unless all conditions for its award have been satisfied,
such as any condition that an employee be employed on the date
that a Regular Bonus is paid.
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 or its affiliates (the
"Corporations") 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 Corporations
consider confidential, and/or that gives the Corporations a
competitive advantage, including, without limitation: customer
lists and records; 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 Corporations before being
received from the Corporations; 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, client lists, 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 from the date of
execution of this Agreement until the date which is three years
after such date (regardless of whether this Agreement is
terminated for any reason, voluntarily or involuntarily, prior to
such date) (the "Non-Competition Period"), the Executive shall
not:
(i) except as a passive investor in publicly-
held companies, and except for investments held as of the date
hereof and disclosed to the Board prior to the execution of this
Agreement, 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
business that directly competes with the Company or the Business
in Arizona, New Mexico, Nevada, Texas, or Mexico; or
(ii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity that
obtained products or services from the Company or its affiliates
at any time during his employment with the Company; or
(iii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity solicited by
him on behalf of the Company or its affiliates; or
(iv) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company or its
affiliates who are in the employ of the Company or its affiliates
at any time during the Term for employment by others.
(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 the
Executive and 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 and may be assigned by the Company to any affiliate
of the Company.
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: Phoenix Fuel Co., Inc.
c/o Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85267
Attention: Morgan Gust, Vice President
and General Counsel
To the Executive: Leroy Crow
4311 East Lupine Avenue
Phoenix, Arizona 85028
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. If any dispute, controversy or claim
arises out of or relates to this Agreement or the breach,
termination or validity thereof, and if such dispute, controversy
or claim cannot be settled through direct, good faith discussions
among the parties, the same shall be settled by arbitration in
accordance with the Arizona Arbitration Act, A.R.S. 12-1501
through 12-1518, in effect on the date of this Agreement. The
arbitration shall be the sole and exclusive forum for resolution
of the dispute, controversy or claim, and the award of the
arbitrator shall be final and binding to the extent permitted by
law. Any arbitration shall be conducted in Phoenix, Arizona. The
prevailing party in any such arbitration shall be reimbursed by
the other party for all costs and expenses of such arbitration,
including reasonable attorneys' fees.
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:
PHOENIX FUEL CO, INC.,
an Arizona corporation
By: /s/ J. W. WILHOIT
--------------------
Title: COB
-----------------
THE EXECUTIVE:
/s/ LEROY CROW
-----------------------
Leroy Crow
ACKNOWLEDGED:
GIANT INDUSTRIES ARIZONA, INC.
By: /s/ G. W. YATES
-----------------------------
Guy W. Yates
TITLE: Vice President Corporate Planning and Development
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of the 7th day of May, 1997, between Phoenix Fuel
Co., Inc., an Arizona corporation (the "Company"), and Gary Dalke
(the "Executive").
RECITALS
A. The Company is engaged, among other things, in the
business of purchasing, terminaling, transporting, marketing and
selling gasoline, diesel fuel, lubricants and other petroleum
products and chemicals and providing trucking and other services
in connection with petroleum products and chemicals (the
"Business"). The Executive has substantial experience and
expertise in managing and operating the Business.
B. The Company desires to retain the services of the
Executive as an executive of the Company and the Executive desires
employment with the Company in that capacity.
C. 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, 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.
(a) The Executive is employed as an executive of the
Company. The Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the
President or by the Board of Directors of the Company (the
"Board"), including the performance of duties with respect to
affiliates of the Company, including, but not limited to, Giant
Industries Arizona, Inc. ("Giant") (as defined below).
(b) During the period of his employment hereunder,
the Executive shall devote substantially all of his business time,
attention, skill and efforts to the faithful performance of his
duties hereunder.
1.2 Term. The term of this Agreement shall commence upon
the date of the consummation of the transactions contemplated by
the Stock Purchase Agreement (the "Stock Purchase Agreement")
dated April 30, 1997, among the Company, the shareholders of the
Company and Giant, and shall continue, unless sooner terminated,
for three (3) years (the "Term"). Upon this Agreement's
termination at the end of the Term, Executive shall be an employee
at will and will be subject to all employment policies applicable
to other Company employees.
1.3 Location. During the Term of this Agreement, the
Executive shall be based 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 a base salary equal to: (a) during the remainder of 1997,
the Executive's current salary of $95,000.00 per year shall
continue; (b) during 1998, $145,000.00 per year; and (c)
thereafter, such base salary as may be determined by the Board
(collectively, the "Base Salary"). Except as provided in clause
(a) above, the Base Salary of the Executive shall not be decreased
at any time during the Term of this Agreement below the amount
specified in clause (b) above. Any 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.
