-----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, P95FUHG3SCZuIHXM6Yp0459auqOph6GW9WVc6rWLaXuaiydg/LrIYSfXwt5oVd1/ YE+l2+3KqRwq2e57ixobgg== 0000856465-98-000004.txt : 19980401 0000856465-98-000004.hdr.sgml : 19980401 ACCESSION NUMBER: 0000856465-98-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE 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: 98582785 BUSINESS ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 6025858888 MAIL ADDRESS: STREET 1: 23733 N SCOTTSDALE RD CITY: SCOTTSDALE STATE: AZ ZIP: 85255 10-K405 1 GIANT INDUSTRIES INC. 1997 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, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period _______ to _______. Commission File Number: 1-10398 GIANT INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 86-0642718 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23733 North Scottsdale Road, Scottsdale, Arizona 85255 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 585-8888 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of February 28, 1998, 10,993,267 shares of the registrant's Common Stock, $.01 par value, were outstanding and the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $134,400,000 based on New York Stock Exchange closing prices on February 28, 1998. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference in Part III of this Form 10-K Report: Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders - Items 10, 11, 12, and 13. PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES. GENERAL Giant Industries, Inc., a Delaware corporation ("Giant" or the "Company"), through its wholly-owned subsidiary Giant Industries Arizona, Inc. ("Giant Arizona"), is engaged in the refining and marketing of petroleum products in New Mexico, Arizona, Colorado and Utah, with a concentration in the Four Corners where these states adjoin. The Company sells petroleum products through company-operated retail facilities, independent wholesalers and retailers, industrial/commercial accounts and sales and exchanges with major oil companies. In addition, through its wholly-owned subsidiary Phoenix Fuel Co., Inc. ("Phoenix Fuel"), which was acquired June 3, 1997, Giant Arizona operates an industrial/commercial petroleum fuels and lubricants distribution operation including an unattended fleet fueling ("cardlock") operation. The Company was incorporated in 1989 and completed its initial public offering in December 1989. At December 31, 1997, the Company had 10,993,267 shares of outstanding Common Stock. Giant Arizona was founded in 1961 and operated as a sole proprietorship until incorporation in the State of Arizona in 1969. The Company's long-term strategy is to profitably grow its refining, retail marketing and other marketing operations through both selective acquisitions and capital improvements to its existing operations. This strategy, in part, is designed to increase integration or control over the distribution of a greater portion of the Company's refined products through their sale in the Company's retail network. The Company also intends to increase its market presence in the growing Southwest market including the Phoenix and Tucson areas. Through selective acquisitions, the Company may expand into new market regions outside the Four Corners area where the Company's management believes it can duplicate its business strategy. REFINING AND MARKETING REFINING Giant Arizona owns and operates two refineries. The Ciniza refinery is located on 880 acres near Gallup, New Mexico, and the Bloomfield refinery is located on 285 acres near Farmington, New Mexico. Both of these refineries are geographically located in the Four Corners area. This area serves as the Company's primary market for its refined products and as the primary source of its crude oil and natural gas liquids ("NGLs") supplies. Management believes that the technical capabilities of both refineries, together with the high quality of locally available feedstocks, enable the Company to achieve refinery yields which are comparable to that achieved by some larger more complex refineries located outside of the area. Both refineries are equipped with fluid catalytic cracking, naphtha hydrotreating, reforming, and LPG recovery units, as well as diesel hydrotreating and sulfur recovery units to manufacture low sulfur diesel fuel. The Ciniza refinery utilizes an alkylation process to manufacture high octane gasoline from its catalytic cracking unit olefins. The Bloomfield refinery accomplishes this using a catalytic polymerization unit. The Ciniza refinery is also equipped with an isomerization unit, which enables it to produce additional gasoline through the processing of NGLs, and cogeneration facilities. These processing configurations enable the refineries to yield in excess of 90% high value products, including gasoline, diesel fuel and jet fuel, from each barrel of crude oil refined. The refineries manufacture a product slate that can include 100% unleaded gasoline and 100% low sulfur diesel fuel. Set forth below is data with respect to refinery operations and the primary refined products produced during the indicated periods.
Year Ended December 31, ------------------------------------ 1997 1996 1995(1) 1994 1993 ---- ---- ---- ---- ---- Feedstock throughput:(2) Crude oil 33,700 34,800 23,700 19,100 20,300 NGLs and oxygenates 6,500 5,400 5,000 4,500 5,000 ------ ------ ------ ------ ------ Total 40,200 40,200 28,700 23,600 25,300 ====== ====== ====== ====== ====== Crude oil throughput (as a % of total) 84% 87% 83% 81% 80% Rated crude oil capacity utilized 87% 90% 88% 92% 98% Refinery margin ($/bbl) $ 6.39 $ 6.21 $ 5.13 $ 5.60 $ 6.69 Products:(2) Gasoline 24,800 24,900 18,500 15,200 16,300 Diesel fuel 11,000 10,900 7,200 5,200 5,400 Jet fuel 800 1,100 900 1,300 1,800 Other 3,600 3,300 2,100 1,900 1,800 ------ ------ ------ ------ ------ Total 40,200 40,200 28,700 23,600 25,300 ====== ====== ====== ====== ====== High Value Products: Gasoline 62% 62% 65% 64% 65% Diesel fuel 27% 27% 25% 22% 21% Jet fuel 2% 3% 3% 6% 7% ------ ------ ------ ------ ------ Total 91% 92% 93% 92% 93% ====== ====== ====== ====== ====== (1) The 1995 operating data reflects the operations of the Bloomfield refinery effective October 4, 1995. The purchase of the Bloomfield refinery increased the Company's total rated crude oil refining capacity owned by 18,000 bpd. (2) Average barrels per day ("bpd").
Each refinery operating unit requires regular maintenance and repair shutdowns (referred to as "turnarounds") during which it is not in operation. Turnaround cycles vary for different units. In general, refinery turnarounds are managed so that some units continue to operate while others are down for scheduled maintenance. Maintenance turnarounds are implemented using refinery personnel as well as some additional contract labor. Turnaround work proceeds on a continuous 24- hour basis in order to minimize unit down time. Giant has historically expensed current maintenance charges and capitalized turnaround costs which are then amortized over the estimated period until the next turnaround which is generally twenty-four to forty-eight months depending on the unit involved. In general, a major refinery turnaround is scheduled every four years. The most recent major turnaround occurred at the Bloomfield refinery during April and May 1997. During the turnaround, certain debottlenecking procedures were completed that increased reformer capacity by approximately 900 bpd. A major turnaround is scheduled for the Ciniza refinery in the second quarter of 1998. During this turnaround, the Company intends to complete certain debottlenecking procedures to increase reformer capacity by approximately 800 bpd. In 1997, minor scheduled reformer and isomerization unit turnarounds at the Ciniza refinery included certain debottlenecking procedures that increased capacity by approximately 700 bpd for the reformer and 1,000 bpd for the isomerization unit. Unscheduled maintenance shutdowns also occur, but the Company believes that the record of both refineries with respect to unscheduled maintenance shutdowns is generally good compared with the industry as a whole. RAW MATERIAL SUPPLY The refineries primarily process a mixture of high gravity, low sulfur crude oil, condensate and NGLs. The locally produced, high quality crude oil known as Four Corners Sweet is the primary feedstock for the refineries. The refineries also supplement their supply of crude oil with Alaska North Slope ("ANS") crude oil, accessed from the West Coast through the Company's gathering systems interconnection with the Four Corners and Texas-New Mexico pipeline systems, which together can transport approximately 65,000 barrels per day. The Company believes that local crude oil production currently approximates local crude oil demand and that the supply of crude oil and condensate in the Four Corners has improved as a result of enhanced recovery programs and increased drilling activities by major oil companies in the area. Based on projections of local crude oil availability from the field and current levels of usage of ANS (which are limited to 1,500 bpd by the refineries' configurations), the Company believes an adequate supply of crude oil and other feedstocks will be available from local producers, crude oil sourced through common carrier pipelines and other sources to sustain refinery operations for the foreseeable future at substantially the levels currently being experienced. However, there is no assurance that this situation will continue. Any significant long-term interruption in crude oil supply or to the crude oil transportation system would have an adverse effect on the Company's operations. The Company continues to evaluate other supplemental crude oil supply alternatives for its refineries on both a short-term and long-term basis. The Company understands that production of ANS has been declining and is aware of proposals that would, at some time in the future, eliminate the shipping of ANS through the Four Corners pipeline system. In the event of a shortage in supply of locally produced feedstocks and ANS, the Company has identified potential opportunities for accessing other supplemental crude oil supplies via the pipelines. The Ciniza refinery also has access to West Texas Intermediate and other lesser known crude oils by rail, should the need arise and should economic conditions allow the use of such alternate crude oils. If additional supplemental feedstocks become necessary, the Company intends to implement then available alternatives as necessary and as is most advantageous under the then prevailing conditions. The Company currently believes that the most desirable strategy to supplement local crude oil supplies on a long-term basis would be the delivery of supplemental crude oil from outside of the Four Corners area by pipeline. Such crude oil may be of lesser quality than locally available crude oils, and the Company believes such crude oil will generally have a delivered cost greater than that of locally available crude oil. Implementation of supplemental supply alternatives may result in additional raw material costs, operating costs, capital costs, or a combination thereof in amounts which are not presently ascertainable by the Company but which will vary depending on factors such as the specific alternative implemented, the quantity of supplemental feedstocks required, and the date of implementation. Implementation of some supply alternatives requires the consent or cooperation of third parties and other considerations beyond the control of the Company. Crude oil is acquired from a number of sources, including major oil companies and large and small independent producers, under arrangements which contain market-responsive pricing provisions. Many of these arrangements are subject to cancellation by either party or have terms that are not in excess of one year. In addition, these arrangements are subject to periodic renegotiation. A portion of the refineries' purchases are structured as exchange agreements. In such exchanges, purchases are made in conjunction with matching sales to the supplier at other domestic locations, as may be negotiated periodically. The effect of such arrangements is to make a portion of the cost of the refineries' supply dependent upon market conditions in other locations, which may differ from those pertaining to the Four Corners area. In addition, the Company participates in various government supply programs available to smaller refiners. In addition to crude oil, the Ciniza refinery currently has the capability of processing approximately 6,000 barrels per day of NGLs, consisting of natural gasoline, normal butane and isobutane. NGLs are used as gasoline blending components and to supply the isomerization and alkylation units. NGLs increase the percentage of gasoline and the octane levels that the refinery can produce, which typically increase the Company's refining margins. NGLs further enhance refinery margins because the Company has historically been able to purchase NGLs at a lower cost per barrel than crude oil. In 1997, the Company undertook several projects at its refineries that increased its ability to utilize NGLs and intends to complete additional projects in 1998 to further its NGL utilization. An adequate supply of NGLs is available for delivery to the Ciniza refinery, primarily through a Company-owned pipeline connecting the Ciniza refinery to natural gas liquids fractionation plants operated by third parties. NGLs can also be transported to the Ciniza refinery by rail or transport truck. The Company currently acquires substantially all of its NGL feedstocks pursuant to two long-term agreements with suppliers under which NGLs are made available to the Company at the fractionation plants. These agreements contain market sensitive pricing arrangements under which prices are adjusted on a monthly basis. OXYGENATES Oxygenates are oxygen-containing compounds that can be used as a motor vehicle fuel supplement to reduce motor vehicle carbon monoxide emissions. The use of gasoline containing oxygenates has been government-mandated in a number of metropolitan areas near Giant's operations. On December 12, 1997, the Company completed the sale of its ethanol processing plant in Portales, New Mexico. Ethanol is an oxygenate which can be used as a gasoline blending component. The Company temporarily closed this plant in October 1995 and had planned to reopen the facility in 1997 but decided to sell the facility when the opportunity arose and to concentrate on its core business of refining and marketing. The Company anticipates that it will be able to purchase sufficient quantities of oxygenates from third parties at acceptable prices for the foreseeable future. TRANSPORTATION Crude oil supply for the Ciniza and Bloomfield refineries comes primarily from the Four Corners area and is either connected by Company owned pipeline or delivered by Company owned truck transports to pipeline injection points or refinery tankage. The Company owns about 240 miles of pipeline for gathering and delivery of crude oil to the refineries. The pipeline system reaches into the San Juan Basin and connects with common carrier pipelines. The Ciniza refinery receives NGLs through a 13-mile Company owned pipeline connected to a natural gas liquids fractionation plant. Currently, over 40 Company-owned truck transports are involved in the collection of crude oil from producing wells to supply the refineries. MARKETING AND DISTRIBUTION THE FOUR CORNERS MARKET. The Four Corners area is the primary market area for the Company's refined products. The Company's New Mexico market includes the greater Albuquerque area, the largest market in New Mexico. Substantially all of the Company's refined products are distributed in the Four Corners market. The Company estimates that, during 1997, its gasoline production was distributed 57% in New Mexico, 28% in Arizona, 10% in Colorado and 5% in Utah; and its diesel production was distributed 56% in New Mexico, 29% in Arizona, 11% in Colorado and 4% in Utah. The Company's truck transports support refinery sales in its primary market as well as its secondary markets. These vehicles hauled approximately 43% of the refineries' sales barrels in 1997. The balance is transported by customer or common carrier trucking. REFINED PRODUCT SALES. During 1997, the Company sold approximately 9,200,000 barrels of gasoline and 4,000,000 barrels of diesel fuel from its refineries. The Company's retail units sold an equivalent of approximately 31% of these gasoline and 15% of these diesel sales. Gasoline and diesel deliveries made through product exchanges with large oil companies accounted for approximately 14% of the volume sold by the refineries. The remaining gasoline and diesel sales were made to wholesalers, retailers and industrial/commercial customers. Supplementing sales barrels sourced from both refineries were purchases, for resale, of gasoline and diesel from other sources. The Company's other refined products, including military jet fuels, are marketed to various third party customers. RETAIL MARKETING. At December 31, 1997, the Company operated 137 service station/convenience stores located in New Mexico, Arizona, Colorado and Utah. This was eighty-five more units than in 1996. The Company also operates a Travel Center located on I-40 adjacent to the Ciniza refinery near Gallup, New Mexico. The Company's retail units sold approximately 144,700,000 gallons of gasoline and diesel fuel in 1997 compared to approximately 105,800,000 gallons in 1996, a 37% increase. Merchandise sales increased approximately 53% in 1997, to $75,000,000 from $49,100,000. The increases were primarily due to an increase in the number of stores operated by the Company. For 1997, same store sales increased 2% for merchandise and decreased by 3% for gasoline and diesel fuel compared to 1996. During 1997, the Company continued to look for acquisition opportunities to expand its retail marketing. In June, the Company completed the acquisition of 96 retail units in the Four Corners, Northern New Mexico and Colorado areas. At the end of the first quarter of 1998, 18 of these units had either been sold or were closed, leaving 78 operating units. These units are operated under various brand names, i.e., Thriftway, Gasman, Gasamat, Plateau and Malco. In 1998, the Company intends to consolidate the number of brands under which it operates. Also in 1997, a number of new land sites were acquired for planned growth through construction in 1998. In 1998, the Company will continue to look for acquisition opportunities to expand its retail marketing in areas that are consistent with its strategic refining and marketing objectives. The Company also plans to construct thirteen units. This additional growth is expected to be in the Four Corners and other Arizona and New Mexico market areas. Additional land sites are also expected to be acquired in 1998, along with the rebuilding or remodeling of several units. In September, Giant and Conoco Oil Co. entered into a strategic branding/licensing agreement that allows the Company to brand approved gasoline locations with the Conoco gasoline brand. Presently, nine units (including the Travel Center) are in process of being converted and, based upon expected improvements in gasoline volumes and gross profit, additional units will be branded in 1998. Many of the Company's service stations are modern, high-volume, self-service stations. During 1997, the Company remodeled 3 units and continued its program to install credit card readers in dispensers at its higher-volume units. New product dispensers were installed at 13 units. The program to upgrade dispensers and card readers is expected to continue during 1998. The Company has executed an agreement to acquire the assets of Ever-Ready Oil Co., Inc. and a related entity (collectively "Ever- Ready"). Closing is contingent upon, among other things, due diligence, various conditions and regulatory approvals. Ever-Ready is an Albuquerque-based petroleum products distributor that has been in business for 68 years. Ever-Ready has fuel sales of approximately 5,000 barrels per day and lubricant sales of approximately 1.0 million gallons per year. The assets include, among other things, twenty-seven retail service station/convenience stores and ten cardlock fueling operations. A portion of the assets are subject to rights of first refusal in favor of third parties. One of these parties has exercised its rights while another did not. The Company has the option of closing on the remaining assets or cancelling the purchase. The Company has entered into agreements to acquire 33 service station/convenience stores from Kaibab Industries, Inc. The retail units, located throughout Arizona, include 15 in the greater Phoenix area and 11 in the Tucson market, with the balance located primarily in southern and eastern Arizona. Other assets in the acquisition include fuel truck/transports, other related equipment, fuel inventories and some undeveloped real estate. These units have had sales of approximately 70 million gallons of refined petroleum products per year. The acquisition is expected to close in the second quarter of 1998 subject to normal pre-closing conditions, due diligence procedures and regulatory approvals. On February 10, 1998, the Company completed the purchase of the assets of DeGuelle Oil Company and the stock of DeGuelle Enterprises (collectively "DeGuelle") for $9,750,000. DeGuelle is a Durango, Colorado-based petroleum marketing company. Included in the purchase were seven service station/convenience stores, two cardlock commercial fleet fueling facilities, a gasoline and diesel storage bulk plant and related transportation equipment. All of the facilities are located in southwestern Colorado and will be supplied by the Company's refineries. In 1997, DeGuelle had sales of approximately 10,000,000 gallons of gasoline and diesel fuel in addition to 35,000 gallons of lubricants. The Company's service stations are augmented with convenience stores at many locations, which provide items such as general merchandise, alcoholic and nonalcoholic beverages, fast foods, health and beauty aids and automotive products. As a result of the Thriftway acquisition, the Retail Division entered into brand name fast food operations in 11 units (7 Taco Bell; 3 Blimpie; 1 A&W). In addition, "The Deli at Giant", Giant's proprietary fast food operation, now in nine stores, offers a full-scale deli and fast food menu. The Company evaluates the desirability of including fast food operations in its retail units on a station by station basis. The Company owns and operates a Travel Center adjacent to the Ciniza refinery on I-40. The Travel Center provides a direct market for a portion of the Ciniza refinery's diesel production and allows diesel fuel to be sold at virtually no incremental transportation cost. In the twelve months ended December 31, 1997, the Company sold approximately 17,700,000 gallons of diesel fuel at the Travel Center (approximately 18% of the Ciniza refinery's total diesel production). The Travel Center facility includes 18 high volume diesel fuel islands, a large truck repair facility, and a 29,000 square foot shopping mall. The facility contains a 265 seat full service restaurant, two large convenience stores, a 24-hour movie theater, a hair salon and other accommodations such as showers, laundry, security and lighted parking. In late 1997, extensive renovations took place at the Travel Center to accommodate the establishment of three new major brand fast food operations. The Company will lease space to two of these operations (Taco Bell and Pizza Hut), and will be the operator of an A&W Restaurant operation. It is management's expectation that the interstate traveler will be attracted to the national brand fast food names and stop for their food purchase, in addition to their fuel needs. These locations are expected to open early in the second quarter of 1998. PHOENIX FUEL. On June 3, 1997, the Company purchased Phoenix Fuel, an independent industrial/commercial petroleum products distributor with current wholesale fuel sales of approximately 17,000 barrels per day and cardlock fuel sales of approximately 2,000 barrels per day, including gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene. In addition, Phoenix Fuel distributes approximately 370 barrels per day of oils and lubricants such as motor oil, hydraulic oil, gear oil, cutting oil and grease. Phoenix Fuel has nine bulk petroleum distribution plants, twenty- two cardlock fueling operations, a lubricant storage and distribution facility and operates a fleet of forty finished product truck transports. These assets and related operations are located throughout the state of Arizona. For the seven months of 1997 that the Company owned this operation, Phoenix Fuel sold approximately 2,700,000 barrels of diesel fuel and 1,400,000 barrels of gasoline. Sales of additional products, including lubricants and related items, totaled approximately $14,800,000 for the same period. Most of the fuel sold by Phoenix Fuel is purchased for resale from other refiners and marketers. SOUTHERN ARIZONA MARKET. With the acquisition of Phoenix Fuel, the Company expanded its market into southern Arizona. With the announcement of an agreement to acquire the Petroleum Marketing Division of Kaibab Industries, Inc., the Company may increase its presence in this market. In addition, the Company expects to construct approximately ten new units in the Phoenix and Tucson markets in 1998. EMPLOYEES The Company and its subsidiaries employed approximately 2,460 persons on February 28, 1998, including approximately 2,160 full-time and approximately 300 part-time employees. Approximately 2,090 were employed in refining and marketing operations including 290 part-time employees. Of these, 1,390 (including 280 part-time) were employed in the service station division and 260 (including 6 part-time) were employed at the Travel Center. Phoenix Fuel employed approximately 210 persons, including 10 part-time. The Company currently has no labor union employees. OTHER MATTERS COMPETITIVE CONDITIONS The industry in which the Company is engaged is highly competitive. Many of the Company's competitors are large, integrated oil companies which, because of their more diverse operations, stronger capitalization and better brand name recognition, may be better able than the Company to withstand volatile industry conditions, including shortages or excesses of crude oil or refined products or intense price competition. The principal competitive factors affecting the Company's refining and marketing operations are the quality, quantity and delivered costs of crude oil, NGLs and other refinery feedstocks, refinery processing efficiencies, refined product mix, refined product selling prices and the cost of delivering refined products to markets. Other competitive factors include the ability of competitors to deliver refined products into the Company's primary market area by pipeline. The Company's larger competitors have refineries which are located outside the Four Corners area but which are larger and more efficient than the Company's refineries and, as a result, have lower per barrel of crude oil refinery processing costs. The Company competes with major and larger integrated oil companies and with independent refiners in Southeastern New Mexico, West Texas, the Texas Panhandle, Utah, Colorado and Southern California for selling refined products. Refined products from the Texas and Southeastern New Mexico refineries can be shipped to Albuquerque, New Mexico, primarily through two common carrier pipelines, one originating in El Paso, Texas and the second originating in Amarillo, Texas. In addition, mergers between large integrated oil companies and upgrades to competitors refineries have resulted in increased competition. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects, the expansion of the ATA Line (formerly called the Emerald Line) into Albuquerque was completed in 1997. Another of these announced projects, which would result in a refined products pipeline from Southeastern New Mexico to the Albuquerque and Four Corners markets, is reportedly scheduled for completion in 1998. In addition, various proposals or actions have been announced to increase the supply of pipeline-supplied products to El Paso, Texas, which is connected by pipeline to the Albuquerque market to the north and the Phoenix and Tucson markets to the west. The completion of some or all of these projects would result in increased competition by increasing the amount of refined products available in the Albuquerque, Four Corners and other market areas, as well as allowing additional competitors improved access to these market areas. The principal competitive factors affecting Phoenix Fuel are much the same as those affecting the Company's refining and marketing operations except that much of the fuel and all of the lubricants sold by Phoenix Fuel are purchased for resale from other refiners and marketers. Phoenix Fuel must compete with others in the marketplace to purchase the refined products, some of which must meet Maricopa County, Arizona fuel specifications, and the lubricants that it sells. To be successful, this must be done at prices that result in margins sufficient to cover fixed and variable expenses. The principal competitive factors affecting the Company's retail marketing business are location of service stations, product price, product quality, appearance and cleanliness of service stations and brand identification. REGULATORY, ENVIRONMENTAL AND OTHER MATTERS AFFECTING REFINING AND MARKETING OPERATIONS. The Company's refining and marketing operations are subject to a variety of federal, state and local health and environmental laws and regulations governing the discharge of pollutants into the soil, air and water, product specifications, and the generation, treatment, storage, transportation and disposal of solid and hazardous waste and materials. The Company believes that the refineries are capable of processing currently utilized feedstocks in substantial compliance with existing, currently effective environmental laws and regulations. However, environmental laws and regulations are becoming increasingly stringent, and the Company is aware of laws and regulations that will become effective in the future which may affect the refining and marketing industry. The following currently appear to the Company to be the most significant of such laws and regulations as they relate to the Company's operations. Where possible, the Company has attempted to estimate a range of its costs of compliance based upon its current understanding of such laws and regulations. The current estimates of costs provided are preliminary only and actual costs may differ significantly from these estimates. The Company is subject to environmental regulations adopted by the Environmental Protection Agency ("EPA") and state and local environmental agencies to implement the Clean Air Act Amendments of 1990 (the "Amendments"). Among other things, the Amendments require all major sources of hazardous air pollutants, as well as certain other sources of air pollutants, to obtain state operating permits. The permits must contain applicable federal and state emission limitations and standards as well as satisfy other statutory requirements. All sources subject to the permit program must pay an annual permit fee. The Company believes that operating permits will be required at both of its refineries and also believes that it will be able to obtain these permits. Although additional costs will be incurred in connection with these permits, the Company currently does not believe these costs will be material. The Amendments also require EPA to adopt emission standards for categories of hazardous air pollutant sources. In accordance with this directive, EPA has adopted emission standards that apply to hazardous air pollutants emitted by petroleum refineries. The standards are applicable to emissions from, among other things, process vents, storage vessels, equipment leaks, wastewater operations and gasoline loading racks. In 1998, the Company believes its compliance costs will be approximately $1.1 million, with total compliance costs of approximately $3.0 million to $3.5 million over the next five years. EPA has adopted regulations requiring underground storage tanks that were installed before December 1988 to be in compliance with specified standards by December 1998. In particular, steel tanks, and associated steel piping, must be protected against corrosion and devices must be in place to prevent tank spills and overfills. Underground storage tanks that were installed after December 1988 are already subject to these requirements. The underground storage tanks at all but twenty-two of the Company's service stations satisfy the 1998 standards. The Company anticipates that it will make the modifications necessary to bring all of these stations into compliance with the 1998 standards during 1998, at a cost of approximately $275,000. In addition, the Company plans to remove certain underground storage tanks that are not in compliance with the 1998 standards. The Company expects all such tanks to be removed in 1998 at a cost of approximately $200,000. The Company currently owns and operates six service station/convenience stores in Maricopa County and, with the acquisition of Phoenix Fuel and the agreement with Kaibab Industries, Inc., the Company has acquired or may acquire other retail/wholesale marketing operations, some of which are also located in Maricopa County. The Company does not presently manufacture gasoline that satisfies Maricopa County gasoline specifications. Because the amount of gasoline manufactured at the Company's refineries and sold in Maricopa County has been very small, and because the capital costs associated with manufacturing large quantities of such gasolines would be significant in amounts not yet determined by the Company, the Company currently does not intend to make the changes necessary to produce such gasolines. The Company has the ability to purchase or exchange for these gasolines to supply its operations in Maricopa County. It is possible that further legislation or regulation affecting motor fuel specifications may be adopted that would impact geographic areas in which the Company markets its products. However, with the exception of Maricopa County, the Company does not believe that any gasoline currently produced at the refineries would be subject to the Amendments' Reformulated Gasoline program, unless a state governor requests that Reformulated Gasoline be required in certain other areas. The Company from time to time needs to obtain new environmental permits or modifications to existing permits. Although there can be no guarantee that the Company will be able to obtain all required permits, the Company does not presently anticipate any unusual problems in obtaining the necessary permits and permit modifications, nor does it anticipate any significant problems in connection with the renewal of existing permits prior to their expiration. The Company cannot predict what additional health and environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of pollution control systems and equipment not currently possessed by the Company. NOTICES OF VIOLATIONS. Notices of Violations and similar governmental notices ("NOVs") are issued by governmental authorities and may allege violations of environmental requirements. The Company is in receipt of a NOV, dated February 9, 1993, from the New Mexico Environment Department ("NMED") alleging that the Company failed to comply with certain notification requirements contained in one of the permits applicable to the Ciniza refinery's land treatment facility. As a result, the Company has submitted a proposal for closure of the land treatment facility. Although the Company expected NMED to approve this proposal in 1997, approval has not yet been received. The Company anticipates that NMED will approve the proposal later in 1998. NMED has indicated that it probably will not require the Company to undertake any cleanup activities if the land treatment facility is closed, although periodic monitoring and site maintenance could be required. The Company has not disposed of any hazardous waste at the land treatment facility since 1990. The Company has received other NOVs from time to time. The Company has responded or intends to respond to all such matters. The Company does not believe any such matters to be material. DISCHARGES AND RELEASES. Refining, pipeline, trucking and marketing operations are inherently subject to accidental spills, discharges or other releases of petroleum or hazardous substances which may give rise to liability to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. Accidental discharges of contaminants have occurred from time to time during the normal course of the Company's operations, including discharges associated with the Company's refineries, pipeline and trucking operations. The Company has undertaken, intends to undertake or has completed all investigative or remedial work thus far required by governmental agencies to address potential contamination by the Company. The Company anticipates that it will incur remediation costs from time to time in connection with current and former gasoline service stations operated by the Company. The Company's experience has been that such costs generally do not exceed $100,000 per location, and a portion of such costs may be subject to reimbursement from State underground storage tank funds. The Company has discovered hydrocarbon contamination adjacent to a 55,000 barrel crude oil storage tank that was located in Bloomfield, New Mexico. The Company believes that all or a portion of the tank and the 5.5 acres owned by the Company on which the tank was located may have been a part of a refinery, owned by various other parties, that ceased operations approximately thirty-five years ago. The Company completed a site investigation in 1995, which indicates that contaminated groundwater may extend approximately 300 feet south of the property boundary. Without admitting liability for the contamination, the Company intends to conduct remediation activities under the oversight of the New Mexico Oil Conservation Division ("OCD"). The Company has approximately $250,000 accrued as an environmental reserve in relation to this site. Although the Company has invested substantial resources to prevent and minimize future accidental discharges and to remediate contamination resulting from prior discharges, there can be no assurance that accidental discharges will not occur in the future, that future action will not be taken in connection with past discharges, that governmental agencies will not assess penalties against the Company in connection with any past or future contamination, or that third parties will not assert claims against the Company for damages allegedly arising out of any past or future contamination. FARMINGTON PROPERTY/LEE ACRES LANDFILL. In 1973, the Company constructed the Farmington refinery which was operated until 1982. The Company became aware of soil and shallow groundwater contamination at this facility in 1985. The Company hired environmental consulting firms to investigate the contamination and undertake remedial action. The consultants identified several areas of contamination in the soils and shallow groundwater underlying the Farmington property. A consultant to the Company has indicated that contamination attributable to past operations at the Farmington property has migrated off the refinery property, including a hydrocarbon plume that appears to extend no more than 1,800 feet south of the refinery property. Remediation activities are ongoing by the Company under OCD's supervision. The Company had reserved approximately $1,000,000 for possible environmental expenditures relating to its Farmington property, of which approximately $650,000 still remains. The Farmington property is located adjacent to the Lee Acres Landfill (the "Landfill"), a closed landfill formerly operated by San Juan County which is situated on lands owned by the United States Bureau of Land Management (the "BLM"). Industrial and municipal wastes were disposed of in the Landfill by numerous sources. During the period that it was operational, the Company disposed of office trash, maintenance shop trash, used tires and water from the Farmington refinery's evaporation pond at the Landfill. The Lee Acres Landfill was added to the National Priorities List as a Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") Superfund site in 1990. In connection with this listing, EPA defined the site as the Landfill and the Landfill's associated groundwater plume. EPA excluded any releases from the Farmington refinery itself from the definition of the site. In May 1991, EPA notified the Company that it may be a potentially responsible party under CERCLA for the release or threatened release of hazardous substances, pollutants or contaminants at the Landfill. In September 1996, the BLM made its proposed plan of action for the Landfill available to the public. Remediation alternatives examined by the BLM in connection with the development of its proposed plan ranged in projected cost from no cost to approximately $14.5 million. The BLM is proposing the adoption of a remedial action alternative that it believes would cost approximately $3.9 million to implement. The BLM's $3.9 million cost estimate is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, the BLM is proposing to take additional remedial actions with an estimated cost of approximately $1.8 million. The BLM has received public comment on its proposed plan. The Company understands that the final remedy for the site has not been selected and that the BLM, EPA and NMED will all be involved in the remedy selection process. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company's potential liability could be approximately $1.2 million. This figure was based upon estimated Landfill remediation costs significantly higher than those being proposed by the BLM. The figure was also based on the consultant's evaluation of such factors as available clean-up technology, the BLM's involvement at the site and the number of other entities that may have had involvement at the site. The consultant, however, did not conduct an analysis of any potential legal defenses and arguments including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs of a site even though the party was responsible for only a small part of such costs. Actual liability, if any, may differ significantly from the consultant's estimate. The BLM may assert claims against the Company and others for reimbursement of investigative, cleanup and other costs incurred by the BLM in connection with the Landfill and surrounding areas. It is also possible that the Company will assert claims against the BLM in connection with contamination that may be originating from the Landfill. Private parties and other governmental entities may also assert claims against the BLM, the Company and others for property damage, personal injury and other damages allegedly arising out of any contamination originating from the Landfill and the Farmington property. Parties may also request judicial determination of their rights and responsibilities, and the rights and responsibilities of others, in connection with the Landfill and the Farmington property. Currently, however, there is no outstanding litigation against the Company by the BLM or any other party. BLOOMFIELD REFINERY. In connection with the acquisition of the Bloomfield refinery, the Company assumed certain environmental obligations including Bloomfield Refining Company's ("BRC") obligations under an Administrative Order issued by EPA in 1992 pursuant to RCRA (the "Order"). The Order required BRC to investigate and propose measures for correcting any releases of hazardous waste or hazardous constituents at or from the Bloomfield refinery. The Company originally established an environmental reserve of $2.25 million in connection with this matter, of which approximately $2.0 million still remains. RIGHTS-OF-WAY. Certain irregularities in title may exist with respect to a limited number of the Company's rights-of-way or franchises for its crude oil pipeline gathering system. The Company, however, has continued its use of the entirety of its pipeline gathering system. As of this date, no claim stemming from any right-of-way or franchise matter has been asserted against the Company. The Company does not believe that its use or enjoyment of the pipeline gathering system will be adversely affected by any such right-of-way matters or irregularities in title. TAXES. The Company is subject to audit on an ongoing basis of the various taxes that it pays to federal, state, local and tribal agencies. These audits may result in assessments or refunds along with interest and penalties. In some cases the jurisdictional basis of the taxing authority is in dispute and is the subject of litigation or administrative appeals. In one such case, the Company has produced crude oil and natural gas, or purchases crude oil as a first purchaser, from properties located in a geographic area outside the boundaries of the Navajo Indian Reservation in which the Navajo Tribe has asserted the right to impose severance and other taxes. A portion of the Company's pipeline gathering system also is located in this geographic area. The extent of the Tribe's taxing authority in the geographic area is subject to doubt. The Company has received several tax assessments from the Tribe pertaining to the geographic area, including a $1.8 million severance tax assessment issued in November 1991. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with these matters and intends to oppose the severance tax assessment. It is the Company's position that it is in substantial compliance with the laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. The Company also may receive further tax assessments. The Company intends to continue purchasing activities in the geographic area. DISCONTINUED OPERATIONS OIL & GAS OPERATIONS On August 30, 1996, the Company sold substantially all of its oil and gas assets. The Company retained its ownership in natural gas wells located in San Juan County, New Mexico which qualified for federal coal seam gas tax credits under Section 29 of the Internal Revenue Code. Future Section 29 tax credits generated from natural gas production will be realized by the Company and, when earned, will be used to offset income taxes payable through the year 2002. These wells are subject to a production payment to Central Resources, Inc., under which the natural gas reserves related to these wells will be produced for the benefit of the buyer, as well as a "suboperating" agreement under which the buyer assumes substantially all of the responsibilities and risks of operation of the wells. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to ordinary routine litigation incidental to its business. There is also hereby incorporated by reference the information under the headings "Regulatory, Environmental and Other Matters Affecting Refining and Marketing" in Items 1 and 2, the discussions contained in Item 7, and the information regarding contingencies in Note 16 to the Consolidated Financial Statements in Item 8. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Executive Officers of the Registrant. Executive Officer Name Age Position Since - ---- --- -------- --------- James E. Acridge 58 President and Chief October 1989 Executive Officer Fredric L. Holliger 50 Executive Vice President October 1989 and Chief Operating Officer A. Wayne Davenport 49 Vice President and May 1994 Chief Financial Officer Morgan Gust 50 Vice President and August 1990 General Counsel, Vice President Administration and Secretary The officers of the Company are elected annually by the Board of Directors and each officer serves until his successor is chosen and qualified or until his earlier resignation or removal. There are no family relationships among the officers of the Company. James E. Acridge has served as Chairman of the Board of Directors, President and Chief Executive Officer of the Company since October 1989. Mr. Acridge also serves as Chairman of the Nominating Committee. Mr. Acridge started Giant Industries Arizona, Inc. ("Giant"), the Company's principal wholly-owned subsidiary, in 1969 and has served continuously as its Chairman of the Board of Directors, President and Chief Executive Officer. Mr. Acridge is also Chairman of the Board of Phoenix Fuel Co., Inc. ("Phoenix Fuel"), an industrial/commercial petroleum products distributor, all of whose stock was acquired by Giant in June 1997. Additionally, Mr. Acridge is Chairman of the Board of Directors of Giant Exploration and Production Company ("Giant E&P"), which was the Company's other principal wholly-owned subsidiary until the Company sold substantially all of its oil and gas assets in August 1996. Fredric L. Holliger has served as a director, Executive Vice President and Chief Operating Officer of the Company since October 1989. Mr. Holliger joined Giant as Senior Vice President and President of the Giant refining division in February 1989, and continues to serve as a director, Executive Vice President and Chief Operating Officer of Giant. Mr. Holliger has served as a director and Chief Executive Officer of Phoenix Fuel since June 1997 and has served as a director, President and Chief Executive Officer of Giant E&P since May 1993. A. Wayne Davenport served as Vice President and Corporate Controller commencing May 1994 and, since May 1995, serves as Vice President and Chief Financial Officer of the Company. He also serves in such positions for Giant and Giant E&P and serves as Vice President of Phoenix Fuel. Prior to joining the Company in March 1994, Mr. Davenport was an investor in crude oil and natural gas properties and a consultant to the industry. From February 1987 to September 1992, he served in various positions, the last being Executive Vice President and Chief Financial Officer, with Hondo Oil & Gas Company, a company engaged in refining, marketing, exploration and production. Morgan Gust has served as Secretary and General Counsel of the Company since August 1990 and as Vice President since September 1990. He has served as Vice President Administration since October 1992. He also serves in such capacities for, and is a director of, Giant and Giant E&P and serves as Secretary, General Counsel and Vice President, and as a director, of Phoenix Fuel. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal United States market on which the Company's Common Stock is traded is the New York Stock Exchange. The high and low sales prices for the Common Stock for each full quarterly period as reported on the New York Stock Exchange Composite Tape for the last two fiscal years is as follows: Quarter Ended High Low ------------------ ------ ------ December 31, 1997 20 1/2 16 3/4 September 30, 1997 20 5/8 15 June 30, 1997 16 7/8 10 March 31, 1997 15 5/8 12 3/8 December 31, 1996 16 1/8 13 3/4 September 30, 1996 16 1/4 13 3/8 June 30, 1996 15 5/8 12 1/4 March 31, 1996 14 10 7/8 For 1997 and 1996, the Company's Board of Directors declared quarterly cash dividends on common stock of $0.05 per share. Any future dividends are subject to the results of the Company's operations, declarations by the Board of Directors and existing debt covenants, as described below. The Company has issued $150,000,000 of 9% Senior Subordinated Notes ("9% Notes") and $100,000,000 of 9 3/4% Senior Subordinated Notes ("9 3/4% Notes"). The 9% Notes were issued pursuant to an Indenture ("9% Indenture") dated August 26, 1997, and the 9 3/4% Notes were issued pursuant to an Indenture ("9 3/4% Indenture" and collectively with the 9% Indenture the "Indentures") dated November 29, 1993. The Indentures are among the Company, its Subsidiaries, as guarantors, Bank of New York, as trustee under the 9% Indenture and NBD Bank, National Association, as trustee under the 9 3/4% Indenture. The Indentures contain a number of covenants, which, among other provisions, place restrictions on the payment of dividends. At December 31, 1997, retained earnings available for dividends under the most restrictive terms of the Indentures was approximately $19,700,000. The Indentures include the payment of dividends in their definitions of "Restricted Payments" which are subject to limitations, the most significant of which are summarized as follows: The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) at the time of and immediately after giving effect to such Restricted Payment, the Company would be able to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant captioned "Limitation on Incurrence of Additional Indebtedness"; and (c) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (A) 50% of the Consolidated Net Income of the Company and its Restricted Subsidiaries (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit) during the period (treated as one accounting period) subsequent to September 30, 1997 in the case of the 9% Indenture and September 30, 1993 in the case of the 9 3/4% Indenture and ending on the last day of the fiscal quarter immediately preceding the date of such Restricted Payment and (B) $30 million in the case of the 9% Indenture and $15 million in the case of the 9 3/4% Indenture. Consolidated Net Income excludes, among other things, any full cost ceiling limitation writedown. Also see the "Capital Structure" discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 hereof. Capitalized items used but not defined above have the meaning assigned to them in the Indentures. There were 267 holders of record of Common Stock on February 28, 1998. ITEM 6. SELECTED FINANCIAL DATA. The following table summarizes recent financial information of the Company. This selected financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations at Item 7 and the Consolidated Financial Statements, related notes thereto, and the Auditors' Report included in Item 8 hereof:
FINANCIAL AND OPERATING HIGHLIGHTS (In Millions, Except Percentages, Per Share and Operating Data) Year Ended December 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- FINANCIAL STATEMENT DATA Continuing Operations: Net Revenues $ 657.3 $ 499.2 $ 332.9 $ 291.6 $ 313.2 Operating Income 41.1 39.7 20.6 20.1 31.4 Net Earnings 15.3 17.0 7.7 7.4 17.5 Earnings Per Common Share - Basic 1.38 1.52 .68 .61 1.43 Discontinued Operations Net Earnings (Loss)(1) .2 (2.9) (11.3) Earnings (Loss) Per Common Share - Basic .01 (.24) (.92) Weighted Average Common Shares Outstanding 11.1 11.2 11.5 12.1 12.2 Dividends Paid Per Common Share .20 .20 .20 Stockholders' Equity 133.5 122.1 109.7 109.7 105.9 Book Value Per Common Share 12.14 11.00 9.75 9.15 8.69 Return on Average Stockholders' Equity 12.0% 14.7% 7.2% 4.2% 5.8% Total Assets 535.4 324.0 324.9 279.4 274.4 Working Capital 111.7 21.5 50.3 86.4 88.0 Long-Term Debt as a Percentage of Total Capitalization 67.4% 48.1% 56.5% 51.4% 52.5% Long-Term Debt 275.6 113.1 142.7 116.1 117.3 OPERATIONS DATA - CONTINUING OPERATIONS:(2) REFINING AND MARKETING: Rated Crude Oil Capacity Utilized 87% 90% 88% 92% 98% Refinery Sourced Sales Barrels (Bbls/Day) 39,037 38,814 27,430 23,054 24,412 Average Crude Oil Costs ($/Bbl) $ 20.60 $ 21.80 $ 18.41 $ 16.97 $ 18.09 Refinery Margin ($/Bbl) $ 6.39 $ 6.21 $ 5.13 $ 5.60 $ 6.69 Service Stations: Fuel Gallons Sold (In Thousands) 125,219 87,499 85,872 85,550 71,129 Product Margin ($/Gallon) $ 0.213 $ 0.201 $ 0.196 $ 0.200 $ 0.185 Merchandise Sold ($ In Thousands) $ 67,601 $ 42,037 $ 38,091 $ 32,727 $ 22,367 Merchandise Margin 30% 30% 30% 29% 28% Number of Outlets at Year End 148 52 51 50 50 Travel Centers:(3) Fuel Gallons Sold (In Thousands) 19,434 18,298 21,522 30,337 32,148 Product Margin ($/Gallon) $ 0.111 $ 0.104 $ 0.102 $ 0.118 $ 0.128 Merchandise Sold ($ In Thousands) $ 7,382 $ 7,092 $ 7,640 $ 9,929 $ 10,125 Merchandise Margin 44% 46% 47% 45% 45% Number of Outlets at Year End 1 1 1 1 2 Retail Fuel Volumes Sold as a % of Refinery Sourced Sales Barrels(3) 24% 18% 26% 33% 28% PHOENIX FUEL: Fuel Gallons Sold (In Thousands) 172,121 Product Margin ($/Gallon) $ 0.075 Lubricant Sales ($ In Thousands) $ 12,923 Lubricant Margin 14%
(1) The 1994 and 1993 amounts include a $2.2 million and $9.9 million net of tax charge, respectively, for the reduction of the carrying value of crude oil and natural gas properties. (2) Operations data includes the operations of the Bloomfield refinery from October 4, 1995 and the Thriftway and Phoenix Fuel acquisitions from approximately June 1, 1997. (3) The Company's Giant Express travel center was sold November 2, 1994. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 - --------------------------------------------------------------------- The primary factors affecting the results of the Company's 1997 continuing operations as compared to its 1996 continuing operations are the acquisition of ninety-six service station/convenience stores from Thriftway Marketing Corp. and affiliates ("Thriftway") and the acquisition of Phoenix Fuel Co., Inc. ("Phoenix Fuel"), an independent industrial/commercial petroleum products distributor (the "Acquisitions") near the end of May 1997; higher interest costs related to the financing of the Acquisitions, including the issuance of $150.0 million of 9% senior subordinated notes (the "9% Notes") in August 1997; increased refinery margins and higher operating and selling, general and administrative ("SG&A") costs. EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - ------------------------------------------------------- Earnings from continuing operations before income taxes were $25.1 million for the year ended December 31, 1997, a decrease of approximately $3.1 million from $28.2 million for the year ended December 31, 1996. The decrease is primarily due to increased SG&A and operating costs for operations other than the Acquisitions, including a 20% increase in depreciation and amortization costs, a 5% increase in other operating costs and a 10% increase in SG&A costs. These increases in costs were offset in part by a pretax earnings contribution of $8.0 million from the Acquisitions. Earnings were also impacted by a 3% increase in average yearly refinery margins, in spite of reduced margins early in the year resulting from a decline in West Coast product prices. Refinery sourced sales volumes remained relatively flat even though production was curtailed at both of the Company's refineries during the year due to a scheduled major, every four-year, maintenance turnaround at the Company's Bloomfield refinery, and minor scheduled maintenance turnarounds on the reformer and isomerization units at the Ciniza refinery. In addition, the Company sold its ethanol processing plant in the fourth quarter of 1997, incurring a pretax loss of approximately $1.2 million on the disposition. REVENUES - -------- Revenues for the year ended December 31, 1997, increased approximately $158.1 million or 32% to $657.3 million from $499.2 million in the comparable 1996 period. The increase is primarily due to the Acquisitions, offset in part by a 3% decline in refinery weighted average selling prices. The volumes of refined products sold through the Company's retail units increased approximately 37% from 1996 levels primarily due to the acquisition of the ninety-six retail service station/convenience stores, offset in part by a 1% decline in the volumes of finished product sold from the Company's other retail operations. This reflects a 2% decline in the volumes of finished product sold from the Company's other service station/convenience stores, due primarily to increased competitive pressures, and a 6% increase in volumes sold from the Company's travel center, due in large part to improved marketing programs put in place during 1997. COST OF PRODUCTS SOLD - --------------------- For the year ended December 31, 1997, cost of products sold increased $125.8 million or 35% to $487.7 million from $361.9 million in the corresponding 1996 period. The increase is primarily due to the Acquisitions, offset in part by a 6% decline in average crude oil costs. In addition, the liquidation of certain lower cost crude oil LIFO inventory layers in 1996 reduced 1996 cost of products sold by approximately $2.8 million. There were no similar liquidations in 1997. OPERATING EXPENSES - ------------------ For the year ended December 31, 1997, operating expenses increased approximately $20.9 million or 32% to $85.2 million from $64.3 million for the year ended December 31, 1996. Approximately 85% of the increase is due to the Acquisitions. For the other operations, 1997 costs increased because of increased retail advertising costs, higher payroll and related costs, higher refinery purchased fuel and materials costs and higher retail operating bonuses. These increases were offset in part by a reduction in refinery utility costs. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 1997, depreciation and amortization increased approximately $6.3 million or 36% to $23.9 million from $17.6 million in the same 1996 period. Approximately 43% of the increase is due to the Acquisitions. The remaining increases are primarily related to other retail acquisitions and construction, remodeling and upgrades in retail and refinery operations, along with the amortization of 1997 and 1996 refinery turnaround costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the year ended December 31, 1997, selling, general and administrative expenses increased approximately $3.7 million or 23% to $19.3 million from $15.6 million in the corresponding 1996 period. Approximately 56% of the increase is due to the selling, general and administrative activities of Phoenix Fuel. The remaining increases are primarily the result of higher payroll and related costs, due in part to acquisition activity and planning for future growth. In addition, the comparisons were affected by higher 1996 expenses relating to accruals for incentive bonus plans and estimated severance tax assessments. INTEREST EXPENSE (INCOME) - ------------------------- For the year ended December 31, 1997, interest expense increased approximately $5.8 million or 47% to $18.1 million from $12.3 million in the comparable 1996 period. The increase is primarily due to an increase in interest expense because of additional long-term debt related to the Acquisitions, including the issuance of the 9% Notes in August 1997. The increase is offset in part by a reduction in interest expense related to the payment of approximately $32.0 million of long-term debt in 1996 from operating cash flow and the proceeds from the sale of the Company's oil and gas operations. The average interest rate for the 1997 period is slightly higher due to capital lease transactions related to the acquisition of the ninety-six retail service station/convenience stores and the issuance of the 9% Notes. For the year ended December 31, 1997, interest and investment income increased approximately $1.3 million or 176.7% to $2.1 million from $0.8 million in the comparable 1996 period. The increase is primarily due to an increase in excess funds available for investment, resulting from the issuance of the 9% Notes in August 1997. The effects of fluctuations in interest rates applicable to invested funds were nominal. INCOME TAXES - ------------ Income taxes for the years ended December 31, 1997 and 1996 were computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, resulting in an effective tax rate of approximately 39% for each period. DISCONTINUED OPERATIONS - ----------------------- Substantially all of the Company's oil and gas assets were sold in August 1996. OUTLOOK - ------- The Company intends to focus its efforts in 1998 on increasing its retail operations through construction and acquisition, improving the integration of operations and development of the synergies of the Acquisitions and continuing to seek additional opportunities to expand refinery capacity through acquisition and selected refinery projects. The Company's future results of operations are primarily dependent on producing or purchasing and selling sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 - --------------------------------------------------------------------- The primary factors affecting the results of the Company s 1996 continuing operations as compared to its 1995 continuing operations were the acquisition of the Bloomfield refinery in the beginning of the fourth quarter of 1995, an increase in 1996 refinery margins and the temporary suspension of operations at the Company s ethanol production plant during 1996. In early 1996, the Company approved a plan of disposition for its oil and gas assets. In August 1996, the Company completed the sale of substantially all of these assets. The operations connected with these assets are classified as discontinued operations in the Company s consolidated financial statements for 1996 and 1995. EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - ------------------------------------------------------- Earnings from continuing operations before income taxes were $28.2 million for the year ended December 31, 1996, an increase of approximately $16.8 million from $11.4 million for the year ended December 31, 1995. The increase was primarily the result of the acquisition of the Bloomfield refinery and increases in average refinery margins of approximately 21%. These increases were partially offset by increases in operating and administrative costs. REVENUES - -------- Revenues for the year ended December 31, 1996, increased $166.3 million or 50% to $499.2 million from $332.9 million in the comparable 1995 period. Finished product sales of $130.3 million from the Bloomfield refinery accounts for approximately 78% of the increase. In addition, a 19% increase in Ciniza refinery weighted average selling prices and a 10% increase in service station merchandise sales contributed to increased revenues. Offsetting these increases was a decline in third party sales from the Company s ethanol plant due to a temporary suspension of operations during 1996. The increase in service station merchandise sales was the result of a 9% increase in same store volumes and a net increase in sales during the year from fourteen units that had been acquired or constructed in 1995 and 1996 over thirteen units that had been disposed of during the same period. The volumes of refined products sold through retail units decreased approximately 1% from 1995 levels due to a 15% decline in volumes sold from the Company s travel center, offset in part by a 2% increase in service station volumes. It is believed that travel center volumes had declined because of increased local competition due to the construction of several new truck stops in the Company s market area in the past several years. Service station volumes increased due to a net increase in sales volumes during the year from the fourteen units that had been acquired or constructed in 1995 and 1996 over the thirteen units that had been disposed of during the same period. This increase was offset by a slight decline in same store volumes resulting from increased competition. COST OF PRODUCTS SOLD - --------------------- For the year ended December 31, 1996, cost of products sold increased $127.6 million or 54% to $361.9 million from $234.3 million in the corresponding 1995 period. Cost of products sold of $101.0 million relating to the Bloomfield refinery accounts for approximately 79% of the increase. Also contributing to increased costs were an 18% increase in average crude oil costs and a 12% increase in the cost of merchandise sales from the service stations. These increases were partially offset by a decrease in costs relating to the temporary suspension of operations at the Company s ethanol plant and the liquidation of certain lower cost crude oil LIFO inventory layers which resulted in a reduction in cost of products sold of approximately $2.8 million in 1996 compared to a similar reduction of approximately $0.5 million in 1995. OPERATING EXPENSES - ------------------ For the year ended December 31, 1996, operating expenses increased $12.4 million or 24% to $64.3 million from $51.9 million in the year ended December 31, 1995. Operating expenses increased due to the acquisition of the Bloomfield refinery (18%) and for other operations (12%). The 12% increase for other operations was due to increases in payroll and related costs (6%), higher fuel costs at the Ciniza refinery (1%) and for various other expense increases (5%). Partially offsetting these increases was a decrease of 6% due to the temporary suspension of operations at the ethanol plant. Payroll and other costs have increased due to annual wage increases and, in the retail operations, due to expanded programs such as twenty-four hour operations, fuel pump island attendant program, pay at the pump program, deli operations and store remodeling and expansion. DEPRECIATION AND AMORTIZATION - ----------------------------- For the year ended December 31, 1996, depreciation and amortization increased approximately $4.3 million or 32% to $17.6 million from $13.3 million in the same 1995 period. The increase was primarily the result of the acquisition of the Bloomfield refinery, along with the addition of service station and transportation assets. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the year ended December 31, 1996, selling, general and administrative expenses increased approximately $2.8 million or 22% to $15.6 million from $12.8 million in the corresponding 1995 period. The increase was primarily the result of expense accruals for incentive bonus plans (14%), increases in payroll and related costs (5%), expense accruals for estimated severance tax assessments (2%) and increases in various other general expense categories (10%). These increases were partially offset by 1996 expense reductions for decreases in estimated liabilities for self insured workman s compensation and property and casualty claims and other items (9%). INTEREST EXPENSE (INCOME) - ------------------------- For the year ended December 31, 1996, interest expense increased approximately $0.8 million or 7% to $12.3 million from $11.5 million in the same 1995 period. The increase was primarily related to the addition of certain variable rate long-term debt incurred to finance the acquisition of the Bloomfield refinery, offset in part by a reduction in other long-term debt. For the year ended December 31, 1996, interest and investment income decreased approximately $1.4 million or 66% to $0.8 million from $2.2 million in 1995. The decrease was primarily due to a decrease in excess funds available for investment related to the acquisition of the Bloomfield refinery in October 1995 and, in 1996, to the use of operating cash flows and the proceeds from the sale of the Company s oil and gas assets for the payment of long-term debt and capital expenditures. INCOME TAXES - ------------ Income taxes for the years ended December 31, 1996 and 1995 were computed in accordance with SFAS No. 109, resulting in effective tax rates of approximately 39% and 32%, respectively. The difference in the two rates was primarily due to alcohol fuel tax credits generated from the operation of the Company s ethanol plant, which temporarily suspended operations in October 1995, as well as coal seam gas tax credits in 1995. DISCONTINUED OPERATIONS - ----------------------- On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets for $25.5 million. The transaction was structured so that the Company retained only the oil and gas properties that will generate future coal seam gas tax credits under Section 29 of the Internal Revenue Code. The reserves related to these properties will be produced by the buyer and tax credits will be realized by the Company. The net asset value assigned to these properties was approximately $4.3 million. The Company also retained an office building and some equipment. Future coal seam gas tax credits, when earned, will be used to offset income taxes payable. Loss on the disposal of the oil and gas segment for 1996 was a loss on the sale of the oil and gas properties of approximately $18,000, including a provision for income taxes of $53,000, offset by earnings from operations of approximately $5,000, including income tax benefits of $861,000. For 1995 and 1994, earnings (loss) from operations were $143,000, net of income taxes of $154,000, and $(2,934,000), net of income tax benefit of $1,351,000, respectively. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATIONS - ------------------------- Operating cash flows for the year ended December 31, 1997, decreased when compared to the year ended December 31, 1996, primarily as the result of the differences in the net changes in working capital items in each period. This decrease was offset in part by increased cash flow represented by net earnings plus depreciation and amortization plus deferred income taxes in the year ended December 31, 1997. Net cash provided by operating activities of continuing operations totaled $31.3 million for the year ended December 31, 1997, compared to $42.8 million for the comparable 1996 period. WORKING CAPITAL - --------------- Working capital at December 31, 1997, consisted of current assets of $207.1 million and current liabilities of $95.4 million, or a current ratio of 2.17:1. At December 31, 1996, the current ratio was 1.33:1 with current assets of $86.5 million and current liabilities of $65.0 million. Current assets have increased since December 31, 1996, primarily due to an increase in cash and cash equivalents, accounts receivable, inventories and prepaid items. Accounts receivable and prepaid items have increased primarily as the result of the Acquisitions. Inventories have increased due to the Acquisitions and an increase in pipeline crude oil and terminal refined product volumes. Current liabilities have increased due to an increase in accounts payable and accrued expenses. Accounts payable have increased primarily as the result of the Acquisitions, offset in part by a decline in the cost of raw materials. Accrued expenses have increased primarily due to the Acquisitions and higher accrued interest costs. CAPITAL EXPENDITURES AND RESOURCES - ---------------------------------- Net cash used in investing activities for the purchase of property, plant and equipment and other assets, excluding the Acquisitions, totaled approximately $35.8 million for the year 1997. Expenditures included amounts for refinery and transportation equipment and facility upgrades, capacity enhancement projects and turnaround expenditures for the refineries, major remodeling expenditures for three retail units, construction costs for one new unit, the acquisition of land for future retail construction and continuing retail equipment and systems upgrades. In March 1997, the Ciniza refinery completed a reformer and isomerization unit turnaround including certain debottlenecking procedures that increased reformer capacity by approximately 700 bbls per day and isomerization capacity by approximately 1,000 bbls per day. In August 1997, the refinery completed the replacement of catalyst in the isomerization unit and the platformer. During the second quarter of 1997, the Bloomfield refinery completed a major, every four-year, maintenance turnaround including certain debottlenecking procedures that increased reformer capacity by approximately 900 bbls per day. Over the period May 28, 1997 to May 31, 1997, the Company completed the acquisition of ninety-six retail service station/convenience stores, seven additional retail locations for future development, certain petroleum transportation and maintenance assets, options to acquire service station/convenience stores and other related assets (the "Thriftway Assets") from Thriftway. The consideration paid by the Company for thirty-two service station/convenience stores, the seven retail locations for future development, the transportation and maintenance assets, the options to acquire service station/convenience stores and other related assets was approximately $19.1 million in cash and an office building and a truck maintenance shop with net book values totaling approximately $1.3 million. The Company leased the remaining sixty-four service station/convenience stores and related assets for a period of ten years and intends to purchase them pursuant to options to purchase during the ten year period for approximately $22.9 million. The lease obligations are accounted for as capital leases and initially require annual lease payments of approximately $2.6 million. These lease payments will be reduced as the individual service station/convenience stores are purchased pursuant to the options. The Company intends to purchase fifty-nine of these units for approximately $15.9 million during 1998. Annual lease payments will be reduced by approximately $1.8 million when these units are purchased. The service station/convenience stores acquired are retail outlets that sell various grades of gasoline, diesel fuel and merchandise to the general public and are located in New Mexico, Arizona, Colorado and Utah, in or adjacent to the Company's primary market area. The Company intends to use substantially all of the assets acquired in a manner consistent with their previous operation. In late 1997, the Company entered into an arrangement to sell some of the ninety-six units and additional retail locations acquired or leased from Thriftway. Fourteen of these units and two of the additional retail locations were sold in early 1998 for approximately $1.5 million. The Company also entered into a consignment agreement with Thriftway to supply finished product to sixteen service station/convenience stores operated by Thriftway which are located on the Navajo, Ute and Zuni Indian Reservations. Under this agreement, the Company will receive the profits from the finished product sales and will pay Thriftway annual consignment fees. The Company has options to purchase these service station/convenience stores. The Company has also entered into other long-term supply arrangements with Thriftway to provide gasoline and diesel fuel to other service stations in the area that will continue to be operated by Thriftway. The Company paid additional monies for finished product, merchandise and supply inventories associated with the units acquired. The amount paid approximated the sellers' cost of such inventories. On June 3, 1997, the Company purchased all of the issued and outstanding common stock of Phoenix Fuel for approximately $30.0 million. Phoenix Fuel is an independent industrial/commercial petroleum products distributor with current wholesale fuel sales of approximately 17,000 barrels per day and cardlock fuel sales of approximately 2,000 barrels per day, including gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene. In addition, Phoenix Fuel distributes approximately 370 barrels per day of oils and lubricants such as motor oil, hydraulic oil, gear oil, cutting oil and grease. Phoenix Fuel has nine bulk petroleum distribution plants, twenty-two cardlock fueling operations, a lubricant storage and distribution facility and operates a fleet of forty finished product truck transports. These assets and related operations are located throughout the state of Arizona and will continue to be used in a manner consistent with their previous operation. The Acquisitions were funded with $54.0 million of indebtedness as more fully described below. On a pro forma basis, assuming the Acquisitions and the issuance of the 9% Notes occurred on January 1, 1996, the Company's net revenues would have been $790.2 million and $785.8 million, net earnings from continuing operations would have been $14.2 million and $18.2 million, basic earnings per common share from continuing operations would have been $1.29 and $1.62 and, assuming dilution, would have been $1.27 and $1.60 per share for the years ended December 31, 1997 and 1996, respectively. This unaudited pro forma financial information does not purport to represent the results of operations that actually would have resulted had the purchases occurred on the date specified, nor should it be taken as indicative of the future results of operations. On December 12, 1997, the Company completed the sale of its ethanol processing plant in Portales, New Mexico for $4.0 million in cash. The Company incurred a pretax loss of $1.2 million on the disposition. The Company temporarily closed this plant in October 1995 and had planned to reopen the facility in 1997 because of improved economics, but decided to sell the facility when the opportunity arose and to concentrate on its core business of refining and marketing. In 1997 the Company incurred expenses of approximately $0.3 million to maintain this facility in addition to approximately $0.6 million in depreciation costs. The Company has budgeted approximately $65.0 million for capital expenditures in 1998. Of this amount, approximately $15.0 million is budgeted for non-discretionary projects that are required by law or regulation or to maintain the physical integrity of existing assets. These expenditures are primarily for operational and environmental projects at the refineries, including a major maintenance turnaround at the Ciniza refinery scheduled for the second quarter of 1998. The remaining budget of $50.0 million is for discretionary projects to sustain or enhance the current level of operations, increase earnings on existing or new business and to expand operations. The primary projects in this latter category include a terminal construction project, construction of thirteen retail units, retail site acquisitions, upgrades to existing retail units, capacity enhancement projects and facility and equipment upgrades at the refineries and for transportation and administrative operations. In addition to these budgeted amounts, the Company could incur an additional contingent payment related to the acquisition of the Bloomfield refinery, in accordance with the Bloomfield refinery acquisition agreement, if certain criteria are met. For 1997, the Company incurred a contingent payment obligation of approximately $7.2 million which will be paid in 1998. This amount has been allocated to the appropriate assets and will be amortized over their estimated useful lives. The amount of these capital projects that are actually undertaken in 1998 will depend on, among other things, identifying and consummating acceptable acquisitions, general business conditions and results of operations. Much of the capital currently planned to be spent by the Company for environmental compliance is integrally related to operations or to operationally required projects. The Company does not specifically identify capital expenditures related to such projects on the basis of whether they are for environmental as opposed to economic purposes. However, with respect to capital expenditures budgeted primarily to satisfy environmental regulations, it is estimated that approximately $0.5 million, $0.7 million and $0.5 million was spent in 1997, 1996 and 1995, respectively, and $2.0 million is expected to be spent in 1998. With respect to the Company s operating expenses for environmental compliance, while records are not kept specifically identifying or allocating such expenditures, management believes that the Company incurs significant operating expense for such purposes. Changes in the tax laws, changes in federal and state clean air and clean fuel requirements and other changes in environmental laws and regulations may increase future capital and operating expenditure levels. The Company continues to investigate other strategic acquisitions as well as capital improvements to its existing facilities. The Company is also actively pursuing the possible sale or exchange of non-strategic or underperforming assets. Working capital, including that necessary for capital expenditures and debt service, will be funded through cash generated from operating activities, existing cash balances and, if necessary, future borrowings. Future liquidity, both short and long-term, will continue to be primarily dependent on producing or purchasing and selling sufficient quantities of refined products at margins sufficient to cover fixed and variable expenses. CAPITAL STRUCTURE - ----------------- At December 31, 1997 and 1996, the Company's long-term debt was 67.4% and 48.1% of total capital, respectively. The increase is primarily due to an increase in long-term debt resulting from the issuance of the 9% Notes, the proceeds of which were partially used to payoff debt incurred in the Acquisitions and borrowings under the Company's working capital facility. Also contributing to the increase are capital lease obligations incurred in connection with the acquisition of the Thriftway Assets. This was offset in part by a net increase in stockholders' equity resulting from net earnings and the acquisition of shares of the Company's common stock accounted for as treasury shares. The Company's net debt (long-term debt less cash and cash equivalents) to total capitalization percentages were 59.1% and 45.1% at December 31, 1997 and 1996, respectively. In August 1997, the Company issued the 9% Notes due 2007. The net proceeds of the 9% Notes, after deducting expenses and initial purchasers discount, were approximately $146.8 million. Approximately $73.6 million of the proceeds were used to repay outstanding indebtedness and the Company intends to use approximately $18.9 million to purchase service station/convenience stores currently subject to capital lease obligations. It is anticipated that fifty-nine of these service station/convenience stores will be purchased in the first half of 1998 for approximately $15.9 million. The remaining proceeds of approximately $54.3 million will be used for general corporate purposes. The Indenture supporting the 9% Notes contains certain restrictive covenants, events of default and other provisions that are substantially similar to those for the $100.0 million in aggregate principal amount of 9 3/4% senior subordinated notes (the "9 3/4% Notes") due 2003, issued in November 1993. Repayment of the 9 3/4% Notes and the 9% Notes is jointly and severally guaranteed on an unconditional basis by the Company's direct and indirect wholly-owned subsidiaries, subject to a limitation designed to ensure that such guarantees do not constitute a fraudulent conveyance. Except as otherwise allowed in the Indenture pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable state law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances. In October 1995, the Company entered into a Credit Agreement (the "Agreement") with a group of banks. This Agreement was amended effective May 23, 1997 to increase the borrowing commitment under the unsecured capital expenditure facility portion of the Agreement to $70.0 million from $30.0 million and to extend the due date to May 23, 2000 from October 4, 1998. The Company borrowed $54.0 million under this capital expenditure facility to fund the amounts paid with respect to the Acquisitions. These amounts have since been repaid from the proceeds of the 9% Notes. Additional borrowings under the capital expenditure facility can be used to repurchase shares of the Company's common stock, and for acquisitions, capital expenditures and general corporate purposes, but not for working capital expenditures. On May 23, 1999, the borrowing commitment under the capital expenditure facility is required to be reduced by $20.0 million. At December 31, 1997, there were no outstanding balances under this facility. In addition, the Agreement contains a three-year unsecured working capital facility to provide working capital and letters of credit in the ordinary course of business. The availability under this working capital facility is the lesser of (i) $40.0 million, or (ii) the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Agreement. At December 31, 1997, the lesser amount was $40.0 million. The due date of this facility has also been extended to May 23, 2000. There were no direct borrowings under this arrangement at December 31, 1997, and there were approximately $15.9 million of irrevocable letters of credit outstanding, primarily to secure purchases of raw materials. Both facilities have a floating interest rate that is tied to various short-term indices. At December 31, 1997, this rate was approximately 6.5% per annum. The Agreement contains certain covenants and restrictions which require the Company to, among other things, maintain a minimum consolidated net worth; minimum fixed charge coverage ratio; minimum funded debt to total capitalization percentage; and places limits on investments, prepayment of senior subordinated debt, guarantees, liens and restricted payments. The Agreement is guaranteed by substantially all of the Company's direct and indirect wholly-owned subsidiaries. The Company is required to pay a quarterly commitment fee based on the unused amount of each facility. The Company's Board of Directors has authorized the repurchase of a total of 1.5 million shares of the Company's common stock under a stock repurchase plan, or approximately 12% of all shares issued as of the inception of the program. These purchases may be made from time to time as conditions permit. Shares may be repurchased through privately- negotiated transactions, block share purchases and open market transactions. In 1997, the Company repurchased approximately 0.1 million shares of its common stock under this program for approximately $1.8 million. From the inception of the stock repurchase plan, the Company has repurchased approximately 1.2 million shares at a weighted cost of $10.18. These shares are treated as treasury shares. Repurchased shares are available for a variety of corporate purposes. The number of shares actually repurchased will be dependent upon market conditions and there is no guarantee as to the exact number of shares to be repurchased by the Company. The Company may suspend or discontinue the program at any time without notice. For the year 1997, the Company's Board of Directors declared cash dividends on common stock totaling $0.20 per share. Future dividends, if any, are subject to the results of the Company's operations, existing debt covenants and declaration by the Company's Board of Directors. OTHER - ----- Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances for various reasons, including the speculative nature of remediation and cleanup cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. Rules and regulations implementing federal, state and local laws relating to health and the environment will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could have an adverse effect on the financial position and the results of operations of the Company and could require substantial expenditures by the Company for the installation and operation of refinery equipment, pollution control systems and other equipment not currently possessed by the Company. In May 1991, the Environmental Protection Agency ("EPA") notified the Company that it may be a potentially responsible party for the release, or threatened release, of hazardous substances, pollutants or contaminants at the Lee Acres Landfill (the "Landfill"), adjacent to the Company s inactive Farmington refinery. This refinery was operated until 1982. Although a final plan of action for the Landfill has not yet been adopted by the Bureau of Land Management (the "BLM"), the BLM has developed a proposed plan of action which it projects will cost approximately $3.9 million to implement. This cost projection is based on certain assumptions which may or may not prove to be correct and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, the BLM is proposing to take additional remedial actions with an estimated cost of approximately $1.8 million. In 1989, a consultant to the Company estimated, based on various assumptions, that the Company s share of potential liability could be approximately $1.2 million. This figure was based upon estimated Landfill remediation costs significantly higher than those being proposed by the BLM. The figure was also based on the consultant s evaluation of such factors as available clean-up technology, the BLM s involvement at the site and the number of other entities that may have had involvement at the site. The consultant, however, did not conduct an analysis of the Company s potential legal defenses and arguments including possible setoff rights. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though the party was responsible for only a small part of such costs. Actual liability, if any, may differ significantly from the consultant s estimate. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM s proposed plan. The Company has an environmental liability accrual of approximately $2.8 million. Approximately $0.8 million relates to ongoing environmental projects, including the remediation of a hydrocarbon plume that appears to extend no more than 1,800 feet south of the inactive Farmington refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining $2.0 million relates to an originally estimated liability of approximately $2.3 million, recorded in the second quarter of 1996, for certain environmental obligations assumed in the acquisition of the Bloomfield refinery. That amount was recorded as an adjustment to the purchase price and allocated to the assets acquired. This environmental accrual is recorded in the current and long-term sections of the Company s Consolidated Balance Sheet. The Company is subject to audit on an ongoing basis of the various taxes that it pays to federal, state, local and tribal agencies. These audits may result in assessments or refunds along with interest and penalties. In some cases the jurisdictional basis of the taxing authority is in dispute and is the subject of litigation or administrative appeals. The Company has received several tax notifications and assessments from the Navajo Tribe relating to crude oil and natural gas removed from properties located outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction, including a $1.8 million severance tax assessment issued in November 1991. The Company has invoked its appeal rights with the Tribe s Tax Commission in connection with this assessment and intends to oppose the assessment. It is the Company s position that it is in substantial compliance with laws applicable to the disputed area and, therefore, has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company s assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. The Company has executed an agreement to acquire the assets of Ever-Ready Oil Co., Inc. and a related entity (collectively "Ever- Ready"). Closing is contingent upon, among other things, due diligence, various conditions and regulatory approvals. Ever-Ready is an Albuquerque-based petroleum products distributor that has been in business for 68 years. Ever-Ready has fuel sales of approximately 5,000 barrels per day and lubricant sales of approximately 1.0 million gallons per year. The assets include, among other things, twenty-seven retail service station/convenience stores and ten cardlock fueling operations. A portion of the assets are subject to rights of first refusal in favor of third parties. One of these parties has exercised its rights while another did not. The Company has the option of closing on the remaining assets or cancelling the purchase. On February 10, 1998, the Company completed the purchase of the assets of DeGuelle Oil Company and the stock of DeGuelle Enterprises (collectively "DeGuelle") for $9.75 million. DeGuelle is a Durango, Colorado-based petroleum marketing company. Included in the purchase were seven service station/convenience stores, two cardlock commercial fleet fueling facilities, a gasoline and diesel storage bulk plant and related transportation equipment. All of the facilities are located in southwestern Colorado and will be supplied by the Company's refineries. In 1997, DeGuelle had sales of approximately 10.0 million gallons of gasoline and diesel fuel in addition to 35,000 gallons of lubricants. The Company currently owns and operates six service station/convenience stores in Maricopa County and, with the acquisition of Phoenix Fuel, has acquired other retail/wholesale marketing operations, some of which are also located in Maricopa County. The Company does not presently manufacture gasoline that satisfies Maricopa County gasoline specifications. Because the amount of gasoline manufactured at the Company's refineries and sold in Maricopa County has been very small, and because the capital costs associated with manufacturing large quantities of such gasolines would be significant in amounts not yet determined by the Company, the Company currently does not intend to make the changes necessary to produce such gasolines. The Company has the ability to purchase or exchange for these gasolines to supply its operations in Maricopa County. It is possible that further legislation or regulation affecting motor fuel specifications may be adopted that would impact geographic areas in which the Company markets its products. The Company believes that local crude oil production currently approximates local crude oil demand and that the supply of crude oil and condensate in the Four Corners has improved as a result of enhanced recovery programs and increased drilling activities by major oil companies in the area. The Company is currently able to supplement local crude oil supplies with Alaska North Slope crude oil ("ANS") through its gathering systems interconnection with the Four Corners and Texas-New Mexico common carrier pipeline systems. Based on projections of local crude oil availability from the field and current levels of usage of ANS (which are limited to 1,500 bpd by the refineries' configurations), the Company believes an adequate supply of crude oil and other feedstocks will be available from local producers, crude oil sourced through common carrier pipelines and other sources to sustain refinery operations for the foreseeable future at substantially the levels currently being experienced. However, there is no assurance that this situation will continue. Any significant long-term interruption in crude oil supply or to the crude oil transportation system would have an adverse effect on the Company's operations. The Company is aware of a number of actions, proposals or industry discussions regarding product pipeline projects that could impact portions of its marketing areas. One of these projects, the expansion of the ATA Line (formerly called the Emerald Line) into Albuquerque was completed in 1997. Another of these announced projects, which would result in a refined products pipeline from Southeastern New Mexico to the Albuquerque and Four Corners markets, is reportedly scheduled for completion in 1998. In addition, various proposals or actions have been announced to increase the supply of pipeline-supplied products to El Paso, Texas, which is connected by pipeline to the Albuquerque market to the north. The completion of some or all of these projects would result in increased competition by increasing the amount of refined products available in the Albuquerque, Four Corners and other market areas, as well as allowing additional competitors improved access to these market areas. The Year 2000 ("Y2K") issue is the result of computer systems using a two-digit format rather than four to define the applicable year. Such computer systems will be unable to properly interpret dates beyond the year 1999, which could lead to a system failure or miscalculations causing disruptions of operations. In 1997, the Company developed a three-phase program for Y2K information systems compliance. Phase I is to identify those systems with which the Company has exposure to Y2K issues. Phase II is the development and implementation of action plans to be Y2K compliant in all areas by mid-1999. Phase III, to be completed in 1999, is the final testing of each major area of exposure to ensure compliance. The Company has identified three major areas determined to be critical for successful Y2K compliance: (1) Financial and informational system applications, (2) Manufacturing and process applications and (3) Business relationships. For Phase I, the Company is in the process of conducting an internal review of all systems and contacting all software suppliers to determine major areas of exposure to Y2K issues. In the financial and information system area, a number of applications have been identified as being Y2K compliant due to their recent implementation. The Company's core financial and reporting systems are not Y2K compliant but were already scheduled for replacement by mid-1999. Some subsidiary financial systems will either be added to this replacement project or will require internal systems revisions to be Y2K compliant. In the manufacturing and process area and the business relationship area, the Company is in the process of identifying areas of exposure. The Company believes it will cost approximately $2.5 million to replace the core financial and reporting systems and has identified the potential for 4,000 man hours of work to bring the remaining financial and informational system applications into compliance at an estimated cost of approximately $0.8 million. The Company is interviewing outside consultants to undertake a portion of the work and expects approximately two-thirds of the cost to be incurred in 1998 and the remainder in 1999. The Company has not yet determined what costs will be incurred in connection with the manufacturing and processing area and the business relationship area. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This report contains forward-looking statements that involve risks and uncertainties, including but not limited to economic, competitive and governmental factors affecting the Company's operations, markets, products, services and prices; the continuing effect of the acquisition of the ninety-six retail service station/convenience stores and the operations of Phoenix Fuel on the Company' s financial position and results of operations; the expansion of the Company's refining and retail operations through acquisition and construction; the completion of capital projects identified in the 1998 capital budget; the impact of the mandated use of reformulated gasolines on the Company's operations; the adequacy of raw material supplies; the adequacy of the Company's environmental reserves and reserves for tax assessments; the potential effects of various pipeline projects as they relate to the Company's market area and future profitability; the ability of the Company to become Y2K compliant and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Giant Industries, Inc. Scottsdale, Arizona We have audited the accompanying consolidated balance sheets of Giant Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Giant Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Phoenix, Arizona March 2, 1998
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, --------------------- 1997 1996 --------- --------- (In thousands) ASSETS Current assets: Cash and cash equivalents $ 82,592 $ 12,628 Receivables: Trade, less allowance for doubtful accounts of $464,000 and $254,000 47,548 25,014 Income tax refunds 248 1,355 Other 9,274 4,395 --------- --------- 57,070 30,764 --------- --------- Inventories 57,598 38,226 Prepaid expenses and other 7,016 3,252 Deferred income taxes 2,800 1,636 --------- --------- Total current assets 207,076 86,506 --------- --------- Property, plant and equipment 402,600 322,260 Less accumulated depreciation and amortization (120,773) (108,715) --------- --------- 281,827 213,545 --------- --------- Goodwill, less accumulated amortization of $1,341,000 and $903,000 18,363 435 Other assets 28,105 23,521 --------- --------- $ 535,371 $ 324,007 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 562 $ 1,439 Accounts payable 55,546 35,754 Accrued expenses 39,243 27,772 --------- --------- Total current liabilities 95,351 64,965 --------- --------- Long-term debt, net of current portion 275,557 113,081 Deferred income taxes 25,887 19,042 Other liabilities 5,109 4,795 Commitments and contingencies (Notes 15 and 16) Stockholders' equity: Preferred stock, par value $.01 per share, 10,000,000 shares authorized, none issued Common stock, par value $.01 per share, 50,000,000 shares authorized, 12,232,367 and 12,221,367 shares issued 122 122 Additional paid-in capital 72,699 72,617 Retained earnings 73,256 60,170 --------- --------- 146,077 132,909 Less common stock in treasury-at cost, 1,239,100 and 1,123,500 shares (12,610) (10,785) --------- --------- 133,467 122,124 --------- --------- $ 535,371 $ 324,007 ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Year Ended December 31, --------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (In thousands except per share data) Net revenues $ 657,278 $ 499,184 $ 332,888 Cost of products sold 487,748 361,864 234,271 ----------- ----------- ----------- Gross margin 169,530 137,320 98,617 Operating expenses 85,177 64,315 51,856 Depreciation and amortization 23,991 17,673 13,345 Selling, general and administrative expenses 19,256 15,602 12,778 ----------- ----------- ----------- Operating income 41,106 39,730 20,638 Interest expense (18,139) (12,318) (11,506) Interest and investment income 2,133 771 2,239 ----------- ----------- ----------- Earnings from continuing operations before income taxes 25,100 28,183 11,371 Provision for income taxes 9,806 11,132 3,638 ----------- ----------- ----------- Earnings from continuing operations 15,294 17,051 7,733 Discontinued operations: Earnings from oil and gas operations (net of taxes) 143 Loss on disposal of oil and gas operations (net of taxes) (13) ----------- ----------- ----------- Net earnings $ 15,294 $ 17,038 $ 7,876 =========== =========== =========== Earnings per common share - basic: Continuing operations $ 1.38 $ 1.52 $ 0.68 Discontinued operations 0.01 ----------- ----------- ----------- Net earnings $ 1.38 $ 1.52 $ 0.69 =========== =========== =========== Earnings per common share - assuming dilution: Continuing operations $ 1.37 $ 1.50 $ 0.67 Discontinued operations 0.01 ----------- ----------- ----------- Net earnings $ 1.37 $ 1.50 $ 0.68 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
GIANT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Unearned Unearned compen- Unrealized Common stock employee sation loss on Total ---------------- Additional benefits related to securities Treasury stock stock- Shares Par paid-in Retained related restricted available- ------------------- holders' issued value capital earnings to ESOP stock for-sale Shares Cost equity ---------- ----- ---------- -------- -------- ---------- ---------- --------- --------- -------- (In thousands except number of shares) Balances, January 1, 1995 12,187,629 $122 $72,373 $40,373 $ (514) $ (614) $ (398) 202,300 $ (1,652) $109,690 Purchase of treasury stock 737,200 (6,349) (6,349) Stock options exercised 1,000 8 8 Benefits allocated to employees by ESOP 514 514 Compensation related to restricted stock awards 8 463 471 Dividends declared (2,876) (2,876) Change in unrealized loss on securities available- for-sale 398 398 Net earnings 7,876 7,876 ---------- ---- ------- ------- ------ ------ ------ --------- -------- -------- Balances, December 31, 1995 12,188,629 122 72,389 45,373 (151) 939,500 (8,001) 109,732 Purchase of treasury stock 184,000 (2,784) (2,784) Stock options exercised 32,750 216 216 Compensation related to restricted stock awards 12 151 163 Restricted stock award fractional shares redeemed/canceled (12) Dividends declared (2,241) (2,241) Net earnings 17,038 17,038 ---------- ---- ------- ------- ------ ------ ------ --------- -------- -------- Balances, December 31, 1996 12,221,367 122 72,617 60,170 1,123,500 (10,785) 122,124 Purchase of treasury stock 115,600 (1,825) (1,825) Stock options exercised 11,000 82 82 Dividends declared (2,208) (2,208) Net earnings 15,294 15,294 ---------- ---- ------- ------- ------ ------ ------ --------- -------- -------- Balances, December 31, 1997 12,232,367 $122 $72,699 $73,256 $ $ $ 1,239,100 $(12,610) $133,467 ========== ==== ======= ======= ====== ====== ====== ========= ======== ========
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, -------------------------------- 1997 1996 1995 -------- -------- -------- (In thousands) Cash flows from operating activities: Net earnings $ 15,294 $ 17,038 $ 7,876 Adjustments to reconcile net earnings to net cash provided by continuing operating activities: Loss (earnings) from discontinued operations 13 (143) Depreciation and amortization 23,991 17,673 13,345 Deferred income taxes 5,681 6,514 1,632 Restricted stock award compensation 163 471 Changes in other assets and liabilities (2,557) 470 (328) Other 801 73 57 Changes in operating assets and liabilities: Increase in receivables (7,876) (6,718) (2,513) (Increase) decrease in inventories (13,494) 4,355 (10,311) (Increase) decrease in prepaid expenses and other (156) 647 (1,563) Increase in accounts payable 2,784 1,644 15,096 Increase in accrued expenses 6,824 883 904 -------- -------- -------- Net cash provided by continuing operating activities 31,292 42,755 24,523 -------- -------- -------- Cash flows from investing activities: Refinery acquisition (55,000) Acquisition of businesses, net of cash received (47,168) Purchases of property, plant and equipment and other assets (35,752) (27,468) (22,978) Refinery acquisition contingent payment (6,910) Proceeds from sale of property, plant and equipment and other assets 4,606 4,587 2,588 Payments received on ESOP loan 514 Proceeds from sales and maturities of marketable securities 35,991 Proceeds from sale of discontinued operations 24,106 Net cash used by discontinued operations (3,831) (6,150) -------- -------- -------- Net cash used by investing activities (85,224) (2,606) (45,035) -------- -------- -------- Cash flows from financing activities: Proceeds of long-term debt 283,100 10,000 41,000 Payments of long-term debt (151,924) (42,218) (14,458) Purchase of treasury stock (1,825) (2,784) (6,349) Deferred financing costs (3,319) (698) Payment of dividends (2,218) (2,284) (2,302) Proceeds from exercise of stock options 82 216 8 -------- -------- -------- Net cash provided (used) by financing activities 123,896 (37,070) 17,201 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 69,964 3,079 (3,311) Cash and cash equivalents: Beginning of year 12,628 9,549 12,860 -------- -------- -------- End of year $ 82,592 $ 12,628 $ 9,549 ======== ======== ========
Significant Noncash Investing and Financing Activities. During 1997, the Company exchanged an office building and a truck maintenance shop with net book values totaling approximately $1,300,000 and recorded $22,904,000 for capital leases as part of the acquisition of the Thriftway Assets. In addition, approximately $7,243,000 was incurred as a contingent payment related to the acquisition of the Bloomfield refinery. During 1996, the Company accrued $2,250,000 for estimated preacquisition environmental liabilities assumed and $6,910,000 was incurred as a contingent payment, both related to the acquisition of the Bloomfield refinery. During 1995, two retail units with a net book value of $1,613,000 were exchanged for a finished products terminal and $1,198,000 was incurred as a contingent payment related to the acquisition of the Bloomfield refinery. The accompanying notes are an integral part of these consolidated financial statements. GIANT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Giant Industries, Inc. ("Giant" or the "Company") is organized through two wholly-owned subsidiaries, Giant Industries Arizona, Inc. ("Giant Arizona") and Giant Exploration and Production Company ("Giant E&P"). Giant Arizona, along with a number of its wholly- owned subsidiaries, is engaged in the refining and marketing business. In addition, through its wholly-owned subsidiary Phoenix Fuel Co., Inc. ("Phoenix Fuel"), Giant Arizona operates an independent industrial/commercial petroleum products distribution operation. Substantially all of the oil and gas assets of Giant E&P were sold in August 1996. DESCRIPTION OF BUSINESS The Company operates primarily as an independent refiner and marketer of petroleum products. The Company has two operating refineries in New Mexico. The Ciniza refinery, with a crude oil throughput capacity of 20,800 barrels per day ("bpd") and a total capacity including natural gas liquids of 26,000 bpd, is located near Gallup, New Mexico. In October 1995, the Company acquired the Bloomfield refinery, with a crude oil throughput capacity of 18,000 bpd and a total capacity including natural gas liquids of 18,600 bpd, located in Bloomfield, New Mexico. (See Note 3 for further discussion.) In May and June 1997, the Company acquired ninety-six service station/convenience stores, nearly tripling its retail operations, and Phoenix Fuel, whose operations are located throughout the state of Arizona. (See Note 3 for further discussion.) The Company's principal business is the refining of crude oil into petroleum products which are sold through branded retail outlets as well as through distributors, industrial/commercial accounts and major oil companies. The Company is the largest refiner and marketer of petroleum products in the Four Corners area of the southwestern United States where New Mexico, Arizona, Colorado and Utah adjoin. As an adjunct to its retail outlets, the Company sells merchandise through its stores. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Giant and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. NET REVENUES Revenues are recognized from sales when product ownership is transferred to the customer. Excise and other similar taxes are excluded from net revenues. STATEMENTS OF CASH FLOWS All highly liquid instruments with an original maturity of three months or less are considered to be cash equivalents. FUTURES AND OPTION CONTRACTS The Company periodically enters into futures or option contracts to hedge its exposure to price fluctuations on crude oil and refined products. Gains and losses on hedge contracts are deferred and reported as a component of the related transaction. For the purposes of the Statement of Cash Flows, hedging transactions are considered to be operating activities. INTEREST RATE SWAPS In the past, interest rate management techniques such as swaps and caps were entered into in order to effectively manage and reduce net interest expense. Net settlements on swap transactions are reported as an adjustment to net interest expense over the life of the associated debt instruments. These debt instruments were repaid in 1996, and the remaining net settlement proceeds were recorded as an adjustment to interest expense. MARKETABLE SECURITIES All marketable securities were sold or matured in 1995. Marketable securities were stated at fair value which was generally estimated based on quoted market prices. CONCENTRATION OF CREDIT RISK Credit risk with respect to customer receivables is concentrated in a small geographic area in which the Company operates and relates primarily to customers in the oil and gas industry. To minimize this risk, the Company performs ongoing credit evaluations of its customers' financial position and requires collateral, such as letters of credit, in certain circumstances. INVENTORIES Inventories are stated at the lower of cost or market. Costs for crude oil and refined products produced by the refineries and the lube oils, refined products and other merchandise of Phoenix Fuel are determined by the last-in, first-out ("LIFO") method. Costs for exchange and terminal refined products and shop supplies are determined by the first-in, first-out ("FIFO") method. Costs for merchandise inventories at retail locations are determined by the retail inventory method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and are depreciated on the straight-line method over their respective estimated useful lives. The estimated useful lives for the various categories of property, plant and equipment are: Buildings and improvements 7-30 years Machinery and equipment 7-24 years Pipelines 30 years Furniture and fixtures 2-15 years Vehicles 3-7 years Routine maintenance, repairs and replacement costs are charged against earnings as incurred. Turnaround costs, which consist of complete shutdown and inspection of significant units of the refineries at intervals of two or more years for necessary repairs and replacements, are deferred and amortized over the period until the next expected shutdown which generally ranges from twenty-four to forty- eight months depending on the type of shutdown and the unit involved. Expenditures which materially increase values, expand capacities or extend useful lives are capitalized. Interest expense is capitalized as part of the cost of constructing major facilities and equipment. GOODWILL Goodwill is carried at cost less accumulated amortization. Goodwill is amortized on the straight-line method over the periods of expected benefit ranging from fifteen to thirty years. LONG-LIVED ASSETS In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, the Company reviews the carrying values of its long- lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets to be held and used may not be recoverable. For assets to be disposed of, the Company reports long-lived assets and certain identifiable intangibles at the lower of carrying amount or fair value less cost to sell. TREASURY STOCK The Company's Board of Directors has authorized the repurchase of up to 1,500,000 shares of the Company's common stock or approximately 12% of all shares issued as of the inception of the repurchase program. These purchases may be made from time to time as conditions permit. Shares may be repurchased through privately-negotiated transactions, block share purchases and open market transactions. Through the end of 1997, the Company had repurchased 1,239,100 shares at a cost of approximately $12,610,000. These shares are being treated as treasury shares. ENVIRONMENTAL EXPENDITURES Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. INCOME TAXES The provision for income taxes is based on earnings reported in the financial statements. Deferred income taxes are provided on temporary differences between the basis of assets and liabilities for financial reporting purposes and income tax purposes. EARNINGS PER COMMON SHARE In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share", which is effective for financial statements for both interim and annual periods ending after December 15, 1997. The Company has implemented this Statement and, as required, has restated earnings per share ("EPS") for all periods presented. This new standard requires dual presentation of "basic" and "diluted" EPS on the face of the earnings statement and requires a reconciliation of the numerator and denominator of the basic and diluted EPS calculations. (See Note 2.) Basic earnings per common share is computed on the weighted average number of shares of common stock outstanding during each period. Earnings per common share assuming dilution is computed on the weighted average number of shares of common stock outstanding plus additional shares representing the exercise of outstanding common stock options using the treasury stock method. NEW ACCOUNTING PRONOUNCEMENTS In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1 "Environmental Remediation Liabilities". The Company adopted this Statement in the first quarter of 1997. Based on a review of environmental remediation activities, there was no current impact on the Company's financial position or results of operations. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional capital in the equity section of a statement of financial position. SFAS No. 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for disclosures about products and services, geographic areas and major customers. Both statements are effective for fiscal year 1998. The Company has not completed evaluating the effects these Statements will have on its financial reporting and disclosures. The Statements will have no effect on the Company's financial position or results of operations. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 financial statements and notes to conform to the statement classifications used in 1997. NOTE 2--EARNINGS PER SHARE: As discussed in Note 1, the following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations as required by SFAS No. 128:
Year Ended December 31, ---------------------------------------------------------------------------------------------------- 1997 1996 1995 -------------------------------- -------------------------------- -------------------------------- Per Per Per Income Shares Share Income Shares Share Income Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------ Earnings per common share - basic Earnings from continuing operations $15,294,000 11,050,853 $1.38 $17,051,000 11,220,380 $1.52 $7,733,000 11,478,779 $0.68 Effect of dilutive stock options 124,041 115,964 40,541 ----------- ---------- ----- ----------- ---------- ----- ---------- ---------- ----- Earnings per common share - assuming dilution Earnings from continuing operations $15,294,000 11,174,894 $1.37 $17,051,000 11,336,344 $1.50 $7,733,000 11,519,320 $0.67 =========== ========== ===== =========== ========== ===== ========== ========== =====
There were no transactions subsequent to December 31, 1997, that if the transactions had occurred before December 31, 1997, would materially change the number of common shares or potential common shares outstanding as of December 31, 1997. NOTE 3--ACQUISITIONS AND DISPOSITIONS: Over the period May 28, 1997 to May 31, 1997, Giant Four Corners, Inc., ("GFC"), an indirect wholly-owned subsidiary of the Company, completed the acquisition of ninety-six retail service station/convenience stores, seven additional retail locations for future development, certain petroleum transportation and maintenance assets, options to acquire service station/convenience stores and other related assets (the "Thriftway Assets"). The assets were acquired from Thriftway Marketing Corp. and Clayton Investment Company and from entities related to such sellers (collectively, "Thriftway"). Thirty-two service station/convenience stores, the seven retail locations for future development, the transportation and maintenance assets, the options to acquire service station/convenience stores and other related assets were purchased for approximately $19,100,000 in cash and an office building and a truck maintenance shop with net book values totaling approximately $1,300,000. GFC is leasing the remaining sixty-four service station/convenience stores and related assets for a period of ten years and intends to purchase them pursuant to options to purchase during the ten year period for approximately $22,900,000. The lease obligations are accounted for as capital leases and initially require annual lease payments of approximately $2,600,000. These lease payments will be reduced as the individual service station/convenience stores are purchased pursuant to the options. The Company intends to purchase fifty-nine of these units for approximately $15,900,000 in the first half of 1998. Annual lease payments will be reduced by approximately $1,800,000 when these units are purchased. The service station/convenience stores acquired are retail outlets that sell various grades of gasoline, diesel fuel and merchandise to the general public and are located in New Mexico, Arizona, Colorado and Utah, in or adjacent to the Company's primary market area. GFC intends to use substantially all of the assets acquired in a manner consistent with their previous operation. In late 1997, the Company entered into an arrangement to sell some of the ninety-six units and additional retail locations acquired or leased from Thriftway. Fourteen of these units and two of the additional retail locations were sold in early 1998 for approximately $1,500,000. GFC also entered into a consignment agreement with Thriftway to supply finished product to sixteen service station/convenience stores operated by Thriftway which are located on the Navajo, Ute and Zuni Indian Reservations. Under this agreement, GFC receives the profits from the finished product sales and pays Thriftway annual consignment fees. GFC has options to purchase these service station/convenience stores. The Company has also entered into long-term supply arrangements with Thriftway to provide gasoline and diesel fuel to other service stations in the area that will continue to be operated by Thriftway. GFC paid additional monies for finished product, merchandise and supply inventories associated with the units acquired. The amount paid approximated the sellers' cost of such inventories. On June 3, 1997, Giant Arizona purchased all of the issued and outstanding common stock of Phoenix Fuel from J. W. Wilhoit, as Trustee of the Wilhoit Trust Agreement dated December 26, 1974 and other related entities for approximately $30,000,000 in cash. Phoenix Fuel is an independent industrial/commercial petroleum products distributor with current wholesale fuel sales of approximately 17,000 barrels per day and cardlock fuel sales of approximately 2,000 barrels per day, including gasoline, diesel fuel, burner fuel, jet fuel, aviation fuel and kerosene. In addition, Phoenix Fuel distributes approximately 370 barrels per day of oils and lubricants such as motor oil, hydraulic oil, gear oil, cutting oil and grease. Phoenix Fuel has nine bulk petroleum distribution plants, twenty-two cardlock fueling operations, a lubricant storage and distribution facility and operates a fleet of forty finished product truck transports. These assets and related operations are located throughout the state of Arizona and will continue to be used in a manner consistent with their previous operation. Both acquisitions have been accounted for using the purchase method. Results of operations of the acquired businesses from their respective dates of acquisition have been included in the Company's Consolidated Statement of Earnings for the year ended December 31, 1997. The Company recorded goodwill of approximately $17,000,000 for the acquisition of Phoenix Fuel and $1,000,000 for the acquisition of the Thriftway Assets. The Company is amortizing goodwill related to the Phoenix Fuel acquisition over 30 years and goodwill related to the Thriftway Assets acquisition over 15 years. The acquisitions were funded under the Company's Credit Agreement, as amended, with a group of banks. The amounts borrowed were subsequently repaid with the issuance of $150,000,000 of 9% senior subordinated notes (the "9% Notes"). The following unaudited Pro Forma Combined Condensed Statements of Earnings for the years ended December 31, 1997 and 1996 combine the historical financial information for the Company, the Thriftway Assets and Phoenix Fuel assuming the acquisitions were consummated at the beginning of the periods presented, as well as the sale of the 9% Notes and the application of the proceeds as described in Note 9, assuming such transaction had occurred at the beginning of the periods. The pro forma statements include the results of operations of the Company and the Acquisitions, along with adjustments which give effect to events that are directly attributable to the transactions and which are expected to have a continuing impact. This unaudited pro forma financial information does not purport to represent the results of operations that actually would have resulted had the purchases occurred on the date specified, nor should it be taken as indicative of the future results of operations. PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS YEAR ENDED DECEMBER 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Pro Forma Pro Forma 1997 1996 ---------- ---------- Net revenues $ 790,184 $ 785,756 Cost of products sold 599,474 596,244 ---------- ---------- Gross margin 190,710 189,512 Operating expenses 97,235 93,881 Depreciation and amortization 26,810 24,142 Selling, general and administrative expenses 22,358 21,114 ---------- ---------- Operating income 44,307 50,375 Interest expense, net 20,950 20,339 ---------- ---------- Earnings from continuing operations before income taxes 23,357 30,036 Provision for income taxes 9,118 11,864 ---------- ---------- Earnings from continuing operations $ 14,239 $ 18,172 ========== ========== Earnings per common share - basic $ 1.29 $ 1.62 ========== ========== Earnings per common share - assuming dilution $ 1.27 $ 1.60 ========== ==========
On December 12, 1997, the Company completed the sale of its ethanol processing plant in Portales, New Mexico for $4,000,000 in cash. The Company incurred a pretax loss of approximately $1,200,000 on the disposition. The Company temporarily closed this plant in October 1995 and had planned to reopen the facility in 1997 because of improved economics, but decided to sell the facility when the opportunity arose and to concentrate on its core business of refining and marketing. In 1997 and 1996, the Company incurred expenses of approximately $307,000 and $468,000, respectively, to maintain this facility in addition to approximately $606,000 and $683,000, respectively, in depreciation. For 1995, this operation contributed approximately $7,000,000 in third party revenues and an operating loss of approximately $782,000. On October 4, 1995, the Company completed the purchase of the Bloomfield refinery along with related pipeline and transportation assets from Gary-Williams Energy Co. and its wholly-owned subsidiary, Bloomfield Refining Company ("BRC"). The purchase price was $55,000,000 plus approximately $7,500,000 for crude oil and refined products inventories associated with the refinery operations. The purchase agreement provides for potential contingent payments to be made to BRC over approximately six years from the acquisition date, not to exceed a present value of $25,000,000, should certain criteria be met. These contingent payments are considered to be additional purchase price and will be allocated to the assets acquired in the same proportions as the original purchase price was allocated, not to exceed the estimated current replacement cost, and amortized over the estimated remaining life of the assets. At December 31, 1997, 1996 and 1995, the Company had accrued $7,243,000, $6,910,000 and $1,198,000, respectively, under this arrangement relating to 1997, 1996 and 1995 operations. In addition, the Company accrued $2,250,000 in 1996 relating to certain environmental obligations assumed in the purchase. NOTE 4--DISCONTINUED OPERATIONS: In early 1996, the Company approved a plan of disposition for its oil and gas segment. The decision was based upon management's review of the prospects for this operation, which indicated that substantial new capital would be necessary to further develop this business and reach an acceptable level of profitability and integration. The net assets of the oil and gas segment at December 31, 1995, were approximately $26,689,000, consisting primarily of oil and gas properties and related deferred taxes. On August 30, 1996, the Company completed the sale of substantially all of its oil and gas assets for $25,500,000. The transaction was structured so that the Company retained only the oil and gas properties that will generate future coal seam gas tax credits under Section 29 of the Internal Revenue Code. The reserves related to these properties will be produced by the buyer and tax credits will be realized by the Company. Future coal seam gas tax credits, when earned, will be used to offset income taxes payable. Revenues for the oil and gas operations in 1996, up to the date of sale, were $6,891,000 and were $8,363,000 for 1995. These revenues are not included in revenues as reported in the Consolidated Statements of Earnings. Loss on the disposal of the oil and gas segment for 1996 is a loss on the sale of the oil and gas properties of approximately $18,000, including a provision for income taxes of $53,000, offset by earnings from operations of approximately $5,000, including income tax benefits of $861,000. For 1995, earnings from operations were $143,000, net of income taxes of $154,000. NOTE 5--MARKETABLE SECURITIES: During 1995, all of the Company's marketable securities, which were classified as available-for-sale as defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," were sold or matured. In recording gains and losses on the sale of marketable securities, cost is determined using specific identification. NOTE 6--INVENTORIES: Inventories consist of the following:
December 31, ------------------- 1997 1996 ------- ------- (In thousands) First-in, first-out ("FIFO") method: Crude oil $12,736 $10,443 Refined products 25,562 22,462 Refinery and shop supplies 7,530 7,439 Merchandise 4,640 Retail method: Merchandise 5,840 2,768 ------- ------- Subtotal 56,308 43,112 Allowance for last-in, first-out ("LIFO") method 4,220 (4,886) Allowance for lower of cost or market (2,930) ------- ------- Total $57,598 $38,226 ======= =======
The portion of inventories valued on a LIFO basis totaled $37,714,000 and $25,887,000 at December 31, 1997 and 1996, respectively. The following data will facilitate comparison with the operating results of companies using the FIFO method of inventory valuation. If inventories had been determined using the FIFO method at December 31, 1997, 1996 and 1995, net earnings and basic earnings per share for the years ended December 31, 1997, 1996 and 1995 would have been (lower) higher by $(3,705,000) and $(0.34), $2,883,000 and $0.26 and $(268,000) and $(0.02), respectively. NOTE 7--PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, at cost, consist of the following:
December 31, --------------------- 1997 1996 --------- --------- (In thousands) Land and improvements $ 29,354 $ 24,053 Buildings and improvements 96,817 61,955 Machinery and equipment 203,726 195,964 Pipelines 9,789 9,510 Furniture and fixtures 28,658 16,568 Vehicles 10,620 8,372 Construction in progress 23,636 5,838 --------- --------- Subtotal 402,600 322,260 Accumulated depreciation and amortization (120,773) (108,715) --------- --------- Total $ 281,827 $ 213,545 ========= =========
NOTE 8--ACCRUED EXPENSES: Accrued expenses are comprised of the following:
December 31, ------------------- 1997 1996 ------- ------- (In thousands) Excise taxes $ 9,926 $ 8,212 Bloomfield refinery acquisition contingent payment 7,243 6,910 Payroll and related costs 5,240 3,804 Bonus, profit sharing and retirement plans 2,880 2,850 Interest 6,223 1,267 Other 7,731 4,729 ------- ------- Total $39,243 $27,772 ======= =======
NOTE 9--LONG-TERM DEBT: Long-term debt consists of the following:
December 31, --------------------- 1997 1996 -------- -------- (In thousands) 9% senior subordinated notes, due 2007, interest payable semi-annually $150,000 9 3/4% senior subordinated notes, due 2003, interest payable semi-annually 100,000 $100,000 Capital lease obligations, 11.3%, due 2007, interest payable monthly 22,904 Unsecured credit agreement, due 2000, paid in 1997 10,000 Notes payable to others, collateralized by real estate, 9% to 11%, due 1997 to 2010, interest payable monthly or annually 1,193 2,208 8% secured promissory note, paid in 1997 973 Other 2,022 1,339 -------- -------- Subtotal 276,119 114,520 Less current portion (562) (1,439) -------- -------- Total $275,557 $113,081 ======== ========
