-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CXGVXtFeHoe+SUjhyVmEWk/jwbX2qcnUfWCzQ1HFWbhnQoDkmSH0nlA0LI2W1pgI TudBRj+1h0XTKqsrMAAFLw== 0000856465-01-000001.txt : 20010402 0000856465-01-000001.hdr.sgml : 20010402 ACCESSION NUMBER: 0000856465-01-000001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIANT INDUSTRIES INC CENTRAL INDEX KEY: 0000856465 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 860642718 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10398 FILM NUMBER: 1588153 BUSINESS ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 4805858888 MAIL ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 10-K405 1 0001.txt GIANT INDUSTRIES INC. 2000 10-K 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, 2000. 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 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] As of February 28, 2001, 8,948,008 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 $45,375,000 based on the New York Stock Exchange closing price on February 28, 2001. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for the Registrant's 2001 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K Report. 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 area 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. In addition, finished products are acquired through exchange agreements, from third party suppliers and from Phoenix Fuel. 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 or 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, and the stock of Giant E&P was sold in September 2000. 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, 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 eliminate non-essential capital expenditures; to sell non-strategic assets and underperforming assets; to consider and evaluate related business opportunities, while protecting 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 supplies of crude oil and natural gas liquids ("NGLs"). 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 that are comparable to those 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.
YEAR ENDED DECEMBER 31, - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Feedstock throughput:(1) Crude oil 29,600 31,900 32,500 33,700 34,800 NGLs and oxygenates 5,800 6,500 5,700 6,500 5,400 - -------------------------------------------------------------------------------- Total 35,400 38,400 38,200 40,200 40,200 ================================================================================ Crude oil throughput (as a % of total) 84% 83% 85% 84% 87% Rated crude oil capacity utilized(2) 80% 87% 88% 92% 95% Refinery margin ($/bbl) $ 7.63 $ 6.89 $ 4.83 $ 6.39 $ 6.21 Products:(1) Gasoline 22,500 23,800 23,800 24,800 24,900 Diesel fuel 9,600 10,700 11,400 11,000 10,900 Jet fuel - - - 800 1,100 Other 3,300 3,900 3,000 3,600 3,300 - -------------------------------------------------------------------------------- Total 35,400 38,400 38,200 40,200 40,200 ================================================================================ High Value Products: Gasoline 64% 62% 62% 62% 62% Diesel fuel 27% 28% 30% 27% 27% Jet fuel - - - 2% 3% - -------------------------------------------------------------------------------- Total 91% 90% 92% 91% 92% ================================================================================
(1) Average barrels ("bbls") per day ("bpd"). (2) Prior year percentages have been restated to reflect the calculation of rated crude oil capacity on a calendar day basis as was used for 2000. Each refinery operating unit requires regular maintenance, as well as 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 additional contract labor. Turnaround work proceeds on a continuous 24-hour basis to minimize unit down time. Giant has historically expensed current maintenance charges and capitalized turnaround costs. 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 10 day shutdown and is necessary to rejuvenate the catalyst and enable 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 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. In 2000, certain crude oil contracts were renegotiated resulting in reduced crude oil acquisition costs. A small percentage 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. Such arrangements currently have a nominal effect on the Company's crude oil acquisition costs. The Four Corners basin is a mature production area and accordingly is subject to natural decline in production over time. In the past, this natural decline has been offset to some extent 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. Although crude oil prices have recovered from 1998 levels, a lower than anticipated allocation of capital to Four Corners basin production activities has resulted in greater than anticipated net declines in production. The Company's current receipts and projections of Four Corners crude oil production indicate that the Company's crude oil demand will exceed the crude oil supply that is available from local sources for 2001. During the first two months of 2001, the Company has experienced lower than anticipated receipts, at least in part as a result of the decreased production discussed above and production facilities maintenance in one major field. The Company has decreased, and may from time to time in the future decrease, production runs at its refineries from levels it would otherwise schedule as a result of shortfalls in Four Corners crude oil production. The Company may increase its production runs in the future if additional crude oil or other refinery feedstocks become available depending on demand for finished products and refining margins attainable. The Company had estimated that, for the year 2000, its refinery production runs would approximate 1999 levels. Actual 2000 refinery production runs were approximately 8% below 1999 levels, and the Company's crude oil receipts declined by approximately 6%. 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, encouraging new exploration and production opportunities on tribal reservation lands. No significant, cost effective crude oil feedstock alternatives have been identified to date. 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 Ciniza refinery is capable 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. For most of 2000 and for the first two months of 2001 this historic relationship has not remained in place as the cost of NGLs has moved higher than crude oil. The Company anticipates that over time the price differential between crude oil and NGLs will return to more historical levels. An adequate supply of NGLs is available for delivery to the Ciniza refinery, primarily through a Company-owned pipeline connecting the Ciniza refinery to an NGLs 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 vehicle fuel. Oxygenates are oxygen-containing compounds that can be used as a motor vehicle fuel supplement to reduce 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 pipelines or delivered by Company-owned truck transports to pipeline injection points or refinery tankage. The Company owns approximately 286 miles of pipeline for gathering and delivering 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 an NGLs fractionation plant. Currently, over 40 Company-owned truck transports are involved in collecting 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 products refined by the Company. The Company's secondary markets include the Albuquerque area, the largest market in New Mexico, and the Northern Arizona area. These secondary markets are primarily supplied from the Ciniza refinery or the Company's Flagstaff products terminal. The Company estimates that, during 2000, its gasoline production was distributed 49% in New Mexico, 38% in Arizona, 12% in Colorado and 1% in Utah; and its diesel production was distributed 55% in New Mexico, 35% in Arizona, 9% in Colorado and 1% in Utah. The Company's truck transports support refinery sales in its primary market as well as its secondary markets. These vehicles hauled approximately 46% of the refineries' sales barrels in 2000. The balance is transported by customer or common carrier trucking. TERMINAL OPERATIONS. In May 1999, the Company opened a 6,000 bpd capacity finished products terminal near Flagstaff, Arizona (the "Flagstaff Terminal"). This terminal includes 65,000 bbls of finished product tankage and a truck loading rack with three loading spots. Terminal capacity could be expanded to 12,000 bpd of finished products if demand for finished products in this market were to increase. Product deliveries to the Flagstaff Terminal are being made by truck transport from Phoenix, Arizona or the Company's refineries. In July 1995, the Company acquired a 10,000 bpd capacity finished products terminal in Albuquerque, New Mexico. This terminal includes approximately 170,000 bbls of finished product tankage and a truck loading rack with two loading spots. Product deliveries to this terminal are made from the Company's Ciniza refinery or by pipeline from El Paso, Texas. The Company's terminals are part of its strategy to maximize both product volumes and netbacks to the Ciniza and Bloomfield refineries, and to maximize the Company's customer base. REFINED PRODUCT SALES. During 2000, the Company sold approximately 8,255,000 barrels of gasoline and 3,506,000 barrels of diesel fuel from its refineries. In 1999, approximately 8,885,000 barrels of gasoline and 3,947,000 barrels of diesel fuel were sold. The Company's retail units sold an equivalent of approximately 56% of these gasoline sales and 28% of these diesel sales in 2000. 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, 2000, the Company operated or managed 179 service station/convenience stores located in New Mexico, Arizona, Colorado and Utah. This represents a net increase of seven units since December 31, 1999. 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 234,823,000 gallons of gasoline and diesel fuel in 2000 compared to approximately 239,864,000 gallons in 1999, a 2% decrease. Merchandise sales increased approximately 17% in 2000, to $138,544,000 from $118,894,000. The increase in merchandise sales was partially due to an increase in the number of stores operating for a full year in 2000 versus partial year operation in 1999, as well as stores that were acquired or opened during the year. The continued implementation and execution of improved merchandise marketing programs also contributed to increased sales. For 2000, same store sales increased 9% for merchandise and decreased 3% for gasoline and diesel fuel compared to 1999. During 2000, the Company opened two Company-constructed service station/convenience stores, acquired nine service station/convenience stores on the Navajo and Zuni Indian Reservations by the assignment of certain leases/subleases to the Company and acquired an interest in five other service station/convenience stores located on the Navajo Indian Reservation. In 2001, the Company may acquire, by the assignment of certain leases/subleases, one additional service station/convenience store located on the Navajo Indian Reservation. As part of an ongoing effort to dispose of non-strategic or underperforming assets, the Company disposed of eight service station/convenience stores and two pieces of non-strategic land in 2000. In addition, the Company closed one of its two merchandise only stores opened in 1999 and plans to close the other during the first quarter of 2001. In March 2001, the Company completed an evaluation of its retail assets. The Company identified approximately 30 retail units that are non-strategic or are underperforming for possible sale, although the units had positive cash flow in 2000. During the second quarter of 2001, the Company will initiate an evaluation to determine the level of interest in the marketplace for potential sale of the assets. In the interim, the Company will continue to operate these units. There is no assurance that any of these units will be sold, as their sale is contingent upon, among other things, the receipt of acceptable offers. 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, 2000, 69 units (including the Travel Center) had been converted to the Conoco brand. In 2000, the Company continued to re-brand various retail locations in an effort to consolidate the number of gasoline brands under which its products are sold. At December 31, 2000, in addition to its Conoco-branded stores, the Company had 25 Giant branded sites and 57 sites branded Mustang. The Company also operated three stations branded Shell and two branded Whiting as a result of acquisitions made in prior years. These sites will be targeted for re-branding during the first quarter of 2001. Additionally, the Company has 16 units branded Thriftway, five units branded Gasman, one unit branded Gasamat, one unit branded Diamond Shamrock and one unit branded Malco. The Company is examining the timing for the re-branding of these stores. 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 most locations, which provide items such as general merchandise, alcoholic and nonalcoholic beverages, fast foods, health and beauty aids, and automotive products. 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. During 2000, the Company sold approximately 24,852,000 gallons of diesel fuel at the Travel Center (approximately 27% of the Ciniza refinery's total diesel production). This compares to approximately 26,084,000 gallons of diesel fuel sold (approximately 29% of the Ciniza refinery's total diesel production) during 1999. 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. 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 seven lubricant and bulk petroleum distribution plants, 21 cardlock fueling locations, a bulk lubricant terminal facility, and a fleet of 32 finished product transports and 16 finished product tankwagons. These assets and related operations are located throughout 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. During 2000, Phoenix Fuel sold approximately 424,290,000 gallons of gasoline and diesel fuel. During 1999, approximately 351,949,000 gallons were sold. Sales of additional products, including approximately 5,300,000 gallons of lubricants in each period and other related items, totaled approximately $27,703,000 during 2000, compared to $26,232,000 during 1999. The petroleum products sold by Phoenix Fuel are primarily purchased for resale from other refiners and marketers and to a lesser extent from the Refining Group. 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 area and added one additional unit in each market in 2000. EMPLOYEES The Company and its subsidiaries employed approximately 2,790 persons on February 28, 2001, including approximately 2,480 full-time and approximately 310 part-time employees. Approximately 2,040 were employed in the Retail Group, including approximately 294 part-time. The Refining Group employed approximately 440 persons including five part-time. Phoenix Fuel employed approximately 220 persons, including four part-time. Corporate staff operations employed approximately 90 persons, including seven 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) refinery processing costs per barrel, (vi) the cost of delivering refined products to markets, and (vii) 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 and which are larger and more efficient than the Company's refineries. As a result, such refineries 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 in connection with the sale of 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 late 1999, an existing NGLs pipeline was converted to a refined products pipeline. This converted line originates in Southeastern New Mexico and delivers refined products into Albuquerque, New Mexico and the Four Corners area. A diesel fuel terminal near Albuquerque associated with this project has been completed and a terminal expansion to include gasoline and jet fuel is expected to be completed by spring 2001. This project, mergers between large integrated oil companies and upgrades to competitors' refineries have resulted in increased competition. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects 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. It also could 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 (i) the availability of product supply from other refiners and marketers, (ii) the ability to generate margins sufficient to cover fixed and variable expenses, and (iii) competition with major integrated oil companies and independent fuel and lubricant marketing organizations. 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. These laws and regulations apply to, among other things: (i) the discharge of pollutants into the soil, air and water, (ii) product specifications, (iii) the generation, treatment, storage, transportation and disposal of solid and hazardous waste and materials, and (iv) employee health and safety. The Company believes that its refineries are processing currently utilized feedstocks in substantial compliance with currently effective laws and regulations pertaining to health and the environment. 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 received approval to participate in the rule's geographic phase-in ("GPI") and averaging, banking and trading ("ABT") programs. Under the GPI program, the Company will have an additional year to reach the 30 ppm standard in connection with gasoline sold in most of the geographic areas in which its refineries' gasoline is marketed, including gasoline marketed in New Mexico, Colorado, Utah and on the Navajo Reservation. Under the ABT program, the Company potentially may be able to generate sulfur credits, in amounts not yet determined, which could either be sold to other refiners or used by the Company's refineries during periods when they otherwise would not be in compliance. The Company anticipates that it will expend approximately $3,500,000 to purchase and install the equipment necessary to produce gasoline with a 30 ppm sulfur content at its refineries. The Company is also subject to EPA's recently promulgated low sulfur diesel rule. This rule requires refiners to reduce the sulfur content of the diesel fuel they produce to 15 ppm by 2006 unless they qualify for special treatment. The Company anticipates that it will expend approximately $15,000,000 to make the necessary changes to its refineries to comply with the new rule. 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, a portion of Yavapai County and Pinal County. 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. The Company is able 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 2000, Arizona passed legislation that requires suppliers of gasoline in Arizona to submit a plan for phasing out the addition of methyl tertiary butyl ether ("MTBE") to their gasoline. The Company timely submitted the required plan. The Company does not anticipate any significant impact on its operations if Arizona moves forward with its plans to phase out MTBE. 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. In addition, laws and regulations relating to health and the environment are becoming increasingly stringent. 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, among other things: the installation and operation of pollution control systems and equipment not currently possessed by the Company, the acquisition or modification of permits, and the initiation or modification of cleanup activities. NOTICES OF VIOLATIONS. Notices of violations and similar governmental notices ("NOVs") are issued by governmental authorities and may allege violations of environmental requirements. In 1993, the Company received an NOV 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. The Company subsequently reached agreement with NMED for the closure of the land treatment facility, and NMED has issued a post-closure care permit for the facility. The Company anticipates incurring closure and post-closure expenses in the approximate amount of $265,000 over a 30-year period. The Company has received a NOV from NMED, dated July 18, 2000, in connection with its Bloomfield refinery. The NOV alleges that the Company violated air quality regulations at the refinery, as well as a condition of an air quality permit. The NOV represents that the NMED is willing to settle this matter for approximately $146,000. The Company has contested the NOV. The Company has received other NOVs from time to time. The Company has responded or intends to respond in a timely manner to all such matters. The Company does not believe any such matters to be material. Despite the Company's efforts to comply with environmental laws and regulations, there can be no assurance that NOVs will not be received in the future. 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 that 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 in which the Company is involved. On October 1, 1999, the State of New Mexico (the "State") 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 Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") South Valley 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. Although neither complaint states 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. In the first quarter of 2001, the State filed an amended complaint in the CERCLA and state court actions in which it alleges what it contends are releases by the Company during its ownership and operation of the Albuquerque Terminal. The Company intends to deny that it has had any releases that have contributed to soil and groundwater contamination at the South Valley Superfund Site. The Company believes that any environmental 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 that 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. Although the Company was given reason to believe that a final remedy would be selected in 2000, that selection did not occur. The Company has had no further indication regarding when the final remedy selection will be made. 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 also was based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, 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 also is 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 also may assert claims against BLM, the Company and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the Landfill and the Farmington property. Parties also may request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the Landfill and the Farmington property. Currently, however, there is no outstanding litigation against the Company by BLM or any other party. 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 Resource 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. In 2000, OCD approved the groundwater discharge permit for the refinery, which included an abatement plan that addressed the Company's environmental obligations under the Order. The abatement plan reflects new information relating to the site as well as remediation methods that were originally not contemplated in connection with the Order. The Company has asked EPA to accept the measures specified in the abatement plan as the appropriate corrective action remedy under the Order and has further requested that EPA delegate its corrective action oversight authority to the State of New Mexico. Adoption of the abatement plan as the appropriate corrective action remedy would significantly reduce the Company's corrective action costs. The Company estimates that remediation expenses associated with the abatement plan will be in the range of approximately $50,000 to $100,000, and will be incurred over a period of approximately 30 years. If the Company's requests are not granted, the Company estimates that remaining remediation expenses could range as high as $1,000,000. Accordingly, the Company has reduced the remaining $1,500,000 reserve accrued in connection with this matter to approximately $1,000,000. If the requests are granted, the Company anticipates that the reserve will be further reduced. 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. The Company anticipates that OCD will not require remediation of offsite soil based upon the low contaminant levels found there. On May 19, 2000, OCD approved the Company's work plan with certain conditions. In the course of conducting the cleanup approved by OCD, it was discovered that the extent of the contamination was greater than had been anticipated. Accordingly, the Company obtained a 60-day extension to further assess the situation and propose a modified plan. On November 6, 2000, the Company submitted a proposal for a pilot bioventing project to address remaining contamination at the site. The pilot project, if approved, is expected to cost approximately $15,000. The Company previously estimated that cleanup expenses associated with the site would cost $250,000 and an environmental reserve in that amount was created, of which approximately $62,000 remains. Until the pilot project is completed and its effectiveness as a means of site remediation can be evaluated, the Company cannot reasonably estimate remaining remediation costs. Therefore, no change has been made to the amount of the reserve. 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 latest assessment relates to activities through June 1997. The Company resolved both of these severance tax assessments in the first quarter of 2001 for an amount approximating the reserve that had previously been established by the Company. The Company intends to continue purchasing activities in the area of disputed jurisdiction and may receive further tax assessments in the future relating to these activities subsequent to June 1997. The Company does not believe any such assessments will be significant. The Company may be entitled to reimbursement from certain third party oil lease interest owners in connection with any severance tax amounts paid by the Company that relate to purchases from such interest owners. At this time, however, the Company is unable to predict the success of efforts to recover these amounts. Other nominal tax assessments remain outstanding and the Company is pursuing its appeal rights on those matters. The Company may receive further tax assessments in the future. 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 that qualified for federal coal seam gas tax credits under Section 29 of the Internal Revenue Code. In September 2000, the Company sold its ownership in these natural gas wells for approximately $1,000,000, which was the approximate value of the wells remaining on its books. Section 29 tax credits generated from natural gas production from these wells, through the date of the September 2000 sale, are available to offset future income taxes payable. 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 15 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, 2001 are listed below: EXECUTIVE NAME AGE POSITION OFFICER SINCE James E. Acridge 60 Chairman of the Board, October 1989 President and Chief Executive Officer Fredric L. Holliger 53 Director, Executive Vice October 1989 President and Chief Operating Officer Morgan Gust 53 Executive Vice President August 1990 Jack W. Keller 56 President of the Company's February 1999 Phoenix Fuel Strategic Business Unit Miguel A. Foegal 48 Executive Vice President May 2000 of the Company's Retail Group Strategic Business Unit Carl D. Shook 62 Executive Vice President February 2000 of the Company's Refining Group Strategic Business Unit C. Leroy Crow 50 Executive Vice President February 2000 of the Company's Refining Group Strategic Business Unit Kim H. Bullerdick 47 Vice President, General February 1999 Counsel and Secretary Mark B. Cox 42 Vice President, Treasurer, February 1999 Financial Officer and Assistant Secretary Gary R. Dalke 48 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. The Company was formed in 1989 in connection with the concurrent initial public offering of stock by the Company and the reorganization of Giant Arizona and 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 E&P. Giant E&P sold substantially all of its assets in August 1996 and the stock of Giant E&P was sold in September 2000. 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 its acquisition by Giant Arizona in 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 the Chief Operating Officer of the Company since October 1989. Mr. Holliger joined Giant Arizona 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 the Chief Operating Officer of Giant Arizona. Mr. Holliger also has served as a director and the 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 to 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 on February 25, 1999. Jack W. Keller has served as the President of the Company's Phoenix Fuel Strategic Business Unit since its formation in February 1999. He also has served as the President of Phoenix Fuel since Phoenix Fuel was acquired by Giant Arizona in June 1997 and as Chief Operating Officer of Phoenix Fuel since May 1998. From 1989 to June 1997, Mr. Keller served in various senior management roles with Phoenix Fuel, including President from December 1996 to June 1997, 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. Miguel A. Foegal has served as Executive Vice President of the Company's Retail Group Strategic Business Unit and as Executive Vice President, Retail Group of Giant Arizona since May 2000. From March 1999 to May 2000, Mr. Foegal served as Senior Vice President, Retail Marketing for Giant Arizona. Mr. Foegal joined the Company as Vice President, Retail Marketing in February 1998. From January 1992 to February 1998, Mr. Foegal was a Regional Vice President for Circle K/Tosco Marketing Co. where he was responsible for convenience and gas stores in the western United States. 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 June 1997, when it was acquired by Giant Arizona, Mr. Crow served as the Vice President of Operations for Phoenix Fuel. Following the acquisition, Mr. Crow served as Vice President of Operations until December 1997. 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 and Secretary of the Company and Giant Arizona since December 1998 and General Counsel of the Company and Giant Arizona since May 2000. From December 1998 to May 2000, Mr. Bullerdick also was Legal Department Director of the Company and Giant Arizona. 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 June 1997 when it was acquired by Giant Arizona, Mr. Dalke served as Chief Financial Officer of Phoenix Fuel. From January 1997 to June 1997, Mr. Dalke also was Vice President of Phoenix Fuel. Following the acquisition, Mr. Dalke was Vice President and Chief Financial Officer of Phoenix Fuel from June 1997 to July 1998, and from June 1997 to September 1998, he also was Treasurer of Phoenix Fuel. 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, 2000 7 7/16 5 1/8 September 30, 2000 8 5 3/16 June 30, 2000 9 11/16 7 5/8 March 31, 2000 10 1/2 7 5/8 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 During 2000 and 1999, the Company's Board of Directors declared no cash dividends on common stock. 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 Bank One Trust Company (fka NBD Bank), 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, 2000, retained earnings available for dividends under the most restrictive terms of the Indentures were approximately $2,900,000. 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 246 holders of record of Common Stock on March 16, 2001. 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:
FINANCIAL AND OPERATING HIGHLIGHTS (IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OPERATING DATA) Year Ended December 31, - --------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- FINANCIAL STATEMENT DATA Net Revenues $1,074,362 $782,683 $642,504 $657,278 $499,184 Operating Income 33,759 37,397 19,907 41,106 39,730 Net Earnings (Loss) 7,289 10,778 (2,217) 15,294 17,051 Earnings (Loss) Per Common Share - Basic $ 0.79 $ 1.01 $ (0.20) $ 1.38 $ 1.52 Earnings (Loss) Per Common Share - Diluted $ 0.79 $ 1.01 $ (0.20) $ 1.37 $ 1.50 Weighted Average Common Shares Outstanding - Basic 9,214 10,679 10,951 11,051 11,220 Weighted Average Common Shares Outstanding - Diluted 9,223 10,719 10,951 11,175 11,336 Dividends Paid Per Common Share $ - $ - $ 0.20 $ 0.20 $ 0.20 Working Capital $ 54,494 $ 49,396 $ 89,104 $111,725 $ 21,541 Total Assets 528,565 546,799 527,414 535,371 324,007 Long-Term Debt 258,009 258,272 282,484 275,557 113,081 Stockholders' Equity 127,703 132,462 127,702 133,467 122,124 Long-Term Debt as a Percentage of Total Capitalization 66.9% 66.1% 68.9% 67.4% 48.1% Book Value Per Common Share $ 14.27 $ 12.86 $ 11.78 $ 12.14 $ 11.00 Return on Average Stockholders' Equity 5.6% 8.3% - 12.0% 14.7% OPERATING DATA(1) REFINING GROUP: Rated Crude Oil Capacity Utilized(2) 80% 87% 88% 92% 95% Refinery Sourced Sales Barrels (Bbls/Day) 34,287 37,368 37,898 39,037 38,814 Average Crude Oil Costs ($/Bbl) $ 29.26 $ 17.64 $ 14.29 $ 20.60 $ 21.80 Refinery Margin ($/Bbl) $ 7.63 $ 6.89 $ 4.83 $ 6.39 $ 6.21 RETAIL GROUP: SERVICE STATIONS: Fuel Gallons Sold (In Thousands) 208,125 211,873 184,375 125,219 87,499 Product Margin ($/Gallon) $ 0.168 $ 0.179 $ 0.206 $ 0.213 $ 0.201 Merchandise Sold ($ In Thousands) $ 131,825 $111,603 $ 95,496 $ 67,601 $ 42,037 Merchandise Margin 28% 28% 30% 30% 30% Number of Outlets at Year End 179 172 166 148 52 TRAVEL CENTER: Fuel Gallons Sold (In Thousands) 26,698 27,991 24,950 19,434 18,298 Product Margin ($/Gallon) $ 0.104 $ 0.111 $ 0.111 $ 0.111 $ 0.104 Merchandise Sold ($ In Thousands) $ 6,719 $ 7,291 $ 7,331 $ 7,382 $ 7,092 Merchandise Margin 46% 45% 45% 44% 46% Number of Outlets at Year End 1 1 1 1 1 Retail Fuel Volumes Sold as a % of Refinery Sourced Sales Barrels 45% 42% 36% 24% 18% PHOENIX FUEL: Fuel Gallons Sold (In Thousands) 424,290 351,949 314,763 172,121 Product Margin ($/Gallon) $ 0.052 $ 0.064 $ 0.067 $ 0.075 Lubricant Sales ($ In Thousands) $ 24,210 $ 22,067 $ 22,517 $ 12,923 Lubricant Margin 16% 15% 14% 14% - ---------------------------------------------------------------------------------------------------------------