2.2 Bonuses.
(a) Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term
bonuses (the "Regular Bonuses") as follows: (a) during the
remainder of 1997, such bonuses as are payable under the Company's
bonus plan in effect immediately prior to the execution of this
Agreement; and (b) thereafter, such bonuses as are payable under
the Company's bonus plan in effect immediately prior to the
execution of this Agreement, or, if the Company in its sole and
absolute discretion elects to discontinue such bonus plan, the
Executive shall be entitled to participate in an equitable manner
with all senior executives of Giant in such discretionary bonuses
as may be authorized and declared by Giant's Board of Directors
for Giant's senior executives.
(b) In addition to the Regular Bonuses described in
Section 2.2(a), the Executive shall be entitled to a stay-on bonus
of $270,000.00 (the "Stay-on Bonus"). Such Stay-on bonus shall
accrue and be payable as follows: (i) 50-75% of such Stay-on
Bonus shall be paid in cash; (ii) 25-50% of such Stay-on Bonus
shall be paid in stock of Giant Industries, Inc. ("Giant
Industries") with the number of shares determined based on the New
York Stock Exchange closing price of Giant Industries stock on the
date of closing of the transactions contemplated by the Stock
Purchase Agreement (the "Closing"); (iii) within the ranges
provided in clauses (i) and (ii) above, the Executive may select
the percentages to be paid in cash and stock; and (iv) such Stay-
on Bonus shall accrue and the Executive may elect to have such
Stay-on Bonus paid (x) one-third two years after the date of this
Agreement and two-thirds three years after the date of this
Agreement or (y) one-third two years after the date of this
Agreement, one-third three years after the date of this Agreement,
and one-third on the first day of the calendar year following the
third anniversary of this Agreement. The Executive shall inform
the Company in writing of his selections and elections under
subparts (iii) and (iv) of this paragraph at the time of the
Closing. Notwithstanding the foregoing provisions of this
paragraph, except as otherwise provided in Section 4.2(b), the
Executive shall not be entitled to any unpaid portion of the Stay-
on-Bonus unless he is employed by the Company at the time a
payment is to be made in accordance with clause (iv) above.
2.3 Participation in Retirement and Employee Benefit
Plans; Fringe Benefits. The Executive shall be entitled to
participate in all plans of Giant or Giant Industries, as
applicable, relating to stock options, stock purchases, pension,
thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance,
education or other employee benefits that Giant has adopted or may
adopt for the benefit of its senior executives. In addition, the
Executive shall be entitled to a car allowance of $393.75 per
month, to cardlock fuel to be used for Company business only, and
to insurance coverage (subject to deductibles and other terms and
conditions applicable to Giant's senior executives) on the
Executive's primary auto used for work. 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's years of Employment with
the Company shall count as of years of employment with Giant for
purposes of Giant's vacation policies, and the Executive shall be
entitled to not less than three weeks of paid vacation per year.
2.5 Existing Life Insurance. The life insurance policy
currently provided to the Executive by the Company will be
assigned to the Executive. Upon such assignment, the Company
shall have no further obligations with respect to the payment of
premiums on such policy and all such premiums shall be the
responsibility of the Executive.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 Death of Executive. This Agreement shall
automatically terminate upon the death of the Executive.
3.2 By the Executive. The Executive shall be entitled to
terminate this Agreement by giving at least thirty (30) days
written 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) in the event of the Executive's Disability (as
defined in Section 3.4);
(b) for Cause (as defined in Section 3.4); and
(c) at any time without Cause (subject to Section
4.2).
3.4 Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Cause" shall mean any of the following:
(i) the conviction of or a plea of guilty by
the Executive to a felony involving fraud, embezzlement or theft;
(ii) willful misrepresentation of material fact
by the Executive in connection with the performance of his duties
hereunder;
(iii) failure of or refusal on the part of the
Executive to substantially perform all of his duties hereunder;
(iv) the Executive's violation of the Company's
or Giant's then current drug and alcohol policy or the Executive's
flagrant violation of any other of the Company's or Giant's then
current personnel policies;
(v) the Executive's unauthorized absence from
his duties hereunder for a period exceeding thirty (30)
consecutive days; or
(vi) material breach of Article V of this
Agreement by the Executive.