During August 1997, the Company issued the 9% Notes due 2007. The net proceeds of the 9% Notes, after deducting expenses and initial purchasers discounts, were approximately $146,800,000. Approximately $73,600,000 of the proceeds were used to repay outstanding indebtedness and the Company intends to use approximately $18,900,000 to purchase service station/convenience stores currently subject to capital lease obligations. The remaining proceeds of approximately $54,300,000 will be used for general corporate purposes. Interest on the 9% Notes is payable semi-annually on March 1 and September 1, commencing March 1, 1998. Repayment of the 9% Notes and the 9 3/4% senior subordinated notes (the "9 3/4% Notes") is jointly and severally guaranteed on an unconditional basis by the Company's direct and indirect wholly-owned subsidiaries, subject to a limitation designed to ensure that such guarantees do not constitute a fraudulent conveyance. Except as otherwise allowed in the Indenture pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable State law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances. No separate financial statements of the subsidiaries are included herein because the subsidiaries are jointly and severally liable; the aggregate assets, liabilities, earnings, and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings, and equity of the Company on a consolidated basis; and the separate financial statements and other disclosures concerning the subsidiaries are not deemed material to investors. The Indentures supporting the 9% Notes and the 9 3/4% Notes (collectively, the "Notes") contain restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to create liens, incur or guarantee debt, pay dividends, sell certain assets or subsidiary stock, engage in certain mergers, engage in certain transactions with affiliates or alter the Company's current line of business. At December 31, 1997, the Company was in compliance with these covenants. In addition, subject to certain conditions, the Company is obligated to offer to purchase a portion of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, with the net cash proceeds of certain sales or other dispositions of assets. Upon a change of control, the Company will be required to offer to purchase all of the Notes at 101% of the principal amount thereof, plus accrued interest, if any, to the date of purchase. At December 31, 1997, retained earnings available for dividends under the most restrictive terms of the Indentures was approximately $19,700,000. The Company currently has a Credit Agreement (the "Agreement") with a group of banks. This Agreement was amended effective May 23, 1997 to increase the borrowing commitment under the unsecured capital expenditure facility portion of the Agreement from $30,000,000 to $70,000,000, and to extend the due date from October 4, 1998 to May 23, 2000. On May 23, 1999, the borrowing commitment under the capital expenditure facility is required to be reduced by $20,000,000. At December 31, 1997, there were no outstanding borrowings under the capital expenditure facility. In addition, the Agreement contains a three-year unsecured working capital facility to provide working capital and letters of credit in the ordinary course of business. The availability under this working capital facility is the lesser of (i) $40,000,000, or (ii) the amount determined under a borrowing base calculation tied to eligible accounts receivable and inventories as defined in the Agreement. At December 31, 1997, the lesser amount was $40,000,000. At December 31, 1997, there were no direct borrowings and there were $15,938,000 of irrevocable letters of credit outstanding under this facility. The due date of this facility was also extended to May 23, 2000. The interest rate on these unsecured facilities is tied to various short-term indices and the associated interest rate margin has been revised downward. The interest rate at December 31, 1997 was approximately 6.5%. The Company is required to pay a quarterly commitment fee based on the unused amount of each facility. The Agreement contains certain covenants and restrictions which require the Company to, among other things, maintain a minimum consolidated net worth; minimum fixed charge coverage ratio; minimum funded debt to total capitalization percentage; and places limits on investments, prepayment of senior subordinated debt, guarantees, liens and restricted payments. At December 31, 1997, the Company was in compliance with these covenants. The Agreement is guaranteed by substantially all of the Company's wholly-owned subsidiaries. Near the end of May 1997, the Company completed the acquisition of the Thriftway Assets. Sixty-four of the retail service station/convenience stores are being leased for a period of ten years and the Company intends to purchase them pursuant to options to purchase during the ten-year period for approximately $22,904,000. The lease obligations are being accounted for as capital leases and require annual lease payments of approximately $2,600,000, all of which is recorded as interest expense. Assets associated with these lease obligations of $19,869,000 are included in property, plant and equipment. Accumulated depreciation of $939,000 is related to these assets. The remaining assets of $3,035,000, primarily liquor licenses, are included in other assets. It is the Company's intent to purchase fifty-nine of these service station/convenience stores in the first half of 1998 for approximately $15,900,000. Annual lease payments will be reduced by $1,800,000 when these units have been purchased. Aggregate annual maturities of long-term debt as of December 31, 1997 are: 1998 - $562,000; 1999 - $1,142,000; 2000 - $200,000; 2001 - $149,000; 2002 - $130,000; and all years thereafter - $273,936,000. NOTE 10--FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY: The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" and SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
December 31, ------------------------------------------ 1997 1996 -------------------- -------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (In thousands) Balance Sheet--Financial Instruments: Fixed rate long-term debt $253,180 $256,536 $104,449 $108,491
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair values due to the short-term maturities of these instruments. Variable rate long-term debt instruments are estimated to approximate fair values as rates are tied to short-term indices. FIXED RATE LONG-TERM DEBT The fair value of fixed rate long-term debt was determined using quoted market prices, where applicable, or estimated by discounting future cash flows using rates estimated to be currently available for debt of similar terms and remaining maturities. HEDGING ACTIVITIES The Company purchases crude oil futures contracts and options to reduce price volatility, to fix margins in its refining and marketing operations and to protect against price declines for excess inventory volumes. These contracts permit settlement by delivery of commodities and, therefore, are not financial instruments, as defined by SFAS No. 105. The Company uses these contracts in its hedging activities. At December 31, 1997, the Company's hedging activities had futures contracts maturing in 1998 covering 42,000 barrels of crude oil and 36,000 barrels of heating oil. At December 31, 1996, the Company's hedging activities had futures contracts maturing in 1997 covering 16,000 barrels of crude oil. The crude oil futures contracts qualify as hedges and any gains or losses resulting from market changes are substantially offset by losses or gains on the Company's hedging contracts. Gains and losses on hedging contracts are deferred and reported as a component of the related transaction. Net deferred losses for the Company's petroleum hedging activities were approximately $199,000 and $30,000 at December 31, 1997 and 1996, respectively. The Company is exposed to loss in the event of nonperformance by the other parties to these contracts. However, the Company does not anticipate nonperformance by the counterparties. NOTE 11--INCOME TAXES: The provision for income taxes is comprised of the following:
Year Ended December 31, ------------------------------- 1997 1996 1995 ------- ------- ------- (In thousands) Current: Federal $ 3,367 $ 3,712 $ 1,140 State 758 906 866 Deferred: Federal 4,689 5,471 1,438 State 992 1,043 194 ------- ------- ------- $ 9,806 $11,132 $ 3,638 ======= ======= =======
Income taxes paid in 1997, 1996 and 1995 were $2,785,000, $8,909,000, and $0, respectively. A reconciliation of the difference between the provision for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows:
Year Ended December 31, ------------------------------- 1997 1996 1995 ------- ------- ------- (In thousands) Income taxes at the statutory U.S. federal income tax rate $ 8,785 $ 9,864 $ 3,980 Increase (decrease) in taxes resulting from: State taxes, net 1,191 1,346 563 General business credits, net (100) (679) Federal tax credits from nonconventional fuel (700) Other, net (70) (78) 474 ------- ------- ------- $ 9,806 $11,132 $ 3,638 ======= ======= =======
Deferred income taxes are provided to reflect temporary differences in the basis of net assets for income tax and financial reporting purposes. The tax effected temporary differences and credit carryforwards which comprise deferred taxes are as follows:
December 31, 1997 December 31, 1996 ------------------------------ ------------------------------- Assets Liabilities Total Assets Liabilities Total ------- ----------- -------- ------- ------------ -------- (In thousands) (In thousands) Nondeductible accruals for uncollectible receivables $ 128 $ 128 $ 101 $ 101 Insurance accruals 555 555 373 373 Insurance settlements 189 189 213 213 Other nondeductible accruals 208 208 Other reserves 546 546 617 617 Inventory costs capitalized for income tax purposes 198 198 124 124 Nondeductible accrual for lower of cost or market adjustment to inventory 1,184 1,184 ------- -------- -------- ------- -------- -------- Total current 2,800 2,800 1,636 1,636 ------- -------- -------- ------- -------- -------- Other nondeductible accruals 428 $ (281) 147 1,114 1,114 Accelerated plant costs (1,348) (1,348) Operating lease (863) (863) $ (938) (938) Accelerated depreciation (30,465) (30,465) (25,717) (25,717) Other 14 (1,658) (1,644) 27 (1,664) (1,637) Tax credit carryforwards 8,286 8,286 8,136 8,136 ------- -------- -------- ------- -------- -------- Total noncurrent 8,728 (34,615) (25,887) 9,277 (28,319) (19,042) ------- -------- -------- ------- -------- -------- Total $11,528 $(34,615) $(23,087) $10,913 $(28,319) $(17,406) ======= ======== ======== ======= ======== ========
At December 31, 1997, the Company had a minimum tax credit carryforward of approximately $5,485,000 available to offset future income taxes payable to the extent regular income taxes payable exceeds alternative minimum taxes payable. Minimum tax credits can be carried forward indefinitely. At December 31, 1997, the Company also had approximately $2,801,000 of general business credits available to offset future regular taxes payable. Pursuant to Federal income tax law, these carryover credits must be used before any minimum tax credit carry- forward can be used. Of the total general business credit available, $1,449,000 will expire in 2009, $1,154,000 will expire in 2010, $98,000 will expire in 2011 and $100,000 will expire in 2012. NOTE 12--EMPLOYEE STOCK OWNERSHIP PLAN: The Company and its subsidiaries have an Employee Stock Ownership Plan ("ESOP") which is a noncontributory defined contribution plan established primarily to acquire shares of the Company's common stock for the benefit of all eligible employees. At December 31, 1997 and 1996, the ESOP's assets included 1,222,150 and 1,296,088 shares of the Company's common stock, respectively. All of these shares have been allocated to the participants. In addition to investments in the Company's common stock, the ESOP is invested in a balanced mutual fund. Contributions to the ESOP are made at the discretion of the Board of Directors. The Company made contributions of $536,000, $450,000 and $900,000 to the ESOP for 1997, 1996 and 1995, respectively. Allocations to participant accounts are made on a formula based on the ratio that each participant's compensation, during the Plan year, bears to the compensation of all such participants. The Company treats all ESOP shares as outstanding for earnings per share purposes. NOTE 13--STOCK INCENTIVE PLAN: The Company established the 1989 Stock Incentive Plan under which 500,000 shares of the Company's common stock were authorized to be issued to deserving employees in the form of options and/or restricted stock. The Plan is administered by the Compensation Committee of the Board of Directors, but to the extent required under Section 16 of the Securities Exchange Act of 1934, any transaction between the Company or the Plan and an executive officer of the Company that involves a grant, award or other acquisition of the Company's equity securities must be approved by the Board of Directors. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based Compensation." The Company has determined that it will not change to the fair value method prescribed in the Statement and will continue to use Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock based compensation. The following summarizes stock option transactions:
WEIGHTED AVERAGE EXERCISE Options outstanding at SHARES PRICE - ---------------------- -------- -------- January 1, 1995 312,357 $8.13 Exercised (1,000) 7.75 Forfeited (5,000) 7.75 ------- December 31, 1995 306,357 8.14 Exercised (32,750) 6.61 Forfeited (6,600) 6.39 ------- December 31, 1996 267,007 8.37 Exercised (11,000) 7.52 ------- December 31, 1997 256,007 $8.40 ======= Options exercisable at December 31: 1997 256,007 $8.40 1996 256,573 8.44 1995 222,973 8.29
The following summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING AND EXERCISABLE ---------------------------------------- WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE PRICES OUTSTANDING LIFE PRICE -------- ----------- ----------- -------- $ 8.96 108,857 1.5 Years $ 8.96 10.50 5,000 2.6 Years 10.50 10.63 26,000 3.2 Years 10.63 5.25 29,400 4.3 Years 5.25 7.75 76,750 5.3 Years 7.75 9.81 10,000 6.2 Years 9.81 ------- 256,007 3.3 Years $ 8.40 =======
At December 31, 1997, there were 175,401 shares available for future grants. All of the options or restricted stock grants are subject to forfeiture with vesting ranging from 14% to 33% annually beginning one year after the date of grant for restricted stock and exercise dates of stock options. All options were granted at fair market value at the date of grant and expire on the tenth anniversary of the grant date. NOTE 14--401(k) PLAN: In 1993, the Company adopted a 401(k) retirement plan for its employees. This plan complements the Company's Employee Stock Ownership Plan by allowing the employees to invest on a pretax basis in non-Giant stock investments thus diversifying their retirement portfolios. For the years ended December 31, 1997, 1996 and 1995, the Company had expensed $930,000, $800,000, and $188,000, respectively, for matching contributions under this plan. NOTE 15--INTEREST, OPERATING LEASES AND RENT EXPENSE: Interest paid and capitalized for 1997 was $13,075,000 and $333,000, for 1996 was $12,804,000 and $43,000, and for 1995 was $11,833,000 and $190,000, respectively. The Company is committed to annual minimum rentals under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1997 as follows:
Land, building, machinery and equipment leases ------------------------- (In thousands) 1998 $2,091 1999 1,728 2000 1,131 2001 348 2002 171 All years thereafter 149 ------ Total minimum payments required $5,618 ======
Total rent expense was $3,354,000, $1,930,000, and $1,982,000 for 1997, 1996, and 1995, respectively. NOTE 16--COMMITMENTS AND CONTINGENCIES: The Company and certain subsidiaries are defendants to various legal actions. Certain of these pending legal actions involve or may involve claims for compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings or claims could be decided adversely. Although the amount of liability at December 31, 1997 with respect to these matters is not ascertainable, the Company believes that any resulting liability should not materially affect the Company's financial condition or results of operations. Federal, state and local laws and regulations relating to health and the environment affect nearly all of the operations of the Company. As is the case with all companies engaged in similar industries, the Company faces significant exposure from actual or potential claims and lawsuits involving environmental matters. These matters include soil and water contamination, air pollution and personal injuries or property damage allegedly caused by substances manufactured, handled, used, released or disposed of by the Company. Future expenditures related to health and environmental matters cannot be reasonably quantified in many circumstances due to the speculative nature of remediation and clean-up cost estimates and methods, imprecise and conflicting data regarding the hazardous nature of various types of substances, the number of other potentially responsible parties involved, various defenses which may be available to the Company and changing environmental laws and interpretations of environmental laws. The United States Environmental Protection Agency notified the Company in May 1991 that it may be a potentially responsible party for the release or threatened release of hazardous substances, pollutants, or contaminants at the Lee Acres Landfill (the "Landfill"), which is owned by the United States Bureau of Land Management (the "BLM") and which is adjacent to the Company's Farmington refinery. This refinery was operated until 1982. Although a final plan of action for the Landfill has not yet been adopted by the BLM, the BLM has developed a proposed plan of action, which it projects will cost approximately $3,900,000 to implement. This cost projection is based on certain assumptions which may or may not prove to be correct, and is contingent on confirmation that the remedial actions, once implemented, are adequately addressing Landfill contamination. For example, if assumptions regarding groundwater mobility and contamination levels are incorrect, the BLM is proposing to take additional remedial actions with an estimated cost of approximately $1,800,000. Potentially responsible party liability is joint and several, such that a responsible party may be liable for all of the clean-up costs at a site even though it was responsible for only a small part of such costs. Based on current information, the Company does not believe it needs to record a liability in relation to the BLM's proposed plan. The Company has established an environmental liability accrual of approximately $2,800,000. Approximately $800,000 relates to ongoing environmental projects, including the remediation of a hydrocarbon plume at the Company's Farmington refinery and hydrocarbon contamination on and adjacent to 5.5 acres the Company owns in Bloomfield, New Mexico. The remaining amount of approximately $2,000,000 relates to an original estimate of approximately $2,300,000, recorded in the second quarter of 1996, of certain environmental obligations assumed in the acquisition of the Bloomfield refinery. The environmental accrual is recorded in the current and long-term sections of the Company's Consolidated Balance Sheet. The Company has received several tax notifications and assessments from the Navajo Tribe relating to crude oil and natural gas removed from properties located outside the boundaries of the Navajo Indian Reservation in an area of disputed jurisdiction, including a $1,800,000 severance tax assessment issued in November 1991. The Company has invoked its appeal rights with the Tribe's Tax Commission in connection with this assessment and intends to oppose the assessment. It is the Company's position that it is in substantial compliance with laws applicable to the disputed area and, therefore, the Company has accrued a liability in regards thereto for substantially less than the amount of the original assessment. It is possible that the Company's assessments will have to be litigated by the Company before final resolution. In addition, the Company may receive further tax assessments. NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Year Ended December 31, 1997 ---------------------------------------- Quarter ---------------------------------------- First Second(1) Third(1) Fourth(1) ------- --------- -------- --------- (In thousands except per share data) Continuing Operations: Net revenues $116,138 $154,123 $197,358 $189,659 Cost of products sold 86,588 112,057 146,333 142,770 -------- -------- -------- -------- Gross margin 29,550 42,066 51,025 46,889 -------- -------- -------- -------- Operating expenses 15,822 18,307 25,037 26,011 Depreciation and amortization 5,005 5,566 6,834 6,586 Selling, general and administrative expenses 4,448 5,360 3,474 5,974 Net earnings 1,124 5,675 6,596 1,899 Net earnings per common share - basic $ 0.10 $ 0.51 $ 0.60 $ 0.17 Net earnings per common share - assuming dilution $ 0.10 $ 0.51 $ 0.59 $ 0.17
Year Ended December 31, 1996 -------------------------------------- Quarter -------------------------------------- First Second Third Fourth ------- ------- ------- -------- (In thousands except per share data) Continuing Operations: Net revenues $104,100 $135,643 $136,032 $123,409 Cost of products sold 73,960 92,718 100,567 94,619 -------- -------- -------- -------- Gross margin 30,140 42,925 35,465 28,790 -------- -------- -------- -------- Operating expenses 15,408 15,869 16,141 16,897 Depreciation and amortization 4,096 4,285 4,508 4,784 Selling, general and administrative expenses 3,595 5,447 3,423 3,137 Net earnings 2,325 8,693 5,283 750 Net earnings per common share - basic $ 0.21 $ 0.77 $ 0.47 $ 0.07 Net earnings per common share - assuming dilution $ 0.21 $ 0.76 $ 0.46 $ 0.07 Discontinued Operations: Net earnings (loss) $ 79 $ (72) $ (20) Net earnings (loss) per common share - basic $ - $ - $ -
(1) The results of operations of the Acquisitions are included from the date of purchase. (See Note 3.) ITEM 9. CHANGES 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 8, 1998 pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information to be included therein is incorporated herein by reference. The Company expects to disseminate the Proxy Statement to stockholders on or about March 30, 1998. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors required by this Item is incorporated by reference to the information contained in the Proxy Statement under the caption "Election of Directors". The information concerning the Company's executive officers required by this Item is incorporated by reference to the section in Part I, Item 4 hereof entitled "Executive Officers of the Registrant". The information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the information contained in the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Election of Directors", "Executive Compensation", "Compensation Committee Report on Executive Compensation" and "Compensation Committee Interlocks and Insider Participation". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Election of Directors" and "Security Ownership of Certain Beneficial Owners and Management". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the information contained in the Proxy Statement under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in Item 8: (i) Independent Auditors' Report (ii) Consolidated Balance Sheets - December 31, 1997 and 1996 (iii) Consolidated Statements of Earnings - Years ended December 31, 1997, 1996 and 1995 (iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1997, 1996 and 1995 (v) Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995 (vi) Notes to Consolidated Financial Statements (2) Financial Statement Schedule. The following financial statement schedule of Giant Industries, Inc. for the years ended December 31, 1997, 1996 and 1995 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Giant Industries, Inc. Independent Auditors' Report on Schedule . . . . . S-1 Schedule II - Valuation and Qualifying Accounts . . S-2 Schedules not listed above have been omitted because they are not applicable or are not required or because the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. (3) Exhibits. The Exhibits listed on the accompanying Index to Exhibits immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Report. Contracts with management and any compensatory plans or arrangements relating to management are as follows: Exhibit No. Description - ------- ----------- 10.1 1989 Stock Incentive Plan of the Registrant. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-10398. 10.2 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.6 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File No. 1-10398. 10.7 Amended 1988 Restricted Stock Plan of Registrant. Incorporated by reference to Exhibit 10.3 to Form S-1. 10.8 1989 Stock Option Plan of Registrant. Incorporated by reference to Exhibit 10.4 to Form S-1. 10.23 Employment Agreement, dated as of December 11, 1997, between James E. Acridge and the Company. 10.24 Employment Agreement, dated as of December 11, 1997, between Fredric L. Holliger and the Company. 10.25 Employment Agreement, dated as of December 11, 1997, between Morgan Gust and the Company. 10.28 Giant Industries, Inc. and Affiliated Companies 401(k) Plan. Incorporated by reference to Exhibit 10.46 to Amendment No. 2 to the Form S-3 Registration Statement under the Securities Act of 1933 as filed November 12, 1993, File No. 33-69252. 10.29 First Amendment of the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated October 17, 1996. Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 1-10398. 10.30 Second Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated December 31, 1997. 10.31 Giant Industries, Inc., 1998 Phantom Stock Plan. _________________________________ Form S-1--Refers to the Form S-1 Registration Statement under the Securities Act of 1933 as filed October 16, 1989, File No. 33-31584. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year ended December 31, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. GIANT INDUSTRIES, INC. By: /s/ James E. Acridge ------------------------------ James E. Acridge Chairman of the Board, President and Chief Executive Officer March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ James E. Acridge - --------------------------------------- James E. Acridge, Chairman of the Board, President, Chief Executive Officer and Director March 27, 1998 /s/ A. Wayne Davenport - --------------------------------------- A. Wayne Davenport Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 27, 1998 /s/ Fredric L. Holliger - --------------------------------------- Fredric L. Holliger, Executive Vice President, Chief Operating Officer and Director. March 27, 1998 /s/ Anthony J. Bernitsky - --------------------------------------- Anthony J. Bernitsky, Director March 27, 1998 /s/ F. Michael Geddes - --------------------------------------- F. Michael Geddes, Director March 27, 1998 /s/ Harry S. Howard, Jr. - --------------------------------------- Harry S. Howard, Jr., Director March 27, 1998 /s/ Richard T. Kalen, Jr. - --------------------------------------- Richard T. Kalen, Jr., Director March 27, 1998 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Giant Industries, Inc. Scottsdale, Arizona We have audited the consolidated financial statements of Giant Industries, Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated March 2, 1998; such financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Phoenix, Arizona March 2, 1998 S-1 SCHEDULE II GIANT INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Three years ended December 31, 1997 (In thousands)
Charged Balance at (credited) Balance beginning to costs at end of period and expenses Deduction(b) of period ---------- ------------ --------- --------- Year ended December 31, 1997: Allowance for doubtful accounts $254 $281 $ (71) $464 ==== ==== ===== ==== Year ended December 31, 1996: Allowance for doubtful accounts $424 $(30)(a) $(140) $254 ==== ==== ===== ==== Year ended December 31, 1995: Allowance for doubtful accounts $546 $(82)(a) $ (40) $424 ==== ==== ===== ==== (a) Includes adjustments of $100,000 and $162,000 in 1996 and 1995, respectively, credited to costs and expenses to revise the Company's estimated Allowance for Doubtful Accounts. (b) Deductions are specific trade accounts determined to be uncollectible. S-2 /TABLE GIANT INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1997 INDEX TO EXHIBITS Definitions: Form S-1--Refers to the Form S-1 Registration Statement under the Securities Act of 1933 as filed October 16, 1989, File No. 33-31584. Amendment No. 2--Refers to the Amendment No. 2 to Form S-1 Registration Statement under the Securities Act of 1933 as filed November 20, 1989, File No. 33-31584. Amendment No. 3--Refers to the Amendment No. 3 to Form S-1 Registration Statement under the Securities Act of 1933 as filed December 12, 1989, File No. 33-31584. Form S-3--Refers to the Form S-3 Registration Statement under the Securities Act of 1933 as filed September 22, 1993, File No. 33-69252. Exhibit No. Description - ----------- ----------- 2.1* Purchase and Sale Agreement, dated August 8, 1995, among Bloomfield Refining Company and Gary-Williams Energy Corporation, as Sellers, and Giant Industries Arizona, Inc., as Buyer. Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K for the period October 4, 1995, File No. 1-10398. 2.2 First Amendment, dated September 29, 1995, to Purchase and Sale Agreement, dated August 8, 1995, among Bloomfield Refining Company and Gary-Williams Energy Corporation, as Sellers, and Giant Industries Arizona, Inc. as Buyer. Incorporated by reference to Exhibit 2.2 to the Company's Report on Form 8-K for the period October 4, 1995, File No. 1-10398. 2.3 Second Amendment, dated October 2, 1995, to Purchase and Sale Agreement, dated August 8, 1995, among Bloomfield Refining Company and Gary-Williams Energy Corporation, as Sellers, and Giant Industries Arizona, Inc. as Buyer. Incorporated by reference to Exhibit 2.3 to the Company's Report on Form 8-K for the period October 4, 1995, File No. 1-10398. 2.4 Definitive Agreement, dated April 18, 1997, by and between Giant Four Corners, Inc., as "Buyer", and Thriftway Marketing Corp. and Clayton Investment Company, collectively, as "Seller". Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K for the period May 28, 1997, File No. 1-10398. 2.5 Stock Purchase Agreement, dated April 30, 1997, by and among Phoenix Fuel Co., Inc., (the "Company", J. W. Wilhoit, as Trustee of the Wilhoit Trust Agreement Dated 12/26/74, Katherine C. Lahowetz, as Trustee of the Theresa Ann Wilhoit Grantor Retained Annuity Trust Dated 4/4/97, Katherine C. Lahowetz, and Katherine C. Lahowetz, as Custodian for the Benefit of Emily Lahowetz, a minor (collectively, the "Shareholders") and Giant Industries Arizona, Inc., (the "Purchaser"). Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K for the period June 3, 1997, File No. 1-10398. 3.1 Restated Certificate of Incorporation of the Giant Industries, Inc., a Delaware corporation (the "Company"). Incorporated by reference to Exhibit 3.1 to Amendment No. 3. 3.2 Bylaws of the Company, as amended. Incorporated by reference to Exhibit 3.2 to Amendment No. 3. 3.3 Articles of Incorporation of Giant Exploration & Production Company, a Texas corporation ("Giant Exploration"), formerly Hixon Acquisition Corp. Incorporated by reference to Exhibit 2.1, Annex III to Form S-1. 3.4 Bylaws of Giant Exploration. Incorporated by reference to Exhibit 2.1, Annex IV to Form S-1. 3.5 Articles of Incorporation of Giant Industries Arizona, Inc., an Arizona corporation ("Giant Arizona") formerly Giant Acquisition Corp. Incorporated by reference to Exhibit 2.1, Annex V to Form S-1. 3.6 Bylaws of Giant Arizona. Incorporated by reference to Exhibit 2.1, Annex VI to Form S-1. 3.7 Articles of Incorporation of Ciniza Production Company. Incorporated by reference to Exhibit 3.7 to Form S-3. 3.8 Bylaws of Ciniza Production Company. Incorporated by reference to Exhibit 3.8 to Form S-3. 3.9 Articles of Incorporation of Giant Stop-N-Go of New Mexico, Inc. Incorporated by reference to Exhibit 3.9 to Form S-3. 3.10 Bylaws of Giant Stop-N-Go of New Mexico, Inc. Incorporated by reference to Exhibit 3.10 to Form S-3. 3.11 Articles of Incorporation of Giant Four Corners, Inc. Incorporated by reference to Exhibit 3.11 to Form S-3. 3.12 Bylaws of Giant Four Corners, Inc. Incorporated by reference to Exhibit 3.12 to Form S-3. 3.13 Articles of Incorporation of Giant Mid-Continent, Inc. Incorporated by reference to Exhibit 3.13 to the Company's Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398. 3.14 Bylaws of Giant Mid-Continent, Inc. Incorporated by reference to Exhibit 3.14 to the Company's Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398. 3.15 Articles of Incorporation of San Juan Refining Company. Incorporated by reference to Exhibit 3.15 to the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File No. 1-10398. 3.16 Bylaws of San Juan Refining Company. Incorporated by reference to Exhibit 3.16 to the Company's Report on Form 10-K for fiscal year ended December 31, 1995, File No. 1-10398. 3.17** Articles of Incorporation of Phoenix Fuel Co., Inc. 3.18** Amended Bylaws of Phoenix Fuel Co., Inc. 4.1 Indenture, dated as of November 29, 1993 among the Company, as Issuer, the Subsidiary Guarantors, as guarantors, and NBD Bank, National Association, as Trustee, relating to $100,000,000 of 9 3/4% Senior Subordinated Notes due 2003. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 29, 1993, File No. 1-10398. 4.2 Credit Agreement, dated October 4, 1995, among Giant Industries, Inc., as Borrower, Giant Industries Arizona, Inc., Ciniza Production Company, San Juan Refining Company, Giant Exploration & Production Company and Giant Four Corners, Inc., as Guarantors and Bank of America National Trust and Savings Association, as Agent, Bank of America Illinois, as a Bank and as Letter of Credit Issuing Bank and the Other Financial Institutions Parties hereto. Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 8-K for the period October 4, 1995, File No. 1-10398. 4.3 First Amendment, dated May 15, 1996, to Credit Agreement, dated October 4, 1995, among Giant Industries, Inc., as Borrower, Giant Industries Arizona, Inc., Giant Exploration & Production Company, Giant Four Corners, Inc., San Juan Refining Company and Ciniza Production Company, as Guarantors, and Bank of America National Trust and Savings Association, as Agent, Bank of America Illinois, as issuing Bank and as a Bank, NBD Bank as a Bank, and Union Bank, as a Bank. Incorporated by reference to Exhibit 4.2 to the Company's Report on Form 8-K for the period May 28, 1997, File No. 1-10398. 4.4 Second Amendment, dated May 23, 1997, to Credit Agreement, dated October 4, 1995, among Giant Industries, Inc., as Borrower, Giant Industries Arizona, Inc., Giant Exploration & Production Company, San Juan Refining Company, Giant Four Corners, Inc. and Ciniza Production Company, as Guarantors, and Bank of America National Trust and Savings Association, as Agent, Bank of America Illinois, as issuing Bank and as a Bank, First National Bank of Chicago (successor to NBD Bank, by assignment), as a Bank, and Union Bank of California, N.A. (formerly known as Union Bank), as a Bank. Incorporated by reference to Exhibit 4.3 to the Company's Report on Form 8-K for the period May 28, 1997, File No. 1-10398. 10.1 1989 Stock Incentive Plan of the Company. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-10398. 10.2 Amendment No. 1 dated August 14, 1996, to 1989 Stock Incentive Plan. Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-10398. 10.3 Employee Stock Ownership Plan and Trust Agreement of the Company, as amended. Incorporated by reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-10398. 10.4 Ninth Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. And Affiliated Companies dated October 1, 1996. Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 1-10398. 10.5** Tenth Amendment of the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies dated December 15, 1997. 10.6 ESOP Substitute Excess Deferred Compensation Benefit Plan. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File 1-10398. 10.7 Amended 1988 Restricted Stock Plan of the Company. Incorporated by reference to Exhibit 10.3 Form S-1. 10.8 1989 Stock Option Plan of the Company. Incorporated by reference to Exhibit 10.4 to Form S-1. 10.9 Purchase Agreement, dated November 29, 1990, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.10 Escrow Instructions, dated January 7, 1991, between Prime Pinnacle Peak Properties Limited Partnership and Giant Arizona. Incorporated by reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.11 Agreement for Leasing of Service Station Site, dated March 1, 1991, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.12 First Amendment to Agreement for Leasing of Service Station Site, dated March 1, 1991, between Giant Arizona and Prime Pinnacle Peak Properties Limited Partnership. Incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, File 1-10398. 10.13 Aircraft Lease Purchase Agreement, dated as of June 21, 1991, between Metlife Capital Corporation and the Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1991, File No. 1-10398. 10.14 Promissory Note for $600,000, dated December 1, 1988, from JEA to Metlife Capital Corporation ("Metlife"). Incorporated by reference to Exhibit 10.38 to Form S-1. 10.15 Promissory Note for $825,000, dated December 20, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.39 to Form S-1. 10.16 Promissory Note for $750,000, dated December 28, 1987, from JEA to Metlife. Incorporated by reference to Exhibit 10.40 to Form S-1. 10.17 Promissory Note for $1,087,500, dated December 30, 1988, from JEA to Metlife. Incorporated by reference to Exhibit 10.44 to Form S-1. 10.18* Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit 10.47 to Amendment No. 2. 10.19* Amendment, dated April 20, 1990, to Sales Agreement, dated June 6, 1989, between Giant Arizona and Mobil Oil Corporation. Incorporated by reference to Exhibit 10.51 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.20* Crude Oil and Condensate Sales and Purchase Agreement, dated August 1, 1994, between Meridian Oil Trading Inc. (Seller) and Giant Refining Company, a division of Giant Industries Arizona, Inc. (Buyer). Incorporated by reference to Exhibit 10.27 to the Company's Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398. 10.21* Natural Gas Liquids Sales and Purchase Agreement, dated October 27, 1994, between Meridian Oil Hydrocarbons Inc. and Giant Refining Company, a division of Giant Industries Arizona, Inc. Incorporated by reference to Exhibit 10.28 to the Company's Report on Form 10-K for fiscal year ended December 31, 1994, File No. 1-10398. 10.22* Natural Gasoline Purchase and Sale Agreement, dated September 1, 1990, between Sunterra Gas Processing Company and Giant Arizona. Incorporated by reference to Exhibit 10.57 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.23** Employment Agreement, dated as of December 11, 1997, between James E. Acridge and the Company. 10.24** Employment Agreement, dated as of December 11, 1997, between Fredric L. Holliger and the Company. 10.25** Employment Agreement, dated as of December 11, 1997, between Morgan Gust and the Company. 10.26 Consulting Agreement, dated January 1, 1990, between the Company and Kalen and Associates. Incorporated by reference to Exhibit 10.66 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 10.27 Consulting Agreement, dated March 12, 1992, between the Company and Geddes and Company. Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1992, File No. 1-10398. 10.28 Giant Industries, Inc. and Affiliated Companies 401(k) Plan. Incorporated by reference to Exhibit 10.46 to Amendment No. 2 to the Form S-3 Registration Statement under the Securities Act of 1933 as filed November 12, 1993, File No. 33-69252. 10.29 First Amendment of the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated October 17, 1996. Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, File No. 1-10398. 10.30** Second Amendment to the Giant Industries, Inc. and Affiliated Companies 401(k) Plan, dated December 31, 1997. 10.31** Giant Industries, Inc., 1998 Phantom Stock Plan. 18.1 Letter regarding change in accounting principles. Incorporated by reference to Exhibit 18.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, File No. 1-10398. 21.1 ** Subsidiaries of the Company. 23.1 ** Consent of Deloitte & Touche LLP to incorporate reports in previously filed Registration Statement. 27.1 ** Financial Data Schedule for fiscal year ended December 31, 1997. 27.2 ** Financial Data Schedules, restated, for fiscal years ended December 31, 1995 and 1996 and for the quarters ended March 31, 1996, June 30, 1996, and September 30, 1996. 27.3 ** Financial Data Schedules, restated, for the quarters ended March 31, 1997, June 30, 1997, and September 30, 1997. 