(1) Operating data includes the operations of 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. (2) Prior year percentages have been restated to reflect the calculation of rated crude oil capacity on a calendar day basis as was used for 2000. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 - --------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES - ---------------------------- For the year ended December 31, 2000, earnings before income taxes were $11,337,000, a decrease of $5,119,000 from earnings before income taxes of $16,456,000 for the year ended December 31, 1999. The decrease was primarily due to higher operating expenses, including depreciation and amortization; an 8% decline in refinery sourced finished product sales volumes, due in part to reduced crude oil production in the Four Corners area, competitive conditions and, in the first quarter of 2000, to customers using inventory they had stored at the end of 1999 in anticipation of potential Y2K problems; a 7% decline in retail fuel margins; and a 19% decline in Phoenix Fuel finished product margins. These decreases were offset in part by an 11% increase in refinery margins, due in part to a reduction in crude oil costs resulting from contract negotiations with suppliers; a 17% increase in retail merchandise sales with relatively flat margins year-to-year; a reduction in selling, general and administrative expenses ("SG&A"); and a 5% increase in wholesale fuel volumes sold by Phoenix Fuel to third party customers. In addition, 1999 earnings were reduced as the result of the write-off of $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, 2000, increased approximately $291,679,000 or 37% to $1,074,362,000 from $782,683,000 in the comparable 1999 period. The increase was due to, among other things, a 48% increase in refinery weighted average selling prices; a 41% increase in Phoenix Fuel weighted average selling prices, along with a 5% increase in wholesale fuel volumes sold to third party customers, due in part to increased diesel demand related to allocations and disruptions of natural gas supplies into Arizona primarily in the third quarter of 2000; and a 17% increase in retail merchandise sales. This increase was partially offset by an 8% decline in refinery sourced finished product sales volumes. The volumes of refined products sold through the Company's retail units decreased approximately 2% from 1999 levels. The volume of finished product sold from service station/convenience stores that were in operation for a full year in each period decreased approximately 3%, while volumes sold from the Company's travel center declined approximately 5%. These declines were offset in part by volumes sold from nine Company constructed and remodeled service station/convenience stores, opened in 1999 and 2000, that exceeded the volumes lost from the sale of 10 units during the same period. COST OF PRODUCTS SOLD - --------------------- For the year ended December 31, 2000, cost of products sold increased $291,062,000 or 51% to $858,588,000 from $567,526,000 in the comparable 1999 period. The increase is due in part to a 66% increase in average crude oil costs, despite negotiated supply cost reductions; a 45% increase in the cost of finished products purchased by Phoenix Fuel, along with a 5% increase in wholesale fuel volumes sold to third party customers; and a 17% increase in retail merchandise sales. This increase was partially offset by an 8% decline in refinery sourced finished product sales volumes. For the year 2000, certain lower cost Phoenix Fuel LIFO inventory layers were liquidated which resulted in a decrease in the cost of products sold of approximately $1,737,000. 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. OPERATING EXPENSES - ------------------ For the year ended December 31, 2000, operating expenses increased approximately $7,535,000 or 6% to $123,613,000 from $116,078,000 in the comparable 1999 period. The increase is due to, among other things, increased retail operating costs related to new service station/convenience stores opened or acquired in 1999 and 2000, including wages and related costs, and increased retail credit card processing fees resulting from an increase in the number of transactions, as well as the average dollar amount of each transaction due to higher fuel prices. There also were higher costs and increased volumes of purchased fuel for the refineries, along with higher expenditures for catalyst, chemicals and additives. These increases were offset in part by lower lease expenses due to the repurchase of 24 service station/convenience stores in the third and fourth quarters of 1999, which had originally been sold to FFCA Capital Holding Corporation ("FFCA") as part of a sale-leaseback transaction completed in December 1998. In addition, 2000 reflects reduced retail advertising costs, as well as reduced expenditures for other promotional programs. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 2000, depreciation and amortization increased approximately $2,450,000 or 8% to $33,579,000 from $31,129,000 in the comparable 1999 period. The increase is primarily related to newly acquired service station/convenience stores; construction, remodeling and upgrades in retail and refining operations during 1999 and 2000; the capitalization of the 1999 contingent payment related to the acquisition of the Bloomfield refinery; the amortization of refinery turnaround costs; and the repurchase of 24 service station/convenience stores sold as part of a sale-leaseback transaction between the Company and FFCA in December 1998. The increase was offset in part by reduced depreciation and amortization in 2000 resulting from the sale of certain natural gas properties that were being amortized in 1999 and the 1999 adjustment of the value of certain real estate assets held for sale. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the year ended December 31, 2000, SG&A decreased approximately $3,343,000 or 12% to $24,823,000 from $28,166,000 in the comparable 1999 period. The decrease is primarily due to a more normal contribution of $825,000 to the Company's Employee Stock Ownership Plan ("ESOP") in 2000, after a larger than normal $3,000,000 contribution in 1999; lower expenses for the estimated costs of incentive bonuses and accruals for other employee benefits made in 2000 as compared to 1999; and reduced costs related to a reorganization and staff reduction program implemented in the first quarter of 2000. The decrease was offset in part by severance pay costs incurred in 2000 relating to the reorganization and staff reduction program, certain strategic planning costs, and higher wages and related costs. In addition, 1999 costs were reduced because of 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, 2000, interest expense increased approximately $994,000 or 4% to $24,411,000 from $23,417,000 in the comparable 1999 period. The increase is due in part to additional interest expense related to borrowings from the Company's revolving credit facility in the first six months of 2000 and the capitalization of more interest in 1999. For the year ended December 31, 2000, interest and investment income decreased approximately $487,000 or 20% to $1,989,000 from $2,476,000 in the comparable 1999 period. The decrease is primarily due to a decline in the amount of funds available for investment in short-term instruments. INCOME TAXES - ------------ The effective tax rate for each of the years ended December 31, 2000 and 1999 was approximately 35%. These rates were somewhat lower than the Company's expected effective tax rate of between 39% and 40% because of coal seam gas tax and state pollution control credits utilized in 2000 and the resolution of various tax matters and deferred tax adjustments in 1999. OUTLOOK - ------- The regions and markets in which the Company operates continue to be affected by events and circumstances over which the Company has little or no control. Dramatic increases in crude oil, natural gas and refined product prices; industry consolidation through mergers and acquisitions; increased government regulation; tighter supply/demand balances for both raw materials and finished products; the building and expansion of product pipelines; power supply disruptions in California, which affected pipeline shipments of finished products into Arizona; and increased competition on both the wholesale and retail levels are all examples of such events and circumstances affecting the Company's operations. To meet these challenges the Company must anticipate and respond with short-term strategies while adhering to long-term plans. The Company's strategy is to profitably operate its refining, retail marketing and other marketing operations, 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 eliminate non-essential capital expenditures; to sell non-strategic assets and underperforming assets; to consider and evaluate related business opportunities, while protecting the value and integrity of the Company's core assets; and to explore various ways to create greater value for its stockholders. In March 2001, the Company completed an evaluation of its retail assets. The Company identified approximately 30 retail units that are non-strategic or are underperforming for possible sale, although the units had positive cash flow in 2000. During the second quarter of 2001, the Company will initiate an evaluation to determine the level of interest in the marketplace for potential sale of the assets. In the interim, the Company will continue to operate these units. There is no assurance that any of these units will be sold, as their sale is contingent upon, among other things, the receipt of acceptable offers. In 2001, the Company will benefit from reduced crude oil acquisition costs which resulted from the renegotiation of certain crude oil contracts in 2000. In addition, certain natural gas contracts for the purchase of fuel used in operating the refineries expire at the end of October 2001. The renewal of these contracts could be at higher rates than the current contracts and may result in higher purchased fuel costs starting in the fourth quarter of 2001. 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, 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 in the comparable 1998 period. 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 was 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 comparable 1998 period. The increase was 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 $12,871,000 or 12% to $116,078,000 from $103,207,000 in the comparable 1998 period. Forty-five percent of the increase was due to the Kaibab Acquisition. The remaining increase was primarily due to increased lease expenses related to the 1998 sale-leaseback transaction between the Company and 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 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 comparable 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, SG&A increased approximately $2,878,000 or 11% to $28,166,000 from $25,288,000 (including approximately $1,355,000 in costs written off in connection with the terminated merger with Holly Corporation) in the comparable 1998 period. The increase is primarily due to a larger than normal contribution of $3,000,000 to the Company's ESOP in 1999, with 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 1999 outside consulting costs, related in part to retail and corporate information system evaluations conducted in 1998, and reduced expenses in 1999 because of 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. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS - ------------------------- Operating cash flows decreased for the year ended December 31, 2000 compared to the year ended December 31, 1999 primarily as a result of a decrease in cash flows related to changes in operating assets and liabilities in each period, along with a decrease in net earnings in 2000. Net cash provided by operating activities totaled $29,492,000 for the year ended December 31, 2000, compared to $59,799,000 in the comparable 1999 period. WORKING CAPITAL - --------------- Working capital at December 31, 2000 consisted of current assets of $165,184,000 and current liabilities of $110,690,000, or a current ratio of 1.49:1. At December 31, 1999, the current ratio was 1.40:1 with current assets of $171,984,000 and current liabilities of $122,588,000. Current assets have decreased since December 31, 1999, primarily due to a decrease in cash and cash equivalents, other receivables and inventories. These decreases were offset in part by an increase in trade receivables. Other receivables have decreased primarily because of a reduction in California excise tax refunds receivable due to less activity and improved refund procedures. Inventories have decreased primarily due to a decrease in Phoenix Fuel refined product volumes and merchandise on hand, along with a decrease in certain refining and retail refined product volumes. These decreases were offset in part by increases in pipeline crude oil volumes, increased finished product terminal volumes and increases in crude oil and finished product prices. Trade receivables have increased primarily due to an increase in finished product selling prices and increased Phoenix Fuel volumes sold. These increases are offset in part by a decrease in refining and product trading sales volumes, reduced raw material supply exchange activity and a reduction in retail consignment sale activity. Current liabilities have decreased due to a decrease in accounts payable and accrued expenses. Accounts payable have decreased primarily as a result of a reduction in certain refinery crude oil purchases and Phoenix Fuel finished product purchases. These decreases were offset in part by an increase in the cost of certain raw materials and finished products, along with two months of natural gas liquids purchases included in accounts payable at December 31, 2000, due to the timing of year end payments. Accrued expenses have decreased primarily as a result of lower accruals for federal and state excise taxes, and reduced accruals for management incentive and other bonuses. These decreases were offset in part by increased accruals for refinery natural gas purchases and payroll and related costs. CAPITAL EXPENDITURES AND RESOURCES - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment totaled approximately $22,455,000 for the year ended December 31, 2000. Expenditures included amounts for, among other things, the assignment of certain leases/subleases to the Company associated with nine service station/convenience stores located on the Navajo and Zuni Indian Reservations; the acquisition of an interest in five service station/ convenience stores located on the Navajo Indian Reservation; certain maintenance turnaround costs, and operational and environmental projects for the refineries; construction, remodeling and upgrade of retail operations; and the acquisition of customer loaned equipment and construction costs related to the remodeling of a cardlock location for Phoenix Fuel. The Company received proceeds of approximately $4,473,000 from the sale of property, plant and equipment and other assets in 2000, primarily from the sale of eight service station/convenience stores and certain natural gas properties. The Company has entered into a non-binding letter of intent with Western Refining Company ("Western"), a Dallas, Texas based company, and RHC Holdings, L.P. ("Holdings"), a Texas Limited Partnership, of which Western is the General Partner. In 2000, Western and Holdings acquired all of the issued and outstanding limited partnership interest of Refinery Holding Company, L.P. ("RHC"), a Delaware limited partnership, which owns certain refining assets in El Paso, Texas. RHC was in negotiations with Chevron to purchase Chevron's El Paso refining assets and certain related crude oil pipeline assets. Pursuant to the letter of intent, the Company was working to acquire an interest in both refineries or in the entity that may ultimately own or operate them. This transaction is currently on hold, as after the announced merger of Chevron and Texaco Refining Company, Chevron notified RHC that it was discontinuing its negotiations with RHC. The Company does not know whether the merged companies will reopen negotiations with RHC in the future or whether the previously contemplated transactions will be undertaken if the negotiations are reopened. In October 1995, the Company completed the purchase of the Bloomfield refinery. The purchase agreement provided for potential contingent payments of approximately $35,000,000 to be made over approximately six years from the acquisition date, not to exceed a net present value of $25,000,000 as of October 1995, should certain criteria be met. In 2000, the Company made a contingent payment of $5,442,000, accrued in 1999, related to this acquisition. An additional contingent payment of $5,200,000 was accrued in the fourth quarter of 2000 and will be paid in 2001. The contingent payments are considered additional purchase price and are allocated to the appropriate assets and are amortized over their remaining useful lives. The payment to be made in 2001 will be the last payment required under the purchase agreement. The Company has budgeted approximately $24,000,000 for capital expenditures in 2001, excluding any potential acquisitions and the Bloomfield contingent payment. Of this amount, approximately $2,500,000 is for the completion of projects that were started in 2000. In addition, approximately $14,400,000 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, including approximately $5,000,000 for a major turnaround at the Bloomfield refinery, and asset conversions and upgrades for the retail operations. Another $2,800,000 is budgeted 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 being considered include construction and technology enhancements for various cardlock locations and the purchase of customer loaned equipment for Phoenix Fuel, and facility upgrades at the refineries and existing retail units. The remaining budget of $4,300,000 is for capital expenditure contingencies. 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 2001 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 budgeted 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 $1,100,000, $900,000 and $3,700,000 were spent in 2000, 1999 and 1998, respectively, and that approximately $1,700,000 will be spent in 2001. 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. The Company anticipates that 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, 2000 and December 31, 1999, the Company's long-term debt was 66.9% and 66.1% of total capital, respectively, and the Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 64.4% and 63.0%, 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, 2000, the Company was in compliance with the restrictive covenants relating to these Notes and approximately $2,900,000 was available for Restricted Payments, which the Notes define as, among other things: (i) the payment of dividends, (ii) the repurchase of the Company's common stock, (iii) the payment of principal in connection with certain types of indebtedness prior to their scheduled maturity, and (iv) certain types of investments. 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 $50,124,000. 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. 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 at December 31, 2000 of approximately $60,442,000 is being charged to expense on the straight-line method over the remaining 13-year term of the lease at the rate of approximately $4,524,000 per year. At December 31, 2000 and 1999, the Company had recorded a deferred credit of approximately $1,628,000 and $837,000, respectively, to reflect the excess of rent expense over cash payments made. The Company has a $65,000,000 secured Credit Agreement (the "Credit Agreement") that expires 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. The Credit Agreement allows the Company 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, 2000, the availability of funds under the Credit Agreement was $65,000,000. There were no direct borrowings outstanding under this facility at December 31, 2000, and there were approximately $2,347,000 of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. At December 31, 1999 and February 28, 2001 there were no direct borrowings outstanding under this facility. The interest rate applicable to the Credit Agreement is tied to various short-term indices. At December 31, 2000, this rate was approximately 7 1/4% 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, 2000, 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 is currently in discussions with a group of banks to replace the current secured Credit Agreement. 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. During 2000, the Company repurchased 202,566 shares of its common stock under this program. Of this amount, 129,466 shares were acquired from its Chairman and Chief Executive Officer at a weighted average price of approximately $6.93 per share, which was the approximate average of the low price of the Company's common stock on the dates of the Board of Directors resolutions authorizing the transactions. The remaining 73,100 shares were purchased on the open market for approximately $7.15 per share. From the inception of the stock repurchase program the Company has repurchased 2,165,266 shares for approximately $22,042,000, resulting in a weighted average cost of $10.18 per share. The repurchased shares are treated as treasury shares. Shares repurchased under the Company's program 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. As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, the Company filed a Schedule 13E-4 Issuer Tender Offer Statement with the Securities and Exchange Commission on December 21, 1999, 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, at a cost of approximately $10,525,000 plus expenses of approximately $213,000 on February 8, 2000. These repurchased shares are treated as treasury shares. The Company's Board of Directors did not declare any cash dividends on common stock for the year ended December 31, 2000. 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. 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, 2000, was approximately $418,000. 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 may fluctuate. At December 31, 2000, however, there were no direct borrowings outstanding under this Credit Agreement. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("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 deferred the effective date of SFAS No. 133 by one year to give companies more time to study, understand and implement the provisions of SFAS No. 133 and to complete information system modifications. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to SFAS No. 133." SFAS No. 138 expands and clarifies certain provisions of SFAS No. 133 and was adopted by the Company concurrently with SFAS No. 133 on January 1, 2001. SFAS No. 133, as amended, 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 (i) hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (ii) hedge of the exposure to variable cash flows of a forecasted transaction, or (iii) 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 has performed a contract review and except as described below, believes these contracts do not qualify as derivatives or contain embedded derivatives as defined in SFAS No. 133, as amended by SFAS No. 138. Accordingly, there will be no earnings effect upon adoption January 1, 2001. 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. The Company from time to time speculates in the purchasing and selling of crude oil and finished products and may enter into futures, options and wet barrel contracts to speculate on price fluctuations in these commodities. These activities are transacted in accordance with policies established by the Company, 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. As of December 31, 2000, the Company had open put option and futures contracts for the purchase or sale of 285,000 barrels of heating oil or crude oil. These open put option and futures contracts relate to specific speculative strategies entered into with the expectation of profiting from favorable price movements. These contracts are marked-to-market monthly and any gains or losses recorded in cost of sales. At December 31, 2000, a net loss of approximately $275,000 had been recorded relating to these contracts. In addition, at December 31, 2000, the Company had entered into a contract for the purchase of 25,000 barrels of CARB Phase II unleaded regular gasoline for delivery in January 2001 in Los Angeles. This contract is part of the Company's speculative wet barrel trading activities, and would be considered a derivative instrument under SFAS No. 133, as amended by SFAS No. 138. This contract was marked-to-market at December 31, 2000 and a gain of approximately $73,500 was recorded in cost of sales. At December 31, 2000, the Company had no hedging strategies in place as defined in SFAS No. 133, as amended by SFAS No. 138. In 1998, the Company entered into a $5,000,000 loan with its Chairman and Chief Executive Officer ("CCEO"). The principal amount of the loan, as well as all interest accruing after March 28, 2001, is due and payable on March 28, 2003. The loan is secured by: (i) a pledge by an entity owned by the CCEO (the "LLC") of a 49% equity interest in an entity that owns certain real property in north Scottsdale, Arizona (the "Real Property"), and (ii) a pledge by the CCEO of all of his equity interest in the LLC. The Company is aware of prior liens on the Real Property, as well as on certain of the collateral pledged to the Company, that relate to loans entered into by the LLC. Although the Company currently believes the pledges securing the loan will enable the Company to recover the amounts due and owing from the CCEO under the terms of the loan, should the LLC not continue to service the first lien holder debt when due or should other adverse circumstances arise, a reduction of the ultimate amounts collectable could result. For a further discussion of this loan see Note 5 to the Company's Consolidated Financial Statements. 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 that may be available to the Company and changing environmental laws and interpretations of environmental laws. For a further discussion of health and environmental matters affecting the Company's operations, see the discussion of such matters contained in Items 1 and 2 hereof under the heading "Regulatory, Environmental and Other Matters." 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: (i) the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company, (ii) the acquisition or modification of permits applicable to Company activities, and (iii) the initiation or modification of cleanup activities. As of December 31, 2000, the Company had an environmental liability accrual of approximately $2,200,000. Approximately $1,900,000 of this accrual is for the following projects, all of which are referred to in Items 1 and 2 hereof under the heading "Regulatory, Environmental and Other Matters": (i) closure of the Ciniza refinery land treatment facility, including post- closure expenses, (ii) the remediation of the hydrocarbon plume that appears to extend no more than 1,800 feet south of the Company's inactive Farmington refinery, (iii) environmental obligations assumed in connection with the acquisition of the Bloomfield refinery, and (iv) hydrocarbon contamination on and adjacent to the 5.5 acres that the Company owns in Bloomfield, New Mexico. The remaining amount of the accrual relates to the closure of certain solid waste management units at the Ciniza refinery, which is being conducted in accordance with the refinery's Resource Conservation and Recovery Act permit. The accrual balance reflects a reduction in amounts accrued for environmental obligations assumed in connection with the acquisition of the Bloomfield refinery and increases in reserves for other environmental projects. The 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. A number of tax assessments from the Navajo Tribe relating to Company operations outside of the Navajo Indian Reservation in an area of disputed jurisdiction were resolved in the first quarter of 2001. The Company intends to continue purchasing activities in areas of disputed jurisdiction. The Company may receive further tax assessments in the future. For a further discussion of Navajo tax notifications and assessments, see the discussion of taxes contained in Items 1 and 2 hereof under the heading "Regulatory, Environmental and Other Matters." The Company's refineries primarily process a mixture of high gravity, low sulfur crude oil, condensate and NGLs. The locally produced, high quality crude oil known as Four Corners Sweet is the primary feedstock for the refineries. The Company's current receipts and projections of Four Corners crude oil production indicate that the Company's crude oil demand will exceed the crude oil supply that is available from local sources for 2001. The Company has decreased, and may from time to time in the future decrease, production runs at its refineries from levels it would otherwise schedule as a result of shortfalls in Four Corners crude oil production. For a further discussion of raw material supply for the Company's refineries, see the discussion contained in Items 1 and 2 hereof under the heading "Raw Material Supply." In late 1999, an existing NGLs pipeline was converted to a refined products pipeline. This converted line originates in Southeastern New Mexico and delivers refined products into Albuquerque, New Mexico and the Four Corners area. A diesel fuel terminal near Albuquerque associated with this project has been completed and a terminal expansion to include gasoline and jet fuel is expected to be completed by spring 2001. In addition, 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. 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. It also could result in new opportunities for the Company, as the Company is a net purchaser of refined products in some of these areas. For a further discussion of the potential impact of pipeline projects on the Company's operations, as well as other competitive factors affecting these operations, see the discussion of competitive factors contained in Items 1 and 2 hereof under the heading "Competitive Conditions." "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; declines in production of Four Corners sweet crude oil; risks associated with non-compliance with certain debt covenants or the satisfaction of financial ratios contained in such covenants; the risk that the Company may not be able to replace its current Credit Agreement on terms favorable to the Company; the adequacy of the Company's reserves, including its reserves for environmental and tax matters; 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 in connection with various legal proceedings; the Company's ability to recover tax payments from third parties; the Company's ability to resolve alleged legal violations without the assessment of additional fines or penalties; 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 reduce operating expenses and non-essential capital expenditures; the risk that the Company will not be able to sell non- strategic and underperforming assets on terms favorable to the Company; the risk that the CCEO will not be able to pay amounts that become due and payable to the Company under the terms of the Company's outstanding $5,000,000 loan to the CCEO; the risk that the LLC will not be able to service the first lien holder debt when due; the risk that adverse circumstances may occur that prevent the Company from recovering amounts that may become due and payable under the $5,000,000 loan; the risk that the Company will not be able to obtain replacement natural gas supplies on terms favorable to the Company; 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 judgment 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. 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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Phoenix, Arizona March 21, 2001
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, - ------------------------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2000 1999 - ------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 26,618 $ 32,945 Receivables: Trade, less allowance for doubtful accounts of $356 and $591 69,215 62,076 Income tax refunds 741 1,495 Other 5,591 10,429 - ------------------------------------------------------------------------------------------------ 75,547 74,000 - ------------------------------------------------------------------------------------------------ Inventories 56,607 58,240 Prepaid expenses and other 3,659 4,097 Deferred income taxes 2,753 2,702 - ------------------------------------------------------------------------------------------------ Total current assets 165,184 171,984 - ------------------------------------------------------------------------------------------------ Property, plant and equipment 508,384 485,181 Less accumulated depreciation and amortization (192,234) (161,983) - ------------------------------------------------------------------------------------------------ 316,150 323,198 - ------------------------------------------------------------------------------------------------ Goodwill, less accumulated amortization of $4,292 and $3,223 20,806 21,819 Other assets 26,425 29,798 - ------------------------------------------------------------------------------------------------ $ 528,565 $ 546,799 ================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 213 $ 297 Accounts payable 66,461 76,833 Accrued expenses 44,016 45,458 - ------------------------------------------------------------------------------------------------ Total current liabilities 110,690 122,588 - ------------------------------------------------------------------------------------------------ Long-term debt, net of current portion 258,009 258,272 Deferred income taxes 27,621 28,002 Other liabilities and deferred income 4,542 5,475 Commitments and contingencies (Notes 3, 9, 10, 12, 13, 14 and 15) 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, 12,282,688 and 12,266,188 shares issued 122 122 Additional paid-in capital 73,099 72,990 Retained earnings 87,262 79,973 - ------------------------------------------------------------------------------------------------ 160,483 153,085 Less common stock in treasury - at cost, 3,334,680 and 1,962,700 shares (32,780) (20,623) - ------------------------------------------------------------------------------------------------ Total stockholders' equity 127,703 132,462 - ------------------------------------------------------------------------------------------------ $ 528,565 $ 546,799 ================================================================================================ The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ Net revenues $1,074,362 $ 782,683 $ 642,504 Cost of products sold 858,588 567,526 464,936 - ------------------------------------------------------------------------------------------------ Gross margin 215,774 215,157 177,568 Operating expenses 123,613 116,078 103,207 Depreciation and amortization 33,579 31,129 29,166 Selling, general and administrative expenses 24,823 28,166 25,288 Loss on the write-off of assets - 2,387 - - ------------------------------------------------------------------------------------------------ Operating income 33,759 37,397 19,907 Interest expense (24,411) (23,417) (25,464) Interest and investment income 1,989 2,476 1,831 - ------------------------------------------------------------------------------------------------ Earnings (loss) before income taxes 11,337 16,456 (3,726) Provision (benefit) for income taxes 4,048 5,678 (1,509) - ------------------------------------------------------------------------------------------------ Net earnings (loss) $ 7,289 $ 10,778 $ (2,217) ================================================================================================ Earnings (loss) per common share: Basic $ 0.79 $ 1.01 $ (0.20) ================================================================================================ Assuming dilution $ 0.79 $ 1.01 $ (0.20) ================================================================================================ The accompanying notes are an integral part of these consolidated financial statements.
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) Balances, January 1, 1998 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 Purchase of treasury stock - - - - 1,371,980 (12,157) (12,157) Stock options exercised 16,500 - 109 - - - 109 Net earnings - - - 7,289 - - 7,289 - ---------------------------------------------------------------------------------------------------------- Balances, December 31, 2000 12,282,688 $122 $73,099 $87,262 3,334,680 $(32,780) $127,703 ========================================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------ (IN THOUSANDS) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings (loss) $ 7,289 $ 10,778 $ (2,217) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 33,579 31,129 29,166 Deferred income taxes (432) 5,132 (2,920) Deferred lease expense 791 837 - Loss on disposal of assets - 2,181 152 Other (806) (782) 293 Changes in operating assets and liabilities: Decrease (increase) in receivables (1,110) (23,478) 7,028 Decrease (increase) in inventories 1,640 (6,685) 5,811 Decrease (increase) in prepaid expenses and other 479 1,209 (867) (Decrease) increase in accounts payable (10,372) 33,930 (12,596) (Decrease) increase in accrued expenses (1,566) 5,548 3,042 - ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 29,492 59,799 26,892 - ------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Acquisition of businesses, net of cash received - - (38,205) Purchases of property, plant and equipment and other assets (22,455) (46,361) (60,320) Refinery acquisition contingent payment (5,442) (7,289) (7,243) Proceeds from sale-leaseback transaction - - 50,124 Proceeds from sale of property, plant and equipment and other assets 4,473 2,288 3,816 Investment in note receivable - - (5,000) - ------------------------------------------------------------------------------------------------------ Net cash used by investing activities (23,424) (51,362) (56,828) - ------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds of long-term debt 68,000 - 46,000 Payments of long-term debt (68,347) (25,115) (38,435) Purchase of treasury stock (12,157) (6,113) (1,900) Deferred financing costs - (56) (425) Payment of dividends - - (2,199) Proceeds from exercise of stock options 109 95 - - ------------------------------------------------------------------------------------------------------ Net cash (used) provided by financing activities (12,395) (31,189) 3,041 - ------------------------------------------------------------------------------------------------------ Net decrease in cash and cash equivalents (6,327) (22,752) (26,895) Cash and cash equivalents: Beginning of year 32,945 55,697 82,592 - ------------------------------------------------------------------------------------------------------ End of year $ 26,618 $ 32,945 $ 55,697 ====================================================================================================== Significant Noncash Investing and Financing Activities. During 2000, approximately $5,200,000 was incurred as a contingent payment related to the 1995 acquisition of the Bloomfield refinery. During 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 $10,692,000 was incurred as a contingent payment related to the 1995 acquisition of the Bloomfield refinery, of which $5,250,000 was paid in 1999 and $5,442,000 in 2000. 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. The accompanying notes are an integral part of these consolidated financial statements.