(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 ninety (90) consecutive
days or for periods aggregating more than ninety (90) days during
any one hundred eighty (180) day period as a result of incapacity
due to physical or mental illness not due to drug or alcohol
abuse.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 Upon Termination for Death, Disability, at Expiration
of Term, by the Company for Cause or by the Executive. If the
Executive's employment is terminated by reason of the Executive's
death, Disability, upon expiration of the Term of this Agreement,
by the Company for Cause or by the Executive, 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 or Giant-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 Regular Bonus with respect to a prior fiscal
year which has accrued and been earned but has not been paid;
(e) if the Executive's employment is terminated by
reason of the Executive's death or Disability, pay the Executive
(or his estate or beneficiaries) a prorated portion of the "Stay-
on Bonus," computed by (x) multiplying the Stay-on Bonus by a
fraction, the numerator of which shall be the number of days from
the Closing to the termination date and the denominator of which
shall be the number of days in the Term of this Agreement (i.e.,
1,096) and (y) subtracting all prior Stay-on Bonus payments from
the amount so computed; and
(f) if the Executive's employment is terminated upon
expiration of the Term of this Agreement, by the Company for Cause
or by the Executive, pay the Executive (or his estate or
beneficiaries) any portion of the Stay-on Bonus which has accrued
and been earned but has not been paid.
4.2 Termination by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause,
the Company shall:
(a) pay the Executive as provided in Section 4.1;
(b) pay the Executive the Stay-on Bonus in
accordance with the schedule in Section 2.2(b) notwithstanding the
fact that the Executive did not remain in the employ of the
Company until the payment dates specified in Section 2.2(b); and
(c) at the Company's sole election either: (i)
release the Executive from his duties and obligations under
Section 5.2 of this Agreement; or (ii) pay in one lump sum any
unpaid Base Salary to which the Executive would have been entitled
had he remained employed through the end of the Term.
4.3 For purposes of Section 4.2(c) of this Agreement, if
at the time of the Executive's termination the Board has not
determined the Executive's base salary for periods after 1998, the
Executive's annual base salary for these periods shall be deemed
to be the 1998 base salary specified in Section 2.1 of this
Agreement.
4.4 For purposes of this Article IV of this Agreement, a
Regular Bonus and a Stay-on Bonus shall not be deemed to have
accrued unless all conditions for its award have been satisfied,
such as any condition that an employee be employed on the date
that a Regular Bonus is paid.
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 or its affiliates (the
"Corporations") 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 Corporations
consider confidential, and/or that gives the Corporations a
competitive advantage, including, without limitation: customer
lists and records; 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 Corporations before being
received from the Corporations; 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, client lists, 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 from the date of
execution of this Agreement until the date which is three years
after such date (regardless of whether this Agreement is
terminated for any reason, voluntarily or involuntarily, prior to
such date) (the "Non-Competition Period"), the Executive shall
not:
(i) except as a passive investor in publicly-
held companies, and except for investments held as of the date
hereof and disclosed to the Board prior to the execution of this
Agreement, 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
business that directly competes with the Company or the Business
in Arizona, New Mexico, Nevada, Texas, or Mexico; or
(ii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity that
obtained products or services from the Company or its affiliates
at any time during his employment with the Company; or
(iii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity solicited by
him on behalf of the Company or its affiliates; or
(iv) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company or its
affiliates who are in the employ of the Company or its affiliates
at any time during the Term for employment by others.
(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 the
Executive and 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 and may be assigned by the Company to any affiliate
of the Company.
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: Phoenix Fuel Co., Inc.
c/o Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85267
Attention: Morgan Gust, Vice President
and General Counsel
To the Executive: Gary Dalke
14046 South 24th Way
Phoenix, Arizona 85048
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. If any dispute, controversy or claim
arises out of or relates to this Agreement or the breach,
termination or validity thereof, and if such dispute, controversy
or claim cannot be settled through direct, good faith discussions
among the parties, the same shall be settled by arbitration in
accordance with the Arizona Arbitration Act, A.R.S. 12-1501
through 12-1518, in effect on the date of this Agreement. The
arbitration shall be the sole and exclusive forum for resolution
of the dispute, controversy or claim, and the award of the
arbitrator shall be final and binding to the extent permitted by
law. Any arbitration shall be conducted in Phoenix, Arizona. The
prevailing party in any such arbitration shall be reimbursed by
the other party for all costs and expenses of such arbitration,
including reasonable attorneys' fees.