99.1 ** Information required by Rule 15d-21 under the Securities Act of 1934 for the year ended December 31, 1997 for the Giant Industries, Inc. and Affiliated Companies Employee Stock Ownership Plan. *Certain information contained in these documents has been afforded confidential treatment. **Filed herewith. EX-3.17 2 EXHIBIT 3.17 ARTICLES OF INCORPORATION OF PHOENIX FUEL CO., INC. KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, having associated ourselves together for the purpose of forming a corporation under and by virtue of the laws of the State of Arizona, do hereby adopt the following Articles of Incorporation: ARTICLE I. The name of the corporation shall be PHOENIX FUEL CO., INC., and its principal place of business within the State of Arizona shall be in the City of Phoenix, in the County of Maricopa, in said State, but the board of directors may designate other places, either within or without the State of Arizona, where other offices may be established and maintained, and all corporate business transacted. ARTICLE II. The names, residences and post office addresses of the incorporators are as follows: F. A. Wilhoit 5208 North 19th Drive Phoenix, Arizona Christine M. Wilhoit 5208 North 19th Drive Phoenix, Arizona J. William Wilhoit 5208 North 19th Drive Phoenix, Arizona ARTICLE III. The general nature of the business in which the corporation shall engage is as follows: 1. To buy, sell, market, transport and otherwise deal in and with respect to petroleum products of all kinds and classes; 2. To issue such notes, bonds, debentures, contracts, or other security or evidences of indebtedness upon such terms and conditions and in such manner and form as may be prescribed or determined by the board of directors; 3. To purchase, acquire, own, hold, sell, assign, transfer, mortgage, pledge, or otherwise to acquire, dispose of, hold or deal in the shares of the stock, bonds, debentures, notes or other security or evidences of indebtedness of this or any other corporation, association or individual, and to exercise all the rights, powers and privileges of ownership, including the right to vote thereon to the same extent as a natural person might or could do; 4. To lend or invest its funds, with or without security, upon such terms and conditions as shall be prescribed or determined by the board of directors; 5. To borrow money and to issue bonds, debentures, notes, contracts, and other evidences of indebtedness or obligation, and from time to time for any lawful purpose to mortgage, pledge and otherwise charge any or all of its properties, property rights, privileges and assets to secure the payment thereof; 6. To act as agent, trustee, broker, or in any other fiduciary or representative capacity; 7. To purchase, own, hold or hypothecate any patent rights, privileges, trademarks, or secret processes; 8. To act as surety or guarantor and to underwrite in whole or in part, any contract, issue of stock, bonds, debentures or other securities or evidences of indebtedness of any other corporation or association, or of any person or persons; 9. To supervise and to manage or otherwise control properties or property rights and to manage and conduct any business, venture or enterprise for other persons, corporations or associations; 10. To make and perform contracts of every kind and description, and in carrying on its business, or for the purpose of attaining and furthering any of its objects, to do any and all things which a natural person might or could do, and which now or hereafter may be authorized by law, and in general to do and perform such acts and things and transact such business in connection with the foregoing objects, not inconsistent with law, as may be necessary and required. The designation of any object or purpose herein shall not be construed to be a limitation or qualification, or in any manner to limit or restrict the purposes and objects of the corporation. ARTICLE IV. The authorized amount of the capital stock of the corporation shall be one thousand (1,000) shares, of the par value of one hundred dollars ($100.00) each, and shall be paid for at such time and in such manner as the board of directors shall determine. All or any portion of the capital stock of the corporation may be issued in payment for real or personal property, services or any other thing of value, for the uses and purposes of the corporation, and when so issued, shall be fully paid, the same as though paid for in cash, and the directors shall be the sole judges of the value of any property, right or thing acquired in exchange for capital stock. The shares of the capital stock of the corporation, when issued, shall be fully paid and non- assessable. ARTICLE V. The time of the commencement of the corporation shall be from the date of the issuance to it of the certificate of incorporation by the Arizona Corporation Commission, and it shall endure for the term of twenty-five (25) years thereafter, with the privilege of renewal as provided by law. ARTICLE VI. The affairs of the corporation shall be conducted by a Board of Directors and such officers as the directors may elect or appoint. The officers and directors need not be stockholders of the corporation. The number of directors shall be not less than three (3) nor more than five (5), Directors shall hold office for one year, or until their successors are elected and qualified, and shall be elected by the stockholders of the corporation at the annual meeting thereof to be held at 10:00 o'clock A.M. on the second Monday in January of each year, commencing with the year 1953. The time for holding the annual meeting of the stockholders may be altered by the majority vote of the stockholders at any meeting thereof. Until the first annual meeting of the stockholders and until their successors have been elected and qualified, the following named persons shall be directors of the corporation: F. A. Wilhoit Christine M. Wilhoit J. William Wilhoit In furtherance, and not in limitation of the powers conferred by law, the board of directors is expressly authorized to adopt, amend and rescind bylaws for the corporation, and to fill vacancies in any office or in the board of directors resulting from any cause. ARTICLE VII The private property of the stockholders, directors and officers of the corporation shall at all times be exempt from all corporate debts and liabilities whatsoever. ARTICLE VIII The highest amount of indebtedness or liability, direct or contingent, to which the corporation shall at any time subject itself, shall be SIXTY-SIX THOUSAND, SIX HUNDRED SIXTY-SIX DOLLARS ($66,666.00). ARTICLE IX. RICHARD G. KLEINDIENST, whose address is 619 Title & Trust Building, Phoenix, Arizona, and who has been a bona fide resident of the State of Arizona for more than three (3) years last past, is hereby appointed and designated Statutory Agent for the corporation for the State of Arizona, upon whom service of process may be had. IN WITNESS WHEREOF, we have hereunto set our hands and seals this 6th day of January, 1953. F. A. Wilhoit Christine M. Wilhoit J. William Wilhoit STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 6th day of January, 1953, before me the undersigned Notary Public, personally appeared F. A. WILHOIT, CHRISTINE M. WILHOIT and J. WILLIAM WILHOIT, known to me to be the persons whose names are subscribed to the foregoing instrument, and acknowledged that they executed the same for the purposes therein contained. IN WITNESS WHEREOF I hereunto set my hand and official seal. RICHARD G. KLEINDIENST Notary Public My commission expires: January 16, 1955 (NOTARIAL SEAL) CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF PHOENIX FUEL CO., INC. This is to certify that a special meeting of the stockholders of PHOENIX FUEL CO., INC., an Arizona corporation, was held in Phoenix, Arizona, on the 18th day of April, 1960, written notice of the time, place and purpose of such meeting having been given to all of the stockholders more than thirty (30) days prior to the said meeting; all shares of the capital stock of the corporation were present, and by the unanimous vote of those present, the following sections of the Articles of Incorporation were amended to read as follows: ARTICLE IV The authorized amount of the capital stock of the corporation shall be five thousand (5,000) shares, of the par value of One Hundred Dollars ($100.00) each, and shall be paid for at such time and in such manner as the board of directors shall determine. All or any portion of the capital stock of the corporation may be issued in payment for real or personal property, services or any other thing of value, for the uses and purposes of the corporation, and when so issued, shall be fully paid, the same as though paid for in cash, and the directors shall be the sole judges of the value of any property, right or thing acquired in exchange for capital stock. The shares of the capital stock of the corporation, when issued, shall be fully paid and nonassessable. ARTICLE VIII The highest amount of indebtedness or liability, direct or contingent, to which the corporation shall at any time subject itself, shall be THREE HUNDRED THIRTY-THREE THOUSAND, THREE HUNDRED THIRTY-THREE DOLLARS ($333,333.00). IN WITNESS WHEREOF, the undersigned, as president and secretary, respectively, of the said corporation, have hereunto affixed their signatures and the seal of said corporation this 19th day of April, 1960. /s/ J. W. Wilhoit _________________________ ATTEST: J. W. Wilhoit, President /s/ Christine M. Wilhoit _______________________________ Christine M. Wilhoit, Secretary STATE OF ARIZONA ) ) ss. County of Maricopa ) On this, the 19th day of April, 1960, before me, the undersigned Notary Public, personally appeared J. W. WILHOIT and CHRISTINE M. WILHOIT, who acknowledged themselves to be the president and secretary, respectively, of PHOENIX FUEL CO., INC., a corporation, and as such president and secretary, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing their names as said president and secretary. IN WITNESS WHEREOF I have hereunto set my hand and official seal. _________________________ My commission expires: Notary Public _____________________ STATE OF ARIZONA ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF PHOENIX FUEL CO., INC. Pursuant to the provisions of S.S. 10-061, Arizona Revised Statutes, the undersigned corporation adopts the attached Articles of Amendment to its Articles of Incorporation. FIRST: The name of the corporation is Phoenix Fuel Co., Inc. SECOND: The document attached hereto as Exhibit A sets forth an amendment to the Articles of Incorporation which was adopted by the shareholders of the corporation of October 1, 1977 in the manner prescribed by the Arizona Revised Statutes. THIRD: The number of shares of the corporation outstanding at the time of such adoption was 560; and the number of shares entitled to vote thereon was 560. FOURTH: The designation and number of outstanding shares of each class or series entitled to vote thereon as a class or series were as follows: CLASS OR SERIES NUMBER OF SHARES --------------- ---------------- Common Stock 560 FIFTH: The number of shares of each class or series entitled to vote thereon as a class or series voted for or against such amendment, respectively, was: CLASS OR SERIES NUMBER OF SHARES FOR NUMBER OF SHARES AGAINST --------------- -------------------- ------------------------ Common 560 -0- SIXTH: No exchange, reclassification, or cancellation of issued shares was provided for in the amendment. SEVENTH: No change in the amount of stated capital was made by the amendment. DATED: December 13, 1977. PHOENIX FUEL CO., INC. By /s/ J. W. Wilhoit ____________________________ J. W. Wilhoit, President By /s/ T. A. Wilhoit ____________________________ T. A. Wilhoit, Secretary STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 13th day of December, 1977 by J. W. Wilhoit, President of Phoenix Fuel Co., Inc., an Arizona corporation, on behalf of the corporation. /s/ David R. Foyer _________________________ Notary Public My Commission Expires: July 7, 1980 _____________________ STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 13th day of December, 1977 by T. A. Wilhoit, Secretary of Phoenix Fuel Co., Inc., an Arizona corporation, on behalf of the corporation. /s/ David R. Foyer _________________________ Notary Public My Commission Expires: July 7, 1980 _____________________ EXHIBIT A 1. ARTICLE V is amended to read as follows: "ARTICLE V No holder of common stock shall have the right or power to transfer, pledge, sell or otherwise dispose of any of the shares of the common stock of the corporation, nor shall any transfer, pledge, sale or other disposition thereof, unless such transfer be accomplished by right of inheritance or by operation of law, be valid and effective until the shares of common stock proposed to be transferred are first offered for sale to the corporation. Whenever tendered to the corporation for purchase, the corporation shall have the right to purchase any share or shares of said stock from the holder by paying therefor a price fixed by the valuation put upon said stock by the stockholders at their last annual meeting. If this corporation shall fail or refuse, for a period of ninety (90) days after said shares of stock so offered, then the said stock shall be offered on a ratable basis to the other holders of stock of this corporation, and shall not be subject to the conditions hereinabove set forth. Upon the death of any stockholder, the corporation shall have the right and option to purchase the common stock of this corporation held by the deceased at the time of his death by paying therefor the price determined in accordance with this section. The purchase price therefor shall be paid in cash, within such time as shall be agreed upon by the personal representative of the deceased, and the corporation. Unless the corporation pays for such stock in cash or arrives at an agreement with the personal representative of the deceased within one year from the date such personal representative is legally qualified to act, then the personal representative of the deceased shall be authorized to offer such stock for sale to the other holders of stock in this corporation on a ratable basis according to the percentage ownership of the other stockholders. In the event that the other stockholders of stock in this corporation shall fail or refuse for a period of ninety (90) days after said shares of stock are offered for sale, to purchase the shares of stock so offered, the stockholder or personal representative of a deceased stockholder shall be authorized to offer such stock for sale to any other person or persons." 2. ARTICLE VIII is amended to read as follows: "ARTICLE VIII The holders from time to time of the common stock of the corporation shall have pre-emptive rights as to any new or existing class of stock then or thereafter authorized to be issued, including treasure stock. No resolution of the board of directors authorizing the issuance of stock to which pre-emptive rights shall attach may require such rights to be exercised within fewer than sixty days." STATE OF ARIZONA ARTICLES OF AMENDMENT TO THE ARTICLE OF INCORPORATION OF PHOENIX FUEL CO., INC. Pursuant to the provisions of A.R.S. S.S. 10-061, the undersigned corporation adopts the following articles of amendment to its articles of incorporation: FIRST: The name of the corporation is Phoenix Fuel Co., Inc. SECOND: The document attached hereto as exhibit A sets forth amendments to the articles of incorporation which were adopted by the shareholders of the corporation on March 31, 1981, in the manner prescribed by A.R.S. S.S. 10-059. THIRD: The number of shares outstanding at the time of such adoption was 560 and the number of shares entitled to vote thereon was 560. FOURTH: The corporation has outstanding only a single class of stock. FIFTH: The number of shares voted for the amendments was 560 and the number of shares voted against the amendments was 0. SIXTH: The amendments do not effect any exchange, reclassification, or cancellation of issued shares. SEVENTH: The amendments do not effect a change in the amount of stated capital. EIGHTH: The amendments remove the corporation's limited period of existence and thereby provide for perpetual succession. DATED: March 31, 1981. Phoenix Fuel Co., Inc. By /s/ J. W. Wilhoit ___________________________ J. W. Wilhoit, President By /s/ T. A. Wilhoit ___________________________ T. A. Wilhoit, Secretary ACKNOWLEDGEMENTS STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 31st day of March, 1981, by J. W. Wilhoit, President of Phoenix Fuel Co., Inc., an Arizona corporation, on behalf of the corporation. /s/ David R. Foyer _________________________ Notary Public My Commission Expires: July 7, 1984 _____________________ STATE OF ARIZONA ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this 31st day of March, 1981, by T. A. Wilhoit, Secretary of Phoenix Fuel Co., Inc., an Arizona corporation, on behalf of the corporation. /s/ David R. Foyer _________________________ Notary Public My Commission Expires: July 7, 1984 _____________________ EXHIBIT A 1. The following Article X is hereby added to the Articles of Incorporation of Phoenix Fuel Co., Inc.: "ARTICLE X Subject to the further provisions hereof, the corporation shall indemnify any and all of its existing and former directors, officers, employees and agents against all expenses incurred by them and each of them including but not limited to legal fees, judgments, penalties, and amounts paid in settlement or compromise, which may arise or be incurred, rendered, or levied in any legal action brought or threatened against any of them for or on account of any action or omission alleged to have been committed while acting within the scope of employment as director, officer, employee or agent of the corporation, whether or not any action is or has been filed against them and whether or not any settlement or compromise is approved by a court. Indemnification shall be made by the corporation whether the legal action brought or threatened is brought by or in the right of the corporation or by any other person. Whenever such director, officer, employee or agent shall report to the president of the corporation or the chairman of the board of directors that he or she has incurred or may incur expenses, including but not limited to legal fees, judgments, penalties, and amounts paid in settlement or compromise in a legal action brought or threatened against him or her for or on account of any action or omission alleged to have been committed by him or her while acting within the scope of his or her employment as a director, officer, employee or agent of the corporation, the board of directors shall, at its next regular or at a special meeting held within a reasonable time thereafter, determine in good faith whether, in regard to the matter involved in the action or contemplated action, such person acted, failed to act, or refused to act willfully or with gross negligence or with fraudulent or criminal intent. If the board of directors determines in good faith that such person did not act, fail to act, or refuse to act willfully or with gross negligence or with fraudulent or criminal intent in regard to the mater involved in the action or contemplated action, indemnification shall be mandatory and shall be automatically extended as specified herein, provided however, that no such indemnification shall be available with respect to liabilities under the Securities Act of 1933, and, provided further, that the corporation shall have the right to refuse indemnification in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the corporation, at its own expense and through counsel of its own choosing, to defend him or her in the action." EX-3.18 3 EXHIBIT 3.18 A M E N D E D B Y L A W S OF PHOENIX FUEL CO., INC. (As Adopted October 1, 1977) SECTION 1 OFFICES AND CORPORATE SEAL 1.1. PRINCIPAL OFFICE. In addition to its known place of business, which shall be the office of its statutory agent, the corporation shall maintain a principal office in Maricopa County, Arizona. 1.2. OTHER OFFICES. The corporation may also maintain offices at such other place or places, either within or without the State of Arizona, as may be designated from time to time by the board of directors, where the business of the corporation may be transacted with the same effect as though done at the principal office. 1.3. CORPORATE SEAL. A corporate seal shall not be requisite to the validity of any instrument executed by or on behalf of the corporation, but nevertheless if in any instance a corporate seal be used, the same shall, at the pleasure of the officer affixing the same, be either (a) circular in form, shall have inscribed thereon the name of the corporation, the year of its organization, and the words "Incorporated" and "Arizona," or (b) a circle containing the words "Corporate Seal" on the circumference thereof. SECTION 2 STOCKHOLDERS 2.1. STOCKHOLDERS' MEETINGS. All meetings of stockholders shall be held at such place as may be fixed from time to time by the board of directors, or in the absence of direction by the board of directors, by the president or secretary of the corporation, either within or without the State of Arizona, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held on the second Monday in January, if not a legal holiday, and if a legal holiday, then on the next secular day following, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Stockholders shall, at the annual meeting, elect a board of directors and transact such other business as properly may be brought before the meeting. 2.3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. Stockholders entitled to vote at the meeting shall be determined as of 4 o'clock in the afternoon on the day before notice of the meeting is sent. 2.4. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.5. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the stockholders, for any purpose of purposes, unless otherwise proscribed by statute or by the articles of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Stockholders entitled to vote at the meeting shall be determined as of 4 o'clock in the afternoon on the day before notice of the meeting is sent. 2.7. QUORUM AND ADJOURNMENT. The holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8. MAJORITY REQUIRED. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power present, whether in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or of the articles of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. 2.9. VOTING. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period. No stock shall be voted at any stockholders's meeting: (1) upon which any installment is due and unpaid until such arrears have been paid; (2) which shall have been transferred on the books of the corporation within ten (10) days next preceding the date of such meeting; (3) which belongs to the corporation. 2.10. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of all of the outstanding stock entitled to vote with respect to the subject matter of the action. 2.11. WAIVER OF NOTICE. Attendance of a stockholder at a meeting shall constitute waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder may waive notice of any annual or special meeting of stockholders by executing a written waiver of notice either before or after the time of the meeting. SECTION 3 DIRECTORS 3.1. NUMBER. The number of directors which shall constitute the whole board shall be not fewer than three nor more than five. The directors shall be elected at the annual meeting of the stockholders, except as provided in 3.2. of this Section 3, and each director elected shall hold office until his or her successor is elected and qualifies. Directors need not be stockholders. 3.2. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. 3.3. POWERS. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. 3.4. PLACE OF MEETINGS. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Arizona. 3.5. ANNUAL MEETINGS. The first meeting of each newly elected board of directors shall be held immediately following the annual meeting of stockholders and in the same place as the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, providing a quorum shall be present. In the event such meeting is not held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provider for special meetings of the board of directors, or as shall be specified in a written waiver by all of the directors. 3.6. REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7. SPECIAL MEETINGS. Special meetings of the board may be called by the president or the secretary on one day's notice to each director, either personally or by mail or by telegram or by telephone; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. 3.8. QUORUM. A majority of the membership of the board of directors shall constitute a quorum and the concurrence of a majority of those present shall be sufficient to conduct the business of the board, except as may be otherwise specifically provided by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3.9. ACTION WITHOUT MEETING. Unless otherwise restricted by the articles of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.10. WAIVER OF NOTICE. Attendance of a director at a meeting shall constitute waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Any director may waive notice of any annual, regular or special meeting of directors by executing a written waiver of notice either before or after the time of the meeting. SECTION 4 OFFICERS 4.1. DESIGNATION OF TITLES. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice president, a secretary and a treasurer. The board of directors may also choose a chairman of the board, additional vice presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices, except the offices of president and secretary, may be held by the same person. 4.2. APPOINTMENT OF OFFICERS. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice presidents, a secretary and a treasurer, and may choose a chairman of the board, each of whom shall serve at the pleasure of the board of directors. The board of directors at any time may appoint such other officers and agents as it shall deem necessary who shall hold their offices at the pleasure of the board of directors and who shall exercise such powers and perform such duties as shall be determined from time to time by the board. 4.3. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. The salaries of the officers or the rate by which salaries are fixed shall be set forth in the minutes of the meetings of the board of directors. 4.4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the board of directors at any time. 4.5. CHAIRMAN OF THE BOARD. The chairman of the board, if one shall have been appointed and be serving, shall preside at all meetings of the board of directors and shall perform such other duties as may be from time to time assigned to him or her. 4.6. PRESIDENT. The president shall preside at all meetings of stockholders, and if a chairman of the board shall not have been appointed or, having been appointed, shall not be serving or be absent, the president shall preside at all meetings of the board of directors. He or she shall sign all deeds and conveyances, all contracts and agreements, and all other instruments requiring execution on behalf of the corporation, and shall act as operating and directing head of the corporation, subject to policies established by the board of directors. 4.7. VICE PRESIDENTS. There shall be as many vice presidents as shall be determined from time to time and they shall perform such duties as may be from time to time assigned to them. Any one of the vice presidents, as authorized by the board, shall have all the powers and perform all the duties of the president in case of the temporary absence of the president or in case of his or her temporary inability to act. In case of the permanent absence or inability of the president to act, the office shall be declared vacant by the board of directors and a successor chosen by the board. 4.8. SECRETARY. The secretary shall see that the minutes of all meetings of stockholders, of the board of directors and of any standing committees are kept. He or she shall be the custodian of the corporate seal, and shall affix it to all proper instruments when deemed advisable by him or her. He or she shall give or cause to be given required notices of all meetings of the stockholders and of the board of directors. He or she shall have charge of all the books and records of the corporation except the books of account and in general shall perform all the duties incident to the office of secretary of a corporation and such other duties as may be assigned to him or her. 4.9. TREASURER. The treasurer shall have general custody of all of the funds and securities of the corporation except such as may be required by law to be deposited with any state official; he or she shall see to the deposit of the funds of the corporation in such bank or banks as the board of directors may designate. Regular books of account shall be kept under his or her direction and supervision, and he or she shall render financial statements to the president, directors and stockholders at proper times. He or she shall have charge of the preparation and filing of such reports and financial statements and returns as may be required by law. He or she shall give to the corporation such fidelity bond as may be required, and the premium therefor shall be paid by the corporation as an operating expense. 4.10. ASSISTANT SECRETARIES. There may be such number of assistant secretaries as the board of directors may from time to time fix, and such persons shall perform such functions as may be from time to time assigned to them. No assistant secretary shall have power or authority to collect, account for, or pay over any tax imposed by any federal, state or city government. 4.11. ASSISTANT TREASURERS. There may be such number of assistant treasurers as the board of directors may from time to time fix, and such persons shall perform such functions as may be from time to time assigned to them. No assistant treasurer shall have the power or authority to collect, account for, or pay over any tax imposed by any federal, state or city government. SECTION 5 REPEAL, ALTERATION OR AMENDMENT These bylaws may be repealed, altered or amended or substitute bylaws may be adopted only by a majority of the board of directors at any time. /s/ J. W. Wilhoit ________________________ J. W. Wilhoit, President ATTEST: /s/ T. A. Wilhoit _______________________ T.A. Wilhoit, Secretary EX-10.5 4 EXHIBIT 10.5 TENTH AMENDMENT OF THE EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES Effective as of July 1, 1987, Giant Industries, Inc., an Arizona corporation, and Ciniza Pipe Line, Inc., a New Mexico Corporation, amended and restated the Joint Profit Sharing Plan and Trust Agreement of Giant Industries, Inc., Giant Western Service Stations, Inc., and Ciniza Pipe Line Inc., as the Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies (the "Plan"). Effective as of July 1, 1987, the Plan was adopted by Ciniza Production Company, a New Mexico corporation ("Ciniza"), and by J.E.A. Company, Inc., an Arizona corporation. Effective as of September 28, 1989, Ciniza Pipe Line Inc. was merged into Giant Industries, Inc., an Arizona corporation. Effective as of October 12, 1989, J.E.A. Company, Inc. was merged into Giant Industries, Inc. and Giant Industries, Inc. changed its name to Giant Industries Arizona, Inc. ("Giant Arizona"). On October 15, 1989, Giant Arizona entered into an Agreement and Plan of Reorganization with Hixon Development Company, a Texas corporation, ("Hixon") contemplating a merger whereby Giant Arizona and Hixon would become wholly owned subsidiaries of Giant Industries, Inc., a Delaware corporation ("Giant"). The stock of Giant became publicly traded on December 15, 1989, and the merger was consummated on December 21, 1989. Effective as of December 21, 1989, the Plan was adopted by Giant and by Hixon. The name of Hixon was changed to Giant Exploration & Production Company, a Texas corporation ("E&P"), effective June 12, 1990. Giant, Giant Arizona, E&P, Ciniza, Giant Stop-N-Go of New Mexico, a New Mexico corporation, and Giant Four Corners, Inc., an Arizona corporation, and such other entities described in section 1.14 of the Plan are hereinafter collectively referred to as the "Employer". Under Section 11.1 of the Plan, Giant has been granted the right to amend the Plan in whole or in part at any time and from time to time, subject to certain restrictions set forth in the Plan, on behalf of the Employer. NOW THEREFORE, Giant deems it advisable to amend the Plan in the manner hereinafter set forth and hereby adopts this tenth amendment. Article I of the existing Plan is removed and replaced by the attached Article I which is incorporated herein by this reference. The terms used in this Tenth Amendment which are defined in the Plan shall have the same meaning given to such terms in the Plan. Except as modified by this Tenth Amendment, the Plan shall continue in full force and effect and the Plan and all amendments thereto shall be read, taken and construed as one and the same document. Executed on the 15th day of December, 1997, to be effective as of January 1, 1997, unless otherwise specified on the relevant replacement page. FOR THE EMPLOYER: ADMINISTRATIVE COMMITTEE: GIANT INDUSTRIES, INC. _____________________________ A Delaware Corporation Morgan M. Gust _____________________________ By_______________________ A. Wayne Davenport _______________________ _____________________________ Charles F. Yonker By_______________________ _______________________ TRUSTEE: BANK OF AMERICA, N.T. & S.A. By___________________________ Its________________________ EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST AGREEMENT OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES INDEX AFTER TENTH AMENDMENT PAGE INTRODUCTION I. DESIGNATION OF PLAN AND DEFINITIONS........................1.1 1.1 Accounts..............................................1.1 1.2 Alternate Payee.......................................1.1 1.3 Asset Account.........................................1.2 1.4 Beneficiary or Beneficiaries..........................1.2 1.5 Board of Directors....................................1.3 1.6 Break in Service......................................1.4 1.7 Ciniza................................................1.4 1.8 Code..................................................1.4 1.9 Committee.............................................1.4 1.10 Compensation..........................................1.4 1.11 Disability............................................1.6 1.12 Effective Date........................................1.7 1.13 Employee..............................................1.7 1.14 Employer..............................................1.8 1.15 Employer Real Property...............................1.11 1.16 Employer Stock.......................................1.11 1.17 ERISA................................................1.12 1.18 Exempt Loan..........................................1.12 1.19 Fiduciary............................................1.12 1.20 Fiscal Year..........................................1.13 1.21 Former Participant...................................1.13 1.22 Giant................................................1.13 1.23 Giant Arizona........................................1.13 1.24 Highly Compensated...................................1.13 1.25 Hixon................................................1.17 1.26 Hour of Service......................................1.17 1.27 Ineligible Participant...............................1.18 1.28 Investment Manager...................................1.18 1.29 Participant..........................................1.19 1.30 Plan.................................................1.19 1.31 Qualifying Employer Real Property....................1.19 1.32 Section 1042 Employer Stock..........................1.20 1.33 Section 1042 Employer Stock Account..................1.20 1.34 Suspense Account.....................................1.20 1.35 Temporary Stock Account..............................1.20 1.36 Trust or Trust Fund..................................1.20 1.37 Trustee..............................................1.21 1.38 Union Employee.......................................1.21 1.39 Unrestricted Employer Stock..........................1.21 1.40 Unrestricted Employer Stock Account..................1.21 1.41 Valuation Date.......................................1.21 1.42 Year of Service......................................1.21 1.43 Year of Service......................................1.22 PAGE II. PARTICIPATION..............................................2.1 2.1 Eligibility Requirements..............................2.1 (a) General Eligibility Rule.........................2.1 (b) Eligibility Upon Re-employment...................2.1 2.2 Employee Participation................................2.2 2.3 Retirement............................................2.3 (a) Normal Retirement................................2.3 (b) Late Retirement..................................2.3 III. CONTRIBUTIONS..............................................3.1 3.1 Employer Contributions and Limitations on Annual Additions...................................3.1 (a) Employer Contributions...........................3.1 (b) Overall Limitation on Contributions..............3.3 (1) Basic Limitations...........................3.3 (2) Special Limitations.........................3.4 (3) Adjustment for Excessive Annual Additions.........................3.4(a) (4) Participation in Multiple Plans.............3.5 (5) Special Rule for Defined Contribution Plan Fraction..................3.6 (6) Definitions.................................3.8 3.2 Time of Payment of Contribution.......................3.8 3.3 Voluntary Contributions...............................3.8 IV. ALLOCATIONS TO ACCOUNTS....................................4.1 4.1 Creation of Accounts..................................4.1 (a) Creation of Accounts for New Participants.....................................4.1 (b) Creation of Accounts for Alternate...............4.1 Payees 4.2 Account Statements....................................4.2 4.3 Forfeitures...........................................4.2 (a) Forfeitures from Asset Accounts..................4.2 (b) Forfeitures from Employer Stock Accounts...................................4.3 (c) Order of Allocations.............................4.4 4.4 Allocation of Purchased Unrestricted Employer Stock and Section 1042 Employer Stock Released with Certain Dividends.................4.4 (a) Unrestricted Employer Stock Purchased with Plan Assets.......................4.4 (b) Section 1042 Employer Stock Released with Certain Dividends...........................4.5 (c) Order of Allocations.............................4.6 4.5 Valuation of Accounts.................................4.7 (a) Asset Accounts...................................4.7 (b) Employer Stock Accounts..........................4.9 (c) Order of Allocations.............................4.9 4.6 Annual Employer Contribution Allocation...............4.9 4.7 Allocations of Employer Stock........................4.10 (a) Allocation of Stock Contributed by the Employer.................................4.10 PAGE (b) Allocation of Section 1042 Employer Stock..................................4.10 (c) Allocation of Unrestricted Employer Stock from Suspense Account and Purchased Unrestricted Employer Stock...........4.12 (d) Order of Allocations............................4.12 4.8 Voting Rights in Employer Stock......................4.13 4.9 Right to Tender Employer Stock.......................4.15 4.10 Coverage Fail-Safe...................................4.18 V. BENEFITS...................................................5.1 5.1 Vesting of Interests..................................5.1 (a) Upon Death, Disability or Retirement.............5.1 (b) Termination for Other Reasons....................5.1 (c) Calculation of Years of Service..................5.2 (1) General Rules for Crediting Years of Service............................5.2 (2) Special Rules for Crediting Years of Service Upon Reemployment................................5.2 (A) Delay in Crediting Years of Service.............................5.2 (B) Rule of Parity.........................5.3 (C) Effect on Portion of Accounts Earned Prior to Break in Service.......................5.3 (3) Break in Service Rules for Pre- January 1, 1985 Plan Years..................5.3 (d) Transition Rule..................................5.3 5.2 Form of Distribution..................................5.4 (a) Distribution in Cash or in Stock.................5.4 (b) Lifetime Distributions...........................5.5 (1) General Rule................................5.5 (2) Additional Lifetime Installments Distributions...............................5.5 (c) Distributions Upon Death.........................5.6 5.3 Distributions in Stock................................5.7 5.4 Distributions in Cash.................................5.9 5.5 Distributions in Cash and Stock......................5.10 5.6 Time of Distribution.................................5.11 (a) General Rule....................................5.11 (b) Consents and Notices............................5.12 (1) Accounts of $3,500 or Less.................5.12 (2) Accounts in Excess of $3,500...............5.13 (c) Liquidity Limitations......................5.14 5.7 Dividends............................................5.15 (a) Dividends on Stock Allocated to Unrestricted Employer Stock Accounts and Section 1042 Employer Stock Accounts........................................5.15 (b) Dividends on Stock Allocated to the Unallocated Stock Account...................5.16 (c) Dividends on Stock Allocated to the Suspense Account............................5.16 (d) Treatment of Distributed Dividends..............5.17 PAGE 5.8 Put Option and Right of First Refusal..............................................5.17 (a) Put Option......................................5.17 (b) Right of First Refusal..........................5.18 5.9 Non-Vested Interests.................................5.19 (a) Forfeitures.....................................5.19 (b) Repayment of Prior Distribution.................5.20 (c) Termination of Employment with No Distribution.................................5.21 5.10 Participant Loans....................................5.23 VI. [RESERVED] VII. THE COMMITTEE..............................................7.1 7.1 Members...............................................7.1 7.2 Committee Action......................................7.1 7.3 Rights and Duties.....................................7.2 7.4 Procedure for Establishing Funding Policy -Transmittal of Information....................7.6 7.5 Delegation of Investment Responsibility...............7.7 7.6 Delegation of Non-Investment Fiduciary Responsibility........................................7.8 7.7 Duty of Care..........................................7.9 7.8 Compensation, Indemnity and Liability.................7.9 VIII. THE TRUSTEE..............................................8.1 8.1 Appointment of Trustee................................8.1 8.2 Resignation and Removal...............................8.1 8.3 Successor Trustee.....................................8.2 8.4 General Duties of Trustee.............................8.3 8.5 Accounts and Records..................................8.4 8.6 Compensation and Expenses.............................8.5 8.7 Employment of Agents..................................8.6 8.8 Third Party May Rely..................................8.6 8.9 Notice Must be in Writing and Received................8.6 8.10 Valuation.............................................8.6 IX. POWERS OF THE TRUSTEE......................................9.1 9.1 Investment of Trust Fund..............................9.1 9.2 Exempt Loans..........................................9.1 9.3 Permitted Investment Acts.............................9.5 9.4 Prohibited Investment Acts............................9.7 9.5 Diversification.......................................9.8 X. PORTABILITY AND ROLL-OVER.................................10.1 10.1 Portability..........................................10.1 (a) Direct Rollovers................................10.1 (b) Definitions.....................................10.1 10.2 Receipt of Direct Rollovers..........................10.2 PAGE XI. AMENDMENT AND TERMINATION.................................11.1 11.1 Amendments..........................................11.1 11.2 Discontinuance of Plan..............................11.3 11.3 Merger or Consolidation.............................11.4 11.4 Failure to Contribute...............................11.4 XII. MISCELLANEOUS.............................................12.1 12.1 Contributions Not Recoverable.......................12.1 12.2 Limitations on Participants' Rights.................12.2 12.3 Receipt and Release.................................12.2 12.4 Assignment and Alienation...........................12.2 12.5 Qualified Domestic Relations Orders.................12.3 12.6 Governing Law.......................................12.3 12.7 Headings, Etc., Not Part of Agreement...............12.4 12.8 Successors and Assigns..............................12.4 12.9 Agent Designated for Service of Process.............12.4 12.10 Benefits Payable to Incompetents....................12.4 12.11 Pronouns............................................12.5 12.12 Reference to Laws...................................12.5 XIII. EARLY WITHDRAWAL OF EMPLOYER CONTRIBUTIONS...............13.1 XIV. TOP HEAVY PROVISIONS......................................14.1 14.1 Application of Top Heavy Provisions..................14.1 14.2 Vesting Requirements.................................14.1 14.3 Compensation Limitation..............................14.2 14.4 Minimum Allocation...................................14.3 14.5 Limitations on Contributions and Benefits for Key Employees...........................14.4 14.6 Rules for Determining Top Heavy Status...............14.4 14.7 Definitions..........................................14.6 ARTICLE I. DESIGNATION OF PLAN AND DEFINITIONS This Employee Stock Ownership Plan shall be known as the "Employee Stock Ownership Plan and Trust Agreement of Giant Industries, Inc. and Affiliated Companies." For purposes of Plan investments and other transactions, the Plan may be referred to as the "Giant ESOP." The following terms shall have the following meanings unless a different meaning is plainly required by the context. Whenever in these definitions a word or phrase not previously defined is used, such word shall have the meaning thereafter given to it in Article I unless otherwise specified. 1.1 "Accounts" shall mean the Asset Account, Unrestricted Employee Stock Account, and Section 1042 Employer Stock Account, if any, established for any Participant, Former Participant, Alternate Payee or Beneficiary. 1.2 "Alternate Payee" means any spouse, former spouse, child or other dependent of a Participant who is entitled to receive all or a portion of a Participant's Account pursuant to a domestic relations order which is determined to be a qualified domestic relations order in accordance with Section 12.5. An Alternate Payee shall not be a Beneficiary for purposes of this Plan unless such Alternate Payee is named as a Beneficiary pursuant to Section 1.4. The Alternate Payee shall have only the rights specified under the Plan and shall not be deemed to have the rights of a Participant, Former Participant or Beneficiary unless expressly stated. 1.3 "Asset Account" shall mean the account used to reflect an interest in assets of the Plan other than Employer Stock. 1.4 "Beneficiary" or "Beneficiaries" shall mean the person or persons last selected by a Participant, Former Participant, or Alternate Payee on a form provided by the Committee and by the terms of the Plan to receive any amounts payable under the Plan following the death of the Participant or Alternate Payee. The designation by a (Replacement Page, Tenth Amendment) Participant or Former Participant of a Beneficiary other than his spouse shall not be effective unless the spouse of the Participant or Former Participant gives written consent to the designation. A Participant, Former Participant, or Alternate Payee may change the Beneficiary from time to time on a form provided by the Administrative Committee, however, unless a Participant's or Former Participant's spouse's initial consent to the designation of a Beneficiary other than the spouse expressly acknowledges that the spouse has a right to limit her consent to a specific Beneficiary and unless such spouse expressly relinquishes the right to approve any change in Beneficiary, the spouse must also give written consent to a change in a Participant's or Former Participant's selection of a Beneficiary other than the spouse. Any spousal consent shall acknowledge the effect of the Participant's or Former Participant's selection and shall be witnessed by a Notary Public. The consent of the spouse shall not be required to the selection of a Beneficiary by a Participant or Former Participant upon proof satisfactory to the Committee that the Participant or Former Participant is not married, the spouse of the Participant or Former Participant cannot be located, or the consent of the spouse cannot be obtained under such circumstances as may be prescribed in regulations issued by the U.S. Secretary of the Treasury or his delegate. If no Beneficiary is designated, or in the event no Beneficiary or contingent Beneficiary is surviving at the time of the Participant's, Former Participant's or Alternate Payee's death, a Participant's, Former Participant's or Alternate Payee's Beneficiary shall be deemed to be his spouse, if living, or if there is no spouse living, the Participant's, Former Participant's or Alternate Payee's issue, by right of representation, or if neither the Participant's, Former Participant's or Alternate Payee's spouse nor any issue are living, the Participant's, Former Participant's or Alternate Payee's estate. If a Participant or Alternate Payee completes a form designating more than one Beneficiary, his Accounts will be divided equally among the Beneficiaries who survive him, unless he directs otherwise in writing. 1.5 "Board of Directors" shall mean the Board of Directors of Giant Industries, Inc., a Delaware corporation, unless otherwise specifically indicated. (Replacement Page, Tenth Amendment) 1.6 "Break in Service" shall mean an Eligibility Computation Period, as defined in Section 1.41, or a Vesting Computation Period, as defined in Section 1.42, during which an Employee or a Participant fails to complete at least five hundred (500) Hours of Service. 1.7 "Ciniza" shall mean Ciniza Production Company, a New Mexico corporation. 