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 area 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. The Bloomfield refinery, with a crude oil throughput capacity of 16,000 bpd and a total capacity including natural gas liquids of 16,600 bpd, is located in Bloomfield, New Mexico. At December 31, 2000, the Company owned and/or operated 179 retail service station/convenience stores and a travel center. These operations sell various grades of gasoline, diesel fuel, general merchandise and food products 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 a 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 accounting principles generally accepted in the United States of America, 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 those 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, options and wet barrel contracts to speculate on price fluctuations in these commodities. These activities are transacted in accordance with policies established by the Company, 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. See the discussion of New Accounting Pronouncements below. 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 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, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", 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 2000, the Company had repurchased 2,165,266 shares under this program at a cost of approximately $22,042,000. 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 information becomes available or as circumstances change (See Note 15). 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, 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 deferred 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. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to SFAS No. 133." SFAS No. 138 expands and clarifies certain provisions of SFAS No. 133 and was adopted by the Company concurrently with SFAS No. 133 on January 1, 2001. SFAS No. 133, as amended, 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 (i) hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (ii) hedge of the exposure to variable cash flows of a forecasted transaction, or (iii) 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 has performed a contract review and except as described below, believes these contracts do not qualify as derivatives or contain embedded derivatives as defined in SFAS No. 133, as amended by SFAS No. 138. Accordingly there will be no earnings effect upon adoption January 1, 2001. As of December 31, 2000, the Company had open put option and futures contracts for the purchase or sale of 285,000 barrels of heating oil or crude oil. These open put option and futures contracts relate to specific speculative strategies entered into with the expectation of profiting from favorable price movements. These contracts are marked-to-market monthly and any gains or losses recorded in cost of sales. At December 31, 2000, a net loss of approximately $275,000 had been recorded relating to these contracts. In addition, at December 31, 2000, the Company had entered into a contract for the purchase of 25,000 barrels of CARB Phase II unleaded regular gasoline for delivery in January 2001 in Los Angeles. This contract is part of the Company's speculative wet barrel trading activities, and would be considered a derivative instrument under SFAS No. 133, as amended by SFAS No. 138. This contract was marked-to-market at December 31, 2000 and a gain of approximately $73,500 was recorded in cost of sales. At December 31, 2000, the Company had no hedging strategies in place as defined in SFAS No. 133, as amended by SFAS No. 138. 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. 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. In addition, finished products are acquired through exchange agreements, from third party suppliers and from Phoenix Fuel. 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 or 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 $16,874,000, $20,278,000, and $18,582,000 for 2000, 1999 and 1998, 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 reflects 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. Disclosures regarding the Company's reportable segments with reconciliations to consolidated totals are presented below.
As of and for the Year Ended December 31, 2000 (In thousands) - ---------------------------------------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ---------------------------------------------------------------------------------------------- Customer net revenues $289,684 $421,339 $362,972 $ 367 $ - $1,074,362 Intersegment net revenues 228,488 - 80,252 - (308,740) - - ---------------------------------------------------------------------------------------------- Total net revenues $518,172 $421,339 $443,224 $ 367 $(308,740) $1,074,362 - ---------------------------------------------------------------------------------------------- Operating income (loss) $ 45,790 $ 31 $ 7,275 $(19,337) $ - $ 33,759 Interest expense (24,411) Interest income 1,989 - ---------------------------------------------------------------------------------------------- Earnings before income taxes $ 11,337 - ---------------------------------------------------------------------------------------------- Depreciation and amortization $ 17,138 $ 11,528 $ 2,554 $ 2,359 $ - $ 33,579 Total assets $244,947 $148,992 $ 82,084 $ 52,542 $ - $ 528,565 Capital expenditures $ 6,850 $ 13,470 $ 1,413 $ 722 $ - $ 22,455
As of and for the Year Ended December 31, 1999 (In thousands) - ---------------------------------------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ---------------------------------------------------------------------------------------------- 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) $ 51,323 $ 3,790 $ 8,549 $(23,878) $ (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
As of and for the Year Ended December 31, 1998 (In thousands) - ----------------------------------------------------------------------------------------------- Refining Retail Phoenix Reconciling Group Group Fuel Other Items Consolidated - ---------------------------------------------------------------------------------------------- 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
NOTE 3-ACQUISITIONS AND DISPOSITIONS: 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. 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 at December 31, 2000 of approximately $60,442,000 is being charged to expense on the straight-line method over the remaining 13-year term of the lease at the rate of approximately $4,524,000 per year. At December 31, 2000 and 1999, the Company had recorded a deferred credit of approximately $1,628,000 and $837,000, respectively, 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, 2000 and 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 $50,124,000. 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 13 years. The deferred gain is reflected in "Other Liabilities and Deferred Income" in the Company's Consolidated Balance Sheets at December 31, 2000 and 1999. In accordance with the Indentures supporting the Company's $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", 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 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 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 provided 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 2000, the Company accrued $5,200,000 in accordance with the purchase agreement relating to 2000 operations. This amount will be paid in 2001 and represents the final amount due under the purchase agreement. For 1999, the Company paid approximately $5,250,000 and had accrued an additional $5,442,000 at December 31, 1999, relating to 1999 operations. At December 31, 1998 the Company had accrued $2,039,000 relating to 1998 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. 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:
Year Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Per Per Per Earnings Shares Share Earnings Shares Share Loss Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount - ----------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per common share - basic: Earnings (loss) $7,289,000 9,214,470 $0.79 $10,778,000 10,678,773 $1.01 $(2,217,000) 10,950,991 $(0.20) Effect of dilutive stock options 8,950 40,084 * - ----------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per common share - assuming dilution: Earnings (loss) $7,289,000 9,223,420 $0.79 $10,778,000 10,718,857 $1.01 $(2,217,000) 10,950,991 $(0.20) =================================================================================================================================== *The additional shares would be antidilutive due to the net loss.
There were no transactions subsequent to December 31, 2000, that if the transactions had occurred before December 31, 2000, would materially change the number of common shares or potential common shares outstanding as of December 31, 2000. NOTE 5-RELATED PARTY TRANSACTIONS: During the year ended December 31, 1998, the Company loaned $4,000,000 to its Chairman and Chief Executive Officer ("CCEO"), which was increased to $5,000,000 later in the year. 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 made on February 28, 1999 for interest due through December 31, 1998. Subsequent interest was due and payable semi-annually on June 30 and December 31 of each year until February 28, 2001, at which time all outstanding principal and interest was due and payable. On March 1, 2000, the terms of the loan were revised so that all principal and interest, including interest that would otherwise have been payable at December 31, 1999, was due and payable on February 28, 2001, and the loan became secured by a pledge, by an entity owned by the CCEO (the "LLC"), of a 49% equity interest in an entity that owns certain real property in north Scottsdale, Arizona (the "Real Property"). On February 28, 2001, the Company's Board of Directors approved a further modification of the terms of the loan, extending the loan's maturity date to March 28, 2001 in recognition of the fact that the Company's purchase of the Jomax Property discussed below had not closed. On March 21, 2001, the Board approved an additional two-year extension of the loan's maturity date, making all principal and interest due and payable on March 28, 2003. This extension was conditioned upon, among other things, the CCEO's payment of all interest due and payable through March 28, 2001. In return for the extension of the loan, the CCEO provided additional security for the loan by pledging all of his equity interest in the LLC. The Company is aware of prior liens on the Real Property, as well as on certain of the collateral pledged to the Company, that relate to loans entered into by the LLC. Although the Company currently believes the pledges securing the loan will enable the Company to recover the amounts due and owing from the CCEO under the terms of the loan, should the LLC not continue to service the first lien holder debt when due or should other adverse circumstances arise, a reduction of the ultimate amounts collectable could result. As of December 31, 2000 and 1999, accrued interest outstanding under the loan was $809,892 and $270,939, respectively. The loan and associated accrued interest is included in "Other Assets" in the Company's Consolidated Balance Sheets at December 31, 2000 and 1999. On January 25, 2001, the Board accepted an offer from the CCEO, on behalf of a trust of which the CCEO is the beneficiary, to sell a parcel of land (the "Jomax Property") to the Company, or to a company affiliated with the Company, for the lesser of $5,000,000 or the Jomax Property's appraised value. The Jomax Property was subsequently sold to the Company for $5,000,000. A portion of the proceeds from the sale were used by the CCEO to pay all interest due and payable on March 28, 2001 under the terms of the Company's outstanding loan to the CCEO, which is described above. The trust has an option, exercisable for a period of two years, to repurchase the property at the greater of the amount paid by the Company to purchase the property and the property's appraised value. The trust also has a right of first refusal, exercisable for a period of two years, to repurchase the property on the same terms as contained in a bona fide offer from a bona fide purchaser. This right must be exercised by the trust within three business days after receipt of written notice of the offer from the Company. During 2000, the Company repurchased 129,466 shares of its common stock under its stock repurchase program from its CCEO for approximately $897,000 or $6.93 per share, which was the approximate average of the low price of the Company's common stock on the dates of the Board of Directors resolutions authorizing the transactions. All of the repurchased shares are treated as treasury shares. In addition, the Company's Board of Directors authorized the purchase of artwork from the CCEO for display at the Company's headquarters building. The artwork was purchased at its appraised value of approximately $450,000. A substantial portion of the artwork had been displayed in the Company's corporate office for up to ten years without charge to the Company. The Company is in the process of purchasing additional artwork from its CCEO for display in the corporate headquarters building. The proceeds of that transaction will be used by the CCEO to pay balances due on certain amounts owed to Giant Arizona by the CCEO and by entities controlled by the CCEO. The artwork will be purchased at its appraised value, which the Company anticipates will be approximately $165,000. During 1999, the Company repurchased 440,000 shares of its common stock under its stock repurchase program from its CCEO 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. All of the foregoing transactions were reviewed and approved by the Company's Board of Directors. NOTE 6-INVENTORIES: Inventories consist of the following:
DECEMBER 31, - ---------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 - ---------------------------------------------------------------------------- First-in, first-out ("FIFO") method: Crude oil $17,420 $11,550 Refined products 24,679 26,632 Refinery and shop supplies 10,829 10,502 Merchandise 3,882 4,897 Retail method: Merchandise 8,737 8,809 - ---------------------------------------------------------------------------- Subtotal 65,547 62,390 Adjustment for last-in, first-out ("LIFO") method (8,940) (4,150) - ---------------------------------------------------------------------------- Total $56,607 $58,240 ============================================================================
The portion of inventories valued on a LIFO basis totaled $28,319,000 and $32,435,000 at December 31, 2000 and 1999, 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, 2000, 1999 and 1998, net earnings and diluted earnings per share for the years ended December 31, 2000, 1999 and 1998 would have been higher (lower) by $2,935,000 and $0.32, $4,408,000 and $0.41, and $(1,205,000) and $(0.11), respectively. For the year 2000, certain lower cost Phoenix Fuel LIFO inventory layers were liquidated resulting in an increase in 2000 earnings of approximately $1,042,000 or $0.11 per share. For the year 1999, certain higher cost refinery LIFO inventory layers were liquidated resulting in a reduction of 1999 earnings of approximately $1,531,000 or $0.14 per share. NOTE 7-PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost, consist of the following:
DECEMBER 31, - ---------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 - ---------------------------------------------------------------------------- Land and improvements $ 31,681 $ 30,722 Buildings and improvements 123,941 113,469 Machinery and equipment 291,250 271,045 Pipelines 10,761 10,195 Furniture and fixtures 25,822 25,577 Vehicles 8,503 8,774 Construction in progress 16,426 25,399 - ---------------------------------------------------------------------------- Subtotal 508,384 485,181 Accumulated depreciation and amortization (192,234) (161,983) - ---------------------------------------------------------------------------- Total $ 316,150 $ 323,198 ============================================================================
NOTE 8-ACCRUED EXPENSES: Accrued expenses are comprised of the following:
DECEMBER 31, - ---------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 - ---------------------------------------------------------------------------- Excise taxes $13,787 $16,452 Bloomfield refinery acquisition contingent payment 5,200 5,442 Payroll and related costs 7,320 6,446 Bonus, profit sharing and retirement plans 3,162 4,867 Interest 5,719 5,704 Other 8,828 6,547 - ---------------------------------------------------------------------------- Total $44,016 $45,458 ============================================================================
NOTE 9-LONG-TERM DEBT: Long-term debt consists of the following:
DECEMBER 31, - ---------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 - ---------------------------------------------------------------------------- 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 Capital lease obligations, 11.3%, due through 2007, interest payable monthly 7,917 8,073 Other 305 496 - ---------------------------------------------------------------------------- Subtotal 258,222 258,569 Less current portion (213) (297) - ---------------------------------------------------------------------------- Total $258,009 $258,272 ============================================================================
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, 2000, retained earnings available for dividends under the most restrictive terms of the Indentures were approximately $2,900,000. At December 31, 2000, the Company was in compliance with the restrictive covenants relating to the Notes. On December 23, 1998, the Company entered into a $65,000,000 secured Credit Agreement (the "Credit Agreement") that expires 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. The Credit Agreement allows the Company 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, 2000, the availability of funds under the Credit Agreement was $65,000,000. There were no direct borrowings outstanding under this facility at December 31, 2000, and there were approximately $2,347,000 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, 2000, this rate was approximately 7 1/4% 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, 2000, 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 is currently in discussions with a group of banks to replace the current secured Credit Agreement. In 1997, as part of the acquisition of certain service station/convenience stores, the Company leased 64 service station/convenience stores for a period of 10 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 store was purchased in 1999 for $162,000 and one in 2000 for $156,000. The remaining eight 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 $7,917,000, of which $2,000,000 has been paid in advance and is recorded in "Other Assets" in the Company's Consolidated Balance Sheet. The remaining lease obligations of $7,917,000 are being accounted for as capital leases and require annual lease payments of approximately $895,000, all of which are recorded as interest expense. Assets associated with these lease obligations of approximately $8,443,000 are included in property, plant and equipment. Accumulated depreciation as of December 31, 2000 of approximately $2,612,000 is related to these assets. Assets of $643,000, primarily liquor licenses, are included in other assets. Aggregate annual maturities of long-term debt as of December 31, 2000 are: 2001 - $213,000; 2002 - $45,000; 2003 - $100,030,000; 2004 - $17,000; 2005 - $0; and all years thereafter - $157,917,000. 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:
DECEMBER 31, - --------------------------------------------------------------------------- (IN THOUSANDS) 2000 1999 - --------------------------------------------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE - --------------------------------------------------------------------------- Balance Sheet - Financial Instruments: Fixed rate long-term debt $250,305 $229,256 $250,496 $236,686
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. 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 terms and interest rate, has a carrying value that approximates fair value. 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, 2000, the Company had no hedging transactions in place. At December 31, 1999, the Company's hedging activities had futures contracts maturing in 2000 covering 50,000 barrels of heating oil and 38,000 barrels of crude oil. The crude oil futures contracts qualified as hedges and the gains or losses resulting from market changes were substantially offset by losses or gains on the Company's hedging contracts. Gains and losses on hedging contracts are deferred and reported as a component of the related transaction. Net deferred losses for the Company's petroleum hedging activities were approximately $331,000 at December 31, 1999. Gains and losses from market changes on contracts not qualifying for hedge accounting are recognized immediately in operations. For 2000, 1999 and 1998 the Company incurred losses of $(471,000), $(306,000) and $(896,000), respectively, related to these activities. 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. See Note 1 - Description of Business and Significant Accounting Policies under the captions "Derivatives" and "New Accounting Pronouncements" for a discussion of the Company's policies and new accounting and reporting obligations effective January 1, 2001 regarding hedging activities and speculative trading activities. NOTE 11-INCOME TAXES: The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------ (IN THOUSANDS) 2000 1999 1998 - ------------------------------------------------------------------------------ Current: Federal $4,292 $ 532 $ 1,406 State 188 14 5 Deferred: Federal (628) 3,412 (2,787) State 196 1,720 (133) - ------------------------------------------------------------------------------ $4,048 $5,678 $(1,509) ==============================================================================
Income taxes paid in 2000, 1999 and 1998 were $4,060,000, $2,099,000 and $1,468,000, 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:
YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------ (IN THOUSANDS) 2000 1999 1998 - ------------------------------------------------------------------------------ Income taxes at the statutory U.S. federal income tax rate of 35% $3,968 $5,760 $(1,304) Increase (decrease) in taxes resulting from: State taxes, net 301 795 (135) Resolution of tax matters - (320) - Nonconventional fuel credits, net (249) - - General business credits, net - (205) (182) Other, net 28 (352) 112 - ------------------------------------------------------------------------------ $4,048 $5,678 $(1,509) ==============================================================================
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:
DECEMBER 31, 2000 DECEMBER 31, 1999 - ----------------------------------------------------------------------------------------- (IN THOUSANDS) ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL - ----------------------------------------------------------------------------------------- Nondeductible accruals for uncollectible receivables $ 70 $ - $ 70 $ 163 $ - $ 163 Insurance accruals 627 - 627 494 - 494 Insurance settlements 902 - 902 649 - 649 Contribution carryover - - - 154 - 154 Other reserves 1,246 - 1,246 1,043 - 1,043 Inventory costs capitalized for income tax purposes (92) - (92) 159 - 159 Nondeductible accrual for lower of cost or market adjustment to inventory - - - 40 - 40 - ----------------------------------------------------------------------------------------- Total current 2,753 - 2,753 2,702 - 2,702 - ----------------------------------------------------------------------------------------- Other nondeductible accruals 980 (195) 785 1,080 (292) 788 Accelerated plant costs - (135) (135) - (539) (539) Deferred lease payments 645 - 645 317 - 317 Accelerated depreciation - (42,734) (42,734) - (41,756) (41,756) Other - (665) (665) - (703) (703) Tax credit carryforwards 14,483 - 14,483 13,891 - 13,891 - ----------------------------------------------------------------------------------------- Total noncurrent 16,108 (43,729) (27,621) 15,288 (43,290) (28,002) - ----------------------------------------------------------------------------------------- Total $18,861 $(43,729) $(24,868) $17,990 $(43,290) $(25,300) =========================================================================================
At December 31, 2000, the Company had an alternative minimum tax credit carryforward of approximately $10,708,000 available to offset future income taxes payable to the extent regular income taxes payable exceeds alternative minimum taxes payable. Alternative minimum tax credits can be carried forward indefinitely. At December 31, 2000, the Company also had approximately $168,000 in state tax credit carryforwards and $77,000 of state capital loss carryforwards available. At December 31, 2000, the Company had approximately $3,530,000 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 alternative minimum tax credit carryforward can be used. Of the total general business credits available, $533,000 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, $155,000 will expire in 2014 and $160,000 will expire in 2015. NOTE 12-EMPLOYEE STOCK OWNERSHIP AND 401(k) PLANS: 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, 2000 and 1999, the ESOP's assets included 1,187,897 and 1,339,932 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, 2000. 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 $825,000, $3,000,000, and $0 to the ESOP for 2000, 1999 and 1998, 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. 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, 2000, 1999, and 1998, the Company expensed $1,415,000, $1,388,000, and $1,300,000, respectively, for matching contributions under this plan. In order to reduce costs and simplify reporting and accounting obligations, the Company's ESOP and 401(k) retirement plans were merged effective December 31, 2000. The Company anticipates that the ESOP's assets will be transferred into the 401(k) in the second quarter of 2001. NOTE 13-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 206,070 shares for 2000 and 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 that 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. No grants were made under the 1998 Plan in 2000. 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, 2000, there were 20,000 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. No grants were made under the 1989 Plan in 2000. The following summarizes stock option transactions under the 1989 and 1998 Plans:
OPTIONS OUTSTANDING AT SHARES WEIGHTED AVERAGE EXERCISE PRICE - --------------------------------------------------------------------------------- January 1, 1998 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 Exercised (16,500) 6.61 Forfeited (15,000) 14.88 Expired (5,000) 10.50 -------- December 31, 2000 374,051 $10.34 ======== Options exercisable at December 31: 2000 298,251 $10.07 1999 252,285 9.80 1998 254,007 8.43
The following summarizes information about stock options outstanding under the 1989 and 1998 Plans at December 31, 2000:
Options Outstanding Options Exercisable - -------------------------------------------------------------------------- Weighted Weighted Average Weighted Average Number Remaining Number Average Exercise Price Outstanding Contractual Life Exercisable Exercise Price - -------------------------------------------------------------------------- $10.63 26,000 0.2 Years 26,000 $10.63 5.25 17,900 1.3 Years 17,900 5.25 7.75 62,750 2.3 Years 62,750 7.75 15.25 100,000 7.1 Years 80,000 14.44 8.88 167,401 8.0 Years 111,601 8.88 ------- ------- $10.34 374,051 5.9 Years 298,251 $10.07 ======= =======
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 1999 and 1998, 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:
- ------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------ Expected life in years 8 7 Risk-free interest rate 6.5% 6% Volatility 45% 38% Dividend Yield - 1.2%
NOTE 14-INTEREST, OPERATING LEASES AND RENT EXPENSE: Interest paid and capitalized for 2000 was $24,458,000 and $62,000, for 1999 was $24,176,000 and $183,000 and for 1998 was $25,358,000 and $373,000, 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. 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, 2000 as follows:
(In thousands) Land, building, machinery and equipment leases - ---------------------------------------------------------------------- 2001 $ 8,277 2002 7,532 2003 6,687 2004 6,052 2005 5,789 2006-2013 46,860 - ---------------------------------------------------------------------- Total minimum payments required $81,197 ======================================================================
Total rent expense was $11,017,000, $12,134,000, and $5,624,000 for 2000, 1999 and 1998, respectively. NOTE 15-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, 2000, that 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. The Company received a Notice of Violation ("NOV") in 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. The Company subsequently reached agreement with NMED for the closure of the land treatment facility, and NMED has issued a post-closure care permit for the facility. The Company anticipates incurring closure and post-closure expenses in the approximate amount of $265,000 over a 30-year period. The Company has received a NOV from NMED, dated July 18, 2000, in connection with its Bloomfield refinery. The NOV alleges that the Company violated air quality regulations at the refinery, as well as a condition of an air quality permit. The NOV represents that the NMED is willing to settle this matter for approximately $146,000. The Company has contested the NOV. On October 1, 1999, the State of New Mexico (the "State") 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 Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") South Valley 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. Although neither complaint states 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. In the first quarter of 2001, the State filed an amended complaint in the CERCLA and state court actions in which it alleges what it contends are releases by the Company during its ownership and operation of the Albuquerque Terminal. The Company intends to deny that it has had any releases that have contributed to soil and groundwater contamination at the South Valley Superfund Site. The Company believes that any environmental 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 that 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. Although the Company was given reason to believe that a final remedy would be selected in 2000, that selection did not occur. The Company has had no further indication regarding when the final remedy selection will be made. 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 also was based on the consultant's evaluation of such factors as available clean-up technology, BLM's involvement at the site and the number of other entities that may have had involvement at the site, 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 also is 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 also may assert claims against BLM, the Company and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the Landfill and the Farmington property. Parties also may request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the Landfill and the Farmington property. Currently, however, there is no outstanding litigation against the Company by BLM or any other party. 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 Resource 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. In 2000, OCD approved the groundwater discharge permit for the refinery, which included an abatement plan that addressed the Company's environmental obligations under the Order. The abatement plan reflects new information relating to the site as well as remediation methods that were originally not contemplated in connection with the Order. The Company has asked EPA to accept the measures specified in the abatement plan as the appropriate corrective action remedy under the Order and has further requested that EPA delegate its corrective action oversight authority to the State of New Mexico. Adoption of the abatement plan as the appropriate corrective action remedy would significantly reduce the Company's corrective action costs. The Company estimates that remediation expenses associated with the abatement plan will be in the range of approximately $50,000 to $100,000, and will be incurred over a period of approximately 30 years. If the Company's requests are not granted, the Company estimates that remaining remediation expenses could range as high as $1,000,000. Accordingly, the Company has reduced the remaining $1,500,000 reserve accrued in connection with this matter to approximately $1,000,000. If the requests are granted, the Company anticipates that the reserve will be further reduced. 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. The Company anticipates that OCD will not require remediation of offsite soil based upon the low contaminant levels found there. On May 19, 2000, OCD approved the Company's work plan with certain conditions. In the course of conducting the cleanup approved by OCD, it was discovered that the extent of the contamination was greater than had been anticipated. Accordingly, the Company obtained a 60-day extension to further assess the situation and propose a modified plan. On November 6, 2000, the Company submitted a proposal for a pilot bioventing project to address remaining contamination at the site. The pilot project, if approved, is expected to cost approximately $15,000. The Company previously estimated that cleanup expenses associated with the site would cost $250,000 and an environmental reserve in that amount was created, of which approximately $62,000 remains. Until the pilot project is completed and its effectiveness as a means of site remediation can be evaluated, the Company cannot reasonably estimate remaining remediation costs. Therefore, no change has been made to the amount of the reserve. As of December 31, 2000, the Company had an environmental liability accrual of approximately $2,200,000. Approximately $1,900,000 of this accrual is for the following projects: (i) closure of the Ciniza refinery land treatment facility, including post-closure expenses, (ii) the remediation of the hydrocarbon plume that appears to extend no more than 1,800 feet south of the Company's inactive Farmington refinery, (iii) environmental obligations assumed in connection with the acquisition of the Bloomfield refinery, and (iv) hydrocarbon contamination on and adjacent to the 5.5 acres that the Company owns in Bloomfield, New Mexico. The remaining amount of the accrual relates to the closure of certain solid waste management units at the Ciniza refinery, which is being conducted in accordance with the refinery's Resource Conservation and Recovery Act permit. The accrual balance reflects a reduction in amounts accrued for environmental obligations assumed in connection with the acquisition of the Bloomfield refinery and increases in reserves for other environmental projects. The 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 latest assessment relates to activities through June 1997. The Company resolved both of these severance tax assessments in the first quarter of 2001 for an amount approximating the reserve that had previously been established by the Company. The Company intends to continue purchasing activities in the area of disputed jurisdiction and may receive further tax assessments in the future relating to these activities subsequent to June 1997. The Company does not believe any such assessments will be significant. The Company may be entitled to reimbursement from certain third party oil lease interest owners in connection with any severance tax amounts paid by the Company that relate to purchases from such interest owners. At this time, however, the Company is unable to predict the success of efforts to recover these amounts. Other nominal tax assessments remain outstanding and the Company is pursuing its appeal rights on those matters. The Company may receive further tax assessments in the future. NOTE 16-QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Year Ended December 31, 2000 - -------------------------------------------------------------------------------------------------- (In thousands, except per share data) Quarter - -------------------------------------------------------------------------------------------------- First Second Third Fourth - -------------------------------------------------------------------------------------------------- Net revenues $225,134 $266,066 $301,213 $281,949 Cost of products sold 177,922 210,501 240,792 229,373 - -------------------------------------------------------------------------------------------------- Gross margin 47,212 55,565 60,421 52,576 - -------------------------------------------------------------------------------------------------- Operating expenses 29,525 29,504 31,060 33,524 Depreciation and amortization 8,305 8,370 8,650 8,254 Selling, general and administrative expenses 6,402 6,396 6,652 5,373 Net earnings (loss) (1,632) 3,281 5,015 625 Net earnings (loss) per common share - basic $ (0.17) $ 0.36 $ 0.55 $ 0.07 Net earnings (loss) per common share - assuming dilution $ (0.17) $ 0.36 $ 0.55 $ 0.07
Year Ended December 31, 1999 - -------------------------------------------------------------------------------------------------- (In thousands, except per share data) Quarter - -------------------------------------------------------------------------------------------------- First Second Third Fourth - -------------------------------------------------------------------------------------------------- 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 31,211 Depreciation and amortization 7,338 7,841 7,487 8,463 Selling, general and administrative expenses 7,938 7,388 7,296 5,544 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)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 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 1, 2001 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 April 6, 2001. 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." 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, 2000 and 1999 (iii) Consolidated Statements of Earnings (Loss) - Years ended December 31, 2000, 1999 and 1998 (iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 (v) Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 (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, 2000, 1999 and 1998 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 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. 10.4 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. 10.5 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.6 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-10398. 10.31 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. 10.32 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. 10.33 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. _________________________________ (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, 2000. 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 30, 2001 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 30, 2001 /s/ Fredric L. Holliger - ------------------------------- Fredric L. Holliger, Executive Vice President, Chief Operating Officer and Director March 30, 2001 /s/ Mark B. Cox - ------------------------------- Mark B. Cox, Vice President, Treasurer, Financial Officer and Assistant Secretary March 30, 2001 /s/ Gary R. Dalke - ------------------------------- Gary R. Dalke, Vice President, Controller, Accounting Officer and Assistant Secretary March 30, 2001 /s/ Anthony J. Bernitsky - ------------------------------- Anthony J. Bernitsky, Director March 30, 2001 /s/ F. Michael Geddes - ------------------------------- F. Michael Geddes, Director March 30, 2001 /s/ Richard T. Kalen, Jr. - ------------------------------- Richard T. Kalen, Jr., Director March 30, 2001 /s/ Michael H. K. Starr - ------------------------------- Michael H. K. Starr, Director March 30, 2001 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, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated March 21, 2001; 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 21, 2001 S-1
SCHEDULE II GIANT INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 2000 (IN THOUSANDS) BALANCE AT CHARGED BEGINNING TO COSTS BALANCE AT OF PERIOD AND EXPENSES DEDUCTION(a) END OF PERIOD - -------------------------------------------------------------------------------------------- Year ended December 31, 2000: Allowance for doubtful accounts $ 591 $ 244 $(479) $ 356 ============================================================================================ 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 ============================================================================================ (a) Deductions are specific trade accounts determined to be uncollectible.