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:
PHOENIX FUEL CO, INC.,
an Arizona corporation
By: /s/ J. W. WILHOIT
--------------------
Title: COB
-----------------
THE EXECUTIVE:
/s/ GARY R. DALKE
-----------------------
Gary Dalke
ACKNOWLEDGED:
GIANT INDUSTRIES ARIZONA, INC.
By: /s/ G. W. YATES
-----------------------------
Guy W. Yates
TITLE: Vice President Corporate Planning and Development
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of the 7th day of May, 1997, between Phoenix Fuel
Co., Inc., an Arizona corporation (the "Company"), and Jack Keller
(the "Executive").
RECITALS
A. The Company is engaged, among other things, in the
business of purchasing, terminaling, transporting, marketing and
selling gasoline, diesel fuel, lubricants and other petroleum
products and chemicals and providing trucking and other services
in connection with petroleum products and chemicals (the
"Business"). The Executive has substantial experience and
expertise in managing and operating the Business.
B. The Company desires to retain the services of the
Executive as an executive of the Company and the Executive desires
employment with the Company in that capacity.
C. 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, 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.
(a) The Executive is employed as an executive of the
Company. The Executive shall have such duties and responsibilities
as shall be assigned to the Executive from time to time by the
President or by the Board of Directors of the Company (the
"Board"), including the performance of duties with respect to
affiliates of the Company, including, but not limited to, Giant
Industries Arizona, Inc. ("Giant") (as defined below).
(b) During the period of his employment hereunder,
the Executive shall devote substantially all of his business time,
attention, skill and efforts to the faithful performance of his
duties hereunder.
1.2 Term. The term of this Agreement shall commence upon
the date of the consummation of the transactions contemplated by
the Stock Purchase Agreement (the "Stock Purchase Agreement")
dated April 30, 1997, among the Company, the shareholders of the
Company and Giant, and shall continue, unless sooner terminated,
for three (3) years (the "Term"). Upon this Agreement's
termination at the end of the Term, Executive shall be an employee
at will and will be subject to all employment policies applicable
to other Company employees.
1.3 Location. During the Term of this Agreement, the
Executive shall be based 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 a base salary equal to: (a) during the remainder of 1997,
the Executive's current salary of $95,000.00 per year shall
continue; (b) during 1998, $145,000.00 per year; and (c)
thereafter, such base salary as may be determined by the Board
(collectively, the "Base Salary"). Except as provided in clause
(a) above, the Base Salary of the Executive shall not be decreased
at any time during the Term of this Agreement below the amount
specified in clause (b) above. Any 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.
2.2 Bonuses.
(a) Subject to the further provisions of this
Agreement, the Company shall pay the Executive during the Term
bonuses (the "Regular Bonuses") as follows: (a) during the
remainder of 1997, such bonuses as are payable under the Company's
bonus plan in effect immediately prior to the execution of this
Agreement; and (b) thereafter, such bonuses as are payable under
the Company's bonus plan in effect immediately prior to the
execution of this Agreement, or, if the Company in its sole and
absolute discretion elects to discontinue such bonus plan, the
Executive shall be entitled to participate in an equitable manner
with all senior executives of Giant in such discretionary bonuses
as may be authorized and declared by Giant's Board of Directors
for Giant's senior executives.
(b) In addition to the Regular Bonuses described in
Section 2.2(a), the Executive shall be entitled to a stay-on bonus
of $270,000.00 (the "Stay-on Bonus"). Such Stay-on bonus shall
accrue and be payable as follows: (i) 50-75% of such Stay-on
Bonus shall be paid in cash; (ii) 25-50% of such Stay-on Bonus
shall be paid in stock of Giant Industries, Inc. ("Giant
Industries") with the number of shares determined based on the New
York Stock Exchange closing price of Giant Industries stock on the
date of closing of the transactions contemplated by the Stock
Purchase Agreement (the "Closing"); (iii) within the ranges
provided in clauses (i) and (ii) above, the Executive may select
the percentages to be paid in cash and stock; and (iv) such Stay-
on Bonus shall accrue and the Executive may elect to have such
Stay-on Bonus paid (x) one-third two years after the date of this
Agreement and two-thirds three years after the date of this
Agreement or (y) one-third two years after the date of this
Agreement, one-third three years after the date of this Agreement,
and one-third on the first day of the calendar year following the
third anniversary of this Agreement. The Executive shall inform
the Company in writing of his selections and elections under
subparts (iii) and (iv) of this paragraph at the time of the
Closing. Notwithstanding the foregoing provisions of this
paragraph, except as otherwise provided in Section 4.2(b), the
Executive shall not be entitled to any unpaid portion of the Stay-
on-Bonus unless he is employed by the Company at the time a
payment is to be made in accordance with clause (iv) above.