1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.9 "Committee" shall mean the Committee appointed by Giant Industries, Inc., a Delaware corporation, pursuant to Article VII of this Plan. 1.10 "Compensation" with respect to any Participant for any Fiscal Year beginning on or after January 1, 1989, shall mean and include the total compensation within the meaning of Treasury Regulation Section 1.415-2(d)(11)(i), paid by the Employer during that portion of the Fiscal Year in which the Employee is a Participant under the Plan; provided that for any Fiscal Year beginning on or after January 1, 1987, Compensation of an Employee shall be limited to one hundred and fifty thousand dollars ($150,000) per Fiscal Year, and further provided that for any Fiscal Year beginning on or after January 1, 1993, the term Compensation shall include elective contributions that are not includible in gross income under Code Sections 125, 402(e)(3), 402(h) and 403(b) which are made by the Employer on behalf of a Participant during that portion of the Fiscal Year in which the Employee is a Participant under the Plan. Effective January 1, 1997, Compensation shall exclude reimbursement or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, welfare benefits (including, but not limited to severance benefits), the value of a qualified or nonqualified stock option granted to an Employee by the Employer to the extent such value was includible in the Employee's taxable income, and the amount realized from the exercise of a qualified or nonqualified stock option. (Replacement Page, Tenth Amendment) In determining Compensation under the Plan for any Fiscal Year beginning on or after January 1, 1989, and before January 1, 1997, a Participant who is either a more than five percent owner of the Employer as defined in Code Section 414(q)(3) or one of the top ten (10) Highly Compensated Employees as defined in Code Section 414(q)(6) (hereinafter referred as a "Super Highly Compensated Participant"), a Participant who is a spouse of a Super Highly Compensated Participant on any day of the Fiscal Year and/or a Participant who has not attained age nineteen (19) before the close of the Fiscal Year and who is a lineal descendent of a Super Highly Compensated Participant, shall be treated as a "Family Group". Notwithstanding any other provision of the Plan to the contrary, the total Compensation of a Family Group cannot exceed $200,000 for any Fiscal Year beginning on or after January 1, 1989 and before January 1, 1994, $150,000 for any Fiscal Year beginning on or after January 1, 1994, or such greater amounts as determined by the Secretary of the Treasury in accordance with Code Section 401(a)(17) (hereinafter referred to as the "Family Group Limitation") for Fiscal Years beginning on or after January 1, 1989. If the total Compensation of a Family Group after applying a $150,000 per individual limitation to each Family Group member and before applying of the Family Group Limitation for the Fiscal Year to the Family Group, exceeds the Family Group Limitation for the Fiscal Year, the Compensation of any individual member of a Family Group shall be determined based upon the ratio that each Family Group member's Compensation after applying the $150,000 limitation but before applying the Family Group Limitation for the Fiscal Year, bears to the Compensation of all Family Group members after applying the $150,000 limitation but before applying the Family Group Limitation for the Fiscal Year, multiplied by the Family Group Limitation for the Plan Year. 1.11 "Disability" shall mean a physical or mental condition resulting from bodily injury, disease, or mental disorder which can be expected to result in death or to last at least 12 months, which totally and presumably permanently prevents a Participant from continuing any gainful occupation, and which condition is determined to be a disability under the federal Social Security Acts by the appropriate Disability Determination Services Office of the Social Security Administration. (Replacement Page, Tenth Amendment) 1.12 "Effective Date" shall mean July 1, 1987 for the amendment and restatement of the Plan as an employee stock ownership plan and a stock bonus plan within the meaning of Code Sections 401(a) and 4975(e)(7). The Plan was originally adopted as a profit sharing plan effective as of August 15, 1969. 1.13 "Employee" shall mean any person who is employed by the Employer other than any person who serves only as a director or any person who is a Union Employee. For any Fiscal Year beginning on or after January 1, 1984, the term Employee shall include any Leased Employee. For purposes of this Section, the term Leased Employee includes an individual (who is not otherwise employed by the Employer) who, pursuant to a leasing agreement between the Employer and any other person, has performed services for the Employer (or for the Employer and any persons related to the Employer within the meaning of Code Section 144(a)(3)) on a substantially full-time basis for at least one year and who performs services historically performed by employees in the Employer's business field, provided that for Fiscal Years between January 1, 1984 and December 31, 1986, the term Leased Employee excludes any such individual who is covered by a plan described in Code Section 414(n)(5) and for purposes of services performed by such individuals after December 31, 1986, the term Leased Employee excludes any such individual who is covered by a plan described in Code Section 414(n)(5) only if Leased Employees constitute less than twenty percent (20%) of the Employer's non-highly compensated work force (as determined under Code Section 414(n)(5)). If by the terms of this Section any Leased Employee is included in the term "Employee", all contributions or benefits provided for or on behalf of such Leased Employee by a leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer and shall offset any benefit otherwise provided under the terms of this Plan. 1.14 "Employer," effective as of December 21, 1989, shall mean Giant Industries, Inc., a Delaware corporation, Giant Industries Arizona, Inc., an Arizona corporation, Hixon Development Company (renamed Giant Exploration & Production Company, effective June 12, 1990), a Texas corporation, and Ciniza Production Company, a New Mexico Corporation. The term "Employer" shall also include any other (Replacement Page, Tenth Amendment) corporation which becomes a member of a controlled group of corporations (within the meaning of Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and (e)(3)(c) of the Code) in which Giant is a component member and each entity (whether or not incorporated) which comes under common control with Giant (as defined in Section 414(c) of the Code and regulations issued thereunder) effective as of the date the corporation or entity becomes a member of a controlled group in which Giant is a member or comes under common control with Giant, including Giant Stop-N-Go of New Mexico, Inc., a New Mexico corporation, Giant Four Corners, Inc., an Arizona Corporation, Giant Mid-Continent, Inc., an Arizona corporation, San Juan Refining Company, a New Mexico corporation, and Phoenix Fuel Co., Inc., an Arizona corporation, unless the Board of Directors or the corporation or entity which becomes a member of such controlled group affirmatively elects to exclude such corporation or entity from the definition of Employer. In addition, for purposes of determining Hours of Service and Years of Service, (i) all service completed by a prior employee of Shell Oil Company and Shell Pipe Line Corporation who became an Employee on or about April 1, 1982 in connection with the acquisition of the Ciniza Refinery and Pipeline by Giant Industries, Inc., shall be included as service with the Employer, (ii) all service completed by an Employee of Hixon prior to December 21, 1989 who was employed by Hixon on December 20, 1989 shall be included as service with the Employer under this Plan, (iii) effective as of January 1, 1996, all service by a prior employee of Bloomfield Refining Company ("Bloomfield") or The Gary-Williams Company ("Gary-Williams") for service with either company or with any of their affiliates or predecessor employers to the extent service was credited to the prior employee under The Gary Tax Advantaged Savings Program and Profit- Sharing Plan on October 4, 1995, but only if such employee was employed by Bloomfield or Gary-Williams on October 3, 1995, and became an Employee of the Employer on October 4, 1995, in connection with the sale of assets of Bloomfield to the Employer, (iv) effective as of January 1, 1996, all service by a prior employee of Meridian Oil Inc., Meridian Oil Gathering Inc., or Meridian Trading Inc. (collectively "Meridian") for service with Meridian or with any affiliate or predecessor employer of Meridian to the extent service was credited to the prior employee under the Burlington Resources Retirement Savings (Replacement Page, Tenth Amendment) Plan on August 18, 1995, but only if such employee was employed by Meridian on August 17, 1995, and became an Employee of the Employer on August 18, 1995, in connection with the sale of assets of Meridian to the Employer, (v) effective as of January 1, 1996, all service by a prior employee of Texaco Refining and Marketing Inc. ("Texaco") for service with Texaco or with any affiliate or predecessor employer of Texaco to the extent service was credited to the prior employee under any plan sponsored by Texaco that qualified under Section 401(a) of the Code, but only if such employee was employed by Texaco on July 27, 1995, and became an Employee of the Employer on July 28, 1995, in connection with the sale of assets of Texaco to the Employer, and (vi) effective as of July 1, 1997, all service by Pat Curtis, a human resource generalist, or any prior employees of Thriftway Marketing Corporation ("Thriftway") employed or hired into the transportation division on or about May 28, 1997, for service with Thriftway before May 28, 1997, but only if such employee was employed by Thriftway on May 27, 1997 and became an Employee of the Employer on or about May 28, 1997 in connection with the sale of assets of Thriftway and certain related entities to the Employer, and (vii) effective as of January 1, 1998, all service by an employee of Phoenix Fuel Co., Inc. ("Phoenix Fuel") for service with Phoenix Fuel or an affiliate or predecessor employer of Phoenix Fuel to the extent service was credited to such employee on June 3, 1997 under the Phoenix Fuel Co., Inc. Section 401(k) Savings Plan as of June 3, 1997, but only if such employee was employed by Phoenix Fuel on June 2, 1997, and became an Employee of the Employer on June 3, 1997, in connection with the sale of the stock of Phoenix Fuel to the Employer. 1.15 "Employer Real Property" shall mean real property (and related personal property) which is leased to an Employer or to an affiliate of such Employer as defined under Section 407(d)(7) of ERISA. Employer Real Property shall be deemed to be acquired by the Plan on the date on which the Plan acquires the property or on the date on which a lease from the Plan to the Employer (or affiliate) is entered into, whichever is later. 1.16 "Employer Stock" prior to December 21, 1989, shall mean shares of common stock of Giant Industries Arizona, Inc., an Arizona corporation, having a combination of voting power and dividend (Replacement Page, Tenth Amendment) rights equal to or in excess of that class of common stock having the greatest voting power and that class of common stock having the greatest dividend rights, and on or after December 21, 1989 shall mean shares of common stock issued by Giant Industries, Inc., a Delaware corporation. Any valuation of Employer Stock prior to December 21, 1989, and any valuation in the event shares of common stock of Giant Industries, Inc. cease to be readily tradable on an established securities market after December 21, 1989, shall be performed by an independent appraiser who meets the requirements of Code Section 410(a)(28)(c). 1.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.18 "Exempt Loan" shall mean an exempt loan within the meaning of Code Section 4975(d)(3) and Treasury Regulations Section 54.4975-7(b)(iii), the requirements of which are more fully set forth in Section 9.2. 1.19 "Fiduciary" shall mean, in accordance with Section 3(21) of ERISA, any person who exercises any discretionary authority or discretionary control respecting management of the Plan or any authority or control respecting management or disposition of Plan assets, who renders investment advice for a fee or other compensation (direct or indirect) with respect to Plan assets or who has any authority or responsibility to do so, and any person who has any discretionary authority or discretionary responsibility in the administration of the Plan. The term Fiduciary shall be construed as including the term "Named Fiduciary" as defined in Section 402(a)(2) of ERISA with respect to those Fiduciaries who are identified in the Plan as "Named Fiduciaries". 1.20 "Fiscal Year" shall mean the year beginning on January 1 and ending on December 31, and such Fiscal Year shall be the plan year for all purposes under ERISA and the Code. 1.21 "Former Participant" shall mean a Participant whose employment with the Employer has terminated but who has vested Accounts under the Plan which have not been paid in full and which continue to (Replacement Page, Tenth Amendment) participate in the increase or decrease in Plan assets including, for any Former Participant on or after December 21, 1989, any increase or decrease in Employer Stock. 1.22 "Giant" means Giant Industries, Inc., a Delaware corporation. 1.23 "Giant Arizona" means Giant Industries Arizona, Inc., an Arizona corporation. 1.24 "Highly Compensated Employee" means, effective for any Fiscal Year beginning on or after January 1, 1987, any Employee who is a highly compensated employee as defined in Code Section 414(q) and the applicable Treasury regulations. Generally, any Employee is considered a Highly Compensated Employee if during the Determination Year or the Look-Back Year such Employee: (a) was a "5% owner" as defined in Code Section 416(i)(B)(i) (i.e. who owns (or is treated as owning) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer.) In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c) and (m) shall be treated as separate employers; (b) received Section 415 Compensation from the Employer in excess of $75,000; (c) received Section 415 Compensation from the Employer in excess of $50,000 and was in the "Top-Paid Group." An Employee is in the Top-Paid Group if such Employee is in the group consisting of the top twenty percent (20%) of Employees when ranked on the basis of Section 415 Compensation (as adjusted below); or (d) was an officer of the Employer whose Section 415 Compensation (as adjusted below) is greater than $45,000 (or such other (Replacement Page, Tenth Amendment) amount which is equal to fifty percent (50%) of the amount specified in Code Section 415(b)(1)(A) for the calendar year in which the Determination Year or the Look-Back Year begins. For purposes of this Section, the Determination Year shall be the Plan Year in which testing is being performed. The Employer has elected to treat the calendar year ending with or within the Determination Year as the Look-Back Year as provided for in Treasury regulations. Solely for purposes of identifying Highly Compensated Employees under the terms of this Section and Code Section 414(q), Section 415 Compensation means Section 415 Compensation as defined in Section 3.1(b) plus amounts described under Code Sections 125, 402(e)(3) (formerly 402(a)(8)) or 402(h)(1)(B) that are otherwise excluded from Section 415 Compensation; and the dollar threshold amount specified in subsections (b) and (c) of this Section shall be adjusted at such time and in such manner as is provided in the Code. The term "Highly Compensated Employee" also includes a former Employee who separated from service (or has a deemed separation from service as determined under Treasury regulations) prior to the Determination Year, performs no services for the Employer during the Determination Year, and was a Highly Compensated Employee either for the Look-Back Year or any Determination Year ending on or after his 55th birthday. The Committee shall make the determination of who is a Highly Compensated Employee, including the determination of the number and identity of the Top-Paid Group, the number of officers includible in subsection (d), the number and identity of former Employees considered to be Highly Compensated Employees, the identity of "Excluded Employees," and Section 415 Compensation, in a manner consistent with Code Section 414(q). For purposes of this Section, an "Excluded Employee" is defined under Code Section 414(q)(8) and generally includes (i) Employees who have not completed six (6) months of service; (ii) Employees who normally work less than 17 1/2 hours per week; (iii) Employees who normally work during not more than six (6) months during (Replacement Page, Tenth Amendment) any Determination Year; (iv) Employees who have not attained age 21; and (v) employees who are included in a unit of employees covered by a collective bargaining agreement. The number of officers taken into account under subsection (d) will not exceed the greater of 3 or 10% of the total number of Employees (after subtracting Excluded Employees) but will not exceed 50 officers. If no Employee satisfies the dollar threshold amount in subsection (d) for the relevant Fiscal Year, the Committee will treat the highest paid officer as satisfying subsection (d) for that Fiscal Year. For purposes of applying any nondiscrimination test in a manner consistent with the applicable Treasury regulations, the Committee will treat as a single Highly Compensated Employee any Highly Compensated Employee, who is a 5% owner or is one of the 10 Highly Compensated Employees with the greatest Section 415 Compensation for the Determination Year, and his spouse, lineal ascendants or descendants or spouses of lineal ascendants or descendants even if such family members are Highly Compensated Employees in their own right. 1.25 "Hixon" shall mean Hixon Development Company, a Texas corporation. 1.26 "Hour of Service" shall mean each hour for which the Employee is directly or indirectly paid or entitled to payment by the Employer for performance of duties for the Employer including each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer, and including each hour for which payment is made or payable to the Employee for periods during which the Employee is on an Employer approved leave of absence for vacation, jury, sick, or disability leave, or military service. Hours of Service shall also include hours during such additional periods of service as may be required pursuant to Department of Labor regulations. Hours for nonperformance of duties shall be credited in accordance with DOL Regulations Section 2530.200b-2(b). Hours shall be credited to the applicable computation period in accordance with DOL Regulations Section 2530.200b-2(c). (Replacement Page, Tenth Amendment) 1.27 "Ineligible Participant" shall mean, for purposes of allocating Section 1042 Employer Stock, (a) a Participant who is a more than twenty-five percent (25%) owner (or a Participant who is treated under Code Section 409(n) as a more than twenty-five percent (25%) owner) of any class of outstanding stock of Giant Industries, Inc. (or prior to December 21, 1989, of Giant Industries Arizona, Inc.) or of the total value of any class of outstanding stock of Giant Industries, Inc. (or prior to December 21, 1989, of Giant Industries Arizona, Inc.) whether he has elected nonrecognition of gain under Section 1042 of the Code or not, or (b) a Participant (or a Participant who is related within the meaning of Code Section 409(n) to a Participant) who has elected nonrecognition of gain under Section 1042 of the Code in connection with the sale of Employer Stock to the Plan. A Participant who is described in Section 1.27(b) but not in Section 1.27(a) shall be an "Ineligible Participant" only for the period beginning on the date on which the Employee Stock for which he elected Code Section 1042 treatment was sold to the Plan and ending on the later of (1) the date which is ten (10) years after the date of such sale or (2) the date on which any allocation under the Plan is made which is attributable to the final payment of any indebtedness incurred by the Plan in connection with such sale. 1.28 "Investment Manager" shall mean a fiduciary (other than a Trustee or Named Fiduciary) designated by the Committee under this Plan to whom has been delegated the power to manage, acquire or dispose of all or any of the assets of the Plan, who is registered as an investment advisor under the Investment Advisers Act of 1940, is a bank as defined under the Investment Advisers Act of 1940 or is an insurance company qualified to manage, acquire, or dispose of assets under the laws of more than one State, and who has acknowledged in writing that he is a fiduciary with respect to the management, acquisition and control of Plan assets. 1.29 "Participant" shall mean any Employee of the Employer who becomes eligible for participation in accordance with the provisions of this Plan. 1.30 "Plan" shall mean the qualified stock bonus plan and trust set forth in this Agreement, which is intended to be a qualified employee stock ownership plan and trust. (Replacement Page, Tenth Amendment) 1.31 "Qualifying Employer Real Property" shall mean Employer Real Property: (a) if a substantial number of the parcels are dispersed geographically; (b) if each parcel of real property and the improve- ments thereon are suitable (or adaptable without excessive cost) for more than one use; (c) even if all such real property is leased to one lessee (which may be an employer, or an affiliate of an employer); and (d) if the acquisition and retention of such property comply with the provisions of this part of ERISA (other than section 404(a)(1)(B) to the extent it requires diversification, and sections 404(a)(1)(C), 406, and subsection (a) of this section). 1.32 "Section 1042 Employer Stock" shall mean Employer Stock acquired by the Plan prior to December 21, 1989 in a transaction which qualified for nonrecognition of gain under Code Section 1042. 1.33 "Section 1042 Employer Stock Account" shall mean the account used to reflect an interest in Section 1042 Employer Stock. 1.34 "Suspense Account" shall mean the account used to hold Employer Stock purchased pursuant to Article IX of the Plan with the proceeds of an Exempt Loan, prior to allocation of such stock to the Accounts of Participants under the Plan. 1.35 "Temporary Stock Account" shall mean the interim account used to hold Employer Stock purchased by the Trustee, other than Employer Stock purchased pursuant to Article IX of the Plan with the proceeds of an Exempt Loan, and to hold Employer Stock contributed to the Plan by the Employer, prior to the allocation of such stock to the Accounts of Participants each Fiscal Year in accordance with Sections 4.4(a), 4.7(a) and 4.7(c). (Replacement Page, Tenth Amendment) 1.36 "Trust" or "Trust Fund" shall mean the trust which is established herein to hold and invest contributions made under this Plan. 1.37 "Trustee" shall mean the one or more individuals, banks, trust companies or other financial institutions, which are appointed in accordance with Article VIII to hold and manage the assets of the Trust. 1.38 "Union Employee" shall mean any person employed by Employer who is a member of a unit of employees covered by any collective bargaining agreement between employee representatives and the Employer, wherein retirement benefits were the subject of good faith bargaining between the parties thereto, unless said agreement provides for participation in this Plan. 1.39 "Unrestricted Employer Stock" shall mean Employer Stock which was not acquired in a transaction qualifying for nonrecognition of gain under Section 1042 of the Code. 1.40 "Unrestricted Employer Stock Account" shall mean the account used to reflect an interest in Unrestricted Employer Stock. 1.41 "Valuation Date" shall mean the last day of each Fiscal Year unless otherwise specifically indicated. 1.42 "Year of Service" shall mean, for purposes of eligibility under the Plan, the twelve (12) consecutive month period commencing on (a) the first day the Employee completes an Hour of Service, or (b) if the Employee incurs a Break in Service, the first day the Employee completes an Hour of Service after such Break in Service, and, each succeeding twelve (12) consecutive month period beginning on anniversaries of that date during which the Employee completes at least one thousand (1,000) Hours of Service. The twelve (Replacement Page, Tenth Amendment) (12) consecutive month period determined under this Section for the calculation of a Year of Service for eligibility shall be the Eligibility Computation Period. 1.43 "Year of Service" shall mean, for purposes of vesting under the Plan, the Fiscal Year (a) during which a Participant first completed an Hour of Service either as an Employee or as a Union Employee; or (b) if an Employee or a Union Employee incurs a Break in Service, the Fiscal Year during which the Employee or Union Employee completes an Hour of Service after such Break in Service, and each succeeding Fiscal Year during which an Employee or a Union Employee completes at least one thousand (1,000) Hours of Service; provided, however, that any Employee or a Union Employee hired on or before June 30, 1993 who becomes a Participant under the terms of Section 2.1 prior to the Seventh Amendment shall be credited in all events with one Year of Service for the Fiscal Year in which such Employee or Union Employee becomes a Participant. The Fiscal Year shall be the Vesting Computation Period. (Replacement Page, Tenth Amendment) EX-10.23 5 EXHIBIT 10.23 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of this 11th day of December, 1997, between Giant Industries, Inc., a Delaware corporation (the "Company"), and James E. Acridge (the "Executive"). RECITALS A. The Company desires to retain the services of the Executive as its President and Chief Executive Officer and the Executive desires and is willing to continue employment with the Company in that capacity. B. The Company and the Executive desire to embody the terms and conditions of the Executive's employment in a written agreement, which will supersede all prior agreements of employment, whether written or oral, including without limitation the Employment Agreement, dated November 16, 1989, between the Company and the Executive, pursuant to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of their mutual covenants and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DUTIES AND TERM 1.1. EMPLOYMENT. The Executive is employed as the President and Chief Executive Officer of the Company. In this capacity, the Executive shall have such duties and responsibilities as shall be assigned to the Executive from time to time by the Board of Directors of the Company (the "Board") in the Executive's capacity as the President and Chief Executive Officer of the Company, in addition to such other duties and responsibilities as the Board shall designate as are not inconsistent with the Executive's position with the Company, including the performance of duties with respect to subsidiaries of the Company, as may be requested by the Board. 1.2 TERM. The term of this Agreement shall commence on the date first written above and shall continue, unless sooner terminated, for three years (the "Initial Term"). Thereafter, the term of this Agreement shall automatically be extended for successive one year periods ("Renewal Terms") unless either the Board or the Executive gives written notice to the other at least 90 days prior to the end of the Initial Term or any Renewal Term, as the case may be, of its or his intention not to renew the term of this Agreement or unless this Agreement is otherwise terminated pursuant to Article III hereof. The Initial Term and any Renewal Terms of this Agreement shall be collectively referred to as the "Term." 1.3 LOCATION. During the Term of this Agreement, the Executive shall be based in the principal offices of the Company in Maricopa County, Arizona, and shall not be required to be based anywhere other than Maricopa County, Arizona except for travel reasonably required in the performance of his duties hereunder and except as may be otherwise agreed to by the Executive. ARTICLE II COMPENSATION 2.1 BASE SALARY. Subject to the further provisions of this Agreement, the Company shall pay the Executive during the Term of this Agreement a base salary at an annual rate of not less than $550,000 (the "Base Salary"). The Base Salary shall be reviewed at least annually by the Board and the Board may, in its discretion, increase the Base Salary. The Base Salary of the Executive shall not be decreased at any time during the Term of this Agreement from the amount of Base Salary then in effect, except in connection with across-the-board salary reductions similarly affecting all senior executives of the Company. Participation in deferred compensation, discretionary bonus, retirement, stock option and other employee benefit plans and in fringe benefits shall not reduce the Base Salary payable to the Executive under this Section 2.1. The Base Salary under this Section 2.1 shall be payable by the Company to the Executive not less frequently than monthly. 2.2 DISCRETIONARY BONUSES. Subject to the further provisions of this Agreement, during the Term of this Agreement the Executive shall be entitled to participate in an equitable manner with all other senior executives of the Company in such discretionary bonuses including, but not limited to, bonuses provided pursuant to any management bonus plan that the Company may adopt (based upon the performance of the participant and the Company), as may be authorized and declared by the Board to the Company's senior executives. Nothing in this Section shall be deemed to limit the ability of the Executive to be paid and receive discretionary bonuses from the Company, based solely on the Executive's performance, without regard to the payment of discretionary bonuses to any other officers of the Company. 2.3 PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE BENEFITS. The Executive shall be entitled to participate in all plans of the Company relating to stock options, stock purchases, pension, thrift, profit sharing, life insurance, hospitalization and medical coverage, disability, travel or accident insurance, education or other retirement or employee benefits that the Company has adopted or may adopt for the benefit of its senior executives. In addition, the Executive shall be entitled to participate in any other fringe benefits, such as automobile allowances, club dues and fees of professional organizations and associations, which are now or may become applicable to the Company's senior executives, and any other benefits which are commensurate with the duties and responsibilities to be performed by the Executive under this Agreement. The Executive shall, during the Term of his employment hereunder, continue to be provided with benefits at a level which shall in no event be less in any material respect than the benefits available to the Executive as of the date of this Agreement. Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to all senior executives entitled to participate therein, and the Executive's benefits shall be reduced or terminated accordingly. 2.4 VACATIONS. The Executive shall be entitled, without loss of pay, to be absent voluntarily for reasonable periods of time from the performance of his duties and responsibilities under this Agreement. All such voluntary absences shall count as paid vacation time, unless the Board otherwise determines. The Executive shall be entitled to an annual paid vacation of four weeks per year or such longer period as the Board may approve; provided, however, that the Executive may not carry over more than one week of vacation time to any subsequent year without the prior approval of the Board. The timing of paid vacations shall be scheduled in a manner reasonably acceptable to the Company. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall automatically terminate upon the death or Retirement (as defined in Section 3.4) of the Executive. 3.2 BY THE EXECUTIVE. The Executive shall be entitled to terminate this Agreement by giving written notice to the Company: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) at any time for Good Reason (as defined in Section 3.4); and (c) at any time without Good Reason upon 30 days advance notice to the Company. 3.3. BY THE COMPANY. The Company shall be entitled to terminate this Agreement by giving written notice to the Executive: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) in the event of the Executive's Disability (as defined in Section 3.4); (c) for cause; and (d) at any time without cause upon 30 days advance notice to the Executive. 3.4 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "CHANGE OF CONTROL" shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 35% of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders or other transaction; or (ii) a change in the composition of the Board over a period of 36 consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (iii) a merger or consolidation approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the sale, transfer or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company approved by the stockholders or the complete liquidation or dissolution of the Company approved by the stockholders. (b) "DISABILITY" shall mean the Executive's inability, with or without reasonable accommodation, to perform all of the essential functions of his position hereunder on a full-time basis for a period exceeding 180 consecutive days or for periods aggregating more than 180 days during any 12 month period as a result of incapacity due to physical or mental illness not due to drug or alcohol abuse. If there is a dispute as to whether the Executive is or was physically or mentally unable to perform his duties under this Agreement, such dispute shall be submitted for resolution to a licensed physician agreed upon by the Board and the Executive, or if an agreement cannot be promptly reached, the Board and the Executive will each select a physician, and if these physicians cannot agree, they will pick a third physician whose decision shall be binding on all parties. If such a dispute arises, the Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to the Executive's physical or mental condition shall be binding and conclusive. (c) "GOOD REASON" shall mean any of the following if the same shall occur following a Change of Control without the Executive's express prior written consent: (i) a material change by the Company in the Executive's function, duties or responsibilities (including reporting responsibilities) which would cause the Executive's position with the Company to become of less dignity, responsibility and importance than those associated with his functions, duties or responsibilities during the 90 day period immediately preceding the date a Change of Control occurs; (ii) the Executive's Base Salary is reduced by the Company, unless such reduction is pursuant to a salary reduction program as described in Section 2.1 hereof, or there is a material reduction in the benefits that are in effect for the Executive, unless such reduction is pursuant to a uniform reduction in benefits for all senior executives as described in Section 2.3 hereof; (iii) relocation of the Executive's principal place of employment to a place located outside of Maricopa County, Arizona; (iv) the failure by the Company to obtain the assumption by operation of law or otherwise of this Agreement by any entity which is the surviving entity in any merger or other form of corporate reorganization involving the Company or by any entity which acquires all or substantially all of the Company's assets in a Change of Control transaction; or (v) other material breach of this Agreement by the Company, which breach shall not be cured within 15 days after written notice thereof to the Company. (d) "RETIREMENT" shall mean normal retirement at age 65 or in accordance with retirement rules generally applicable to the Company's senior executives. ARTICLE IV COMPENSATION UPON TERMINATION OF EMPLOYMENT 4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with cause or by the Executive with or without Good Reason, the Company shall: (a) pay the Executive (or his estate or beneficiaries) any Base Salary which has accrued but not been paid as of the termination date; (b) reimburse the Executive (or his estate or beneficiaries) for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to applicable Company policies then in effect; (c) provide to the Executive (or his estate or beneficiaries) any accrued and vested benefits required to be provided by the terms of any Company-sponsored benefit plans or programs, together with any benefits required to be paid or provided in the event of the Executive's death or Disability under applicable law; (d) pay the Executive (or his estate or beneficiaries) any discretionary bonus with respect to a prior fiscal year which has accrued and been earned but has not been paid; (e) in addition, the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options outstanding at the termination date in accordance with terms of the plans and agreements pursuant to which such options were issued; and (f) in addition, to the extent permitted by the terms of the policies then in effect, the Executive shall have a right of first refusal to cause the transfer of the ownership of all key-man life insurance policies maintained by the Company on the Executive to the Executive at the Executive's sole cost and expense. 4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, at any time within a three year period following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with or without cause or by the Executive with Good Reason, or upon expiration of the Term of this Agreement pursuant to Section 3.3 hereof within a three year period following a Change of Control, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1, other than under Section 4.1(e); (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to three times the sum of: (i) the Executive's Base Salary in effect immediately prior to the time such termination occurs; and (y) a lump sum payment equal to the average of the annual bonuses paid to the Executive for the three fiscal years immediately preceding the fiscal year in which the termination occurs; and (c) in addition, all unvested stock options or other stock awards owned by the Executive that would otherwise have vested after the termination date shall become fully vested and exercisable at the termination date, and the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options or awards outstanding at the termination date (including the accelerated options and awards) in accordance with the terms (except the vesting terms with respect to the accelerated options and awards) of the plans and agreements pursuant to which such options and other awards were issued. (d) The Internal Revenue Code of 1986, as amended (the "Code"), imposes significant tax burdens on the Executive and the Company if the total amounts received by the Executive due to a Change of Control exceed prescribed limits. These tax burdens include a requirement that the Executive pay a 20% excise tax on certain amounts received in excess of the prescribed limits and a loss of deduction for the Company. If, as a result of these Code provisions, the Executive is required to pay such excise tax, then upon written notice from the Executive to the Company, the Company shall pay the Executive an amount equal to the total excise tax imposed on the Executive (including the excise taxes on any excise tax reimbursements due pursuant to this sentence and the excise taxes on any income tax reimbursements due pursuant to the next sentence). If the Company is obligated to pay the Executive pursuant to the preceding sentence, the Company also shall pay the Executive an amount equal to the "total presumed federal and state taxes" that could be imposed on the Executive with respect to the excise tax reimbursements due to the Executive pursuant to the preceding sentence and the income tax reimbursements due to the Executive pursuant to this sentence. For purposes of the preceding sentence, the "total presumed federal and state taxes" that could be imposed on the Executive shall be conclusively calculated using a combined tax rate equal to the sum of the then prevailing maximum marginal federal and state income tax rates and the hospital insurance portion of FICA. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose. The Executive shall be responsible for paying the actual taxes. The amounts payable to the Executive pursuant to this or any other agreement or arrangement with Company shall not be limited in any way by the amount that may be paid pursuant to the Code without the imposition of an excise tax or the loss of Company deductions. Either the Executive or the Company may elect to challenge any excise taxes imposed by the Internal Revenue Service, and the Company and the Executive agree to cooperate with each other in prosecuting such challenges. If the Executive elects to litigate or otherwise challenge the imposition of such excise tax, however, the Company will join the Executive in such litigation or challenge only if the Board determines in good faith that the Executive's position has substantial merit and that the issues should be litigated from the standpoint of the Company's best interest. 4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by the Company without cause or the Company or the Board gives written notice to the Executive of its intention to not renew this Agreement at the end of the Initial Term or any Renewal Term, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1; and (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to the Executive's Base Salary in effect immediately prior to the time such termination occurs. ARTICLE V RESTRICTIVE COVENANTS 5.1 CONFIDENTIALITY. (a) The Executive agrees to keep all trade secrets and/or proprietary information (collectively, "Confidential Information") of the Company in strict confidence and agrees not to disclose any Confidential Information to any other person, firm, association, partnership, corporation or other entity for any reason except as such disclosure may be required in connection with his employment hereunder. The Executive further agrees not to use any Confidential Information for any purpose except on behalf of the Company. (b) For purposes of this Agreement, "Confidential Information" shall mean any information, process or idea that is not generally known in the industry, that the Company considers confidential, and/or that gives the Company a competitive advantage, including, without limitation, suppliers, production costs or production information; marketing plans; business forecasts; and sales records. The Executive understands that the above list is intended to be illustrative and that other Confidential Information may currently exist or arise in the future. If the Executive is unsure whether certain information or material is Confidential Information, the Executive shall treat that information or material as confidential unless the Executive is informed by the Company, in writing, to the contrary. "Confidential Information" shall not include any information which: (i) is or becomes publicly available through no act or failure of the Executive; (ii) was or is rightfully learned by the Executive from a source other than the Company before being received from the Company; or (iii) becomes independently available to the Executive as matter of right from a third party. If only a portion of the Confidential Information is or becomes publicly available, then only that portion shall not be Confidential Information hereunder. (c) The Executive further agrees that upon termination of his employment with the Company, for whatever reason, the Executive will surrender to the Company all of the property, notes, manuals, reports, documents and other things in the Executive's possession, including copies or computerized records thereof, which relate directly or indirectly to Confidential Information. 5.2 COMPETITION. (a) The Executive agrees that during the term of his employment with the Company hereunder, the Executive shall not: (i) except as a passive investor in publicly-held companies, and except for investments held as of the date hereof, directly or indirectly own, operate, manage, consult with, control, participate in the management or control of, be employed by, maintain or continue any interest whatsoever in any refinery company or any company that markets petroleum products that directly competes with the Company; or (ii) directly or indirectly influence customers or suppliers of the Company to divert their business to any competitor of the Company; or (iii) employ, or directly or indirectly solicit, or cause the solicitation of, any employees of the Company who are in the employ of the Company on the termination date of his employment hereunder for employment by others in competition with the Company. (b) The Executive expressly agrees and acknowledges that: (i) this covenant not to compete is reasonably necessary for the protection of the interests of the Company and is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (ii) the general public will not be harmed as a result of enforcement of this covenant not to compete; (iii) his personal legal counsel has reviewed this covenant not to compete; and (iv) he understands and hereby agrees to each and every term and condition of this covenant not to compete. 5.3 REMEDIES. The Executive expressly agrees and acknowledges that the covenant not to compete set forth in Section 5.2 is necessary for the Company's and its affiliates' protection because of the nature and scope of their business and his position with the Company. Further, the Executive acknowledges that, in the event of his breach of his covenant not to compete, money damages will not sufficiently compensate the Company for its injury caused thereby, and he accordingly agrees that in addition to such money damages he may be restrained and enjoined from any continuing breach of the covenant not to compete without any bond or other security being required. The Executive acknowledges that any breach of the covenant not to compete would result in irreparable damage to the Company. The Executive further acknowledges and agrees that if the Executive fails to comply with this Article V, the Company has no obligation to provide any compensation or other benefits described in Article IV hereof. The Executive acknowledges that the remedy at law for any breach or threatened breach of Sections 5.1 and 5.2 will be inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including without limitation, seeking such damages as it can show it has sustained by reason of such breach), be entitled to injunctive relief or specific performance. ARTICLE VI MISCELLANEOUS 6.1 NO ASSIGNMENTS. This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto, except that this Agreement shall be binding upon and inure to the benefit of any successor corporation to the Company. (a) The Company shall use reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which assumes this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee, or if there is no such designee, to his estate. 