S-2 GIANT INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2000 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. Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 3.3 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. 3.4 Bylaws of Giant Arizona. Incorporated by reference to Exhibit 2.1, Annex VI to Form S-1. 3.5 Articles of Incorporation of Ciniza Production Company. Incorporated by reference to Exhibit 3.7 to Form S-3. 3.6 Bylaws of Ciniza Production Company. Incorporated by reference to Exhibit 3.8 to Form S-3. 3.7 Articles of Incorporation of Giant Stop-N-Go of New Mexico, Inc. Incorporated by reference to Exhibit 3.9 to Form S-3. 3.8 Bylaws of Giant Stop-N-Go of New Mexico, Inc. Incorporated by reference to Exhibit 3.10 to Form S-3. 3.9 Articles of Incorporation of Giant Four Corners, Inc. Incorporated by reference to Exhibit 3.11 to Form S-3. 3.10 Bylaws of Giant Four Corners, Inc. Incorporated by reference to Exhibit 3.12 to Form S-3. 3.11 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. 3.12 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. 3.13 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. 3.14 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. 3.15 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. 3.16 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. 3.17 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. 3.18 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. 3.19 Articles of Incorporation of Giant Pipeline Company. Incorporated by reference to Exhibit 3.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 3.20 Bylaws of Giant Pipeline Company. Incorporated by reference to Exhibit 3.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 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. Incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 10.3 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. 10.4 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. 10.5 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.6 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-10398. 10.7 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. 10.8 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. 10.9 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. 10.10* Sublease dated September 1, 2000, between Prime Pinnacle Peak Properties, Inc., ("Sublessee") and Giant Industries Arizona, Inc., ("Sublessor"). 10.11 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. 10.12 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. 10.13 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. 10.14 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. 10.15 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. 10.16 Modification Agreement dated December 23, 1998, to Agreement dated September 17, 1998, between James E. Acridge ("Borrower") and Giant Industries, Inc. ("Lender"). 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. 10.17 Amended and Restated Loan Agreement dated March 20, 2000, between James E. Acridge ("Borrower") and Giant Industries, Inc. ("Lender"). Incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 10.18* Loan Modification Agreement dated February 28, 2001, by and among James E. Acridge ("Borrower"), Giant Industries, Inc., and Pinnacle Rodeo, L.L.C. 10.19* First Amendment to Amended and Restated Promissory Note and Loan Modification Agreement dated March 28, 2001, by James E. Acridge and Giant Industries, Inc. 10.20 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. 10.21 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. 10.22 Amended and Restated Promissory Note for $5,000,000 dated March 10, 2000, from James E. Acridge to Giant Industries, Inc. Incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 10.23 Pledge and Security Agreement dated March 10, 2000 from James E. Acridge and Pinnacle Rodeo, L.L.C., to Giant Industries, Inc. Incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-10398. 10.24* First Amendment dated March 9, 2001, to Pledge and Security Agreement dated March 10, 2000, from James E. Acridge and Pinnacle Rodeo, L.L.C., to Giant Industries, Inc. 10.25* Pledge and Security Agreement dated March 28, 2001, by James E. Acridge in favor of Giant Industries, Inc. 10.26* Purchase Agreement dated January 26, 2001 between James E. Acridge, Trustee, for and on behalf of the Acridge Family Trust ("Seller"), and Giant Industries, Inc. ("Buyer"). 10.27* Deed of Trust dated January 26, 2001 by and among James E. Acridge, Trustee, for and on behalf of the Acridge Family Trust ("Trustor"), Giant Industries, Inc. ("Beneficiary"), and First American Title Insurance Company ("Trustee"). 10.28* First Amendment dated February 12, 2001 to Purchase Agreement dated January 26, 2001, between James E. Acridge, Trustee, for and on behalf of the Acridge Family Trust, and Giant Industries, Inc. 10.29* Second Amendment dated March 1, 2001, to Purchase Agreement dated January 26, 2001, between James E. Acridge, Trustee, for and on behalf of the Acridge Family Trust, and Giant Industries, Inc. 10.30* Third Amendment dated March 9, 2001, to Purchase Agreement dated January 26, 2001, between James E. Acridge, Trustee, for and on behalf of the Acridge Family Trust, and Giant Industries, Inc. 10.31 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. 10.32 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. 10.33 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. 10.34 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. 10.35 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 Statements. *Filed herewith. EX-10.10 2 0002.txt EXHIBIT 10.10 SUBLEASE 1. PARTIES This sublease, dated September 1, 2000, is made by and between Prime Pinnacle Peak Properties, Inc., an Arizona corporation, (hereinafter called "Sublessee"), and Giant Industries Arizona, Inc., an Arizona corporation (hereinafter called "Sublessor"). Sublessor and Sublessee acknowledge that this sublease is subject to the Lease dated July 1, 1998 made by and between Pinnacle Citadel LLC, an Arizona limited liability company as Landlord and Giant Industries Arizona, Inc., an Arizona corporation as Tenant ("Master Lease"). Sublessee represents that it has read and is familiar with the terms of the Master Lease. Sublessee acknowledges it is subject to the terms and obligations of Tenant under the Master Lease and in case of breach by Sublessee, Sublessor has all of the rights relative to the Sublessee under this sublease as Landlord has relative to the Sublessor under the Master Lease. 2. PREMISES In consideration of the mutual covenants and agreements set forth herein, Sublessor leases to Sublessee and Sublessee leases from Sublessor, for the rental and on the terms and conditions hereinafter set forth, a portion of the real property described on Exhibit A attached hereto, consisting of approximately 5,590 square feet of space consisting of the entire 2nd floor space along with the 1st floor front office, 1st floor closet, stair landing and stairwell together with any or all additional space along with six (6) covered parking spaces numbered 1 though 6, each located in the area cross-hatched on Exhibit B. The address of the premises is 8700 East Pinnacle Peak Road, Scottsdale, Arizona 85255. 3. TERM The term of this sublease shall be for the time commencing on April 1, 2000 ("Commencement Date") and ending on July 31, 2003, unless terminated sooner by either party under the terms of this sublease or upon termination of the Master Lease. In the event the Master Lease is extended pursuant to Article 1(d) of Master Lease, then Sublessee may have the option pursuant to Article 1(d) of Master Lease to extend this sublease by one (1) successive period of five (5) years. 4. USE Sublessee shall occupy the premises as an office and for no other purpose whatsoever. Sublessee shall not create any nuisance, commit waste or interfere with, annoy or disturb any other lessees or occupants of the building. Sublessee shall do nothing nor permit anything to be done that would cause the Master Lease to be breached or terminated. Sublessee shall do nothing that may cause Sublessor's insurance premiums to increase, or cause Sublessor's insurance to be canceled. 5. RENT Sublessee shall pay to Sublessor during the term at the office of Sublessor, 23733 North Scottsdale Road, Scottsdale, AZ 85255, or at such other place as Sublessor may designate, without notice, demand, deduction or set-off, the amount of rent ("Minimum Annual Rent") as set forth in Article 2(a), 2(b), 2(c) & 2(d) of Master Lease. In addition, Sublessee shall pay to Sublessor its pro rata share of the operating costs as set forth in Article 6(a), 6(b), 6(c) & 6(d) of Master Lease. 6. QUIET ENJOYMENT Sublessor hereby warrants that Sublessor has the right to sublease the premises to Sublessee and that the individuals executing this sublease are fully authorized to and legally capable of executing this sublease on behalf of Sublessor. Sublessor covenants that Sublessee shall, while Sublessee is not in default of the terms of this sublease, peaceably and quietly hold and enjoy the premises for the sublease term, without interference or hindrance from Sublessor or persons claiming by or through Sublessor. 7. SUBLESSOR'S ACCESS TO THE PREMISES Provided that the exercise of such rights does not unreasonably interfere with Sublessee's use or occupancy of the premises, Sublessor shall have the right to enter the premises at reasonable times during normal business hours and upon reasonable advance notice of Sublessee for reasonable and lawful purposes. 8. COMPLIANCE WITH LAWS Sublessee shall comply with any and all present and future applicable laws, ordinances, rules, regulations, orders and covenants, whether promulgated by state, municipal, or any other agency or body having jurisdiction over the premises. 9. ALTERATIONS Sublessee shall not, except with Sublessor's prior written consent, make or cause to be made any alterations, decorations, additions or improvements to the premises. At the end of this sublease, Sublessee agrees to repair any damages caused by the removal of any of its improvements or fixtures. 10. END OF TERM HOLDOVER Sublessee shall not remain in possession of the premises after the expiration of the term of this sublease, and Sublessee acknowledges that in the event of termination or expiration of the Master Lease, this sublease will also terminate or expire. 11. MAINTENANCE AND REPAIRS Sublessee shall maintain the premises in a clean, orderly and sanitary condition. Sublessee shall be responsible for minor repairs and maintenance. Sublessee shall, throughout the term, take good care of the premises and fixtures and appurtenances therein, and make all minor and nonstructural repairs thereto as and when needed to preserve the premises in good order and condition. At the expiration or other termination of this sublease, Sublessee will surrender peaceable possession of the premises in as good condition as they were at the Commencement Date, excepting reasonable wear and tear, and damage by fire or other casualty. Sublessee shall reimburse Sublessor for all expenses of the repair of any damage to the premises or to any other part of the building caused by or resulting from any act or neglect of Sublessee. Any such damage to nonstructural parts of the premises shall be repaired promptly by Sublessee, at its sole expense, to the reasonable satisfaction of Sublessor. Sublessee shall give Sublessor prompt notice of any accident or needed repairs or replacements. 12. ASSIGNMENTS AND SUBLEASES Pursuant to Article 14 of Master Lease, Sublessee may assign or sublet said premises. 13. INDEMNIFICATION AND HOLD HARMLESS Sublessor and Sublessee shall indemnify and save each other harmless from and against any and all liabilities, claims and costs (including reasonable attorney's fees, penalties and fines) for death, injury or damages to persons, or property during the term of this sublease, arising from (a) any default by each in the performance of its obligations under this sublease or the Master Lease, (b) the manner of each party's use and occupancy of the premises, or (c) any acts, omissions, or negligence of each party or its agents, employees, contractors or invitees. If any action or proceeding is brought against the other based upon any such claim, the party at fault shall cease such action to be defended, at its expense, by counsel reasonably satisfactory to the other part. This hold harmless and indemnity shall survive termination of this sublease. 14. FORCE MAJEURE In the event Sublessor or Sublessee is delayed, hindered or prevented from performing any act or thing required hereunder by reason of strikes, lockouts, labor troubles, casualties, failure or lack of utilities, governmental laws or regulations, riots, insurrection, war, acts of God, or other cause beyond the reasonable control of Sublessor or Sublessee, neither party shall be liable for the delay, and the period for the performance by either party shall be extended for a period equivalent to the period of such delay. The foregoing shall be inapplicable to the payment of rent by Sublessee. 15. HAZARDOUS MATERIALS Should Sublessor or Sublessee, during the term of this sublease, or any extensions thereof, become aware of the existence of any regulated or environmentally hazardous substance being present on the premises, the party responsible therefore shall promptly remove the source of said substance. Sublessor warrants that it will indemnify and hold Sublessee harmless from any and all losses, claims, injuries, or cause of action (including reasonable attorney's fees) arising out of or caused by the existence of any such hazardous or regulated substances, created by or brought on the demised premises by Sublessor during the term or any renewal of this sublease. Sublessor or Sublessee shall not be responsible to the other or any other party for hazardous substances or conditions at or regarding the premises which Sublessor or Sublessee did not create or allow. 16. DESTRUCTION OF THE PREMISES If during the term of this sublease, the premises are destroyed or damaged in whole or in part by fire or other casualty, then the applicable provision of the Master Lease will apply. 17. EMINENT DOMAIN If during the term of this sublease, the premises are taken or condemned in whole or in part by eminent domain, then the applicable provisions of the Master Lease will apply. 18. INSURANCE (a) Sublessor agrees to carry at its own expense throughout the term of this sublease, all insurance coverages required by the Master Lease. (b) Sublessee agrees to carry at its own expense throughout the term of this sublease, all insurance coverages required by the Master Lease. Sublessee shall deliver a Certificate of Insurance to Sublessor prior to the date of occupancy of the premises and said insurance policy shall list and protect Sublessor and Sublessee as their interest may appear and shall contain an endorsement stating that the insurer agrees to give no less than thirty (30) days prior written notice to Sublessor in the event of modification or cancellation hereof. Sublessee shall be responsible for its own personal property insurance. 19. DEFAULT The occurrence of any one or more of the following events shall constitute a default of the sublease by Sublessee: (a) The vacating or abandonment of the premises by Sublessee. (b) The failure of Sublessee to make any payment of rent or any other payment required to be made by Sublessee hereunder, as and when due, where such failure shall continue for a period of five (5) days after written notice thereof from Sublessor to Sublessee. (c) The failure by Sublessee to observe or perform any of the covenants, conditions or provisions of this sublease to be observed or performed by Sublessee, other than described above, where such failure shall continue for a period of fifteen (15) days after written notice thereof from Sublessor to Sublessee. (d) The making by Sublessee of any general assignment, or general arrangement for the benefit of creditors; the filing by or against Sublessee of a petition to have Sublessee adjudged as bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Sublessee, the same is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Sublessee's assets located at the premises or of Sublessee's interest in this sublease, where possession is not restored to Sublessee within thirty (30) days of the attachment, execution or other judicial seizure of substantially all of Sublessee's assets located at the premises or of Sublessee's interest in this sublease where such seizure is not discharged within thirty (30) days. In the event of any default by Sublessee, at any time thereunder, and without limiting Sublessor in the exercise of any other right or remedy which Sublessor may have by reason of such default or breach, Sublessor may: (a) choose not to hold Sublessee responsible for any or all terms of this sublease; (b) reenter the premises and terminate this sublease and hold Sublessee responsible for all damages resulting from the breach; or (c) reenter the premises, keep this sublease intact, and attempt to relet the premises on behalf of Sublessee as Sublessee's agent. Upon reentering the premises, Sublessor may relet the premises or any part thereof for such term, on such conditions and at such rental as Sublessor may deem advisable with the right to make alterations and repairs to the premises. Sublessor may remove therefrom all automobiles, signs, and other property, and such property may be removed and stored in any place for the account and at the expense and risk of Sublessee. Sublessee hereby waives all claims for damages which may be caused by the reentry of Sublessor and taking possession of the premises, or the removing or storage of the property as herein provided, and will save Sublessor harmless from any loss, cost or damages occasioned thereby, and no such reentry shall be considered or construed to be forcible entry or detainer. Should Sublessor elect to reenter as herein provided, rentals received by Sublessor from reletting shall be applied in this order: first, to any indebtedness other than rent due under this sublease; second, to the payment of any costs of reletting; third, to the payment of the cost of any alteration and repairs to the premises; and fourth, to the payment of rent due and unpaid under this sublease; and the remainder, if any, shall be held by Sublessor and applied in payment of any future rent as the same becomes due and payable under this sublease. Should rentals received from such reletting during any month be less than that agreed to be paid during the month by Sublessee under this sublease, then Sublessee immediately shall pay and be liable for such deficiency to Sublessor. No such reentry or taking possession by Sublessor shall be construed as an election on its part to terminate this sublease, unless a written notice of such intention is given to Sublessee. Notwithstanding any such reletting without termination, at any time thereafter, Sublessor may elect to terminate this sublease for such previous default. Should Sublessor at any time terminate this sublease for any default, in addition to any other remedy it may have, Sublessor may recover from Sublessee all damages Sublessor may incur by reason of such breach, including without limitation, the cost of recovering the premises and the present worth at the time of such termination of the rent and charges equivalent to rent as reserved in this sublease for the remainder of the stated term. 20. SIGNS Sublessee will not place any signs or other advertising matter or material on the exterior or on the interior of the premises or of the building without the prior written consent of the Sublessor first. 21. RULES AND REGULATIONS Sublessor shall have the right from time to time to prescribe reasonable rules and regulations for Sublessee's use of the premises and common areas, and such other reasonable rules and regulations that Sublessor may adopt upon written advance notice to Sublessee, and Sublessee shall observe and comply with such rules and those, if any, which are attached hereto and made part of this sublease. 22. AMERICANS WITH DIABILITIES ACT If during the term of this sublease, Sublessee should make any alteration or addition to said premises, Sublessee, at its cost and expense, agrees to comply with applicable requirements of Title III of the Americans With Disabilities Act (ADA) and agrees that the applicable provision of the Master Lease will apply. 23. NO JOINT VENTURE Nothing contained herein nor the acts of the parties shall be deemed or construed to create the relationship of principal and agent, partnership, joint venture, or similar relationship or arrangement, it being understood that the relationship between the parties is solely that of Sublessor and Sublessee. 24. WAIVER OF SUBROGATION Sublessor and Sublessee hereby mutually waive their respective rights of recovery against each other for any loss insured by Fire, Extended Coverage or All Risk Property Insurance Policy. 25. ATTORNEY'S FEES If either party herein brings an action to enforce the terms of this sublease, the prevailing party in such action shall be entitled to reasonable attorney's fees to be paid by the non-prevailing party. 26. SUCCESSORS AND ASSIGNS Each of the provisions of this sublease shall extend to and shall, as the case may require, bind or inure to the benefit of Sublessor and Sublessee, and their respective subsidiaries, affiliates, heirs, legal representatives, successors and assigns. 27. HEADINGS The titles and headings of this sublease are for convenience of reference only and shall not in any way be deemed a part of this sublease for the purpose of construing or interpreting the meaning thereof, or for any other purpose. 28. GOVERNING LAW This sublease shall be governed by and construed in accordance with the laws of the State wherein the premises are located. 29. ENTIRE AGREEMENT This sublease, and the Master Lease to which it is subject, contains the entire agreement and understanding between Sublessor and Sublessee relating to the leasing of the premises and obligations of Sublessor and Sublessee. This sublease supersedes any and all prior or contemporaneous agreements and understandings between Sublessor and Sublessee, and shall not be modified or amended unless both Sublessor and Sublessee agree in writing. Sublessor and Sublessee specifically agree that this instrument be interpreted as a sublease rather than an assignment. 30. NOTICES All notices to be given by one party to the other under this sublease shall be in writing, mailed or hand-delivered to each at the address to the individual, set forth at the end of this sublease or at a changed address if notice of the change is given to the other party in writing. Mailed notices shall be sent by United States certified or registered mail, postage prepaid. Such notices shall be deemed to have been given upon posting in the United States mail. Actual notice shall be no substitute for written notice under any provision of this Lease. IN WITNESS WHEREOF, the parties have executed this sublease as of the day and year first above written. SUBLESSOR: Address: Giant Industries Arizona, Inc. 23733 N. Scottsdale Road an Arizona Corporation Scottsdale, AZ 85255 BY: /s/ JAMES E. ACRIDGE --------------------------------- Its: CEO --------------------------------- SUBLESSEE: Address: Prime Pinnacle Peak Properties, Inc. 23733 N. Scottsdale Road an Arizona corporation Scottsdale, AZ 85255 BY: /s/ JAMES E. ACRIDGE --------------------------------- Its: President --------------------------------- EXHIBIT A PARCEL NO. 1: A portion of Tract "B", of PINNACLE PARADISE, according to the plat of record in the office of the County Recorder of Maricopa County, Arizona, recorded in Book 126 of Maps, Page 31, more fully described as follows: BEGINNING at the Northeast corner of said Tract "B"; thence South 0 degrees 03 minutes 44 seconds East, a distance of 280.02 feet to a point of curvature whose center bears South 89 degrees 56 minutes 10 seconds West, a radius of 20 feet; thence Southwesterly along said curve through a delta of 90 degrees 03 minutes 44 seconds, an arc length of 31.44 feet; thence West, a distance of 280.02 feet; thence North a distance of 299.94 feet; thence East a distance of 300 feet to the POINT OF BEGINNING; EXCEPT that portion dedicated for right of way as set forth in instrument recorded April 18, 1985 in 85-166839, Official Records described as follows: COMMENCING at the Southeast corner of Section 12 (intersection of PIMA ROAD and PINNACLE PEAK ROAD), Township 4 North, Range 4 East; thence North 00 degrees 03 minutes 44 seconds West along the East line of said Section 12 (also monument line of PIMA ROAD), a distance of 355.00 feet to a point; thence South 89 degrees 56 minutes 16 seconds West, a distance of 55.00 feet to a point on the West right-of-way line of PIMA ROAD and being the TRUE POINT OF BEGINNING; thence West, a distance of 10.00 feet to a point; thence South 00 degrees 03 minutes 44 seconds East, a distance of 279.92 feet to a point of curvature whose center bears South 89 degrees 56 minutes 16 seconds West, a radius of 20.00 feet; thence Southwesterly along said curve through a Delta of 90 degrees 03 minutes 44 seconds, an arc length of 31.44 feet; thence East along the North right-of-way line of PINNACLE PEAK ROAD, a distance of 10.04 feet to a point of curvature whose center bears North, a radius of 19.96 feet; thence Northeasterly along said curve through a Delta of 90 degrees 03 minutes 44 seconds, an arc length of 31.37 feet to a point on the West right-of-way line of PIMA ROAD; thence North 00 degrees 03 minutes 44 seconds West, along said right-of-way line, a distance of 279.96 feet back to the TRUE POINT OF BEGINNING. PARCEL NO. 2: A portion of Tract "B", of PINNACLE PARADISE, according to the plat of record in the office of the County Recorder of Maricopa County, Arizona, recorded in Book 126 of Maps, Page 31, more fully described as follows: BEGINNING at the Southwest corner of said Tract "B"; thence East along the South line of said Tract "B", a distance of 20.00 feet to the TRUE POINT OF BEGINNING; thence North a distance of 199.94 feet; thence East a distance of 180.00 feet; thence North a distance of 100.00 feet to a point on the North line of Tract "B"; thence East along said North line a distance of 200.00 feet; thence south a distance of 299.94 feet to a point in the South line of Tract "B"; thence West along said South line a distance of 380.00 feet to the TRUE POINT OF BEGINNING. EXHIBIT B SITE SURVEY EX-10.18 3 0003.txt EXHIBIT 10.18 LOAN MODIFICATION AGREEMENT THIS LOAN MODIFICATION AGREEMENT (this "Agreement") is made and entered into as of the 28th day of February, 2001, by and among JAMES E. ACRIDGE ("Borrower"), GIANT INDUSTRIES, INC., a Delaware corporation ("Giant"), and PINNACLE RODEO, L.L.C., an Arizona limited liability company ("Rodeo"). RECITALS A. Under the Agreement, dated as of September 17, 1998, by and between Borrower and Giant, as modified by the Modification Agreement, dated as of December 23, 1998, by and between Borrower and Giant, as further modified by the Amended and Restated Loan Agreement, dated as of March 20, 2000, by and between Borrower and Giant (collectively, the "Loan Agreement"), Giant agreed to make a loan to Borrower in the principal amount of $5,000,000.00 (the "Loan"). B. In connection with the Loan, Borrower executed the Promissory Note, dated as of September 17, 1998, in the stated principal amount of $4,000,000.00, in favor of Giant, as modified by the Amended and Restated Promissory Note, dated as of December 23, 1998, in the total principal amount of $5,000,000.00, executed by Borrower in favor of Giant, as further modified by the Amended and Restated Promissory Note, dated as of March 10, 2000, in the total principal amount of $5,000,000.00, executed by Borrower in favor of Giant (collectively, the "Note"). C. The Loan is secured by the collateral described in the Pledge and Security Agreement (the "Pledge Agreement"), dated as of March 10, 2000, by and among Borrower and Rodeo, as pledgor, and Giant, as pledgee. D. Giant and Borrower, as Trustee for and on behalf of the Acridge Family Trust (the "Acridge Trust"), entered into a Purchase Agreement, dated January 26, 2001, as amended (the "Purchase Agreement"), with respect to the sale by the Acridge Trust to Giant of a parcel of land containing approximately 40 acres located at 9540 East Jomax Road in the City of Scottsdale, Arizona (the "Property"). E. The Purchase Agreement requires that a portion of the purchase price from the sale of the Property (the "Sale") be applied to the payment of Borrower's accrued interest under the Loan. F. Since the Sale has not yet closed and may not close until March 28, 2001, Giant and Borrower wish to extend the maturity date of the Loan from February 28, 2001 to March 28, 2001. NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Accuracy of Recitals. Borrower and Rodeo hereby acknowledge that the Recitals set forth above are true, accurate and correct, and are incorporated herein by this reference. 2. Loan Documents. This Agreement, all documents executed in connection with this Agreement, the Loan Agreement, as modified hereby, the Amended and Restated Promissory Note referred to Section 4 below, and the Pledge Agreement are hereinafter collectively referred to as the "Loan Documents". 3. Extension of Maturity Date. The maturity date of the Loan is hereby extended from February 28, 2001 to March 28, 2001. 4. Repayment of Loan. The Loan will be repaid by Borrower in accordance with the terms of the Amended and Restated Promissory Note, in the form attached hereto as Exhibit A and incorporated herein by this reference. 5. Acknowledgments of Borrower. Borrower hereby acknowledges and agrees that: a. No Defenses. Borrower reaffirms all of its obligations under the Loan Documents, and Borrower has no claim, defense, offset or counterclaim with respect to the payment of the Loan or with respect to the performance of Borrower's obligations under the Loan Documents. b. No Breach By Giant. Giant has not breached any duty to Borrower in connection with the Loan, and Giant has fully performed all obligations it may have had or now has to Borrower. c. No Waiver. Except as specifically provided herein, by entering into this Agreement, Giant does not waive any existing event of default or default or any event of default or default hereafter occurring, or become obligated to waive any condition or obligation in any agreement between or among any of the parties hereto. d. No Future Obligations. Giant has no obligation to make any additional loan or extension of credit to or for the benefit of Borrower, and no obligation to further modify the Loan or the Loan Documents. e. No Third Parties Benefited. This Agreement is made and entered into for the sole protection and benefit of Giant, Rodeo, and Borrower and their permitted successors and assigns. No other persons or entities shall have any right of action under this Agreement or any right of the funds from the Loan. f. Informed Consent to Agreement. 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. Borrower further acknowledges that he has been advised, and has been given the reasonable opportunity, to seek independent legal advice with respect to the subject matter of this Agreement, and Borrower hereby represents to Giant that he has either sought and obtained such independent legal advice or that he hereby waives such advice. 6. Acknowledgements of Rodeo. Rodeo hereby acknowledges and agrees that: a. No Defenses. Rodeo reaffirms all of its obligations under the Loan Documents, and Rodeo has no claim, defense, offset or counterclaim with respect to the performance of Rodeo's obligations under the Loan Documents. b. No Breach By Giant. Giant has not breached any duty to Rodeo in connection with the Loan Documents, and Giant has fully performed all obligations it may have had or now has to Rodeo. c. No Waiver. Except as specifically provided herein, by entering into this Agreement, Giant does not waive any existing event of default or default or any event of default or default hereafter occurring, or become obligated to waive any condition or obligation in any agreement between or among any of the parties hereto. d. No Future Obligations. Giant has no obligation to make any additional loan or extension of credit to or for the benefit of Borrower, and no obligation to further modify the Loan or the Loan Documents. e. No Third Parties Benefited. This Agreement is made and entered into for the sole protection and benefit of Giant, Rodeo, and Borrower and their permitted successors and assigns. No other persons or entities shall have any right of action under this Agreement or any right of the funds from the Loan. f. Informed Consent to Agreement. Rodeo acknowledges that it 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 it and have been fully and unconditionally consented to by it, and that Rodeo's execution of this Agreement is done freely, voluntarily, with full knowledge and without duress, and that in executing this Agreement, Rodeo is relying on no other representations either written or oral, express or implied, made to Rodeo by any other party hereto, and that the consideration received by Rodeo hereunder has been actual and adequate. Rodeo further acknowledges that it has been advised, and has been given the reasonable opportunity, to seek independent legal advice with respect to the subject matter of this Agreement, and Rodeo hereby represents to Giant that it has either sought and obtained such independent legal advice or that it hereby waives such advice. 