2.3 Participation in Retirement and Employee Benefit
Plans; Fringe Benefits. The Executive shall be entitled to
participate in all plans of Giant or Giant Industries, as
applicable, relating to stock options, stock purchases, pension,
thrift, profit sharing, life insurance, hospitalization and
medical coverage, disability, travel or accident insurance,
education or other employee benefits that Giant has adopted or may
adopt for the benefit of its senior executives. In addition, the
Executive shall be entitled to a car allowance of $450.00 per
month, to cardlock fuel to be used for Company business only, and
to insurance coverage (subject to deductibles and other terms and
conditions applicable to Giant's senior executives) on the
Executive's primary auto used for work. 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's years of Employment with
the Company shall count as of years of employment with Giant for
purposes of Giant's vacation policies, and the Executive shall be
entitled to not less than three weeks of paid vacation per year.
2.5 Existing Life Insurance. The life insurance policy
currently provided to the Executive by the Company will be
assigned to the Executive. Upon such assignment, the Company
shall have no further obligations with respect to the payment of
premiums on such policy and all such premiums shall be the
responsibility of the Executive.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 Death of Executive. This Agreement shall
automatically terminate upon the death of the Executive.
3.2 By the Executive. The Executive shall be entitled to
terminate this Agreement by giving at least thirty (30) days
written 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) in the event of the Executive's Disability (as
defined in Section 3.4);
(b) for Cause (as defined in Section 3.4); and
(c) at any time without Cause (subject to Section
4.2).
3.4 Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Cause" shall mean any of the following:
(i) the conviction of or a plea of guilty by
the Executive to a felony involving fraud, embezzlement or theft;
(ii) willful misrepresentation of material fact
by the Executive in connection with the performance of his duties
hereunder;
(iii) failure of or refusal on the part of the
Executive to substantially perform all of his duties hereunder;
(iv) the Executive's violation of the Company's
or Giant's then current drug and alcohol policy or the Executive's
flagrant violation of any other of the Company's or Giant's then
current personnel policies;
(v) the Executive's unauthorized absence from
his duties hereunder for a period exceeding thirty (30)
consecutive days; or
(vi) material breach of Article V of this
Agreement by the Executive.
(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 ninety (90) consecutive
days or for periods aggregating more than ninety (90) days during
any one hundred eighty (180) day period as a result of incapacity
due to physical or mental illness not due to drug or alcohol
abuse.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 Upon Termination for Death, Disability, at Expiration
of Term, by the Company for Cause or by the Executive. If the
Executive's employment is terminated by reason of the Executive's
death, Disability, upon expiration of the Term of this Agreement,
by the Company for Cause or by the Executive, 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 or Giant-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 Regular Bonus with respect to a prior fiscal
year which has accrued and been earned but has not been paid;
(e) if the Executive's employment is terminated by
reason of the Executive's death or Disability, pay the Executive
(or his estate or beneficiaries) a prorated portion of the "Stay-
on Bonus," computed by (x) multiplying the Stay-on Bonus by a
fraction, the numerator of which shall be the number of days from
the Closing to the termination date and the denominator of which
shall be the number of days in the Term of this Agreement (i.e.,
1,096) and (y) subtracting all prior Stay-on Bonus payments from
the amount so computed; and
(f) if the Executive's employment is terminated upon
expiration of the Term of this Agreement, by the Company for Cause
or by the Executive, pay the Executive (or his estate or
beneficiaries) any portion of the Stay-on Bonus which has accrued
and been earned but has not been paid.
4.2 Termination by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause,
the Company shall:
(a) pay the Executive as provided in Section 4.1;
(b) pay the Executive the Stay-on Bonus in
accordance with the schedule in Section 2.2(b) notwithstanding the
fact that the Executive did not remain in the employ of the
Company until the payment dates specified in Section 2.2(b); and
(c) at the Company's sole election either: (i)
release the Executive from his duties and obligations under
Section 5.2 of this Agreement; or (ii) pay in one lump sum any
unpaid Base Salary to which the Executive would have been entitled
had he remained employed through the end of the Term.