6.2 NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other addresses as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt: To the Company: Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Attention: General Counsel To the Executive: James E. Acridge 23733 North Scottsdale Road Scottsdale, Arizona 85255 Notices pursuant to Article III of this Agreement shall specify the specific termination provision relied upon by the party giving notice and shall state the effective date of the termination. 6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to this Agreement shall be binding unless in writing and signed by each of the parties hereto. 6.4 SECTION HEADINGS. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 6.5 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If, in any judicial proceedings, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such scope or duration shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.6 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 6.7 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Maricopa County, Arizona in accordance with the rules of the American Arbitration Association then in effect. The decision of the arbitrators shall be final and binding on the parties, and judgment may be entered on the arbitrators' award in any court having jurisdiction. The costs and expenses of such arbitration shall be borne in accordance with the determination of the arbitrators. Notwithstanding any other provision of this Agreement, if any termination of this Agreement becomes subject to arbitration, the Company shall not be required to pay any amounts to the Executive (except those amounts required by law) until the completion of the arbitration and the rendering of the arbitrators' decision. The amounts, if any, determined by the arbitrators to be owed by the Company to the Executive shall be paid within five days after the decision by the arbitrators is rendered. 6.8 MODIFICATIONS AND WAIVERS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.9 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Arizona without regard to its conflicts of law principles. 6.10 TAXES. Any payments provided for hereunder shall be paid net of any applicable withholding or other employment taxes required under federal, state or local law. 6.11 SURVIVAL. The obligations of the Company under Article IV hereof and the obligations of the Executive under Article V hereof shall survive the expiration of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first indicated above. THE COMPANY: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ Richard T. Kalen, Jr. _________________________ Chairman of the Compensation Committee THE EXECUTIVE: /s/ James E. Acridge ____________________________ James E. Acridge EX-10.24 6 EXHIBIT 10.24 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of this 11th day of December, 1997, between Giant Industries, Inc., a Delaware corporation (the "Company"), and Fredric L. Holliger (the "Executive"). RECITALS A. The Company desires to retain the services of the Executive as its Executive Vice President and Chief Operating Officer and the Executive desires and is willing to continue employment with the Company in that capacity. B. The Company and the Executive desire to embody the terms and conditions of the Executive's employment in a written agreement, which will supersede all prior agreements of employment, whether written or oral, including without limitation the Employment Agreement, dated November 16, 1989, between the Company and the Executive, pursuant to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of their mutual covenants and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DUTIES AND TERM 1.1. EMPLOYMENT. The Executive is employed as the Executive Vice President and Chief Operating Officer of the Company. In this capacity, the Executive shall have such duties and responsibilities as shall be assigned to the Executive from time to time by the Board of Directors of the Company (the "Board") in the Executive's capacity as the Executive Vice President and Chief Operating Officer of the Company, in addition to such other duties and responsibilities as the Board shall designate as are not inconsistent with the Executive's position with the Company, including the performance of duties with respect to subsidiaries of the Company, as may be requested by the Board. 1.2 TERM. The term of this Agreement shall commence on the date first written above and shall continue, unless sooner terminated, for three years (the "Initial Term"). Thereafter, the term of this Agreement shall automatically be extended for successive one year periods ("Renewal Terms") unless either the Board or the Executive gives written notice to the other at least 90 days prior to the end of the Initial Term or any Renewal Term, as the case may be, of its or his intention not to renew the term of this Agreement or unless this Agreement is otherwise terminated pursuant to Article III hereof. The Initial Term and any Renewal Terms of this Agreement shall be collectively referred to as the "Term." 1.3 LOCATION. During the Term of this Agreement, the Executive shall be based in the principal offices of the Company in Maricopa County, Arizona, and shall not be required to be based anywhere other than Maricopa County, Arizona except for travel reasonably required in the performance of his duties hereunder and except as may be otherwise agreed to by the Executive. ARTICLE II COMPENSATION 2.1 BASE SALARY. Subject to the further provisions of this Agreement, the Company shall pay the Executive during the Term of this Agreement a base salary at an annual rate of not less than $325,000 (the "Base Salary"). The Base Salary shall be reviewed at least annually by the Board and the Board may, in its discretion, increase the Base Salary. The Base Salary of the Executive shall not be decreased at any time during the Term of this Agreement from the amount of Base Salary then in effect, except in connection with across-the-board salary reductions similarly affecting all senior executives of the Company. Participation in deferred compensation, discretionary bonus, retirement, stock option and other employee benefit plans and in fringe benefits shall not reduce the Base Salary payable to the Executive under this Section 2.1. The Base Salary under this Section 2.1 shall be payable by the Company to the Executive not less frequently than monthly. 2.2 DISCRETIONARY BONUSES. Subject to the further provisions of this Agreement, during the Term of this Agreement the Executive shall be entitled to participate in an equitable manner with all other senior executives of the Company in such discretionary bonuses including, but not limited to, bonuses provided pursuant to any management bonus plan that the Company may adopt (based upon the performance of the participant and the Company), as may be authorized and declared by the Board to the Company's senior executives. Nothing in this Section shall be deemed to limit the ability of the Executive to be paid and receive discretionary bonuses from the Company, based solely on the Executive's performance, without regard to the payment of discretionary bonuses to any other officers of the Company. 2.3 PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; FRINGE BENEFITS. The Executive shall be entitled to participate in all plans of the Company relating to stock options, stock purchases, pension, thrift, profit sharing, life insurance, hospitalization and medical coverage, disability, travel or accident insurance, education or other retirement or employee benefits that the Company has adopted or may adopt for the benefit of its senior executives. In addition, the Executive shall be entitled to participate in any other fringe benefits, such as automobile allowances, club dues and fees of professional organizations and associations, which are now or may become applicable to the Company's senior executives, and any other benefits which are commensurate with the duties and responsibilities to be performed by the Executive under this Agreement. The Executive shall, during the Term of his employment hereunder, continue to be provided with benefits at a level which shall in no event be less in any material respect than the benefits available to the Executive as of the date of this Agreement. Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to all senior executives entitled to participate therein, and the Executive's benefits shall be reduced or terminated accordingly. 2.4 VACATIONS. The Executive shall be entitled, without loss of pay, to be absent voluntarily for reasonable periods of time from the performance of his duties and responsibilities under this Agreement. All such voluntary absences shall count as paid vacation time, unless the Board otherwise determines. The Executive shall be entitled to an annual paid vacation of four weeks per year or such longer period as the Board may approve; provided, however, that the Executive may not carry over more than one week of vacation time to any subsequent year without the prior approval of the Board. The timing of paid vacations shall be scheduled in a manner reasonably acceptable to the Company. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall automatically terminate upon the death or Retirement (as defined in Section 3.4) of the Executive. 3.2 BY THE EXECUTIVE. The Executive shall be entitled to terminate this Agreement by giving written notice to the Company: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) at any time for Good Reason (as defined in Section 3.4); and (c) at any time without Good Reason upon 30 days advance notice to the Company. 3.3. BY THE COMPANY. The Company shall be entitled to terminate this Agreement by giving written notice to the Executive: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) in the event of the Executive's Disability (as defined in Section 3.4); (c) for cause; and (d) at any time without cause upon 30 days advance notice to the Executive. 3.4 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "CHANGE OF CONTROL" shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 35% of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders or other transaction; or (ii) a change in the composition of the Board over a period of 36 consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (iii) a merger or consolidation approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the sale, transfer or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company approved by the stockholders or the complete liquidation or dissolution of the Company approved by the stockholders. (b) "DISABILITY" shall mean the Executive's inability, with or without reasonable accommodation, to perform all of the essential functions of his position hereunder on a full-time basis for a period exceeding 180 consecutive days or for periods aggregating more than 180 days during any 12 month period as a result of incapacity due to physical or mental illness not due to drug or alcohol abuse. If there is a dispute as to whether the Executive is or was physically or mentally unable to perform his duties under this Agreement, such dispute shall be submitted for resolution to a licensed physician agreed upon by the Board and the Executive, or if an agreement cannot be promptly reached, the Board and the Executive will each select a physician, and if these physicians cannot agree, they will pick a third physician whose decision shall be binding on all parties. If such a dispute arises, the Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to the Executive's physical or mental condition shall be binding and conclusive. (c) "GOOD REASON" shall mean any of the following if the same shall occur following a Change of Control without the Executive's express prior written consent: (i) a material change by the Company in the Executive's function, duties or responsibilities (including reporting responsibilities) which would cause the Executive's position with the Company to become of less dignity, responsibility and importance than those associated with his functions, duties or responsibilities during the 90 day period immediately preceding the date a Change of Control occurs; (ii) the Executive's Base Salary is reduced by the Company, unless such reduction is pursuant to a salary reduction program as described in Section 2.1 hereof, or there is a material reduction in the benefits that are in effect for the Executive, unless such reduction is pursuant to a uniform reduction in benefits for all senior executives as described in Section 2.3 hereof; (iii) relocation of the Executive's principal place of employment to a place located outside of Maricopa County, Arizona; (iv) the failure by the Company to obtain the assumption by operation of law or otherwise of this Agreement by any entity which is the surviving entity in any merger or other form of corporate reorganization involving the Company or by any entity which acquires all or substantially all of the Company's assets in a Change of Control transaction; or (v) other material breach of this Agreement by the Company, which breach shall not be cured within 15 days after written notice thereof to the Company. (d) "RETIREMENT" shall mean normal retirement at age 65 or in accordance with retirement rules generally applicable to the Company's senior executives. ARTICLE IV COMPENSATION UPON TERMINATION OF EMPLOYMENT 4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with cause or by the Executive with or without Good Reason, the Company shall: (a) pay the Executive (or his estate or beneficiaries) any Base Salary which has accrued but not been paid as of the termination date; (b) reimburse the Executive (or his estate or beneficiaries) for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to applicable Company policies then in effect; (c) provide to the Executive (or his estate or beneficiaries) any accrued and vested benefits required to be provided by the terms of any Company-sponsored benefit plans or programs, together with any benefits required to be paid or provided in the event of the Executive's death or Disability under applicable law; (d) pay the Executive (or his estate or beneficiaries) any discretionary bonus with respect to a prior fiscal year which has accrued and been earned but has not been paid; (e) in addition, the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options outstanding at the termination date in accordance with terms of the plans and agreements pursuant to which such options were issued; and (f) in addition, to the extent permitted by the terms of the policies then in effect, the Executive shall have a right of first refusal to cause the transfer of the ownership of all key-man life insurance policies maintained by the Company on the Executive to the Executive at the Executive's sole cost and expense. 4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, at any time within a three year period following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with or without cause or by the Executive with Good Reason, or upon expiration of the Term of this Agreement pursuant to Section 3.3 hereof within a three year period following a Change of Control, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1, other than under Section 4.1(e); (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to three times the sum of: (i) the Executive's Base Salary in effect immediately prior to the time such termination occurs; and (y) a lump sum payment equal to the average of the annual bonuses paid to the Executive for the three fiscal years immediately preceding the fiscal year in which the termination occurs; and (c) in addition, all unvested stock options or other stock awards owned by the Executive that would otherwise have vested after the termination date shall become fully vested and exercisable at the termination date, and the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options or awards outstanding at the termination date (including the accelerated options and awards) in accordance with the terms (except the vesting terms with respect to the accelerated options and awards) of the plans and agreements pursuant to which such options and other awards were issued. (d) The Internal Revenue Code of 1986, as amended (the "Code"), imposes significant tax burdens on the Executive and the Company if the total amounts received by the Executive due to a Change of Control exceed prescribed limits. These tax burdens include a requirement that the Executive pay a 20% excise tax on certain amounts received in excess of the prescribed limits and a loss of deduction for the Company. If, as a result of these Code provisions, the Executive is required to pay such excise tax, then upon written notice from the Executive to the Company, the Company shall pay the Executive an amount equal to the total excise tax imposed on the Executive (including the excise taxes on any excise tax reimbursements due pursuant to this sentence and the excise taxes on any income tax reimbursements due pursuant to the next sentence). If the Company is obligated to pay the Executive pursuant to the preceding sentence, the Company also shall pay the Executive an amount equal to the "total presumed federal and state taxes" that could be imposed on the Executive with respect to the excise tax reimbursements due to the Executive pursuant to the preceding sentence and the income tax reimbursements due to the Executive pursuant to this sentence. For purposes of the preceding sentence, the "total presumed federal and state taxes" that could be imposed on the Executive shall be conclusively calculated using a combined tax rate equal to the sum of the then prevailing maximum marginal federal and state income tax rates and the hospital insurance portion of FICA. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose. The Executive shall be responsible for paying the actual taxes. The amounts payable to the Executive pursuant to this or any other agreement or arrangement with Company shall not be limited in any way by the amount that may be paid pursuant to the Code without the imposition of an excise tax or the loss of Company deductions. Either the Executive or the Company may elect to challenge any excise taxes imposed by the Internal Revenue Service, and the Company and the Executive agree to cooperate with each other in prosecuting such challenges. If the Executive elects to litigate or otherwise challenge the imposition of such excise tax, however, the Company will join the Executive in such litigation or challenge only if the Board determines in good faith that the Executive's position has substantial merit and that the issues should be litigated from the standpoint of the Company's best interest. 4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by the Company without cause or the Company or the Board gives written notice to the Executive of its intention to not renew this Agreement at the end of the Initial Term or any Renewal Term, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1; and (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to the Executive's Base Salary in effect immediately prior to the time such termination occurs. ARTICLE V RESTRICTIVE COVENANTS 5.1 CONFIDENTIALITY. (a) The Executive agrees to keep all trade secrets and/or proprietary information (collectively, "Confidential Information") of the Company in strict confidence and agrees not to disclose any Confidential Information to any other person, firm, association, partnership, corporation or other entity for any reason except as such disclosure may be required in connection with his employment hereunder. The Executive further agrees not to use any Confidential Information for any purpose except on behalf of the Company. (b) For purposes of this Agreement, "Confidential Information" shall mean any information, process or idea that is not generally known in the industry, that the Company considers confidential, and/or that gives the Company a competitive advantage, including, without limitation, suppliers, production costs or production information; marketing plans; business forecasts; and sales records. The Executive understands that the above list is intended to be illustrative and that other Confidential Information may currently exist or arise in the future. If the Executive is unsure whether certain information or material is Confidential Information, the Executive shall treat that information or material as confidential unless the Executive is informed by the Company, in writing, to the contrary. "Confidential Information" shall not include any information which: (i) is or becomes publicly available through no act or failure of the Executive; (ii) was or is rightfully learned by the Executive from a source other than the Company before being received from the Company; or (iii) becomes independently available to the Executive as matter of right from a third party. If only a portion of the Confidential Information is or becomes publicly available, then only that portion shall not be Confidential Information hereunder. (c) The Executive further agrees that upon termination of his employment with the Company, for whatever reason, the Executive will surrender to the Company all of the property, notes, manuals, reports, documents and other things in the Executive's possession, including copies or computerized records thereof, which relate directly or indirectly to Confidential Information. 5.2 COMPETITION. (a) The Executive agrees that during the term of his employment with the Company hereunder, the Executive shall not: (i) except as a passive investor in publicly-held companies, and except for investments held as of the date hereof, directly or indirectly own, operate, manage, consult with, control, participate in the management or control of, be employed by, maintain or continue any interest whatsoever in any refinery company or any company that markets petroleum products that directly competes with the Company; or (ii) directly or indirectly influence customers or suppliers of the Company to divert their business to any competitor of the Company; or (iii) employ, or directly or indirectly solicit, or cause the solicitation of, any employees of the Company who are in the employ of the Company on the termination date of his employment hereunder for employment by others in competition with the Company. (b) The Executive expressly agrees and acknowledges that: (i) this covenant not to compete is reasonably necessary for the protection of the interests of the Company and is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (ii) the general public will not be harmed as a result of enforcement of this covenant not to compete; (iii) his personal legal counsel has reviewed this covenant not to compete; and (iv) he understands and hereby agrees to each and every term and condition of this covenant not to compete. 5.3 REMEDIES. The Executive expressly agrees and acknowledges that the covenant not to compete set forth in Section 5.2 is necessary for the Company's and its affiliates' protection because of the nature and scope of their business and his position with the Company. Further, the Executive acknowledges that, in the event of his breach of his covenant not to compete, money damages will not sufficiently compensate the Company for its injury caused thereby, and he accordingly agrees that in addition to such money damages he may be restrained and enjoined from any continuing breach of the covenant not to compete without any bond or other security being required. The Executive acknowledges that any breach of the covenant not to compete would result in irreparable damage to the Company. The Executive further acknowledges and agrees that if the Executive fails to comply with this Article V, the Company has no obligation to provide any compensation or other benefits described in Article IV hereof. The Executive acknowledges that the remedy at law for any breach or threatened breach of Sections 5.1 and 5.2 will be inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including without limitation, seeking such damages as it can show it has sustained by reason of such breach), be entitled to injunctive relief or specific performance. ARTICLE VI MISCELLANEOUS 6.1 NO ASSIGNMENTS. This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto, except that this Agreement shall be binding upon and inure to the benefit of any successor corporation to the Company. (a) The Company shall use reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which assumes this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee, or if there is no such designee, to his estate. 6.2 NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other addresses as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt: To the Company: Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Attention: General Counsel To the Executive: Fredric L. Holliger 23733 North Scottsdale Road Scottsdale, Arizona 85255 Notices pursuant to Article III of this Agreement shall specify the specific termination provision relied upon by the party giving notice and shall state the effective date of the termination. 6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to this Agreement shall be binding unless in writing and signed by each of the parties hereto. 6.4 SECTION HEADINGS. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 6.5 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If, in any judicial proceedings, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such scope or duration shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.6 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 6.7 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Maricopa County, Arizona in accordance with the rules of the American Arbitration Association then in effect. The decision of the arbitrators shall be final and binding on the parties, and judgment may be entered on the arbitrators' award in any court having jurisdiction. The costs and expenses of such arbitration shall be borne in accordance with the determination of the arbitrators. Notwithstanding any other provision of this Agreement, if any termination of this Agreement becomes subject to arbitration, the Company shall not be required to pay any amounts to the Executive (except those amounts required by law) until the completion of the arbitration and the rendering of the arbitrators' decision. The amounts, if any, determined by the arbitrators to be owed by the Company to the Executive shall be paid within five days after the decision by the arbitrators is rendered. 6.8 MODIFICATIONS AND WAIVERS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.9 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Arizona without regard to its conflicts of law principles. 6.10 TAXES. Any payments provided for hereunder shall be paid net of any applicable withholding or other employment taxes required under federal, state or local law. 6.11 SURVIVAL. The obligations of the Company under Article IV hereof and the obligations of the Executive under Article V hereof shall survive the expiration of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first indicated above. THE COMPANY: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ Richard T. Kalen, Jr. __________________________ Chairman of the Compensation Committee THE EXECUTIVE: /s/ Fredric L. Holliger _____________________________ Fredric L. Holliger EX-10.25 7 EXHIBIT 10.25 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of this 11th day of December, 1997, between Giant Industries, Inc., a Delaware corporation (the "Company"), and Morgan Gust (the "Executive"). RECITALS A. The Company desires to retain the services of the Executive as its Vice President, General Counsel and Secretary and the Executive desires and is willing to continue employment with the Company in that capacity. B. The Company and the Executive desire to embody the terms and conditions of the Executive's employment in a written agreement, which will supersede all prior agreements of employment, whether written or oral, including without limitation the Employment Agreement, dated August 1, 1990, between the Company and the Executive, pursuant to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of their mutual covenants and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DUTIES AND TERM 1.1. EMPLOYMENT. The Executive is employed as the Vice President, General Counsel and Secretary of the Company. In this capacity, the Executive shall have such duties and responsibilities as shall be assigned to the Executive from time to time by the Board of Directors of the Company (the "Board") in the Executive's capacity as the Vice President, General Counsel and Secretary of the Company, in addition to such other duties and responsibilities as the Board shall designate as are not inconsistent with the Executive's position with the Company, including the performance of duties with respect to subsidiaries of the Company, as may be requested by the Board. 1.2 TERM. The term of this Agreement shall commence on the date first written above and shall continue, unless sooner terminated, for three years (the "Initial Term"). Thereafter, the term of this Agreement shall automatically be extended for successive one year periods ("Renewal Terms") unless either the Board or the Executive gives written notice to the other at least 90 days prior to the end of the Initial Term or any Renewal Term, as the case may be, of its or his intention not to renew the term of this Agreement or unless this Agreement is otherwise terminated pursuant to Article III hereof. The Initial Term and any Renewal Terms of this Agreement shall be collectively referred to as the "Term." 1.3 LOCATION. During the Term of this Agreement, the Executive shall be based in the principal offices of the Company in Maricopa County, Arizona, and shall not be required to be based anywhere other than Maricopa County, Arizona except for travel reasonably required in the performance of his duties hereunder and except as may be otherwise agreed to by the Executive. ARTICLE II COMPENSATION 2.1 BASE SALARY. Subject to the further provisions of this Agreement, the Company shall pay the Executive during the Term of this Agreement a base salary at an annual rate of not less than $240,000 (the "Base Salary"). The Base Salary shall be reviewed at least annually by the Board and the Board may, in its discretion, increase the Base Salary. The Base Salary of the Executive shall not be decreased at any time during the Term of this Agreement from the amount of Base Salary then in effect, except in connection with across-the-board salary reductions similarly affecting all senior executives of the Company. Participation in deferred compensation, discretionary bonus, retirement, stock option and other employee benefit plans and in fringe benefits shall not reduce the Base Salary payable to the Executive under this Section 2.1. The Base Salary under this Section 2.1 shall be payable by the Company to the Executive not less frequently than monthly. 2.2 DISCRETIONARY BONUSES. Subject to the further provisions of this Agreement, during the Term of this Agreement the Executive shall be entitled to participate in an equitable manner with all other senior executives of the Company in such discretionary bonuses including, but not limited to, bonuses provided pursuant to any management bonus plan that the Company may adopt (based upon the performance of the participant and the Company), as may be authorized and declared by the Board to the Company's senior executives. Nothing in this Section shall be deemed to limit the ability of the Executive to be paid and receive discretionary bonuses from the Company, based solely on the Executive's performance, without regard to the payment of discretionary bonuses to any other officers of the Company. 2.3 Participation in Retirement and Employee Benefit Plans; Fringe Benefits. The Executive shall be entitled to participate in all plans of the Company relating to stock options, stock purchases, pension, thrift, profit sharing, life insurance, hospitalization and medical coverage, disability, travel or accident insurance, education or other retirement or employee benefits that the Company has adopted or may adopt for the benefit of its senior executives. In addition, the Executive shall be entitled to participate in any other fringe benefits, such as automobile allowances, club dues and fees of professional organizations and associations, which are now or may become applicable to the Company's senior executives, and any other benefits which are commensurate with the duties and responsibilities to be performed by the Executive under this Agreement. The Executive shall, during the Term of his employment hereunder, continue to be provided with benefits at a level which shall in no event be less in any material respect than the benefits available to the Executive as of the date of this Agreement. Notwithstanding the foregoing, the Company may terminate or reduce benefits under any benefit plans and programs to the extent such reductions apply uniformly to all senior executives entitled to participate therein, and the Executive's benefits shall be reduced or terminated accordingly. 2.4 VACATIONS. The Executive shall be entitled, without loss of pay, to be absent voluntarily for reasonable periods of time from the performance of his duties and responsibilities under this Agreement. All such voluntary absences shall count as paid vacation time, unless the Board otherwise determines. The Executive shall be entitled to an annual paid vacation of four weeks per year or such longer period as the Board may approve; provided, however, that the Executive may not carry over more than one week of vacation time to any subsequent year without the prior approval of the Board. The timing of paid vacations shall be scheduled in a manner reasonably acceptable to the Company. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 DEATH OR RETIREMENT OF EXECUTIVE. This Agreement shall automatically terminate upon the death or Retirement (as defined in Section 3.4) of the Executive. 3.2 BY THE EXECUTIVE. The Executive shall be entitled to terminate this Agreement by giving written notice to the Company: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) at any time for Good Reason (as defined in Section 3.4); and (c) at any time without Good Reason upon 30 days advance notice to the Company. 3.3. BY THE COMPANY. The Company shall be entitled to terminate this Agreement by giving written notice to the Executive: (a) at least 90 days prior to the end of the Initial Term or any Renewal Term of this Agreement; (b) in the event of the Executive's Disability (as defined in Section 3.4); (c) for cause; and (d) at any time without cause upon 30 days advance notice to the Executive. 3.4 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Change of Control" shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) the direct or indirect acquisition by any person or related group of persons (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 35% of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders or other transaction; or (ii) a change in the composition of the Board over a period of 36 consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board; or (iii) a merger or consolidation approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the sale, transfer or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company approved by the stockholders or the complete liquidation or dissolution of the Company approved by the stockholders. (b) "Disability" shall mean the Executive's inability, with or without reasonable accommodation, to perform all of the essential functions of his position hereunder on a full-time basis for a period exceeding 180 consecutive days or for periods aggregating more than 180 days during any 12 month period as a result of incapacity due to physical or mental illness not due to drug or alcohol abuse. If there is a dispute as to whether the Executive is or was physically or mentally unable to perform his duties under this Agreement, such dispute shall be submitted for resolution to a licensed physician agreed upon by the Board and the Executive, or if an agreement cannot be promptly reached, the Board and the Executive will each select a physician, and if these physicians cannot agree, they will pick a third physician whose decision shall be binding on all parties. If such a dispute arises, the Executive shall submit to such examinations and shall provide such information as such physician(s) may request, and the determination of the physician(s) as to the Executive's physical or mental condition shall be binding and conclusive. (c) "Good Reason" shall mean any of the following if the same shall occur following a Change of Control without the Executive's express prior written consent: (i) a material change by the Company in the Executive's function, duties or responsibilities (including reporting responsibilities) which would cause the Executive's position with the Company to become of less dignity, responsibility and importance than those associated with his functions, duties or responsibilities during the 90 day period immediately preceding the date a Change of Control occurs; (ii) the Executive's Base Salary is reduced by the Company, unless such reduction is pursuant to a salary reduction program as described in Section 2.1 hereof, or there is a material reduction in the benefits that are in effect for the Executive, unless such reduction is pursuant to a uniform reduction in benefits for all senior executives as described in Section 2.3 hereof; (iii) relocation of the Executive's principal place of employment to a place located outside of Maricopa County, Arizona; (iv) the failure by the Company to obtain the assumption by operation of law or otherwise of this Agreement by any entity which is the surviving entity in any merger or other form of corporate reorganization involving the Company or by any entity which acquires all or substantially all of the Company's assets in a Change of Control transaction; or (v) other material breach of this Agreement by the Company, which breach shall not be cured within 15 days after written notice thereof to the Company. (d) "Retirement" shall mean normal retirement at age 65 or in accordance with retirement rules generally applicable to the Company's senior executives. ARTICLE IV COMPENSATION UPON TERMINATION OF EMPLOYMENT 4.1 TERMINATION WITH CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with cause or by the Executive with or without Good Reason, the Company shall: (a) pay the Executive (or his estate or beneficiaries) any Base Salary which has accrued but not been paid as of the termination date; (b) reimburse the Executive (or his estate or beneficiaries) for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to applicable Company policies then in effect; (c) provide to the Executive (or his estate or beneficiaries) any accrued and vested benefits required to be provided by the terms of any Company-sponsored benefit plans or programs, together with any benefits required to be paid or provided in the event of the Executive's death or Disability under applicable law; (d) pay the Executive (or his estate or beneficiaries) any discretionary bonus with respect to a prior fiscal year which has accrued and been earned but has not been paid; (e) in addition, the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options outstanding at the termination date in accordance with terms of the plans and agreements pursuant to which such options were issued; and (f) in addition, to the extent permitted by the terms of the policies then in effect, the Executive shall have a right of first refusal to cause the transfer of the ownership of all key-man life insurance policies maintained by the Company on the Executive to the Executive at the Executive's sole cost and expense. 4.2 TERMINATION WITHIN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, at any time within a three year period following a Change of Control, the Executive's employment is terminated by reason of the Executive's death or Disability, by the Company with or without cause or by the Executive with Good Reason, or upon expiration of the Term of this Agreement pursuant to Section 3.3 hereof within a three year period following a Change of Control, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1, other than under Section 4.1(e); (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to three times the sum of: (i) the Executive's Base Salary in effect immediately prior to the time such termination occurs; and (y) a lump sum payment equal to the average of the annual bonuses paid to the Executive for the three fiscal years immediately preceding the fiscal year in which the termination occurs; and (c) in addition, all unvested stock options or other stock awards owned by the Executive that would otherwise have vested after the termination date shall become fully vested and exercisable at the termination date, and the Executive (or his estate or beneficiaries) shall have the right to exercise all vested, unexercised stock options or awards outstanding at the termination date (including the accelerated options and awards) in accordance with the terms (except the vesting terms with respect to the accelerated options and awards) of the plans and agreements pursuant to which such options and other awards were issued. (d) The Internal Revenue Code of 1986, as amended (the "Code"), imposes significant tax burdens on the Executive and the Company if the total amounts received by the Executive due to a Change of Control exceed prescribed limits. These tax burdens include a requirement that the Executive pay a 20% excise tax on certain amounts received in excess of the prescribed limits and a loss of deduction for the Company. If, as a result of these Code provisions, the Executive is required to pay such excise tax, then upon written notice from the Executive to the Company, the Company shall pay the Executive an amount equal to the total excise tax imposed on the Executive (including the excise taxes on any excise tax reimbursements due pursuant to this sentence and the excise taxes on any income tax reimbursements due pursuant to the next sentence). If the Company is obligated to pay the Executive pursuant to the preceding sentence, the Company also shall pay the Executive an amount equal to the "total presumed federal and state taxes" that could be imposed on the Executive with respect to the excise tax reimbursements due to the Executive pursuant to the preceding sentence and the income tax reimbursements due to the Executive pursuant to this sentence. For purposes of the preceding sentence, the "total presumed federal and state taxes" that could be imposed on the Executive shall be conclusively calculated using a combined tax rate equal to the sum of the then prevailing maximum marginal federal and state income tax rates and the hospital insurance portion of FICA. No adjustments will be made in this combined rate for the deduction of state taxes on the federal return, the loss of itemized deductions or exemptions, or for any other purpose. The Executive shall be responsible for paying the actual taxes. The amounts payable to the Executive pursuant to this or any other agreement or arrangement with Company shall not be limited in any way by the amount that may be paid pursuant to the Code without the imposition of an excise tax or the loss of Company deductions. Either the Executive or the Company may elect to challenge any excise taxes imposed by the Internal Revenue Service, and the Company and the Executive agree to cooperate with each other in prosecuting such challenges. If the Executive elects to litigate or otherwise challenge the imposition of such excise tax, however, the Company will join the Executive in such litigation or challenge only if the Board determines in good faith that the Executive's position has substantial merit and that the issues should be litigated from the standpoint of the Company's best interest. 