7. Agreement of Rodeo. The Loan is secured by the collateral described in the Pledge Agreement. Rodeo believes that it is in its best interest for Rodeo and Borrower to enter into this Agreement with Giant. Rodeo hereby reaffirms the full force and effectiveness of the Pledge Agreement. Rodeo agrees that the Pledge Agreement continues to secure all of the Obligations (as defined in the Pledge Agreement), including obligations of Borrower under the Loan Documents. Rodeo represents that this Agreement and the other Loan Documents are of substantial economic benefit to Rodeo and that its reaffirmation and consent is an essential part of the consideration to Giant to enter into this Agreement. Rodeo hereby consents to the terms, conditions and provisions of this Agreement and the other Loan Documents. 8. Release of Giant. In consideration of the agreements of Giant set forth in this Agreement, Borrower and Rodeo, and all of their respective permitted successors and assigns (individually and collectively, the "Releasors"), hereby fully release, remise, and forever discharge Giant and any affiliates of Giant, and their predecessors, and all past and present officers, directors, agents, employees, servants, partners, shareholders, attorneys and managers of Giant and any affiliates of Giant and their predecessors and all of their respective predecessors, successors and assigns, for, from, and against any and all claims, liens, demands, causes of action, controversies, offsets, obligations, losses, damages and liabilities of every kind and character whatsoever, including any action, omission, misrepresentation or other basis of liability founded either in tort or contract and the duties arising thereunder, that the Releasors, or any one or more of them, has had in the past, or now has, whether known or unknown, whether asserted or unasserted, by reason of any matter, cause or thing set forth in, relating to or arising out of, or in any way connected with or resulting from, the Loan, the Loan Documents, the transactions contemplated thereby or the negotiation, preparation, and execution of this Agreement or the other Loan Documents. This release shall not be deemed or construed as an admission of liability by Giant. 9. Incorporation. This Agreement shall form a part of each Loan Document, and all references to a given Loan Document shall mean that document as hereby modified. 10. No Prejudice; Reservation of Rights. This Agreement shall not prejudice any rights or remedies of Giant under the Loan Documents. Giant reserves, without limitation, all rights that it has against any indemnitor, guarantor, or endorser or any of the Loan Documents. 11. No Impairment; Security. Except as specifically hereby amended, the Loan Documents shall each remain unaffected by this Agreement and all such documents shall remain in full force and effect. Borrower's payment and performance of Borrower's various obligations to Giant under the Loan Documents, including all extensions, modifications, amendments, renewals or replacements of the foregoing, continue to be and shall be secured by the liens arising under the Loan Documents. Nothing contained in this Agreement shall annul, release or affect the lien, or priority of the lien of any of the Loan Documents. Nothing contained herein shall be deemed a waiver of or limit any of the rights and remedies that Giant may have against Borrower or of any of Giant's rights and remedies arising out of the Loan Documents, and Giant specifically reserves, and shall have, all rights and remedies available to Giant under the law or as provided in the Loan Documents, as modified by this Agreement. 12. Integration. The Loan Documents, including this Agreement: (a) integrate all the terms and conditions mentioned in or incidental to the Loan Documents; (b) supersede all oral negotiations and prior and other writings with respect to their subject matter; and (c) are intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in those documents and as the complete and exclusive statement of the terms agreed to by the parties. If there is any conflict between the terms, conditions and provisions of this Agreement and those of any other agreement or instrument, including any of the other Loan Documents, the terms, conditions and provisions of this Agreement shall prevail. No amendment, modification, change, waiver, release or discharge hereof and hereunder shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement is sought. 13. Severability. If any provision of this Agreement or the other Loan Documents is invalid or unenforceable, the other provisions of this Agreement or the other Loan Documents shall remain in full force and effect and shall be liberally construed in favor of Giant in order to effectuate the other provisions of this Agreement or the other Loan Documents. 14. Governing Law. This Agreement and the other Loan Documents shall be construed in accordance with and governed by the laws of the State of Arizona, without regard to the choice of law rules of the State of Arizona. 15. Time is of the Essence. Time is of the essence of this Agreement and the other Loan Documents. 16. Further Performance. Borrower whenever and as often as it shall be requested by Giant, shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered such further instruments and documents and to do any and all things as may be requested in order to carry out the intent and purpose of this Agreement and the other Loan Documents. 17. Survival. All indemnities, warranties, representations, and covenants made by Borrower in this Agreement or the other Loan Documents, shall be considered to have been relied upon by Giant and will survive the making and repayment of the Loan and delivery to Giant of this Agreement. 18. No Consent. Except as specifically provided in this Agreement, no express or implied consent to any further modifications involving any of the matters set forth in this Agreement or otherwise shall be inferred or implied by Giant's execution of this Agreement or any other action of Giant. Giant's execution of this Agreement shall not constitute a waiver, either express or implied, of the requirement that any further modification of the Loan or of the Loan Documents shall require the express written approval of Giant. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BORROWER: /s/ JAMES E. ACRIDGE - ---------------------------------- JAMES E. ACRIDGE GIANT: Giant Industries, Inc., a Delaware corporation By: /s/ MARK B. COX ------------------------------- Name: MARK B. COX ----------------------------- Its: VP TREASURER ------------------------------ RODEO: Pinnacle Rodeo, L.L.C., an Arizona limited liability company By: /s/ JAMES E. ACRIDGE ------------------------------- Name: JAMES E. ACRIDGE ----------------------------- Its: MEMBER ------------------------------ EX-10.19 4 0004.txt EXHIBIT 10.19 FIRST AMENDMENT TO AMENDED AND RESTATED PROMISSORY NOTE AND LOAN MODIFICATION AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED PROMISSORY NOTE AND LOAN MODIFICATION AGREEMENT (this "Amendment"), is dated effective as of March 28, 2001, and is made by JAMES E. ACRIDGE ("Acridge"), and GIANT INDUSTRIES, INC., a Delaware corporation ("Giant"). RECITALS: A. Under an Agreement dated as of September 17, 1998, by and between Acridge and Giant, as modified by the Modification Agreement, dated as of December 23, 1998, by and between Acridge and Giant, as modified by the Amended and Restated Loan Agreement, dated as of March 20, 2000, by and between Acridge and Giant, as modified by the Loan Modification Agreement, dated as of February 28, 2001, by and between Acridge and Giant, (collectively, the "Loan Agreement"), Giant has made a loan to Acridge in the original principal amount of $5,000,000.00 (the "Loan"). B. In connection with the Loan, Acridge executed a Promissory Note, dated as of September 17, 1998, in the stated principal amount of $4,000,000.00, in favor of Giant, as modified by the Amended and Restated Promissory Note, dated as of December 23, 1998, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant, as further modified by the Amended and Restated Promissory Note, dated as of March 10, 2000, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant, as further modified by the Amended and Restated Promissory Note, dated as of February 28, 2001, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant (collectively, the "Note"). C. Acridge is the sole owner of 100% of the membership interests of Pinnacle Rodeo, L.L.C., an Arizona limited liability company ("Rodeo"), which is the sole member of Pinnacle Rawhide, L.L.C., an Arizona limited liability company ("Rawhide"). D. The Loan is secured by the collateral described in the Pledge and Security Agreement, dated effective as of March 10, 2000, by and among Acridge, Rodeo and Giant, as modified by the First Amendment to Pledge and Security Agreement, dated as of March 9, 2001, by and among Acridge, Rodeo and Giant, and a separate Pledge and Security Agreement, dated effective the date hereof, by Acridge in favor of Giant (the "New Pledge Agreement") whereby, among other things, for additional consideration, Acridge pledged to Giant all of his membership interests in Rodeo (collectively, the "Pledge Agreements"). E. Acridge and Giant desire to further amend the Loan Agreement and the Note to memorialize certain agreements made between them in connection with the Loan and with the entering into of the New Pledge Agreement of even date herewith. AGREEMENT: NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. AMENDMENT OF NOTE. The Note is amended to include the following as events of default: (i) Either Rodeo or Rawhide fails to comply with or perform when due, any term, obligation, covenant or condition contained in any agreement with any third parties, including any promissory notes due by Rodeo or Rawhide to Western Town, L.L.C., an Arizona limited liability company, Hirsch Investment Co., LLC, an Arizona limited liability company, or any other creditor of Rodeo or Rawhide. (ii) Acridge fails to comply with or perform when due any term, obligation, covenant or condition contained in the New Pledge Agreement. (iii) The sale or transfer to a third party of any portion of the real property owned by Rawhide, which real property is described as: The Northwest Quarter of Section 14, Township 4 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona; EXCEPT therefrom the North 55 feet; and, EXCEPT the East 40 feet; and, EXCEPT the West 55 feet; and EXCEPT the South 40 feet. 2. CONDITIONS PRECEDENT TO EXTENSION. The parties anticipate entering into further amendments to the Note, Loan Agreement and Pledge Agreements on or before March 28, 2001 to extend the maturity date of the Loan from March 28, 2001 to March 28, 2003 (the "Extension"). The parties have agreed to a number of conditions precedent to effecting the Extension. These conditions include the following: 2.1 Acridge shall have paid, or otherwise satisfied in full, all accrued but unpaid interest under the Loan from January 1, 1999 through March 28, 2001; 2.2 Acridge and Giant shall have executed the New Pledge Agreement; 2.3 Giant and Acridge shall have consummated the real property transaction whereby a trust controlled by Acridge shall have sold to Giant a parcel of land containing approximately 40 acres, located at 9540 East Jomax Road in Scottsdale, Arizona; and 2.4 Giant shall have released to the public Giant's earnings for the 2000 fiscal year. 3. ACKNOWLEDGEMENT OF CONSIDERATION. Acridge acknowledges that he has benefited from the extension of the maturity date of the Loan from February 28, 2001 to March 28, 2001, and will further benefit from the further Extension of the maturity date of the Loan. Accordingly, Acridge acknowledges that he has received valuable consideration in the form of the aforesaid. Acridge acknowledges the receipt and sufficiency of adequate consideration for the entering into of this Amendment and agrees that all of the terms and conditions of this Amendment are fully binding upon him as set forth herein. 4. PRESERVATION CLAUSE. Except as herein provided, all terms and conditions of the Note, the Loan Agreement and the Pledge Agreements shall remain in full force and effect, and the parties hereby ratify and confirm the enforceability of the Note, the Loan Agreement and the Pledge Agreements. Nothing contained in this Amendment shall be deemed a waiver of or limit any of the rights or remedies that Giant may have against Acridge or of any of Giant's rights and remedies arising out of the Note, the Loan Agreement and the Pledge Agreements, and Giant specifically reserves, and shall have, all rights and remedies available to Giant under the law or as provided in such documents, as modified by this Amendment. 5. COUNSEL; INTERPRETATION. Each party acknowledges that it was represented by legal counsel (or had the opportunity to be represented by independent legal counsel) in connection with this Agreement and that each of them and their counsel have reviewed and revised this Agreement, or have had an opportunity to do so, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or any exhibits hereto or thereto. Acridge further acknowledges that he has been advised, and has had the opportunity, to seek the advice of independent counsel. [The parties' signatures appear on the following page.] IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed and delivered as of the date first above written. ACRIDGE: /s/ JAMES E. ACRIDGE - ----------------------------- James E. Acridge Address: 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Facsimile:___________________ Attn: _______________________ GIANT: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ MARK B. COX Name: MARK B. COX - ------------------------------ Title: VP TREASURER - ------------------------------ Address: 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Facsimile: _____________________________ Attn: _____________________________ EX-10.24 5 0005.txt EXHIBIT 10.24 FIRST AMENDMENT TO PLEDGE AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO PLEDGE AND SECURITY AGREEMENT (this "Amendment") is made and entered into as of the 9th day of March, 2001, by and among JAMES E. ACRIDGE ("Acridge") and PINNACLE RODEO, L.L.C., an Arizona limited liability company ("Rodeo"), as pledgor (collectively, "Pledgor"), and GIANT INDUSTRIES, INC., a Delaware corporation, as pledgee ("Giant"). RECITALS A. Under the Agreement, dated as of September 17, 1998, by and between Acridge and Giant, as modified by the Modification Agreement, dated as of December 23, 1998, by and between Acridge and Giant, as modified by the Amended and Restated Loan Agreement, dated as of March 20, 2000, by and between Acridge and Giant, as modified, Giant agreed to make a loan to Acridge in the principal amount of $5,000,000.00 (the "Loan"). B. The Loan is secured by the collateral described in the Pledge and Security Agreement (the "Pledge Agreement"), dated as of March 10, 2000, by and between Pledgor and Giant. C. The following financing statements were executed in connection with the Loan (collectively, the "Financing Statements"): (i) Financing Statement on Form UCC-1, dated March 10, 2000, executed by Acridge, as debtor, in favor of Giant, as secured party, filed on March 23, 2000, with the Office of the Secretary of State of the State of Arizona, at File No. 01109454. (ii) Financing Statement on Form UCC-1, dated March 10, 2000, executed by Rodeo, as debtor, in favor of Giant, as secured party, filed on March 23, 2000, with the Office of the Secretary of State of the State of Arizona, at File No. 01109455. D. Giant and Acridge, as Trustee for and on behalf of the Acridge Family Trust (the "Acridge Trust"), entered into a Purchase Agreement, dated January 26, 2001, as amended (the "Purchase Agreement"), with respect to the sale by the Acridge Trust to Giant of a parcel of land containing approximately 40 acres located at 9540 East Jomax Road in the City of Scottsdale, Arizona (the "Property"). E. Concurrently with the execution of this Amendment, the Acridge Trust and Giant are entering into a Third Amendment to Purchase Agreement (the "Purchase Agreement Modification"), wherein, among other things, Giant will increase the Deposit (as defined in the Purchase Agreement) by an additional $450,000 (the "Additional Obligation"). F. Pledgor and Giant now wish to amend the Pledge Agreement as hereinafter provided. NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Accuracy of Recitals. Acridge and Rodeo hereby acknowledge that the Recitals set forth above are true, accurate and correct, and are incorporated herein by this reference. 2. Security Documents. This Amendment, the Financing Statements, all documents executed in connection with this Amendment, and the Pledge Agreement are hereinafter collectively referred to as the "Security Documents". 3. Additional Obligations. The parties hereby agree that the Obligations, as defined in the Pledge Agreement, shall include the Additional Obligation, which shall be secured by the Pledge Agreement. Furthermore, Giant shall have all of the remedies available to it under the Pledge Agreement, including without limitation Section 6 of the Pledge Agreement, in the event (i) the transactions contemplated under the Purchase Agreement are not consummated and the Additional Obligation is not repaid to Giant, or (ii) the transactions contemplated under the Purchase Agreement are consummated and (a) the Deposit (as defined in the Purchase Agreement), along with the indebtedness secured by the first deed of trust covering the Property, exceeds the Sales Price (as defined in the Purchase Agreement) (the "Surplus Payment"), and (b) the Surplus Payment is not immediately repaid to Giant. For purposes of this Section, in the event there is a Surplus Payment, the Additional Obligation shall be deemed to be a part of the Surplus Payment. 4. Acknowledgments of Pledgor. Each Pledgor hereby acknowledges and agrees that: a. No Defenses. Pledgor reaffirms all of its obligations under the Security Documents, and Pledgor has no claim, defense, offset or counterclaim with respect to the performance of Pledgor's obligations under the Security Documents. b. No Breach By Giant. Giant has not breached any duty to Pledgor in connection with the Security Documents, and Giant has fully performed all obligations it may have had or now has to Pledgor. c. No Waiver. Except as specifically provided herein, by entering into this Amendment, Giant does not waive any existing event of default or default or any event of default or default hereafter occurring, or become obligated to waive any condition or obligation in any agreement between or among any of the parties hereto. d. No Future Obligations. Giant has no obligation to further modify the Security Documents. e. No Third Parties Benefited. This Amendment is made and entered into for the sole protection and benefit of Giant and Pledgor and their permitted successors and assigns. No other persons or entities shall have any right of action under this Amendment. f. Informed Consent to Agreement. Pledgor acknowledges that it has thoroughly read and reviewed the terms and provisions of this Amendment and is familiar with the same, that the terms and provisions contained herein are clearly understood by it and have been fully and unconditionally consented to by it, and that Pledgor's execution of this Amendment is done freely, voluntarily, with full knowledge and without duress, and that in executing this Amendment, Pledgor is relying on no other representations either written or oral, express or implied, made to Pledgor by any other party hereto, and that the consideration received by Pledgor hereunder has been actual and adequate. Pledgor further acknowledges that it has been advised, and has been given the reasonable opportunity, to seek independent legal advice with respect to the subject matter of this Amendment, and Pledgor hereby represents to Giant that it has either sought and obtained such independent legal advice or that it hereby waives such advice. 5. Reaffirmation of Obligations. The Additional Obligations are secured by the collateral described in the Pledge Agreement. Pledgor believes that it is in its best interest for Pledgor to enter into this Agreement with Giant. Pledgor hereby reaffirms the full force and effectiveness of the Pledge Agreement. Pledgor agrees that the Pledge Agreement continues to secure all of the Obligations, including the Additional Obligations. Pledgor represents that this Amendment and the other Security Documents are of substantial economic benefit to Pledgor and that its reaffirmation and consent is an essential part of the consideration to Giant to enter into this Amendment and the Purchase Agreement Modification. Pledgor hereby consents to the terms, conditions and provisions of this Amendment and the other Security Documents. 6. Incorporation. This Amendment shall form a part of each Security Document, and all references to a given Security Document shall mean that document as hereby modified. 7. No Prejudice; Reservation of Rights. This Amendment shall not prejudice any rights or remedies of Giant under the Security Documents. Giant reserves, without limitation, all rights that it has against any indemnitor, guarantor, or endorser of any of the Security Documents. 8. No Impairment; Security. Except as specifically hereby amended, the Security Documents shall each remain unaffected by this Amendment and all such documents shall remain in full force and effect. Nothing contained in this Amendment shall annul, release or affect the lien, or priority of the lien of any of the Security Documents. Nothing contained herein shall be deemed a waiver of or limit any of the rights and remedies that Giant may have against Pledgor or of any of Giant's rights and remedies arising out of the Security Documents, and Giant specifically reserves, and shall have, all rights and remedies available to Giant under the law or as provided in the Security Documents, as modified by this Amendment. 9. Integration. The Security Documents, including this Amendment: (a) integrate all the terms and conditions mentioned in or incidental to the Security Documents; (b) supersede all oral negotiations and prior and other writings with respect to their subject matter; and (c) are intended by the parties as the final expression of the agreement with respect to the terms and conditions set forth in those documents and as the complete and exclusive statement of the terms agreed to by the parties. If there is any conflict between the terms, conditions and provisions of this Amendment and those of any other agreement or instrument, including any of the other Security Documents, the terms, conditions and provisions of this Amendment shall prevail. No amendment, modification, change, waiver, release or discharge hereof and hereunder shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement is sought. 10. Severability. If any provision of this Amendment or the other Security Documents is invalid or unenforceable, the other provisions of this Amendment or the other Security Documents shall remain in full force and effect and shall be liberally construed in favor of Giant in order to effectuate the other provisions of this Amendment or the other Security Documents. 11. Governing Law. This Amendment and the other Security Documents shall be construed in accordance with and governed by the laws of the State of Arizona, without regard to the choice of law rules of the State of Arizona. 12. Time is of the Essence. Time is of the essence of this Amendment and the other Security Documents. 13. Further Performance. Pledgor whenever and as often as it shall be requested by Giant, shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered such further instruments and documents and to do any and all things as may be requested in order to carry out the intent and purpose of this Amendment and the other Security Documents. 14. Survival. All indemnities, warranties, representations, and covenants made by Pledgor in this Amendment or the other Security Documents, shall be considered to have been relied upon by Giant and will survive the making and repayment of the Loan and delivery to Giant of this Amendment. 15. No Consent. Except as specifically provided in this Amendment, no express or implied consent to any further modifications involving any of the matters set forth in this Amendment or otherwise shall be inferred or implied by Giant's execution of this Amendment or any other action of Giant. Giant's execution of this Amendment shall not constitute a waiver, either express or implied, of the requirement that any further modification of the Security Documents shall require the express written approval of Giant. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. PLEDGOR: Pinnacle Rodeo, L.L.C., an Arizona limited liability company By: /s/ JAMES E. ACRIDGE -------------------------------- Name: JAMES E. ACRIDGE ------------------------------ Its: MEMBER ------------------------------- GIANT: Giant Industries, Inc., a Delaware corporation By: /s/ MARK B. COX -------------------------------- Name: MARK B. COX ------------------------------ Its: VP TREASURER ------------------------------- /s/ JAMES E. ACRIDGE - ----------------------------------- JAMES E. ACRIDGE This Amendment is consented to by: Pinnacle Rawhide, L.L.C., an Arizona limited liability company By: /s/ JAMES E. ACRIDGE -------------------------------- Name: James E. Acridge, sole member of Pinnacle Rodeo, L.L.C., its manager EX-10.25 6 0006.txt EXHIBIT 10.25 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (hereinafter "Agreement"), is dated effective as of March 28, 2001, and is made by JAMES E. ACRIDGE ("Acridge"), in favor of GIANT INDUSTRIES, INC., a Delaware corporation ("Giant"). RECITALS: A. Acridge is the sole owner of 100% of the membership interests in Pinnacle Rodeo, L.L.C., an Arizona limited liability company ("Rodeo"), which is the sole member of Pinnacle Rawhide, L.L.C., an Arizona limited liability company ("Rawhide"). B. Under an Agreement dated as of September 17, 1998, by and between Acridge and Giant, as modified by the Modification Agreement, dated as of December 23, 1998, by and between Acridge and Giant, as modified by the Amended and Restated Loan Agreement, dated as of March 20, 2000, by and between Acridge and Giant, as modified by the Loan Modification Agreement, dated as of February 28, 2001, by and between Acridge and Giant, as modified by the First Amendment to Amended and Restated Promissory Note and Loan Modification Agreement, dated effective the date hereof (collectively, with any further amendments, the "Loan Agreement"), Giant has made a loan to Acridge in the original principal amount of $5,000,000.00 (the "Loan"). C. In connection with the Loan, Acridge executed the Promissory Note, dated as of September 17, 1998, in the stated principal amount of $4,000,000.00, in favor of Giant, as modified by the Amended and Restated Promissory Note, dated as of September 23, 1998, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant, as further modified by the Amended and Restated Promissory Note, dated as of March 10, 2000, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant, as further modified by the Amended and Restated Promissory Note, dated as of February 28, 2001, in the total principal amount of $5,000,000.00, executed by Acridge in favor of Giant, as modified by the First Amendment to Amended and Restated Promissory Note and Loan Modification Agreement, dated effective the date hereof (collectively, with any further amendments, the "Note"). D. The Loan is secured by the collateral described in the Pledge and Security Agreement, dated effective as of March 10, 2000, by and among Acridge, Rodeo and Giant, as modified by the First Amendment to Pledge and Security Agreement, dated as of March 9, 2001, by and among Acridge, Rodeo and Giant (collectively, with any further amendments, the "Pledge Agreement"). E. Certain financing statements were executed in connection with the Loan (collectively, the "Financing Statements"). F. Giant and Acridge, as Trustee for and on behalf of the Acridge Family Trust (the "Acridge Trust"), entered into a Purchase Agreement, dated January 26, 2001, as amended (collectively, with any further amendments, the "Purchase Agreement"), with respect to the sale by the Acridge Trust to Giant of a parcel of land containing approximately 40 acres located at 9540 East Jomax Road in Scottsdale, Arizona (the "Property"). G. As of March 9, 2001, Giant and Acridge, as Trustee for and on behalf of the Acridge Trust, entered into a Third Amendment to Purchase Agreement with respect to the sale by the Acridge Trust to Giant of the Property, wherein, among other things, Giant increased the Deposit (as defined in the Purchase Agreement) by an additional $450,000.00 (the "Additional Obligation"). H. The First Amendment to the Pledge and Security Agreement establishes a contingent obligation of Giant to make a Surplus Payment in connection with the sale of the Property (the "Surplus Payment"), which Surplus Payment is also deemed an obligation secured by the Pledge Agreement. I. Effective as of March 28, 2001, the parties intend to extend the maturity date of the Loan from March 28, 2001 to March 28, 2003 (the "Extension"). J. As consideration for the Extension, as well as consideration for the Additional Obligation and the Surplus Payment, and as additional consideration for the obligations of Acridge under the Note and Loan Agreement, and for other good and valuable consideration, Acridge desires to grant Giant a first priority security interest in and to 100% of the membership interests of Rodeo. AGREEMENT: NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. PLEDGE. Acridge hereby grants to Giant a first priority security interest in the following (the "Pledged Collateral"): 1.1 Collateral Definition: The Pledged Collateral consists of the following: 1.1.1 100% of the membership interest of Rodeo and all rights of Acridge as the sole member of Rodeo (including, without limitation, the right to distributions of cash or property from Rodeo) (collectively, 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 the gross cash proceeds to Rodeo from all sources. 1.3 Payment of Net Cash Flow with respect to the Interest When No Default Exists: During the term of this Agreement, and prior to any default by Acridge of his obligations under the Note, the Loan Agreement, the Pledge Agreement, the Purchase Agreement or hereunder (collectively, the "Obligations"), the Net Cash Flow after accounting for payments or reserves required by the existing lenders to Rodeo attributable to the Interest may be paid to Acridge. 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, the Pledge Agreement, the Purchase Agreement or hereunder, Acridge shall cause Rodeo to distribute to Giant, on account of the Obligations, all Net Cash Flow after accounting for any payments or reserves required by the existing lenders to Rodeo. 2. SECURITY FOR OBLIGATIONS. 2.1 Obligations Secured. The pledge granted in this Agreement secures the payment and performance of the obligations by Acridge under the Note, the Loan Agreement, the Pledge Agreement, the Purchase Agreement, and this Agreement. 2.2 Acknowledgment of Consideration. Acridge acknowledges that he has benefited from the extension of the maturity date of the Loan from February 28, 2001 to March 28, 2001, as well as by the further Extension of the maturity date of the Loan from March 28, 2001 to March 28, 2003. In addition, Acridge has benefited by the assumption of the creation of the Additional Obligation by Giant, as well as Giant's contingent obligation to make the Surplus Payment, as well as by the covenants and agreements of Giant set forth in the Purchase Agreement, the Purchase Agreement Modification, the Note, the Loan Agreement and the Pledge Agreement. Accordingly, Acridge acknowledges that he has received valuable consideration in the form of the aforesaid. Acridge acknowledges the receipt and sufficiency of adequate consideration for his pledge of the Pledged Collateral as set forth herein, and all of the terms and conditions of this Agreement are fully binding upon him 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"), Acridge shall, contemporaneously with the execution hereof, execute and deliver to Giant a financing statement (the "Financing Statement") in form satisfactory to Giant. Acridge agrees that, from time to time hereafter, he will execute and deliver to Giant such further instruments and documents as Giant may reasonably request which are necessary for the purpose of perfecting and continuing the perfection of the security interest granted hereby. 4. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS. Acridge represents and warrants to Giant as follows: 4.1 Authorization. This Agreement has been duly authorized, executed and delivered by Acridge and creates a valid security interest in the Pledged Collateral under the Uniform Commercial Code, as adopted by the State of Arizona (the "Code") and when the Financing Statement is duly filed with the Arizona Secretary of State, Giant will have a first priority security interest in the Pledged Collateral. 4.2 No Default. The execution and delivery of this Agreement will not conflict with or result in a breach, default or violation of any other agreement to which Acridge is a party or by which any of Acridge's property is bound. The consummation of the transactions contemplated herein will not conflict with or result in a breach, default or violation of any other agreement to which Acridge is a party or by which any of Acridge's property is bound. 