4.3 For purposes of Section 4.2(c) of this Agreement, if
at the time of the Executive's termination the Board has not
determined the Executive's base salary for periods after 1998, the
Executive's annual base salary for these periods shall be deemed
to be the 1998 base salary specified in Section 2.1 of this
Agreement.
4.4 For purposes of this Article IV of this Agreement, a
Regular Bonus and a Stay-on Bonus shall not be deemed to have
accrued unless all conditions for its award have been satisfied,
such as any condition that an employee be employed on the date
that a Regular Bonus is paid.
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 or its affiliates (the
"Corporations") 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 Corporations
consider confidential, and/or that gives the Corporations a
competitive advantage, including, without limitation: customer
lists and records; 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 Corporations before being
received from the Corporations; 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, client lists, 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 from the date of
execution of this Agreement until the date which is three years
after such date (regardless of whether this Agreement is
terminated for any reason, voluntarily or involuntarily, prior to
such date) (the "Non-Competition Period"), the Executive shall
not:
(i) except as a passive investor in publicly-
held companies, and except for investments held as of the date
hereof and disclosed to the Board prior to the execution of this
Agreement, 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
business that directly competes with the Company or the Business
in Arizona, New Mexico, Nevada, Texas, or Mexico; or
(ii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity that
obtained products or services from the Company or its affiliates
at any time during his employment with the Company; or
(iii) directly or indirectly solicit any
business of a nature that is directly competitive with the
Business or the Company from any individual or entity solicited by
him on behalf of the Company or its affiliates; or
(iv) employ, or directly or indirectly solicit,
or cause the solicitation of, any employees of the Company or its
affiliates who are in the employ of the Company or its affiliates
at any time during the Term for employment by others.
(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 the
Executive and 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 and may be assigned by the Company to any affiliate
of the Company.
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: Phoenix Fuel Co., Inc.
c/o Giant Industries, Inc.
23733 North Scottsdale Road
Scottsdale, Arizona 85267
Attention: Morgan Gust, Vice President
and General Counsel
To the Executive: Jack Keller
2029 East Caroline Lane
Tempe, Arizona 85284
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. If any dispute, controversy or claim
arises out of or relates to this Agreement or the breach,
termination or validity thereof, and if such dispute, controversy
or claim cannot be settled through direct, good faith discussions
among the parties, the same shall be settled by arbitration in
accordance with the Arizona Arbitration Act, A.R.S. 12-1501
through 12-1518, in effect on the date of this Agreement. The
arbitration shall be the sole and exclusive forum for resolution
of the dispute, controversy or claim, and the award of the
arbitrator shall be final and binding to the extent permitted by
law. Any arbitration shall be conducted in Phoenix, Arizona. The
prevailing party in any such arbitration shall be reimbursed by
the other party for all costs and expenses of such arbitration,
including reasonable attorneys' fees.
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:
PHOENIX FUEL CO, INC.,
an Arizona corporation
By: /s/ J. W. WILHOIT
--------------------
Title: COB
-----------------
THE EXECUTIVE:
/s/ JACK W. KELLER
-----------------------
Jack Keller
ACKNOWLEDGED:
GIANT INDUSTRIES ARIZONA, INC.
By: /s/ G. W. YATES
-----------------------------
Guy W. Yates
TITLE: Vice President Corporate Planning and Development
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
- 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
- DeGuelle Oil Company* Colorado
- Ciniza Production
Company* New Mexico
- Giant Stop-N-Go of
New Mexico, Inc.* New Mexico
- San Juan Refining
Company* New Mexico
- Giant Pipeline Company* New Mexico
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 report dated
March 6, 2000, appearing in this Annual Report on Form 10-K of Giant
Industries, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,945
<SECURITIES> 0
<RECEIVABLES> 62,667
<ALLOWANCES> 591
<INVENTORY> 58,240
<CURRENT-ASSETS> 171,984
<PP&E> 485,181
<DEPRECIATION> 161,983
<TOTAL-ASSETS> 546,799
<CURRENT-LIABILITIES> 122,588
<BONDS> 258,272
0
0
<COMMON> 122
<OTHER-SE> 132,340
<TOTAL-LIABILITY-AND-EQUITY> 546,799
<SALES> 782,683
<TOTAL-REVENUES> 782,683
<CGS> 567,526
<TOTAL-COSTS> 713,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,417
<INCOME-PRETAX> 16,456
<INCOME-TAX> 5,678
<INCOME-CONTINUING> 10,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,778
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