4.3 TERMINATION BY COMPANY WITHOUT CAUSE PRIOR TO A CHANGE OF CONTROL OR MORE THAN THREE YEARS FOLLOWING A CHANGE OF CONTROL. If, prior to a Change of Control, or more than three years following a Change of Control, the Executive's employment is terminated by the Company without cause or the Company or the Board gives written notice to the Executive of its intention to not renew this Agreement at the end of the Initial Term or any Renewal Term, the Company shall: (a) make the payments and provide to the Executive the benefits under Section 4.1; and (b) pay to the Executive a lump sum payment on or prior to the 30th day following the termination date in an amount equal to the Executive's Base Salary in effect immediately prior to the time such termination occurs. ARTICLE V RESTRICTIVE COVENANTS 5.1 CONFIDENTIALITY. (a) The Executive agrees to keep all trade secrets and/or proprietary information (collectively, "Confidential Information") of the Company in strict confidence and agrees not to disclose any Confidential Information to any other person, firm, association, partnership, corporation or other entity for any reason except as such disclosure may be required in connection with his employment hereunder. The Executive further agrees not to use any Confidential Information for any purpose except on behalf of the Company. (b) For purposes of this Agreement, "Confidential Information" shall mean any information, process or idea that is not generally known in the industry, that the Company considers confidential, and/or that gives the Company a competitive advantage, including, without limitation, suppliers, production costs or production information; marketing plans; business forecasts; and sales records. The Executive understands that the above list is intended to be illustrative and that other Confidential Information may currently exist or arise in the future. If the Executive is unsure whether certain information or material is Confidential Information, the Executive shall treat that information or material as confidential unless the Executive is informed by the Company, in writing, to the contrary. "Confidential Information" shall not include any information which: (i) is or becomes publicly available through no act or failure of the Executive; (ii) was or is rightfully learned by the Executive from a source other than the Company before being received from the Company; or (iii) becomes independently available to the Executive as matter of right from a third party. If only a portion of the Confidential Information is or becomes publicly available, then only that portion shall not be Confidential Information hereunder. (c) The Executive further agrees that upon termination of his employment with the Company, for whatever reason, the Executive will surrender to the Company all of the property, notes, manuals, reports, documents and other things in the Executive's possession, including copies or computerized records thereof, which relate directly or indirectly to Confidential Information. 5.2 COMPETITION. (a) The Executive agrees that during the term of his employment with the Company hereunder, the Executive shall not: (i) except as a passive investor in publicly-held companies, and except for investments held as of the date hereof, directly or indirectly own, operate, manage, consult with, control, participate in the management or control of, be employed by, maintain or continue any interest whatsoever in any refinery company or any company that markets petroleum products that directly competes with the Company; or (ii) directly or indirectly influence customers or suppliers of the Company to divert their business to any competitor of the Company; or (iii) employ, or directly or indirectly solicit, or cause the solicitation of, any employees of the Company who are in the employ of the Company on the termination date of his employment hereunder for employment by others in competition with the Company. (b) The Executive expressly agrees and acknowledges that: (i) this covenant not to compete is reasonably necessary for the protection of the interests of the Company and is reasonable as to time and geographical area and does not place any unreasonable burden upon him; (ii) the general public will not be harmed as a result of enforcement of this covenant not to compete; (iii) his personal legal counsel has reviewed this covenant not to compete; and (iv) he understands and hereby agrees to each and every term and condition of this covenant not to compete. 5.3 REMEDIES. The Executive expressly agrees and acknowledges that the covenant not to compete set forth in Section 5.2 is necessary for the Company's and its affiliates' protection because of the nature and scope of their business and his position with the Company. Further, the Executive acknowledges that, in the event of his breach of his covenant not to compete, money damages will not sufficiently compensate the Company for its injury caused thereby, and he accordingly agrees that in addition to such money damages he may be restrained and enjoined from any continuing breach of the covenant not to compete without any bond or other security being required. The Executive acknowledges that any breach of the covenant not to compete would result in irreparable damage to the Company. The Executive further acknowledges and agrees that if the Executive fails to comply with this Article V, the Company has no obligation to provide any compensation or other benefits described in Article IV hereof. The Executive acknowledges that the remedy at law for any breach or threatened breach of Sections 5.1 and 5.2 will be inadequate and, accordingly, that the Company shall, in addition to all other available remedies (including without limitation, seeking such damages as it can show it has sustained by reason of such breach), be entitled to injunctive relief or specific performance. ARTICLE VI MISCELLANEOUS 6.1 NO ASSIGNMENTS. This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto, except that this Agreement shall be binding upon and inure to the benefit of any successor corporation to the Company. (a) The Company shall use reasonable efforts to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets which assumes this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee, or if there is no such designee, to his estate. 6.2 NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other addresses as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt: To the Company: Giant Industries, Inc. 23733 North Scottsdale Road Scottsdale, Arizona 85255 Attention: General Counsel To the Executive: Morgan Gust 23733 North Scottsdale Road Scottsdale, Arizona 85255 Notices pursuant to Article III of this Agreement shall specify the specific termination provision relied upon by the party giving notice and shall state the effective date of the termination. 6.3 AMENDMENTS OR ADDITIONS. No amendments or additions to this Agreement shall be binding unless in writing and signed by each of the parties hereto. 6.4 SECTION HEADINGS. The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement. 6.5 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If, in any judicial proceedings, a court shall refuse to enforce one or more of the covenants or agreements contained herein because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties hereto that such scope or duration shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.6 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 6.7 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Maricopa County, Arizona in accordance with the rules of the American Arbitration Association then in effect. The decision of the arbitrators shall be final and binding on the parties, and judgment may be entered on the arbitrators' award in any court having jurisdiction. The costs and expenses of such arbitration shall be borne in accordance with the determination of the arbitrators. Notwithstanding any other provision of this Agreement, if any termination of this Agreement becomes subject to arbitration, the Company shall not be required to pay any amounts to the Executive (except those amounts required by law) until the completion of the arbitration and the rendering of the arbitrators' decision. The amounts, if any, determined by the arbitrators to be owed by the Company to the Executive shall be paid within five days after the decision by the arbitrators is rendered. 6.8 MODIFICATIONS AND WAIVERS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.9 GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Arizona without regard to its conflicts of law principles. 6.10 TAXES. Any payments provided for hereunder shall be paid net of any applicable withholding or other employment taxes required under federal, state or local law. 6.11 SURVIVAL. The obligations of the Company under Article IV hereof and the obligations of the Executive under Article V hereof shall survive the expiration of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first indicated above. THE COMPANY: GIANT INDUSTRIES, INC., a Delaware corporation By: /s/ Richard T. Kalen, Jr. __________________________ Chairman of the Compensation Committee THE EXECUTIVE: /s/ Morgan Gust _____________________________ Morgan Gust EX-10.30 8 EXHIBIT 10.30 SECOND AMENDMENT OF THE GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 401(K) PLAN WHEREAS, Giant Industries, Inc. and certain of its affiliates (the "Employer") adopted the Giant Industries, Inc. & Affiliated Companies 401(k) Plan (the "Plan") effective July 1, 1993; and WHEREAS, the Employer amended and restated the Plan, effective July 1, 1993, through an adoption agreement dated September 10, 1994; and WHEREAS, the Employer has the authority to amend the Plan. NOW, THEREFORE, the Employer hereby amends the Plan as follows: Pages 5 and 13, and the Attachment to Adoption Agreement for Giant Industries, Inc. & Affiliated Companies 401(k) Plan of the existing Plan are hereby removed and replaced by the attached replacement pages 5 and 13, and the Attachment to Adoption Agreement for Giant Industries, Inc. & Affiliated Companies 401(k) Plan. This amendment is effective January 1, 1997, except as otherwise stated in the replacement pages of the attachment. GIANT INDUSTRIES, INC. & AFFILIATED COMPANIES 12/31/97 _______________ ______________________________ Date A. Wayne Davenport Vice President and CFO Accepted by: FIDELITY MANAGEMENT TRUST COMPANY, as Trustee _______________ ______________________________ Date Name: Title: (c) DATE OF INITIAL PARTICIPATION - AN EMPLOYEE WILL BECOME A PARTICIPANT UNLESS EXCLUDED BY SECTION 1.03(a)(3) ABOVE ON THE ENTRY DATE IMMEDIATELY FOLLOWING THE DATE THE EMPLOYEE COMPLETES THE SERVICE AND AGE REQUIREMENT(S) IN SECTION 1.03(a), IF ANY, EXCEPT (check one): (1) [ ] No exceptions. (2) [ ] Employees employed on the Effective Date in Section 1.01(g) will become Participants on that date. (3) [X] Employees who meet the age and service requirement(s) of Section 1.03(a) on the Effective Date in Section 1.01(g) will become Participants on that date. 1.04 COMPENSATION (a) FOR PURPOSES OF DETERMINING CONTRIBUTIONS UNDER THE PLAN, COMPENSATION SHALL BE AS DEFINED IN SECTION 2.01(a)(7), BUT EXCLUDING (check the appropriate box(es)): (1) [ ] Overtime Pay. (2) [ ] Bonuses. (3) [ ] Commissions. (4) [X] The value of a qualified or a non-qualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income. See attachment. Note: These exclusions shall not apply for purposes of the "Top Heavy" requirements in Section 9.03 or allocating Discretionary Employer Contributions if an Integrated Formula is elected in Section 1.05(a)(2)(B). (5) [ ] No exclusions. 5 (Replacement Page, Second Amendment) 1.08 PREDECESSOR EMPLOYER SERVICE [X] SERVICE FOR PURPOSES OF ELIGIBILITY IN SECTION 1.03(a)(1) AND VESTING IN SECTION 1.07(a) OF THIS PLAN SHALL INCLUDE SERVICE WITH THE FOLLOWING EMPLOYER(S): (a) See attachment. (b) See attachment. (c) See attachment. (d) See attachment. 1.09 PARTICIPANT LOANS PARTICIPANT LOANS (check (a) or (b)): (a) [ ] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.09, SUBJECT TO A $1,000 MINIMUM AMOUNT AND WILL BE GRANTED (check (1) or (2)): (1) [ ] for any purpose. (2) [ ] for hardship withdrawal (as defined in Section 7.10) purposes only. (b) [X] WILL NOT BE ALLOWED. 1.10 HARDSHIP WITHDRAWALS PARTICIPANT WITHDRAWALS FOR HARDSHIP PRIOR TO TERMINATION OF EMPLOYMENT (check one): (a) [X] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.10, SUBJECT TO A $1,000 MINIMUM AMOUNT. (b) [ ] WILL NOT BE ALLOWED. 13 (Replacement Page, Second Amendment) ATTACHMENT TO ADOPTION AGREEMENT FOR GIANT INDUSTRIES, INC. AFFILIATED COMPANIES 401(K) PLAN Section 1.04(a)(4). Effective January 1, 1997, Compensation shall exclude (1) the value of a qualified or a nonqualified stock option granted to an Employee by the Employer to the extent such value is includable in the Employee's taxable income, (2) the amount realized from the exercise of a qualified or nonqualified stock option and (3) severance benefits. Section 1.05(c)(4)(A). An Employee of Giant Exploration & Production Company ("E&P") who is employed by E&P on July 16, 1996, and who is not thereafter transferred from E&P to another affiliate or division that is part of the Employer, shall be deemed to satisfy the requirements of this Section 1.05(c)(4)(A) for the Plan Year ending December 31, 1996. Section 1.08 (a) Effective as of January 1, 1996, Bloomfield Refining Company ("Bloomfield"), The Gary-Williams Company ("Gary- Williams"), and any affiliate or predecessor employer of either, but only to the extent service was credited under The Gary Tax Advantaged Savings Program and Profit-Sharing Plan on October 4, 1995 with respect to such employer, and only for employees who were employed by Bloomfield or Gary- Williams on October 3, 1995, and became Employees of the Employer on October 4, 1995, in connection with the sale of assets of Bloomfield Refining Company to the Employer. (b) Effective as of January 1, 1996, Meridian Oil Inc., Meridian Oil Gathering Inc., and Meridian Oil Trading Inc. (collectively "Meridian"), and any affiliate or predecessor employer of Meridian, but only to the extent service was credited under the Burlington Resources Retirement Savings Plan on August 18, 1995 with respect to such employer, and only for employees who were employed by Meridian on August 17, 1995, and became Employees of the Employer on August 18, 1995, in connection with the sale of assets of Meridian to the Employer. -1- (Replacement Page, Second Amendment) (c) Effective as of January 1, 1996, Texaco Refining and Marketing Inc. ("Texaco"), and any affiliate or predecessor employer of Texaco, but only to the extent service was credited under any plan sponsored by Texaco that qualified under Section 401(a)(4) of the Code, and only for an employee who was employed by Texaco on July 24, 1993, and became an Employee of the Employer on July 25, 1995 in connection with the sale of assets of Texaco to the Employer. (d) Effective as of July 1, 1997, Thriftway Marketing Corporation ("Thriftway") for service before May 28, 1997 but only for Pat Curtis, a human resource generalist, and for employees employed by Thriftway on May 27, 1997 who were employed or hired into the transportation division on or about May 28, 1997 and who became Employees of the Employer on May 28, 1997 in connection with the sale of assets of Thriftway and certain related entities to the Employer. AMENDMENT TO BASIC PLAN DOCUMENT By way of clarification and emphasis, Section 13.01 is amended by inserting the words "Discretionary authority" at the beginning of each of clauses (b)-(f), and in each such clause, revising "To" to read "to". -2- (Replacement Page, Second Amendment) EX-10.31 9 EXHIBIT 10.31 GIANT INDUSTRIES, INC. 1998 PHANTOM STOCK PLAN GIANT INDUSTRIES, INC. 1998 PHANTOM STOCK PLAN SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS. The name of this plan is the Giant Industries, Inc. 1998 Phantom Stock Plan (the "Plan"). The Plan was adopted by the Board of Giant Industries, Inc. (the "Company") on December 11, 1997 to become effective on January 30, 1998. The purpose of the Plan is to enable the Company and its Subsidiaries to obtain and retain competent personnel who will contribute to the Company's success by their ability, ingenuity and industry and to provide incentives to the participating officers and other key employees that are linked directly to increases in stockholder value and will therefore inure to the benefit of all stockholders of the Company. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (c) "COMMITTEE" means the Compensation Committee of the Board, or any other committee the Board may subsequently appoint to administer the Plan. (d) "COMPANY" means Giant Industries, Inc., a corporation organized under the laws of the State of Delaware (or any successor corporation). (e) "DISABILITY" means permanent and total disability as determined under the Company's disability program. (f) "EFFECTIVE DATE" shall mean the date provided in Section 10. (g) "ELIGIBLE EMPLOYEE" means an employee of the Company or any Subsidiary eligible to participate in the Plan pursuant to Section 4. (h) "FAIR MARKET VALUE" means, as of any given date, with respect to any awards granted hereunder, at the discretion of the Committee and subject to such limitations as the Committee may impose, (A) the closing sale price of the Stock on such date as reported in the Midwestern Edition of the Wall Street Journal Composite Tape or (B) the average on such date of the closing price of the Stock on each day on which the Stock is traded over a period of up to 20 trading days immediately prior to such date. (i) "NONEMPLOYEE DIRECTOR" means a member of the Board who: (i) is not at the time in question an officer or employee of the Company or any Subsidiary, (ii) has not received compensation for serving as a consultant or in any other non-director capacity or had an interest in any transaction with the Company or any Subsidiary that would exceed the $60,000 threshold for which disclosure would be required under Item 404(a) of Regulation S-K, or (iii) has not been engaged through another party in a business relationship with the Company or any Subsidiary that would be disclosable under Item 404(b) of Regulation S-K. (j) "PARENT CORPORATION" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the combined voting power of all classes of stock in one of the other corporations in the chain. (k) "PARTICIPANT" means any Eligible Employee selected by the Committee, pursuant to the Committee's authority in Section 2 below, to receive grants of Phantom Stock. (l) "PHANTOM STOCK" means the right pursuant to an award granted under Section 5 below to receive an amount equal to the difference between (i) the Fair Market Value, as of the date such Phantom Stock or portion thereof is surrendered, of the shares of Stock covered by such right or such portion thereof, and (ii) the aggregate exercise price of such right or such portion thereof, together with all dividends attributable to the Phantom Stock during the period from grant until exercise. Each Phantom Stock unit shall be equivalent to one share of Stock. (m) "RETIREMENT" means retirement from active employment with the Company or any Subsidiary on or after the retirement date specified in the applicable Company pension plan. (n) "STOCK" means the common stock, $.01 par value, of the Company. (o) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 2. ADMINISTRATION. The Plan shall be administered by the Board or by a Committee of not less than two Nonemployee Directors who shall be appointed by the Board and who shall serve at the pleasure of the Board. For purposes of this Plan, the terms "Committee" and "Board" are used interchangeably. The Committee shall have the power and authority to grant Phantom Stock to Eligible Employees, pursuant to the terms of the Plan. In particular, the Committee shall have the authority: (a) To select those employees of the Company who are Eligible Employees; (b) To determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder; and (c) To determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing the Phantom Stock units. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and the Participants. SECTION 3. PHANTOM STOCK SUBJECT TO THE PLAN. The total number of Phantom Stock units reserved and available for issuance under the Plan shall be 250,000. To the extent that a Phantom Stock unit expires, is forfeited or is otherwise terminated without being exercised, such Phantom Stock unit shall again be available for issuance in connection with future awards under the Plan. In the event of any merger, reorganization, consolidation, recapitalization, Stock dividend, or other change in corporate structure affecting the Stock, a substitution or adjustment shall be made in (i) the aggregate number of Phantom Stock units reserved for issuance under the Plan, and (ii) the exercise price of the Phantom Stock units granted under the Plan as may be determined by the Committee, in its sole discretion, provided that the Phantom Stock units subject to any award shall always be a whole number. Such other substitutions or adjustments shall be made as may be determined by the Committee, in its sole discretion. SECTION 4. ELIGIBILITY. Officers and other key employees of the Company or Subsidiaries who are responsible for or contribute to the management, growth and/or profitability of the business of the Company or its Subsidiaries shall be eligible to be granted Phantom Stock hereunder. The Participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among Eligible Employees recommended by the senior management of the Company, and the Committee shall determine, in its sole discretion, the number of Phantom Stock units awarded. SECTION 5. PHANTOM STOCK AWARDS. (a) TERMS AND CONDITIONS. Awards of Phantom Stock shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following: (i) EXERCISE; VESTING. Phantom Stock shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant; provided, however, that Phantom Stock shall not be exercisable during the first six months after grant, except that this limitation shall not apply in the event of death or Disability of the recipient of the Phantom Stock prior to the expiration of the six-month period. The Committee is empowered to establish vesting requirements, if any, with each grant. (ii) TERM. The term of each Phantom Stock unit shall be fixed by the Committee, but no Phantom Stock unit shall be exercisable more than ten years after the date such unit is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 425(d) of the Code) more than 10% of the combined voting powers of all classes of stock of the Company or any Parent Corporation or Subsidiary and Phantom Stock is granted to such employee, the term of such unit (to the extent required by the Code at the time of grant) shall be no more than five years from the date of grant. (iii) VALUE OF UNITS. Upon the exercise of a Phantom Stock unit, a recipient shall be entitled to receive up to, but not more than, an amount in cash (or at the election of the Committee shares of Stock or any combination of cash or shares of Stock) equal in value to the sum of (A) the excess of the Fair Market Value of one share of Stock over the exercise price per share specified in the Phantom Stock award, and (B) all dividends attributable to one share of Stock during the period from grant until exercise, which sum shall be multiplied by the number of shares in respect to which the Phantom Stock unit is being exercised, with the Committee having the right to determine the form of payment. (iv) TERMINATION BY DEATH. If an employee's employment with the Company or any Subsidiary terminates by reason of death, the Phantom Stock may thereafter be immediately exercised, to the extent then exercisable (or on such accelerated basis as the Committee shall determine at or after grant), by the legal representative of the estate or by the legatee of the employee under the will of the employee, for a period of one year (or such shorter period as the Committee shall specify at grant) from the date of such death or until the expiration of the stated term of such Phantom Stock unit, whichever period is shorter. (v) TERMINATION BY REASON OF DISABILITY. If an employee's employment with the Company or any Subsidiary terminates by reason of Disability, any Phantom Stock held by such employee may thereafter be exercised, to the extent it was exercisable at the time of such termination (or on such accelerated basis as the Committee shall determine at the time of grant), for a period of one year (or such shorter period as the Committee shall specify at grant) from the date of such termination of employment or until the expiration of the stated term of such Phantom Stock unit, whichever period is shorter; provided, however, that, if the employee dies within such one-year period (or such shorter period as the Committee shall specify at grant) and prior to the expiration of the stated term of such Phantom Stock unit, any unexercised Phantom Stock unit held by such employee shall thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of twelve months (or such shorter period as the Committee shall specify at grant) from the time of death or until the expiration of the stated term of such Phantom Stock unit, whichever period is shorter. (vi) RETIREMENT OR OTHER TERMINATION. Except as otherwise provided in this paragraph, unless otherwise determined by the Committee, if an employee's employment with the Company or any Subsidiary terminates as a result of Retirement or for any reason other than death or Disability, the Phantom Stock may be exercised until the earlier to occur of (A) three months from the date of such termination or Retirement, or (B) the expiration of such Phantom Stock unit term. (b) ESTABLISHMENT OF ACCOUNTS. Phantom Stock units granted under this Plan will be credited to a memorandum account maintained by the Company in the name of the recipient as of the date of grant. The account will be credited quarterly with an amount determined by multiplying the number of Phantom Stock units credited to each account by the per-share dividend (if any) paid during the quarter by the Company on the Stock. SECTION 6. AMENDMENT AND TERMINATION. The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made which would impair the rights of the Participant under any award theretofore granted without such Participant's consent. The Committee may amend the terms of any award theretofore granted, prospectively or retroactively, but, subject to Section 3 above, no such amendment shall impair the rights of any holder without his or her consent. The approval of the stockholders shall not be required for any amendment, alteration or discontinuation of this Plan unless specifically required by law or by the rules and regulations of the New York Stock Exchange. SECTION 7. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. SECTION 8. CHANGE OF CONTROL. The following acceleration and valuation provisions shall apply in the event of a "Change of Control" as defined in paragraph (b) of this Section 8: (a) CONSEQUENCES OF CHANGE OF CONTROL. In the event of a "Change of Control," unless otherwise determined by the Committee or the Board in writing at or after grant, but prior to the occurrence of such Change in Control: (i) all Phantom Stock units outstanding shall become fully exercisable and vested; and (ii) the value of all outstanding Phantom Stock units shall, to the extent determined by the Committee at or after grant, be cashed out on the basis of the "Change of Control Price" (as defined in paragraph (c) of this Section 8) as of the date the Change of Control occurs or such other date as the Committee may determine prior to the Change of Control. (b) DEFINITION OF "CHANGE OF CONTROL". For purposes of paragraph (a) of this Section 8, a "Change of Control" shall be deemed to have occurred if: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the Company; any trustee or other fiduciary holding securities under an employee benefit plan of the Company; any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company; or James E. Acridge, his wife or widow, his lineal descendants and his heirs, devisees and donees, and trusts created by him, inter vivos or by will, for the benefit of such persons or for the benefit of charitable or educational institutions), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this Section 8(b)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors at the beginning of the period or whose election or nomination for election was previously so approved (hereinafter referred to as "Continuing Directors"), cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 25% of the combined voting power of the Company's then outstanding securities shall not constitute a "Change of Control" of the Company; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) DEFINITION OF "CHANGE OF CONTROL PRICE". For purposes of this Section 8, "Change of Control Price" means the higher of (i) the highest price per share paid or offered in any transaction related to a Change of Control of the Company, or (ii) the highest price per share paid in any transaction reported on the exchange on which the Stock is traded, at any time during the preceding 60-day period as determined by the Committee. SECTION 9. GENERAL PROVISIONS. (a) LEGENDS. All certificates for shares of Stock, if any, delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. (b) OTHER PLANS; NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. (c) TAXES. Each Participant shall, no later than the date as of which the value of an award first becomes includible in the gross income of the Participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company (and, where applicable, its Subsidiaries) shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. (d) INDEMNIFICATION. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. (e) RULE 16B-3 COMPLIANCE. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act"), transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provisions of the Plan or action by the Committee or Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee or Board. (f) DELEGATION. The Committee or Board may delegate to an officer of the Corporation the authority to make decisions pursuant to this Plan provided that no such delegation may be made that would cause any award or other transaction under the Plan to cease to be exempt from Section 16(b) of the 1934 Act. The Committee may authorize any one or more of its members or any officer of the Company to execute and deliver documents on behalf of the Committee. SECTION 10. EFFECTIVE DATE OF PLAN. The Plan becomes effective on January 30, 1998. SECTION 11. TERM OF PLAN. No Phantom Stock shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but awards previously granted may extend beyond that date. COMPENSATION COMMITTEE /s/ Richard T. Kalen, Jr. _____________________________ Richard T. Kalen, Jr. Chairman EX-21.1 10 EXHIBIT 21.1 SUBSIDIARIES OF GIANT INDUSTRIES, INC. (a Delaware corporation) Jurisdiction of Names Under Which Subsidiary Incorporation Company Does Business - ---------- --------------- --------------------- Giant Industries Arizona, Inc. Arizona Giant Refining Company Ciniza Pipe Line Company Giant Transportation Giant Service Stations Giant Travel Center TransWest Tank Lines - Ciniza Production Company* New Mexico - Giant Stop-N-Go of New Mexico, Inc.* New Mexico - San Juan Refining Company* New Mexico - Giant Four Corners, Inc.* Arizona - Giant Mid-Continent, Inc.* Arizona - Phoenix Fuel Co., Inc.* Arizona Phoenix Fuel Company Mesa Fuel Company Tucson Fuel Company Firebird Fuel Company PFC Lubricants Company Giant Exploration & Production Company Texas _______________ *A wholly-owned subsidiary of Giant Industries Arizona, Inc. EX-23.3 11 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-35357 of Giant Industries, Inc. on Form S-8 of our reports dated March 2, 1998 and March 27, 1998 appearing in the Annual Report on Form 10-K of Giant Industries, Inc. for the year ended December 31, 1997 and in the Annual Report on Form 11-K of Giant Industries, Inc. for the year ended December 31, 1997, respectively. DELOITTE & TOUCHE LLP Phoenix, Arizona March 27, 1998 EX-27.1 12 ART. 5 FDS FOR YEAR ENDED DECEMBER 31, 1997
5 1000 YEAR DEC-31-1997 DEC-31-1997 82,592 0 48,012 464 57,598 207,076 402,600 120,773 535,371 95,351 275,557 0 0 122 133,345 535,371 657,278 657,278 487,748 596,916 0 0 18,139 25,100 9,806 15,294 0 0 0 15,294 1.38 1.37
EX-27.2 13 ART. 5 FDS FOR FISCAL YEAR ENDS 1995, 1996, AND QTRS. 1, 2, 3 OF 1996
5 1000 YEAR YEAR 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 9,549 12,628 470 7,237 25,098 0 0 0 0 0 22,688 25,268 0 0 0 424 254 0 0 0 42,581 38,226 50,449 44,895 35,515 108,869 86,506 111,604 111,974 94,268 292,919 322,260 294,291 306,029 310,080 94,357 108,715 97,066 100,986 104,818 324,862 324,007 325,915 333,930 323,606 58,541 64,965 61,609 66,108 72,242 142,676 113,081 138,603 130,458 106,837 0 0 0 0 0 0 0 0 0 0 122 122 0 0 0 109,610 122,002 0 0 0 324,862 324,007 325,915 333,930 323,606 332,888 499,184 104,100 239,743 375,775 332,888 499,184 104,100 239,743 375,775 234,271 361,864 73,960 166,678 267,245 299,472 443,852 93,464 206,336 327,552 0 0 0 0 0 0 0 0 0 0 11,506 12,318 0 0 0 11,371 28,183 3,675 17,988 26,723 3,638 11,132 1,350 6,970 10,422 7,733 17,051 2,325 11,018 16,301 143 (13) 79 7 (13) 0 0 0 0 0 0 0 0 0 0 7,876 17,038 2,404 11,025 16,288 0.69 1.52 0.21 0.98 1.45 0.68 1.50 0.21 0.97 1.43
EX-27.3 14 ART. 5 FDS FOR QTRS. 1, 2, 3 OF 1997
5 1000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 3,881 7,136 84,684 0 0 0 0 0 0 0 0 0 45,414 56,305 48,980 83,901 121,929 198,701 326,526 391,988 411,303 111,837 116,768 129,824 321,406 434,371 519,491 54,831 79,863 80,994 119,978 202,358 276,268 0 0 0 0 0 0 0 0 0 0 0 0 321,406 434,371 519,491 116,138 270,261 467,619 116,138 270,261 467,619 86,588 198,645 344,978 107,415 243,345 421,549 0 0 0 0 0 0 0 0 0 1,807 11,335 22,212 683 4,536 8,817 1,124 6,799 13,395 0 0 0 0 0 0 0 0 0 1,124 6,799 13,395 0.10 0.61 1.21 0.10 0.61 1.20
EX-99.1 15 EXHIBIT 99.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________ FORM 11-K ANNUAL REPORT _____________ PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal year Ended December 31, 1997 GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES EMPLOYEE STOCK OWNERSHIP PLAN GIANT INDUSTRIES, INC. ______________________ The principal executive offices of Giant Industries, Inc. are located at 23733 North Scottsdale Road, Scottsdale, Arizona 85255. FINANCIAL STATEMENTS AND EXHIBITS - --------------------------------- (a) Financial Statements and Supplemental Schedules Page Number ----------- Independent Auditors' Report F-1 Statements of Net Assets Available F-2 for Benefits - December 31, 1997 and 1996 Statements of Changes in Net Assets F-3 Available for Benefits - Years Ended December 31, 1997 and 1996 Notes to Financial Statements F-4 to F-7 Supplemental Schedules: Schedule of Assets Held for Investment Purposes F-8 Schedule of Reportable Transactions F-9 (b) Exhibits - none SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Committee has duly caused this annual report to be signed by the undersigned thereunto duly authorized. EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES Date: March 27, 1998 Signature: /s/ A. Wayne Davenport ------------------------------- A. Wayne Davenport, Vice President and Chief Financial Officer Date: March 27, 1998 Signature: /s/ Morgan Gust ------------------------------- Morgan Gust, Vice President-General Counsel Date: March 27, 1998 Signature: /s/ Charley Yonker, Jr. ------------------------------- Charley Yonker, Jr., Director of Human Resources INDEPENDENT AUDITORS' REPORT Administrative Committee Employee Stock Ownership Plan of Giant Industries, Inc. and Affiliated Companies Scottsdale, Arizona We have audited the accompanying statements of net assets available for benefits of the Employee Stock Ownership Plan of Giant Industries, Inc. and Affiliated Companies as of December 31, 1997 and 1996, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Employee Stock Ownership Plan of Giant Industries, Inc. and Affiliated Companies as of December 31, 1997 and 1996, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules for the year ended December 31, 1997 on pages F-8 and F-9 are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These schedules are the responsibility of the Plan's management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic 1997 financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. DELOITTE & TOUCHE LLP Phoenix, Arizona March 27, 1998 F-1 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS - ------ INVESTMENTS AT FAIR VALUE (Note 3): Cash and cash equivalents $ 35,989 $ 400,426 Mutual funds 2,876,097 2,448,435 Limited partnership 6,096 6,600 Common stock of Giant Industries, Inc. 23,220,850 18,145,232 Loans to participants 28,941 32,253 ----------- ----------- Total investments at fair value 26,167,973 21,032,946 CONTRIBUTION RECEIVABLE 536,478 INTEREST AND DIVIDENDS RECEIVABLE 61,550 2,603 OTHER RECEIVABLES 470 1,227 ----------- ----------- Total assets 26,766,471 21,036,776 LIABILITIES - ----------- ACCRUED LIABILITIES 9,247 9,247 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $26,757,224 $21,027,529 =========== ===========
See notes to financial statements. F-2 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ADDITIONS: Net appreciation in fair value of investments (Note 3) $ 6,536,632 $ 2,871,648 Interest and dividend income 342,652 297,862 Employer contribution 536,478 450,000 ----------- ----------- Total additions 7,415,762 3,619,510 DEDUCTIONS - Distributions to participants 1,686,067 2,234,453 ----------- ----------- NET INCREASE 5,729,695 1,385,057 NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 21,027,529 19,642,472 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $26,757,224 $21,027,529 =========== ===========
See notes to financial statements. F-3 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. DESCRIPTION OF THE PLAN GENERAL - On June 30, 1987, Giant Industries, Inc. (the "Company") converted through an amendment, its Joint Profit Sharing Plan to an Employee Stock Ownership Plan. The Employee Stock Ownership Plan of Giant Industries, Inc. and Affiliated Companies (the "Plan") is a non-contributory defined contribution plan which covers all eligible employees. The purpose of the Plan is to enable participants to share in the ownership of the Company. The Summary Plan Description describes the Plan, including contribution allocations, termination, vesting and benefit provisions. The Plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). CONTRIBUTIONS - The Plan provides for a contribution from the Company from its current or accumulated net income as may be determined annually at the discretion of its Board of Directors. DISTRIBUTIONS - Benefits are recorded when paid. The Plan records distributions for Plan participants who have requested payment of their account in stock at the market value of the stock on the date that the shares are reregistered in the name of the participant. PARTICIPATION AND VESTING - Each employee hired on or after July 1, 1993 shall become a participant on his or her participation date, which is defined as the January 1 or July 1 coincident with or next following the date on which the employee shall have completed one year of service. The participation date of any employee hired prior to July 1, 1993 shall be determined in accordance with the terms of the Plan prior to the seventh amendment. Participants' interests in their accounts vest over a seven year period. In the event the Plan is terminated by the Company, all participants would immediately become 100 percent vested in their accrued benefits as of the date of Plan termination. ALLOCATIONS - Each participant's account is credited with an allocation of the Company's contribution, investment income and forfeitures of terminated participants' non-vested accounts. Allocations to participant accounts are made on a formula based on the ratio that each participant's compensation, as defined, during the Plan year, bears to the compensation of all such participants. PLAN ADMINISTRATION - The Company administers the Plan through an administrative committee comprised of three employees who are appointed by the Company's Board of Directors. Most expenses pertaining to the administration of the Plan are being paid by the Company, at the Company's option. Bank of America is the Plan's trustee and custodian and Boyce & Associates is the Plan's recordkeeper. F-4 AMENDMENTS - The Plan was amended eight times prior to 1996. A ninth amendment was executed on October 15, 1996 to be effective January 1, 1996 to permit prior service credit to individuals who became employees of the Company in connection with the Company's purchase of certain assets from Bloomfield Refining Company and Meridian Oil, Inc. and related companies. A tenth amendment was executed on December 15, 1997 to be effective January 1, 1997 to permit prior service credit to certain individuals who became employees of the Company in connection with the Company's purchase of certain assets of Thriftway and related entities and Phoenix Fuel Co., Inc. In addition, the definition of compensation was changed to exclude reimbursement or other expense allowances and certain fringe benefits. TERMINATION - Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting records of the Plan are maintained on the accrual basis of accounting, and accordingly, revenues and expenses are recorded in the year earned or incurred. Investments included in the Statement of Net Assets Available for Benefits are stated at fair value. The fair value of marketable securities and mutual funds is determined based on quoted market prices as of the Plan's year-end. The fair value of the limited partnership is management's best estimate based on an independent appraisal provided by Bank of America. The Company's common stock value is determined based on the quoted market price as reported by the New York Stock Exchange as of the Plan's year-end. Loans to participants are valued at cost which approximates fair value. The net change in the fair value of investments is recorded in the Statement of Changes in Net Assets Available for Benefits as net appreciation (depreciation) in fair value of investments. Interest and dividend income is recorded on the accrual basis. Benefits are recorded when paid. The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from these estimates. 3. INVESTMENTS The following tables present the fair value of investments at December 31, 1997 and 1996, with mutual funds and common stock of the Company representing investments greater than 5 percent of the Plan's net assets at December 31, 1997 and 1996. F-5
DECEMBER 31, 1997 ----------------------- NUMBER OF SHARES OR PRINCIPAL FAIR AMOUNT VALUE Cash and cash equivalents - Bank of America Short-term Investment Fund 35,989 $ 35,989 ----------- Mutual Funds: ML Lee Acquisition 25 4,861 Bank of America Balanced Fund 115,251 2,871,236 ----------- Total mutual funds 2,876,097 ----------- Limited partnership - Recorp. Mtg. Investors II 1.5 6,096 ----------- Giant Industries, Inc. common stock 1,222,150 23,220,850 ----------- Loans to participants 28,941 ----------- Total $26,167,973 ===========
DECEMBER 31, 1996 ----------------------- NUMBER OF SHARES OR PRINCIPAL FAIR AMOUNT VALUE Cash and cash equivalents - Bank of America Short-term Investment Fund 400,426 $ 400,426 ----------- Mutual Funds: ML Lee Acquisition 25 11,632 Bank of America Balanced Fund 115,464 2,436,803 ----------- Total mutual funds 2,448,435 ----------- Limited partnership - Recorp. Mtg. Investors II 1.5 6,600 ----------- Giant Industries, Inc. common stock 1,296,088 18,145,232 ----------- Loans to participants 32,253 ----------- Total $21,032,946 ===========
F-6 Net appreciation in fair value of the Plan's investments (including investments bought, sold and held during the period) for the years ended December 31 consists of the following:
1997 1996 Recorp. Mtg. Investors II $ (504) $ (15,600) Mutual funds 418,954 285,354 Giant Industries, Inc. common stock 6,118,182 2,601,894 ---------- ---------- Net appreciation $6,536,632 $2,871,648 ========== ==========
4. FEDERAL INCOME TAX STATUS The plan obtained its latest determination letter on September 16, 1994, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements. 5. RELATED PARTY TRANSACTIONS Certain Plan investments are managed by Bank of America. Bank of America is the Trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest. * * * * * * F-7 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1997 ITEM 27a - ASSETS HELD FOR INVESTMENT PURPOSES
COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------- -------------------------------------------- ---------- ----------- DESCRIPTION OF INVESTMENT INCLUDING IDENTITY OF ISSUER, BORROWER, COLLATERAL, RATE OF INTEREST, MATURITY CURRENT LESSOR, OR SIMILAR PARTY DATE, PAR OR MATURITY VALUE COST VALUE - ---------------------------- -------------------------------------------- ---------- ----------- Bank of America Short-term Investment Fund - 35,989 shares $ 35,989 $ 35,989 ML Lee Acquisition Mutual Fund - 25 shares 25,000 4,861 Bank of America Balanced Fund - 115,251 shares 2,557,743 2,871,236 Recorp. Mtg. Investors II Limited Partnership - 1.5 units 60,000 6,096 Giant Industries, Inc. Common stock - 1,222,150 shares 6,028,291 23,220,850 Loans to participants Loans at prime plus 3%, collateralized by vested accounts, due 1998 through 2002 28,941 28,941 ---------- ----------- Total assets held for investment purposes $8,735,964 $26,167,973 ========== ===========
F-8 EMPLOYEE STOCK OWNERSHIP PLAN OF GIANT INDUSTRIES, INC. AND AFFILIATED COMPANIES SUPPLEMENTAL SCHEDULE DECEMBER 31, 1997 ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN G COLUMN H COLUMN I - ---------------------- -------------------------- ---------- ---------- ---------- ----------- ---------- CURRENT VALUE OF ASSET ON IDENTITY OF PURCHASE SELLING COST TRANSACTION PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE OF ASSET DATE NET GAIN - ---------------------- -------------------------- ---------- ---------- ---------- ---------- ---------- Series of Transactions Bank of America Balanced Fund $1,563,316 $1,563,316 $1,563,316 Bank of America Balanced Fund $1,552,958 1,369,102 1,552,958 $183,856 Bank of America Short-Term Investment Fund 2,796,529 2,796,529 2,796,529 Bank of America Short-Term Investment Fund 3,160,966 3,160,966 3,160,966 Bank of America Giant Industries, Inc. 454,094 454,094 454,094 Bank of America Giant Industries, Inc. 1,046,619 358,519 1,046,619 688,100 NOTE: Reportable transactions are those transactions which either singularly or in series of combined purchases and sales during the year exceed 5% of the fair value of the Plan's assets at the beginning of the year.
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