4.3 Good Title. Acridge 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). 4.4 Location. The principal residence and location of Acridge is the address for Acridge specified on the signature page below. Acridge shall promptly notify Giant 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. 4.6 Informed Consent to Agreement. Acridge 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 Acridge's execution of this Agreement is done freely, voluntarily, with full knowledge and without duress, and that in executing this Agreement, Acridge is relying on no other representations either written or oral, express or implied, made to Acridge by any other party hereto, and that the consideration received by Acridge hereunder has been actual and adequate. Acridge further acknowledges that he has been advised, and has been given the reasonable opportunity, to seek independent legal advice with respect to the subject matter of this Agreement, and Acridge hereby represents to Giant that he has either sought and obtained such independent legal advice or that he hereby waives such advice. 4.7 Consents. That no consent or approval of any third party is required to permit the pledge of the Pledged Collateral hereunder. 5. COVENANTS OF ACRIDGE: 5.1 No other Liens. Acridge 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. 5.2 No Assignment. Acridge shall not sell, transfer, convey, assign, or otherwise dispose of, or further encumber, all or any part of the Pledged Collateral or any interest therein, voluntarily or involuntarily, by operation of law or otherwise, directly or indirectly. Nor shall Acridge cause, allow, or enable, Rodeo or Rawhide to sell, transfer, convey, assign, or otherwise dispose of, or further encumber, all or any part of its assets or property, or any interest therein, voluntarily or involuntarily, by operation of law or otherwise, directly or indirectly, however sales of inventory and personal property in the ordinary course of business for full and fair consideration shall not be prohibited hereby. 5.3 Notice of Default. Upon hearing of a Default, as defined in Section 6 below, or upon knowledge or notice of the likelihood of a Default, Acridge shall immediately provide (but in all events within 24 hours after first hearing of the Default or likelihood thereof) notice to Giant of such Default or likelihood thereof. 5.4 Performance of Other Obligations. Acridge shall cause Rodeo and Rawhide to timely and fully comply with, and perform, when due, all terms, obligations, covenants and conditions contained in any agreements with third parties, including the three promissory notes dated January 18, 2000 by Rodeo in favor of Western Town, L.L.C., an Arizona limited liability company, and Hirsch Investment Co., L.L.C., an Arizona limited liability company, in the aggregate original principal amount of $28,851,250 (the "Hirsch Notes"). 5.5 Notice of Payments. On or before the payment due dates set forth under the Hirsch Notes, Acridge shall immediately provide Giant notice of such payment being made, along with reasonable evidence of such payment, which notice shall include a certification that all obligations of Rodeo under the Hirsch Notes are current and that Rodeo is not in default under any of the Hirsch Notes. 5.6 Reimbursement. Acridge shall reimburse all reasonable out of pocket costs directly or indirectly related to Giant's protection of collateral, including reasonable, prudent, or necessary costs incurred to maintain its secured position in the Pledged Collateral, or the value thereof. 5.7 Management. Acridge shall manage and operate Rodeo, and therefore all assets and interests held by Rodeo, in a commercially reasonable manner, not inconsistent with the rights and interests of Giant created hereby. Acridge shall not cause or permit Rodeo, or any entity controlled by Rodeo, to be in breach of, or to allow a default (including, without limitation, a Default) to occur in regard to any of their respective obligations. 5.8 Further Cooperation. From time to time, and immediately upon request of Giant, Acridge shall cooperate with and assist Giant in its efforts to preserve and protect the Pledged Collateral, and the secured interests of Giant therein, including obtaining the express subordination of Hirsch Investment Co., L.L.C. (or its affiliates), in regard to Giant's security interest in the 49% membership interest in Rawhide held by Giant, as such express subordination is contemplated by Section 9 of the Settlement Agreement, dated January 18, 2000, by and among Rodeo, Rawhide, Acridge, Hirsch Investment Co., L.L.C., I. Jerome Hirsch and others. 6. REMEDIES OF GIANT. In the event that (a) an Event of Default shall occur under the Note, or (b) Acridge fails to comply with or perform when due, any term, obligation, covenant or condition contained in this Agreement or in the Loan Agreement, the Pledge Agreement, the Purchase Agreement, or (c) Rodeo or Rawhide fails to comply with or perform when due, any term, obligation, covenant or condition contained in any agreement with any third parties, including, without limitation, the Hirsch Notes, and any other obligations of Rodeo or Rawhide to any other creditor of Rodeo or Rawhide (each, a "Default"), then Giant 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 Code. The proceeds from any foreclosure sale pursuant to the Code shall be applied first toward the costs and expenses of such sale and all other reasonable costs incurred by Giant, including without limitation, fairness opinions and attorneys' fees, second towards any attorneys' fees owing to Giant pursuant to Section 18 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 to Acridge. In the event that Giant has and exercises remedies under the Code pursuant to and in accordance with the terms of this Section, any notice of sale required by law shall be deemed "commercially reasonable" if such notice is given at least five (5) days prior to the time of such sale. Acridge acknowledges that such shorter period of time is necessary for Giant to protect any interests in the Pledged Collateral and its property from the claims of other parties including creditors having liens on assets owned, directly or indirectly, by Acridge. Acridge recognizes that Giant 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. Acridge 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 Acridge and Giant 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. COVENANT OF GIANT. If (a) Giant takes possession of any or all of the Pledged Collateral, and thereafter all assets of Rodeo and Rawhide are liquidated and all liabilities and obligations of Rodeo and Rawhide are paid or satisfied in full, and (b) all of Acridge's Obligations to Giant have been paid or satisfied in full, after reimbursing Giant for the Giant Claim Amount, and the Additional Amounts, both as defined below, and (c) Rodeo has any funds remaining, then Giant shall remit such remaining funds to Acridge. As used above, the "Giant Claim Amount" shall mean an amount that shall be fixed at the date of the foreclosure (the "Foreclosure") by Giant of the Interest, and shall be equal to the aggregate of: (i) all outstanding amounts due to Giant under the Note, the Loan Agreement, the Purchase Agreement and hereunder; (ii) all reasonable costs and expenses incurred by Giant through the date of the Foreclosure in connection with the Foreclosure, the liquidation of Rodeo and Rawhide, and in enforcing its rights hereunder, including as set forth in Sections 5.6 and 18. As used above, the "Additional Amounts" shall mean an accretive factor which will be computed upon the Giant Claim Amount (without regard to whether the Note is satisfied or deemed satisfied) at the rate that would have been applicable upon default under the Note, plus any additional reasonable costs or expenses incurred by Giant after the Foreclosure with respect to the Foreclosure and the sale or liquidation of all of the assets of Rodeo and Rawhide. Acridge's right to receive funds as set forth above does not give Acridge or any persons acting on his behalf, or any of Acridge's heirs, successors or assigns, any right to control, question or attack any of the actions taken by Giant in its sole discretion, with respect to the exercise of Giant's rights hereunder, or the liquidation of Rodeo or Rawhide, including without limitation, the commercial reasonableness of any sales, any consideration received, or any costs or expenses incurred. 8. REAFFIRMATION OF OBLIGATIONS. Acridge believes that it is in his best interests to enter into this Agreement with Giant. Acridge hereby reaffirms the full force and effectiveness of the Note, the Loan Agreement, the Pledge Agreement, the Purchase Agreement and the Financing Statements. Acridge agrees that the Pledge Agreement, as amended, continues to secure all of the obligations described therein, including the Additional Obligations. Acridge represents that this Agreement is of substantial economic benefit to Acridge and that his reaffirmation and consent is an essential part of the consideration to Giant to enter into this Agreement and to extend the Maturity Date of the Loan Agreement Modification. Acridge hereby consents to the terms, conditions and the provisions of this Agreement. 9. NO IMPAIRMENT; SECURITY. Nothing contained herein shall be deemed a waiver of or limit any of the rights and remedies that Giant may have against Acridge or of any of Giant's rights and remedies arising out of any other documents or agreements, and Giant specifically reserves, and shall have, all rights and remedies available to Giant under the law or as provided in such other documents and agreements. 10. 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. 11. 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 Giant under any other Agreement or shall be construed to be a waiver of any Default hereunder or under any other agreement. 12. 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 against receipt (which includes delivery by commercial couriers such as Federal Express or Express Mail) or by facsimile (but only if automatic machine confirmation is issued by the transmitting fax machine), with confirmation copy to the addresses set forth beneath the signature of each party hereto. Notices shall be effective immediately upon delivery against receipt, or 24 hours after being sent by facsimile. In the event any party 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. 13. 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. 14. 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. 15. 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 Acridge, his heirs, successors, transferees and assigns and (iii) inure to the benefit of the Giant and its successors, transferees and assigns. The security interest herein granted shall terminate, and Giant shall execute and deliver to Acridge such termination statements and other instruments as shall be necessary to release such security interest, when the Obligations of Acridge have been fully satisfied. Acridge shall promptly notify Giant of any change in Acridge's name or the location of his principal residence, chief executive office and/or principal place of business, and upon the happening of any of the foregoing events shall cause Acridge 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 Pledged Collateral, regardless of whether such transfer may be permitted pursuant to this Agreement or any governing document of Rodeo. 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 heirs, successors and assigns, any rights, benefits or obligations hereunder. 16. COUNSEL; INTERPRETATION. Each party hereto acknowledges that it was represented by legal counsel (or had the opportunity to be represented by independent legal counsel) in connection with this Agreement and that each of them and their counsel have reviewed and revised this Agreement, or have had an opportunity to do so, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or any exhibits hereto or thereto. 17. 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. 18. 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. 19. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of Giant and its permitted successors and assigns. No other persons or entities shall have any right of action under this Amendment. IN WITNESS WHEREOF, Acridge has caused this Agreement to be duly executed and delivered by its authorized officer thereunto duly authorized as of the date first above written. ACRIDGE: /s/ JAMES E. ACRIDGE - ------------------------------ James E. Acridge Address: 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Facsimile:____________________ Attn: ________________________ GIANT: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ MARK B. COX Name: MARK B. COX ------------------------- Title: VP TREASURER ------------------------ Address: 23733 N. Scottsdale Road Scottsdale, Arizona 85255 Facsimile:____________________ Attn:_________________________ This Agreement and the terms hereof are consented and agreed to by: PINNACLE RODEO, L.L.C., an Arizona limited liability company By: /s/ JAMES E. ACRIDGE ---------------------------- James E. Acridge Its: Sole Member EX-10.26 7 0007.txt EXHIBIT 10.26 PURCHASE AGREEMENT DATE: January 26, 2001 SELLER: JAMES E. ACRIDGE, TRUSTEE FOR AND ON BEHALF OF THE ACRIDGE FAMILY TRUST Address: 23733 North Scottsdale Road Scottsdale, Arizona 85253 Telephone: (480) 585-8802 Facsimile No.: (480) 585-8894 Attention: James E. Acridge Taxpayer Identification Number: ###-##-#### BUYER: GIANT INDUSTRIES, INC., a Delaware corporation Address: 23733 N. Scottsdale Road Scottsdale, AZ 85255-3410 Telephone: (480) 585-8888 Facsimile No.: (480) 585-8985 Attention: Kim H. Bullerdick, General Counsel Taxpayer Identification Number: 86-0218157 ESCROW AGENT: FIRST AMERICAN TITLE INSURANCE COMPANY Address: 4801 East Washington Street Phoenix, Arizona 85034 Telephone: (602) 685-7560 Facsimile No.: (602) 685-7580 Escrow Officer: Carol Peterson Escrow Number: 201-800-1331310 PROPERTY: The real property legally described on Exhibit A, including all improvements located on and all rights and privileges appurtenant to the real property (the "Property"). ARTICLE 1 AGREEMENT OF THE PARTIES 1.1 Agreement. In consideration of the mutual promises and covenants set forth in this Agreement, Seller agrees to sell and Buyer agrees to buy the Property on the terms and conditions set forth in this Agreement. ARTICLE 2 SALES PRICE AND PAYMENT TERMS 2.1 Sales Price. The total sales price (the "Sales Price") which Buyer agrees to pay for the Property is the lesser of $5,000,000 or the Appraised Value of the Property determined in accordance with Section 2.2 below. 2.2 Appraised Value. On or before the expiration of the Feasibility Period (defined in Section 5.1(b) below), Buyer, at its expense, shall cause the Property to be appraised by a licensed real estate appraiser selected by Buyer and approved by Seller and pursuant to instructions and using a methodology agreed to by Buyer and Seller. The amount set forth in such appraisal shall conclusively be deemed the "Appraised Value" for purposes of this Agreement. 2.3 Payment of Sales Price. The Sales Price is payable as follows: (a) Earnest Money Deposit. Immediately following the execution of this Agreement by both parties, Buyer shall pay to Seller, by wire transfer of immediately available funds, direct and outside of Escrow, $740,000 as an earnest money deposit (the "Deposit"). If the Escrow closes, the Deposit shall be credited against the Sales Price. If the transaction fails to close for any reason, the Deposit shall be repaid to Buyer within five (5) days following the termination of this Agreement, less any amounts Seller is entitled to retain pursuant to Section 11.1 below. Seller's obligation to repay the Deposit and to pay any amounts pursuant to Section 11.2 below, shall be secured by a deed of trust on the Property in the form attached hereto as Exhibit B (the "Deed of Trust") (b) Loan Payment. At the Closing, $896,775.10, and such additional amount as shall be mutually agreed to by Buyer and Seller, ("Loan Payment") shall be applied by Buyer to amounts payable to Buyer by James E. Acridge ("Acridge") under that certain Loan Agreement dated September 17, 1998, as subsequently amended, between Buyer and Acridge (the "Loan Agreement"), first to prepay the interest that shall become due and payable on February 28, 2001 and the remainder to reduce the principal balance due and owing under the Loan Agreement. Seller hereby directs Buyer to apply the Loan Payment to the amounts payable by Acridge as set forth in the preceding sentence. (c) Cash Payable at Closing. The balance of the Sales Price shall be paid by wire transfer of immediately available funds to the account of Escrow Agent, to be deposited in the Escrow on or before the Closing. ARTICLE 3 ESCROW 3.1 Establishment of the Escrow. An escrow for this transaction (the "Escrow") is established with Escrow Agent, and Escrow Agent is engaged to administer the Escrow. 3.2 Opening Date. Within twenty-four (24) hours of the execution of this Agreement by both Buyer and Seller, Buyer will deliver an executed copy of this Agreement to Escrow Agent. The date that the Agreement is delivered to Escrow Agent is referred to in this Agreement as the "Opening Date". 3.3 Acceptance of Escrow. By accepting this Escrow, Escrow Agent agrees to the terms of this Agreement as they relate to the duties of Escrow Agent. 3.4 Escrow Instructions. This Agreement constitutes escrow instructions to Escrow Agent. If Escrow Agent requires the execution of its standard form printed escrow instructions, Buyer and Seller agree to execute those instructions; however, those instructions will be construed as applying only to Escrow Agent's engagement. If there are conflicts between the terms of this Agreement and the terms of the printed escrow instructions, the terms of this Agreement will control. 3.5 Escrow Cancellation Charges. If the Escrow fails to close because of Seller's default, Seller will pay all customary escrow cancellation charges. If the Escrow fails to close because of Buyer's default, Buyer will pay all customary escrow cancellation charges. If the Escrow fails to close for any other reason, Seller and Buyer will each pay one-half (1/2) of all customary escrow cancellation charges. ARTICLE 4 INFORMATION TO BE PROVIDED TO BUYER 4.1 Information and Other Items to Be Provided to Buyer. On or before February 9, 2001, Seller will provide Buyer with the following, at no cost to Buyer: (a) Survey. A survey (the "Survey") of the Property prepared by a civil engineer satisfactory to Buyer, licensed in Arizona. The Survey will be an ALTA survey and will show all easements, encroachments and other matters affecting the Property. The Survey will be certified to be accurate, complete and correct to Buyer. The cost of the Survey will be paid by Seller. The Survey will form the basis for the legal description of the Property. Notwithstanding the foregoing, Seller may provide an existing survey of the Property (an "Existing Survey") in satisfaction of the foregoing so long as the Title Insurer is willing to rely on such Existing Survey, or a current Update of such Existing Survey, in issuing the title policy described in Section 6.3 below and provided further that the Existing Survey is certified to Buyer and Title Insurer. (b) Preliminary Title Report. A current preliminary title report (the "Report") on the Property prepared by Escrow Agent. The Report will show the status of title to the Property as of the date of the Report and will be accompanied by legible copies of all documents referred to in the Report. (c) Studies and Reports. Copies of all engineering plans and reports, site plans, environmental site assessments, architectural plans, drawings, test and inspection reports, environmental assessments, studies, and other materials prepared for Seller or in Seller's possession relating to the Property. (d) Other Agreements. Copies of any other agreements or contracts relating to the Property. 4.2 Material Changes in Information. At the Closing, Seller will report to Buyer in writing any material changes in and otherwise to update and bring current as of the Closing any and all information furnished by Seller to Buyer pursuant to this Agreement. ARTICLE 5 CONDITIONS TO CLOSING 5.1 Conditions to Buyer's Obligation to Close. Buyer's obligations to close this transaction are subject to the satisfaction, in Buyer's sole and absolute discretion (or waiver by Buyer in writing), of the following conditions on and as of the Closing, unless an earlier date is specified: (a) Title Review. Buyer is satisfied with the status of title to the Property as disclosed by the Report and the Survey. In that regard: (i) Buyer will have ten (10) days (the "Title Review Period") following receipt of both the Report and the Survey to approve or disapprove any Survey matters and the status of title as shown by the Report and the Survey. If Buyer is dissatisfied with any matter shown on the Survey or with any exception to title as shown in the Report, then Buyer may, by giving notice to Seller and Escrow Agent within the Title Review Period, either: (1) Cancel this Agreement; or (2) Provisionally accept title subject to Seller's removal of any disapproved matters, exceptions or objections, in which case Seller will use its best efforts to remove the matters, exceptions or objections or obtain title insurance endorsements satisfactory to Buyer against such matters, exceptions and objections before the Closing. If Seller cannot remove such matters, exceptions and objections before the Closing, Buyer may terminate this Agreement and the Deposit will be returned to Buyer, or Buyer may waive such objections and the transaction will close as scheduled. (ii) Title to the Property will be delivered to Buyer at the Closing free and clear of all monetary liens and encumbrances (other than the lien for current real property taxes not yet due and payable). All of such liens and encumbrances are disapproved for the purposes of this Section, and Buyer need not give any further notice of disapproval as to those items. Seller agrees that all such monetary liens and encumbrances will be released from the Property by Seller at Seller's sole expense on or before the Closing. (iii) If, prior to Closing, Escrow Agent issues a supplemental title report showing additional exceptions to title (a "Title Supplement"), Buyer shall have a period of time equal to two (2) business days (a "Supplemental Title Review Period") from the date of receipt of the Title Supplement and a copy of each document referred to in the Title Supplement in which to give notice of dissatisfaction as to any additional exceptions. If Buyer is dissatisfied with any additional exception shown in the Title Supplement, then Buyer will have the rights set forth above in Sections 5.1(a)(i)(1) and 5.1(a)(i)(2) by giving appropriate notice to Seller during the Supplemental Title Review Period. (iv) If Buyer does not object to a Survey matter or an exception to title as disclosed by a Report within the Title Review Period or Supplemental Title Review Period, as applicable, the matter will be deemed to have been approved by Buyer. The matters shown in the Report and any Title Supplement (other than standard printed exceptions and exclusions that will be included in the title policy) that are approved or deemed approved by Buyer in accordance with this Section 5.1(a), the Survey matters that are approved or deemed approved by Buyer, and any other matters approved by Buyer in writing, are referred to in this Agreement as the "Approved Title Exceptions". (b) Buyer's Investigations. Buyer is satisfied with Buyer's investigations and inspections with respect to the Property and this transaction. Without limiting the foregoing, Buyer will have the right to determine, in its sole discretion, that the purchase and resale of the Property will not violate any of the terms and conditions of any note, loan agreement or other indebtedness of Buyer or require Buyer to make any payments under any such indebtedness and that this transaction will not result in any material economic effect or risk to Buyer. In that regard, for a period ending at 5:00 o'clock p.m. (Phoenix time) on February 19 2001 (the "Feasibility Period"), Buyer will have the absolute right to cancel this Agreement for any reason whatsoever, in Buyer's sole and absolute discretion. However, until Buyer cancels, Buyer will proceed in good faith with Buyer's preliminary investigatory steps with respect to this transaction. Unless Buyer gives written notice of cancellation prior to the expiration of the Feasibility Period, then Buyer will be deemed to have elected not to cancel the Agreement under this provision. (c) Changes. Buyer has approved, on or before the Closing, (i) the results of an inspection, at the Buyer's expense, of any material changes occurring after the satisfaction of the inspection condition described in Section 5.1(b)) and (ii) any supplementary information provided to Buyer as required by Section 4.2. (d) Loan Agreement. Buyer and Acridge shall have agreed on a mutually acceptable (i) extension of the Loan Agreement, and (ii) a reduction, if any, in the principal balance due and owing under the Loan Agreement. (e) Appraisal. Seller has approved the appraiser selected by Buyer and Buyer and Seller have agreed on the instructions to be given to and the methodology to be used by such appraiser by February 2, 2001. (f) Repurchase Option and/or Right of First Refusal. Buyer and Seller shall have agreed on the terms of a repurchase option and/or right of first refusal to be granted to Seller giving Seller the right to repurchase the Property on terms and conditions acceptable to the parties. (g) Truthfulness of Representations. Seller's representations and warranties set forth in this Agreement are true, complete and correct on and as of the Closing. (h) Full Compliance. Seller has fully performed all of its obligations to be performed by Seller on or before Closing. If any of the foregoing conditions is not fulfilled to the satisfaction of Buyer, in Buyer's reasonable discretion (or otherwise waived by Buyer in writing), except as otherwise provided herein, on or before the date by which such contingency is to have been satisfied, Buyer may, in addition to any right or remedy otherwise available to Buyer, by written notice to Seller given at any time prior to Closing, cancel this Agreement. If this Agreement is canceled as permitted by this Section 5.1, the Deposit will be returned to Buyer as provided in Section 2.3(a). 5.2 Conditions to Seller's Obligation to Close. Seller's obligation to close this transaction is subject to the satisfaction, in Seller's sole and absolute discretion (or waiver by Seller in writing), of the following conditions on and as of the Closing, unless an earlier date is specified: (a) Loan Agreement. Buyer and Acridge shall have agreed on a mutually acceptable (i) extension of the Loan Agreement, and (ii) a reduction, if any, in the principal balance due and owing under the Loan Agreement. (b) Appraisal. Seller has approved the appraiser selected by Buyer and Buyer and Seller have agreed on the instructions to be given to and the methodology to be used by such appraiser by February 2, 2001. (c) Repurchase Option and/or Right of First Refusal. Buyer and Seller shall have agreed on the terms of a repurchase option and/or right of first refusal to be granted to Seller giving Seller the right to repurchase the Property on terms and conditions acceptable to the parties, each in their own discretion. (d) Truthfulness of Representations. Buyer's representations and warranties set forth in this Agreement are true, complete and correct on and as of the Closing. (e) Full Compliance. Buyer has fully performed all of its obligations to be performed by Buyer on or before Closing. If any of the foregoing conditions is not fulfilled to the satisfaction of Seller, in Seller's reasonable discretion (or otherwise waived by Seller in writing), on or before the date by which such contingency is to have been satisfied, Seller may by written notice to Buyer, cancel this Agreement, in which event the Deposit shall be returned to Buyer as provided in Article 11 below. ARTICLE 6 CLOSING DOCUMENTS; TITLE POLICIES 6.1 Seller's Closing Documents. On or before the Closing, Seller will deposit the following documents into the Escrow for delivery to Buyer at the Closing, each of which will have been duly executed and, where appropriate, acknowledged, and will be in form and substance satisfactory to Buyer and Buyer's legal counsel: (a) Deed. A special warranty deed, in form and substance satisfactory to Buyer, subject to no defects, exceptions, easements, encumbrances, covenants, conditions, restrictions, mining claims or liens, except the Approved Title Exceptions. (b) Affidavit of Value. An Affidavit of Value as required by law. (c) Warranty Certificate. A Certificate certifying that, as of the Closing, all of the representations and warranties of Seller set forth in Article 9 were true when made and are true, correct and current as of, and as if made at, the Closing, and that all such representations and warranties will survive the Closing. (d) FIRPTA Affidavit. An affidavit, signed and acknowledged by Seller under penalties of perjury, certifying that Seller is not a nonresident alien, foreign corporation, foreign partnership, foreign trust, foreign estate, or other foreign person within the meaning of Section 1445 and 7701 of the Internal Revenue Code of 1986 and the associated Treasury Regulations. (e) Certified Trust Agreement.. A certified copy of Seller's Trust Agreement and such other documents as may be reasonably required by Buyer or Escrow Agent evidencing the Seller's authority to complete this transaction and designating the person or persons authorized to sign documents on behalf of Seller. (f) Additional Documents. Such other documents as may be necessary or appropriate to transfer and convey all of the Property to Buyer and to otherwise consummate this transaction in accordance with the terms of this Agreement. 6.2 Buyer's Closing Documents. On or before the Closing, Buyer will deposit into the Escrow the following documents for delivery to Seller at the Closing, each of which will have been duly executed and, where appropriate, acknowledged and will be in form and substance satisfactory to Seller and Seller's legal counsel: (a) Release of the Deed of Trust. A release of the Deed of Trust. (b) Affidavit of Value. An Affidavit of Value as required by law. (c) Buyer's Resolution. A certified copy of resolution of the board of directors of Buyer, or other equivalent document reasonably satisfactory to Seller if Buyer is not a corporation, which resolution will be in full force and effect, approving this transaction and designating the person or persons authorized to sign documents on behalf of Buyer. (d) Additional Documents. Such other documents as may be necessary or appropriate to consummate this transaction in accordance with the terms of this Agreement. 6.3 Title Policy. At the Closing, Seller will provide Buyer with an extended owner's policy of title insurance issued by First American Title Insurance Company (the "Title Insurer") in the full amount of the Sales Price, effective as of the Closing, insuring Buyer that fee simple title to the Property is vested in Buyer, subject only to the usual printed exceptions and exclusions contained in such title insurance policies and the Approved Title Exceptions. Seller, at Seller's expense, will satisfy all of Escrow Agent's requirements for issuance of such policy, other than those, if any, within Buyer's control. ARTICLE 7 CLOSING THE TRANSACTION 7.1 Deadline for Closing. (a) Initial Time for Closing. The closing of this transaction and the Escrow (the "Closing") will occur on or before February 23, 2001, in the offices of Buyer. (b) Extension for Late Delivery. If Seller fails to cure any title exception pursuant to Section 5.1(a)(iii) on or before the date set for Closing, Buyer may extend. 7.2 Closing Costs and Prorations. (a) Escrow Fees. Seller and Buyer will each pay one-half (1/2) of the Escrow fee. (b) Title Insurance Fees. Seller will pay the entire premium for a standard coverage owner's policy of title insurance. Buyer will pay the premium differential between an ALTA extended owner's title insurance policy and a standard coverage owner's policy in the same amount. (c) Recording Fees. Recording fees for documents transferring interests to Buyer, such as a deed, and for removing liens, encumbrances or other title matters will be paid by Seller. (d) Improvement Liens. Any improvement liens or other assessments will be paid in full by Seller on or prior to Closing. (e) Prorations. Real estate and personal property ad valorem taxes, homeowner's or property owners' association assessments, and irrigation district assessments will be prorated in the Escrow as of the Closing, based upon the most current information then available to Escrow Agent. If, at the Closing, actual tax or assessment information is not available, then, following the Closing and within thirty (30) days of receipt by either Buyer or Seller of the actual tax or assessment information, Buyer and Seller will re-prorate real estate taxes and assessments among themselves and make any necessary adjusting payments. (f) Miscellaneous Closing Costs. Any other closing costs not provided for above will be paid by Buyer and Seller as they shall mutually agree or, in the absence of such agreement, according to the usual and customary practice in Maricopa County, Arizona. 7.3 Payments and Disbursements to Be Handled through the Escrow. The various charges, credits and prorations contemplated by this Agreement will be handled by Escrow Agent through the Escrow by appropriate charges and credits to Buyer and Seller. All amounts payable pursuant to this Agreement will be paid to Escrow Agent for disposition through the Escrow. Escrow Agent is authorized to make all disbursements to the parties and to third parties contemplated by this Agreement from funds deposited for those purposes, as necessary or appropriate to close this transaction. 7.4 Final Disbursement to Seller. Upon the Closing, all amounts paid according to Sections 2.3(a) less any closing costs, commissions and other amounts payable by or chargeable to Seller, will be disbursed to Seller. 7.5 Buyer's Obligation to Deposit Additional Funds. On or before the Closing, Buyer will deposit with Escrow Agent cash in an amount sufficient to pay all closing costs and other amounts payable by or otherwise chargeable to Buyer. 7.6 IRS Reporting at Closing. Escrow Agent agrees to be the designated "reporting person" under Section 6045(e) of the U.S. Internal Revenue Code with respect to the real estate transaction described in this Agreement and to prepare, file and deliver such information, returns and statements as the U.S. Treasury Department may require by regulations or forms in connection therewith, including Form 1099-B. ARTICLE 8 ADDITIONAL COVENANTS 8.1 Possession. Possession of the Property will be delivered to Buyer upon the Closing free and clear of all leases and other possessory interests. 8.2 Risk of Loss. Except as provided in Section 8.3, the risk of loss or damage to the Property and all liability to third persons until the Closing will be borne by Seller. 8.3 Right to Enter and Inspect the Property. From time to time prior to the Closing, Buyer may enter the Property with Buyer's representatives, contractors, and agents to examine the Property, conduct soil tests, environmental studies, engineering feasibility studies, and other tests and studies, and to investigate the Property. Buyer will indemnify and hold harmless Seller and Seller's Related Parties for, from, and against any Claims arising out of Buyer's exercise of the rights granted by this Section (unless resulting from Seller's negligence or willful misconduct) and this indemnity will survive the Closing or the cancellation of this Agreement. 8.4 Condemnation. If all or any portion of the Property is condemned (or sold and conveyed in lieu of condemnation) prior to the Closing or if any condemnation action is commenced, Buyer may cancel this Agreement by giving written notice of cancellation to Seller. If Buyer elects to cancel, the Deposit will be returned to Buyer and the Agreement will be canceled. If Buyer elects to close the Escrow notwithstanding the taking of all or a portion of the Property or commencement of a condemnation action prior to the Closing, Buyer will receive all awards or payments made by the condemning authority to which Seller would otherwise be entitled and will proceed to close the Escrow and pay the total Sales Price. 8.5 Maintenance of Property. Seller agrees to maintain the Property, including all improvements and landscaping, in good condition and repair until the Closing. 8.6 Brokerage. Buyer warrants that Buyer has not dealt with any broker in connection with this transaction. Seller warrants that Seller has not dealt with any broker in connection with this transaction.. If any person asserts a claim to a finder's fee, brokerage commission or other compensation on account of alleged employment as a finder or broker or performance of services as a finder or broker in connection with this transaction, the party under whom the finder or broker is claiming will indemnify and hold the other party and the other party's Related Parties harmless for, from, and against any Claims related thereto. This indemnity will survive the Closing or the cancellation of this Agreement. 8.7 General Indemnity. Each party to this Agreement agrees to indemnify and hold harmless each other party and that party's Related Parties for, from and against all Claims attributable, directly or indirectly, to the breach by such indemnifying party of any obligation under this Agreement or the inaccuracy of any representation or warranty made by such indemnifying party in this Agreement or in any instrument delivered pursuant to this Agreement or in connection with the transactions contemplated by this Agreement. In addition, Seller will indemnify and hold Buyer and Buyer's Related Parties harmless for, from and against any Claims relating in any way to the Property and accruing prior to the Closing, even though now unknown and unsuspected. ARTICLE 9 SELLER'S REPRESENTATIONS AND WARRANTIES 9.1 Nature of Seller's Representations. Each of the representations and warranties of Seller contained in this Article 9 constitutes a material part of the consideration to Buyer and Buyer is relying on the correctness and completeness of these representations and warranties in entering into this transaction. Each of the representations and warranties is true and accurate as of the date of execution of this Agreement by Seller, will be true and accurate as of the Closing, and will survive the Closing and regardless of any investigation or inspection by Buyer. 9.2 Representations and Warranties as to Seller and the Transaction. Seller represents and warrants to Buyer as follows: (a) Organizational Status. Seller is a trust duly organized, validly existing and in good standing under the laws of the State of Arizona, and has full power and authority to enter into and to perform its obligations under this Agreement. The persons executing this Agreement on behalf of Seller have full power and authority to do so and to perform every act and to execute and deliver every document and instrument necessary or appropriate to consummate the transactions contemplated by this Agreement. Without limiting the foregoing, Seller has the authority to make the distribution referenced in Section 2.3(b) above. (b) Entity Action. All action on the part of Seller which is required for the execution, delivery and performance by Seller of this Agreement and each of the documents and agreements to be delivered by Seller at the Closing has been duly and effectively taken. (c) Enforceable Nature of Agreement. This Agreement and each of the documents and agreements to be delivered by Seller at the Closing, constitute legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, moratorium, or similar laws affecting the enforcement of creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a court of law or equity). (d) Violations; Consents; Defaults. Neither the execution of this Agreement nor the performance by Seller of its obligations under this Agreement will result in any breach or violation of the terms of any law, rule, ordinance, or regulation or of any decree, judgment or order to which Seller or any officer, director or shareholder of Seller is a party now in effect from any court or governmental body. There are no consents, waivers, authorizations or approvals from any third party necessary to be obtained by Seller in order to carry out the transactions contemplated by this Agreement. The execution and delivery of this Agreement and performance by Seller of its obligations under this Agreement will not conflict with or result in a breach or default (or constitute an event which, with the giving of notice or the passage of time, or both, would constitute a default) under Seller's trust agreement, or other instrument to which Seller is a party or by which Seller or any of its assets may be bound. The execution and delivery of this Agreement and performance by Seller of its obligations under this Agreement will not result in the creation of any new, or the acceleration of any existing, lien, charge, or encumbrance upon the Property. (e) Litigation. Neither Seller nor any of its officers, directors or shareholders is a party to any pending or threatened action, suit, proceeding or investigation, at law or in equity or otherwise, in, for or by any court or governmental board, commission, agency, department or officer arising from or relating to this transaction, the Property or to the past or present operations and activities of Seller upon or relating to the Property. 9.3 Representations and Warranties Relating to the Property. Seller represents and warrants to Buyer as follows: (a) Governmental Restrictions; Condemnation. Seller has not received, nor is aware of, any notifications, restrictions, or stipulations from the United States of America, the State of Arizona, the County of Maricopa, the City of Scottsdale, or any other governmental authority requiring any work to be done on the Property or threatening the use of the Property. There are no pending or threatened condemnation proceedings affecting any portion of the Property. Seller is not subject to, nor does any basis exist for, any order, judgment, decree or governmental restriction which would adversely affect this transaction, the Property or the use of the Property in the manner presently being conducted by Seller. Seller is not aware of any plan, study, litigation, action, proceeding or effort by any governmental authority or private party which in any way challenges, affects or would challenge or affect the continuation of the present use and operation of the Property. (b) Title and Access. Fee simple title to the Property is currently vested in Seller. Permanent, legal access is available to the Property from a dedicated public right-of-way. (c) Knowledge of Adverse Title Matters. Seller has no knowledge of any title defect, lien, encumbrance, adverse claim, or other matter relating to the title to the Property or to the title insurance coverage for the Property which is has not disclosed in writing to the title company or which is not shown by the public records. (d) Leases and Agreements. There are no unrecorded leases, arrangements, agreements, understandings, options, contracts, or rights of first refusal affecting or relating to the Property in any way. (e) Absence of Liens. No lien against the Property has arisen or exists under Federal or state tax, environmental, or other law, other than the lien for current real property taxes not yet due and payable. (f) Utilities. Water, sewer, drainage, telephone, gas and electrical facilities are presently installed to the Property line. (g) Property Description. The legal description of the Property attached to this Agreement as Exhibit A accurately and completely describes the property which Seller owns and which Buyer is purchasing under this Agreement. No person has any unrecorded right, title or interest in the Property, whether by right of adverse possession, prescriptive easement or otherwise. (h) Compliance. To the best of Seller's knowledge, Seller has complied, in all respects, with all laws, ordinances, rules, regulations, requirements and orders of federal, state, or local governments and/or their agencies with respect to the Property and the operations presently being conducted by Seller upon the Property. To the best of Seller's knowledge, neither the Property, nor any improvement or building upon the Property, violates, in any respect, any such laws, ordinances, rules, regulations, requirements and orders, including, but not limited to zoning, or building laws, ordinances, orders or regulations. (i) Environmental Representations. (i) To the best of Seller's knowledge, the Property is free from and has always been free from Hazardous Substances, and is not now and has never been in violation of any Environmental Law. Seller has not caused or allowed the use, generation, manufacture, production, treatment, storage, release, discharge, or disposal of any Hazardous Substances on, under, or about the Property, and has not caused or allowed the transportation to or from the Property of any Hazardous Substance. (ii) To the best of Seller's knowledge, there are not now and have never been any buried or partially buried storage tanks located on the Property. (iii) Seller has received no warning, notice of violation, administrative complaint, judicial complaint, or other formal or informal notice alleging that conditions on the Property or adjacent property are or have been in violation of any Environmental Law, or informing Seller that the Property is subject to investigation or inquiry regarding the presence of Hazardous Substances on or about the Property or the potential violation of any Environmental Law. (iv) For purposes of this Agreement, "Environmental Law" means any federal, state or local law, statute, ordinance, or regulation pertaining to health, industrial hygiene, or environmental conditions, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. SS 9601, et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. SS 6901, et seq.; the Toxic Substances Control Act of 1976, 15 U.S.C. SS 2601, et seq.; the Superfund Amendments and Reauthorization Act of 1986, Title III, 42 U.S.C. SS 11001, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. SS 1801, et seq.; the Clean Air Act, 42 U.S.C. SS 7401, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. SS 1251, et seq.; the Safe Drinking Water Act, 42 U.S.C. SS 300f, et seq.; the Solid Waste Disposal Act, 42 U.S.C. SS 3251, et seq.; and any other federal, state or local law, statute, ordinance, or regulation now in effect or hereafter enacted which pertains to health, industrial hygiene, or the regulation or protection of the environment, including, without limitation, ambient air, soil, groundwater, surface water, and/or land use. For purposes of this Agreement, Hazardous Substance" means any material, waste, substance, pollutant, or contaminant which may or could pose a risk of injury or threat to health of the environment. (j) Mechanics' Liens. No work has been performed on or about the Property or to any improvements located thereon within six (6) months prior to the Opening Date that could give rise to any mechanics' or materialmen's liens whatsoever. (k) Information. There is no information or document not disclosed or provided by Seller to Buyer, directly or indirectly relating to this transaction or to the ownership or use of the Property. (l) Disclosure. No representation, warranty or covenant contained in this Agreement and no statement contained in the Exhibits or in any certificate or other instrument furnished or to be furnished to Buyer as required by this Agreement or in connection with the transactions contemplated by this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact which is necessary in order to make the statements contained herein or therein not misleading. For purposes of this Section 10.1, where a representation or warranty is qualified by the phrase "to the best of Seller's knowledge" or words of similar import, the phrase means that the representation or warranty is made to the best of Seller's knowledge, without investigation or inquiry. ARTICLE 10 BUYER'S REPRESENTATIONS AND WARRANTIES 10.1 Nature of Buyer's Representations. Each of the representations and warranties of Buyer contained in this Article 10 constitutes a material part of the consideration to Seller and Seller is relying on the correctness and completeness of these representations and warranties in entering into this transaction. Each of the representations and warranties is true and accurate as of the date of execution of this Agreement by Buyer, will be true and accurate as of the Closing, and will survive the Closing and regardless of any investigation or inspection by Seller. 10.2 Representations and Warranties as to Buyer and the Transaction. Buyer represents and warrants to Seller as follows: (a) Organizational Status. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and has full power and authority to enter into and to perform its obligations under this Agreement. The persons executing this Agreement on behalf of Buyer have full power and authority to do so and to perform every act and to execute and deliver every document and instrument necessary or appropriate to consummate the transactions contemplated by this Agreement. (b) Entity Action. All corporate action on the part of Buyer and its shareholders which is required for the execution, delivery and performance by Buyer of this Agreement and each of the documents and agreements to be delivered by Buyer at the Closing has been duly and effectively taken. (c) Enforceable Nature of Agreement. This Agreement and each of the documents and agreements to be delivered by Buyer at the Closing, constitute legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, moratorium, or similar laws affecting the enforcement of creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a court of law or equity). (d) Violations; Consents; Defaults. Neither the execution of this Agreement nor the performance by Buyer of its obligations under this Agreement will result in any breach or violation of the terms of any law, rule, ordinance, or regulation or of any decree, judgment or order to which Buyer or any officer, director or shareholder of Buyer is a party now in effect from any court or governmental body. There are no consents, waivers, authorizations or approvals from any third party necessary to be obtained by Buyer in order to carry out the transactions contemplated by this Agreement. The execution and delivery of this Agreement and performance by Buyer of its obligations under this Agreement will not conflict with or result in a breach or default (or constitute an event which, with the giving of notice or the passage of time, or both, would constitute a default) under Buyer's articles of incorporation or bylaws or any indenture, mortgage, lease, agreement, or other instrument to which Buyer is a party or by which Buyer or any of its assets may be bound. The execution and delivery of this Agreement and performance by Buyer of its obligations under this Agreement will not result in the creation of any new, or the acceleration of any existing, lien, charge, or encumbrance upon the Property. For purposes of this Section 10.2, the knowledge of each officer, director and shareholder of Buyer will be imputed to Buyer. Where a representation or warranty is qualified by the phrase "to the best of Buyer's knowledge" or words of similar import, the phrase means that the representation or warranty is made to the best of Buyer's knowledge, without investigation or inquiry. ARTICLE 11 REMEDIES 11.1 Seller's Remedies. If Buyer fails to deposit the remainder of the Sales Price in the time and manner set forth in this Agreement or to perform when due any other act required by this Agreement or otherwise breaches this Agreement, Seller's sole and exclusive remedy will be to cancel this Agreement and the Escrow, such cancellation to be effective immediately upon Seller giving written notice of cancellation to Buyer and Escrow Agent. Upon such cancellation, Seller will be entitled to retain from the Deposit the reasonable costs and expenses incurred by Seller in connection with this Agreement, not to exceed Twenty Thousand Dollars ($20,000), and Buyer shall be entitled to the immediate return of the remainder of the Deposit. 11.2 Buyer's Remedies. If Seller fails to perform when due any act required by this Agreement to be performed or otherwise breaches this Agreement, then, as its sole remedy, Buyer may cancel this Agreement and the Escrow, such cancellation to be effective immediately upon Buyer giving written notice of cancellation to Seller and Escrow Agent. In which event Buyer shall be entitled to the immediate return of the Deposit and the reasonable costs and expenses incurred by Buyer in connection with this Agreement, not to exceed Twenty Thousand Dollars ($20,000). ARTICLE 12 GENERAL PROVISIONS 12.1 Certain Definitions. As used in this Agreement, certain capitalized terms are defined as follows: (a) "Claims" means any and all obligations, debts, covenants, conditions, representations, costs, and liabilities and any and all demands, causes of action, and claims, of every type, kind, nature or character, direct or indirect, known or unknown, absolute or contingent, determined or speculative, at law, in equity or otherwise, including attorneys' fees and litigation and court costs. (b) "Related Parties" means, with respect to any person or entity, the officers, directors, shareholders, partners, members, employees, agents, attorneys, successors, personal representatives, heirs, executors, or assigns of any such person or entity. 12.2 Assignment. At any time prior to the Closing, Buyer may assign its rights under this Agreement to an Affiliate of Buyer. Upon execution by such Affiliate of a document in which the Affiliate assumes the obligations of Buyer and agrees to perform those obligations, Seller agrees that the assignor will be released from all obligation and liability as Buyer under this Agreement and that Seller will accept performance of all of Buyer's obligations by the assignee. For purposes of this Agreement, an "Affiliate" shall be any entity directly or indirectly controlling, controlled by or under common control with Buyer. 12.3 Binding Effect. The provisions of this Agreement are binding upon and will inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns. 12.4 Attorneys' Fees. If any action is brought by either party in respect to its rights under this Agreement, the prevailing party will be entitled to reasonable attorneys' fees and court costs as determined by the court. 12.5 Waivers. No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision, whether or not similar, nor will any waiver be a continuing waiver. No waiver will be binding unless executed in writing by the party making the waiver. Either party may waive any provision of this Agreement intended for its benefit; provided, however, such waiver will in no way excuse the other party from the performance of any of its other obligations under this Agreement. 12.6 Construction. This Agreement will be construed according to the laws of the State of Arizona, without giving effect to its conflict of laws principles. References in this Agreement to "Sections" or "Articles" are to the Sections and Articles in this Agreement, unless otherwise noted. 12.7 Time. Time is of the essence of this Agreement. 12.8 Notices. Notices will be in writing and will be given by personal delivery, by deposit in the United States mail, certified mail, return receipt requested, postage prepaid, by facsimile transmission, or by express delivery service, freight prepaid. Notices will be delivered or addressed to Seller and Buyer at the addresses or facsimile numbers set forth on the first page of this Agreement or at such other address or number as a party may designate in writing. The date notice is deemed to have been given, received and become effective will be (a) the date on which the notice is delivered, if notice is given by personal delivery, (b) the date of actual receipt, if the notice is sent through the United States mail or by express delivery service, or (c) if notice is sent by facsimile transmission, on the date of transmission, if the transmission is commenced prior to 4:00 o'clock p.m. (local time at the place of receipt) and continuously transmitted thereafter until complete, otherwise on the day following the date of transmission. 12.9 Further Documentation. Each party agrees in good faith to execute such further or additional documents as may be necessary or appropriate to fully carry out the intent and purpose of this Agreement. 12.10 Time Periods. Except as expressly provided for in this Agreement, the time for performance of any obligation or taking any action under this Agreement will be deemed to expire at 5:00 o'clock p.m. (Phoenix time) on the last day of the applicable time period provided for in this Agreement. If the time for the performance of any obligation or taking any action under this Agreement expires on a Saturday, Sunday or legal holiday, the time for performance or taking such action will be extended to the next succeeding day which is not a Saturday, Sunday or legal holiday. 12.11 Headings and Counterparts. The headings of this Agreement are for purposes of reference only and will not limit or define the meaning of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will be an original but all of which will constitute one and the same instrument. 12.12 Entire Agreement. This Agreement, which includes the following Exhibits: Exhibit A Legal Description Exhibit B Deed of Trust constitutes the entire agreement between the parties pertaining to the subject matter contained in this Agreement. All prior and contemporaneous agreements, representations and understandings of the parties, oral or written, are superseded by and merged in this Agreement. No supplement, modification or amendment of this Agreement will be binding unless in writing and executed by Buyer and Seller. SELLER: /s/ JAMES E. ACRIDGE ---------------------------------------- JAMES ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST BUYER: GIANT INDUSTRIES, INC. By /s/ MARK B. COX -------------------------------------- Its VP, TREASURER AND FINANCIAL OFFICER ------------------------------------- The undersigned executes this Agreement for the purpose of agreeing to the provisions of Section 2.3(b): /s/ JAMES E. ACRIDGE - --------------------------------------- JAMES E. ACRIDGE ESCROW AGENT ACCEPTANCE Escrow Agent hereby accepts the engagement to handle the escrow established by this Agreement in accordance with the terms set forth in this Agreement. FIRST AMERICAN TITLE INSURANCE COMPANY By: /s/ CAROL PETERSON ----------------------------------- Name: CAROL PETERSON --------------------------------- Title: ESCROW OFFICER -------------------------------- EXHIBIT A LEGAL DESCRIPTION OF PROPERTY A parcel of land containing approximately 40 acres located at 9540 East Jomax Road in the City of Scottsdale, Arizona, more particularly described as follows: THE SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER OF SECTION THIRTY-ONE (31), TOWNSHIP FIVE (5) NORTH, RANGE (5) EAST OF THE GILA AND SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY, ARIZONA; EXCEPT ALL THE COAL AND OTHER MINERALS AS RESERVED IN THE PATENT FROM THE UNITED STATES OF AMERICA. EXHIBIT B DEED OF TRUST EX-10.27 8 0008.txt EXHIBIT 10.27 When recorded return to: Kim H. Bullerdick General Counsel Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255-3410 DEED OF TRUST TRUSTOR: JAMES E. ACRIDGE, TRUSTEE, FOR AND ON BEHALF OF THE ACRIDGE FAMILY TRUST 23733 North Scottsdale Road Scottsdale, Arizona 85253-3410 BENEFICIARY: GIANT INDUSTRIES, INC., an Arizona corporation 23733 North Scottsdale Road Scottsdale, Arizona 85253-3410 TRUSTEE: FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation Post Office Box 2922 Phoenix, Arizona 85062 Attn: Carol Peterson PROPERTY in Maricopa County, State of Arizona, described as: See Exhibit A attached hereto and incorporated herein by this reference. This Deed of Trust made between the Trustor, Trustee and Beneficiary above named, WITNESSETH: That Trustor IRREVOCABLY GRANTS, BARGAINS, SELLS, CONVEYS, TRANSFERS and ASSIGNS to TRUSTEE, IN TRUST WITH POWER OF SALE, the above described real property and all buildings and improvements thereon or that may hereafter be erected thereon, all fixtures, and all equipment, machinery, and apparatus of every kind and nature now located on said property or hereafter attached to or used in connection with the property described above, all of which Trustor represents are and shall be and are intended to be a part of the realty, together with all permits, licenses, grazing and range rights relating to or pertaining to said property, if any, together with all and singular the tenements, hereditaments, and appurtenances, and all of the rents, issues and profits thereof, and the reversion and reversions, remainder and remainders, and together with all water rights thereunto belonging, to have and hold unto Trustee, its successors and assigns forever (hereinafter called "Trust Property"). FOR THE PURPOSE OF SECURING: (1) Performance of the covenants and agreements set forth in this Deed of Trust and in that certain Purchase Agreement dated of even date herewith ("Purchase Agreement"), including, but not limited to Trustor's obligation to repay the "Deposit" under the Purchase Agreement and any and all extensions, revisions or renewals thereof in whole or in part. (2) Performance of each covenant, promise and agreement of Trustor contained herein or incorporated herein by reference; and (3) Payment of all sums required to be made by Trustor pursuant to the terms hereof. It is understood, however, by Trustor and Beneficiary that Beneficiary shall not be required to make any such additional advances and/or Loans and that, if any such advances and/or Loans are made, they will be made only at such times and in such amounts as Beneficiary may, in its sole discretion, determine. TO PROTECT THE PROPERTY AND SECURITY GRANTED BY THIS TRUST DEED, IT IS AGREED: 1. Trustor warrants that it is seized of good and merchantable fee simple title to the Trust Property, subject only to reservations in the patent, water right application, obligations arising in favor of water use or irrigation associations or companies (none of the assessments of which are delinquent), current taxes not delinquent, easements and restrictions of record. Trustor acknowledges that all legal descriptions of real estate listed herein were provided by Trustor, warrants the correctness of such descriptions, and agrees that, in the event there does exist an error or defect in such legal descriptions, Trustor authorizes Trustee to do all acts and things and execute all documents deemed necessary by Beneficiary, proper and convenient for the perfection, protection, preservation or enforcement of Beneficiary's rights hereunder. 2. Trustor agrees to pay all indebtedness secured hereby including principal, interest, costs and attorney's fees in accordance with the terms of each evidence of indebtedness. Without limiting the foregoing, any amount secured hereby that is not paid when due shall bear interest at the rate of 12% per annum. 3. Trustor agrees to pay, before the same becomes delinquent, all taxes, assessments, water and other charges levied or assessed upon or against the Trust Property, and in addition all charges for gas, electricity and other items furnished to or charged against the Trust Property. Trustor agrees to pay, prior to delinquency, any and all ground rents and amounts payable under any Lease, trust deed, mortgage or other instrument which may be an encumbrance on the Trust Property. 4. Trustor agrees to keep the improvements now or hereafter located on the Trust Property insured against loss by fire and other hazards and casualties in such amounts and for such periods as may be required from time to time by Beneficiary. Trustor also agrees to maintain and keep in force during the term hereof flood hazard insurance as may be or may have been required by Beneficiary or by law or regulation. Trustor agrees to pay the premiums on such insurance, when due and prior to delinquency, and furnish proof of such payment to Beneficiary. All insurance shall be carried in responsible insurance companies approved by Beneficiary. The policies shall be held by Beneficiary and shall have, at all times, loss payable clauses attached thereto in favor of and approved by Beneficiary. In the event of any loss or damage to the improvements, Trustor will give immediate notice by mail to Beneficiary and make proper proof of loss (and if not made by Trustor, Beneficiary may make the same). Beneficiary may require that the payment for such loss be paid directly to Beneficiary only and not jointly to Trustor and Beneficiary. Beneficiary may, at its option, apply the payment to the reduction of the indebtedness secured hereby or may apply the same to the restoration or repair of the property damaged. Trustor hereby assigns to Beneficiary all such policies and the payments to be made thereunder. In the event of foreclosure of this Trust Deed, or exercise of the power of sale given to Trustee, or acquisition of the title to the property by Beneficiary or its assigns, all right, title, and interest of Trustor in and to the policies and proceeds thereof and sums payable thereunder shall forthwith pass automatically to the purchaser of said property. 5. Trustor agrees to keep the buildings and other improvements on the property at all times in good condition and repair. All apparatus and machinery shall be kept in good working order and properly serviced and repaired. Trustor will not allow nor commit any waste, and will not demolish nor structurally alter any buildings on the property, and will do no act to injure or depreciate the value of such property. The property and buildings thereon shall be kept in a reasonably clean, safe and sanitary condition and shall not be allowed to become dilapidated or rundown. Trustor agrees that it will not remove or allow to be removed any fixture or fixtures from the Trust Property without the prior written consent of Beneficiary. Trustor further agrees that in adding any new fixtures or in substituting fixtures on the Trust Property, prior proof will be furnished Beneficiary that no security exists therein. 6. In the event Trustor fails to make any payment required to be made by it hereunder, or fails to keep the property so insured, or fails to keep the property so repaired, or fails to perform any of its other obligations hereunder, Beneficiary may make any such payment, obtain any such insurance, make any such repairs (Trustor hereby grants Beneficiary the right to go upon the premises for such purpose), or remedy any other default of Trustor. All expenditures made by Beneficiary shall be prima facie evidence of the necessity therefor and reasonableness thereof. Such expenditures, together with all incidental costs of Beneficiary, including reasonable attorney's fees if incurred, shall be immediately due and payable by Trustor to Beneficiary, shall bear interest until paid at the rate of twelve percent (12%) per annum, and shall be secured by this Trust Deed. 7. Trustee and Beneficiary and their officers, employees, and agents may enter upon and inspect the property at any reasonable time or times. 8. The proceeds of any judgment, award or settlement in any condemnation or eminent domain proceeding or on account of injury to the property by reason of public use, or by reason of private trespass, or other injury to the property, shall be paid to Beneficiary, who may at its option, either reapply the proceeds to reduce the indebtedness secured hereby (whether matured or to mature in the future) or be released to Trustor. Trustor hereby assigns and transfers to Beneficiary all such amounts and proceeds and agrees that Beneficiary may receipt for the same on behalf of Trustor. 9. Trustor by execution of this Deed of Trust assigns and transfers to Beneficiary all of Trustor's right, title and interest in and to all leases, rents, profits or income from the Trust Property and each and every part thereof, including all present and future leases or rental agreements, which assignment and transfer may be enforced by Beneficiary only upon any default by Trustor, existing under this agreement, by any one or more of the following methods: (a) appointment of a receiver; (b) Beneficiary taking possession of the Trust Property; (c) Beneficiary collecting any moneys payable under leases or rental agreements directly from the parties obligated for payment; (d) injunction; or (e) any other method permitted by law. Unless and until Beneficiary shall elect to collect said rents and rentals, the same shall be collected by Trustor, but Beneficiary may at any time, after Trustor's default, collect all such rents and rentals and Trustor agrees not to hinder or delay Beneficiary in collecting the same. Any rents or rentals received by Beneficiary shall be applied first to the cost of collection, second to any expenses Beneficiary may expend in making the property ready for or satisfactory to any lessee or tenant, and the remainder shall be applied on the indebtedness secured hereby (whether matured or unmatured) as Beneficiary may elect. 10. Time is of the essence of this Trust Deed. No failure on the part of Beneficiary to exercise any of its rights hereunder shall be construed as a waiver of or prejudice its rights in the event of any other subsequent default or breach. No delay on the part of Beneficiary in exercising any of its rights hereunder shall preclude it from the exercise thereof at any time during the continuance of any such default. The acceptance of late payments shall not waive the "time is of the essence" provision. All rights and remedies of Beneficiary are cumulative and concurrent, and may be exercised singly, severally or concurrently as Beneficiary may elect. 11. In the event the indebtednesses secured hereby or this Trust Deed is placed in the hands of attorneys for collection or foreclosure, then Trustor agrees to pay reasonable attorney's fees to Beneficiary, in addition to the amount due thereon, together with all costs and expenses incurred by Beneficiary in the collection and foreclosure thereof, and together with the cost of a title search, the payment of which sums are secured by this Trust Deed. 12. In the event of any default by Trustor in the payment of the indebtedness secured hereby; or in the event of any default of Trustor in performing any of its obligations hereunder or any obligations under any loan agreement or other document executed by Trustor and held by Beneficiary; or in the event Trustor, or any guarantor or surety shall be adjudicated insolvent or bankrupt or any proceedings are filed by or against them or any of them in the nature of bankruptcy or reorganization or arrangement with creditors; or in the event any proceeding is filed to foreclose or any Notice of Trustee's Sale is recorded on any other lien on the Trust Property (whether junior or senior to this Trust Deed); or in the event any Writ or Attachment shall be filed or levied against the Trust Property; or in the event Trustor abandons the Trust Property or leaves the same unattended or unprotected; or in the event Beneficiary shall deem the security provided by this Trust Deed inadequate or in danger of being impaired or diminished from any cause whatsoever (any of such events being an event of default hereunder); then and in any such event Beneficiary may declare the entire debt and all indebtedness of Trustor to Beneficiary to be immediately due and payable without notice to Trustor. Beneficiary may thereupon, at its option, and without prior notice and without affecting the lien of this Trust Deed, do any one or more of the following: enter upon the premises and inspect, repair, improve and maintain the same, rent or lease the premises or portions thereof as Beneficiary shall see fit, and perform such other acts thereon as Beneficiary may deem necessary or advisable; sue for all or part of the indebtedness owing from Trustor to Beneficiary without affecting or without losing the security of this Trust Deed; foreclose this Trust Deed as a mortgage in the manner provided by law; cause the exercise of the power of sale granted herein; bring an action for damages, or exercise such other remedies or combination of remedies Beneficiary may have under law and equity. 13. Upon payment in full of all sums secured hereby and performance of all obligations of Trustor hereunder, the lien of this Trust Deed upon the Trust Property shall be released by reconveyance by Deed of Release, which said reconveyance and release shall be without warranty and shall operate to reconvey the estate vested in Trustee hereby. Beneficiary may, at any time, without notice, release any person liable for payment of any indebtedness secured hereby, release portions of the Trust Property from this Trust Deed, or extend or modify the time for payment of the indebtedness secured hereby by agreement with Trustor or by agreement with subsequent owners of said property, and any such release, extension or modification shall not affect the personal liability of any person for the payment of said indebtedness or the lien of this Trust Deed upon the remaining portion of said property. At any time, without liability therefor and without notice, and without affecting the personal liability of Trustor of any other person for payment of the indebtedness secured hereby, Trustee may, with the consent of Beneficiary: (a) release and reconvey by Deed of Release any part of the Trust Property from the lien hereof; (b) consent to the making and recording of any maps or plats of the Trust Property; (c) join in granting any easement on the Trust Property; or (d) join in any extension agreement or any agreement subordinating or modifying the lien or charge hereof. If Trustee shall perform any such acts or execute complete or partial reconveyances it shall be paid a fee in accordance with its established fees and charges therefor. If reconveyance by Deed of Release is to be made by Trustee, Beneficiary shall deliver the original of this Trust Deed to Trustee with a request for reconveyance by Deed of Release. The Grantee in any Deed of Release executed pursuant to this Trust Deed may be described as "the person or persons legally entitled thereto" and the recitals therein of any matters or facts shall be conclusive proof of the truthfulness thereof. 14. In the event of default hereunder, Beneficiary, if it desires Trustee to exercise the power of sale granted hereby, shall execute and deliver to Trustee a written declaration of default and demand for sale and shall surrender to Trustee this Trust Deed, and all documents evidencing any expenditures hereunder, together with such other documents as Trustee may require. Beneficiary shall also execute and deliver to Trustee all notices to Trustor that must be signed by Beneficiary. Upon receipt thereof, Trustee shall sell the Trust Property as provided by law. Trustee may postpone the sale as provided by law. After sale of the Trust Property, Trustee shall deliver its deed to the purchaser conveying the property so sold but without any covenant or warranty, express or implied. The recital in any such deed of any matters or facts, stated either specifically or in general terms, or as conclusions of law or facts, shall be conclusive proof of the truthfulness thereof. 15. Beneficiary may, at any time, request cancellation of Trustee's Notice of Sale, whereupon Trustee shall execute and record, or cause to be recorded, a Cancellation of Notice of Sale in the same county in which the Notice of Sale was recorded. The exercise by Beneficiary of this right shall not constitute a waiver of any default then existing or subsequently occurring. In the event this Trust Deed and the indebtedness and obligations secured hereby are reinstated in the manner provided by law, Beneficiary shall forthwith notify Trustee thereof as provided by law. Upon such notification, Trustee shall record, or cause to be recorded, a Cancellation of Notice of Sale in the same county in which the Notice of Sale was recorded within the period then required by law. 16. In the event of default hereunder, at any time before the Trust Property has been sold pursuant to the power of sale granted hereby, this Trust Deed may be foreclosed in the manner provided by law for the foreclosure of mortgages on real property. 17. In the event of default hereunder, Beneficiary shall be entitled to the appointment of a Receiver to take charge of the property, collect the rents, issues and profits therefrom, care for and repair the same, improve the same when necessary or desirable, lease and rent the property or portion thereof (including leases existing beyond the term of receivership), plant, cultivate and harvest crops thereon, and otherwise use and utilize the property and to have such other duties as may be fixed by the Court. Trustor specifically agrees that the Receiver may be appointed without any notice to Trustor whatsoever, and the Court may appoint a Receiver without reference to matters normally taken into account by Courts in the discretionary appointment of Receivers, it being the intention of Trustor to hereby authorize the appointment of a Receiver when Trustor is in default and Beneficiary has requested the appointment of a Receiver. Trustor hereby agrees and consents to the appointment of the particular person or firm (including an officer or employee of Beneficiary) designated by Beneficiary as Receiver and hereby waives its rights to suggest or nominate any person or firm as Receiver in opposition to that designated by Beneficiary. 18. Beneficiary may substitute another Trustee herein named to exercise the rights, powers and duties granted by law and contained herein. Upon such appointment, and without the necessity of a conveyance to the successor Trustee, the latter shall be vested with all the title, powers and duties conferred upon the Trustee herein named. 19. Beneficiary or any purchaser at Trustee's sale or at any foreclosure sale may, if it so elects, be subrogated to and succeed to all the rights of Trustor under any or all leases on the property or portions thereof. Beneficiary may, if it so elects, subordinate its rights hereunder to any lease on the property, or a portion thereof, and keep the lease in effect through and after any foreclosure action or Trustee's sale. 20. In the event of the passage after the date of this Trust Deed of any law levying any tax upon this Trust Deed or the debt secured hereby, which Beneficiary is obliged to pay, then Trustor agrees to pay said tax or reimburse Beneficiary for the payment of the same, provided that Trustor shall not be obligated to pay any amount which would be considered as interest at a rate higher than allowed by law, and provided further that in the event of the enactment of any such law Beneficiary shall have the right, at its option, to declare the indebtedness secured hereby to be immediately due and payable. 21. Trustor agrees that in the event of a sale, assignment, encumbrance, or any other transfer of the Trust Property described herein or any portion thereof or interest therein, whether such transfer is voluntary or involuntary, or in the event Trustor contracts for the sale of said property, or any portion thereof or interest therein, then and in that event, Beneficiary may, at its option, accelerate the time for payment of all indebtedness secured hereby and demand full repayment thereof, or give its written consent to such transfer on such terms and conditions as Beneficiary may in its sole discretion require. 22. Trustee may, but shall be under no obligation or duty to, appear in or defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee. If Trustee shall take such action at the request of Beneficiary, it shall be paid therefor in accordance with its established fees and charges and shall be reimbursed for its costs and expenses actually incurred, including attorney's fees. 23. The Trust created hereby is irrevocable by Trustor. Trustee accepts this Trust Deed, duly executed and acknowledged, is made a public record as provided by law, but acceptance is not required as a condition to the validity hereof, and this Trust Deed is effective upon delivery. Trustee shall not be obligated to notify any party hereto of pending sale under any other trust deed, or any action or proceeding in which Trustor, Beneficiary or Trustee shall be a party, except as required by law. 24. The word "Trustor" and the language of this instrument shall, where there is more than one Trustor, be construed as plural and be binding equally on Trustors. The obligations of Trustors hereunder and under the Purchase Agreement secured hereby shall be joint and several. This Trust Deed applies to, is binding upon, and inures to the benefit of all parties hereto, their heirs, executors, administrators, successors and assigns. The term "Beneficiary" shall include not only the original Beneficiary hereunder, but also any future owner and holder of the rights under the Purchase Agreement secured hereby. 25. If any provision hereof should be held unenforceable or invalid, in whole or in part, then such unenforceable or void provision or part shall be deemed separable from the remaining provisions hereof and shall in no way affect the validity of this Trust Deed. 26. Notwithstanding any provisions herein or in the Purchase Agreement, or in any related agreement between Trustor and Beneficiary, the total liability of Trustor for payments in the nature of interest shall not exceed the limits now imposed by the laws of the State of Arizona. 27. Trustor requests that a copy of any Notice of Sale hereunder be mailed to him at his mailing address set forth above. Any notices required to be given to Trustor by mailing shall be effective and complete when mailed and shall be mailed to the address set forth below. Lack of receipt thereof shall in no way invalidate the notice or any sale by Trustee hereunder. If Trustor desires to change the address to which notices shall be mailed, such change shall be accomplished by a request as provided by law. 28. Trustee shall be paid for all acts performed by it hereunder or in connection herewith in accordance with its established fees and charges. All such fees and charges shall be paid by Trustor, and if Beneficiary shall advance any such fees or charges, Trustor shall reimburse Beneficiary for same on demand. Payment thereof is secured by this Trust Deed. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust this 26th day of January, 2001. /s/ JAMES E. ACRIDGE ----------------------------------- JAMES E. ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 26th day of January 2001, by JAMES E. ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST. IN WITNESS HEREOF, I have hereunto set my hand and official seal. /s/ JEAN B. GOODRICH ------------------------- Notary Public My commission expires: 5/22/2004 - ---------------------- EXHIBIT A LEGAL DESCRIPTION OF PROPERTY A parcel of land containing approximately 40 acres located at 9540 East Jomax Road in the City of Scottsdale, Arizona, more particularly described as follows: THE SOUTHEAST QUARTER OF THE SOUTHEAST QUARTER OF SECTION THIRTY-ONE (31), TOWNSHIP FIVE (5) NORTH, RANGE (5) EAST OF THE GILA AND SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY, ARIZONA; EXCEPT ALL THE COAL AND OTHER MINERALS AS RESERVED IN THE PATENT FROM THE UNITED STATES OF AMERICA. EX-10.28 9 0009.txt EXHIBIT 10.28 FIRST AMENDMENT TO PURCHASE AGREEMENT THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (the "Amendment"), is made this 12th day of February, 2001 by and between James Acridge, as Trustee of The Acridge Family Trust ("Seller"), and Giant Industries, Inc., a Delaware corporation ("Buyer"). RECITALS A. Buyer and Seller entered into that certain Purchase Agreement dated January 26, 2001 (the "Agreement") with respect to that certain real property described therein (the "Property"). B. Buyer and Seller now wish to amend the Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Deposit. The Deposit is increased from $740,000 to $990,000. Seller acknowledges the receipt of the initial $740,000 of the Deposit. Immediately following the execution of this Amendment, Buyer shall pay the remaining $250,000 of the Deposit to Seller, by wire transfer of immediately available funds, direct and outside of Escrow. The cash payable at the Closing shall be reduced by the increase in the Deposit. 2. Right of First Refusal. From and after the Closing Date and until the second anniversary of the Closing Date, Buyer grants Seller a right of first refusal to purchase the Property (the "Right") on the terms and conditions set forth in this Amendment. If Buyer receives a bona fide offer to purchase all or any portion of the Property from a bona fide purchaser or if Buyer intends to submit an offer to sell all or any portion of the Property to a bona fide purchaser (the "Offer"), Buyer shall promptly give written notice of the Offer to Seller with a copy of the Offer attached (the "Offer Notice"). Seller shall have three (3) business days from receipt of the Offer Notice in which to elect to accept the Offer and purchase the Property described in the Offer Notice (the "Offer Property") on the same terms and conditions set forth in the Offer (except as to the time of closing, which shall be the longer of (i) the date which is ninety (90) days from the date Seller elects to purchase the Offer Property or (ii) the date for closing specified in the Offer). Seller's election shall be exercised by giving written notice to Buyer prior to 5:00 p.m., M.S.T. on the third (3rd) business day after receipt of the Offer Notice. If Seller does not accept the Offer within such three (3) day period, Buyer may thereafter sell the Offer Property on substantially the same terms as set forth in the Offer; provided, however, that if the price offered to another party is less than ninety-five percent (95%) of the amount set forth in the Offer, Buyer shall again offer the Offer Property to Seller as set forth above before consummating a sale of the Offer Property. If the Offer Property is sold to another party pursuant to the terms of this Section, the Right and the Option (as defined below) shall automatically terminate and be of no further force and effect with respect to the Offer Property on the closing date of such sale. 3. Option. Buyer grants to Seller the option (the "Option") to purchase the Property (excluding any portion thereof sold pursuant to Section 2 above) on the terms and conditions set forth in this Amendment. The Option may be exercised by Seller giving written notice of Seller's election at any time on or before 5:00 p.m., M.S.T., on the second anniversary of the Closing Date (the "Option Deadline"). The date of such notice shall be referred to as the "Option Exercise Date". The purchase price for the Property shall be the greater of the Appraised Value determined as of the Option Exercise Date (without taking into consideration the existence of the Right or the Option) or the Sales Price paid by Buyer to Seller (or if a portion of the Property has been sold pursuant to Section 2 above, the portion of the Sales Price allocable to the portion of the Property to be purchased by Seller) (the "Option Price"), and shall be paid to Buyer by wire transfer of immediately available funds to the Escrow Agent on or before the date which is ninety (90) days after the Option Exercise Date (the "Option Closing Date"). If Buyer exercises the Option an escrow shall be established with Escrow Agent. On or before the Option Closing Date, Buyer shall deliver to Escrow Agent a special warranty deed fully executed and acknowledged by Buyer, conveying the Property (or applicable portion thereof) to Seller, subject to the Approved Title Exceptions (but excluding the Deed of Trust), and to any matters arising from and after the Closing Date (but excluding any monetary liens and encumbrances created by Buyer, which shall be removed by Buyer prior to the Option Closing Date). The Option Property shall be conveyed to Seller as is, without representation or warranty except as set forth in the deed. On the Option Closing Date, closing costs and prorations shall be apportioned as between Buyer and Seller and prorated in accordance with Section 7.2 of the Agreement, except that the Seller under this Amendment shall be responsible for all closing costs, including, without limitation, all premiums associated with obtaining any policy of title insurance for the Property (or portion thereof purchased by Seller), all recording fees and all escrow fees. Notwithstanding the foregoing, following Seller's receipt of an Offer Notice, Seller may not exercise the Option with respect to the Offer Property described in such Offer Notice unless (i) Buyer fails to enter into a purchase agreement to sell the Property within 180 days following Seller's receipt of such Offer Notice or (ii) if Buyer executes a purchase agreement pursuant to such Offer Notice, the purchase agreement is subsequently terminated without purchase of the Offer Property by the buyer thereunder. The Option shall automatically terminate if Buyer has not exercised the Option on or before the Option Deadline, and the Option Deadline shall not be extended by any period during which Seller's right to exercise the Option is suspended under the preceding sentence. 4. Right and Option Closing Conditions. Buyer's obligation to sell the Property to Seller upon Seller's exercise of the Right or the Option is conditioned upon Buyer's determination, in its sole judgement, that the sale of the Property, in whole or in part, would not (a) conflict with or result in a breach or default (or constitute an event which, with the giving of notice or the passage of time, or both, would constitute a default) under Buyer's certificate of incorporation or bylaws or any indenture, mortgage, lease, agreement, or other instrument to which Buyer is or becomes a party or by which any of its assets are or becomes bound (each of the foregoing, a "Buyer Agreement"), (b) require any payment in respect of any Buyer Agreement, or (c) violate any law, rule, regulation or ordinance applicable to Buyer or any of its assets ("Applicable Law"). If Buyer determines that any of the conditions in the immediately preceding sentence cannot be met, Buyer will not be obligated to sell the Property to Seller and the Right and Option shall terminate. If Buyer determines that it would be appropriate or necessary for Buyer to obtain a fairness opinion or a similar third-party opinion or report as a condition to selling the Property to Seller upon Seller's exercise of the Right or the Option, Seller will be responsible for all costs of obtaining any such fairness opinion or report. 5. Termination. If the Offer or the Right terminate in accordance with this Amendment, Seller shall, if requested by Buyer, execute a document evidencing such termination, but such document shall not be a prerequisite to the effectiveness of such termination. 6. Loan Agreement. Section 5.1(d) and Section 5.2(a) of the Agreement are deleted in their entirety. 7. Appraisal. The reference to February 2, 2001 in Section 5.1(e) and Section 5.2(b) is hereby changed to February 16, 2001. 8. Legal Counsel and Advisors. Seller acknowledges that it has been given an opportunity to consult with legal counsel and other advisors prior to the execution of the Agreement and this Amendment. 9. Definitions. Except as otherwise provided herein, the defined terms shall have the meanings set forth in the Agreement. 10. Full Force and Effect. Except as amended hereby the Agreement shall remain in full force and effect. 11. Counterparts. This Amendment may be executed via facsimile in any number of counterparts, each of which shall be an original, but all which shall constitute one and the same Amendment. IN WITNESS WHEREOF this Amendment has been executed the first day in year written above. SELLER: /s/ JAMES E. ACRIDGE -------------------------------- JAMES ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST BUYER: GIANT INDUSTRIES, INC. By /s/ GARY R. DALKE ------------------------------ Its VICE PRESIDENT ----------------------------- EX-10.29 10 0010.txt EXHIBIT 10.29 SECOND AMENDMENT TO PURCHASE AGREEMENT THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (the "Amendment"), is made this 1st day of March, 2001 by and between James Acridge, as Trustee of The Acridge Family Trust ("Seller"), and Giant Industries, Inc., an Delaware corporation ("Buyer"). RECITALS A. Buyer and Seller entered into that certain Purchase Agreement dated January 26, 2001, as amended by that certain First Amendment to Purchase Agreement dated February 12, 2001 (collectively, the "Agreement") with respect to that certain real property described therein (the "Property"). B. Buyer and Seller now wish to further amend the Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Deposit. The Deposit is increased from $990,000 to $1,290,000. Seller acknowledges the receipt of the initial $990,000 of the Deposit. Immediately following the execution of this Amendment, Buyer shall pay the remaining $300,000 of the Deposit to Seller, by wire transfer of immediately available funds or other means acceptable to Seller, direct and outside of Escrow. The cash payable at the Closing shall be reduced by the increase in the Deposit. 2. Loan Payment. Section 2.3(b) of the Agreement is amended in its entirety to read as follows: "(b) Loan Payment. At the Closing, $938,007.90 (the "Loan Payment") shall be applied by Buyer to amounts payable to Buyer by James E. Acridge ("Acridge") under that certain Amended and Restated Loan Agreement, dated March 20, 2000, between Buyer and Acridge (the "Loan Agreement") to repay the interest that shall become due and payable on the Closing, such amount to be prorated in accordance with the Loan Agreement in the event that the Closing occurs prior to such date. Seller hereby directs Buyer to apply the Loan Payment to the amounts payable by Acridge as set forth in the preceding sentence." 3. Appraisal. The reference to February 16, 2001 in Sections 5.1(e) and 5.2(b) is hereby changed to March 26, 2001. The costs associated with any appraisal shall be split evenly by Buyer and Seller. The party that is invoiced for any appraisal shall, in turn, invoice the other party for its portion of such expense. The invoiced party shall remit the payment required by such invoice within ten (10) days of its receipt of such invoice or out of escrowed funds due such party at Closing. 4. Closing. The Closing shall be on or before March 28, 2001. 5. Legal Counsel and Advisors. Seller acknowledges that it has been given an opportunity to consult with legal counsel and other advisors prior to the execution of the Agreement and this Amendment. 6. Definitions. Except as otherwise provided herein, the defined terms shall have the meanings set forth in the Agreement. 7. Full Force and Effect. Except as amended hereby the Agreement shall remain in full force and effect. 8. Counterparts. This Amendment may be executed via facsimile in any number of counterparts, each of which shall be an original, but all which shall constitute one and the same Amendment. IN WITNESS WHEREOF this Amendment has been executed the first day in year written above. SELLER: /s/ JAMES E. ACRIDGE ------------------------------------- JAMES ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST BUYER: GIANT INDUSTRIES, INC. By /s/ MARK B. COX ----------------------------------- Its VP TREASURER & FINANCIAL OFFICER ---------------------------------- EX-10.30 11 0011.txt EXHIBIT 10.30 THIRD AMENDMENT TO PURCHASE AGREEMENT THIS THIRD AMENDMENT TO PURCHASE AGREEMENT (the "Amendment"), is made this 9th day of March, 2001 by and between James Acridge, as Trustee of The Acridge Family Trust ("Seller"), and Giant Industries, Inc., an Delaware corporation ("Buyer"). RECITALS A. Buyer and Seller entered into that certain Purchase Agreement dated January 26, 2001 (the "Purchase Agreement"), as amended by that certain First Amendment to Purchase Agreement dated February 12, 2001 (the "First Amendment") and that certain Second Amendment to Purchase Agreement dated March 1, 2001 (the "Second Amendment" and collectively with the Purchase Agreement and the First Amendment, the "Agreement") with respect to that certain real property described therein (the "Property"). B. Buyer and Seller now wish to further amend the Agreement as hereinafter provided. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Deposit. (a) The Deposit is increased from $1,290,000 to $1,740,000. Seller acknowledges the receipt of the initial $1,290,000 of the Deposit. Immediately following the execution of this Amendment, Buyer shall pay the remaining $450,000 (the "$450,000 Deposit") of the Deposit to Seller, by wire transfer of immediately available funds or other means acceptable to Seller, direct and outside of Escrow. The cash payable at the Closing shall be reduced by the increase in the Deposit. (b) Seller's obligation to repay the $450,000 Deposit paid by Buyer shall be secured by the collateral described in the Pledge and Security Agreement, dated as of March 10, 2000, by and among James E. Acridge and Pinnacle Rodeo, L.L.C., an Arizona limited liability company, as pledgor, and Buyer, as pledgee. Notwithstanding the provisions of this Section, the Deed of Trust with respect to the Property as described in Section 2.3(a) of the Agreement shall remain in full force and effect and shall continue to secure the obligation of Seller to repay the entire Deposit, including the $450,000 Deposit. (c) In the event the transactions contemplated under the Agreement are consummated and the Deposit, along with the indebtedness secured by the first deed of trust covering the Property, exceeds the Sales Price (the "Surplus Payment"), such Surplus Payment shall be immediately repaid to Buyer. 2. Loan Payment. Section 2.3(b) of the Agreement is amended in its entirety to read as follows: "(b) Loan Payment. At the Closing, Buyer shall apply all amounts necessary to repay all accrued interest that shall become due and payable as of the Closing (the "Loan Payment") under that certain Amended and Restated Loan Agreement, dated March 20, 2000, between Acridge and Buyer, as amended (the "Loan Agreement"). Seller hereby directs Buyer to apply the Loan Payment to the amounts payable by Acridge as set forth in the preceding sentence." 3. Option. The fifth sentence of Section 3 of the First Amendment is amended in its entirety to read as follows: "If Seller exercises the Option, an escrow shall be established with Escrow Agent." 4. Legal Counsel and Advisors. Seller acknowledges that it has been given an opportunity to consult with legal counsel and other advisors prior to the execution of the Agreement and this Amendment. 5. Definitions. Except as otherwise provided herein, the defined terms shall have the meanings set forth in the Agreement. 6. Full Force and Effect. Except as amended hereby the Agreement shall remain in full force and effect. 7. Counterparts. This Amendment may be executed via facsimile in any number of counterparts, each of which shall be an original, but all which shall constitute one and the same Amendment. IN WITNESS WHEREOF this Amendment has been executed as of the date first written above. SELLER: /s/ JAMES E. ACRIDGE ------------------------------------- JAMES ACRIDGE, AS TRUSTEE OF THE ACRIDGE FAMILY TRUST BUYER: GIANT INDUSTRIES, INC. By /s/ MARK B. COX ----------------------------------- Its VP TREASURER ---------------------------------- EX-21.1 12 0012.txt 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 - Navajo Convenient Stores Co., LLC** New Mexico - 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 _______________ *A wholly-owned subsidiary of Giant Industries Arizona, Inc. **Giant Four Corners, Inc. has a 66 2/3% interest in this entity. EX-23.1 13 0013.txt EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements Nos. 33-35357, 333-80577, and 333-85857 of Giant Industries, Inc., each on Form S-8, of our report dated March 21, 2001, appearing in this Annual Report on Form 10-K of Giant Industries, Inc. for the year ended December 31, 2000. DELOITTE & TOUCHE LLP Phoenix, Arizona March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----